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we continue to keep a watchful eye on covid-19 impacts to our business and have undertaken additional expense management and cost measures to further drive our operating performance and provide agility in the event of an unforeseen reduction in demand should it occur . during 2020 , we also experienced increased volatility in foreign currency exchange rates , in part related to the uncertainty from covid-19 , as well as actions taken by governments and 28 central banks in response to covid-19 . certain foreign currency rates have depreciated significantly against the u.s. dollar during this period . we expect continued volatility in foreign currency exchange rates in 2021. our supply chain has been relatively stable with respect to manufacturing and distribution capabilities ; however , our supply chain is susceptible to volatility due to ongoing uncertainty as a result of ongoing international and domestic pandemic response and recovery efforts . operationally , we have been able to run our business without significant interruptions , with the vast majority of employees having shifted quickly as of mid-march 2020 to a work-from-home model , which remains in effect . however , our consulting business has been negatively impacted during the transition to work from home and shelter-in-place orders . our customers ' reduction in discretionary spending in light of covid-19 uncertainties has also impacted our consulting business , with consulting projects being delayed or suspended by our customers . we implemented several employee engagement and communication programs designed to support employees ' health and well-being while also enhancing their productivity during the pandemic . our priorities in formulating and implementing our response to the covid-19 pandemic and related business disruption include the following : people - protecting the health and well-being of our employees , customers - proactively connecting with our customers to support their needs and meet our service level commitments , while continuing to help them gain real business value from their data assets , supply chain - proactively working to monitor existing inventory , supplier availability and securing inventory for future quarters , financial - responsibly managing expenses and costs to provide financial agility during the extended period of global economic uncertainty , global community - making our technology available to customers , partners and communities , particularly in healthcare and government , where collectively we can positively impact efforts in combating covid-19 , and future of work - planning to best position the company to emerge as strong as possible when the covid-19 pandemic ends . as of the date of this annual report on form 10-k , we are continuing to execute our pandemic response plan , and the teradata pandemic response team is refining and executing return-to-office plans with `` safety first '' considerations . customer-facing teams are also proactively working to identify ways to assist customers , meet service level commitments , and engage with customers via virtual events . despite these efforts , there remains a fair degree of uncertainty regarding the potential impact of the pandemic on our business , from both a financial and operational perspective , and the scope and costs associated with additional measures that may be necessary in response to the pandemic going forward . we will continue our diligent efforts to monitor and respond as appropriate to the impacts of the pandemic on our business , including the status of our workforce , supply chain , customers , suppliers , and vendors , based on the priorities described above . our actions will continue to be informed by the requirements and recommendations of the federal , state or local authorities . we will remain agile and have contingency plans in place to appropriately respond to conditions as they unfold . for more information , see `` risk factors '' under part i , item 1a of this annual report on form 10-k. story_separator_special_tag style= '' margin-bottom:8pt ; margin-top:8pt ; padding-left:36pt ; text-indent : -18pt '' > arr was $ 1.587 billion at the end of 2020 , a 11 % increase from $ 1.427 billion at the end of 2019 public cloud arr was $ 106 million at the end of 2020 , a 165 % increase from $ 40 million at the end of 2019 total backlog grew 7 % to $ 2.921 billion our arr is composed of three main categories : ( 1 ) arr related to subscription and public cloud software licenses , ( 2 ) arr related to our legacy perpetual maintenance and software upgrade rights , and ( 3 ) arr related to subscription-based managed services . at december 31 , 2020 , our arr consisted of : $ 960 million of subscription and public cloud-related arr , up 37 % ; $ 508 million of perpetual license maintenance and software upgrade rights-related arr , down 17 % ; and $ 119 million of subscription-based managed services arr , up 6 % . this decline in our maintenance and software upgrade-related arr , compared to 2019 was expected as the company completes its transition to a subscription model and customers increasingly purchase teradata on a subscription and or public cloud basis . the rate of our transition to a recurring revenue model has been significantly faster than expected , and we believe it is reflective of the value our customers see in our subscription model and cloud offerings . teradata will be realigning its arr and revenue disclosures beginning the first quarter of 2021 , removing managed services and third-party software from subscription-based arr and recurring revenue . managed services revenue will be included in `` consulting services revenue '' in 2021 and third-party software will be moved to `` perpetual software licenses , hardware and other revenue . '' gross profit the company often uses specific terms and definitions to describe variances in gross profit . the terms and definitions most often used are as follows : revenue mix - the proportion of recurring , consulting , and perpetual software licenses and hardware that generates the total revenue of the company . story_separator_special_tag changes in revenue mix can have an impact on gross profit even if total revenue remains unchanged . recurring revenue mix - the proportion of various recurring revenue offerings that comprise the total of recurring revenue . for example , a higher mix of subscriptions including hardware rentals could have a negative impact on total recurring gross profit . deal mix - refers to the type of transactions closed within the period that generate the total perpetual software license and hardware revenue . for example , a higher mix of hardware versus software or the mix of teradata versus third-party products can impact profitability . gross profit for the following years ended december 31 was as follows : replace_table_token_5_th 2020 compared to 2019 - the decrease in recurring gross profit as a percentage of revenue was primarily driven by a higher mix of subscription-based revenue as compared to the prior-year period . subscription-based transactions 31 are typically lower margin as compared to the recurring revenue from legacy software maintenance and software upgrade rights , due to the higher mix of rental hardware . the increase in perpetual software licenses and hardware gross profit as a percentage of revenue was primarily driven by deal mix as compared to the prior year . consulting services gross profit as a percentage of revenue increased as compared to the prior year primarily due to improved resource mix utilization as well as increased price realization and our continued strategic focus to improve consulting margins . the company continues to refocus our consulting organization on vantage-oriented offerings and reduce our footprint in non-core consulting engagements . as part of our restructuring actions , we have moved to a more variable consulting cost structure starting in 2021 , which is designed to improve the profitability of our consulting business . operating expenses replace_table_token_6_th 2020 compared to 2019 - the sg & a expense increase was primarily driven by an increase in stock-based compensation expense , the vsp , amortization of capitalized sales compensation , as well as additional investments in our go-to-market and customer success teams . r & d expenses increased primarily due to the vsp and a re-prioritization of our r & d organization on strategic initiatives and reduced spending on de-prioritized initiatives , while increasing investments in cloud transformations . other expense , net replace_table_token_7_th other expense , net in 2020 and 2019 is comprised primarily of interest expense on long-term debt and finance leases , partially offset by interest income earned on our cash and cash equivalents as well as benefit costs for our pension and postemployment plans . other expense , net increased compared to the prior year primarily due to lower interest income generated on investments due to lower invested balances and lower interest rates , increased benefit costs for our pension and postemployment plans , and losses resulting from foreign currency transactions . provision for income taxes the effective income tax rate for the following years ended december 31 was as follows : replace_table_token_8_th the 2020 effective tax rate included a net $ 157 million of discrete tax benefit . discrete tax benefit of $ 157 million , was recorded related to the transfer of foreign intellectual property as more fully described below . in addition , the company recognized a net $ 13 million of tax benefit resulting from the cares act of 2020 , which allows u.s. 32 corporations a one-time opportunity to claim income tax refunds by allowing a 5-year net operating loss ( `` nol '' ) carry-back for taxable losses incurred in the tax year 2020. teradata intends to carry back its 2020 nol to claim a refund for taxes it paid in 2015 , which created a one-time income tax benefit for the difference between the 35 % 2015 carry back tax rate and the current 21 % federal statutory rate . these tax benefits were partially offset by $ 9 million tax expense related to stock-based compensation and $ 4 million of incremental global intangible low-taxed income ( `` gilti '' ) tax . these discrete net tax benefits resulted in full-year total income tax benefit in 2020 of $ 153 million , on a pre-tax net loss of $ 24 million , causing a tax rate of 637.5 % . the 2019 effective tax rate was impacted by $ 3 million tax expense related to stock-based compensation and $ 3 million of incremental gilti tax , which resulted in a full-year income tax expense in 2019 of $ 7 million , on a pre-tax net loss of $ 13 million , causing a negative tax rate of 53.8 % . the company is expecting its full-year effective tax rate for 2021 to be approximately 29 % , which takes into consideration , among other things , the forecasted earnings mix by jurisdiction and the estimated discrete items to be recognized in 2021. the forecasted tax rate is based on the overseas profits being taxed at an overall effective tax rate of approximately 23 % , as compared to the federal statutory tax rate of 21 % in the u.s. revenue and gross profit by operating segment teradata manages its business under three geographic regions , which are also the company 's operating segments : ( 1 ) americas region ( north america and latin america ) ; ( 2 ) emea region ( europe , middle east , and africa ) and ( 3 ) apj region ( asia pacific and japan ) . for purposes of discussing results by segment , management excludes the impact of certain items , consistent with the manner by which management evaluates the performance of each segment . this format is useful to investors because it allows analysis and comparability of operating trends . it also includes the same information that is used by teradata management to make decisions regarding the segments and to assess financial performance .
| 33-10532 , disclosure update and simplification '' , which makes a number of changes meant to simplify certain disclosures in financial condition and results of operations , particularly by eliminating year-to-year comparisons between prior periods previously disclosed . in accordance with the relevant aspects of the rule covering the current year annual report , we now include disclosures on results of operations for fiscal year 2020 versus 2019 only . for discussion of fiscal year 2019 versus 2018 see `` item 7. management 's discussion and analysis of financial condition and results of operations '' in our annual report filed with the sec for the fiscal year ended december 31 , 2019. revenue replace_table_token_4_th 2020 compared to 2019 -total revenue decreased $ 63 million , or 3 % , in 2020. recurring revenue grew 7 % , primarily driven by our movement to subscription-based transactions from perpetual software licenses and hardware transactions , consistent with our strategy . under subscription models , we recognize revenue over time as opposed to the upfront recognition under the perpetual model . better than expected arr growth also contributed to the increase in recurring revenue . for full year 2021 , we expect arr growth and recurring revenue growth at a mid- to high-single digit percentage increase as compared to 2020. public cloud arr is expected to increase by at least 100 % year-over-year . taking into consideration the growth in recurring revenue offset by reduced perpetual software licenses and hardware revenue and reduced consulting services revenue , we expect that total revenue is expected to grow at a low-single-digit percentage in 2021 as compared to 2020. revenues from perpetual software licenses and hardware decreased 31 % in 2020 as customers continue to transition to subscription-based offerings . consulting services revenue decreased 28 % , as we are realigning and focusing our consulting resources on higher-margin engagements that drive increased software consumption within our targeted customer base . consulting revenue was also impacted by the transition to work from home and shelter-in-place orders that went in effect late in the first quarter of 2020 in response to covid-19 as well as delays and or cancellations of consulting
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efforts implemented by local and national governments , as well as businesses , including temporary closures , have had adverse impacts on local , national and global economies . we have implemented health and safety policies for employees , contractors , and visitors that follow guidelines published by the center for disease control ( cdc ) and the mine safety and health administration ( msha ) . during 2020 , especially the fourth quarter , our operations were limited by covid-19 related absences , however the impact did not significantly adversely affect our operations . the extent of the impact of covid-19 on our operational and financial performance going forward will depend on certain developments , including but not limited to the duration and continued spread of the outbreak and strand mutations , the availability and use of vaccines , the development of therapeutic drugs and treatments , and the direct and indirect impacts on our employees , vendors , and customers , all of which are uncertain and can not be fully anticipated or predicted . since the hycroft mine represents the entirety of our operations , any further covid-19 outbreaks at the mine site or any governmental restrictions implemented to combat the pandemic could result in a partial or an entire shutdown of the hycroft mine itself , which would negatively impact our financial position , operating results , and cash flows . as a result of covid-19 , we have implemented numerous policies and initiatives , including , but not limited to : general travel and site access restricted to business-critical needs ; discretionary travel strongly discouraged ; health and temperature checks required prior to boarding mine site transportation buses and prior to entering the mine site for all other employees and visitors ; increased cleaning and disinfecting of common areas , including mobile mining equipment cabs ; use of face coverings and social distancing , including limiting meetings to essential people with increased use of conference calls and webinars ; communications informing employees of their ability to take paid-leave for covid-19-related matters ; employees who can have been permitted to work remotely ; and regularly monitoring local , state , and national publications and guidance for routine discussion among executives and management . to date , covid-19 related absences have limited our operations , but this did not materially disrupt our operations . additionally , we have not experienced any material disruptions to our supply chain because of covid-19 . however , we can provide no assurance that as covid-19 case spikes continue across the country , including in the vicinity of the hycroft mine , that our operations will not be materially adversely affected . 43 executive management changes diane r. garrett , ph.d. , was appointed as the company 's president and chief executive officer and as a director , effective as of september 8 , 2020 , succeeding stephen jones , the former interim ceo . dr. garrett has over 25 years of senior executive management experience in the mining industry and an exceptional track record for developing projects and building companies and received her ph.d. in engineering and her masters in mineral economics from the university of texas at austin . stanton rideout was appointed as the company 's executive vice president and chief financial officer , effective as of october 20 , 2020 , succeeding jeffrey stieber , as former interim cfo . mr. rideout is a seasoned financial executive and has more than 30 years of senior executive experience in the mining and manufacturing industries and earned his master 's in business administration from the university of evansville and his bachelor of science , business/finance , from western kentucky university . mr. rideout is a certified public accountant . jack henris was appointed as the company 's executive vice president and chief operating officer , effective as of january 11 , 2021. mr. henris is a highly experienced mining operations executive with more than 35 years of experience in senior operations positions with major mining firms and holds a bachelor of science in geological engineering from the south dakota school of mines and technology . technical review summary the new leadership team established at the mine launched into an extensive and detailed review of the hycroft mine and took immediate steps to rectify operational shortcomings , significantly reduce costs , and put in place an operating team aligned with the company 's long-term strategy to establish the hycroft mine as a long-life , low-cost gold and silver producer . to date , the team has made significant strides at the hycroft mine through elevating the safety performance , improving the culture at hycroft , establishing operational improvements , reducing spend , and identifying several areas for continued enhancement . the 2020 actions were quickly implemented and , in the fourth quarter alone , we saw significant improvement in costs as we reassigned our workforce to reduce our reliance on contractors as well as improved safety performance with a more than 50 % year-over-year reduction in the trifr alone . incident and near miss reporting increased as expected as the team initiated numerous campaigns to recognize , report , and eliminate safety hazards . in 2021 , we expect to continue to see additional benefits from these 2020 actions . in the fourth quarter of 2020 , we formed a technical team to support the new leadership team in ongoing data analysis , developing processing models for future larger-scale sulfide leach operations and incorporating data and results from the pre-commercial leach pads . the team is comprised of industry leading consultants with expertise in metallurgy , open pit mining and heap leach processing , heap leach stacking and modeling and other process technologies , and the team also has access to a leading research and development laboratory . story_separator_special_tag the mine site 's process team and leadership in conjunction with the technical team focused its efforts on identifying and investigating opportunities for improvements in operating parameters in the sulfide heap oxidation and leach process resulting in additional work plans as described in the following 2021 outlook section . 44 2021 outlook during 2021 , we intend to focus our efforts on placing the hycroft mine in a position for a future ramp up of production at the appropriate time . our focus for 2021 will entail mining and processing run-of-mine oxide and transitional ores aimed at maximizing ounce production and cash flows and preserving our cash . compared to sulfide ore , run-of-mine oxide and transitional ore can be processed at a lower cost because this material does not require crushing , rehandling , or soda ash reagent application , and the shorter recovery cycle reduces working capital . the run-of-mine operating plan for 2021 will provide us the opportunity to complete and evaluate the results of the ongoing technical and optimization work for the proprietary two-stage heap oxidation and leach process . based upon the findings and results of this evaluation process , we may update or file a new technical report . we currently have established goals and budgeted estimated costs for this work in 2021 or 2022. production outlook although the 2021 run-of-mine operating plan reduces annual mining activity from 2020 , we expect to increase total annual production to 45,000 - 55,000 ounces of gold and 400,000 - 450,000 ounces of silver by drawing down inventory that has been previously stacked on the leach pads and stacking run-of-mine oxide and transitional material with a shorter recovery cycle . we anticipate that mining in the first four months of 2021 will be performed using the existing hycroft fleet and a rental fleet , moving approximately 1.5 million tons per month of ore and waste . for the remainder of the year , we intend to mine approximately 500,000 tons of oxide and transitional ore and waste per month with a more cost-effective mining fleet . the run-of-mine operating plan will allow us to maintain our existing workforce while allowing time to optimize the mining plan , take additional steps to define the ore body , and resolve technical issues related to developing processes and procedures for the efficient and effective recovery of gold and silver from the two-stage heap oxidation and leaching of sulfide ore , thereby positioning the mine site for the first phase ramp up and future growth . at current metal prices , our full-year 2021 production costs are expected to exceed gold and silver revenues due to fixed costs and lower planned run-of-mine volumes . the run-of-mine volumes reflect the current processing capacity which is limited until we can complete expenditures necessary to refurbish the north merrill-crowe plant and construct the second refinery . technical activities during the last few months of 2020 and into 2021 , we have worked alongside our industry leading consultants to identify and investigate opportunities for improvements in operating parameters for the two-stage sulfide heap oxidization and leach process . the result of the work to date has identified a number of items that were not considered or included in the original plan and design but are critical to the success of this process . these findings included : ( 1 ) adding a forced air injection system for the leach pad which is a key component of the oxidation process ; ( 2 ) developing a system for segregating solution flows to and from the heap leach pad to avoid co-mingling of solutions among heap lifts and ore processing stages that negatively impact recoveries and conditions on the leach pads ; ( 3 ) identifying that the finer crushed material requires agglomeration in order to achieve optimal permeability and gold and silver recoveries ; ( 4 ) understanding that higher soda ash , caustic soda , and cyanide consumption will be required which we experienced throughout the 2020 pre-commercial test pad programs and recently confirmed through the review of the test work ; ( 5 ) determining that some transitional ores are more economically attractive when processed as direct leach , run-of-mine material ; and ( 6 ) concluding that additional variability metallurgical and mineralogy studies will be required to better understand each of the geometallurgical domains in the ore body . while there was some variability work completed in the past , the recent test work has revealed that additional variability test work and compositing is necessary to fully understand the geometallurgy of each domain , and that additional sampling , including sampling below the water table where the predominance of the sulfide resources exist , is required given the complexity and variability of the large ore body . the additional variability test work will also include detailed mineralogy studies as it is important to understand the role other minerals may play in the overall oxidation process and to enhance our ability to measure oxidation rates accurately and consistently . we have developed an approximate $ 10.0 million program for drilling and additional metallurgical and mineralogical studies in 2021. this program of work has been approved by our board of directors and is expected to be funded from existing cash and our current operating plans . 45 based on our recent understanding of the two-stage heap oxidation and leach process , and consistent with our strategy to position the hycroft mine for a ramp up at the appropriate time , much of our technical efforts for 2021 will include focusing on achieving the below items : pre-commercial leach pads – we expect to mine and stockpile at least 300,000 tons of sulfide ore in 2021 that , once sufficient additional work on the proprietary two-stage heap oxidation and leach process has been completed , will be available for testing to further refine operating parameters and measure its performance for large scale application of the oxidation heap leach .
| senior operations management – we realigned our organizational structure and recruited several key individuals mostly in the last three months of 2020 to bolster the on-site technical , financial , and operational teams , including : ◦ james berry , vp exploration and geology ( former romarco , barrick ) ; ◦ kenji umeno , process manager ( former kinross gold corp. , fluor , freeport-mcmoran inc. ( “ freeport ” ) ) ; ◦ jeff griffin , sr. metallurgist ( former phelps dodge , freeport ) ; ◦ santiago garcia , chief metallurgist ( former agnico eagle mines ltd. , newmont ) ; and ◦ new mine manager , safety manager , hr manager , controller and project manager . technical team – we established an independent technical team comprised of hycroft personnel and industry-leading consultants including john o. marsden ( metallurgium ) , hazen research inc. and forte dynamics , inc. ( “ forte ” ) with expertise in metallurgy , mine plan optimization , and heap stacking designs to assist with the development of the mining and process plans and alternatives . recapitalization transaction – on may 29 , 2020 , we completed the recapitalization transaction , which as of the closing date , among other things , resulted in a cash balance of $ 68.9 million and 50,160,042 shares of our common stock issued and outstanding . in addition , upon closing , we had 34,289,999 outstanding warrants to purchase an equal number of shares of our common stock and 12,721,623 seller warrants to purchase 3,210,213 shares of common stock . 41 public offering - during the fourth quarter of 2020 , we improved our financial position through an upsized public offering for 9,583,334 units , with each unit consisting of one share of common stock and one warrant to purchase one share of common stock at a price of $ 10.50 per share . the public offering closed on october 6 , 2020 , providing us with net proceeds of approximately $ 83.1 million . ounces and realized prices - during 2020 , the hycroft mine produced 27,392 ounces of gold and 178,836 ounces of silver and sold 24,892 ounce s of gold ( average realized price of $ 1,779 ) and 136,238 ounces of silver ( average realized price of $ 20.30 ) . our 2020 production levels have been negatively impacted by mining inefficiencies and an inability to achieve consistent oxidation of sulfide ores consistent with the hycroft technical report 's commercial scale . proprietary process – during 2020 , we made operational , technical staffing , and reporting improvements for the two-stage , heap oxidation and subsequent leaching of transitional ores , which is discussed further in the processing section of the hycroft
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our long-term fundamentals remain strong as we believe that we are well-positioned for growth as business conditions continue to improve . we believe that secular trends in the automotive , industrial , and cloud-power end-markets , which are our primary areas of focus , will continue to drive long-term growth in the semiconductor industry . results of operations our results of operations for the year ended december 31 , 2020 includes the full year results , and our results of operations for the year ended december 31 , 2019 includes partial year results of quantenna , which we acquired on june 19 , 2019. for a discussion and comparison of the results of our operations for the year ended december 31 , 2019 with the year ended december 31 , 2018 , refer to `` management 's discussion and analysis of financial conditions and results of operations '' in our form 10-k for the year ended december 31 , 2019 filed with the sec on february 19 , 2020. story_separator_special_tag stify '' > other income and expenses interest expense interest expense increased by $ 20.1 million , or approximately 14 % , to $ 168.4 million during 2020 compared to $ 148.3 million in 2019 , primarily due to an increase in the outstanding balances of long-term debt as a result of the borrowings under the revolving credit facility ( which was subsequently repaid ) and our issuance of the 3.875 % notes , offset partially by the repayment of our 1.00 % notes . we recorded amortization of debt discount to interest expense of $ 38.2 million and $ 37.8 million for 2020 and 2019 , respectively . our average gross amount of long-term debt balance ( including current maturities ) during 2020 and 2019 was $ 3,669.4 million and $ 3,344.1 million , respectively . our weighted average interest rate on our gross amount of long-term debt ( including current maturities ) was 4.6 % and 4.4 % per annum in 2020 and 2019 , respectively . see `` liquidity and capital resources—key financing and capital events '' below and note 9 : `` long-term debt '' in the notes to our audited consolidated financial statements included elsewhere in this form 10-k for a description of our indebtedness and our refinancing activities . loss on debt refinancing and prepayment we recorded loss on debt refinancing and prepayment of $ 6.2 million during 2019 related to the activity under the amended credit agreement . no such expenses were incurred during 2020. other income ( expense ) other expense decreased by $ 3.2 million , or approximately 27 % , from 2019 to 2020. the decrease was primarily attributable to a decrease of $ 11.6 million in actuarial losses on our pension obligations during 2020 compared to 2019 , offset by the recognition of an indemnification gain of $ 7.8 million primarily attributable to the resolution of a foreign tax dispute and other ip related claims during 2019. income tax provision we recorded an income tax benefit of $ 59.8 million and a provision of $ 62.7 million in 2020 and 2019 , respectively . the income tax benefit for the year ended december 31 , 2020 consisted of discrete benefits of $ 63.0 million primarily due to the recognition of certain deferred tax assets , net of deferred tax liabilities , related to the domestication of certain foreign subsidiaries and a benefit of $ 49.4 million related to the release of valuation allowance against certain state deferred tax assets . these benefits were partially offset by a provision of $ 43.9 million for income and withholding taxes of certain of our foreign and domestic operations , a $ 2.3 million discrete provision relating to prior year uncertain tax positions , a discrete provision of $ 5.5 million relating to additional foreign valuation allowance , and $ 0.9 million of other discrete items . 44 the income tax provision for the year ended december 31 , 2019 consisted primarily of $ 66.4 million for income and withholding taxes of certain of our foreign and domestic operations , $ 6.0 million relating to the resolution of a foreign tax dispute and $ 3.3 million of new reserves and interest on existing reserves for uncertain tax positions in foreign jurisdictions and $ 2.1 million of prior year adjustments . these amounts were offset by discrete benefits of $ 9.2 million relating to the release of reserves and interest for uncertain tax positions in foreign jurisdictions related to prior years and $ 5.9 million relating to equity award excess tax benefits . for additional information , see note 16 : `` income taxes '' in the notes to the audited consolidated financial statements included elsewhere in this form 10-k. liquidity and capital resources this section includes a discussion and analysis of our cash requirements , off-balance sheet arrangements , contingencies , sources and uses of cash , operations , working capital and long-term assets and liabilities . contractual obligations our principal outstanding contractual obligations relate to our long-term debt , operating lease liabilities and purchase obligations . the following table summarizes our contractual obligations at december 31 , 2020 and the effect such obligations are expected to have on our liquidity and cash flow in the future ( in millions ) : replace_table_token_7_th _ ( 1 ) the table above excludes approximately $ 45.1 million of liabilities related to unrecognized tax benefits because we are unable to reasonably estimate the timing of the settlement of such liabilities . ( 2 ) includes interest payments at applicable rates as of december 31 , 2020 . ( 3 ) these represent our off-balance sheet arrangements ( see `` liquidity and capital resources - off-balance sheet arrangements '' for further information ) . ( 4 ) during 2019 , we incurred additional commitments relating to the pending acquisition of a manufacturing facility , of which , $ 170.0 million has been deposited with the seller already . story_separator_special_tag the remaining commitment of $ 230.0 million will be owed on or around december 31 , 2022. see note 5 : `` acquisitions , divestiture and licensing transactions '' in the notes to our audited consolidated financial statements included elsewhere in this form 10-k for additional information . the table also excludes our pension obligations . we expect to make cash contributions to comply with local funding requirements and required benefit payments of approximately $ 22.1 million and $ 7.0 million , respectively , in 2021. this future payment estimate assumes we continue to meet our statutory funding requirements . the timing and amount of contributions may be impacted by a number of factors , including the funded status of the plans . beyond 2021 , the actual amounts required to be contributed are dependent upon , among other things , interest rates , underlying asset returns and the impact of legislative or regulatory actions related to pension funding obligations . see note 12 : `` employee benefit plans '' in the notes to our audited consolidated financial statements included elsewhere in this form 10-k for more information on our pension obligations . our balance of cash and cash equivalents was $ 1,080.7 million as of december 31 , 2020. we believe that our cash flows from operations , coupled with our existing cash and cash equivalents , and cash available from our revolving credit facility , will be adequate to fund our operating , debt repayment and capital needs for at least the next 12 months . total cash and cash equivalents at december 31 , 2020 include approximately $ 489.1 million available in the united states . we require a substantial 45 amount of cash in the united states for operating requirements , debt service , debt repayments and acquisitions . while we hold a significant amount of cash and cash equivalents outside the united states in various foreign subsidiaries , we have the ability to obtain cash in the united states in order to cover our domestic needs , through distributions from our foreign subsidiaries , by utilizing existing credit facilities or through new bank loans or debt obligations . see note 9 : `` long-term debt , '' in the notes to our audited consolidated financial statements included elsewhere in this form 10-k for a discussion of our long-term debt . see `` market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities '' included elsewhere in this form 10-k for a discussion of restrictions on our ability to pay dividends and our stock repurchase activities . off-balance sheet arrangements in the ordinary course of business , we provide standby letters of credit or other guarantee instruments to certain parties in connection with certain transactions including , but not limited to : material purchase commitments , agreements to mitigate collection risk , leases , utilities or customs guarantees . as of december 31 , 2020 , our revolving credit facility included $ 15.0 million available for the issuance of letters of credit . there were $ 0.9 million letters of credit outstanding under our revolving credit facility as of december 31 , 2020 , which reduced our borrowing capacity dollar-for-dollar . as of december 31 , 2020 , we also had outstanding guarantees and letters of credit outside of our revolving credit facility in the amount of $ 9.7 million . as part of securing financing in the ordinary course of business , we have issued guarantees related to certain of our subsidiaries ' , which totaled $ 0.9 million as of december 31 , 2020. based on historical experience and information currently available , we believe that we will not be required to make payments under the standby letters of credit or guarantee arrangements for the foreseeable future . we have not recorded any liability in connection with these letters of credit and guarantee arrangements . see note 9 : `` long-term debt , '' and note 13 : `` commitments and contingencies '' in the notes to our audited consolidated financial statements found elsewhere in this form 10-k for additional information . contingencies we are a party to a variety of agreements entered into in the ordinary course of business pursuant to which we may be obligated to indemnify other parties for certain liabilities that arise out of or relate to the subject matter of the agreements . some of the agreements entered into by us require us to indemnify the other party against losses , including , but not limited to , losses due to ip infringement , environmental contamination and other property damage , personal injury , our failure to comply with applicable laws , our negligence or willful misconduct or our breach of representations , warranties or covenants related to such matters as title to sold assets . we face risk of exposure to warranty and product liability claims in the event that our products fail to perform as expected or such failure of our products results , or is alleged to result , in economic damage , bodily injury or property damage . in addition , if any of our designed products are alleged to be defective , we may be required to participate in their recall . depending on the significance of any particular customer and other relevant factors , we may agree to provide more favorable rights to such customer for valid defective product claims . we maintain directors ' and officers ' insurance policies that indemnify our directors and officers against various liabilities , including certain liabilities under the exchange act that might be incurred by any director or officer in his or her capacity as such . the agreement and plan of merger relating to the acquisition of fairchild semiconductor international inc. ( the `` fairchild agreement '' ) provides for indemnification and insurance rights in favor of fairchild 's then current and former directors , officers and employees .
| revenue from asg revenue from asg decreased by $ 61.9 million , or approximately 3 % , during 2020 compared to 2019. the revenue from our automotive division and mobile , computing and cloud division decreased by $ 47.4 million and $ 39.6 million , respectively , and was partially offset by an increase in revenue of $ 34.1 million in our wireless connectivity solutions division , which included the acquired quantenna business . the decreases in demand for the products in these divisions was primarily due to the economic conditions as a result of the covid-19 pandemic , and specifically the automotive industry during the first half of the year , which has started to experience a meaningful recovery during the fourth quarter . similar to psg , this decrease was exacerbated by delays in fulfilling certain customer orders due to our factories in china , the philippines and malaysia , which operated at a significantly reduced capacity levels during portions of the first half of 2020 as a result of the covid-19 pandemic . revenue from isg revenue from isg decreased by $ 18.8 million , or 2.5 % , during 2020 compared 2019 , which was primarily due to the decrease in revenue from our automotive sensing division of $ 20.0 million , which was due to decreased demand and delays in fulfilling certain customer orders due to supply chain constraints during the first half of 2020 as a result of the covid-19 pandemic . revenue by geographic location revenue by geographic location , based on sales billed from the respective country or regions , are as follows ( dollars in millions ) : replace_table_token_5_th _ ( 1 ) certain of the amounts may not total due to rounding of individual amounts . gross profit and gross margin ( exclusive of amortization of acquisition-related intangible assets ) our gross profit by operating and reportable segment was as follows ( dollars in millions ) : replace_table_token_6_th _ 42 ( 1 ) certain of the amounts may not total due to rounding of individual amounts . ( 2 ) unallocated manufacturing costs are presented as a percentage of total revenue ( 2019 includes expensing of the fair market value step-up of inventory of $ 19.6 million acquired from quantenna ) . our gross profit was $ 1,715.8 million during 2020 compared to $ 1,973.6 million during 2019 representing a decrease of $
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principally , we target the i-70 corridor , which is located east of downtown denver and south of denver international airport . this area is predominantly undeveloped and is expected to experience substantial growth over the next 30 years . we also plan to continue to provide water service to commercial and industrial customers . land development our land development services at sky ranch include development of up to 4,400 single-family and multi-family home lots , and over 1.6 million square feet of commercial , retail , and light industrial development . sky ranch will develop in multiple phases over a number of years . our first phase of 151 acres is platted for 506 detached single-family residential lots . we have entered into agreements with three national home builders for the sale of all 506 lots , development of which began in march 2018 , with model homes scheduled for construction in late 2018. we expect to phase the development of our initial 506 lots beginning with delivery of approximately 150 finished lots in early 2019 , delivering an additional 100 finished lots in mid-2019 and the balance of the lots to each builder depending on home sales . we estimate that build out of our initial 506 lots will take between three and four years . in june 2017 , we entered into the purchase and sale contracts with three separate home builders pursuant to which we agreed to sell , and each builder agreed to purchase , a certain number ( totaling 506 ) of single-family , detached residential lots at the sky ranch property . we are developing finished lots for each of the three home builders ( which are lots on which homes are ready to be built that include roads , curbs , wet and dry utilities , storm drains and other improvements ) . each builder is required to purchase water and sewer taps for the lots from the rangeview district , the cost of which depends on the size of the lot , the size of the house , and the amount of irrigated turf . pursuant to the off-lowry service agreement , we will receive all of the water tap fees and wastewater tap fees and 90 % of the monthly service fees and usage fees for wastewater services received by the rangeview district from customers at sky ranch . we will also receive 98 % of the usage fees for water services received by the rangeview district from customers at sky ranch , after deduction , in most instances , of the royalty to the land board related to the use of the rangeview water supply . in november 2017 , each builder completed its due diligence under the purchase and sale contracts , at which time certain earnest money deposits by each builder became non-refundable . in july 2018 , we obtained final approval of the entitlements for the property and achieved the first payment milestone for the sale of 150 platted lots to two of our builders . we received a payment of $ 2,500,000 , of which we recognized $ 2,139,000 as lot fee revenue based on a percent of completion accounting , and the builders posted letters of credit for an additional $ 7,775,000. we are working to complete construction of finished lots in fiscal year 2019 and will receive two additional payments , to be distributed from the escrowed funds , from each of these builders . the first additional payment will be distributed upon completion of construction of wet utilities , and the final payment will be distributed upon completion of finished lots . additionally , we will receive payment from our third builder upon completion of finished lots . we are obligated pursuant to the builder contracts to construct infrastructure and other improvements , such as roads , curbs and gutters , park amenities , sidewalks , street and traffic signs , water and sanitary sewer mains and stubs , storm water management facilities , and lot grading improvements for delivery of finished lots to each builder . pursuant to the builder contracts , we must cause the rangeview district to install and construct off-site infrastructure improvements ( i.e. , wastewater reclamation facility and wholesale water facilities ) for the provision of water and wastewater service to the property . in conjunction with our approvals with arapahoe county for the sky ranch project , we and or the rangeview district and the sky ranch districts are obligated to deposit into an account the anticipated costs to install and construct substantially all the off-site infrastructure improvements ( which include drainage , wholesale water and wastewater , and entry roadway ) , which we estimate will be approximately $ 10.2 million . 33 the improvements , such as roads , parks , and water and sanitary sewer mains , that will be shared by all homeowners in the development and not specific to a finished lot will ultimately be owned by the sky ranch districts or the cab . upon completion of the improvements and acceptance by the sky ranch districts or the cab , we will be entitled to reimbursement for the verified costs incurred with respect to such improvements . we estimate that the total capital required to develop lots in the first phase ( 506 lots ) of sky ranch will be approximately $ 35 million , including estimated reimbursable costs of approximately of $ 27 million , and that lot sales to home builders will generate approximately $ 36 million in revenues , providing a margin on lots of approximately $ 1 million prior to receipt of reimbursable expenses . the company and the cab have an agreement that no repayment is required with respect to advances we have made to the cab and expenses we have incurred related to the construction of improvements for the cab unless and until the cab and or the sky ranch districts issue bonds in an amount sufficient to reimburse us for all or a portion of advances made or expenses incurred . story_separator_special_tag due to this contingency , these reimbursable costs will be included in lot development costs until the point in time when bonding is obtained . at that point , all reimbursable costs will be reversed and recorded as a note receivable and will reduce any remaining capitalized costs . any excess will be recognized as other income from cab reimbursement . utility revenues are derived from tap fees ( which vary depending on lot size , house size , and amount of irrigated turf ) and usage fees ( which are monthly water and wastewater fees ) . our current sky ranch water tap fees are $ 26,650 ( per sfe ) , and wastewater taps fees are $ 4,659 ( per sfe ) . we have begun design and preliminary engineering for our second phase , which will include approximately 320 acres of residential development and 160 acres of commercial , retail , and industrial development along the i-70 frontage . we expect to have multiple phases being developed concurrently and would expect the development of the sky ranch project to occur over 10–14 years , depending on demand . critical accounting policies and use of estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the financial statements . the most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the timing of revenue recognition , the impairment of water assets and other long-lived assets , fair value estimates and share-based compensation . below is a summary of these critical accounting policies . revenue recognition our revenues from our water and wastewater utility services consist mainly of monthly wholesale water usage and wastewater treatment fees , tap fees and construction fees/special facility funding , and consulting fees . our revenues from land development services consist mainly of lot sales and project management service fees . as further described in note 2 – summary of significant accounting policies to the accompanying financial statements , proceeds from monthly water usage fees , monthly wastewater treatment fees , and consulting fees are recognized in income each month as earned . revenue from payments associated with lot sales are deferred until delivery of and final payment for the finished lot . project management service fees are recognized on a monthly basis . water and wastewater revenue monthly wholesale water usage charges are assessed to our customers based on actual metered usage each month plus a base monthly service fee assessed per sfe unit served . one sfe is a customer , whether residential , commercial or industrial , that imparts a demand on the company 's water or wastewater systems similar to the demand of a family of four persons living in a single-family house on a standard-sized lot . one sfe is assumed to have a water demand of approximately 0.4 acre feet per year and to contribute wastewater flows of approximately 300 gallons per day . water usage pricing uses a tiered pricing structure . we recognize wholesale water usage revenues upon delivering water to our customers or our governmental customers ' end-use customers , as applicable . revenues recognized by us from the sale of export water and other portions of our rangeview water supply off the lowry range are shown gross of royalties to the land board . revenues recognized by us from the sale of water on the lowry range are shown net of royalties paid to the land board and amounts retained by the rangeview district . we recognize wastewater treatment revenue monthly based on a flat monthly fee and actual usage charges . the monthly wastewater treatment fees are shown net of amounts retained by the rangeview district . 34 a tap fee constitutes a right to connect to the wholesale water and wastewater systems through a service line to a residential or commercial building or property , and once granted , the customer may make a physical tap into the wholesale line ( s ) to connect its property for water and or wastewater service . once connected to the water and or wastewater systems , the customer has live service to receive metered water deliveries from our system and send wastewater into our system . we recognize water and wastewater tap fees as revenue at the time we grant a right for the customer to tap into the water or wastewater service line to obtain service . we recognize construction fees , including fees received to construct “ special facilities , ” over time as the construction is completed . consulting fees are fees we receive , typically on a monthly basis , from municipalities and area water providers along the i-70 corridor , for contract operations services . consulting fees are recognized monthly over time as the services are consumed based on a flat monthly fee plus charges for additional work performed . land development revenue we sell lots at sky ranch pursuant to distinct agreements with each builder . these agreements follow one of two formats . one format is the sale of a finished lot , whereby the purchaser pays for a ready-to-build finished lot and payment is a lump-sum payment upon completion of the finished lot . the company will recognize revenues at the point in time at the closing of the sale of a finished lot in which control transfers to the builder and the builder is able to obtain a building permit , as the transaction cycle will be complete and the company will have no further obligations for the lot .
| 2009-13 , revenue recognition ( topic 605 ) , during the years ended august 31 , 2017 and 2016. no special facilities revenue has been recognized during the fiscal year ended august 31 , 2018. the 2017 and 2016 amounts are the ratable portion of the special facilities funding , or construction fees , received from water agreements as more fully described in note 2 – summary of significant accounting policies in part ii , item 8 of this annual report on form 10-k. our consulting fees for the fiscal years ended august 31 , 2018 , 2017 , and 2016 were $ 142,700 , $ 98,600 , and $ 131,700 , respectively , and are recognized upon the rendering of our services . our consulting fees increased 45 % in fiscal 2018 compared to fiscal 2017 and decreased 25 % in fiscal 2017 compared to fiscal 2016. the increase in fees during fiscal 2018 is due to higher consulting billings from water systems we managed in fiscal 2018 compared to fiscal 2017. the decrease in fees during fiscal 2017 is due to a reduction in the amount of consulting billings from water systems we managed in fiscal 2017 compared to fiscal 2016 . our margins have fluctuated as we allocated additional staff costs to system management . land development revenues – in july 2018 , we obtained final approval of the entitlements for the sky ranch property and achieved the first payment milestone for the sale of 150 platted lots to two of our builders . we received a payment of $ 2,500,000 , and the two builders posted letters of credit for an additional $ 7,775,000. we are working to complete construction of finished lots in fiscal year 2019 and will receive two additional milestone payments , to be distributed from the escrowed funds , from these two builders . the first milestone payment will be distributed upon completion of construction of wet utilities , and the final payment will be distributed upon completion of finished lots . we will defer the payments from the first two milestones and recognize the revenue over time during the construction process of completing the finished lots because control transfers upon delivery of the platted lot and the customer is obtaining benefit from the improvements as the construction progresses . as of august 31 , 2018 , we recognized $ 2.1 million of land development revenue based on the input method of total project costs incurred as a percent of completion . additionally , we will receive payment from our third builder upon completion of finished lots . we have determined that the delivery of a finished lot is
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the company expects that its results of operations and financial condition may likely continue to be adversely impacted in the near-term in 2021 by the covid-19 pandemic , as levels of activity in the company 's business have historically been positively correlated 23 to broad measures of economic activity and to measures of industrial production since many of the company 's customers are in the manufacturing and industrial segments . in particular , shelter-in-place mandates , the closing of manufacturing facilities and the overall depressed economic environment have significantly affected demand for many of the company 's customers , including those in aerospace and manufacturing industries . however , given the diversity of the company 's customer base and the various end markets that daseke serves , not all of the company 's customers have been as affected . during 2020 , demand for the company 's services by customers in certain end markets , such as wind energy , defense projects and high security cargo , increased , partially offsetting softness in other end markets , and at the beginning of 2021 , the company is seeing pockets of strength throughout its industrial customer base that were previously pressured by the pandemic . the company believes that a significant portion of its cost structure is variable , and the company has taken and will continue to take aggressive actions to adjust its expenses to reflect changes in demand for its services . these actions , which have been supported by the operational integrations and business improvement plans that the company began to implement in 2019 ( and which are discussed below ) , have included reduced use of contractors , reduced travel and advertising costs , reduced employee hours , furloughs , layoffs and voluntary use of paid time off , consistent with local regulations . although the company has not been able to fully offset the effects of significantly reduced freight volumes on its results of operations , the actions that the company is taking , combined with the variable components of its cost structure , has , and should continue to , partially mitigate the impact of the pandemic on its results of operations . conversely , however , the company is taking additional measures and incurring additional expense to protect the health and safety of its workforce and its customers . in addition , the company could incur restructuring and other costs as it modifies and right-sizes its operations for declines and or surges in demand , and may incur incremental interest expense this year as a result of steps it may take in order to further strengthen its liquidity . we currently expect that the covid-19 pandemic may likely continue to negatively impact the company in 2021 , and we currently expect freight volumes to remain consistent with 2020 levels . we have a diverse customer base with exposure to a wide array of industrial end markets , each of which are experiencing their own respective growth and economic recovery patterns . the effect of the covid-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect the company 's business , results of operations and financial condition even after the covid-19 pandemic has subsided and “ stay at home ” mandates have been lifted . the extent to which the covid-19 pandemic impacts the company will depend on numerous evolving factors and future developments that we are not able to predict , including : the severity and duration of the pandemic ; governmental , business and other actions in response to the pandemic ( which could include limitations on the company 's operations or mandates to provide services in a specified manner ) ; the impact of the pandemic on economic activity ; the response of the overall economy and the financial markets ; the extent and duration of the effect on consumer confidence and spending ; the health of and the effect on our workforce and our ability to meet staffing needs ; any impairment in the value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions ; and the potential effects on our internal controls , including those over financial reporting , as a result of changes in working environments , such as shelter-in-place and similar orders that are applicable to our employees and business partners , among others . there are no comparable recent events that provide guidance as to the effect the covid-19 global pandemic may have , and as a result , the ultimate impact of the pandemic is highly uncertain and subject to change . see “ item 1a . risk factors—risks relating to the covid-19 pandemic ” for more information regarding risks relating to the covid-19 pandemic . operational integrations and business improvement plans in the third quarter of 2019 , the company initiated a plan ( “ project synchronize ” ) to integrate three operating segments with three other operating segments , thereby reducing the number of operating segments from sixteen to thirteen . project synchronize was implemented to streamline and reduce the company 's cost structure , improve asset utilization and capitalize on operational synergies . during 2020 , the company successfully completed the integration plan , which is expected to deliver $ 30.0 million in annual operating income improvement on a run-rate basis . additionally , in the third quarter of 2019 , the company announced the implementation of business improvement plans and a comprehensive restructuring plan ( “ project pivot ” ) to reduce its cost base , right size its organization and management team and increase and accelerate its previously announced operational improvement goals . project pivot was completed in 2020 . during the first quarter of 2020 , the company announced a plan to integrate three operating segments with three other operating segments ( “ phase ii of the plan ” ) , to further streamline and reduce the company 's cost structure , improve asset utilization and capitalize on operational synergies . story_separator_special_tag phase ii of the plan was initially expected to be significantly completed by june 30 , 2020 , however , due to uncertainties and changes in focus caused by the covid-19 pandemic , the company delayed and reevaluated phase ii of the plan and reduced the planned number of integrations from three to two operating segments . as of december 31 , 2020 , one 24 of these integrations had been completed , and the company expects to complete the remaining integration in late 2021. upon completion of phase ii of the plan , the company 's operating segments will be reduced from eleven to ten . the company believes that these operational integration and business improvement plans have contributed meaningfully to its operational and financial performance in 2020. in particular , as a result of these plans , the company has been able to reduce costs and optimize its assets , creating further resilience in its business model during a particularly challenging environment caused by the covid-19 pandemic . aveda transportation and energy services inc. ( “ aveda ” ) disposition in march 2020 , the company 's board of directors approved a plan for the sale of certain aveda terminals located in texas and oklahoma . the divestiture was completed during 2020 , and the company 's exposure to the oil and gas end market decreased significantly . revenue the company records four types of revenue : freight ( company and owner operator ) , brokerage , logistics and fuel surcharge . freight revenue is generated by hauling freight for the company 's customers using its trucks or its owner-operators ' equipment . generally , the company 's customers pay for its services based on the number of miles in the most direct route between pick-up and delivery locations and other ancillary services the company provides . freight revenue is the product of the number of revenue-generating miles driven and the rate per mile the company receives from customers plus accessorial charges , such as loading and unloading freight for its customers , cargo protection , fees for detaining its equipment or fees for route planning and supervision . freight revenue is affected by fluctuations in north american economic activity as well as changes in specific customer demand , the level of capacity in the industry and driver availability . the company 's brokerage revenue is generated by its use of third-party carriers when it needs capacity to move its customers ' loads . the main factor that affects brokerage revenue is the availability of the company 's drivers and owner-operators ( and hence the need for third-party carriers ) and the rate for the load . brokerage revenue is also affected by fluctuations in north american economic activity as well as changes in the level of capacity in the industry and driver availability . logistics revenue is generated from a range of services , including value-added warehousing , loading and unloading , vehicle maintenance and repair , preparation and packaging , fuel management , and other fleet management solutions . logistics revenue is primarily driven by specific customer requirements for additional services and may fluctuate depending on customers ' utilization of these services due to changes in cargo specifications , delivery staging and fluctuations in north american economic activity . fuel surcharges are designed to compensate the company for fuel costs above a certain cost per gallon base . generally , the company receives fuel surcharges on the miles for which it is compensated by customers . however , the company continues to have exposure to increasing fuel costs related to empty miles , fuel efficiency due to engine idle time and other factors and to the extent the surcharge paid by the customer is insufficient . the main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles . in general , a declining energy and fuel price environment negatively affects the company 's fuel surcharge revenues , and conversely , an environment with rising fuel and energy prices benefits its fuel surcharge revenues . although the company 's surcharge programs vary by customer , they typically involve a computation based on the change in national or regional fuel prices . the company 's fuel surcharges are billed on a delayed basis , meaning it typically bills customers in the current week based on a previous week 's applicable index . therefore , in times of increasing fuel prices , the company does not recover as much as it is currently paying for fuel . in periods of declining prices , the opposite is true . also , its fuel surcharge programs typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue . therefore , many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue . expenses the company 's most significant expenses vary with miles traveled and include driver wages ( which are recorded on the “ salaries , wages and employee benefits ” line of the company 's consolidated statements of operations and comprehensive income ( loss ) ) , services purchased from owner-operators and other transportation providers ( which are recorded on the “ purchased freight ” line of the company 's consolidated statements of operations and comprehensive income ( loss ) ) and fuel . driver-related expenses vary with miles traveled . 25 maintenance and tire expenses and cost of insurance and claims generally vary with the miles the company travels but also have a controllable component based on safety improvements , fleet age , efficiency and other factors . the company 's primary fixed costs are depreciation of long-term assets ( such as tractors , trailers and terminals ) , interest expense , rent and non-driver compensation .
| total revenue decreased 16.3 % to $ 1,454.1 million for the year ended december 31 , 2020 from $ 1,737.0 million for the same period in 2019 , driven primarily by the decrease in freight volumes due to the impact of the covid-19 pandemic on various industrial end markets , and the strategic reduction of business related to the consolidations . the decreases in company freight and owner operator freight revenue were primarily a result of a 6.9 % decrease in rate per mile and a 7.5 % decrease in total miles driven . the decrease in brokerage revenue was primarily due to a decrease in customer freight volumes . the decrease in logistics revenue was primarily the result of decreases in logistics activities . the decrease in fuel surcharge revenue was primarily due to a decrease in loaded miles and the decrease in the price of diesel fuel , which averaged $ 2.55 per gallon in 2020 compared to $ 3.06 per gallon in 2019 . the company 's specialized solutions segment 's revenue decreased $ 202.0 million , or 18.4 % , to $ 893.7 million for the year ended december 31 , 2020 from $ 1,095.7 million for the same period in 2019 , driven primarily by the decrease in freight volumes due to the impact of the covid-19 pandemic on various industrial end markets , and the strategic reduction of business related to the consolidations . the decrease in overall freight revenue was primarily a result of a 10.8 % decrease in rate per mile and a 7.8 % decrease in total miles driven compared to the same period in 2019. the decrease in rate per mile was mainly driven by the exit of the aveda operation which historically had the highest rate per mile within the segment . the decrease in brokerage revenue was primarily due to a decrease in customer freight volumes . the decrease in logistics revenue was primarily the result of decreases in logistics activities . the decrease in fuel surcharge revenue was primarily due to a decrease in loaded miles and the decrease in the price of diesel fuel , which averaged $ 2.55 per gallon in 2020 compared to $ 3.06 per gallon in
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unit of power when referring to our facilities ' manufacturing capacity , total sales and components sales , the unit of electricity in watts for kilowatts ( `` kw '' ) , megawatts ( `` mw '' ) and gigawatts ( `` gw '' ) is direct current ( `` dc '' ) . when referring to our solar power systems , the unit of electricity in watts for kw , mw , and gw is alternating current ( `` ac '' ) . 48 levelized cost of energy ( `` lcoe '' ) the lcoe equation is an evaluation of the life-cycle energy cost and life-cycle energy production of an energy producing system . it allows alternative technologies to be compared when different scales of operation , investment , or operating time periods exist . it captures capital costs and ongoing system-related costs , along with the amount of electricity produced , and converts them into a common metric . key drivers for lcoe reduction for photovoltaic products include panel efficiency , capacity factors , reliable system performance , and the life of the system . fiscal years we report our results of operations on the basis of 52- or 53-week periods , ending on the sunday closest to december 31. fiscal 2009 ended on january 3 , 2010 , fiscal 2010 ended on january 2 , 2011 , and fiscal 2011 ended on january 1 , 2012 . each fiscal year included 52 weeks , except fiscal 2009 which included 53 weeks . our fiscal quarters end on the sunday closest to the end of the applicable calendar quarter , except in a 53-week fiscal year in which the additional week falls into the fourth quarter of that fiscal year . change in solar market in march 2011 , the italian government passed a new legislative decree providing for a significant change in its feed-in tariff ( `` fit '' ) program . in may 2011 , the italian government announced a legislative decree which defined the revised fit and the transition process effective june 1 , 2011. the decree announced a decline in fit and also set forth a limit on the construction of solar plants on agricultural land . similarly , during the last several months other european countries reduced government incentives for the solar market . such changes had a materially negative effect on the market for solar systems in europe and caused our earnings to decline in europe and adversely affected our financial results . in response to the reduction in european government incentives , primarily in italy , our board of directors approved a restructuring plan , on june 13 , 2011 , to realign our resources . further , to accelerate operating cost reduction and improve overall operating efficiency , on november 30 , 2011 , our management approved a second company-wide restructuring plan . these plans and related charges are further discussed below under `` results of operations . '' goodwill and other intangible asset impairment we conduct our annual impairment test of goodwill as of the sunday closest to the end of the third fiscal quarter of each year . impairment of goodwill is tested at our reporting unit level . management determined the upp segment and r & c segment each have two reporting units . in estimating the fair value of the reporting units , we make estimates and judgments about our future cash flows using an income approach defined as level 3 inputs under fair value measurement standards . the income approach , specifically a discounted cash flow analysis , included assumptions for , among others , forecasted revenue , gross margin , operating income , working capital cash flow , perpetual growth rates and long-term discount rates , all of which require significant judgment by management . the sum of the fair values of our reporting units are also compared to our external market capitalization to determine the appropriateness of our assumptions and adjusted , if appropriate . these assumptions took into account the current industry environment and its impact on our business . based on the impairment test performed in the third quarter of fiscal 2011 , we determined that the carrying value of the upp-international , upp-americas , and residential and light commercial reporting units exceeded their fair value . as a result , we recorded a goodwill impairment loss of $ 309.5 million , representing all of the goodwill associated with these reporting units . as of january 1 , 2012 , the fair value of the remaining reporting unit , north american commercial , exceeded the carrying value under the first step of the goodwill impairment test . therefore , goodwill was not impaired with respect to this reporting unit . we additionally review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable . triggering events for an impairment review may include indications such as adverse industry or economic trends , lower than projected operation results or cash flows , or sustained decline in our stock price or market capitalization . during the third quarter of fiscal 2011 , we determined that the carrying value of certain intangible assets related to strategic acquisitions of epc and o & m project pipelines in europe were no longer recoverable and therefore recognized an impairment loss of $ 40.3 million in fiscal 2011 . 2012 outlook during fiscal 2011 we saw a decline in overall demand for solar systems primarily in europe as a result of the decline in european government incentives as described above . the resulting supply environment drove down average selling prices across all product and service lines . such pricing pressures are expected to continue throughout fiscal 2012 . 49 in 2012 we continue to be focused on reducing the cost of our solar panels and systems . story_separator_special_tag we expect our r & d activities to increase as we emphasize continued improvement of our solar cell efficiency and lcoe performance through enhancement of our existing products , development of new products and reduction of manufacturing cost and complexity in conjunction with our overall cost-control strategies . we are further working with our suppliers and partners along all steps of the value chain to reduce costs by improving manufacturing technologies and expanding economies of scale . we plan to continue to expand our business in growing and sustainable markets . in fiscal 2011 we launched our residential lease program with our dealers in the united states , in partnership with a third-party financial institution , which allows customers to obtain sunpower systems under lease agreements up to 20 years , subject to financing availability . we announced the first commercial deployment of our sunpower® c-7 tracker technology under a power purchase agreement ( `` ppa '' ) and commenced production of our next generation solar cell with demonstrated efficiencies of up to 24 % . our acquisition of tenesol s.a. ( `` tenesol '' ) in the first quarter of fiscal 2012 has further expanded our european and global customer channels as well as added a strong manufacturing based in both europe and africa . please see `` part i. item 1a : risk factors '' for additional information on risks and uncertainties that could cause actual results to differ from management 's plans and outlook for 2012. financial operations overview the following describes certain line items in our consolidated statements of operations : revenue upp segment revenue : our upp segment refers to our large-scale solar products and systems business , which includes power plant project development and project sales , turn-key epc services for power plant construction , and power plant o & m services . the upp segment sells components , including large volume sales of solar panels and mounting systems to third parties , sometimes on a multi-year , firm commitment basis , in the united states , europe , and asia . r & c segment revenue : our r & c segment focuses on solar equipment sales into the residential and small commercial market through our third-party global dealer network , as well as direct sales and epc and o & m services in the united states for rooftop and ground-mounted solar power systems for the new homes , commercial , and public sectors . other revenue factors : sales of epc projects and other services relate to solar electric power systems that integrate our solar panels and balance of systems components . in the united states , where customers often utilize rebate and tax credit programs in connection with projects rated 1 mw or less of capacity , we typically sell solar power systems rated up to 1 mw of capacity to provide a supplemental , distributed source of electricity for a customer 's facility as well as ground mount systems reaching up to hundreds of mws for regulated utilities . in the united states , many customers choose to purchase solar electricity under a ppa with an investor or financing company which buys the system from us . in europe and the united states , our systems are often purchased by third-party investors as central-station solar power plants , typically rated from 1 to 50 mw , which generate electricity for sale under tariff to regional and public utilities . we also sell our solar panels and balance of systems components under materials-only sales contracts in the united states , europe and asia . our revenue recognition policy is described in more detail under `` critical accounting estimates . '' cost of revenue our cost of revenue will fluctuate from period to period due to the mix of projects completed and recognized as revenue , in particular between large utility projects and large commercial installation projects . the cost of solar panels is the single largest cost element in our cost of revenue . our cost of solar panels consists primarily of : ( i ) polysilicon , silicon ingots and wafers used in the production of solar cells , along with other materials such as chemicals and gas that are needed to transform silicon wafers into solar cells ; ( ii ) raw materials such as glass , frame , backing and other materials ; ( iii ) solar cells from our auo sunpower sdn . bhd . ( `` auosp '' ) joint venture ; as well as ( iv ) direct labor costs and assembly costs we pay to our third-party contract manufacturers in china , mexico , poland , and california . other cost of revenue associated with the construction of solar power systems includes real estate , mounting systems , inverters and third-party contract manufacturer costs . in addition , other factors contributing to cost of revenue include amortization of other intangible assets , stock-based compensation , depreciation , provisions for estimated warranty claims , salaries , personnel-related costs , freight , royalties , facilities expenses , and manufacturing supplies associated with contracting revenue and solar cell fabrication as well as factory pre-operating costs associated with our manufacturing facilities . such pre-operating costs included compensation and training costs for factory workers as well as utilities and consumable materials associated with preproduction activities . 50 we are targeting to improve cost of revenue over time as we implement cost reduction programs , improve our manufacturing processes , and grow our business to attain economies of scale on fixed costs . an expected reduction in cost of revenue based on manufacturing efficiencies , however , could be partially or completely offset by increased raw material costs . gross margin our gross margin each quarter is affected by a number of factors , including average selling prices for our solar power products , the types of projects in progress , the gross margins estimated for those projects in progress , our product mix , our actual manufacturing costs , the utilization rate of our solar cell manufacturing facilities , and actual overhead costs .
| the shift in revenue by geography in fiscal 2011 as compared to fiscal 2010 was due to increasing demand in the united states for our solar power products due to additional federal and state initiatives supporting attractive solar incentives within the residential , commercial , and utility sectors as well as a slowdown in project development and component shipments in europe due to changes in government incentives . the shift in revenue by geography in fiscal 2010 as compared to fiscal 2009 was due to the sale of several large scale projects completed or under construction in italy during fiscal 2010. concentrations : the table below represents our significant customers which accounted for greater than 10 percent of total revenue , accounts receivable , or costs and estimated earnings in excess of billings during fiscal 2011 , 2010 , and 2009. we had no customers that accounted for 10 percent or more of total revenue in fiscal 2011. we entered into a project contract with one of our customers in the united states in fiscal 2011 , which is anticipated to account for 10 percent or more of total revenue in fiscal 2012. year ended revenue january 1 , 2012 january 2 , 2011 january 3 , 2010 significant customer : business segment customer a utility and power plants * 12 % * customer b utility and power plants * * 12 % as of accounts receivable january 1 , 2012 january 2 , 2011 significant customer : business segment customer c utility and power plants 20 % * customer d utility and power plants * 11 % as of cost in excess of billings january 1 , 2012 january 2 , 2011 significant customer : business segment customer e utility and power plants 21 % * < div
| 13,085 |
we had net income of $ 668.6 million for the year ended december 31 , 2019 , compared to a net loss of $ 21.1 million for the year ended december 31 , 2018 , and a net loss of $ 33.2 million for the year ended december 31 , 2017. during the next two years , we expect that the revenues from janssen transaction will generate enough cash for our research and development activities . however , we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical trials and seek regulatory approval and eventual commercialization . in addition to these increasing research and development expenses , we expect general and administrative costs to increase as we continue to operate as a public company . we will need to generate significant revenues to achieve or sustain profitability , and we may never do so . as of december 31 , 2019 , we had 49 employees . 37 revenues prior to receiving payments under the clinical manufacturing agreement entered into in connection with the janssen transaction , we had not generated any revenue . under this clinical manufacturing agreement , we manufacture bermekimab for use by janssen in clinical trials , in exchange for fixed payments , paid in quarterly installments through 2021. in addition , we entered into a transition services agreement under which we agreed to continue operational management , on a fee-for-service basis , of certain ongoing clinical trials related to bermekimab . our ability to generate any additional revenue and or to become profitable ( or sustain any profitability ) depends on our ability to successfully commercialize any product candidates we may advance in the future . research and development expenses research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates . these expenses consist primarily of salaries and related expenses , stock-based compensation , the purchase of equipment , laboratory and manufacturing supplies , facility costs , costs for preclinical and clinical research , development of quality control systems , quality assurance programs and manufacturing processes . we charge all research and development expenses to operating expenses as incurred . clinical development timelines , likelihood of success and total costs vary widely . we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . from inception through december 31 , 2019 , we have recorded total research and development expenses , including share-based compensation , of $ 209.8 million . our total research and development expenses for the year ended december 31 , 2019 was $ 24.1 million , compared to $ 15.7 million the year ended december 31 , 2018 , and $ 26.4 million for the year ended december 31 , 2017. share-based compensation accounted for $ 1.6 million for the year ended december 31 , 2019 , $ 0.7 million for the year ended december 31 , 2018 and $ 0.4 million for the year ended december 31 , 2017. research and development expenses as a percentage of total operating expenses was 77 % for the year ended december 31 , 2019 , 75 % for the year ended december 31 , 2018 , and 78 % for the year ended december 31 , 2017. the percentages , excluding stock-based compensation , were 81 % for the year ended december 31 , 2019 , 78 % for the year ended december 31 , 2018 and 82 % for the year ended december 31 , 2017. based on the results of our preclinical studies , we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their preclinical and clinical success and commercial potential . for research and development candidates in early stages of development , it is premature to estimate when material net cash inflows from these projects might occur . general and administrative expenses general and administrative expense consists primarily of salaries and related expenses for personnel in administrative , finance , business development and human resource functions , as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses , share–based compensation , and professional fees for legal services . our total general and administration expenses was $ 7.1 million for the year ended december 31 , 2019 , $ 5.3 million for the year ended december 31 , 2018 and $ 7.6 million for the year ended december 31 , 2017. share-based compensation accounted for $ 1.7 million for the year ended december 31 , 2019 , $ 1.0 million for the year ended december 31 , 2018 and $ 2.1 million for the year ended december 31 , 2017. critical accounting policies our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states ( us gaap ) . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods . we base estimates on our historical experience , known trends and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . story_separator_special_tag actual results may differ from these estimates under different assumptions or conditions . 38 while our significant accounting policies are more fully described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results . stock-based compensation stock-based awards are measured at fair value at each grant date . we recognize stock-based compensation expenses ratably over the requisite service period of the option award . determination of the fair value of stock-based compensation grants the determination of the fair value of stock-based compensation arrangements is affected by a number of variables , including estimates of the expected stock price volatility , risk-free interest rate and the expected life of the award . we value stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions . black-scholes option-pricing model and other option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . if we made different assumptions , our stock-based compensation expenses , net loss , and net loss per common share could be significantly different . prior to our initial public offering in april 2015 , we used the sales price of our common stock as the fair value of our common stock . after our ipo , we determine that the fair value of common stock is equal to the closing price of the company 's common stock as reported by nasdaq on the option grant date . the following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated : replace_table_token_2_th we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future , which is consistent with our past practice . the risk-free interest rate assumption is based on observed interest rates for u.s. treasury securities with maturities consistent with the expected life of our stock options . the expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes “ plain vanilla ” terms . under the simplified method , the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term . we used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options . for stock options that did not include “ plain vanilla ” terms , we used the contractual life of the stock option as the expected life . such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance . expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options . due to the adoption of asu no . 2016-09 , “ stock compensation ” , effective january 1 , 2017 , the company accounts for forfeitures as they occur rather than on an estimated basis . income taxes we account for income taxes under the asset and liability method . we record deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as for operating loss and tax credit carryforwards . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences . we recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date . we assess the likelihood that deferred tax assets will be realized , and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized . this assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction . to date , we have provided a valuation allowance against our deferred tax assets as we believe the objective and verifiable evidence of our historical pretax net losses outweighs any positive evidence of our forecasted future results . although we believe that our tax estimates are reasonable , the ultimate tax determination involves significant judgment . we will continue to monitor the positive and negative evidence and will adjust the valuation allowance as sufficient objective positive evidence becomes available . we account for uncertain tax positions by recognizing the financial statement effects of a tax position only when , based upon technical merits , it is more likely than not that the position will be sustained upon examination . we recognize potential accrued interest and penalties associated with unrecognized tax positions within our global operations in income tax expense . story_separator_special_tag activities . at december 31 , 2019 , we had cash and cash equivalents of $ 714.6 million as compared to cash and cash equivalents of $ 15.8 million at december 31 , 2018. the following table summarizes our sources and uses of cash ( in thousands ) : 41 replace_table_token_6_th during the years ended december 31 , 2019 , 2018 and 2017 , our operating activities used net cash of $ 18.2 million , $ 16.5 million , and $ 33.6 million respectively . the use of net cash in each of these periods primarily resulted from our net incomes and losses . the increase in net loss from operations for the year ended december 31 , 2019 as compared to the year ended december 31
| in addition , there was a decrease in laboratory and manufacturing supplies expense due to the decrease of manufacturing . the decrease is also due to $ 2.1 million of salaries and related expenses in 2018. we had an offsetting increase in stock–based compensation due to the issuance of stock options to employees . general and administrative general and administrative costs are summarized as follows ( in thousands ) : replace_table_token_4_th 40 general and administrative expenses increased 36 % to $ 7.1 million for the year ended december 31 , 2019 compared to $ 5.3 million for the year ended december 31 , 2018. the increase was mainly due to a $ 0.8 million increase of share-based compensation to board members and the chief executive officer . also , professional fees increased $ 0.9 million mainly due to professional and legal fees related to the janssen transaction . salaries and related expenses increased in 2019 due to the bonus to general and administrative workforce . general and administrative expenses decreased 31 % to $ 5.3 million for the year ended december 31 , 2018 compared to $ 7.6 million for the year ended december 31 , 2017. the decrease was principally due to a $ 1.1 million decrease of share-based compensation to board members as well as a $ 0.9 million decrease of professional fees related to ema meeting in 2017 and legal fees related to the securities litigation which was ended on october 2018. salaries and related expenses decreased in 2018 due to the reduction of work force in may 2017. other income the following table summarizes other income ( in thousands ) : replace_table_token_5_th other income for the year ended december 31 , 2019 includes a $ 750 million gain from the business purchase agreement with janssen in december . the $ 564 thousand of interest income for the year ended december 31 , 2019 is mainly from the interest generated from the company 's canadian bank account . foreign exchange loss
| 13,086 |
cost of goods sold for the fiscal year ended december 31 , 2015 , the company 's cost of goods sold increased to $ 230,348 from $ 0 at december 31 , 2014. cost of goods sold consists of cost for services , cost for third-party products and cost for software licenses . operating expenses for the fiscal year ended december 31 , 2015 , the company 's operating expense increased to $ 1,368,054 from $ 1,226,356 for the fiscal year ended december 31 , 2014. operating expense consist of selling expense , administrative expense and general expense . net other income ( expense ) for the fiscal year ended december 31 , 2015 , the company experienced net other expense of $ 7,857,304 compared to net other expense of $ 9,009,474 for the fiscal year ended december 31 , 2014 . 44 fiscal year ended december 31 , 2014 compared to fiscal year ended december 31 , 2013 for the fiscal year ended december 31 , 2014 , total revenue was $ 0 and $ 0 at december 31 , 2013. cost of goods sold for the fiscal year ended december 31 , 2014 , the company 's cost of goods sold was $ 0 and $ 0 at december 31 , 2013. operating expenses for the fiscal year ended december 31 , 2014 , the company 's operating expense decreased to $ 1,226,356 from $ 2,187,360 for the fiscal year ended december 31 , 2013. operating expense consist of selling expense , administrative expense and general expense . net other income ( expense ) for the fiscal year ended december 31 , 2014 , the company experienced net other expense of $ 9,009,474 compared to net other expense of $ 242,623 for the fiscal year ended december 31 , 2013. fiscal year ended december 31 , 2013 compared to fiscal year ended december 31 , 2012 for the fiscal year ended december 31 , 2013 , total revenue decreased to $ 0 from $ 45,000 at december 31 , 2012. the company generated revenue from restructuring fees in 2012. cost of goods sold for the fiscal year ended december 31 , 2013 , the company 's cost of goods sold was $ 0 and $ 0 at december 31 , 2012. operating expenses for the fiscal year ended december 31 , 2013 , the company 's operating expense decreased to $ 2,187,360 from $ 2,890,590 for the fiscal year ended december 31 , 2012. operating expense consist of selling expense , administrative expense and general expense . net other income ( expense ) for the fiscal year ended december 31 , 2013 , the company experienced net other expense of $ 242,623 compared to net other income of $ 298,726 for the fiscal year ended december 31 , 2012. liquidity & capital resources at december 31 , 2017 , we had $ 51,608 in cash , compared to $ 11,883 at december 31 , 2016. at december 31 , 2017 , our accumulated stockholders ' deficit was $ 27,082,933 compared to $ 26,210,221 at december 31 , 2016. at december 31 , 2016 , we had $ 11,883 in cash , compared to $ 14,369 at december 31 , 2015. at december 31 , 2016 , our accumulated stockholders ' deficit was $ 26,210,221 compared to $ 17,162,222 at december 31 , 2015. at december 31 , 2015 , we had $ 14,369 in cash , compared to $ 874 at december 31 , 2014. at december 31 , 2015 , our accumulated stockholders ' deficit was $ 17,162,222 compared to $ 6,926,392 at december 31 , 2014. at december 31 , 2014 , we had $ 874 in cash , compared to $ 860 at december 31 , 2013. at december 31 , 2014 , our accumulated stockholders ' deficit was $ 6,926,392 compared to $ 4,496,408 at december 31 , 2013 . 45 at december 31 , 2013 , we had $ 860 in cash , compared to $ 719,454 at december 31 , 2012. at december 31 , 2013 , our accumulated stockholders ' deficit was $ 4,496,408 compared to $ 1,949,544 at december 31 , 2012. the company 's cash flow depended on the timely and successful market entry of its strategic offerings . future cash flows from software products and services are expected to be very small as the company changes its strategic focus to life sciences and biotechnology . especially for strategic offerings for paradigm shifting technologies , the management 's budget plan is based on a series of assumptions regarding regulatory approval , market acceptance , readiness and pricing . while management 's assumptions are based on market research , assumptions bear the risk of being incorrect and may result in a delay in projects , delays in regulatory approvals and consequently a delay or a reduction in the related strategic offerings . 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 2017 the company sought other strategic assets in the biotechnology space . the company will see internal and external sources for financing future projects . these sources may provide the necessary funds to support the working capital needs of the company . 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 the going to market until the financing will be sufficient . management believes , in accordance with the above-mentioned statement , the company will need to raise money to support its standard operations for the current fiscal period . story_separator_special_tag to date , we have funded our operations from private financings and operations . in march 2010 , we consummated a private placement of units for $ 1.25 per unit for total gross proceeds of $ 7,555,000 ( the “ private placement ” ) . the net proceeds of this offering were $ 6,839,327.25. each unit consisted of one share of common stock and one warrant exercisable to purchase one share of common stock from the date of grant until the third anniversary of the date of grant for $ 1.50 per share ( the “ private placement warrants ” ) . as of december 31 , 2012 , warrant holders exercised an aggregate of 2,025,000 private placement warrants for gross proceeds to the company of $ 3,037,500. if the remaining 4,019,000 private placement warrants were exercised , of which there can be no assurance , the company would receive $ 6,028,000 in additional gross proceeds . in march 2012 , the company entered into a securities purchase agreement ( the “ securities purchase agreement ” ) with each of five “ accredited investors ” ( as that term is defined by rule 501 ( a ) of regulation d promulgated under the securities act ) , one of whom was stephen d. baksa , a member of the board of directors of the company , and all of whom were investors in the private placement . pursuant to the securities purchase agreements entered into by the company and the accredited investors , the company sold the accredited investors an aggregate of 2,020,000 warrants ( the “ investor warrants ” ) in consideration for $ 10.00 per investor . each investor warrant is exercisable to purchase one share of common stock of the company for a purchase price of $ 0.50 per share from the date of issuance to the third anniversary date of the date of issuance . as of december 31 , 2012 , warrant holders exercised an aggregate 905,000 investor warrants for gross proceeds to the company of $ 457,500. if the remaining 1,120,000 investor warrants were exercised , of which there can be no assurance , the company would receive $ 560,000 in additional gross proceeds . in addition to the foregoing , during the fiscal years 2012 ended december 31 , 2017 , we raised capital by consummating the following transactions : on april 16 , 2012 , the company sold 120,000 units to joerg ott , the chairman of the board of directors and then chief executive officer of the company , for a price of $ 1.50 per unit , for a total purchase price of $ 180,000. each unit consisted of one share of common stock of the company and one warrant to purchase one share of common stock of the company from the date of issuance until the third anniversary date of the date of issuance for $ 1.50 per share . the company sold the units and underlying securities to mr. ott in reliance on section 4 ( 2 ) of the securities act due to the fact that the issuance was isolated and did not involve a public offering of securities . on may 10 , 2012 , the company sold 30,000 units to markus r. ernst , the chief financial officer of the company , for a purchase price of $ 1.50 per unit , for a total purchase price of $ 45,000. each unit consists of one share of common stock of the company and one warrant , allowing the holder to purchase one share of common stock of the company from the date of issuance until the third anniversary date of the date of issuance for $ 1.50 per share . the company sold the units and underlying securities to mr. ernst in reliance on section 4 ( 2 ) of the securities act due to the fact that the issuance was isolated and did not involve a public offering of securities . 46 on july 5 , 2012 , the company entered into a convertible promissory note agreement ( the “ loan agreement ” ) with mohammad a. shihadah , a member of the board . pursuant to the loan agreement , the company issued a convertible promissory note , dated july 5 , 2012 ( the “ note ” ) , to mr. shihadah for the principal amount of $ 50,000 , bearing interest at a rate of 8 % per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the note . the note was convertible in full at $ 0.50 per share into common stock of the company , if the conversion was not exercised on or before september 30 , 2012. if not exercised mr. shihadah will receive a 3-year warrant to purchase shares at 50,000 shares of common stock at $ 0.50 per share . the conversion was not exercised by september 30 , 2012 , as per the terms of the loan agreement mr. shihadah was issued a 3-year warrant to purchase shares at 50,000 shares of common stock at $ 0.50 per share . on july 5 , 2012 , the company entered into a convertible promissory note agreement ( the “ loan agreement ” ) with k group ltd. pursuant to the loan agreement , the company issued a convertible promissory note , dated july 5 , 2012 ( the “ note ” ) , to k group ltd. for the principal amount of $ 250,000 , bearing interest at a rate of 8.5 % per year and maturing on the earlier of the first anniversary date of the date of issuance or such other time as described in more detail in the note . the note was convertible in full at $ 0.50 per share into common stock of the company , if this conversion if not exercised on or before september 30 , 2012 .
| the product division of revenue includes revenue generated from the sale of licenses , maintenance , third-party products , and other revenues . the service division of revenue includes revenue generated from professional services rendered . cost of goods sold for the fiscal year ended december 31 , 2017 , the company 's cost of goods sold decreased to $ 86,907 from $ 208,392 at december 31 , 2016. cost of goods sold consists of cost for services , cost for third-party products and cost for software licenses . 43 operating expenses for the fiscal year ended december 31 , 2017 , the company 's operating expense decreased to $ 139,179 from $ 264,561 for the fiscal year ended december 31 , 2016. operating expense consist of selling expense , administrative expense and general expense . net other income ( expense ) for the fiscal year ended december 31 , 2017 , the company experienced net other expense of $ 445,595 compared to net other expense of $ 690,894 for the fiscal year ended december 31 , 2016. an aggressive write off of intangibles following the restructuring activities of the company represented the majority of this expense . fiscal year ended december 31 , 2016 compared to fiscal year ended december 31 , 2015 for the fiscal year ended december 31 , 2016 , total revenue decreased to $ 291,135 from $ 407,408 at december 31 , 2015. the company generated revenue from two divisions . the product division of revenue includes revenue generated from the sale of licenses , maintenance , third-party products , and other revenues . cost of goods sold for the fiscal year ended december 31 , 2016 , the company 's cost of goods sold decreased to $ 208,392 from $ 230,348 at december 31 , 2015. cost of goods sold consists of cost for services , cost for third-party products and cost for software licenses . operating expenses for the fiscal year ended december 31 , 2016 , the company 's operating expense decreased to $ 264,561 from $ 1,368,054 for the fiscal year ended december 31 , 2015. operating expense
| 13,087 |
( f ) this amount reflects the provisional transition tax on the previously untaxed and unrepatriated current and accumulated post-1986 foreign earnings of certain foreign subsidiaries as required by the tax act . the following is a summary of other off-balance sheet arrangements at december 31 , 2018 : replace_table_token_13_th to provide required security regarding our performance on certain contracts , we provide letters of credit , surety bonds and bank guarantees , for which we are contingently liable . in order to obtain these financial instruments , we pay fees to various financial institutions in amounts competitively determined in the marketplace . our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments . our off-balance sheet financial instruments may be renewed , revised or released based on changes in the underlying commitment . historically , our commercial commitments have not been drawn upon to a material extent ; consequently , management believes it is not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing . cash flows cash flows for each of the three year periods ended on december 31 , were as follows : replace_table_token_14_th 2018 compared with 2017 cash provided by continuing operating activities in 2018 was $ 154.6 million , representing a $ 48.3 million increase compared to 2017 . the increase in the operating cash flows is driven by higher income in 2018 compared to 2017 combined with improved working capital cash flows due to lower trade receivables , inventory and higher accounts payable . these increases in operating cash flows were partially offset by higher payments related to pension and restructuring . cash required by investing activities during 2018 was $ 94.4 million , representing a $ 45.5 million decrease compared to 2017 . the change was due primarily to a lower level of investments in acquired companies , where we invested $ 57.5 million on acquisitions completed during 2018 compared to an investment in 2017 of $ 104.2 million . 41 cash required by financing activities in 2018 was $ 48.3 million , representing a $ 83.0 million increase in cash required by financing activities compared to 2017 . the change was due primarily to a higher share repurchase and deferred acquisition payments in 2018 , as well as proceeds from stock issuances in 2017. on march 6 , 2017 we issued 2.3 million shares of common stock which resulted in net proceeds of $ 184.1 million that was used to repay a portion of our outstanding borrowings under our revolving credit facility in 2017 . 2017 compared with 2016 cash provided by continuing operating activities in 2017 was $ 106.3 million , representing a $ 38.4 million increase compared to 2016. the increase in the operating cash flows is driven by higher income in 2017 compared to 2016 offset by higher investments in working capital in 2017 compared to 2016. cash required by investing activities during 2017 was $ 139.9 million , representing a $ 126.9 million decrease compared to 2016. the change was due primarily to a lower level of investments in acquired companies , where we invested $ 104.2 million on acquisitions completed during 2017 compared to an investment in 2016 of $ 232.0 million . cash provided by financing activities in 2017 was $ 34.7 million , representing a $ 160.2 million decrease compared to 2017. on march 6 , 2017 we issued 2.3 million shares of common stock which resulted in net proceeds of $ 184.1 million . we used the net proceeds from this offering to repay a portion of our outstanding borrowings under our revolving credit facility and for general corporate purposes . higher operating cash flows and lower investments in acquisitions allowed for significant reduction in borrowings under our revolving credit facility . financing arrangements as of december 31 , 2018 we had $ 390.5 million drawn on and $ 598.6 million of availability under the revolving credit facility . our ability to use this availability is limited by the leverage ratio covenant described below . our credit agreement includes covenants that , if not met , could lead to a renegotiation of our credit lines , a requirement to repay our borrowings and or a significant increase in our cost of financing . as of december 31 , 2018 , we were in compliance with all covenants in our credit agreement . we expect to remain in compliance with all covenants in the foreseeable future . however , there can be no assurance that continued or increased volatility in global economic conditions will not impair our ability to meet our covenants , or that we will continue to be able to access the capital and credit markets on terms acceptable to us or at all . for additional financial information about our credit agreements , refer to note 6. debt of this annual report on form 10-k. we have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt . the agreements swap one-month libor for fixed rates . we have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income ( loss ) . as a result , as of december 31 , 2018 , a portion of our variable rate debt was effectively fixed rate debt , while approximately $ 166 million , or 42 % , remained subject to floating , or market , rates . to the extent interest rates increase in future periods , our earnings could be negatively impacted by higher interest expense . we have entered into cross currency swap agreements that synthetically swap $ 116.4 million of fixed rate debt to euro denominated fixed rate debt . the agreements are designated as net investment hedges for accounting purposes story_separator_special_tag ( f ) this amount reflects the provisional transition tax on the previously untaxed and unrepatriated current and accumulated post-1986 foreign earnings of certain foreign subsidiaries as required by the tax act . the following is a summary of other off-balance sheet arrangements at december 31 , 2018 : replace_table_token_13_th to provide required security regarding our performance on certain contracts , we provide letters of credit , surety bonds and bank guarantees , for which we are contingently liable . in order to obtain these financial instruments , we pay fees to various financial institutions in amounts competitively determined in the marketplace . our ability to generate revenue from certain contracts is dependent upon our ability to obtain these off-balance sheet financial instruments . our off-balance sheet financial instruments may be renewed , revised or released based on changes in the underlying commitment . historically , our commercial commitments have not been drawn upon to a material extent ; consequently , management believes it is not likely that there will be claims against these commitments that would result in a negative impact on our key financial ratios or our ability to obtain financing . cash flows cash flows for each of the three year periods ended on december 31 , were as follows : replace_table_token_14_th 2018 compared with 2017 cash provided by continuing operating activities in 2018 was $ 154.6 million , representing a $ 48.3 million increase compared to 2017 . the increase in the operating cash flows is driven by higher income in 2018 compared to 2017 combined with improved working capital cash flows due to lower trade receivables , inventory and higher accounts payable . these increases in operating cash flows were partially offset by higher payments related to pension and restructuring . cash required by investing activities during 2018 was $ 94.4 million , representing a $ 45.5 million decrease compared to 2017 . the change was due primarily to a lower level of investments in acquired companies , where we invested $ 57.5 million on acquisitions completed during 2018 compared to an investment in 2017 of $ 104.2 million . 41 cash required by financing activities in 2018 was $ 48.3 million , representing a $ 83.0 million increase in cash required by financing activities compared to 2017 . the change was due primarily to a higher share repurchase and deferred acquisition payments in 2018 , as well as proceeds from stock issuances in 2017. on march 6 , 2017 we issued 2.3 million shares of common stock which resulted in net proceeds of $ 184.1 million that was used to repay a portion of our outstanding borrowings under our revolving credit facility in 2017 . 2017 compared with 2016 cash provided by continuing operating activities in 2017 was $ 106.3 million , representing a $ 38.4 million increase compared to 2016. the increase in the operating cash flows is driven by higher income in 2017 compared to 2016 offset by higher investments in working capital in 2017 compared to 2016. cash required by investing activities during 2017 was $ 139.9 million , representing a $ 126.9 million decrease compared to 2016. the change was due primarily to a lower level of investments in acquired companies , where we invested $ 104.2 million on acquisitions completed during 2017 compared to an investment in 2016 of $ 232.0 million . cash provided by financing activities in 2017 was $ 34.7 million , representing a $ 160.2 million decrease compared to 2017. on march 6 , 2017 we issued 2.3 million shares of common stock which resulted in net proceeds of $ 184.1 million . we used the net proceeds from this offering to repay a portion of our outstanding borrowings under our revolving credit facility and for general corporate purposes . higher operating cash flows and lower investments in acquisitions allowed for significant reduction in borrowings under our revolving credit facility . financing arrangements as of december 31 , 2018 we had $ 390.5 million drawn on and $ 598.6 million of availability under the revolving credit facility . our ability to use this availability is limited by the leverage ratio covenant described below . our credit agreement includes covenants that , if not met , could lead to a renegotiation of our credit lines , a requirement to repay our borrowings and or a significant increase in our cost of financing . as of december 31 , 2018 , we were in compliance with all covenants in our credit agreement . we expect to remain in compliance with all covenants in the foreseeable future . however , there can be no assurance that continued or increased volatility in global economic conditions will not impair our ability to meet our covenants , or that we will continue to be able to access the capital and credit markets on terms acceptable to us or at all . for additional financial information about our credit agreements , refer to note 6. debt of this annual report on form 10-k. we have entered into interest rate swaps to fix the interest rate applicable to certain of our variable-rate debt . the agreements swap one-month libor for fixed rates . we have designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income ( loss ) . as a result , as of december 31 , 2018 , a portion of our variable rate debt was effectively fixed rate debt , while approximately $ 166 million , or 42 % , remained subject to floating , or market , rates . to the extent interest rates increase in future periods , our earnings could be negatively impacted by higher interest expense . we have entered into cross currency swap agreements that synthetically swap $ 116.4 million of fixed rate debt to euro denominated fixed rate debt . the agreements are designated as net investment hedges for accounting purposes
| in estimating future income , we use our internal operating budgets and long-range planning projections . we developed our budgets and long-range projections based on recent results , trends , economic and industry forecasts influencing our segments ' performance , our backlog , planned timing of new product launches , and customer sales commitments . significant changes in the expected realization of the net deferred tax assets would require that we adjust the valuation allowance , resulting in a change to net income . on december 22 , 2017 , congress passed , and the president signed , the tax cuts and jobs act ( the “ tax act ” ) . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to , ( 1 ) reducing the u.s. federal corporate income tax rate from 35.0 percent to 21.0 percent ; ( 2 ) requiring companies to pay a one-time transitional tax on certain un-repatriated earnings of foreign subsidiaries ( “ transition tax ” ) ; ( 3 ) generally eliminating u.s. federal income tax on dividends from foreign subsidiaries of u.s. corporations ; ( 4 ) repealing the domestic production activity deduction ; ( 5 ) providing for the full expensing of qualified property ; ( 6 ) adding a new provision designed to tax global intangible low-taxed income ( “ gilti ” ) ; ( 7 ) revising the limitation imposed on deductions for executive compensation paid by publicly-traded companies ; ( 8 ) eliminating the corporate alternative minimum tax ( “ amt ” ) and changing how existing amt credits can be utilized ; ( 9 ) creating a base erosion-anti-abuse tax ( “ beat ” ) , a new minimum tax on payments made by certain u.s. corporations to related foreign parties ; ( 10 ) imposing a new limitation on the deductibility of interest expense ; ( 11 ) allowing for a deduction related to foreign-derived intangible income ( “ fdii ” ) ; and ( 12 ) changing the rules related to the uses and limitations of net operating loss carryforwards generated in tax years beginning
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factortrust is a provider of alternative credit data , analytics and risk scoring information that empowers lenders to make more informed decisions , and increases financial inclusion to a wider population of consumers . the results of operations of factortrust , which are not material to our consolidated financial statements , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on october 2 , 2017 , we acquired 100 % of the equity of xtech holdings , inc. ( “ ebureau ” ) . ebureau is a leading provider of custom-analytic solutions with both credit-risk and anti-fraud applications . the results of operations of ebureau , which are not material to our consolidated financial statements , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on august 18 , 2017 , we acquired 100 % of the equity of datalink services , inc. ( “ datalink ” ) . datalink 's solutions provide enhanced data that identifies risks associated with an applicant 's driving behavior and provides insurers with a cost competitive , timely and more detailed offering . the results of operations of datalink , which are not material to our consolidated financial statements , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on july 19 , 2017 , we acquired a non-controlling , non-voting preferred stock equity interest in synthetic p2p holdings corporation ( “ peeriq ” ) . also , on november 10 , 2016 , we entered into an agreement with peeriq whereby we licensed data to peeriq and , in return , received warrants to purchase a non-controlling interest in their common stock . peeriq is a credit risk analytics provider . we account for peeriq on the cost method of accounting . any future dividends will be recorded in other income and expense when received . during march 2017 , we increased our equity interest in cibil from 82.1 % to 92.1 % with additional purchases totaling 10 % . on september 30 , 2016 , we increased our equity interest in cibil from 77.1 % to 82.1 % with an additional purchase of 5 % . in june 2016 , we increased our equity interest in cibil from 66.1 % to 77.1 % with additional purchases totaling 11 % . during 2015 , we increased our equity interest from 55 % to 66.1 % , with the purchase of 5 % on september 24 , 2015 and an additional 6.1 % on november 5 , 2015. in 2014 , we increased our equity interest in cibil from 27.5 % to 55.0 % . this additional purchase gave us control and resulted in our consolidation of cibil . cibil 's results of operations are included as part of our international segment in our consolidated statements of income since may 21 , 2014 , the date we obtained control . 42 on november 4 , 2016 , we increased our ownership interest in cifin from 95.17 % to 100 % and no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests on our consolidated balance sheets from the date we acquired the remaining interest . on august 3 , 2016 , we increased our equity interest in cifin from 94.67 % to 95.17 % with an additional purchase of 0.5 % . on may 31 , 2016 , we increased our interest from 71.0 % to 94.67 % with an additional purchase of 23.67 % . on february 8 , 2016 , we acquired a 71.0 % equity interest in cifin . cifin is one of two primary credit bureaus in colombia . the results of operations of cifin have been included as part of our international segment in our consolidated statements of income since the date of the acquisition . on september 21 , 2016 , we acquired 100 % of the equity of rtech . rtech uses innovative proprietary technology to help healthcare providers protect revenue and cash . the results of operations of rtech have been included as part of our usis segment in our consolidated statements of income since the date of acquisition . on august 30 , 2016 , we acquired a noncontrolling interest investment in savvymoney , inc. ( “ savvymoney ” ) . savvymoney is a provider of credit information services for bank and credit union users . we account for savvymoney on the cost method of accounting . any future dividends will be recorded in other income and expense when received . on june 15 , 2016 , we acquired 100 % of the equity of auditz . auditz is a healthcare services organization that uses sophisticated proprietary technology to help healthcare providers identify and recover payments . the results of operations of auditz have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on april 29 , 2016 , we acquired the remaining 12.5 % ownership interest in drivers history information sales , llc ( “ dhi ” ) and no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests on our consolidated balance sheets from the date we acquired the remaining interest . on november 12 , 2014 , we acquired an 87.5 % ownership interest in dhi . dhi collects traffic violation and criminal court data . the results of operations of dhi , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of acquisition . on april 15 , 2016 , we made a noncontrolling interest investment in dashlane , inc. ( “ dashlane ” ) . dashlane is a password management company that enables users to monitor their online identities across multiple sites and applications . story_separator_special_tag we account for dashlane on the cost method of accounting . any future dividends will be recorded in other income and expense when received . on december 9 , 2015 , we acquired 100 % of the voting share capital in trustev limited ( “ trustev ” ) . trustev is a registered company in the republic of ireland that provides digital verification technology to multiple industries . the results of operations of trustev , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on october 21 , 2015 , we acquired the remaining 49 % equity interest in databusiness s.a. , our chile subsidiary . we no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests on our consolidated balance sheets from the date we acquired the remaining interest . during january 2015 , we acquired the remaining equity interests in our two brazilian subsidiaries , data solutions serviços de informática ltda . ( “ zipcode ” ) and crivo sistemas em informática s.a. ( “ crivo ” ) . we no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests in our consolidated balance sheets from the date we acquired the remaining interests . 43 key components of our results of operations revenue we derive our usis segment revenue from three operating platforms : online data services , marketing services and decision services . online data services encompass services delivered in real-time using both credit and public record datasets . we also provide online reports that link public record datasets for qualified businesses seeking to locate consumers , specific assets or investigate relationships among consumers , businesses and locations . collectively , the reports , characteristics and scores , with variations tailored for specific industries , form the basis of online data services . we also provide online services to help businesses manage fraud and authenticate a consumer 's identity when they initiate a new business relationship . additionally , we provide data to businesses to help them satisfy “ know your customer ” compliance requirements and to confirm an individual 's identity . marketing services help our customers develop marketing lists of prospects via direct mail , web and mobile . our databases are used by our customers to contact individuals to extend firm offers of credit or insurance . we provide portfolio review services , which are periodic reviews of our customers ' existing accounts , to help our customers develop cross-selling offers to their existing customers and monitor and manage risk in their existing consumer portfolios . we also provide trigger services which are daily notifications of changes to a consumer profile . decision services , our software-as-a-service offerings , includes a number of platforms that help businesses interpret data and predictive model results and apply their customer-specific criteria to facilitate real-time automated decisions at the time of customer interaction . our customers use decision services to evaluate business risks and opportunities , including those associated with new consumer credit and checking accounts , insurance applications , optimize accounts receivable management and collections , patient registrations and insurance coverages , and apartment rental requests . we report our international segment revenue in two categories : developed markets and emerging markets . our developed markets are canada and hong kong . our emerging markets include africa , latin america , asia pacific and india . consumer interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft . services in this segment include credit reports and scores , credit monitoring , fraud protection and resolution and financial management . our products are provided through user friendly online and mobile interfaces and supported by educational content and customer support . cost of services costs of services include data acquisition and royalty fees , personnel costs related to our databases and software applications , consumer and call center support costs , hardware and software maintenance costs , telecommunication expenses and occupancy costs associated with the facilities where these functions are performed . selling , general and administrative selling , general and administrative expenses include personnel-related costs for sales , administrative and management employees , costs for professional and consulting services , advertising and occupancy and facilities expense of these functions . non-operating income and expense non-operating income and expense includes interest expense , interest income , earnings from equity-method investments , dividends from cost-method investments , impairments of equity-method and cost-method investments , if any , expenses related to successful and unsuccessful business acquisitions , loan fees , debt refinancing expenses , certain acquisition-related gains and losses and other non-operating income and expenses . results of operations— twelve months ended december 31 , 2017 , 2016 and 2015 key performance measures management , including our chief operating decision maker , evaluates the financial performance of our businesses based on a variety of key indicators . these indicators include the non-gaap measure adjusted ebitda and the gaap measures revenue , cash provided by operating activities and cash paid for capital expenditures . for the twelve months ended december 31 , 2017 , 2016 and 2015 , these key indicators were as follows : 44 replace_table_token_5_th nm : not meaningful as a result of displaying amounts in millions , rounding differences may exist in the table above . 1. adjusted ebitda is defined as net income ( loss ) attributable to the company before net interest expense , income tax provision ( benefit ) , depreciation and amortization and other adjustments noted in the table above . we present adjusted ebitda as a supplemental measure of our operating performance because it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . also , adjusted ebitda is a measure frequently used by securities analysts , investors and other interested parties in their evaluation of the operating performance of companies similar to ours .
| as economies in emerging markets continue to develop and mature , we believe there will continue to be favorable socio-economic trends , such as an increase in the size of the middle class and a significant increase in the use of financial services by under-served and under-banked customers . demand for consumer solutions is rising with higher consumer awareness of the importance and usage of their credit information , increased risk of identity theft due to data breaches and more readily available free credit information . the complexity of regulations , including from the consumer financial protection bureau ( “ cfpb ” ) and the dodd-frank wall street reform and consumer protection act , continue to make operations for businesses more challenging . effects of inflation we do not believe that inflation has had a material effect on our business , results of operations or financial condition . recent developments during 2017 , we borrowed $ 215.0 million under the senior secured revolving line of credit to partially fund various acquisitions and the repurchase of our common stock . see note 11 , “ stockholders ' equity ” for additional information regarding the common stock repurchase . during the year , we repaid $ 130.0 million of the borrowings on the senior secured revolving line of credit . on august 9 , 2017 , we refinanced and amended certain provisions of our senior secured credit facility . amendments to the senior secured term loan b included a 0.50 % reduction in the applicable margin . amendments to the senior secured term loan a included an extension of the maturity date from june 2020 to august 2022 , a reduction in the applicable margin depending on our total net leverage ratio , an increase in borrowing to $ 400.0 million , and a reduction in the scheduled principal repayments . amendments to the senior secured revolving line of credit included an extension of the maturity date from june 2020 to august 2022 , a reduction in the applicable margin depending on our total net leverage ratio , a reduction in
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on october 30 , 2014 , cms issued a final rule ( effective january 1 , 2015 ) regarding payment rates for home health services provided during 2015. the net impact of all policies in the rule is a reduction in medicare payments of 0.3 % . cms estimates that freestanding proprietary agencies will have a 0.9 % reduction in medicare reimbursement compared with 2014 levels . the final rule includes the following elements : 34 the national , standardized 60-day episode payment rate will increase from $ 2,869.27 in 2014 to $ 2,961.38 in 2015. this is a net 3.2 % increase in standardized rate , due to application of ( 1 ) a wage index budget neutrality factor ( +.24 % ) and ( 2 ) a case mix budget neutrality factor ( +3.66 % ) to the 2014 standard rate which is offset by a recalibration of the case mix , then subtracting the rebasing adjustment of - $ 80.95 ( 2.82 % of 2014 rates ) , then applying the net market basket adjustment of +2.1 % ( market basket =+2.6 % , productivity adjustment =-0.5 % ) . the 2013 office of management and budget ( `` omb '' ) core-based statistical area ( `` cbsa '' ) designations for calculating wage indexes will be adopted . the proposed rule would update the hha wage index using a 50/50 blend of the existing cbsa designations and the new cbsa designations outlined in a february 28 , 2013 , office of management and budget bulleting , respectively . in this process , 37 counties will shift from urban to rural and 105 counties will shift from rural to urban . the face-to-face narrative requirement will be eliminated . cms will only consider medical records from the patient 's certifying physician or discharging facility in determining initial eligibility for medicare 's home health benefit . physician claims for certification/re-certification of eligibility ( not the face-to-face encounter visit ) will be considered a non-covered service if the hha claim was non-covered because the patient was ineligible for the home health benefit . the scheduling and administration of therapy reassessments will be modified to every 30 calendar days as opposed to tracking and counting therapy visits , especially for multiple-discipline therapy episodes . the 3 % rural add-on will only apply to counties that are classified as rural under the 2013 cbsa designations ; therefore , 37 counties will shift from urban to rural and pick up the rural add-on , and 105 counties will shift from rural to urban and will lose the rural add-on , but may offset some of that loss by a positive increase in wage index . cms also made several minor policy changes , which will not affect reimbursement . hospice on august 2 , 2013 , cms released its final rule for hospice for fiscal year 2014 , which increases medicare reimbursement payments by 1.0 % over fiscal year 2013. the 1.0 % increase consists of a 2.5 % inflationary market basket update offset by a 0.7 % reduction related to the wage index changes and the fifth year of cms 's seven-year phase-out of its wage index budget neutrality adjustment factor , a 0.5 % reduction for the productivity adjustment , and a 0.3 % reduction to the market basket as defined by ppaca . the following table shows the hospice medicare payment rates for fiscal year 2014 , which began on october 1 , 2013 and ended september 30 , 2014 : description rate per patient day routine home care $ 156.06 continuous home care $ 910.78 full rate = 24 hours of care $ 37.95 = hourly rate inpatient respite care $ 161.42 general inpatient care $ 694.19 on august 22 , 2014 , cms released its final rule for hospice for fiscal year 2015 , which increased medicare reimbursement payments by 1.4 % over fiscal year 2014. the 1.4 % increase consists of a 2.9 % inflationary market basket update offset by a 0.7 % reduction related to the wage index changes and the sixth year of cms 's seven-year phase-out of its wage index budget neutrality adjustment factor , a 0.5 % reduction for the productivity adjustment , and a 0.3 % reduction to the market based as defined by ppaca . the following table shows the hospice medicare payment rates for fiscal year 2014 , which began on october 1 , 2014 and will end september 30 , 2015 : description rate per patient day routine home care $ 159.34 continuous home care $ 929.91 full rate = 24 hours of care $ 38.75 = hourly rate inpatient respite care $ 164.81 general inpatient care $ 708.77 facility-based services on december 26 , 2013 , president obama signed into law the bipartisan budget act of 2013 ( public law 113-67 ) . this new law prevents a scheduled payment reduction for physicians and other practitioners who treat medicare patients from taking effect on january 1 , 2014. included in the legislation are the following changes to ltach reimbursement : 35 medicare discharges from ltachs will continue to be paid at full ltach-pps rates if : the patient spent at least three days in a short-term care hospital ( `` stch '' ) intensive care unit ( `` icu '' ) during a stch stay that immediately preceded the ltach stay , or the patient was on a ventilator for more than 96 hours in the ltach ( based on the ms-ltach drg assigned ) and had a stch stay immediately preceding the ltach stay . also , the ltach discharge can not have a principal diagnosis that is psychiatric or rehabilitation . all other medicare discharges from ltachs will be paid at a new “ site neutral ” rate , which is the lesser of : the ipps comparable per diem amount determined using the formula in the short-stay outlier regulation at 42 c.f.r . § 412.529 ( d ) ( 4 ) plus applicable outlier payments , or 100 % of the estimated cost of the services involved . story_separator_special_tag the above new payment policy will not be effective until ltach cost reporting periods beginning on or after october 1 , 2015 , and the site neutral payment rate will be phased-in over three years . for cost reporting periods beginning on or after october 1 , 2015 , discharges paid at the site neutral payment rate or by a medicare advantage plan ( part c ) will be excluded from the ltach average length-of-stay ( “ alos ” ) calculation . for cost reporting periods beginning in fiscal year 2016 and later , cms will notify ltachs of their “ ltach discharge payment percentage ” ( i.e. , the number of discharges not paid at the site neutral payment rate divided by the total number of discharges ) . for cost reporting periods beginning in fiscal year 2020 and later , ltachs with less than 50 % of their discharges paid at the full ltach-pps rates will be switched to payment under the ipps for all discharges in subsequent cost reporting periods . however , cms will set up a process for ltachs to seek reinstatement of ltach-pps rates for applicable discharges . medpac will study the impact of the above changes on quality of care , use of hospice and other post-acute care settings , different types of ltachs and growth in medicare spending on ltachs . medpac is to submit a report to congress with any recommendations by june 30 , 2019. the report is to also include medpac 's assessment of whether the 25 percent rule should continue to be applied . 25 percent rule relief for freestanding ltachs , hwhs and satellite facilities will be extended without interruption for cost reporting periods beginning on or after december 29 , 2007 through december 28 , 2016. grandfathered hwhs will be permanently exempt from the 25 percent rule . cms must report to congress by december 18 , 2015 on whether the 25 percent rule should continue to be applied . the moratorium on new ltach facilities and increases in ltach beds will be renewed for the period from april 1 , 2014 to september 30 , 2017. although the introductory language only refers to a moratorium extension for ltach bed increases , the amendment to the medicare , medicaid , and schip extension act ( `` mmsea '' ) would extend both moratoriums . no exceptions will apply during this extension of the moratoriums . the original rule renewed the moratorium for the period beginning january 1 , 2015 ; however , a provision with hr4302 accelerated the moratorium period beginning on april 1 , 2014. not later than october 1 , 2015 , cms will establish a new functional status quality measure for change in mobility of ventilator patients . as part of the fiscal year 2015 or 2016 rulemaking , cms is to study payment rates and regulations that apply to the special category of neoplastic disease ltachs and may adjust such payment rates . on august 4 , 2014 , cms released its final rule for ltach medicare reimbursement for fiscal year 2015 , which began on october 1 , 2014 and will end on september 30 , 2015. in the aggregate , payments for fiscal year 2015 will increase by 1.1 % over fiscal year 2014 rates . the 1.1 % increase consists of a 2.9 % inflationary market basket update , offset by a 0.5 % reduction for the productivity adjustment , and a 0.2 % reduction to the market basket as defined by ppaca . ltach payment rates will also be reduced by approximately 1.3 % for the `` one-time '' budget neutrality adjustment factor under the last year of a three-year phase-in and increased by 0.2 % for wage index budget neutrality adjustment . none of the above described estimated changes to medicare payments for home health , hospice and ltachs for 2014 include the deficit reduction sequester cuts to medicare that began on april 1 , 2013 , which reduced medicare payments by 2 % for patients whose service dates ended on or after april 1 , 2013 . 36 2014 and 2013 operational data the following table sets forth , for the period indicated , each of our segment 's data regarding census , aggregate admissions , medicare admissions , billable hours and patient days : replace_table_token_8_th 37 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > . consolidated net service revenue growth in 2013 was primarily due to an increase in census and admits as well as revenue growth from our acquisition of 25 agencies during 2013. consolidated net service revenue was comprised of the following for the periods ending december 31 : replace_table_token_15_th revenue derived from medicare represented 79.8 % and 77.9 % of our consolidated net service revenue for the years ended december 31 , 2013 and 2012 , respectively . 41 the following table sets for each of our segment 's revenue growth or loss , admissions , census , episodes and patient days for the twelve months ended december 31 , 2013 and the related change for the same period in 2012 ( amounts in thousands , except admissions , census , episode data and patient days ) : replace_table_token_16_th ( 1 ) same store - location that has been in service with us for greater than 12 months . ( 2 ) de novo - internally developed location that has been in service with us for 12 months or less . ( 3 ) organic - combination of same store and de novo . ( 4 ) acquired - purchased location that has been in service with us 12 months or less . organic growth is primarily generated by population growth in areas covered by mature agencies , agencies five years old or older , and by increased market share in acquired and developing agencies .
| organic growth is primarily generated by population growth in areas covered by mature agencies , agencies five years old or older , and by increased market share in acquired and developing agencies . historically , acquired agencies have the highest growth in admissions and average census in the first 24 months after acquisition , and have the highest contribution to organic growth , measured as a percentage of growth , in the second full year of operation after the acquisition . the primary strategies to increase organic growth include differentiating ourselves from our competitors through our patient care services and quality outcomes , focusing our sales efforts on our agencies , in particular agencies acquired in the last three years , which have not fully developed their coverage in secondary markets and developing “ greenfield ” opportunities . greenfield opportunities exist in secondary markets by executing on three service delivery alternatives : ( 1 ) utilizing poc technology , ( 2 ) developing drop sites or virtual offices , and ( 3 ) opening traditional branches or de novo locations . 39 cost of service revenue consolidated cost of service revenue for the year ended december 31 , 2014 was $ 434.8 million compared to $ 383.5 million for the same period in 2013 , an increase of approximately $ 51.3 million , or 13.4 % . the following table summarizes cost of service revenue ( amounts in thousands , except percentages , which are percentages of the segment 's respective net service revenue ) : replace_table_token_13_th the increase in cost of service revenue was related to the acquisitions of deaconess and elk valley , and life care home health , inc. , which was offset by productivity improvements and efficiencies derived from our poc technology . provision for bad debts consolidated provision for bad debts for the year ended december 31 , 2014 was $ 15.8 million compared to $ 13.9 million for the same period in 2013 , an increase of approximately $ 1.9 million , or 13.7 % . on a consolidated basis , provision for bad debts as a percentage of net
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ebitda provides us with a measure of financial performance , independent of items that are beyond the control of management in the short-term , such as dividends required on preferred stock , depreciation and amortization , taxation and interest expense associated with our capital structure . this metric measures our financial performance based on operational factors that management can impact in the short-term , namely the cost structure or expenses of the organization . ebitda is one of the metrics used by senior management and the board of directors to review the financial performance of the business on a regular basis . ebitda is also used by research analysts and investors to evaluate the performance and value of companies in our industry . limitations of ebitda ebitda has limitations as an analytical tool . it should not be viewed in isolation or as a substitute for u.s. gaap measures of earnings . material limitations in making the adjustments to our earnings to calculate ebitda , and using this non-u.s. gaap financial measure as compared to u.s. gaap net income ( loss ) , include : · the cash portion of dividends , interest expense and income tax ( benefit ) provision generally represent charges ( gains ) , which may significantly affect our financial results ; and · depreciation and amortization , though not directly affecting our current cash position , represent the wear and tear and or reduction in value of our fixed assets and may be indicative of future needs for capital expenditures . an investor or potential investor may find this item important in evaluating our performance , results of operations and financial position . we use non-u.s. gaap financial measures to supplement our u.s. gaap results in order to provide a more complete understanding of the factors and trends affecting our business . ebitda is not an alternative to net income , income from operations or cash flows provided by or used in operations as calculated and presented in accordance with u.s. gaap . you should not rely on ebitda as a substitute for any such u.s. gaap financial measure . we strongly urge you to review the reconciliation of ebitda to u.s. gaap net income ( loss ) attributable to common stockholders , along with our consolidated financial statements included herein . we also strongly urge you to not rely on any single financial measure to evaluate our business . in addition , because ebitda is not a measure of financial performance under u.s. gaap and is susceptible to varying calculations , the ebitda measure , as presented in this report , may differ from and may not be comparable to similarly titled measures used by other companies . 17 the table below shows the reconciliation of net income ( loss ) from continuing operations attributable to common stockholders to ebitda for the years ended december 31 , 2014 and 2013 ( dollars in thousands ) : years ending december 31 , 2014 2013 net income ( loss ) on continuing operations attributable to common stockholders * $ ( 2,399 ) $ 4,918 add : dividends on redeemable preferred stock 345 342 depreciation and amortization .. 684 498 interest expense and other ( income ) , net 165 ( 54 ) provision ( benefit ) for income taxes ( 334 ) 713 ebitda $ ( 1,539 ) $ 6,417 * net income ( loss ) from continuing operations less the dividends on redeemable convertible preferred stock . backlog backlog is another non-gaap indicator management uses to measure the level of outstanding orders . effective in the second quarter , the company changed its methodology for calculating backlog . while the change has no impact on orders that are not yet under construction , the company believes the new method better reflects the amount of work remaining on orders under construction that extend beyond quarter end . both methods will be shown through year-end 2014. beginning in 2015 , we will discontinue the reporting of the previous methodology . replace_table_token_8_th 18 foreign joint ventures : summary financial information of bomay , miefe and aag in u.s. dollars was as follows at december 31 , 2014 and 2013 ( in thousands ) : replace_table_token_9_th the company 's investments in and advances to its foreign joint ventures ' operations were as follows as of december 31 , 2014 and 2013 : replace_table_token_10_th * accumulated statutory reserves in equity method investments of $ 2.1 and $ 1.9 million at december 31 , 2014 and 2013 , respectively , are included in aeti 's consolidated retained earnings . in accordance with the people 's republic of china , ( “ prc ” ) , regulations on enterprises with foreign ownership , an enterprise established in the prc with foreign ownership is required to provide for certain statutory reserves , namely ( i ) general reserve fund , ( ii ) enterprise expansion fund and ( iii ) staff welfare and bonus fund , which are appropriated from net profit as reported in the enterprise 's prc statutory accounts . a non-wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors . the aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends . 19 the company accounts for its investments in foreign joint ventures ' operations using the equity method of accounting . under the equity method , the company 's share of the joint ventures ' operations ' earnings or loss is recognized in the consolidated statements of operations as equity income ( loss ) from foreign joint ventures ' operations . joint venture income increases the carrying value of the joint ventures and joint venture losses reduce the carrying value . dividends received from the joint ventures reduce the carrying value . story_separator_special_tag the equity income for the company 's interest in the three joint ventures for 2014 and 2013 was : bomay $ 2,054 vs. $ 2,066 , aag $ 2 vs. $ 843 and miefe $ 138 vs. $ 115. these results reflect the relative size and activity in the three distinct markets of china , brazil and singapore . bomay 's results reflects the market for land rigs in china with increasing exports to international markets . the 2014 aag results reflect that the company exited the aag joint venture in april 2014. historically , the operating results of bomay have appeared almost seasonal as budgets were established for new years in march and the companies worked to complete production to meet targets . after annual targets were met in the second or third quarter , only minimal new production results were reported in the fourth quarter . most of bomay 's production is for bomco for the chinese national petroleum corporation for land drilling in china . at december 31 , 2014 there were inventories and work in progress at bomay of approximately $ 37 million compared to approximately $ 60 million at december 31 , 2013. we expect much of this will be invoiced in 2015 after new budgets are established and products accepted . additionally , new international orders will be completed and recognized . the 2015 level may approach recent years ' results . bomay has addressed downturns with reduced staff and other cost cutting measures . story_separator_special_tag style= '' text-align : center ; margin-bottom:0pt ; margin-top:12pt ; text-indent:0 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 21 income tax provisions the ( benefit from ) provision for income taxes for 2014 was $ 334,000 savings compared to expense of $ 713,000 in 2013. these amounts reflect the valuation allowance related to the company 's net deferred tax assets related to its u.s. operation . see note 7 income taxes to the consolidated financial statements included in this report for further details . the 2014 and 2013 tax accruals represent u.s. taxes on the foreign joint ventures equity income less dividends and proceeds received . during 2014 the combined dividends and proceeds exceeded the equity incomes and a credit ( savings ) was recognized at 34 % . in 2013 the equity incomes exceeded the dividends and tax expenses was reflected at 34 % . liquidity and capital resources december 31 , 2014 ( in thousands except percentages and ratios ) working capital $ 11,348 current ratio 2.1 to 1 total debt $ 4,000 debt as a percent of total capitalization 16 % consolidated net worth * $ 25,553 * “ consolidated net worth ” represents the company 's consolidated total assets less consolidated total liabilities . aeti 's long-term debt as of december 31 , 2014 was $ 3.8 million on which payments were current . see note 8 notes payable for discussion of recent financial activity . notes payable on november 12 , 2014 the company entered into an amendment with jp morgan chase bank n.a ( “ chase ” ) which extended the maturity of the facility to october 1 , 2017. additionally , the amendment modified the interest rate to libor plus 3.00 % per annum and the commitment fee to 0.4 % per annum for the unused portion of the credit limit each quarter . the amendment provided for the exclusion of up to $ 4.9 million of capital expenditures related to the company 's beaumont facility expansion from the fixed charge coverage ratio . the amendment also waived the $ 1.00 net income requirement for the period ended september 30 , 2014 and modified the requirement at december 31 , 2014 to be calculated using only the most recent three month period . the company and chase executed a third amendment to credit agreement , amendment to revolving credit note and limited waiver effective march 13 , 2015. see note 8 notes payable for a complete discussion of this transaction . the agreement is collateralized by the company 's real estate in beaumont , texas , trade accounts receivable , equipment , inventories , work-in-progress and investments in foreign subsidiaries , and the company 's u.s. subsidiaries are guarantors of the borrowing . the company has $ 4.0 million of borrowings outstanding under the jp morgan chase n.a . credit agreement at december 31 , 2014 and $ 0.5 million at december 31 , 2013. the company had additional borrowing capacity of $ 3.2 million and $ 7.9 million at december 31 , 2014 and december 31 , 2013 respectively . in conjunction with the facility expansion at beaumont completed in june 2014 , interest was capitalized at the 30 day libor rate plus 3.25 % per annum . interest capitalized for the twelve months ending december 31 , 2014 and 2013 was $ 18,000 and none respectively . sources and use of cash we derive the majority of our operating cash inflow from receipts from the sale of goods and services and cash outflow is used for the procurement of materials and labor . accordingly , cash flow is subject to market fluctuations and conditions . a substantial portion of our business , primarily construction and products , is characterized by long-term contracts . most of our long-term contracts allow for several progress billings that provide us with cash receipts as costs are incurred throughout the project , rather than upon 22 contract completion , thereby reducing working capital requirements . we also utilize borrowings under our revolving credit agreement , discussed in the preceding section , for our cash needs .
| the decrease is primarily due to cost overruns in the second half of the year on both the manufacturing start-up of large pdc projects and the company 's new arc-resistant switchgear . additionally , the write-down of the company 's remaining solar business assets and an increase in the company 's warranty reserves on new products contributed to the decreased margins in the second half of the year . electrical and instrumentation construction ( see segment financial data on page 6 ) net sales from electrical and instrumentation construction ( e & i ) for the year ended december 31 , 2014 was $ 7.3 million , a decrease of $ 2.8 million or 27.8 % from the 2013 year , primarily due to lower overall construction sales caused by both a reduced sales focus on non-tp & s related construction projects and a reduction in the amount of time and materials based projects . gross profit from e & i was $ 0.9 million for the year ended december 31 , 2014 compared to the year ended december 31 , 2013 , a decrease of $ 1.2 million or 59 % from 2013. the decrease is primarily due cost overruns on three large construction projects and the impact lower overall e & i revenue levels . research and development costs research and development costs were $ 0.8 million for the year ended december 31 , 2014 compared to $ 0.5 million for the year ended december 31 , 2013. this increase was primarily due to increased development of the company 's arc-resistant products and ongoing development of the company 's drillassist technology . selling and marketing expenses selling and marketing expenses were $ 2.5 million for the year ended december 31 , 2014 compared to $ 2.2 million for the year ended december 31 , 2013. selling and marketing expense , as a percentage of net sales , increased from 3.6 % to 4.4 % due to lower overall revenue levels and the onboarding during the year of new sales personnel . general and administrative expenses general and administrative ( g & a ) expenses were $ 5.6 million for the year
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we believe that providing these non-gaap measures affords investors a view of our operating results that may be more easily compared to our peer companies and against prior periods by enabling investors to consider our operating results on both a gaap and non-gaap basis during periods where gaap results were affected by non-recurring events , such as our acquisition of network general in 2007. these non-gaap measures are not in accordance with gaap , should not be considered an alternative for measures prepared in accordance with gaap , and may have limitations in that they do not reflect all our results of operations as determined in accordance with gaap . these non-gaap measures should only be used to evaluate our results of operations in conjunction with the corresponding gaap measures . the presentation of non-gaap information is not meant to be considered superior to , in isolation from or as a substitute for results prepared in accordance with gaap . 32 the following table reconciles revenue , net income and net income per share on a gaap and non-gaap basis for the years ended march 31 , 2011 , 2010 and 2009 ( in thousands ) : replace_table_token_6_th critical accounting policies we consider accounting policies related to cash , cash equivalents and marketable securities , revenue recognition , commission expense , uncollected deferred product revenue , valuation of inventories , assumptions related to purchase accounting , valuation of goodwill and acquired intangible assets , capitalization of software development costs , derivative financial instruments , share based compensation and income taxes to be critical in fully understanding and evaluating our financial results . the application of these policies involves significant judgments and estimates by us . cash and cash equivalents and marketable securities we account for our investments in accordance with authoritative guidance . under the provisions , we have classified our investments as available-for-sale which are carried at fair value based on quoted market prices and associated unrealized gains or losses are recorded as a separate component of stockholders ' equity until realized . we consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and those with maturities greater than three months are considered to be marketable securities . cash and cash equivalents typically consist of money market instruments , commercial paper with a maturity of three months or less and cash maintained with various financial institutions . marketable securities generally consist of u.s. treasury bills , commercial paper with an original maturity of greater than three months , u.s. government bonds , certificates of deposit , agency bonds , corporate bonds , auction rate securities and municipal bonds . long-term marketable securities consist of auction rate securities , u.s. treasury bills , corporate bonds and certificates of deposit . the auction rate securities we hold are all collateralized by student loans with underlying support by the federal government through the federal family education loan program ( ffelp ) and by monoline insurance companies . auction rate securities typically were stated at par value prior to february 2008 due to liquidity provided through the auction process . while we continue to earn interest on auction rate securities , the failure of these auctions has created illiquidity . as a result , par value no longer approximates the 33 estimated fair value of auction rate securities . a discounted cash flow model was used to determine the estimated fair value of our investments in auction rate securities as of march 31 , 2011 and 2010. the assumptions used in preparing the discounted cash flow model include estimates for interest rates , timing and amount of cash flows , a liquidity risk premium and expected holding periods of the investments . based on this assessment of fair value , as of march 31 , 2011 we have recorded a cumulative decline in the fair value of auction rate securities of $ 2.3 million ( $ 1.4 million net of tax ) which was deemed temporary . assumptions used to value these securities and in determining the temporary nature of this impairment require significant judgment by management . changes in the assumptions could result in materially different estimates of fair values and the failure of these securities to return to par value or a decision by management to sell these securities at a loss could have a material adverse impact on earnings . revenue recognition in october 2009 , the fasb amended the accounting standards for revenue recognition to remove tangible products containing software components and non-software components that function together to deliver the product 's essential functionality from the scope of industry-specific software revenue recognition guidance . in october 2009 , the fasb also amended the accounting standards for multiple deliverable revenue arrangements to : ( i ) provide updated guidance on how the deliverables in a multiple deliverable arrangement should be separated , and how the consideration should be allocated ; ( ii ) require an entity to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence ( vsoe ) of selling price or third-party evidence of selling price ; and ( iii ) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method . we elected to early adopt this accounting guidance at the beginning of our first quarter of fiscal year 2011 on a prospective basis for applicable transactions originating or materially modified after april 1 , 2010. the adoption of this guidance did not have a material impact on our financial position or results of operations for the fiscal year ended march 31 , 2011. the following reflects our updated policy for revenue recognition . product revenue consists of sales of our hardware products ( which include embedded software that works together with the hardware to deliver the product 's essential functionality ) , licensing of our software products , and sale of hardware bundled with a software license . story_separator_special_tag product revenue is recognized upon shipment , provided that evidence of an arrangement exists , title and risk of loss have passed to the customer , fees are fixed or determinable and collection of the related receivable is probable . because many of our solutions are comprised of both hardware and more than incidental software components , we recognize our revenue in accordance with authoritative guidance on both hardware and software revenue recognition . service revenue consists primarily of fees from customer support agreements , consulting and training . we generally provide software and hardware support as part of product sales . revenue related to the initial bundled software and hardware support is recognized ratably over the support period . in addition , customers can elect to purchase extended support agreements for periods after the initial software warranty expiration , typically for 12-month periods . revenue from customer support agreements is recognized ratably over the support period . revenue from consulting and training services is recognized as the work is performed . multi-element arrangements are concurrent customer purchases of a combination of our product and service offerings that may be delivered at various points in time . for multi-element arrangements comprised only of hardware products and related services , we allocate the total transaction revenue to the multiple elements based on each element 's relative fair value compared to the total fair value of all the elements . each element 's relative 34 fair value is based on management 's best estimate of selling price ( besp ) paid by customers based on the element 's historical pricing . we review the sales of all products and services quarterly and update , when appropriate , our best estimate of selling price for each element to ensure that it reflects our recent pricing experience . for multi-element arrangements comprised only of software products and related services , we allocate a portion of the total purchase price to the undelivered elements , primarily support agreements and training , using vsoe of fair value for the undelivered elements . the remaining portion of the total transaction value is allocated to the delivered software , referred to as the residual method . vsoe of fair value of the undelivered elements is based on the price customers pay when the element is sold separately . we review the separate sales of the undelivered elements on a quarterly basis and update , when appropriate , our vsoe of fair value for such elements to ensure that it reflects our recent pricing experience . for multi-element arrangements comprised of a combination of hardware and software elements , the total transaction value is bifurcated between the hardware elements and the software elements based on the relative selling prices of the hardware elements and the software elements as a group . then , revenue for the hardware and hardware-related services is recognized following the hardware revenue recognition methodology outlined above and revenue for the software and software-related services is recognized following the residual method . commission expense we recognize commission expense related to the renewal of maintenance contracts at the time an order is booked . as a result , commission expense can be recognized in full even though the related revenue may not be fully recognized . commission expense on product revenue and corresponding new maintenance contracts is recognized in the same period as the related product revenue , typically upon shipment . uncollected deferred product revenue because of our revenue recognition policies , there are circumstances for which we are unable to recognize product revenue relating to sales transactions that have been shipped and billed . while the receivable represents an enforceable obligation , for balance sheet presentation purposes we have not recognized the deferred revenue or the related account receivable and no amounts appear in our consolidated balance sheets for such transactions . the aggregate amount of unrecognized accounts receivable and deferred revenue was $ 183 thousand and $ 2.0 million at march 31 , 2011 and 2010 , respectively . valuation of inventories inventories are stated at the lower of actual cost or their net realizable value . cost is determined by using the first-in , first-out ( fifo ) method . inventories consist primarily of raw materials and finished goods . inventory carrying values are reduced to our estimate of net realizable value . we regularly monitor our inventories for potential obsolete and excess inventory . our net realizable value adjustment is based upon our estimates of forecasts of unit sales , expected timing and impact of new product introductions , historical product demand , current economic trends , expected market acceptance of our products and expected customer buying patterns . we adjust the carrying value of inventory to reflect its net realizable value when lower than original cost . significant judgments and estimates are made when establishing the net realizable value adjustment . if these accounting judgments and estimates prove to be materially inaccurate , our financial results could be materially and adversely impacted in future periods . valuation of goodwill and acquired intangible assets the carrying value of goodwill was $ 128.2 million as of march 31 , 2011 and 2010. goodwill is reviewed for impairment at the enterprise-level at least annually or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired . 35 we consider the market capitalization of our outstanding common stock versus our stockholders ' equity as one indicator that may potentially trigger an impairment of goodwill analysis . significant judgments and estimates are made when assessing impairment . if these accounting judgments and estimates prove to be materially inaccurate , goodwill may be determined to be impaired and our financial results could be materially and adversely impacted in future periods . likewise , if a future event or circumstance indicates that an impairment assessment is required and goodwill is determined to be impaired , our financial results could be materially and adversely impacted in future periods .
| as the fair value adjusted deferred revenue has amortized over time , it comprised a smaller proportion of total maintenance revenue during the fiscal year ended march 31 , 2011. subsequent maintenance renewal contracts are recorded at their full value and thus result in higher recorded revenue . we also recognized $ 1.7 million in training and consulting revenue during the fiscal year ended march 31 , 2011 from non-refundable expired contracts . in prior years , we had not been able to demonstrate that we had fulfilled our obligations . however , starting with the quarter ended june 30 , 2010 , we were able to demonstrate that our obligations had been fulfilled related to the non-refundable expired contracts . while we will continue to recognize revenue from non-refundable contracts , we do not expect the revenue in future quarters to be significant . total product and service revenue from direct and indirect channels are as follows : replace_table_token_8_th 38 the 8 % , or $ 12.6 million , increase in indirect channel revenue is the result of an increase in international sales . sales to customers outside the united states are primarily export sales through channel partners , who are generally responsible for distributing our products and providing technical support and service to customers within their territories . our reported international revenue does not include any revenue from sales to customers outside the united states that are shipped to our united states-based indirect channel partners . these domestic resellers fulfill customer orders based upon joint selling efforts in conjunction with our direct sales force and may subsequently ship our products to international locations ; however , we report these shipments as united states revenue since we ship the products to a domestic location . the 17 % , or $ 17.6 million , increase in direct channel revenue and change in sales mix between direct and indirect is primarily the result of increased domestic revenue from our service provider and enterprise sectors , as well as the $ 1.2 million reduction
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while management has concluded that the current evaluation of collateral values is reasonable under the circumstances , if collateral values were significantly lower , the company 's allowance for loan loss policy would also require additional provision for loan losses . 25 management is required to make various assumptions in valuing its pension assets and liabilities . these assumptions include the expected rate of return on plan assets , the discount rate , and the rate of increase in future compensation levels . changes to these assumptions could impact earnings in future periods . the company takes into account the plan asset mix , funding obligations , and expert opinions in determining the various rates used to estimate pension expense . the company also considers the citigroup pension liability index , market interest rates and discounted cash flows in setting the appropriate discount rate . in addition , the company reviews expected inflationary and merit increases to compensation in determining the rate of increase in future compensation levels . management of the company considers the accounting policy relating to other-than-temporary impairment to be a critical accounting policy . management systematically evaluates certain assets for other-than-temporary declines in fair value , primarily investment securities . management considers historical values and current market conditions as a part of the assessment . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings and the amount of the total other-than-temporary impairment related to other factors is generally recognized in other comprehensive income , net of applicable taxes . the company is subject to examinations from various taxing authorities . such examinations may result in challenges to the tax return treatment applied by the company to specific transactions . management believes that the assumptions and judgments used to record tax-related assets or liabilities have been appropriate . should tax laws change or the taxing authorities determine that management 's assumptions were inappropriate , an adjustment may be required which could have a material effect on the company 's results of operations . as a result of acquisitions , the company has acquired goodwill and identifiable intangible assets . goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date . goodwill is evaluated at least annually or when business conditions suggest that an impairment may have occurred . goodwill will be reduced to its carrying value through a charge to earnings if impairment exists . core deposits and other identifiable intangible assets are amortized to expense over their estimated useful lives . the determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows . it also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates , required equity market premiums and company-specific risk indicators , all of which are susceptible to change based on changes in economic conditions and other factors . future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on the company 's results of operations . the company 's policies on the allowance for loan losses , pension accounting , other-than-temporary impairments , provision for income taxes , goodwill and intangible assets are disclosed in note 1 to the consolidated financial statements . a more detailed description of the allowance for loan losses is included in the section captioned “ risk management – credit risk ” in item 7. management 's discussion and analysis of financial condition and results of operations of this form 10-k. all significant pension accounting assumptions , income tax assumptions , and intangible asset assumptions and detail are disclosed in notes 13 , 12 and 7 to the consolidated financial statements , respectively . all accounting policies are important , and as such , the company encourages the reader to review each of the policies included in note 1 to obtain a better understanding of how the company 's financial performance is reported . non-gaap measures this annual report on form 10-k contains financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( gaap ) . these measures adjust gaap to exclude the effects of sales of securities , merger-related expenses , and other items not considered core to the company 's operations . where non-gaap disclosures are used in this annual report on form 10-k , the comparable gaap measure , as well as a reconciliation to the comparable gaap measure , is provided in the accompanying table . management believes that these non-gaap measures provide useful information that is important to an understanding of the operating results of the company 's core business due to the nature of the excluded items not considered core to operations . non-gaap measures should not be considered a substitute for financial measures determined in accordance with gaap and investors should consider the company 's performance and financial condition as reported under gaap and all other relevant information when assessing the performance or financial condition of the company . 26 story_separator_special_tag impact noninterest income , noninterest expense and earnings . ● competitive pressure on deposits could result in an increase in interest expense if interest rates begin to rise . ● the company 's 2015 outlook is subject to factors in addition to those identified above and those risks and uncertainties that could impact the company 's future results are explained in item 1a . risk factors . 29 asset/liability management the company attempts to maximize net interest income and net income , while actively managing its liquidity and interest rate sensitivity through the mix of various core deposit products and other sources of funds , which in turn fund an appropriate mix of earning assets . story_separator_special_tag the changes in the company 's asset mix and sources of funds , and the resulting impact on net interest income , on a fully tax equivalent basis , are discussed below . the following table includes the condensed consolidated average balance sheet , an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest bearing liabilities on a taxable equivalent basis . interest income for tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35 % . replace_table_token_10_th 1. securities are shown at average amortized cost . 2. for purposes of these computations , nonaccrual loans are included in the average loan balances outstanding . the interest collected thereon is included in interest income based upon the characteristics of the related loans . 30 2014 operating results as compared to 2013 operating results net interest income net interest income was $ 251.9 million for the year ended december 31 , 2014 , up 5.8 % from 2013. fully taxable equivalent ( “ fte ” ) net interest margin was 3.61 % for the year ended december 31 , 2014 , down from 3.66 % for 2013. average interest earning assets were up $ 450.9 million , or 6.8 % , for the year ended december 31 , 2014 as compared to the same period in 2013. this increase was driven primarily by the acquisition of alliance in march 2013 as well as organic loan production during the past several quarters . the net interest impact from the increase in average interest earning assets was partially offset by rate compression on earning assets , as their yield decreased from 4.12 % during the year ended december 31 , 2013 to 3.94 % for 2014. this rate compression was driven primarily by decreasing loan yields from 4.69 % in 2013 to 4.42 % for 2014. as a result of the increase in average earning assets , interest income was up 2.4 % for the year ended december 31 , 2014 as compared to 2013. average interest bearing liabilities increased $ 211.5 million , or 4.3 % , for the year ended december 31 , 2014 as compared to 2013. this increase was due primarily to an increase in deposits resulting from organic deposit growth as well as the aforementioned acquisition of alliance . the rates paid on interest bearing liabilities for 2014 decreased by 17 basis points from 2013. this decrease was primarily driven by a decrease of 8 basis points in rates paid on deposits from improved funding mix as well as a 55 basis point decrease in the rate paid on long-term debt due primarily to maturity of long-term debt in the prior year , as well as the debt restructuring completed in the third quarter of 2014. the following table presents changes in interest income , on a fte basis , and interest expense attributable to changes in volume ( change in average balance multiplied by prior year rate ) , changes in rate ( change in rate multiplied by prior year volume ) , and the net change in net interest income . the net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of change . replace_table_token_11_th loans and corresponding interest and fees on loans the average balance of loans increased by approximately $ 421.4 million , or 8.3 % , from 2013 to 2014. the yield on average loans decreased from 4.69 % in 2013 to 4.42 % in 2014 , as loan rates declined due to the continued low rate environment in 2014. interest income from loans on a fte basis increased 1.9 % , from $ 239.6 million in 2013 to $ 244.2 million in 2014. this increase was due to the increase in average loan balances noted above , partially offset by the decrease in yields . total loans increased $ 188.5 million , or 3.5 % , from december 31 , 2013 to december 31 , 2014. increases in residential real estate mortgages , commercial real estate loans , and consumer loans were the primary drivers of the increase in total loans from 2013 as the company experienced strong originations in 2014 in the upstate new york and vermont markets . 31 the following table reflects the loan portfolio by major categories as of december 31 for the years indicated : replace_table_token_12_th residential real estate mortgages consist primarily of loans secured by first or second deeds of trust on primary residences . loans in the commercial and agricultural categories , including commercial and agricultural real estate mortgages , consist primarily of short-term and or floating rate loans made to small and medium-sized entities . consumer loans consist primarily of indirect installment credit to individuals , of which approximately 75 % is secured by automobiles and other personal property including marine , recreational vehicles and manufactured housing . consumer loans also consist of direct installment loans to individuals secured by similar collateral . indirect installment loans represent $ 1.3 billion of total consumer loans at december 31 , 2014 , or 92 % . installment credit for automobiles accounts for approximately 74 % of total consumer loans . although automobile loans have generally been originated through dealers , all applications submitted through dealers are subject to the company 's normal underwriting and loan approval procedures . real estate construction and development loans include commercial construction and development and residential construction loans . commercial construction loans are for small and medium sized office buildings and other commercial properties and residential construction loans are primarily for projects located in upstate new york and northeastern pennsylvania . risks associated with the commercial real estate portfolio include the ability of borrowers to pay interest and principal during the loan 's term , as well as the ability of the borrowers to refinance at the end of the loan term .
| ● noninterest income was up 22.1 % over last year driven primarily by gain on the sale of the springstone equity investment recorded in 2014. excluding this gain and gains on securities sales noninterest income was up 4.7 % over last year . ● restructured $ 165 million in long-term borrowings , resulting in $ 17.9 million in gross prepayment penalties ( non-core ) recognized in 2014 , which lowered the cost of the restructured long-term funding by approximately 200 basis points . ● continued strategic expansion in new england in 2014 with new locations in pittsfield , ma. , rutland , vt. and most recently portland , me . with the opening of our maine regional headquarters . the company continued to experience pressure on net interest income in 2014 as low rates continued to have the effect of causing many assets to prepay or to be redeemed . while interest earning assets increased 6.8 % from 2013 , this was partially offset by the reinvestment of cash flows in lower yielding assets resulting in a modest increase in interest income in 2014. the yield on interest earning assets decreased from 4.12 % in 2013 to 3.94 % in 2014 , with drops in the yields on loans and securities held to maturity being the primary drivers . rates paid on interest bearing liabilities also decreased in the low rate environment , which partially offset the decrease in earning asset yields . in particular , the decrease in rates paid on long-term borrowings and the rates paid on time deposits contributed approximately $ 1.7 million and $ 1.6 million , respectively , to the decrease in interest expense in 2014 as compared with 2013. average interest bearing liabilities increased approximately $ 211.5 million from 2013 to 2014 , with the primary driver being the increase in interest bearing deposits . the company also took the following steps in 2014 in an effort to help offset the margin pressure created by the low interest rate environment : ● continued the sale of conforming residential real
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the decrease was primarily due to savings in content agreements , partially offset by increases in personnel costs and reductions in the benefit to earnings from purchase price accounting adjustments associated with the merger attributable to the amortization of the deferred credit on acquired programming executory contracts . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , programming and content expenses were $ 281,234 and $ 305,914 , respectively , a decrease of 8 % , or $ 24,680 , and decreased as a percentage of total revenue . the decrease was primarily due to savings in content agreements and production costs , partially offset by increases in personnel costs and an $ 8,394 reduction in the benefit to earnings from purchase price accounting adjustments associated with the merger attributable to the amortization of the deferred credit on acquired programming executory contracts . excluding the impact from purchase accounting adjustments , based on our current programming offerings , we expect our programming and content expenses to decrease as agreements expire and are renewed or replaced on more cost effective terms . the impact of purchase price accounting adjustments associated with the merger attributable to the amortization of the deferred credit on acquired programming executory contracts will continue to decline , in absolute amount and as a percentage of reported programming and content costs , through 2015. substantially all of the deferred credits on executory contracts will be amortized by the end of 2013. customer service and billing includes costs associated with the operation and management of third party customer service centers , and our subscriber management systems as well as billing and collection costs , transaction fees and bad debt expense . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , customer service and billing expenses were $ 294,980 and $ 259,719 , respectively , an increase of 14 % , or $ 35,261 , but remained flat as a percentage of total revenue . the increase was primarily due to longer average handle time per call and higher subscriber volume driving increased subscriber contacts and higher technology costs . 25 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , customer service and billing expenses were $ 259,719 and $ 241,680 , respectively , an increase of 7 % , or $ 18,039 , but remained flat as a percentage of total revenue . the increase was primarily attributable to an 8 % increase in daily weighted average number of subscribers which drove higher call volume , billing and collection costs , transaction fees , as well as increased handle time per call and personnel costs . this increase was partially offset by lower agent rates , fewer contacts per subscriber and lower general operating costs . we expect our customer service and billing expenses to increase as our subscriber base grows . satellite and transmission consists of costs associated with the operation and maintenance of our satellites ; satellite telemetry , tracking and control systems ; terrestrial repeater networks ; satellite uplink facilities ; broadcast studios ; and delivery of our internet streaming service . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , satellite and transmission expenses were $ 72,615 and $ 75,902 , respectively , a decrease of 4 % , or $ 3,287 , and decreased as a percentage of total revenue . the decrease was primarily due to a reduction of satellite in-orbit insurance expense as we elected not to renew insurance policies on certain older satellites . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , satellite and transmission expenses were $ 75,902 and $ 80,947 , respectively , a decrease of 6 % , or $ 5,045 , and decreased as a percentage of total revenue . the decrease was due to savings in repeater expenses from network optimization along with favorable lease renewals , a reduction of satellite in-orbit insurance expense , and a transition to more cost-effective approaches to satellite and broadcast operations . we expect overall satellite and transmission expenses to increase as we enhance our internet-based service and add functionality , launch our fm-6 satellite and incur in-orbit insurance costs , and extend our terrestrial repeater network . cost of equipment includes costs from the sale of satellite radios , components and accessories and provisions for inventory allowance attributable to products purchased for resale in our direct to consumer distribution channels . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , cost of equipment was $ 31,766 and $ 33,095 , respectively , a decrease of 4 % , or $ 1,329 , and decreased as a percentage of equipment revenue . the decrease was primarily due to lower direct to consumer sales , partially offset by higher inventory reserves . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , cost of equipment was $ 33,095 and $ 35,281 , respectively , a decrease of 6 % , or $ 2,186 , and decreased as a percentage of equipment revenue . the decrease was primarily due to lower volume of direct to consumer sales . we expect cost of equipment to vary with changes in sales , supply chain management and inventory valuations . subscriber acquisition costs include hardware subsidies paid to radio manufacturers , distributors and automakers , including subsidies paid to automakers who include a satellite radio and subscription to our service in the sale or lease price of a new vehicle ; subsidies paid for chip sets and certain other components used in manufacturing radios ; device royalties for certain radios and chip sets ; commissions paid to automakers as incentives to purchase , install and activate satellite radios ; product warranty obligations ; freight ; and provisions for inventory allowances attributable to inventory consumed in our oem and retail distribution channels . story_separator_special_tag the majority of subscriber acquisition costs are incurred and expensed in advance of , or concurrent with , acquiring a subscriber . subscriber acquisition costs do not include advertising , marketing , loyalty payments to distributors and dealers of satellite radios or revenue share payments to automakers and retailers of satellite radios . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , subscriber acquisition costs were $ 474,697 and $ 434,482 , respectively , an increase of 9 % , or $ 40,215 , and decreased as a percentage of total revenue . the increase was primarily a result of higher subsidies related to increased oem installations occurring in advance of acquiring the subscriber , partially offset by improved oem subsidy rates per vehicle and increases in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the merger . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , subscriber acquisition costs were $ 434,482 and $ 413,041 , respectively , an increase of 5 % , or $ 21,441 , and decreased as a percentage of total revenue . the increase was primarily a result of the 12 % increase in gross subscriber additions and higher subsidies related to 26 increased oem installations occurring in advance of acquiring the subscriber , partially offset by improved oem subsidy rates per vehicle and a $ 6,052 increase in the benefit to earnings from the amortization of the deferred credit for acquired executory contracts recognized in purchase price accounting associated with the merger . we expect total subscriber acquisition costs to fluctuate with increases or decreases in oem installations and changes in our gross subscriber additions . changes in contractual oem subsidy rates and the cost of subsidized radio components will also impact total subscriber acquisition costs . the impact of purchase price accounting adjustments associated with the merger attributable to the amortization of the deferred credit for acquired executory contracts will vary , in absolute amount and as a percentage of reported subscriber acquisition costs , through the expiration of the acquired contracts in 2013. we intend to continue to offer subsidies , commissions and other incentives to acquire subscribers . sales and marketing includes costs for advertising , media and production , including promotional events and sponsorships ; cooperative marketing ; customer acquisition and retention , and personnel . cooperative marketing costs include fixed and variable payments to reimburse retailers and automakers for the cost of advertising and other product awareness activities performed on our behalf . customer acquisition and retention costs include expenses related to direct mail , outbound telemarketing and email . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , sales and marketing expenses were $ 248,905 and $ 222,773 , respectively , an increase of 12 % , or $ 26,132 , and remained flat as a percentage of total revenue . the increase was primarily due to additional subscriber communications and retention programs associated with a greater number of subscribers and promotional trials , and higher oem cooperative marketing . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , sales and marketing expenses were $ 222,773 and $ 215,454 , respectively , an increase of 3 % , or $ 7,319 , and decreased as a percentage of total revenue . the increase was primarily due to increased subscriber communications and retention programs associated with a greater number of subscribers and promotional trials , partially offset by reductions in consumer advertising and event marketing . we anticipate that sales and marketing expenses will increase as we launch seasonal advertising and promotional initiatives to attract new subscribers , and launch and expand programs to retain our existing subscribers and win-back former subscribers . the impact of purchase price accounting adjustments associated with the merger attributable to the amortization of the deferred credit on acquired sales and marketing contracts will continue to decline , in absolute amount and as a percentage of reported sales and marketing costs , through 2013. engineering , design and development includes costs to develop chip sets and new products and services , research and development for broadcast information systems and costs associated with the incorporation of our radios into vehicles manufactured by automakers . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , engineering , design and development expenses were $ 48,843 and $ 53,435 , respectively , a decrease of 9 % , or $ 4,592 , and decreased as a percentage of total revenue . the decrease was driven primarily by a reversal of certain non-recurring engineering charges , partially offset by higher product development costs , costs related to the development of enhanced subscriber features and functionality for our service and higher personnel costs . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , engineering , design and development expenses were $ 53,435 and $ 45,390 , respectively , an increase of 18 % , or $ 8,045 , and remained flat as a percentage of total revenue . the increase was primarily due to higher product development costs and costs related to enhanced subscriber features and functionality , partially offset by lower share-based payment expenses . we expect engineering , design and development expenses to increase in future periods as we develop our next generation chip sets and products . general and administrative includes executive management , rent and occupancy , finance , legal , human resources , information technology , and insurance costs . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , general and administrative expenses were $ 261,905 and $ 238,738 , respectively , an increase of 10 % , or $ 23,167 , but remained flat as a percentage of total revenue .
| 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , advertising revenue was $ 82,320 and $ 73,672 , respectively , an increase of 12 % , or $ 8,648 . the increase was primarily due to a greater number of advertising spots sold and broadcast , as well as increases in rates charged per spot . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , advertising revenue was $ 73,672 and $ 64,517 , respectively , an increase of 14 % , or $ 9,155 . the increase was primarily due to a greater number of advertising spots sold and broadcast , as well as increases in rates charged per spot . we expect our advertising revenue to grow as advertisers are attracted to our platform by the increase in our subscriber base . equipment revenue includes revenue and royalties from the sale of satellite radios , components and accessories . 2012 vs. 2011 : for the years ended december 31 , 2012 and 2011 , equipment revenue was $ 73,456 and $ 71,051 , respectively , an increase of 3 % , or $ 2,405 . the increase was driven by royalties from higher oem production , offset by lower direct to consumer sales . 2011 vs. 2010 : for the years ended december 31 , 2011 and 2010 , equipment revenue was $ 71,051 and $ 71,355 , respectively , a decrease of $ 304 . the decrease was driven by a reduction in aftermarket hardware subsidies earned , partially offset by increased royalties from higher oem production . we expect equipment revenue to fluctuate based on oem production for which we receive royalty payments for our technology and , to a lesser extent , on the volume and mix of equipment sales in our aftermarket and direct to consumer business . other revenue includes amounts earned from subscribers for the u.s. music royalty fee , revenue from our canadian affiliate and ancillary revenues . 2012 vs. 2011 : for the years ended december 31 , 2012 and
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32 the following tables set forth our consolidated results of operations : replace_table_token_18_th during 2012 , we recorded revenues of $ 4.1 billion , loss from construction operations of $ 221.8 million and net loss of $ 265.4 million , or $ 5.59 per diluted share as compared to revenues of $ 3.7 billion , income from construction operations of $ 168.4 million and net income of $ 86.1 million , or $ 1.80 per diluted share during 2011. our revenues increased during 2012 by 10.6 % primarily due to the full year contributions from our 2011 acquisitions , partially offset by a decline in our building segment associated with the substantial completion of several large public works and hospitality and gaming projects in 2011. our gross profit increased in 2012 by 5.0 % due to the reasons discussed above , partly offset by an unfavorable new work margin mix . despite recent positive trends in the construction market , the current economic environment continues to provide for slower than expected release of large building and civil projects , which have resulted in delayed revenue opportunities and continued margin pressure . our general and administrative expenses increased in 2012 by 14.7 % primarily due to the full-year impact of our 2011 acquisitions . our loss from construction operations of $ 221.8 million in 2012 was materially impacted by a $ 376.6 million goodwill and intangible asset impairment charge ( $ 326.4 million after-tax ) , as discussed in further detail under critical accounting policies below . excluding the impact of the impairment charge , our results from construction operations decreased $ 13.6 million primarily due to the substantial completion of large projects discussed above and an unfavorable change in new work margin mix , partially offset by the full year contributions from our 2011 acquisitions . 33 our interest expense increased from $ 35.8 million in 2011 to $ 44.2 million in 2012 primarily due to additional borrowings to fund operations and to complete the 2011 acquisitions . our income tax expense decreased from a $ 50.9 million expense in 2011 to an income tax benefit of $ 2.4 million in 2012 primarily due to the reasons discussed above . the income tax benefit in 2012 includes the impact of a $ 50.2 million reduction in our provision for income taxes recorded due to the $ 376.6 million goodwill and intangible asset impairment charges , and a $ 3.6 million increase to our provision for income taxes due to discrete tax adjustments . in 2012 , we received significant new contract awards , as well as additions to existing contracts , and ended the year with a contract backlog of $ 5.6 billion , a decrease of $ 0.5 billion from $ 6.1 billion as of december 31 , 2011. the decrease was due to reduced backlog in our building and civil segments associated with continued activity on several large healthcare facility projects and certain tunnel projects on the west coast , partially offset by increased backlog in our specialty contractors and management services segments associated with new recent project awards . at december 31 , 2012 , we had working capital of $ 747.6 million , a ratio of current assets to current liabilities of 1.61 to 1.00 , and a ratio of debt to equity of 0.64 to 1.00 , compared to working capital of $ 556.8 million , a ratio of current assets to current liabilities of 1.40 to 1.00 and a ratio of debt to equity of 0.48 to 1.00 at december 31 , 2011. these results reflect the additional leverage we took on during 2011 to finance our acquisition strategy . our stockholders ' equity decreased to $ 1.1 billion as of december 31 , 2012 from $ 1.4 billion as of december 31 , 2011. the increase in our debt to equity ratio and the decrease in our stockholders ' equity at december 31 , 2012 compared to december 31 , 2011 primarily reflect the impact of the $ 376.6 million goodwill and intangible asset impairment charge ( $ 326.4 million after-tax ) recorded during the second quarter of 2012. non-gaap measures our consolidated financial statements are presented based on accounting principles generally accepted in the united states ( “ u.s . gaap ” ) . we sometimes use non-gaap measures of income from operations , net income , earnings per share and other measures that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects . we are providing these non-gaap measures to disclose additional information to facilitate the comparison of past and present operations , and they are among the indicators management uses as a basis for evaluating the company 's financial performance as well as for forecasting future periods . for these reasons , management believes these non-gaap measures can be useful operating performance measures to be considered by investors , prospective investors and others . these non-gaap measures are not intended to replace the presentation of our financial results in accordance with gaap , and they may not be comparable to other similarly titled measures of other companies . replace_table_token_19_th ( 1 ) consolidated total includes corporate and other general and administrative expenses not impacted by the impairment and litigation charges . ( 2 ) since the interim goodwill impairment test as of june 30 , 2012 , our annual test , performed in the fourth quarter of 2012 , did not indicate any further adjustment to goodwill . ( 3 ) the company recorded $ 5.0 million ( $ 3.0 million after-tax ) in the fourth quarter of 2012 related to legal developments in the brightwater matter ( see note 9 – contingencies and commitments of notes to consolidated financial statements in part iv , item 15. exhibits and financial statement schedules ) . story_separator_special_tag the following table is a reconciliation of reported income ( loss ) from construction operations , net income ( loss ) , and diluted earnings ( loss ) per share under gaap to income from operations , net income and diluted earnings per share during the year ended december 31 , 2012 , excluding discrete items . included in discrete items is the impact of one-time expenses or benefits : ( i ) the $ 326.4 million after-tax impairment charge , ( ii ) the $ 3.0 million after-tax litigation provision relating to an adverse court decision , ( iii ) $ 3.6 million of discrete tax expense items related to an increase in unrecognized tax benefits and an adjustment , both associated with certain stock-based compensation items identified during the first quarter of 2012 , and ( iv ) the $ 2.7 million realized loss on the sale of auction rate securities in the first quarter of 2012 . 34 replace_table_token_20_th for the years ended december 31 , 2010 and 2011 , there were no discrete adjustments to net income . recent developments hudson yards project breaks ground on south tower ( tower c ) in january 2012 , we announced that we had been retained by related companies and oxford properties group as general contractor for the hudson yards development in midtown manhattan ( “ hudson yards ” ) . we were also retained for the construction of a residential tower being developed just south of hudson yards on 30th street and 10th avenue in new york city . hudson yards is a 26-acre mixed-use development accommodating over 13 million square feet of commercial and residential space . the master plan comprises approximately 5,000 residences , 6 million square feet of state-of-the-art commercial office space , a 1 million square-foot destination retail center with an over 130,000 square-foot two-level space of specialty destination restaurants , cafes , markets and bars , a five-star hotel , a unique cultural space , and a new 750-seat school , all carefully planned around 14 acres of public open space . pre-construction activities related to the 30th street residential tower began in early 2012 and substantial completion is expected in the spring of 2014. the total construction value of the 30th street residential tower project is approximately $ 125 million . physical construction operations at the hudson yards south tower ( tower c ) , located across the street from the 30th street residential tower , began in december 2012 and substantial completion is expected in late 2015. the total construction value of the south tower phase of the project is approximately $ 800 million . the hudson yards project will be booked into backlog as contracts for various phases are executed and work is released . it is likely that our backlog and eventual revenues associated with the various phases of our work at hudson yards may be significantly lower than the total construction value of each phase because the type of contracts for each phase may initially be construction management not at risk , whereby our backlog and revenues would be reported excluding external subcontractor progress . however , our profits related to each phase will be based on the total construction value , including the externally subcontracted portions . there may be provisions within each contract to allow our customer to convert from a construction management not at risk contract to a guaranteed maximum price contract . if such a conversion were to occur , the company would then recognize the full construction value for each phase of the project as backlog and revenue . 35 backlog analysis for 2012 our backlog of uncompleted construction work at december 31 , 2012 was approximately $ 5.6 billion , as compared to $ 6.1 billion at december 31 , 2011. significant new awards included a $ 235 million bridge rehabilitation project , a $ 181 million hospitality and gaming project , a $ 167 million transit signal modernization project , a $ 130 million irrigation and watershed management program , a $ 116 million joint venture bridge and highway project , a $ 73 million educational facility , and a $ 63 million stadium renovation project . in addition , we have significant pending contract awards , including projects such as the hudson yards development , low bids on civil mass transit and bridge projects and various specialty contracts that we anticipate will enter into backlog in the near future as the contracts for these projects are executed . we are continuing to track several large scale civil and building prospects for both public and private sector customers as we continue to leverage our self-performance and schedule control capabilities . the following table provides an analysis of our backlog by business segment for the year ended december 31 , 2012. replace_table_token_21_th ( 1 ) new business awarded consists of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts . critical accounting policies our accounting and financial reporting policies are in conformity with u.s. gaap . the preparation of our consolidated financial statements in conformity with u.s. gaap requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date , and the reported amounts of revenues and expenses during the reporting period . although our significant accounting policies are described in note 1 – description of business and summary of significant accounting policies of the notes to consolidated financial statements in part iv , item 15. exhibits and financial statement schedules , the following discussion is intended to describe those accounting policies most critical to the preparation of our consolidated financial statements .
| this decrease was offset by the acquisition of anderson which contributed $ 339.7 million in 2011. civil segment revenues increased by $ 218.1 million ( or 32.7 % ) , from $ 667.1 million in 2010 to $ 885.2 million in 2011 , primarily due to the recent acquisitions which contributed approximately $ 342.3 million in revenues in the aggregate , offset by the substantial completion of projects in the metropolitan new york area . specialty contractors segment revenues increased by $ 689.6 million , from $ 112.9 million in 2010 to $ 802.5 million in 2011 , primarily due to the recent acquisitions which contributed approximately $ 767.9 million in revenues in the aggregate . management services segment revenues increased by $ 7.4 million ( or 3.8 % ) , from $ 195.7 million in 2010 to $ 203.1 million in 2011 , primarily due to the start-up of a task order contract for containerized housing in southern iraq offset by the substantial completion of u.s. military facilities in iraq . 46 income from construction operations the following table summarizes our income from construction operations by business segment . replace_table_token_26_th * nm – not meaningful building segment income from construction operations decreased by $ 42.9 million ( or 48.1 % ) , from $ 89.2 million in 2010 to $ 46.3 million in 2011 , primarily due to a decline in volume and operating margin caused by the substantial completion of successful large public works projects in las vegas and philadelphia . civil segment income from construction operations decreased by $ 9.5 million ( or 10.8 % ) , from $ 88.1 million in 2010 to $ 78.6 million in 2011 , primarily due to a decline in operating margin caused by the substantial completion and favorable performance on several projects in the metropolitan new york area and the timing of production on other large civil projects currently in backlog . this decrease was partly offset by the recent acquisitions which contributed approximately $
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dollar-based net retention rate we expect to derive a significant portion of our revenue growth from expansion within our customer base , where we have an opportunity to expand adoption of asana across teams , departments , and organizations . we believe that our dollar-based net retention rate demonstrates our opportunity to further expand within our customer base , particularly those that generate higher levels of annual revenues . our reported dollar-based net retention rate equals the simple arithmetic average of our quarterly dollar-based net retention rate for the four quarters ending with the most recent fiscal quarter . we calculate our dollar-based net retention rate by comparing our revenues from the same set of customers in a given quarter , relative to the comparable prior-year period . to calculate our dollar-based net retention rate for a given quarter , we start with the revenues in that quarter from customers that generated revenues in the same quarter of the prior year . we then divide that amount by the revenues attributable to that same group of customers in the prior-year quarter . current period revenues include any upsells and are net of contraction or attrition over the trailing 12 months , but exclude revenues from new customers in the current period . we expect our dollar-based net retention rate to fluctuate in future periods due to a number of factors , including the expected growth of our revenue base , the level of penetration within our customer base , and our ability to retain our customers . as of january 31 , 2021 and 2020 , our dollar-based net retention rate was over 115 % and over 120 % , respectively . our dollar-based net retention rate has declined year over year as a result of the covid-19 pandemic , which had a disproportionate impact on smaller businesses and industries that were particularly affected by the pandemic . as of january 31 , 2021 and 2020 , our dollar-based net retention rate for customers spending over $ 5,000 with us on an annualized basis was 125 % and over 125 % , respectively . our dollar-based net retention rate for customers spending over $ 50,000 with us on an annualized basis for the same periods was over 140 % . impact of covid-19 as a result of the covid-19 pandemic , we temporarily closed our headquarters and other physical offices , required our employees and contractors to work remotely , and implemented travel restrictions , all of which represent a significant disruption in how we operate our business . the operations of our partners and customers have likewise been disrupted , with a disproportionate impact on smaller businesses that were particularly affected by the pandemic . this impact is most evident in the decline of our overall dollar-based net retention rate for the year ended january 31 , 2021 over the same period last year , while our dollar-based net retention rates remained steady for customers who spent over $ 50,000 . while the duration and extent of the covid-19 pandemic depends on future developments that can not be accurately predicted at this time , such as the extent and effectiveness of containment actions and the development of a vaccine , it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the covid-19 pandemic remains unknown . in particular , the conditions caused by this pandemic could affect the rate of global it spending and could adversely affect demand for our 55 platform , lengthen our sales cycles , reduce the value or duration of subscriptions , negatively impact collections of accounts receivable , reduce expected spending from new customers , cause some of our paying customers to go out of business , limit the ability of our direct sales force to travel to customers and potential customers , and affect contraction or attrition rates of our customers , all of which could adversely affect our business , results of operations , and financial condition during future periods . non-gaap financial measures the following tables present certain non-gaap financial measures for each period presented below . in addition to our results determined in accordance with gaap , we believe these non-gaap financial measures are useful in evaluating our operating performance . see below for a description of the non-gaap financial measures and their limitations as an analytical tool . replace_table_token_1_th non-gaap loss from operations and non-gaap net loss we define non-gaap loss from operations as loss from operations plus stock-based compensation expense and the related employer payroll tax associated with rsus as well as non-recurring costs , such as direct listing expenses . the amount of employer payroll tax-related items on employee stock transactions is dependent on our stock price and other factors that are beyond our control and that do not correlate to the operation of the business . when evaluating the performance of our business and making operating plans , we do not consider these items ( for example , when considering the impact of equity award grants , we place a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants ) . we believe it is useful to exclude these expenses in order to better understand the long-term performance of our core business and to facilitate comparison of our results to those of peer companies and over multiple periods . we define non-gaap net loss as net loss plus stock-based compensation expense and the related employer payroll tax associated with rsus , amortization of discount and non-cash contractual interest expense related to our senior mandatory convertible promissory note , and non-recurring costs such as direct listing expenses . we use non-gaap loss from operations and non-gaap net loss in conjunction with traditional gaap measures to evaluate our financial performance . we believe that non-gaap loss from operations and non-gaap net loss provide our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations . story_separator_special_tag free cash flow we define free cash flow as net cash used in operating activities less cash used for purchases of property and equipment and capitalized internal-use software costs , plus non-recurring expenditures such as capital expenditures from the purchases of property and equipment associated with the build-out of our corporate headquarters in san francisco , and direct listing expenses . we believe that free cash flow is a useful indicator of liquidity that provides information to management and investors , even if negative , about the amount of cash used in our operations other than that used for investments in property and equipment and capitalized internal-use software costs , adjusted for non-recurring expenditures . limitations and reconciliations of non-gaap financial measures non-gaap financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under gaap . there are a number of limitations related to the use 56 of non-gaap financial measures versus comparable financial measures determined under gaap . for example , other companies in our industry may calculate these non-gaap financial measures differently or may use other measures to evaluate their performance . in addition , free cash flow does not reflect our future contractual commitments and the total increase or decrease of our cash balance for a given period . all of these limitations could reduce the usefulness of these non-gaap financial measures as analytical tools . investors are encouraged to review the related gaap financial measures and the reconciliations of these non-gaap financial measures to their most directly comparable gaap financial measures and to not rely on any single financial measure to evaluate our business . the following tables reconcile the most directly comparable gaap financial measure to each of these non-gaap financial measures . non-gaap loss from operations replace_table_token_2_th non-gaap net loss replace_table_token_3_th 57 free cash flow replace_table_token_4_th 58 components of results of operations revenues we generate subscription revenues from paying customers accessing our cloud-based platform . subscription revenues are driven primarily by the number of paying customers , the number of paying users within the customer base , and the level of subscription plan . we recognize revenues ratably over the related contractual term beginning on the date that the platform is made available to a customer . due to the ease of implementation of our platform , revenues from professional services have been immaterial to date . cost of revenues cost of revenues consists primarily of the cost of providing our platform to free users and paying customers and is comprised of third-party hosting fees , personnel-related expenses for our operations and support personnel , credit card processing fees , and amortization of our capitalized internal-use software costs . as we acquire new customers and existing customers increase their use of our cloud-based platform , we expect that our cost of revenues will continue to increase in dollar amount . gross profit and gross margin gross profit , or revenues less cost of revenues , and gross margin , or gross profit as a percentage of revenues , has been and will continue to be affected by various factors , including the timing of our acquisition of new customers , renewals of and follow-on sales to existing customers , costs associated with operating our cloud-based platform , and the extent to which we expand our operations and customer support organizations . we expect our gross profit to increase in dollar amount and our subscription gross margin to remain relatively consistent over the long term . operating expenses our operating expenses consist of research and development , sales and marketing , and general and administrative expenses . personnel-related expenses are the most significant component of operating expenses and consist of salaries , benefits , stock-based compensation expense , and , in the case of sales and marketing expenses , sales commissions . operating expenses also include an allocation of overhead costs for facilities and shared it-related expenses , including depreciation expense . in the fiscal years ended january 31 , 2020 and 2019 , our personnel-related expenses have been significantly impacted by stock-based compensation expense associated with tender offers . in april 2018 , our board of directors approved a plan for a private trust whose sole trustee and grantor is our co-founder , president , chief executive officer , or ceo , and chair to purchase shares of our class a and class b common stock from certain current and former employees . a total of approximately 1.5 million shares were tendered in the offer . the tender offer closed in may 2018 , at which time we recorded $ 3.8 million in stock-based compensation expense related to the excess of the selling price per share paid to our employees and former employees over the fair value of each tendered share . in october 2019 , certain of our stockholders conducted a tender offer for shares of our outstanding class a and class b common stock and purchased an aggregate of 4,647,127 shares of our outstanding class a and class b common stock from certain other stockholders at a purchase price of $ 15.82 per share , for an aggregate purchase price of $ 73.5 million , resulting in stock-based compensation expense of $ 38.7 million for the excess of the selling price per share over the fair value of the tendered shares . 59 research and development research and development expenses consist primarily of personnel-related expenses . these expenses also include product design costs , third-party services and consulting expenses , software subscriptions and expensed computer equipment used in research and development activities , and allocated overhead costs . a substantial portion of our research and development efforts are focused on enhancing our software architecture and adding new features and functionality to our platform . we anticipate continuing to invest in innovation and technology development , and as a result , we expect research and development expenses to continue to increase in dollar amount but to decrease as a percentage of revenues over time .
| million in third-party hosting costs as we increased capacity to support customer usage and growth of our customer base , 62 $ 1.8 million in credit card processing fees and $ 1.3 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and rela ted infrastructure . operating expenses replace_table_token_9_th research and development research and development expenses increased $ 31.5 million , or 35 % , during fiscal 2021 compared to fiscal 2020. the increase was primarily due to an increase of $ 40.8 million in personnel-related expenses driven by higher headcount , an increase of $ 7.8 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and related infrastructure , partially offset by a decrease of $ 19.3 million in stock-based compensation expense related to a tender offer in october 2019. sales and marketing sales and marketing expenses increased $ 70.6 million , or 67 % , during fiscal 2021 compared to fiscal 2020. the increase was prim arily due to an increase of $ 36.2 million in personnel-related expenses as a result of higher headcount , an increase of $ 27.4 million in third-party advertising expenses for our marketing programs , an increase of $ 9.0 million in allocated overhead costs as a result of increased overall costs to support the growth of our business and related infrastructure , and an increase of $ 3.4 million in fees to marketing vendors , partially offset by a decrease of $ 7.7 million in stock-based compensation expense related to a tender offer in october 2019. general and administrative general and administrative expenses increased $ 29.4 million , or 63 % , during fiscal 2021 compared to fiscal 2020. the increase was primarily due to an increase of $ 18.1 million in fees for professional services associated with preparing to be a public company , including
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in contrast , our commercial systems segment , industrial systems segment and power transmission solutions segment have a broad customer base and a variety of applications , thereby helping to mitigate large quarter-to-quarter fluctuations outside of general economic conditions . operating expenses . our operating expenses consist primarily of ( i ) general and administrative expenses ; ( ii ) sales and marketing expenses ; ( iii ) general engineering and research and development expenses ; and ( iv ) handling costs incurred in conjunction with distribution activities . personnel related costs are our largest operating expense . our general and administrative expenses consist primarily of costs for ( i ) salaries , benefits and other personnel expenses related to our executive , finance , human resource , information technology , legal and operations functions ; ( ii ) occupancy expenses ; ( iii ) technology related costs ; ( iv ) depreciation and amortization ; and ( v ) corporate-related travel . the majority of our general and administrative costs are for salaries and related personnel expenses . these costs can vary by business given the location of our different manufacturing operations . our sales and marketing expenses consist primarily of costs for ( i ) salaries , benefits and other personnel expenses related to our sales and marketing function ; ( ii ) internal and external sales commissions and bonuses ; ( iii ) travel , lodging and other out-of-pocket expenses associated with our selling efforts ; and ( iv ) other related overhead . our general engineering and research and development expenses consist primarily of costs for ( i ) salaries , benefits and other personnel expenses ; ( ii ) the design and development of new energy efficiency products and enhancements ; ( iii ) quality assurance and testing ; and ( iv ) other related overhead . our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share , whether in new or existing applications . while these costs make up an insignificant portion of our operating expenses in the power transmission solutions segment , they are more substantial in our commercial systems , industrial systems and climate solutions segments . in particular , a large driver of our research and development efforts in those three segments is energy efficiency , which generally means using less electrical power to produce more mechanical power . goodwill & other asset impairments . in the first quarter of 2019 , we transferred assets to held for sale which resulted in the recognition of $ 5.1 million of fixed asset impairments and $ 4.9 million of customer relationships intangible asset impairments . on july 31 , 2018 , we received notification from a customer of our hermetic climate business that it would wind down operations . as a result of this notification , we accelerated our plans to exit the hermetic climate business . we recognized exit and exit related charges of $ 34.9 million during fiscal 2018 . the charges included goodwill impairment of $ 9.5 million , customer relationship intangible asset impairment of $ 5.5 million , technology intangible asset impairment of $ 2.1 million and fixed asset impairment of $ 1.1 million . in addition to the asset impairments , the company took charges on accounts receivable and inventory along with recognizing other expenses related to exiting the business . 27 we did not record any goodwill or other asset impairments in fiscal 2017 . the following table presents impairments by segment as of december 28 , 2019 and december 29 , 2018 ( in millions ) : replace_table_token_7_th operating profit . our operating profit consists of the segment gross profit less the segment operating expenses . in addition , there are shared operating costs that cover corporate , engineering and it expenses that are consistently allocated to the operating segments and are included in the segment operating expenses . operating profit is a key metric used to measure year over year improvement of the segments . outlook . in fiscal 2020 , we are forecasting low to mid-single digit organic sales growth , and we expect to improve our operating margin through the use of 80/20 principles . we expect to see positive impact from our new products targeted for the upcoming energy efficiency regulations . in fiscal 2020 , we expect diluted earnings per share to be $ 5.35 to $ 5.75. our fiscal 2020 diluted earnings per share guidance is based on an effective tax rate of 21 % . 28 story_separator_special_tag 16.4 % . 30 net sales for the commercial systems segment for fiscal 2018 were $ 1.1 billion , a 16.0 % increase compared to fiscal 2017 net sales of $ 1.0 billion . the increase consisted of 3.9 % positive organic growth and 0.5 % favorable foreign currency translation and a positive 12.0 % sales growth related to the acquisition of ng . the organic sales increase was primarily driven by commercial hvac and oil & gas . gross profit increased $ 43.0 million or 17.6 % primarily due to higher sales volumes , incremental price realization , lower restructuring charges and productivity gains offset by purchase accounting charges attributable to acquired inventory . operating expenses for fiscal 2018 increased $ 20.4 million as compared to fiscal 2017 . the increase was primarily due to increased compensation and benefit costs , the inclusion of ng , variable selling related costs and acquisition related costs . net sales for the industrial systems segment for fiscal 2018 were $ 671.1 million , a 3.8 % increase compared to fiscal 2017 net sales of $ 646.8 million . the increase consisted of 3.2 % positive organic growth and 0.6 % favorable foreign currency translation . the organic sales increase was primarily driven by the power generation market . gross profit increased $ 3.6 million or 2.7 % primarily due to higher sales volumes , incremental price realization , lower restructuring charges and productivity gains . story_separator_special_tag operating expenses for fiscal 2018 decreased 0.9 % as compared to fiscal 2017 . the decrease was primarily attributable to lower restructuring in fiscal 2018 as compared to fiscal 2017. net sales for the climate solutions segment for fiscal 2018 were $ 1,024.8 million , a 3.5 % increase compared to fiscal 2017 net sales of $ 990.6 million . the increase consisted of an organic sales increase of 4.6 % , partially offset by a decrease of 1.1 % from the hermetic climate business . the organic sales increase was primarily driven by growth in north american residential hvac . gross profit increased $ 7.3 million or 2.9 % primarily due to higher sales volumes and incremental price realization . operating expenses for fiscal 2018 increased $ 15.0 million as compared to the prior year primarily due to the costs associated with the exit of the hermetic climate business and higher compensation and benefit costs . net sales for the power transmission solutions segment for fiscal 2018 were $ 838.8 million , a 9.6 % increase compared to fiscal 2017 net sales of $ 765.4 million . the increase consisted of an organic sales increase of 9.1 % and a positive foreign currency translation impact of 0.5 % . the organic sales increase was primarily driven by north american oil and gas , renewable energy and material handling . gross profit for fiscal 2018 increased $ 27.1 million or 10.8 % primarily due to higher sales volumes and productivity gains . operating expenses for fiscal 2018 increased $ 12.4 million due to increased variable expenses to support the higher sales volume , increased compensation and benefits expenses resulting from both wage inflation and investments in the company 's commercial sales teams , and a prior year $ 2.8 million gain on the sale of assets . the effective tax rate for fiscal 2018 was 19.3 % compared to 21.3 % for fiscal 2017 . the decrease in the effective rate was due to the tax effect of the costs associated with the exit of the hermetic climate business . the lower effective tax rate in fiscal 2018 as compared to the 21 % statutory us federal income tax rate is driven by the mix of earnings , adjustments to reflect updates to our accounting for changes as a result of tax cuts and jobs act of 2017 and lower foreign tax rates . liquidity and capital resources general our principal source of liquidity is cash flow provided by operating activities . in addition to operating income , other significant factors affecting our cash flows include working capital levels , capital expenditures , dividends , share repurchases , acquisitions , and divestitures , availability of debt financing , and the ability to attract long-term capital at acceptable terms . cash flow provided by operating activities was $ 408.5 million for fiscal 2019 , a $ 45.8 million increase from fiscal 2018 . the increase was primarily the result of a reduction in working capital and the higher net income year over year . cash flow provided by operating activities was $ 362.7 million for fiscal 2018 , a $ 70.8 million increase from fiscal 2017 . the increase was primarily the result of the higher net income year over year and the increase in accounts payable in fiscal 2018 . our working capital was $ 1,047.2 million and $ 1,134.2 million as of december 28 , 2019 and december 29 , 2018 , respectively . as of december 28 , 2019 and december 29 , 2018 , our current ratio ( which is the ratio of our current assets to current liabilities ) was 2.9 :1 and 2.7 :1 , respectively . we intend to use operating cash flow to meet our current debt repayment obligations . cash flow provided by investing activities was $ 74.3 million for fiscal 2019 , compared to $ 227.9 million used in fiscal 2018 . the change was driven primarily by the divestiture proceeds received in fiscal 2019 versus the acquisition of ng in fiscal 2018. capital expenditures were $ 92.4 million in fiscal 2019 , compared to $ 77.6 million in fiscal 2018 . 31 cash flow used in investing activities was $ 227.9 million for fiscal 2018 , compared to $ 57.8 million used in fiscal 2017 . the change was driven primarily by the acquisition of ng . capital expenditures were $ 77.6 million in fiscal 2018 , compared to $ 65.2 million in fiscal 2017 . in fiscal 2020 , we anticipate capital spending for property , plant and equipment to be approximately $ 75.0 million . we believe that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations in fiscal 2020 . we anticipate funding fiscal 2020 capital spending with operating cash flows . cash flow used in financing activities was $ 397.4 million for fiscal 2019 , compared to $ 17.7 million in fiscal 2018 . net debt repayments totaled $ 171.0 million in fiscal 2019 , compared to net debt borrowings of $ 166.7 million in fiscal 2018 . we also repurchased $ 165.1 million of our common stock during fiscal 2019 compared to $ 127.8 million in fiscal 2018. we paid $ 48.9 million in dividends to shareholders in fiscal 2019 compared to $ 47.2 million in fiscal 2018 . in fiscal 2019 , we paid distributions of $ 1.8 million to noncontrolling interests compared to $ 1.6 million in fiscal 2018 . cash flow used in financing activities was $ 17.7 million for fiscal 2018 , compared to $ 390.6 million for fiscal 2017 . net debt borrowings totaled $ 166.7 million in fiscal 2018 , compared to net debt repayments of $ 274.7 million in fiscal 2017 . we paid $ 47.2 million in dividends to shareholders in fiscal 2018 compared to $ 44.5 million in fiscal 2017 . in fiscal 2018 , we paid distributions of $ 1.6 million to noncontrolling interests compared to $ 17.4 million in fiscal 2017 .
| the decrease was primarily due to lower variable selling costs on lower sales and the removal of costs related to businesses divested/to be exited . net sales for the industrial systems segment for fiscal 2019 were $ 575.4 million , a 14.3 % decrease compared to fiscal 2018 net sales of $ 671.1 million . the decrease consisted of negative organic sales of 11.4 % , negative foreign currency translation of 2.1 % and a negative 0.8 % impact from the businesses divested/to be exited . the organic sales decrease was driven by delays in power generation projects due to end market overcapacity and the oil & gas downturn , weak north american and china industrial demand due to trade uncertainty and the impact of 80/20 account pruning . gross profit decreased $ 37.1 million or 27.2 % primarily due to lower sales volumes related to power generation projects , partially offset by simplification programs and selective pricing on lower margin accounts . operating expenses for fiscal 2019 decreased $ 4.0 million as compared to fiscal 2018 . the decrease was primarily due to lower variable selling costs on lower sales . net sales for the climate solutions segment for fiscal 2019 were $ 968.5 million , a 5.5 % decrease compared to fiscal 2018 net sales of $ 1,024.8 million . the decrease consisted of negative organic sales of 1.2 % , negative foreign currency translation of 0.6 % and a negative 3.7 % impact from the businesses divested/to be exited . the organic sales decrease was driven by inventory destocking by hvac oem customers and 80/20 account pruning efforts . gross profit increased $ 7.1 million or 2.7 % primarily due to sales mix and productivity gains . operating expenses for fiscal 2019 decreased $ 18.3 million as compared to the prior year primarily due to the removal of costs related to businesses divested/to be exited . net sales for the power transmission solutions segment for fiscal
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as a result , we recorded an impairment charge of $ 19.7 million for the year ended december 31 , 2017 in accordance with our impairment analysis procedures . as a result of the net operating loss , a distribution to common shareholders was not required for 2017. although we did not make a distribution to common shareholders in 2017 , we may make a distribution in 2018. if our taxable income exceeds our net operating loss carryforwards , we will likely be required to make a distribution . whether we will make a distribution in 2018 and the timing of any such distribution remains uncertain . we have engaged cbre , inc. ( cbre ) to provide property management services for our properties . we pay cbre a property-by-property management 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 reimburse cbre for certain expenses incurred in the performance of its duties , including certain personnel and equipment costs . for the years ended december 31 , 2017 and 2016 , we incurred expenses of $ 17.9 million and $ 25.8 million , respectively , related to our property management agreement with cbre , for property management fees , typically calculated as a percentage of the properties revenues , and salary and benefits reimbursements for property personnel , such as property managers , engineers and maintenance staff . as of december 31 , 2017 and 2016 , we had amounts payable pursuant to these services of $ 1.8 million and $ 2.7 million , respectively . property operations leased occupancy data for 2017 and 2016 is as follows ( square feet in thousands ) : replace_table_token_6_th ( 1 ) excludes properties sold or classified as held for sale in the period . ( 2 ) based on properties owned continuously from january 1 , 2016 through december 31 , 2017 , and excludes properties sold or classified as held for sale during the period . ( 3 ) 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 . 28 the weighted average lease term based on square feet for leases entered into during the year ended december 31 , 2017 was 9.2 years . commitments made for leasing expenditures and concessions , such as tenant improvements and leasing commissions , for leases entered into during the year ended december 31 , 2017 totaled $ 44.9 million , or $ 34.49 per square foot on average ( approximately $ 3.77 per square foot per year of the lease term ) . as of december 31 , 2017 , approximately 4.7 % of our leased square feet and 5.5 % of our annualized rental revenue , determined as set forth below , are included in leases scheduled to expire through december 31 , 2018 . renewed and new leases and rental rates at which available space may be rented in the future will depend on prevailing market conditions at the times these leases are negotiated . we believe that the in-place cash rents for leases expiring in 2018 are below market . lease expirations by year , as of december 31 , 2017 , are as follows ( square feet and dollars in thousands ) : replace_table_token_7_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2017 , excluding leases related to properties classified as held for sale , 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 leases which have commenced as of december 31 , 2017 , plus estimated recurring expense reimbursements ; includes triple net lease rents and excludes lease value amortization , straight line rent adjustments , abated ( free ) rent periods and parking revenue . we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . 29 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 . as of december 31 , 2017 , tenants representing 1.5 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_8_th ( 1 ) tenants located in properties classified as held for sale are excluded . ( 2 ) square footage is pursuant to existing leases as of december 31 , 2017 , 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 . ( 3 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2017 , plus estimated recurring expense reimbursements ; includes triple net lease rents and excludes lease value amortization , straight line rent adjustments , abated ( free ) rent periods and parking revenue . story_separator_special_tag we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . ( 4 ) groupon , inc. statistics include 207,536 square feet that are sublet from bankers life and casualty company . ( 5 ) georgetown university 's leased space includes 111,600 square that are sublet to another tenant . during the fourth quarter of 2017 , the other tenant committed to lease this space from us through september 30 , 2037. financing activities in december 2017 , we repaid $ 2.0 million of mortgage debt at 33 stiles lane and recognized a loss on early extinguishment of debt of $ 0.2 million from prepayment fees and the write off of unamortized deferred financing fees . in april 2017 , we repaid at par $ 41.3 million of mortgage debt at parkshore plaza and recognized a loss on early extinguishment of debt of $ 0.1 million from prepayment fees and the write off of unamortized deferred financing fees , net of the write off of an unamortized premium . on july 15 , 2017 , we redeemed at par $ 250.0 million of our 6.65 % senior unsecured notes due 2018 and recognized a loss on early extinguishment of debt of $ 0.2 million from the write off of unamortized deferred financing fees and the write off of an unamortized discount . for more information regarding our financing sources and activities , please see the section captioned “ liquidity and capital resources—our investment and financing liquidity and resources ” below . 30 story_separator_special_tag senior unsecured notes in december 2016 , the repayment of the $ 41.3 million mortgage debt at parkshore plaza in april 2017 , the prepayment of $ 250.0 million of our 6.65 % senior unsecured notes in july 2017 and a decrease in amortization of deferred financing fees , partially offset by an increase in interest expense related to our term loans as a result of an increase in interest rates . loss on early extinguishment of debt . the loss on early extinguishment of debt of $ 0.5 million in the 2017 period reflects prepayment fees and the write off of unamortized deferred financing fees , net of the write off of an unamortized premium related to our repayment at par of mortgage debt at parkshore plaza , the write off of unamortized deferred financing fees and the write off of an unamortized discount related to our repayment at par of our 6.65 % senior unsecured notes due 2018 and prepayment fees and the write off of unamortized deferred financing fees related to our repayment of mortgage debt at 33 stiles lane . the loss on 32 early extinguishment of debt of $ 2.7 million in the 2016 period reflects the write-off of an unamortized discount and unamortized deferred financing fees related to our redemption of our 6.25 % senior unsecured notes due 2016 and our 6.25 % senior unsecured notes due 2017 and the write-off of unamortized deferred financing fees and breakage costs incurred related to our repayment of the mortgage debt at 1735 market street . gain on sale of properties , net . gain on sale of properties , net decreased $ 235.4 million in the 2017 period as compared to the 2016 period . gain on sale of properties , net in the 2017 period primarily relates to the following ( dollars in thousands ) : replace_table_token_10_th gain on sale of properties , net in the 2016 period primarily relates to the following ( dollars in thousands ) : replace_table_token_11_th income tax expense . income tax expense decreased $ 0.2 million , or 32.9 % , in the 2017 period , compared to the 2016 period , primarily due to the sale of properties in certain states . 33 net income attributable to noncontrolling interest . in 2017 , we granted ltip units to certain of our trustees and employees . the net income attributable to noncontrolling interest of $ 10,000 in the 2017 period relates to the allocation of net income to the ltip unit holders . preferred distributions . the $ 10.0 million decrease in preferred distributions is due to the redemption of all of our 11,000,000 outstanding series e preferred shares on may 15 , 2016. excess fair value of consideration paid over carrying value of preferred shares . on may 15 , 2016 , we redeemed all of our 11,000,000 outstanding series e preferred shares at a price of $ 25.00 per share and recorded $ 9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to common shareholders for the year ended december 31 , 2016 . 34 results of operations year ended december 31 , 2016 , compared to year ended december 31 , 2015 replace_table_token_12_th ( 1 ) comparable properties consist of 33 properties ( 64 buildings ) owned continuously from january 1 , 2015 to december 31 , 2016 . ( 2 ) other properties consist of properties sold . ( 3 ) see note 3 on page 31 for further information regarding noi . we refer to the 33 properties ( 64 buildings ) we owned continuously from january 1 , 2015 to december 31 , 2016 , as comparable properties . we refer to the sold properties as other properties .
| other reits and real estate companies may calculate noi differently than we do . we refer to the 16 properties ( 26 buildings ) we owned continuously from january 1 , 2016 to december 31 , 2017 , as comparable properties . we refer to the sold properties and properties classified as held for sale as other properties . our consolidated statements of operations for the years ended december 31 , 2017 and 2016 , include the operating results of 16 properties for the entire periods , as we owned these properties as of january 1 , 2016 . 31 rental income . rental income decreased $ 138.8 million , or 33.9 % , in the 2017 period , compared to the 2016 period , primarily due to the properties sold in 2017 and 2016. rental income at the comparable properties increased $ 4.2 million , or 2.3 % due to an increase in lease termination fees and an increase in rents resulting from new leasing activity , partially offset by several large tenant lease expirations and lease contractions . rental income includes increases for straight line rent adjustments totaling $ 14.4 million in the 2017 period and $ 14.1 million in the 2016 period , and net reductions for amortization of acquired real estate leases and assumed real estate lease obligations totaling $ 1.8 million in the 2017 period and $ 6.5 million in the 2016 period . rental income also includes the recognition of lease termination fees totaling $ 4.9 million in the 2017 period and $ 23.4 million in the 2016 period . tenant reimbursements and other income . tenant reimbursements and other income decreased $ 21.4 million , or 23.3 % in the 2017 period , compared to the 2016 period primarily due to the properties sold in 2017 and 2016. tenant reimbursements and other income increased $ 2.7 million , or 4.5 % , at our comparable properties primarily due to new leasing
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these risks and challenges include , but are not limited to , that we may not be able to effectively identify and respond to changing fashion trends and customer preferences , that we may not be able to find desirable locations for new stores , that we may not be able to grow our comparable sales , and that we may not be able to effectively manage our future growth . in addition , our financial results can be expected to be directly impacted by trends in the general economy . a decline in consumer spending or a substantial increase in product costs due to commodity cost increases or general inflation could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers and the competitive environment could become more highly promotional . see risk factors for other important factors that could adversely impact us and our results of operations . we strive to ensure that addressing these risks does not divert our attention from continuing to build on the strengths that we believe have driven the growth of our business . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . the key indicators of the financial condition and operating performance of our business are net sales , comparable store sales , gross profit , selling , general and administrative expenses and operating income . net sales net sales reflect revenue from the sale of our merchandise at store locations as well as sales of merchandise through our e-commerce platform , which is reflected in sales when the merchandise is received by the customer . net sales also include shipping and handling fees for e-commerce shipments that have been delivered to the customer . net sales are net of returns on sales during the period as well as an estimate of returns expected in the future stemming from current period sales . revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are redeemed to purchase merchandise . however , over time , the redemption of some gift cards becomes remote , which is referred to as gift card breakage . revenue from estimated gift card breakage is also included in net sales . our business is seasonal and as a result our revenues fluctuate from quarter to quarter . in addition , our revenues in any given quarter can be affected by a number of factors including the timing of holidays and weather patterns . the third and fourth quarters of the fiscal year , which include the back-to-school and holiday sales seasons , have historically produced stronger sales and disproportionately stronger operating results compared to the first two quarters of the fiscal year . comparable store sales comparable store sales is a measure that indicates the change in year-over-year comparable store sales which allows us to evaluate how our store base is performing . numerous factors affect our comparable store sales , including : overall economic trends ; our ability to identify and respond effectively to consumer preferences and fashion trends ; competition ; the timing of our releases of new and seasonal styles ; changes in our product mix ; pricing ; the level of customer service that we provide in stores ; 38 our ability to source and distribute products efficiently ; calendar shifts of holiday or seasonal periods ; the number and timing of store openings and the relative proportion of new stores to mature stores ; and the timing and success of promotional and advertising efforts . comparable store sales are sales from our e-commerce platform and stores open at least 12 full fiscal months as of the end of the current reporting period . a remodeled or relocated store is included in comparable store sales , both during and after construction , if the square footage of the store was not changed by more than 20 % and the store was not closed for more than five days in any fiscal month . we include sales from our e-commerce platform as part of comparable store sales as we manage and analyze our business on a single omni-channel and have substantially integrated our investments and operations for our stores and e-commerce platform to give our customers seamless access and increased ease of shopping . comparable store sales exclude gift card breakage income and e-commerce shipping and handling fee revenue . some of our competitors and other retailers may calculate comparable or same store sales differently than we do . as a result , data in this report regarding our comparable store sales may not be comparable to similar data made available by other retailers . opening new stores is an important part of our growth strategy and we expect a significant percentage of our net sales during this growth period to come from non-comparable store sales . accordingly , comparable store sales are only one element we use to assess the success of our business . gross profit gross profit is equal to our net sales less our cost of goods sold . cost of goods sold reflects the direct cost of purchased merchandise as well as buying , distribution and occupancy costs . buying costs include compensation expense for our internal buying organization . distribution costs include costs for receiving , processing , warehousing and shipping of merchandise to or from our distribution and e-commerce fulfillment centers , to our e-commerce customers and between store locations . occupancy costs include the rent , common area maintenance , utilities , real estate and property taxes , security , and depreciation costs of all store locations . these costs are significant and can be expected to continue to increase as our company grows . the components of our reported cost of goods sold may not be comparable to those of other retail companies . story_separator_special_tag we regularly analyze the components of gross profit as well as gross profit as a percentage of net sales . specifically we look at the initial markup on purchases , markdowns and reserves , shrinkage , buying costs , distribution costs and occupancy costs . any inability to obtain acceptable levels of initial markups , a significant increase in our use of markdowns or a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the buying , distribution and occupancy components of cost of goods sold could have an adverse impact on our gross profit and results of operations . gross profit is also impacted by shifts in the proportion of sales of proprietary branded products compared to third-party branded products , as well as by sales mix shifts within and between brands and between major product categories such as guys ' and womens ' apparel , footwear or accessories . a substantial shift in the mix of products could have a material impact on our results of operations . in addition , gross profit and gross profit as a percent of sales have historically been higher in the third and fourth quarters of the fiscal year , as these periods include the back-to-school and winter holiday selling seasons . this reflects that various costs , including occupancy costs , generally do not increase in proportion to the seasonal sales increase . selling , general and administrative expenses our selling , general and administrative , or sg & a , expenses are composed of store selling expenses and corporate-level general and administrative expenses . store selling expenses include store and regional support costs , including personnel , advertising and debit and credit card processing costs , e-commerce processing costs and store supplies costs . general and administrative expenses include the payroll and support costs of corporate functions such as executive management , legal , accounting , information systems , human resources , impairment charges and other centralized services . store selling expenses generally vary proportionately with net sales and store growth . in contrast , general and administrative expenses are generally not directly proportional to net sales and store growth , but will be expected to increase over time to support the needs of our growing company . sg & a expenses as a percentage of net sales are usually higher in lower volume periods and lower in higher volume periods . 39 the components of our sg & a expenses may not be comparable to those of other retailers . we expect that our sg & a expenses will increase in future periods due to our continuing store growth and in part due to additional legal , accounting , insurance and other expenses we incur as a result of being a public company . among other things , we expect that ongoing compliance with the sarbanes-oxley act of 2002 and related rules and regulations could result in significant incremental legal , accounting and other overhead costs . operating income operating income equals gross profit less sg & a expenses . operating income excludes interest income , interest expense and income taxes . operating income percentage measures operating income as a percentage of our net sales . income taxes prior to may 2 , 2012 , we were taxed as an s corporation for federal income tax purposes under section 1362 of the internal revenue code , and therefore were not subject to federal and state income taxes ( subject to an exception in a limited number of state and local jurisdictions that do not recognize the s corporation status ) . on may 2 , 2012 , our s corporation status terminated and we became subject to corporate-level federal and state income taxes at prevailing corporate rates . 40 story_separator_special_tag > depreciation and maintenance related to capital investments increased $ 1.1 million , or 20 basis points as a percentage of net sales ; payroll , payroll benefits and related costs for corporate office personnel increased $ 0.8 million , but as a percentage of net sales remained consistent with fiscal year 2013 ; other expense increased $ 0.7 million , or 10 basis points as a percentage of net sales legal , audit , tax and consulting expenses increased $ 0.3 million , but as a percentage of net sales remained consistent with fiscal year 2013 ; and ongoing share-based compensation expense increased $ 0.3 million due to additional equity awards granted during fiscal year 2014 but remained consistent with fiscal 2013 as a percentage of net sales . however , the increases in general and administrative expenses were partially offset by a $ 0.8 million decrease in impairment charges , or 20 basis points as a percentage of net sales , as compared to fiscal year 2013. operating income operating income decreased $ 6.5 million , or 22.0 % , to $ 23.2 million in fiscal year 2014 from $ 29.7 million in fiscal year 2013. as a percentage of net sales , operating income was 4.5 % and 6.0 % during fiscal years 2014 and 2013 , respectively . the decrease in operating income as a percentage of net sales was due to the decrease in comparable store sales combined with the increase in expenses discussed above . other expense , net other expense , net , was $ 14 thousand and $ 9 thousand in fiscal years 2014 and 2013 , respectively . other expense , net , comprises interest earned on cash balances and tenant construction allowances received from landlords and realized gains on marketable securities , offset by interest paid on a capital lease of our corporate office and distribution center and costs related to maintaining our unused revolving credit facility . income tax expense our effective income tax rates were 39.3 % and 39.0 % in fiscal years 2014 and 2013 , respectively . in fiscal years 2014 and 2013 , the company was taxed as a c corporation . in fiscal year 2014 , its effective tax rate reflected the benefit of certain tax credits .
| fiscal year 2014 compared to fiscal year 2013 replace_table_token_8_th net sales net sales increased mainly due to an increase in the average number of stores opened during fiscal year 2014 , partially offset by a comparable store sales decrease of $ 13.2 million , or 2.8 % , in fiscal year 2014 as compared to fiscal year 2013. the comparable store sales decrease was due to lower net sales in all departments , partially offset by an increase in kid 's sales compared to the prior year . there were 188 comparable brick-and-mortar stores and 24 non-comparable brick-and-mortar stores open as of january 31 , 2015. gross profit gross profit increased $ 4.7 million in fiscal year 2014 as compared to fiscal year 2013 primarily due to higher net sales . as a percentage of net sales , gross profit was 30.0 % and 30.4 % during fiscal years 2014 and 2013 , respectively . of the 40 basis point decrease in gross profit , 50 basis points related to increased occupancy costs due to new stores opened during the year and the decrease in comparable store sales , which was offset by a 20 basis point increase in product margins due to improved initial markup and a decrease in markdowns . buying and distribution costs as a percentage of net sales increased 10 basis points over fiscal year 2013 due to these costs increasing at a higher rate than net sales . selling , general and administrative expenses sg & a expenses increased 9.3 % in fiscal year 2014 as compared to fiscal year 2013. as a percentage of net sales , sg & a expenses were 25.5 % and 24.4 % during fiscal years 2014 and 2013 , respectively . store selling expenses increased $ 8.8 million to $ 93.8 million in fiscal year 2014 as compared to $ 85.0 million in fiscal year 2013. as a percentage of net sales , store selling expenses were 18.1 % and 17.1 % during fiscal years 2014 and 2013 , respectively . the following primarily contributed to the increase in store selling expenses as a percentage
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on november 9 , 2015 , in connection with the separation and spin-off of four corners from darden , darden contributed to us 100 % of the equity interest in entities that held 418 properties in which darden operates restaurants , representing five of their brands ( the “ four corners properties ” ) , and six longhorn steakhouse® restaurants located in the san antonio , texas area ( the “ kerrow restaurant operating business ” ) and the underlying properties or interests therein associated with the kerrow operating business . in exchange , we issued shares of our common stock which darden distributed to its shareholders . currently , we generate revenues primarily by leasing the four corners properties to darden through triple-net lease arrangements under which darden is primarily responsible for ongoing costs relating to the properties , including utilities , property taxes , insurance , common area maintenance charges , and maintenance and repair costs ( “ triple-net ” ) . we also generate revenues by operating the kerrow restaurant operating business pursuant to franchise agreements with darden . as of december 31 , 2015 , our undepreciated gross investment in real estate totaled approximately $ 1.4 billion . we intend to elect to be taxed as a reit for federal income tax purposes commencing with the taxable year ending december 31 , 2016. we believe that we have been organized and will operate in a manner that allows us to qualify as a reit for federal income purposes in 2016 and we intend to continue operating in such a manner . story_separator_special_tag roman ; font-size:10pt ; font-style : italic ; font-weight : bold ; text-decoration : none ; '' > year ended december 31 , 2014 versus year ended december 31 , 2013 restaurant revenues increased $ 0.8 million , or 4.7 % , in 2014 compared to 2013 , driven primarily by a 3.9 % increase in the average check as well as a 0.8 % increase in average guest counts . average annual revenue per restaurant was $ 2.9 million in 2014 compared to $ 2.8 million in 2013. total restaurant expenses increased approximately $ 0.8 million or 5.1 % . as a percent of revenues , restaurant expenses increased slightly from 95.4 % in 2013 to 95.7 % in 2014. food and beverage costs increased approximately $ 0.4 million or 5.3 % . as a percent of revenues , food and beverage costs increased as a result of food cost inflation , primarily beef , partially offset by increased sales pricing . restaurant labor costs increased approximately $ 0.1 million or 2.7 % . as a percent of revenues , restaurant labor costs decreased primarily as a result of favorable sales leverage . other restaurant expenses increased approximately $ 0.3 million or 6.9 % . as a percent of revenues , restaurant expenses increased primarily as a result of higher workers ' compensation costs , utilities , repairs and maintenance and media costs , partially offset by favorable sales leverage . critical accounting policies the preparation of four corner 's consolidated and combined financial statements in conformance with accounting principles generally accepted in the united states of america requires management to make estimates on assumptions that affect the reported amounts of assets , liabilities , revenues and expenses as well as other disclosures in the financial statements . on an ongoing basis , management evaluates its estimates and assumptions; however , actual results may differ from these estimates and assumptions , which in turn could have a material impact on our financial statements . a summary of four corner 's accounting policies and procedures are included in note 2 of our consolidated and combined financial statements , included in part ii , item 8 of this annual report on form 10-k. management believes the following critical accounting policies , among others , affect its more significant estimates and assumptions used in the preparation of our consolidated and combined financial statements . real estate investments real estate investments , net are recorded at cost less accumulated depreciation . building components are depreciated over estimated useful lives ranging from seven to forty-two years using the straight-line method . leasehold improvements , which are reflected on our balance sheets as a component of buildings , within land , buildings and equipment , net , are amortized over the lesser of the non-cancelable lease term or the estimated useful lives of the related assets using the straight-line method . equipment is depreciated over estimated useful lives ranging from two to fifteen years also using the straight-line method . real estate development and construction costs for newly constructed restaurants are capitalized in the period in which they are incurred . gains and losses on the disposal of land , buildings and equipment are included in our accompanying statements of comprehensive income . our accounting policies regarding land , buildings and equipment , including leasehold improvements , include our judgments regarding the estimated useful lives of these assets , the residual values to which the assets are depreciated or amortized , the determination of what constitutes a reasonably assured lease term and the determination as to what constitutes enhancing the value 34 of or increasing the life of existing assets . these judgments and estimates may produce materially different amounts of reported depreciation and amortization expense if different assumptions were used . as discussed further below , these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized , or as our expectations of estimated future cash flows change . story_separator_special_tag impairment of long-lived assets land , buildings and equipment and certain other assets , including definite-lived intangible assets , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets . identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities , generally at the restaurant level . if these assets are determined to be impaired , the amount of impairment recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value . fair value is generally determined by appraisals or sales prices of comparable assets . the judgments we make related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of these assets are affected by factors such as the ongoing maintenance and improvements of the assets , changes in economic conditions , changes in usage or operating performance , desirability of the restaurant sites and other factors , such as our ability to sell our assets held for sale . as we assess the ongoing expected cash flows and carrying amounts of our long-lived assets , significant adverse changes in these factors could cause us to realize a material impairment loss . restaurant sites and certain other assets to be disposed of are reported at the lower of their carrying amount or fair value , less estimated costs to sell . restaurant sites and certain other assets to be disposed of are included in assets held for sale when certain criteria are met . these criteria include the requirement that the likelihood of disposing of these assets within one year is probable . assets whose disposal is not probable within one year remain in land , buildings and equipment until their disposal within one year is probable . disposals of assets that have a major effect on our operations and financial results or that represent a strategic shift in our operating businesses are reviewed to determine whether those assets would also meet the requirements to be reported as discontinued operations . exit or disposal activities include the cost of disposing of the assets and are generally expensed as incurred . upon disposal of the assets , any gain or loss is recorded in the same caption within our statements of comprehensive income as the original impairment . derivative instruments and hedging activities we enter into derivative instruments for risk management purposes only , including derivatives designated as hedging instruments as required by fasb asc topic 815 , derivatives and hedging , and those utilized as economic hedges . our use of derivative instruments is currently limited to interest rate hedges . these instruments are generally structured as hedges of the variability of cash flows related to forecasted transactions ( cash flow hedges ) . we do not enter into derivative instruments for trading or speculative purposes , where changes in the cash flows of the derivative are not expected to offset changes in cash flows of the hedged item . all derivatives are recognized on the balance sheet at fair value . for those derivative instruments for which we intend to elect hedge accounting , at the time the derivative contract is entered into , we document all relationships between hedging instruments and hedged items , as well as our risk-management objective and strategy for undertaking the various hedge transactions . this process includes linking all derivatives designated as cash flow hedges to specific assets and liabilities on the consolidated balance sheet or to specific forecasted transactions . we also formally assess , both at the hedge 's inception and on an ongoing basis , whether the derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items . to the extent our derivatives are effective in offsetting the variability of the hedged cash flows , and otherwise meet the cash flow hedge accounting criteria in accordance with gaap , changes in the derivatives ' fair value are not included in current earnings but are included in accumulated other comprehensive income ( loss ) , net of tax . these changes in fair value will be reclassified into earnings at the time of the forecasted transaction . ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period in which it occurs . 35 revenue recognition for those triple-net leases that provide for periodic and determinable increases in base rent , base rental revenue is recognized on a straight-line basis over the applicable lease term when collectability is reasonably assured . recognizing rental income on a straight-line basis generally results in recognized revenues during the first half of a lease term exceeding the cash amounts contractually due from our tenants , creating a straight-line rent receivable . income from rent , lease termination fees and all other income is recognized when all of the following criteria are met in accordance with sec staff accounting bulletin 104 : ( i ) the applicable agreement has been fully executed and delivered ; ( ii ) services have been rendered ; ( iii ) the amount is fixed or determinable ; and ( iv ) collectability is reasonable assured .
| as of december 31 , 2015 , there were no outstanding borrowings under the revolving credit facility and no outstanding letters of credit . on november 9 , 2015 , we also entered into interest rate swaps with aggregate notional values totaling $ 400 million to hedge the variability associated with the loan agreement , fixing our gross interest expense at 3.06 % . these swaps are accounted for as cash flow hedges with all interest income/expense recorded as a component of net income and other valuation changes recorded as a component of other comprehensive income . at december 31 , 2015 , the average interest rate on the term loan including the cost of the swap agreements and the amortization of upfront costs was 3.4 % . restaurant operations the following table sets forth restaurant revenues and expenses data for the six operating restaurants and restaurant expenses as a percent of revenues for the periods indicated . replace_table_token_8_th year ended december 31 , 2015 versus year ended december 31 , 2014 restaurant revenues increased approximately $ 0.6 million , or 3.5 % , in 2015 compared to 2014 , driven primarily by a 4.3 % increase in the average check partially offset by a 0.8 % decrease in average guest counts . average annual revenue per restaurant was $ 3.1 million in 2015 compared to $ 2.9 million in 2014. total restaurant expenses were flat year over year . as a percent of revenues , total restaurant expenses decreased from 95.7 % in 2014 to 92.8 % in 2015 . 33 food and beverage costs increased approximately $ 0.2 million , or 2.6 % . as a percent of revenues , food and beverage costs decreased as a result of sales prices increasing more than labor rates ( “ sales leverage ” ) . restaurant labor costs increased $ 0.05 million , or 1.1 % . as a percent of revenues , restaurant labor costs decreased primarily as a result of favorable sales leverage . other restaurant expenses ( which include utilities , common area maintenance charges , repairs and maintenance , credit card fees , lease expense ,
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these factors , as well as our acquisition of mogas , which resulted in an intercompany elimination of omega 's cost of sales against mogas ' transportation revenue , lead to a $ 4.5 million decrease in omega 's cost of goods sold . for the year ended december 31 , 2015 , approximately $ 2.5 million was eliminated in consolidation . for the years ended december 31 , 2014 and 2013 , the year-over-year increase in sales revenue and cost of sales of $ 976 thousand and $ 557 thousand , respectively , was attributable to an increase in gas prices , an increase in system improvements , propane sales and the purchase of gas capacity . additionally , as a result of the acquisition of mogas , a supplier to omega , $ 397 thousand of revenue and cost of sales were eliminated for consolidation purposes . operating expenses decreased $ 84 thousand over prior year , mostly attributable to 2013 included nonrecurring personnel costs . expenses total expenses from operations for the year ended december 31 , 2015 , were $ 9.7 million . the most significant components of the variance from the prior-year periods are outlined in the following table and explained below : replace_table_token_4_th management fees for the year ended december 31 , 2015 , were $ 5.7 million . management fees are directly proportional to the asset base under management . as such , the increase versus the prior-year periods is directly related to the acquisition of mogas in november 2014 followed by the acquisition of gigs in june 2015 ( the fee on gigs was waived for the second quarter given the timing of the june 30 acquisition ) . these increases over prior year were partially offset by the sale of eip in april 2015 , the disposition of vantacore in october 2014 and the waiver of management fees by the management company on the non-performing black bison assets during the latter part of 2015. lastly , the increase in the common dividend per share combined with an increase in the number of shares outstanding resulted in an increase in the incentive fee of $ 39 thousand . the incentive fee is calculated as a percentage of dividends paid in excess of a predetermined threshold . for the year ended december 31 , 2014 , management fees equaled $ 3.5 million . the increase , as compared to the year ended december 31 , 2013 , is due to the 2014 acquisitions of the portland terminal and mogas pipeline , along with loan agreements with black bison ws . see note 11 , management agreement , for additional information . acquisition and professional fees for the years ended december 31 , 2015 , 2014 and 2013 , were $ 3.0 million , $ 3.1 million and $ 2.5 million , respectively . acquisition costs for the year ended december 31 , 2015 , were $ 59 thousand less than the prior-year period primarily because acquisition costs expensed in conjunction with the mogas acquisition in 2014 were greater than costs expensed on opportunities the company pursued during 2015 that were not completed . acquisition expense represents costs incurred throughout the year as we pursue potential opportunities to expand our reit-qualified asset portfolio . generally , we expect asset acquisition expenses to be repaid over time from income generated by acquisitions . however , any particular period may reflect significant expenses arising from third party legal , engineering and consulting fees that are incurred in the early to mid-stages of due diligence . professional fees also decreased $ 87 thousand for the year ended december 31 , 2015 , due to decreases in tax preparation fees , audit fees and other professional fees expensed in the current year partially offset by an increase in legal costs related to the growth of our asset portfolio through transactions that were completed during the periods . 45 index to financial statements glossary of defined terms other expenses for the years ended december 31 , 2015 , 2014 and 2013 , were $ 1.0 million , $ 1.3 million and $ 758 thousand , respectively . annual costs for the year ended december 31 , 2015 , were $ 251 thousand less than the prior-year period primarily due to a decline in printing and mailing expense related to prior-period stock offerings , a decline in registration and valuation expenses offset by increases in costs incurred in connection with the implementation of a new accounting system , the development and maintenance of our website and transfer agent fees . non-controlling interest attributable to adjusted ebitda items based on prudential 's 18.95 percent ownership interest in pinedale lp , the company is required to make a further adjustment to the adjusted ebitda items presented above to exclude the portion attributable to prudential 's non-controlling interest . for the year ended december 31 , 2015 , prudential 's interest in these items totaled $ 3.9 million as compared to $ 3.8 million and $ 3.7 million for the prior-year periods . the increase of $ 36 thousand during the current year is attributable to prudential 's proportionate share of pinedale lp 's increase in lease revenue and adjustment to registration expense partially offset by higher legal and professional fees incurred in connection with refinancing efforts related to the key bank term facility . adjusted ebitda adjusted ebitda attributable to corenergy stockholders for the year ended december 31 , 2015 , was $ 51.3 million as compared to $ 22.0 million and $ 15.8 million for the years ended december 31 , 2014 and 2013 , respectively . as noted above , the increases in adjusted ebitda are primarily associated with the acquisition of gigs in june 2015 , the acquisition of mogas in november 2014 , the acquisition of the portland terminal facility in january 2014 and our financing agreements . story_separator_special_tag the following table presents a reconciliation of adjusted ebitda to income attributable to common stockholders as reported in the consolidated statements of income and comprehensive income : replace_table_token_5_th net distributions and dividends recorded as income the following table summarizes the breakout of net distributions and dividends reported as income on the income statement . the table begins with the gross cash distributions and dividend income received from our investment securities during the years ended december 31 , 2015 , 2014 and 2013. this amount is increased by cash distributions received in a prior period that were , at the time , deemed a return of capital and have been reclassified during the current period as income . finally , a reduction is shown for cash distributions received in the current period that are deemed a return of capital and , as such , are not included in income received from investment securities . the portion of the distributions that are deemed to be return of capital in any period are based on estimates made at the time such distributions are received . these estimates may subsequently be revised based on information received from the portfolio company after their tax reporting periods are concluded , as the actual character of these distributions is not known until after our fiscal year end . 46 index to financial statements glossary of defined terms net distributions and dividends recorded as income for the years ended december 31 , 2015 2014 2013 gross distributions and dividends received from investment securities $ 1,021,010 $ 1,955,018 $ 1,807,429 add : distributions and dividends received in prior period previously deemed a return of capital ( recorded as a cost reduction ) and reclassified as income in a subsequent period 371,323 — — less : distributions and dividends received in current period deemed a return of capital and not recorded as income ( recorded as a cost reduction ) in the current period 121,578 118,235 1,222,615 net distributions and dividends recorded as income $ 1,270,755 $ 1,836,783 $ 584,814 net realized and unrealized gain on securities we characterize distributions received from private investments estimated based on prior year activity . after receiving the k-1s , which depict the company 's share of income and losses from the investment in the security , previously unrealized gain can be reclassified as dividend income . for the year ended december 31 , 2015 , the $ 598 thousand increase in realized and unrealized losses from other equity securities versus the prior-year period is primarily due to a combination of : ( i ) a $ 26 thousand decrease in unrealized losses due to fluctuations in the valuation of lightfoot ; minus ( ii ) the prior-year included an realized gain of $ 371 thousand related to vantacore which was sold on october 1 , 2014 ; minus ( iii ) a $ 613 thousand change in the valuation of the black bison warrant ; plus ( iv ) a $ 360 thousand unrealized gain on the 18-month escrow associated with the sale of vantacore recognized during 2015. for the year ended december 31 , 2014 , the company recognized an unrealized loss on the fair value adjustment of our other equity securities of $ 466 thousand . further , the characterization of distributions received from public and private investments is estimated based on prior year activity . after receiving final 2013 k-1s , which depict the company 's share of income and losses from the investment in the security , it was determined that $ 863 thousand of previously unrealized gain should be reclassified as dividend income . for the year ended december 31 , 2013 , the company recognized an unrealized gain on the fair value adjustment of our other equity securities of $ 5.3 million and a realized gain of $ 316 thousand from the sale of publicly traded securities . further , it was determined that $ 567 thousand of previously recognized gain should be reclassified as dividend income . depreciation , amortization and aro accretion depreciation , amortization and aro accretion expense increased $ 5.6 million for the year ended december 31 , 2015 , as compared to the prior-year period . the increase is primarily attributable to the newly acquired gigs , $ 4.7 million , and mogas pipeline , $ 2.7 million , partially offset by a $ 1.7 million decline in depreciation expense due to the termination of the pnm lease agreement . depreciation and amortization expense increased $ 1.7 million for the year ended december 31 , 2014 , as compared to the prior year period . the increase was attributable to the acquisition of the portland terminal facility , $ 1.4 million , and mogas pipeline , $ 309 thousand , respectively . please refer to note 4 for additional discussion of the pnm purchase agreement and its effects on the consolidated financial statements included in this annual report on form 10-k. interest expense interest expense was approximately $ 9.8 million for the year ended december 31 , 2015 , as compared to $ 3.7 million and $ 3.3 million for the years ended december 31 , 2014 and 2013 , respectively . the $ 6.1 million increase is primarily attributable to the first full six-months of interest and amortization of the discount on the convertible notes issued june 29 , 2015 , the borrowings on the regions revolver facility in connection with the mogas transaction , an increase in the regions unused credit facility fees and deferred debt costs associated with the keybank and regions revolver facilities . non-controlling interest attributable to depreciation , amortization , aro accretion and interest expense due to prudential 's 18.95 percent ownership interest in pinedale lp , the company must make adjustments for non-controlling interests . non-controlling interest attributable to depreciation , amortization , accretion , and interest expense items was $ 2.2 million for the year ended december 31 , 2015 , as compared to $ 2.3 million for the prior-year periods .
| lease revenues for the year ended december 31 , 2015 , increased $ 19.9 million compared to the prior-year period . this increase is primarily due to a $ 20.3 million increase in lease revenues associated with the acquisition of gigs in june 2015. in addition , base rents for the portland terminal facility increased $ 1.0 million versus the prior-year period , primarily due to a $ 755 thousand increase in base rents related to completion of the planned construction projects at the portland terminal facility . increases in lease revenue for the period also included a $ 341 thousand increase due to annual cpi escalations pursuant to the pinedale lease agreement . these increases were partially offset by a $ 1.9 million decline in lease revenues due to the termination of the pnm lease agreement on april 1 , 2015. lease revenues for the year ended december 31 , 2014 increased $ 5.7 million compared to the prior-year period due mainly to the addition of the portland terminal facility lease , which was added in january 2014. additionally , due to an annual cpi escalation in the pinedale lease agreement , the required annual minimum rent for 2014 increased by approximately 1.53 percent , or $ 306 thousand annually , accounted for the majority of the remaining increase over 2013. financing revenues for the year ended december 31 , 2015 , increased $ 620 thousand compared to the prior-year period . the increase was primarily attributable to $ 664 thousand of revenue earned on the loan agreements with swd enterprises executed december 2014. the $ 1.1 million in financing revenues for the year ended december 31 , 2014 , primarily represents interest earned as a result of new loan agreements with black bison ws , which were executed in march and july 2014. see note 6 , financing notes receivable , for additional information on the black bison financing notes receivable . for the years ended december 31 , 2015 and 2014 , the acquisition of mogas in november 2014 contributed $ 10.5 million and $ 839
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sales for retail stores that are closed during the year are excluded from the calculation of retail comparable store sales . sales for retail stores that are either relocated , materially altered in size or closed for a certain number of consecutive days for renovation are also excluded from the calculation of retail comparable store sales until such stores have been in their new location or in their newly renovated state for at least 12 months . sales from our company-operated digital commerce sites are included within retail comparable store sales for those businesses and regions that have operated the related digital commerce site for at least 12 months . retail comparable store sales are based on comparable weeks and local currencies . the following table summarizes our income statements in 2016 , 2015 and 2014 : replace_table_token_2_th total revenue total revenue was $ 8.203 billion in 2016 , $ 8.020 billion in 2015 and $ 8.241 billion in 2014. the increase in revenue of $ 183 million in 2016 as compared to 2015 was due principally to the net effect of the following items : the addition of an aggregate of $ 213 million of revenue attributable to our calvin klein north america and calvin klein international segments , which included a reduction of approximately $ 53 million related to the impact of foreign currency translation . revenue in the calvin klein north america segment increased 3 % ( including a 1 % negative foreign currency impact ) primarily driven by strong growth in the wholesale business , partially offset by a revenue decrease due to the mexico deconsolidation and a 4 % decrease in comparable store sales , primarily driven by declines in traffic and consumer spending in calvin klein 's united states stores located in international tourist locations . calvin klein international segment revenue increased 12 % ( including a 3 % negative foreign currency impact ) due principally to significant growth in europe and china . calvin klein international segment comparable store sales increased 6 % . the net addition of $ 141 million of revenue attributable to our tommy hilfiger north america and tommy hilfiger international segments , which included a reduction of approximately $ 43 million related to the impact of foreign currency translation . revenue in the tommy hilfiger north america segment decreased 4 % principally due to a 9 % decline in comparable store sales , driven by weak traffic and consumer spending in tommy hilfiger 's united states stores located in international tourist locations , and the discontinuation of our directly operated womenswear 32 wholesale business in the united states and canada in connection with the g-iii license . tommy hilfiger international segment revenue increased 11 % ( including a 2 % negative foreign currency impact ) driven principally by strong growth across europe , including a 9 % increase in comparable store sales , and the inclusion of the revenue of the china business after completion of the th china acquisition in april 2016. the reduction of an aggregate of $ 171 million of revenue attributable to our heritage brands retail and heritage brands wholesale segments . the decrease was primarily due to the business rationalization initiatives discussed in the section entitled “ operations overview ” above , partially offset by a 7 % increase in comparable store sales . the decrease in revenue of $ 221 million in 2015 as compared to 2014 was due principally to the net effect of the following items : the net addition of $ 64 million of revenue attributable to our calvin klein north america and calvin klein international segments , which included a reduction of approximately $ 199 million related to the impact of foreign currency translation . revenue in the calvin klein north america segment increased 5 % ( including a 3 % negative foreign currency impact ) . the calvin klein north america retail business experienced solid growth due to square footage expansion in company-operated stores , including the conversion of izod stores to calvin klein accessory and calvin klein underwear stores , and a 2 % increase in comparable store sales despite the decreased traffic and consumer spending trends in calvin klein 's united states stores located in international tourist locations , while the wholesale business experienced modest growth . revenue in the calvin klein international segment decreased 2 % ( including a 13 % negative foreign currency impact ) . revenue of the segment would have increased if not for the negative foreign currency impact . this was attributable to the strong performance in europe , where we experienced growth in most markets , and an increase in asia , partially due to the benefit of the chinese new year , as the first and fourth quarters of fiscal 2015 included the peak wholesale selling seasons before the chinese new year , while fiscal 2014 did not include a peak selling season before the holiday . international comparable store sales increased 5 % . the reduction of an aggregate of $ 212 million of revenue attributable to our tommy hilfiger north america and tommy hilfiger international segments , which included a reduction of approximately $ 341 million related to the impact of foreign currency translation resulting principally from a weaker euro . revenue in the tommy hilfiger north america segment decreased 1 % ( including a 2 % negative foreign currency impact ) due principally to a 5 % decrease in comparable store sales primarily as a result of the decline in traffic and consumer spending trends in tommy hilfiger 's united states stores located in international tourist locations . revenue in the tommy hilfiger international segment decreased 10 % ( including a 15 % negative foreign currency impact ) . revenue of the segment would have increased if not for the negative foreign currency impact , principally as a result of 8 % comparable store sales growth in europe and a mid-single digit percentage increase in wholesale revenue . story_separator_special_tag the reduction of an aggregate of $ 72 million of revenue attributable to our heritage brands wholesale and heritage brands retail segments , as a 10 % increase in comparable store sales in the van heusen retail business was more than offset by the revenue decrease attributable to the business rationalization initiatives discussed in the section entitled “ operations overview ” above . we currently expect that revenue will increase 2 % in 2017 compared to 2016 , inclusive of a negative impact of approximately 2 % related to foreign currency translation . negatively impacting revenue in 2017 as compared to 2016 are decreases from ( i ) the mexico deconsolidation , which resulted in us no longer recognizing revenues from a directly operated business in mexico , and ( ii ) the g-iii license , which resulted in the discontinuation of our directly operated womenswear wholesale business in the united states and canada in the fourth quarter of 2016. revenue for our calvin klein business is projected to increase approximately 5 % compared to 2016 , inclusive of a negative impact of approximately 2 % related to foreign currency translation , as well as the negative impact of the mexico deconsolidation . revenue for our tommy hilfiger business is expected to increase approximately 1 % compared to 2016 , inclusive of a negative impact of approximately 3 % related to foreign currency translation , as well as the negative impact of the g-iii license . revenue for our heritage brands business is expected to decrease approximately 1 % compared to 2016 . 33 gross profit gross profit is calculated as total revenue less cost of goods sold and gross margin is calculated as gross profit divided by total revenue . included as cost of goods sold are costs associated with the production and procurement of product , such as inbound freight costs , purchasing and receiving costs and inspection costs . also included as costs of goods sold are the amounts recognized on foreign currency forward exchange contracts as the underlying inventory hedged by such forward exchange contracts is sold . warehousing and distribution expenses are included in selling , general and administrative expenses . all of our royalty , advertising and other revenue is included in gross profit because there is no cost of goods sold associated with such revenue . as a result , our gross profit may not be comparable to that of other entities . the following table shows our revenue mix between net sales and royalty , advertising and other revenue , as well as our gross margin for 2016 , 2015 and 2014 : replace_table_token_3_th gross profit in 2016 was $ 4.370 billion , or 53.3 % of total revenue , compared to $ 4.162 billion , or 51.9 % of total revenue , in 2015. the 140 basis point increase in gross margin was principally driven by ( i ) a favorable mix of business due to revenue growth in our higher-margin calvin klein and tommy hilfiger businesses and revenue contraction in our lower-margin heritage brands business , ( ii ) the addition of th china , which achieved a significantly higher gross margin than the average gross margin for our overall business , and ( iii ) gross margin improvements in our north american businesses , principally in the second half of the year , due to decreased promotional selling resulting from lower inventory levels as compared to the prior year . these increases were partially offset by the unfavorable impact of the stronger united states dollar on our international businesses that purchase inventory in united states dollars , particularly our european businesses , as the increased local currency value of inventory resulted in higher cost of goods in local currency when the goods were sold . gross profit in 2015 was $ 4.162 billion , or 51.9 % of total revenue , compared to $ 4.327 billion , or 52.5 % of total revenue , in 2014. the 60 basis point decrease in gross margin was principally driven by ( i ) a decline in gross margin in the tommy hilfiger north america segment due to the decline in traffic and consumer spending trends in our united states stores located in international tourist locations , which drove more promotional selling compared to 2014 , ( ii ) the stronger united states dollar , which caused our calvin klein international and tommy hilfiger international segments , which generally carry higher gross margins than our north american segments , to be translated to united states dollars at lower average exchange rates , ( iii ) the stronger united states dollar , which further negatively impacted our international businesses that purchase inventory in united states dollars , particularly the tommy hilfiger european business , as the increased local currency value of inventory resulted in higher cost of goods in local currency when the goods were sold , and ( iv ) costs incurred principally in connection with the discontinuation of several licensed product lines in the heritage brands dress furnishings business . these declines were partially offset by overall gross margin improvements in our calvin klein european and asian businesses as a result of higher average unit retail selling prices , as well as an increase in our royalty , advertising and other revenue as a percentage of total revenue , as there is no cost of goods sold associated with such revenue . we currently expect that gross margin in 2017 will increase as compared to 2016 due to ( i ) the impact of expected faster growth in our calvin klein international and tommy hilfiger international segments than in our north american segments , as our international segments generally carry higher gross margins and ( ii ) gross margin improvements in our north american businesses principally resulting from decreased promotional selling compared to 2016. we currently expect that these gross margin increases will be partially offset by the unfavorable impact of the stronger united states dollar on our international businesses that purchase inventory in united states dollars .
| the joint venture was formed by merging our wholly owned subsidiary that principally operated and managed our calvin klein business in mexico with a wholly owned subsidiary of grupo axo , s.a.p.i . de c.v. ( “ grupo axo ” ) that distributes certain tommy hilfiger brand products in mexico . in connection with the formation of pvh mexico , we deconsolidated our wholly owned subsidiary . we recorded a pre-tax noncash loss of $ 82 million in 2016 in connection with the mexico deconsolidation . on june 29 , 2016 , we , along with arvind formed a joint venture in ethiopia , pvh ethiopia , in which we own a 75 % interest . we have consolidated the joint venture in our consolidated financial statements . pvh ethiopia was formed to operate a manufacturing facility that will produce finished products for us for distribution primarily in the united states . we expect the manufacturing facility will begin operations in the first half of 2017. on june 20 , 2016 , we issued 350 million euro-denominated principal amount of 3 5/8 % senior notes due july 15 , 2024. please see “ liquidity and capital resources ” below for a further discussion . 30 on april 13 , 2016 , we completed the acquisition of the 55 % of the ownership interests in th china , our former joint venture for tommy hilfiger in china , that we did not already own . as a result of the th china acquisition , we now operate directly our tommy hilfiger business in this high-growth market . the total consideration for the acquisition was $ 161 million ( including the elimination of a $ 3 million pre-acquisition receivable owed to us by th china ) , net of cash acquired of $ 105 million . we recorded a net pre-tax gain of $ 70 million in 2016 , including a noncash gain of $ 153 million to write-up our existing equity investment to fair value and costs of $ 83 million , which were primarily noncash and related to valuation adjustments and amortization of short-lived assets . on february 1 , 2016 , we entered into a licensing agreement with g-iii for the design , production and wholesale distribution of
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we use the term “ credit securities ” to refer to our credit portfolio excluding loans and msrs . additionally , we use the term “ real estate securities ” or “ securities ” to refer to our agency rmbs portfolio and our credit securities . on december 9 , 2015 , we , alongside private funds under the management of angelo , gordon , formed a mortgage banking platform called arc home llc ( “ arc home ” ) to originate conforming , fha , jumbo and non-qualifying residential mortgage loans ( “ non-qm ” ) . in january 2016 , arc home entered into a definitive agreement to acquire a fannie mae , freddie mac , federal housing administration ( “ fha ” ) , veteran 's administration ( “ va ” ) , and ginnie mae seller/servicer of mortgages with licenses to conduct business in 47 states . arc home is currently working to secure approval for the acquisition from the gses , fha , va , ginnie mae and various state licensing authorities , which is required prior to closing the transaction . we conduct our operations to qualify and be taxed as a reit for u.s. federal income tax purposes . accordingly , we generally will not be subject to federal income tax on our taxable income that we distribute currently to our stockholders as long as wess maintain our intended qualification as a reit . we operate our business in a manner that permits us to maintain our exemption from registration under the investment company act . factors impacting our operating results our operating results can be affected by a number of factors and primarily depend on , among other things , the level of our net interest income , the market value of our assets and the supply of , and demand for , our target assets in the marketplace . our net interest income , which reflects the amortization of purchase premiums and accretion of purchase discounts , varies primarily as a result of changes in market interest rates and prepayment speeds , as measured by the constant prepayment rate , ( “ cpr ” ) , on our rmbs . interest rates vary according to the type of investment , conditions in the financial markets , competition and other factors , none of which can be predicted with any certainty . our operating results can also be impacted by unanticipated credit events , such as defaults , liquidations , or delinquencies , experienced by borrowers whose mortgage loans are included in our rmbs . market conditions credit markets experienced a difficult fourth quarter , and it was a disappointing second half of the year for rmbs and abs assets . credit concerns , underperformance and lack of liquidity in other credit markets overwhelmed the mortgage and asset backed sectors . mbs and abs credit spreads widened slightly during the quarter as fears of a global contagion from china 's economic slowdown accelerated , the price of oil continued to slide and a lack of liquidity spread across most capital markets . primary issuance was anemic and many issuers were forced to postpone new deals until market demand improved . agency mbs had a difficult fourth quarter versus swap hedges . continuing the trend that began in the third quarter of 2015 , interest rate swaps used for interest rate hedging by most mortgage and abs investors outperformed both mbs and credit securities . as a result , the spread on mbs and abs assets , relative to our interest rate swap hedges , widened during the quarter , driving a decline in book value . the driving forces behind swap spread outperformance of both benchmark treasuries and spread products continued to be corporate bond issuance , global cross border capital movements and related selling of us dollar denominated reserve assets to holders that are more likely to require bank balance sheet funding . non-mortgage consumer credit experienced some divergence in performance between credit card delinquencies , which remained at historical lows , and defaults on auto , equipment and student loans , which increased modestly . consumer mortgage credit continued its pattern of stable to modest improvement in borrower performance . home prices also continued to modestly rise and inventory levels remain light to tight in many major markets . consumer appetite for housing continued to remain stable with expanding mortgage credit availability taking hold in the markets . 50 investment activities for the period from our ipo to december 31 , 2011 , the risk-reward profile of investment opportunities supported the deployment of a majority of our capital in agency rmbs . labor , housing and economic fundamentals , together with u.s. monetary policy designed to keep interest rates low , supported our agency rmbs investments in this period . overweighting of these investments was also favored by the relative ease of funding and superior liquidity . we also acquired a limited amount of non-agency rmbs , abs and cmbs assets for our investment portfolio during this period . in 2012 , we accomplished our goal to begin increasing our exposure to credit investments and leveraging the broader angelo , gordon platform . throughout the first quarter of 2013 , we remained positioned in agency rmbs assets that we believed would perform well in an ongoing elevated prepayment environment . during the second quarter of 2013 however , we concurrently elected to increase our hedging activity , perceiving the potential for an increase in interest rate volatility and benchmark interest rates . throughout 2014 , we reduced our hedging activity , rotated into shorter duration agency rmbs and continued rotating assets away from agency rmbs into credit investments . in 2015 , we continued to base our investment decisions on a variety of factors , including liquidity , duration , interest rate expectations and hedging . our investment decisions supported the continued allocation into credit assets throughout 2015 and the mix of assets in our portfolio may accordingly shift over time . story_separator_special_tag as of december 31 , 2015 , we had a portfolio that consisted of 44.2 % of agency rmbs inclusive of tbas and 55.8 % of credit investments inclusive of investments held within affiliated entities . we currently finance our investments in real estate securities and loans primarily through short-term borrowings structured as repurchase agreements as well as loans from the fhlbc . the fhlbc provides us with short-term secured loans , called advances . we use agency rmbs as collateral for our advances . subject to maintaining our qualification as a reit and our investment company act exemption , to the extent leverage is deployed , we utilize derivative financial instruments ( or hedging instruments ) , including interest rate swaps , swaption agreements , synthetic io indexes , and certain non-derivative financial instruments such as agency interest-only securities and u.s. treasury securities , in an effort to hedge the interest rate risk associated with the financing of our portfolio . specifically , we may seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by fluctuations in short-term interest rates . in utilizing leverage and interest rate hedges , our objectives are to improve risk-adjusted returns and , where possible , to lock in , on a long-term basis , a spread between the yield on our assets and the cost of our financing and hedging . in july 2015 , our captive insurance subsidiary , mitt insurance , was granted membership in the fhlbc and commenced obtaining advances from the fhlbc . membership in the fhlbc obligates mitt insurance to hold fhlbc membership stock and activity stock , the latter being a percentage of the advances it obtained from the fhlbc . as with our repurchase agreement borrowings , if the value of any assets pledged to the fhlbc as collateral for advances decreases , the fhlbc could require posting of additional collateral to the amount of advances outstanding . in january 2016 , the fhfa issued the final ruling , which expressly excludes our captive insurance subsidiary from being eligible for membership in the fhlbc and prevents the fhlbc from making any new advances or extending any existing advances to mitt insurance . under the final rule , mitt insurance must wind down its membership with the fhlbc by february 19 , 2017. on december 31 , 2015 , we had $ 396.9 million of fhlbc advances outstanding . throughout item 7 , where we disclose our investment portfolio and the related repurchase agreements and fhlbc advances that finance it , we have presented this information inclusive of unconsolidated ownership interests in affiliates that are accounted for under gaap using the equity method , tbas , that are accounted for as derivatives under gaap , long and short positions in u.s. treasury securities and transactions considered linked under previous gaap where we recorded the initial transfer and repurchase financing on a net basis and recorded a forward commitment to purchase assets as a derivative instrument . our investment portfolio is presented along with a reconciliation to gaap . the presentation inclusive of investments held within affiliated entities , tbas and linked transactions is consistent with how the company 's management evaluates the business , and the company believes this presentation provides the most accurate depiction of its investment portfolio and financial condition . 51 the following table presents a reconciliation of certain information related to investments inclusive of tbas and investments held within affiliated entities to investments on a gaap basis as of december 31 , 2015 : replace_table_token_16_th ( 1 ) equity residuals , principal only securities and msrs with a zero coupon rate are excluded from this calculation . ( 2 ) fixed rate 30 year tba are excluded from this calculation . ( 3 ) non-agency rmbs with credit scores above 700 , between 700 and 620 and below 620 at origination are classified as prime , alt a , and subprime , respectively . the weighted average credit scores of our prime , alt-a and subprime non-agency rmbs were 725 , 674 and 599 , respectively . ( 4 ) included in prime is $ 169.5 million fair market value of new issue securities . new issue is defined as being issued after 2010. included in new issue prime is $ 108.3 million fair market value of prime jumbo securities . prime jumbo is defined as being all of the following : a prime security , an issuance year after 2010 , an original rating of aaa and a weighted average original loan balance greater than the conforming loan limits published by the fhfa . ( 5 ) included in alt a is $ 65.9 million fair market value of new issue securities . new issue is defined as being issued after 2010 . ( 6 ) included in subprime is $ 35.4 million fair market value of new issue securities . new issue is defined as being issued after 2010 . ( 7 ) rpl/npl mbs are collateralized by re-performing or non-performing loans whose deal structures contain an interest rate step-up feature . ( 8 ) whole loans purchased by a mitt related party in securitized form . ( 9 ) actual maturities of investments and loans are generally shorter than stated contractual maturities . maturities are affected by the contractual lives of the underlying mortgages , periodic payments of principal and prepayments of principal . 52 the following table presents a reconciliation of certain information related to investments inclusive of unlinked securities , tbas and investments held within affiliated entities to investments on a gaap basis as of december 31 , 2014 : replace_table_token_17_th ( 1 ) equity residuals , principal only securities and msrs with a zero coupon rate are excluded from this calculation . ( 2 ) fixed rate 30 year tba are excluded from this calculation . ( 3 ) non-agency rmbs with credit scores above 700 , between 700 and 620 and below 620 at origination are classified as prime , alt a , and subprime , respectively .
| throughout 2014 fixed income products generally rallied , including benchmark treasuries , agency and non-agency rmbs , abs and cmbs , resulting in both unrealized mark-to-market and realized gains on our investment portfolio and losses on our interest rate hedge portfolio of swaps . in the case of our agency rmbs portfolio , the gains were in excess of losses on our hedge portfolio of swaps as reduced supply helped outperform benchmark swap rates on the year . the majority of our interest rate hedges were in the 3-year to 5-year part of the curve and this outperformance ( or tightening of the agency rmbs basis ) was particularly pronounced versus that part of the curve as benchmark yield curves flattened in response to increased market speculation of federal reserve policy rate tightening to come . non-agency rmbs , abs and cmbs markets benefited from positive fundamentals and an improving consumer balance sheet , while enjoying a degree of scarcity value against a backdrop of lower interest rates . these credit markets showed a much more muted response to the brief periods of broader market volatility as the rmbs and abs markets delivered strong investment returns . 64 the overall market landscape in the beginning of 2015 remained positive for investing in credit investments . housing fundamentals remained in-line with our forecasts and consumer health was steadily improving . however , as the year progressed , we experienced macro volatility , elevated correlations across most markets , confusion over fed monetary policy and fragile market structure . this led to decreased bond prices and wider credit spreads . agency mbs fell in price along with benchmark treasuries in the front end of the curve year-over-year as we approached the federal reserve 's first policy rate tightening since 2006 , causing both unrealized mark-to-market and realized losses on our agency mbs investment portfolio . benchmark treasury interest rates did not materially move year-over-year , however our hedge book of interest rate swaps was adversely affected by a dislocation of swap rates from both treasury rates and those spread products typically hedged with swaps , resulting in unrealized mark-to-market as well as realized losses in our
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for the year ended december 31 , 2011 , the corporation primarily relied upon the guidance in fasb asc 320-10-65 , fasb asc 820-10-65 and fasb asc 310-10-35. additional information can be found in note 4 of the notes to consolidated financial statements . impairment charges on certain investment securities of approximately $ 5.6 million were recognized during the year ended december 31 , 2010. of this amount , $ 1.8 million related to charges taken on two pooled trust preferred securities owned by the corporation , $ 360,000 on a variable rate private label collateralized mortgage obligation ( cmo ) , $ 398,000 in principal losses on a variable rate private label cmo and $ 3.0 million on a trust preferred security . the corporation 's approach to determining whether or not other-than-temporary impairment exists for any of these investments was consistent with the accounting guidance in effect at that time . for the year ended december 31 , 2010 , the corporation primarily relied upon the guidance in fasb asc 320-10-65 , fasb asc 820-10-65 and fasb asc 325-10-35. income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in the corporation 's consolidated financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences could impact the corporation 's consolidated financial condition or results of operations . notes 1 ( under the caption use of estimates ) and 11 of the notes to consolidated financial statements include additional discussion on the accounting for income taxes . goodwill the corporation adopted the provisions of fasb asc 350-10-05 , which requires that goodwill be reported separate from other intangible assets in the consolidated statements of condition and not be amortized but tested for impairment annually or more frequently if impairment indicators arise for impairment . no impairment charge was deemed necessary for the years ended december 31 , 2011 and 2010 . 33 fair value of investment securities in october 2008 , the fasb issued fasb asc 820-10-35 , to clarify the application of the provisions of fasb asc 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market . changes in the corporation 's methodology occurred for the quarter ended june 30 , 2009 as new accounting guidance was released in april of 2009 with mandatory adoption required in the second quarter . the corporation relied upon the guidance in fasb asc 820-10-65 when determining fair value for the corporation 's pooled trust preferred securities and private issue corporate bond . see note 18 of the notes to consolidated financial statements , fair value measurements and fair value of financial instruments , for further discussion . introduction the following introduction to management 's discussion and analysis highlights the principal factors that contributed to the corporation 's earnings performance in 2011. the year 2011 was a challenging one for the banking industry and for the corporation . the current global financial crisis and difficult economic climate has created challenges to financial institutions both domestically and abroad . interest rates in 2011 and 2010 were reflective of significantly lower short-term interest rates in an effort to stimulate the economy . competition for deposits in the corporation 's marketplace remained intense while customers ' preference in seeking safety through full fdic insured products and more liquidity became paramount in light of the financial crisis . market conditions remained volatile during 2011 and 2010 , related to global instability in the markets following the sub-prime crises . while we continue to see an improvement in balance sheet strength and core earnings performance , we are still concerned with the credit stability of the broader markets . as a result , the federal reserve kept overnight borrowing rates at zero to 25 basis points throughout the course of 2011. short-term interest rates remained lower than longer term rates resulting in an improved steepening of the yield curve . this resulted in an expansion of the corporation 's net interest income , which is the corporation 's primary source of income . the corporation also took action throughout the year to reduce further exposure to interest rates through a reduction in higher cost funding and non-core balances in the deposit mix and improvement in the earning asset mix . the corporation 's continued progress in growing and improving its balance sheet earning asset mix has helped to expand its spread and margin . we intend to continue to use a portion of the proceeds of maturing investments to help fund new loan growth . the corporation 's net income in 2011 was $ 13.9 million or $ 0.80 per fully diluted common share , compared with net income of $ 7.0 million or $ 0.43 per fully diluted common share in 2010. a substantial portion of our earnings in 2011 and 2010 was from core operations . earnings for 2011 were positively impacted by net interest income and spread expansion through both balance sheet improvements and a lower cost of funds as compared to 2010 and reductions in loan loss provisions , marketing expenses , fdic insurance , computer and occupancy expenses . these improvements were somewhat offset by higher salaries and employee benefits , professional and consulting fees expenses . other expense for the twelve-months ended december 31 , 2011 totaled $ 23.4 million , a decrease of $ 656,000 , or 2.7 percent , from the twelve-months ended december 31 , 2010 due principally to the items mentioned above . story_separator_special_tag the corporation previously announced a strategic outsourcing agreement with fiserv to provide core account processing services , which is consistent with the corporation 's other strategic initiatives to streamline operations , reduce operating overhead and allow the corporation to focus on core competencies of customer service and product development . this coupled with previously initiated cost reduction plans are intended to improve operating efficiencies , business and technical operations . the core processing transition was consummated during 2009. additionally , the consolidation of the corporation 's branch office on 392 springfield avenue in summit , new jersey during 2009 into its new office on 545 morris avenue in summit , new jersey resulted in improved efficiency and increased customer service . for the twelve months ended december 31 , 2011 , total salaries and benefits increased by $ 762,000 or 7.1 percent to $ 11.5 million primarily attributable to additions to office staff and merit increases for existing staff of approximately $ 515,000 and increased medical insurance expense of $ 40,000 . 34 total non-interest income increased as a percentage of total revenue , which is the sum of interest income and non-interest income , in 2011 largely due to $ 3.6 million in net securities gains as compared to $ 1.3 million in net securities losses in 2010 as gains from sales of $ 4.0 million in 2011 were offset by impairment losses of $ 411,000 . for the twelve months ended december 31 , 2011 , total other income increased $ 5.0 million as compared with the twelve months ended december 31 , 2010 , from $ 2.5 million to $ 7.5 million . excluding net securities gains and losses in the respective periods , the corporation recorded total other income of $ 3.8 million in both the twelve months ended december 31 , 2011 and the twelve months ended december 31 , 2010. increases of $ 313,000 in other income were partially offset by decreases in service charges of $ 79,000 and bank-owned life insurance income of $ 188,000 caused by a one time premium benefit awarded in 2010 and not repeated in 2011. total assets at december 31 , 2011 were $ 1.433 billion , an increase of 18.7 percent from assets of $ 1.207 billion at december 31 , 2010. the increase in assets reflects the growth of $ 108.7 million in our investment securities portfolio as the corporation sought to deploy cash from increased deposit production into a more efficient earning asset mix . the growth in the investment securities portfolio was funded primarily through deposit growth of $ 261.1 million , which also resulted in increases in cash and due from banks of $ 73.6 million and loans net of the allowance for loan losses of $ 46.8 million . the corporation has made a concerted effort to reduce non-core balances and , as mentioned in the preceding sentence , its uninvested cash position was increased by $ 73.6 million in 2011. additionally , there has been a concerted effort to reduce higher costing retail deposits . loan demand improved in 2011. overall , the portfolio increased year over year by approximately $ 46.8 million or 6.7 percent from 2010. demand for commercial real estate loans prevailed throughout the year in the corporation 's market in new jersey , despite the economic climate at both the state and national levels and market turmoil following the crisis in the sub-prime markets . the corporation is encouraged by loan demand and positive momentum is expected to continue in growing that segment of earning assets in 2012. however , the corporation continues to remain concerned with the credit stability of the broader markets due to the weakened economic climate . asset quality continues to remain high and credit culture conservative . even so , the stability of the economy and credit markets remains uncertain and as such , has had an impact on certain credits within our portfolio . the corporation continued to make provisions to the allowance for loan losses as efforts are made to stabilize credit quality issues . at december 31 , 2011 , non-performing assets totaled $ 8.5 million or 0.59 percent of total assets , and $ 11.9 million or 0.98 percent at december 31 , 2010. the decrease in non-performing assets from december 31 , 2010 was achieved notwithstanding the addition of several new residential loans ( totaling approximately $ 2.6 million ) and commercial loans ( totaling approximately $ 1.4 million ) into non-performing status . this was more than offset by decreases from pay-downs of $ 5.0 million , total charge-offs of $ 0.7 million of existing loans , and the transfer to performing troubled debt restructured from non-accrual status of $ 1.7 million . at december 31 , 2011 , the total allowance for loan losses amounted to approximately $ 9.6 million , or 1.27 percent of total loans . the allowance for loan losses as a percent of total non-performing loans amounted to 121.5 percent at december 31 , 2011 and 74.6 percent at december 31 , 2010. this increase in the ratio from december 31 , 2010 to december 31 , 2011 was due to the decrease in the level of non-performing assets , along with an increase in the allowance for loan loss from $ 8.9 million at december 31 , 2010. deposits totaled $ 1.1 billion at december 31 , 2011 , increasing $ 261.1 million , or 30.3 % , since december 31 , 2010. total demand , savings , money market , and certificates of deposit less than $ 100,000 increased $ 242.7 million or 32.8 % from december 31 , 2010. time certificates of deposit of $ 100,000 or more increased by $ 18.3 million or 15.3 % from december 31 , 2010. these increases were attributable to continued core deposit growth in overall segments of the deposit base and in niche areas , such as municipal government , private schools and universities .
| adjustments were made for interest earned on tax-advantaged instruments . historically , the most significant component of the corporation 's earnings has been net interest income , which is the difference between the interest earned on the portfolio of earning assets ( principally loans and investments ) and the interest paid for deposits and borrowings , which support these assets . there were several factors that affected net interest income during 2011 , including the volume , pricing , mix and maturity of interest-earning assets and interest-bearing liabilities and interest rate fluctuations . net interest income is directly affected by changes in the volume and mix of interest-earning assets and interest-bearing liabilities , which support those assets , as well as changes in the rates earned and paid . net interest income is presented in this financial review on a tax equivalent basis by adjusting tax-exempt income ( primarily interest earned on various obligations of state and political subdivisions ) by the amount of income tax which would have been paid had the assets been invested in taxable issues , and then in accordance with the corporation 's consolidated financial statements . accordingly , the net interest income data presented in this financial review differ from the corporation 's net interest income components of the consolidated financial statements presented elsewhere in this report . 37 net interest income , on a fully tax-equivalent basis , for the year ended december 31 , 2011 increased $ 6.6 million , or 19.3 percent , to $ 40.6 million , from $ 34.0 million for 2010. the corporation 's net interest margin increased 23 basis points to 3.53 percent from 3.30 percent . from 2009 to 2010 , net interest income on a tax equivalent basis increased by $ 5.0 million and the net interest margin increased by 45 basis points . during 2011 , our net interest margin was positively impacted by increases in the investment portfolio and net loans funded by increases in core deposits , a
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trofinetide has been granted fda fast track status and orphan drug designation in the u.s. and orphan designation in europe . currently , there are no approved medicines for the treatment of rett syndrome . in october 2019 , we initiated the phase 3 lavender study , a randomized , double-blind placebo-controlled study evaluating trofinetide in girls and young women 5 to 20 years of age with rett syndrome . during 2015 , we licensed worldwide intellectual property rights related to pimavanserin in certain indications to acadia pharmaceuticals gmbh , our wholly-owned swiss subsidiary . our active pharmaceutical ingredient , or api , for our nuplazid ( pimavanserin ) program has been manufactured in switzerland for over 10 years and we anticipate continuing to manufacture our api in switzerland . acadia pharmaceuticals gmbh manages the worldwide supply chain of pimavanserin api . we believe the establishment of acadia pharmaceuticals gmbh , as well as the licensing of worldwide intellectual property rights for pimavanserin , will allow us to build a platform for long-term operational and financial efficiencies . we have incurred substantial operating losses since our inception due in large part to expenditures for our research and development activities and more recently for our sales and marketing activities related to the commercialization of nuplazid . as of december 31 , 2019 , we had an accumulated deficit of $ 1.7 billion . we expect to continue to incur operating losses for the next few years as we advance our programs and incur significant development and commercialization costs . financial operations overview product and collaborative revenues net product sales consist of sales of nuplazid , our first and only commercial product to date . the fda approved nuplazid in april 2016 and we launched the product in the united states in may 2016. prior to the generation of revenue from nuplazid , our revenues had been generated substantially from payments under our collaboration agreements . cost of product sales cost of product sales consists of third-party manufacturing costs , freight , and indirect overhead costs associated with sales of nuplazid . cost of product sales may also include period costs related to certain inventory manufacturing services , excess or obsolete inventory adjustment charges , unabsorbed manufacturing and overhead costs , and manufacturing variances . license fees and royalties license fees and royalties consist of milestone payments expensed or capitalized and subsequently amortized under our 2006 license agreement with the ipsen group . license fees and royalties also include royalties of two percent due to the ipsen group based upon net sales of nuplazid . 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 incurred related to pre-commercial product candidates . we charge all research and development expenses to operations as incurred . our research and development activities have primarily focused on nuplazid ( pimavanserin ) which was approved by the fda for the treatment of hallucinations and delusions associated with pd psychosis in april 2016. we currently are responsible for all costs incurred in the ongoing development of pimavanserin and we expect to continue to make substantial investments in clinical studies of pimavanserin for indications other than pd psychosis , including depression and schizophrenia . while we intend to submit a snda to the fda for drp in summer 2020 , at this time , due to the risks in the regulatory and approval processes , we are unable to estimate with any certainty the costs we will incur for the continued development activities of drp , including work necessary to support the submission and review of the snda . additionally , in connection with the fda approval of nuplazid , we committed to conduct post-marketing studies , including a randomized , placebo-controlled withdrawal study in patients treated with nuplazid and a randomized , placebo-controlled eight-week study or studies in predominantly frail and elderly patients that would add to the nuplazid safety database by exposing an aggregate of at least 500 patients to nuplazid . we will be responsible for all costs incurred for these post-marketing studies . we expect to incur increased research and development expenses as a result of our development of trofinetide under the exclusive north american license granted to us by neuren pharmaceuticals , including the costs of the phase 3 lavender study and a long term extension study . we currently are responsible for all costs incurred in the development of trofinetide , as well as milestone payments subject to achievement of development milestones . 51 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 pimavanserin and trofinetide . historically , 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 , 2019 , 2018 , and 2017 ( in thousands ) : replace_table_token_3_th although nuplazid was approved by the fda for the treatment of hallucinations and delusions associated with pd psychosis , at this time , due to the risks inherent in clinical development , we are unable to estimate with certainty the costs we will incur for the ongoing development of pimavanserin in additional indications , including those within schizophrenia and depression , and the development of trofinetide . 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 . story_separator_special_tag while our current development efforts are primarily focused on advancing the development of pimavanserin in additional indications other than pd psychosis , 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 the commercial potential of each opportunity and our financial position . we can not forecast with any degree of certainty which product opportunities 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 . similarly , we are unable to estimate with certainty the costs we will incur for post-marketing studies that we committed to conduct in connection with fda approval of nuplazid . we expect our research and development expenses to increase and continue to be substantial as we conduct studies pursuant to our post-marketing commitments and pursue the development of pimavanserin in additional indications other than pd psychosis , including our studies within schizophrenia and depression indications and the development of trofinetide in rett syndrome . the lengthy process of completing clinical trials and supporting development activities and seeking regulatory approval for our product opportunities 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 . selling , general and administrative expenses our selling , general and administrative expenses consist of salaries and other related costs , including stock-based compensation expense , for our commercial personnel , including our specialty sales force , our medical education professionals , and our personnel serving in executive , finance , business development , and business operations functions . also included in selling , general and administrative expenses are fees paid to external service providers to support our commercial activities associated with nuplazid , professional fees associated with legal and accounting services , costs associated with patents and patent applications for our intellectual property and charitable donations to independent charitable foundations that support parkinson 's disease patients generally . we expect our selling , general and administrative expenses to increase in future periods . for example , in preparation for a potential u.s. launch of pimavanserin in dementia-related psychosis , we plan to increase the u.s. sales force significantly , and expand additional commercial , medical affairs and general and administrative support functions . 52 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 product sales , net effective january 1 , 2018 , we adopted asu 2014-09 , revenue from contracts with customers ( topic 606 ) , and applied all the related amendments to all of the contracts using the modified-retrospective method . while results for reporting periods beginning after january 1 , 2018 are presented under the new guidance , prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period . the accounting policy for revenue recognition for periods prior to january 1 , 2018 is described in note 2 of the notes to the consolidated financial statements included in this report . under topic 606 , we recognize revenue when our customer obtains control of promised goods or services , in an amount that reflects the consideration which we expect to receive in exchange for those goods or services . to determine revenue recognition for arrangements that we determine are within the scope of topic 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of topic 606 , we assess the goods or services promised within such contract , determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . payment terms differ by customer , but typically range from 31 to 35 days from the date of shipment . revenue for our product sales has not been adjusted for the effects of a financing component as we expect , at contract inception , that the period between when we transfer control of the product and when we receive payment will be one year or less . no cumulative effect adjustment to the opening balance of retained earnings was necessary upon adoption , and there is no reconciliation of our consolidated statements of operations , as no revenue recognition differences were identified when comparing the revenue recognition criteria under topic 606 to previous requirements . our net product sales consist of u.s. sales of nuplazid .
| the following table provides a summary of activity with respect to our sales allowances and accruals for the year ended december 31 , 2019 ( in thousands ) : replace_table_token_4_th cost of product sales cost of product sales was $ 11.3 million and $ 12.4 million in 2019 and 2018 , respectively , or approximately 3 % and 6 % of net product sales . the cost of product sales as a percentage of net sales decreased during 2019 as compared to 2018 due to higher manufacturing levels , resulting in higher inventory cost absorption , increased sales volume at a higher average gross selling price in 2019 , and decreased charges to reduce certain finished goods and work in process inventory to its net realizable value . license fees and royalties license fees and royalties were $ 8.3 million and $ 6.0 million in 2019 and 2018 , respectively , and include royalties due to the ipsen group of two percent of net sales of nuplazid and amortization related to the milestone paid to the ipsen group upon fda approval of nuplazid in 2016. the increase in license fees and royalties was primary due to the increase in sales volume during 2019. research and development expenses research and development expenses increased to $ 240.4 million in 2019 , including $ 32.5 million in stock-based compensation , from $ 187.2 million in 2018 , including $ 32.0 million in stock-based compensation . the increase in research and development expense was due to an increase of $ 46.8 million in external costs and an increase of $ 6.4 million in personnel and related costs , including an increase of $ 0.5 million in stock compensation expense . the increase in external costs was primarily due to increased clinical costs associated with the development of trofinetide in rett syndrome and pimavanserin in indications other than pd psychosis . selling , general and administrative expenses selling , general and administrative expenses increased to $ 325.6 million in 2019 , including
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lmr mission critical communications lmr mission critical communications services include support and managed services , which offer a broad continuum of support for our customers . support services include repair and replacement , technical support and preventative maintenance , and more advanced offerings such as system monitoring , software updates and cybersecurity services . managed services range from partial to full operational support of customer-owned or motorola solutions-owned networks . our customers ' systems often have multi-year or multi-decade lifespans that help drive demand for software upgrades , device and infrastructure refresh opportunities , as well as additional services to monitor , manage , maintain and secure these complex networks and solutions . we strive to deliver services to our customers that help improve performance across their systems , devices and applications for greater safety and productivity . given the mission-critical nature of our customers ' lmr networks , availability , security and resiliency are imperative , along with keeping pace with technological advancements . we have a comprehensive approach to system upgrades that addresses hardware , software and implementation services . as new system releases become available , we work with our customers to upgrade software , hardware , or both , with respect to site controllers , comparators , routers , lan switches , servers , dispatch consoles , logging equipment , network management terminals , network security devices such as firewalls and intrusion detection sensors , and more , on-site or remotely . the lmr technology within the software and services segment represented 72 % of the net sales of the total segment in 2020. command center software our command center software suite , commandcentral , supports the complex process of the public safety workflow from `` 911 call to case closure , '' which involves an array of roles from the moment a citizen dials 911 , such as dispatchers who route calls to police , fire and emergency medical services , first responders in the field , intelligence analysts who manage real-time operations , records specialists who preserve the integrity of information and evidence , crime analysts who identify patterns and accelerate investigations , and corrections officers who oversee jail and inmate management . commandcentral software supports these roles through the three phases of incident response : incident awareness , incident management and post-incident resolution . incident awareness software includes community engagement applications for tip submissions , crime mapping and evidence submission , and 911 call-handling software ( including multimedia ) and next-generation core services for 911 call routing . incident management software includes computer aided dispatch ( “ cad ” ) for dispatch and coordinating first response , situational awareness software that shows a single , real-time view of video feeds and other alerts on a map , and field response and reporting to help frontline personnel collaborate , manage incident activity and file reports from the field . post-incident resolution software includes centralized records and evidence management for record-keeping and judicial sharing , analytics including license plate recognition , and jail and inmate management to streamline the process and enable secure inter-agency information sharing . as the public safety market continues to evolve toward software offerings that more efficiently run their operations , reduce response times and increase officer availability , we have focused on providing cloud-based software-as-a service ( “ saas ” ) with ancillary implementation and managed services in addition to on-premises solutions . our premierone cloud suite , hosted in microsoft azure government , includes cad , mobile and records in a single , integrated cloud-based offering . we believe that cloud deployment delivers agencies key benefits , including faster deployment , increased security , rapid scaling in the event of an emergency and a secure investment that keeps pace as technology advances . another area of public safety evolution is increasing adoption of next generation 911 core services ( “ ngcs ” ) , a group of products and services needed to create infrastructure connectivity in order to process a 911 call using next generation ( “ ng ” ) technology . the ng infrastructure is an emergency service ip network ( `` esinet '' ) , which can carry voice , data and multimedia . esinet enables 911 call takers at public safety answering points to respond to text , video and data . our ngcs can be offered as a managed service and includes call routing , esinet , location services , geographic information services , cybersecurity and our continuous network and security operations center dedicated to public safety . we believe that our solution is differentiated 28 through its integration with our commandcentral software suite to simplify the agency 's workflow and ensure better incident management and real-time intelligence . additional command center software includes interoperability software that ensures communication is not limited by coverage area , network technology or device type . our solutions , including kodiak , wave ptx and criticalconnect , enable interoperability among devices across multiple networks . for example , a two-way radio network can connect with an lte network making it possible for individuals to communicate securely and more easily across technologies . the command center software technology within the software and services segment represented 18 % of the net sales of the total segment in 2020. video security and analytics video security and analytics software includes video network management software , digital evidence management software and advanced vehicle location data analysis software , including license plate recognition , each designed to complement respective video hardware systems . our video network management software is embedded with artificial intelligence ( “ ai ” ) -enabled analytics to deliver operational insights to our customers by bringing attention to important events within their video footage . given the volume of video footage , we believe this is critical to monitor and manage to deliver meaningful , action-oriented insights . story_separator_special_tag for example , ai-enabled analytics can detect unusual behavior such as a person at a facility out-of-hours , locate a missing child with our appearance search feature at a theme park , flag a blacklisted vehicle through license plate recognition at a school , or send an alert through access control if doors are propped open at a hospital . video security and analytics services include our video-as-service offering for law enforcement , simplifying procurement by bundling hardware and software into a single subscription . body-worn cameras and in-car video systems can be paired with either on-premises or cloud-based digital evidence management software and complementary command center software products . additionally , avigilon fixed video systems connected to avigilon cloud services ( “ acs ” ) provide our customers with the ability to securely access video across their sites from a remote/central monitoring location and more easily integrate with their other systems . the video security and analytics technology within the software and services segment represented 10 % of the net sales of the total segment in 2020. story_separator_special_tag experienced growth in the year , as we enter 2021. in 2021 , covid-19 may continue to have an impact on net sales and operating margins within our products and systems integration segment . however , given the prioritization of mission critical communication solutions , we do not anticipate funding at the state and local levels to have a material , negative effect on our expected net sales for 2021. we have also taken actions in a number of areas to reduce our operating expenses , including lower variable employee compensation , travel costs , contractor spend and reducing our real estate footprint to limit the negative effect on operating margins for 2020 ; however , a portion of these expenses , primarily variable compensation and certain travel expenses are likely to return in 2021. in addition , our supply chain partners have been supportive and continue to work to fulfill the necessary service levels to the company and its customers . we continue to closely monitor the impact of covid-19 on our business and geographies , including how it is impacting our customers , suppliers , and business partners . however , the future impact that covid-19 will have on our financial position and operating results may be affected by numerous uncertainties , including the severity of the virus , the duration of the outbreak , governmental , business or other actions , impacts on our supply chain , the effect on customer demand , or changes to our operations . the impacts of a potential worsening of global economic conditions and the continued disruptions to , and volatility in , the credit and financial markets , as well as other unanticipated consequences , remain unknown . further , additional outbreaks of covid-19 in fiscal 2021 or beyond would cause many of the impacts described herein to return or be exacerbated . for further information , please see “ part 1. item 1. business ” and “ part 1. item 1a . risk factors ” in this form 10-k. the company 's current expectations described above are forward-looking statements and our actual results may differ . 30 recent acquisitions technology segment acquisition description purchase price date of acquisition command center software software and services callyo provider of cloud-based mobile applications for law enforcement in north america , including critical mobile technological capabilities that enable information to flow seamlessly from the field to the command center . $ 63 million , inclusive of share-based compensation of $ 3 million august 28 , 2020 video security and analytics products and systems integration software and services pelco , inc. global provider of video security solutions , adding a broad range of products for a variety of commercial and industrial environments and use cases . $ 110 million july 31 , 2020 video security and analytics products and systems integration software and services indigovision group plc provider of video security solutions to enhance geographical reach across a wider customer base . $ 37 million june 16 , 2020 lmr software and services unnamed cybersecurity services business provider of vulnerability assessments , cybersecurity consulting , and managed services , including security monitoring of network operations . $ 32 million april 30 , 2020 lmr software and services unnamed cybersecurity services business provider of vulnerability assessments , cybersecurity consulting , managed services , and remediation and response capabilities . $ 40 million , inclusive of share-based compensation of $ 6 million march 3 , 2020 video security and analytics software and services unnamed data solutions business for vehicle location information provider of additional data to our existing license plate recognition database . $ 85 million october 16 , 2019 video security and analytics products and systems integration software and services watchguard , inc. provider of in-car and body-worn video solutions . $ 271 million , inclusive of share-based compensation of $ 16 million july 11 , 2019 lmr products and systems integration software and services avtec , inc. provider of dispatch communications for u.s. public safety and commercial customers to communicate , coordinate resources , and secure their facilities . $ 136 million march 11 , 2019 video security and analytics products and systems integration software and services vaas international holdings global provider of data and image analytics for vehicle location . $ 445 million , inclusive of share-based compensation of $ 38 million january 7 , 2019 video security and analytics products and systems integration software and services avigilon corporation provider of advanced security and video solutions including video analytics , network video management hardware and software , video cameras , and access control solutions . $ 974 million march 28 , 2018 command center software software and services plant holdings , inc. provider of next generation 911 solutions .
| the overall reduction in operating expenses was partially offset by : ( i ) $ 23 million higher reorganization of business expenses , ( ii ) $ 11 million higher share-based compensation expenses , and ( iii ) higher operating expenses from acquisitions . in the software and services segment , net sales were $ 2.8 billion in 2020 , an increase of $ 222 million , or 9 % , compared to $ 2.6 billion in 2019. on a geographic basis , net sales increased in both north america and international . operating earnings were $ 727 million in 2020 , compared to $ 587 million in 2019. operating margin increased in 2020 to 26.2 % from 22.9 % in 2019 due to higher sales and gross margin contribution , along with reduced operating expenses primarily driven by operating leverage , inclusive of lower employee incentive costs and travel expenses . the overall reduction in operating expenses was partially offset by : ( i ) $ 6 million higher reorganization of business expenses , ( ii ) $ 5 million higher intangible amortization driven by acquisitions , and ( iii ) higher operating expenses from acquisitions . 29 covid-19 in response to the covid-19 pandemic , there have been a broad number of governmental and commercial actions taken to limit the spread of the virus , including social distancing measures , stay-at-home orders , travel restrictions , business shutdowns and slowdowns . these actions have resulted in a significant decline in global economic activity , and accordingly , we have assessed the impact on our employees , customers , communities , liquidity and financial position . we continue to abide by a number of measures in an effort to protect the health and well-being of our employees and customers , including having office workers work remotely , suspending employee travel , withdrawing from certain industry events , increasing the frequency of cleaning services , encouraging face coverings , and using thermal scanning . we have continued to ensure customer continuity by fulfilling several emergency orders , completing remote software maintenance where possible , and continuing to service our mission-critical networks on-site as needed to ensure seamless operations . our sales teams have also continued to
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the additional copper units have a very low cost per pound improving our overall cash cost and competitiveness . for 2016 , we expect to have a new copper production record of 903,300 tons of copper , an increase of 160,300 tons or a 21.6 % production growth . · molybdenum : this metal represented 4.7 % of the company sales in 2015. in 2015 we saw a molybdenum price deterioration consistent with our outlook for more supply growth coming from our buenavista operation as well as from sierra gorda , toromocho and caserones , among other projects . demand for molybdenum was weak in 2015 and will be affected in 2016 by lower expected consumption for special alloys coming from the oil drilling industry . even though the current scenario for molybdenum prices is not positive , it is important to note that we have already had two quarters with market deficits in molybdenum . this has given support to its market price at a level slightly higher than $ 5.00 dollars per pound . molybdenum is mainly used for the production of special alloys of stainless steel that require significant hardness , corrosion and heat resistance . a new use for this metal is in lubricants and sulfur filtering of heavy oils and shale gas production . · silver : regarding this metal , we believe that prices will have support due to its industrial uses as well as being perceived as a value shelter in times of economic uncertainty . silver represented 4.5 % of our sales in 2015 . · zinc : zinc has very good long term fundamentals due to its significant industrial consumption and expected mine production shutdowns . in the last 12 months zinc inventories have consistently decreased , improving this market 's fundamentals . we are expecting an increasing price scenario for zinc in the next few years . zinc represented 4.2 % of our sales in 2015 . · production : for 2016 , improvements in operational practices , exchange rate depreciation where we operate , lower fuel costs and capital investments will reduce unit costs and increase our copper and molybdenum production . we plan to increase our copper production to 903,300 tons , which is 160,307 tons ( 21.6 % ) higher than 2015 production of 742,993 tons . in the 2015-16 two-year period , we will have increased copper production by 225,000 tons . 64 we expect to produce 21,800 tons of molybdenum , lower by 6.6 % from last year 's production of 23,347 tons . additionally , we expect to produce 16.0 million ounces of silver , about 20.3 % higher than the 2015 production of 13.3 million ounces due to higher immsa production . regarding zinc production , for 2016 we expect to produce 86,900 tons of zinc from our mines , 40.4 % higher than 2015 's production , mainly due to the recovery of the santa eulalia mine , whose production was affected by a flood in 2015 and from higher charcas mine production . · cost : our operating costs and expenses for the three-years ended december 2015 have increased in total in each of the years . our comparison of costs for the three year period is as follows : replace_table_token_31_th operating costs and expenses in 2015 increased $ 76.5 million , compared to 2014 , principally due to higher production , which lead to higher costs of sales and due to higher depreciation , amortization and depletion at our operations ; partially offset by lower environmental remediation and exploration expense . operating costs and expenses in 2014 increased $ 134.2 million , compared to 2013 , principally due to higher production , a $ 91.4 million environmental remediation provision for the spill at buenavista , higher depreciation , amortization and depletion at our operations and higher exploration spending . · capital investments : capital investments were $ 1,250.0 million for 2015 , including the el pilar acquisition in sonora , mexico . this is 18.3 % lower than in 2014 , and represented 169.7 % of net income . our growth program to develop the full production potential of our company is underway . in addition , the buenavista expansion program is largely completed . for 2016 , the board of directors approved a capital investment program of $ 1,577.8 million to make the final payments for the buenavista projects , to initiate the construction of a new concentrator in toquepala , with an annual production capacity of 100,000 tons of copper and 3,100 tons of molybdenum , and for the tia maria project . with these projects we are continuing our investment program to increase copper production capacity by more than 90 % from our 2013 production level of 617,000 tons to 1.2 million tons by 2018. key matters we discuss below several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) operating cash costs as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2015 ( in millions , except per share amounts ) : replace_table_token_32_th net sales decreased in the three-year period from 2013 to 2015 , due to lower metal prices for copper , molybdenum and silver , partially offset by an increase in copper sales volume . the 2015 copper sales volume increased by 12.3 % . the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , both of which increased in each of the years in the periods above . in 2015 , cost of sales increased by $ 87.1 million and depreciation , 65 amortization and depletion increased by $ 65.7 story_separator_special_tag million . the increase in cost of sales was due to higher production , as well as higher cost of metals purchased from third parties , net foreign currency transaction effect and higher sales volume ; partially offset by lower fuel and power costs , workers ' participation expense , labor costs , and sales expenses . the increase in depreciation was mainly due to investment and maintenance capital acquisitions at most of our operations . in addition , the 2014 operating costs include a $ 91.4 million charge for costs of remediating the spill at buenavista , in 2015 , this cost was $ 45.0 million . net income attributable to scc in 2015 was 44.8 % lower mainly due to the above noted factors . production : the table below highlights , mine production data of our company for the three years ended december 31 , 2015 : replace_table_token_33_th the tables below highlights copper production data at each of our mines for the three years ended december 31 , 2015 : replace_table_token_34_th 2015 compared to 2014 : mined copper in 2015 increased 146.4 million pounds , compared to 2014 production . this increase was due to : · higher production at our buenavista mine due to higher throughput at the concentrator and better ore grades , as well as higher production from the sx-ew iii plant . · higher production at the toquepala mine and la caridad mine due to better ore grades and recoveries . · higher production at the immsa mines due to higher throughput at the concentrators , slightly reduced by · lower production at the cuajone mine due to lower ore grades . molybdenum production increased 0.5 million pounds in 2015 , compared to 2014 , and silver production increased 0.3 million ounces in 2015. zinc production decreased by 10.4 million pounds in 2015 , continuing the slide seen in the prior year . we expect zinc production to increase in 2016 as production problems at the charcas and santa eulalia mines have been resolved . 2014 compared to 2013 : mined copper in 2014 increased 131.3 million pounds , compared to 2013 production . this increase was due to : · higher production at our buenavista mine due to higher throughput at the concentrator and better ore grades and recoveries , as well as higher production from the sx-ew iii plant . · higher production at the toquepala mine and la caridad mine due to better ore grades and recoveries . · higher production at the cuajone mine resulting from higher ore grades and increased throughput from the hpgr production process , slightly reduced by · lower production at immsa mines due to problems at the charcas and santa eulalia mines ; an accident occurred at the charcas mine that temporarily restricted production while the santa eulalia mine experienced flooding problems . 66 molybdenum production increased 7.1 million pounds in 2014 , compared to 2013 , mainly at our buenavista and toquepala mines . zinc mine production decreased by 72.2 million pounds in 2014 , 33.0 % lower than in 2013 , mainly as a result of lower grades at all our immsa mines and lower production at the charcas and santa eulalia mines , as discussed above . our silver production decreased in 2014 compared to 2013 production due to lower production at the immsa mines offset by higher production at the toquepala , cuajone , buenavista and la caridad mines . operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies . this non-gaap information should not be considered in isolation or as substitute for measures of performance determined in accordance with gaap . a reconciliation of our operating cash cost per pound to the cost of sales ( exclusive of depreciation , amortization and depletion ) as presented in the consolidated statement of earnings is presented under the subheading , non-gaap information reconciliation , beginning on page 85. we disclose operating cash cost per pound of copper produced , both without and with the inclusion of by-product revenues . we define operating cash cost per pound of copper produced without by-product revenues as cost of sales ( exclusive of depreciation , amortization and depletion ) , plus selling , general and administrative charges , treatment and refining charges net of sales premiums ; less the cost of purchased concentrates , workers ' participation and other miscellaneous charges , including royalty charges , and the change in inventory levels ; divided by total pounds of copper produced by our own mines . in our calculation of operating cash cost per pound of copper produced , we exclude depreciation , amortization and depletion , which are considered non-cash expenses . exploration is considered a discretionary expenditure and is also excluded . workers ' participation provisions are determined on the basis of pre-tax earnings and are also excluded . additionally excluded from operating cash costs are items of a non-recurring nature and the mining royalty charge as it is based on various calculations of taxable income , depending on which jurisdiction , peru or mexico , is imposing the charge . we believe these adjustments will allow our management and stakeholders to see a presentation of our controllable cash cost , which we consider is one of the lowest of copper producing companies of similar size . we define operating cash cost per pound of copper produced with by-product revenues as operating cash cost per pound of copper produced , as defined above , less by-product revenues and net revenue ( loss ) on sale of metals purchased from third parties .
| replace_table_token_42_th operating costs and expenses the table below summarizes the production cost structure by major components for the three years ended 2015 as a percentage of total production cost : replace_table_token_43_th 2015-2014 : operating costs and expenses in 2015 increased $ 76.5 million , compared to 2014 , primarily due to : operating cost and expenses for 2014 $ 3,555.0 plus : · higher cost of sales ( exclusive of depreciation , amortization and depletion ) , mainly as a result of higher sales volume , purchase of metals from third parties , net foreign currency transaction effect ; partially offset by lower fuel and power costs , workers ' participation expense , labor costs , and sales expense . 87.1 · higher depreciation , amortization and depletion mainly as a result of our expansion and maintenance capital investments . 65.7 less : · lower environmental remediation expenses from the 2014 spill at buenavista . ( 46.4 ) · lower exploration expenses in mexico , peru and other exploration locations . ( 25.9 ) · lower selling , general and administrative expenses . ( 4.0 ) operating cost and expenses for 2015 $ 3,631.5 75 2014-2013 : operating costs and expenses in 2014 increased $ 134.2 million , compared to 2013 , primarily due to : operating cost and expenses for 2013 $ 3,420.8 plus : · higher depreciation , amortization and depletion mainly at our mexican operations as a result of the acquisition of mine equipment and the start-up of some projects , including the quebalix iv project . in addition , higher depreciation at our peruvian operations from addition of new equipment . 49.0 · higher exploration expenses mainly in south america . 23.7 · environmental remediation expense due to the spill at buenavista . 91.4 · higher selling , general and administrative expenses . 0.9 less : · lower cost of sales ( exclusive of depreciation , amortization and depletion ) , mainly as a result of lower purchases of metals from third parties , mining royalties , labor costs , workers ' participation , net foreign currency transaction effect , inventory consumption and others . ( 30.8 ) operating cost and expenses for 2014 $ 3,555.0 replace_table_token_44_th 2015-2014 : non-operating income and expense were a net expense of $ 225.2 million in 2015 compared to a net expense of $ 164.1 million in 2014. the $ 61.1
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off-balance sheet arrangements we are party to various lease arrangements pursuant to which we lease rolling stock in connection with our operating activities , as well as lease certain office space and equipment . we generally use operating lease treatment for all of the foregoing arrangements . a summary of our operating lease obligations is contained in item 8. financial statements and supplementary data — note 9. operating leases . we have investments that are accounted for under the equity and cost methods and therefore we do not consolidate the financial information of those companies . supplemental information on unconsolidated non-recourse project debt below is a summary of our proportion of non-recourse project debt held by unconsolidated equity investments as of december 31 , 2018 ( in millions ) : replace_table_token_32_th ( 1 ) we have a 50 % indirect ownership of dublin efw , through our 50/50 joint venture with gig , covanta europe assets ltd. 53 ( 2 ) we have a 25 % indirect ownership of earls gate , through our 50/50 joint venture with gig , covanta green jersey assets ltd. , which owns 50 % of earls gate . ( 3 ) the total estimated project cost is £210 million ( $ 267 million ) , £147 million ( $ 187 million ) is financed through non-recourse project-based debt , which was undrawn upon as of december 31 , 2018. for additional information on our unconsolidated equity investments see item 8. financial statements and supplementary data — note 3. new business and asset management and note 13. equity method investments . 54 discussion of critical accounting policies and estimates in preparing our consolidated financial statements in accordance with gaap , we are required to use judgment in making estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . these estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . many of our critical accounting policies are subject to significant judgments and uncertainties that could potentially result in materially different results under different conditions and assumptions . future events rarely develop exactly as forecast , and the best estimates routinely require adjustment . policy judgments and estimates effect if actual results differ from assumptions revenue and expense recognition the company recognizes revenue in accordance with the asc 606 , revenue from contracts with customers . the core principle of asc 606 is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer . revenue is recognized by applying the five steps described below : step 1 : identify the contract ( s ) with a customer . step 2 : identify the performance obligations in the contract . step 3 : determine the transaction price . step 4 : allocate the transaction price to the performance obligation in the contract . step 5 : recognize revenue when ( or as ) the entity satisfies a performance obligation . covanta adopted the accounting standard on january 1 , 2018. when a performance obligation is satisfied over time , the output or input method may be used to determine an appropriate method of progress . the output method recognize revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract . the input method utilizes the entities inputs towards the satisfaction of a performance obligation ( for example , costs incurred ) . both methods may include estimates within the transaction price , contracts with customers may contain different types of variable consideration that we estimate through probability based approaches . there are certain constraining factors relating to variable consideration that may preclude us from booking revenue in order to prevent over estimating revenue . determining whether a factor is constrained requires judgment . there is a degree of uncertainty that exists in determining the variable component of consideration in a contract . a significant revenue reversal is not expected but amounts recognized for revenue are adjusted based on actual performance obligations delivered which will cause fluctuations in operating income recognized . further estimates may change on long term construction contracts based on better information becoming available which can cause fluctuations in revenue and operating income . purchase accounting we allocate acquisition purchase prices to identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition , with any residual amounts allocated to goodwill . the fair value estimates used reflect our best estimates for the highest and best use by market participants . these estimates are subject to uncertainties and contingencies . for example , we use the discounted cash flow method to estimate the value of many of our assets , which entails developing projections of future cash flows . if the cash flows from the acquired net assets differ significantly from our estimates , the amounts recorded could be subject to impairments . furthermore , to the extent we change our initial estimates of the remaining useful life of the assets or liabilities , future depreciation and amortization expense could be impacted . 55 policy judgments and estimates effect if actual results differ from assumptions equity method investments we evaluate our equity investments to determine if we have the ability to exercise significant influence over the entity but not control , generally assumed to be 20 % -50 % ownership . under the equity method , original investments are recorded at cost and adjusted by our share of earnings or losses of these companies . story_separator_special_tag distributions received from the investee reduce our carrying value of the investment and are recorded in the consolidated statements of cash flows using the cumulative earnings approach . the determination and degree of our ability to control , or exert significant influence over , an entity involves the use of judgment . the consolidation guidance requires qualitative and quantitative analysis to determine whether our involvement , through holding interests directly or indirectly in an entity , would give us the ability to exercise significant influence over an entity but not control . subsequent changes to the interests of the entity through equity ownership levels or otherwise may require a reassessment of our conclusions of whether we have the ability to exercise significant influence over the entity but not control . if upon a reassessment event we were determined to control the entities , consolidation would be required . summarized financial information of equity method investments is included in item 8. financial statements and supplementary data — note 13. equity method investments . long-lived assets our long-lived assets include property , plant and equipment ; waste , service and energy contracts ; amortizable intangible assets ; and other assets . we evaluate the recoverability of the long-lived assets when there are indicators of possible impairment . such indicators may include a decline in market , new regulation , recurring or expected operating losses , change in business strategy , or other changes that would impact the use or benefit received from the assets . the assessment is performed by grouping the long-lived assets at the lowest level of identifiable cash flows for the related assets or group of assets ( such as the facility level ) . initially the carrying value of the asset or asset group is compared to its undiscounted expected future cash flows . if the carrying value is in excess of the undiscounted cash flows , the carrying value is then compared to the fair value . fair value may be estimated based upon the discounted cash flows , market or replacement cost methods based on the assumptions of a third-party market participant . impairment is recognized if the fair value is less than the carrying value . our judgments regarding the existence of impairment indicators are based on regulatory factors , market conditions , anticipated cash flows and operational performance of our assets . when determining the fair value of our asset groupings for impairment assessments , we make assumptions regarding their fair values which are dependent on estimates of future cash flows , discount rates , and other factors . future events or changes in circumstances may occur that require another assessment in future periods based on cash flows and discount rates in effect at that time . 56 policy judgments and estimates effect if actual results differ from assumptions goodwill as of december 31 , 2018 , we had $ 321 million of goodwill recorded in our one reportable segment , which is comprised of two reporting units ( see item 8. financial statements and supplementary data — note 15. intangible assets and goodwill ) . we evaluate our goodwill annually and when an event occurs or circumstances change that could reduce the fair value of a reporting unit below its carrying value . we have the option to perform our initial assessment over the possible impairment of goodwill either qualitatively or quantitatively . under the qualitative assessment , consideration is given to both external factors ( including macroeconomic and industry conditions ) and our own internal factors ( including internal costs , recent financial performance , management , business strategy , customers , and stock price ) . during the fourth quarter of 2018 we performed the required annual impairment review of our recorded goodwill through a quantitative assessment and determined that there was no indication of impairment as the fair value of our reporting units exceeded their carrying values . our judgments regarding the existence of impairment indicators are based on regulatory factors , market conditions , anticipated cash flows and operational performance of our assets . when determining the fair value of our reporting unit for impairment assessments , we make assumptions regarding the fair value which is dependent on estimates of future cash flows , discount rates , and other factors . the impairment assessment of goodwill performed in the periods presented resulted in the conclusion that the fair value was not less than the carrying value . in future years , if there is a significant change in the estimated cash flows , discount rates or other factors that cause the fair values to significantly decrease , there could be impairments which could materially impact our results of operations . i nsurance reserves and self-insurance for employee benefit plans we retain a substantial portion of the risk related to certain general liability , workers ' compensation and medical claims . however , we maintain stop-loss coverage to limit the exposure related to employee benefit plans and liability insurance over retained risks . liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported ( `` ibnr '' ) . we use actuarial methods which consider a number of factors to estimate our ultimate cost of losses . our insurance reserves and medical liability accrual was $ 16 million as of december 31 , 2018 and 2017. our liabilities could be significantly affected if future occurrences or loss developments differ from our estimates of both claims filed and losses incurred but not yet reported . 57 policy judgments and estimates effect if actual results differ from assumptions deferred tax assets as described in item 8. financial statements and supplementary data — note 11. income taxes , we have recorded a deferred tax asset related to our nols . the nols will expire in various amounts beginning on december 31 , 2033 through december 31 , 2037 , if not used . deferred tax
| free cash flow is defined as cash flow provided by operating activities , less maintenance capital expenditures , which are capital expenditures primarily to maintain our existing facilities . we use free cash flow as a measure of liquidity to determine amounts we can reinvest in our core businesses , such as amounts available to make acquisitions , invest in construction of new projects , make principal payments on debt , or return capital to our shareholders through dividends and or stock repurchases . for additional discussion related to management 's use of non-gaap measures , see results of operations — supplementary financial information — adjusted ebitda ( non-gaap discussion ) above . in order to provide a meaningful basis for comparison , we are providing information with respect to our free cash flow for the years ended december 31 , 2018 , 2017 and 2016 , reconciled for each such period to cash flow provided by operating activities , which we believe to be the most directly comparable measure under gaap . the following is a reconciliation of net cash provided by operating activities to free cash flow ( in millions ) : replace_table_token_27_th 50 ( a ) adjustment for the impact of the adoption of asu 2016-18 effective january 1 , 2018. as a result of adoption , the statement of cash flows explains the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , changes in restricted funds are eliminated in arriving at net cash , cash equivalents and restricted funds provided by operating activities . ( b ) purchases of property , plant and equipment are also referred to as capital expenditures . capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures . the following table provides the components of total purchases of property , plant and equipment ( in millions ) : replace_table_token_28_th available sources of liquidity cash and cash equivalents cash
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as our traffic growth rate slows , our success will become increasingly dependent on our ability to increase levels of user engagement on our platform . this dependence may increase as the portion of our revenue derived from performance-based advertising increases . if user engagement decreases , our advertisers may stop or reduce the amount of advertising on our platform and our results of operations would be harmed . in addition , we also expect the cyclicality and seasonality in our business to become more pronounced as our growth rate slows , including weaker traffic numbers in the fourth quarter of the year . increasing mobile usage . although we believe use of our mobile platform is complementary to use of our website on personal computers , we anticipate that growth in traffic to our mobile platform will drive our growth for the foreseeable future and traffic through personal computers may continue to decline . although we currently deliver advertising on our mobile platform , the mobile advertising market remains a new and evolving market . given our limited experience in monetizing mobile products and commitment to prioritizing the quality of user experience over short-term monetization , we may not be able to generate meaningful revenue from our mobile products despite the expected growth in mobile usage . if consumers continue to access our mobile platform as substitute for access through personal computers , and if our mobile advertising solutions prove ineffective or insufficiently profitable , this trend could adversely impact our financial performance . ability to attract and retain local businesses . our revenue growth is driven by our ability to attract and retain local business advertisers that purchase our advertising solutions . our largest sales and marketing expenses consist of the costs associated with acquiring local business advertisers . we spent a majority of our sales and marketing expense for 2014 on initiatives related to local business advertiser acquisition and expect to continue to expend significant amounts to attract additional local business advertisers . at the same time , our local advertising agreements increasingly provide for performance-based cost-per-click payment terms , which make it more difficult to forecast local advertising revenue accurately . in addition , our advertisers typically do not have long-term obligations to purchase our products , and their decisions to renew depend on the degree of satisfaction with our products as well as a number of factors that are outside of our control , including their ability to continue their operations and spending levels . the small and medium-sized businesses on which we heavily rely often have limited advertising budgets and may be disproportionately affected by economic downturns . as a result , a worsening economic outlook would likely cause businesses to decrease investments in advertising , which would adversely affect our revenue . investment in growth . we have invested aggressively in the growth of our platform and intend to continue to invest to support this growth as we expand our platform , grow our communities and local business base , hire additional employees and further develop our technology . we also plan to invest in product development as we continue to innovate and introduce new advertising and e-commerce products , explore new platforms and distribution channels and develop partner arrangements that provide incremental value to our advertisers and business partners to encourage them to increase their advertising budgets allocated towards our platform . we expect that these investments will increase our operating expenses , and that any increase in revenue resulting from product innovations will likely trail the increase in expenses . for example , although we have not historically spent significantly on marketing programs , we began testing advertising to consumers through various online and offline channels in the second half of 2014 and plan to continue to do so in 2015 ; further expansion of these programs could significantly increase our marketing expenses . community development . our long-term growth depends on our ability to successfully develop new and existing yelp communities . it can take years for our platform to achieve a critical mass of consumers and reviews to drive meaningful traction of our advertising solutions and begin to generate revenue in a particular community . as a result , we may continue to generate losses in new communities for an extended period , and different communities can be expected to grow at different rates and generate varying levels of revenue . as with most businesses , we expect our revenue growth to slow as our business matures over time . local advertising revenue for the oldest cohort of yelp communities in the united states , which launched in 2005-2006 , grew at 52 % in 2014 compared to 2013. this is lower than the growth rate of local advertising revenue for the 2007-2008 cohort , which grew 63 % over the same period , and the 2009-2010 cohort , which grew 78 % over the same period . we believe this is indicative of continued revenue growth , but slowing revenue growth for more mature communities . 43 acquisitions . as part of our business strategy , we may determine to expand our product offerings and grow our business through the acquisition of complementary businesses or technologies . for example , in october 2014 , we acquired restaurant kritik and cityvox to accelerate our international expansion . in addition , in february 2015 , we acquired eat24hours.com , inc. , a leading web and app-based food ordering service , to drive daily engagement in our restaurant vertical and provide the opportunity to expand eat24 's services to all the restaurants listed on our platform . our acquisitions will affect our future financial results due to factors such as the amortization of acquired intangible assets and may also result in potential charges such as restructuring costs or impairment expense . key metrics we regularly review a number of metrics , including the following key metrics , to evaluate our business , measure our performance , identify trends in our business , prepare financial projections and make strategic decisions . story_separator_special_tag reviews number of reviews represents the cumulative number of reviews submitted to yelp since inception , as of the period end , including reviews that are not recommended or that have been removed from our platform . in addition to the text of the review , each review includes a rating of one to five stars . we include reviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at some point in time , providing information that may be useful for users to evaluate businesses and individual reviewers . because our automated recommendation software continually reassesses which reviews to recommend based on new information , the recommended or not recommended status of reviews may change over time . reviews that are not recommended or that have been removed do not factor in to a business 's overall star rating . by clicking on a link on a reviewed business 's page on our website , users can access the reviews that are not recommended for the business , as well as the star rating and other information about reviews that were removed for violation of our terms of service . as of december 31 , 2014 , approximately 66.3 million reviews were available on business profile pages , including approximately 16.3 million reviews that were not recommended , after accounting for 4.9 million reviews that had been removed from our platform , either by us for violation of our terms of service or by the users who contributed them . the following table presents the number of cumulative reviews as of the dates presented : replace_table_token_10_th unique visitors unique visitors represent the average number of monthly unique visitors over a given three-month period . we define monthly unique visitors as the total number of unique visitors who have visited our website at least once in a given month , and we average the number of monthly unique visitors in each month of a given three-month period to calculate average monthly unique visitors . we calculate unique visitors as the number of “ users ” measured by google analytics , a product from google inc. that provides digital marketing intelligence , based on the use of unique cookie identifiers . unique visitors do not include users who access our platform solely through our mobile app . because the number of unique visitors is based on users with unique cookies , an individual who accesses our website from multiple devices with different cookies may be counted as multiple unique visitors , and multiple individuals who access our website from a shared device with a single cookie may be counted as a single unique visitor . 44 the following table presents the average monthly number of unique visitors during the periods presented : replace_table_token_11_th of the average monthly unique visitors in the quarter ended december 31 , 2014 , approximately 77.6 million accessed our website through personal computers , compared to 77.7 million and 62.3 million in the quarters ended december 31 , 2013 and 2012 , respectively . we anticipate that growth in use of our mobile platform will be the driver of our growth for the foreseeable future and that usage through personal computers may continue to decline worldwide . mobile unique visitors we define mobile unique visitors for a given three-month period to be the sum of ( i ) the average monthly unique visitors who have visited our mobile website during that period ( measured as described above ) and ( ii ) unique mobile devices using our mobile app on a monthly average basis over that period . under this method of calculation , an individual who accesses both our mobile website and our mobile app , or accesses either our mobile website or our mobile app from multiple mobile devices , will be counted as multiple mobile unique visitors . multiple individuals who access either our mobile website or mobile app from a shared device will be counted as a single mobile unique visitor . the following table presents the average monthly number of mobile unique visitors during the periods presented : replace_table_token_12_th claimed local business locations the number of claimed local business locations represents the cumulative number of business locations that have been claimed on yelp worldwide since 2008 , as of a given date . we define a claimed local business location as each business address for which a business representative visits our website and claims the free business listing page for the business located at that address . the following table presents the number of cumulative claimed local business locations as of the dates presented . replace_table_token_13_th active local business accounts and local advertising accounts the number of active local business accounts represents the number of local business accounts from which we recognized revenue in a given three-month period . we treat business accounts that have the same payment and or user information as a single business account . the following table presents the number of active local business accounts in the three-month periods presented : replace_table_token_14_th local advertising accounts comprise all local business accounts from which we recognize revenue in a given three-month period , excluding local business accounts from which we recognize yelp deals revenue only . we began reporting this metric in the quarter ended december 31 , 2014 , and intend to provide this metric instead of active local business accounts in future periods , because we believe it more accurately reflects our core advertising business than active local business accounts .
| our brand advertising revenue increased $ 6.5 million , or 23 % , in 2014 compared to 2013 , and $ 7.4 million , or 36 % , in 2013 compared to 2012. the increase in both years was primarily due to an increase in the average spend per brand advertiser , driven largely by increased advertising impressions per brand advertiser . other services . we generate other revenue through partner arrangements , the sale of yelp deals and gift certificates , and monetization of remnant advertising inventory through third-party ad networks . our revenue-sharing partner arrangements provide consumers with the ability to complete food delivery transactions and make online reservations through third parties directly on yelp . our fixed-fee partner arrangements include allowing third-party data providers to update business listing information on behalf of businesses . yelp deals allow merchants to promote themselves and offer discounted goods and services on a real-time basis to consumers directly on our website and mobile app . we earn a fee on yelp deals for acting as an agent in these transactions , which we record on a net basis and include in revenue upon a consumer 's purchase of a deal . gift certificates allow merchants to sell full-priced gift certificates directly to consumers through their business profile pages . we earn a fee based on the amount of the gift certificate sold , which we record on a net basis and include in revenue upon a consumer 's purchase of the gift certificate . our other services revenue increased $ 11.9 million , or 99 % , in 2014 compared to 2013 , and $ 4.2 million , or 54 % , in 2013 compared to 2012. the increase in both years was primarily due to an increase in revenue from added partnership arrangements , as well as the sale of yelp deals and remnant advertising inventory . 47 cost of revenue our cost of revenue consists primarily of network costs , credit card processing fees and web hosting , as well as salaries , benefits and stock-based compensation for our infrastructure teams related to operating our website . it also
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for additional information and a reconciliation of adjusted ebitda , see “ ebitda and adjusted ebitda reconciliation ” below . story_separator_special_tag acquisition costs and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts . management presents ebitda and adjusted ebitda , as it is utilized by management to monitor performance against budget as well as compliance with credit facility covenants . we also believe ebitda and adjusted ebitda provide useful information to investors in understanding and evaluating our operating results in the same manner as management . below is the reconciliation of net loss , the closest gaap measure , to ebitda and adjusted ebitda ( in thousands ) : replace_table_token_7_th the improvement in adjusted ebitda was due primarily to the increase in revenue in 2018 by $ 76.9 million , or 55.2 % , from 2017. the increase in revenue was primarily driven by the ability to cover our fixed costs and the additional incremental provisions and impairment charges incurred in the prior year . selling , general & administrative expenses selling , general and administrative expenses increased to $ 18.2 million in 2018 from $ 14.0 million in 2017. however , selling , general and administrative expenses decreased to 8.4 % of revenue in 2018 down from 10.1 % of revenue in 2017. the selling general and administrative expenses included $ 1.7 million of additional professional services related to the acquisition of mc assembly . additional stock based compensation was incurred for $ 0.1 million related to the valuation of the outstanding warrants issued to tcw . restructuring charges during 2018 , restructuring charges of $ 0.2 million were incurred related to the closure of the suzhou facility , including ongoing administrative staff charges to close the facility . in accordance with the restructuring plan effected in 2017 , restructuring charges of $ 1.7 million were incurred related to the reduction of 49 full-time equivalents ( “ ftes ” ) in mexico , 102 ftes in china , 22 ftes in the u.s. , and 10 ftes in canada . additional charges were incurred related to the closure of the suzhou facility , including ongoing administrative staff charges to close the facility . interest expense interest expense increased to $ 3.1 million in 2018 compared to $ 0.9 million in 2017. the increase was primarily the result of a higher average debt balance in 2018 compared to 2017 , specifically with $ 62 million issuance of debt on the tcw facilities on november 8 , 2018 in order to finance the mca acquisition . the weighted average interest rates with respect to the debt on our pnc facility was 5.76 % and tcw facilities was 10.98 % . the weighted average interest rates with respect to the debt on our predecessor pnc facility was 4.9 % for 2017 . 32 income tax expense the net tax expense for 2018 of $ 0.8 million related to taxes incurred in mexico due to profits in that jurisdiction in addition to minimum taxes and state taxes in the u.s. the current income tax expense was partially offset by a $ 0.1 million deferred tax recovery recorded related to temporary differences on assets and liabilities in mexico , which have resulted in an increase to the corresponding deferred tax asset . on december 22 , 2017 , the tax cuts and jobs act ( “ tcja ” ) was enacted , which includes a broad range of tax reform proposals , with many provisions significantly differing from current u.s. tax law . management has considered the impact of these provisions , including a decrease in the federal corporate income tax rate , from 35 % to 21 % for years beginning after december 31 , 2017 , substantially reducing the value of the company 's deferred tax assets . the company has recorded a corresponding reduction to its deferred tax assets of $ 8.0 million as at december 31 , 2017. the reduction in the company 's deferred tax assets is fully offset by a corresponding reduction to the valuation allowance . 33 year e nded december 31 , 2017 compared to the y ear e nded january 1 , 2017 note : the industry sectors have been reclassified to align with the presentation in our 2018 md & a revenue ( in millions ) replace_table_token_8_th during 2017 , the company recorded approximately $ 2.8 million of sales of raw materials inventory to customers , which carried limited margin , compared to $ 7.0 million in 2016. the company 's contract terms are structured such that it purchases raw materials based on a customer 's purchase orders . to the extent a customer subsequently requests that an order be changed , the customer is generally contractually obligated to purchase the original on-order raw material at cost . due to changes in market conditions , the life cycle of products , the nature of specific programs and other factors , revenues from any particular customer typically vary from year to year . the company 's ten largest customers represented 72.5 % of revenue in 2017 , compared to 76.2 % in 2016. revenue from our two largest customers during 2017 was $ 16.6 million and $ 16.5 million , both representing 11.9 % of revenue . this compared to revenue from our two largest customers during 2016 of $ 26.9 million and $ 20.7 million , representing 16.0 % and 12.3 % of revenue , respectively . no other customer represented more than 10 % of revenue in either year . in addition to tracking our revenues based on industry sector , the company also monitors revenue ( as well as associated site contribution margin ) based on the geographic location of our operations , which are mexico , china and the u.s. this is consistent with how we report our segmented information , as set out in note 12 to our consolidated financial statements . story_separator_special_tag during 2017 , 71.5 % of our revenue was attributable to our operations in mexico , 13.4 % in china , and 15.1 % in the u.s. during 2016 , 60.8 % of our revenue was attributable to our operations in mexico , 26.5 % in china , and 12.7 % in the u.s. 34 gross profit gross profit decreased to $ 10.9 million in 2017 from $ 15.0 million in 2016. gross margin percentage decreased to 7.8 % in 2017 compared to 9.0 % in the prior year . when excluding the impact of the unrealized foreign exchange gains on unsettled forward contracts , the adjusted gross margin percentage decreased to 7.1 % in 2017 down from 8.5 % in the prior year . this decrease in gross profit was primarily the result of reduced revenues , impacting the company 's ability to cover variable and fixed overhead costs in addition to product mix resulting in reduced margins . in addition , there was a provision for excess and obsolete inventory of $ 0.2 million during 2017 , which reduced gross margin . the company calculates an adjusted gross profit amount as we consider gross margins exclusive of such unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts to be a meaningful measure as it is non-cash and management does not consider the mark to market valuation reflective of operating performance in the current period . below is the reconciliation from the financial statement presentation of gross profit to the non-gaap measure of adjusted gross profit ( in thousands ) : replace_table_token_9_th the company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted canadian dollar and mexican peso expenditures . these contracts are effective as hedges from an economic perspective , but do not meet the requirements for hedge accounting under asc topic 815 “ derivatives and hedging ” . accordingly , changes in the fair value of these contracts are recognized in earnings in the consolidated statement of operations and comprehensive loss . included in cost of sales in 2017 was a realized loss of $ 0.1 million compared to a realized loss of $ 2.8 million in 2016. in 2017 , as a result of revaluing the outstanding forward contracts to fair value , an unrealized gain of $ 0.9 million was recorded compared to an unrealized gain of $ 0.8 million in 2016 , which was included in cost of sales . replace_table_token_10_th 35 ebitda and adjusted ebitda reconciliation ebitda and adjusted ebitda , non-gaap financial measures , are defined as earnings before interest , taxes , depreciation and amortization , with adjusted ebitda also excluding restructuring charges , stock based compensation and unrealized foreign exchange gains and losses on unsettled forward foreign exchange contracts . management presents ebitda and adjusted ebitda , as it is utilized by management to monitor performance against budget as well as compliance with bank covenants . we also believe ebitda and adjusted ebitda provide useful information to investors in understanding and evaluating our operating results in the same manner as management . below is the reconciliation of net loss , the closest gaap measure , to ebitda and adjusted ebitda ( in thousands ) : replace_table_token_11_th the reduction in adjusted ebitda was due primarily to the decrease in revenue in 2017 by $ 28.7 million , or 17.1 % , from 2016. the reduction in revenue impacted the company 's ability to cover its fixed costs prior to the global restructuring plan , effectively resulting in negative adjusted ebitda of ( $ 0.3 million ) in the first quarter of 2017 and ( $ 3.6 million ) in the second quarter of 2017. subsequent to the global restructuring plan , positive adjusted ebitda of $ 1.1 million was earned in the third quarter of 2017 and $ 1.2 million in the fourth quarter of 2017. adjusted ebitda was also reduced when compared to the prior year as a result of provisions of $ 0.9 million related to excess and obsolete inventory as well as aged receivables , and impairment charges of $ 1.6 million expensed in 2017 on property , plant and equipment that were not incurred in the prior year . selling , general & administrative expenses selling , general and administrative expenses were $ 14.0 million in both 2017 and 2016. however , selling , general and administrative expenses increased to 10.1 % of revenue in 2017 up from 8.3 % of revenue in 2016. the company had higher administrative costs relative to the reduced revenue levels in 2017 , until the global restructuring plan was implemented in the second quarter of 2017 , resulting in administrative cost reductions . professional services , including legal and audit fees increased in 2017 compared to 2016. restructuring charges in accordance with the restructuring plan effected in 2017 , restructuring charges of $ 1.7 million were incurred related to the reduction of 49 full-time equivalents ( “ ftes ” ) in mexico , 102 ftes in china , 22 ftes in the u.s. , and 10 ftes in canada . additional charges were incurred related to the closure of the suzhou facility , including ongoing administrative staff charges to close the facility . the closure of the suzhou facility was initiated in the second quarter of 2017 and was substantially completed by the end of 2017. as at december 31 , 2017 , a restructuring accrual balance of $ 0.1 million is expected to be paid by the first quarter of 2018. in 2016 , $ 0.2 million of restructuring charges were incurred due to a termination of one executive in the markham , canada office location . interest expense interest expense increased to $ 0.9 million in 2017 compared to $ 0.8 million in 2016. the increase was primarily the result of a higher average debt balance in 2017 compared to 2016 in addition to an increase in interest rates on our predecessor pnc facility .
| during 2018 , 70.7 % of our revenue was attributable to our operations in mexico , 10.0 % in china , and 19.3 % in the u.s. during 2017 , 71.5 % of our revenue was attributable to our operations in mexico , 13.4 % in china , and 15.1 % in the u.s. 30 gross profit gross profit increased to $ 21.9 million in 2018 from $ 10.8 million in 2017. gross margin percentage increased to 10.1 % in 2018 compared to 7.8 % in the prior year . when excluding the impact of the unrealized foreign exchange gains on unsettled forward contracts , the adjusted gross margin percentage increased to 9.9 % in 2018 up from 7.1 % in the prior year . this increase in gross profit was primarily the result of increased revenues , impacting our company 's ability to cover variable and fixed overhead costs in addition to improved product mix resulting in increased margins . our company calculates an adjusted gross profit amount as we consider gross margins exclusive of such unrealized foreign exchange gains or losses on unsettled forward foreign exchange contracts to be a meaningful measure as it is non-cash and management does not consider the mark to market valuation reflective of operating performance in the current period . below is the reconciliation from the financial statement presentation of gross profit to the non-gaap measure of adjusted gross profit ( in thousands ) : replace_table_token_5_th the company entered into forward foreign exchange contracts to reduce its exposure to foreign exchange currency rate fluctuations related to forecasted canadian dollar and mexican peso expenditures . these contracts are effective as hedges from an economic perspective , but do not meet the requirements for hedge accounting under asc topic 815 “ derivatives and hedging ” . accordingly , changes in the fair value of these contracts are recognized in earnings in the consolidated statement of operations and comprehensive loss . included in cost of sales in 2018 was a realized loss of $ 0.1 million compared to a realized loss of $ 0.1 million in 2017. in 2018 , as a result of revaluing the outstanding
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75 for the foreseeable future , we do not expect to generate any revenue from the sale of products unless and until such time as our product candidates have advanced through clinical development and obtained regulatory approval . we expect that any revenue we generate in the foreseeable future will fluctuate from year to year as a result of the timing and amount of milestones and other payments from our collaboration agreements with abbvie , amgen , bristol-myers squibb and any other collaboration partners , and as a result of the fluctuations in the research and development expenses we incur in the performance of assigned activities under these agreements . abbvie ireland unlimited company ( “ abbvie ” ) , one of our collaboration partners , entered into a license agreement with seattle genetics , inc. ( “ sgen ” ) to license certain intellectual property rights . as part of our collaboration agreement with abbvie , we received a sublicense to these intellectual property rights and therefore pay sgen sublicense fees . these sublicense fees are treated as reductions to the transaction price and combined with the performance obligation to which they relate . milestone payments , when considered probable of being reached and when a significant revenue reversal would not be probable of occurring , are also recorded net of the associated sublicense fees and included in the transaction price . on january 1 , 2018 , we adopted accounting standards update , or asu , no . 2014-09 , revenue from contracts with customers ( topic 606 ) using the modified retrospective transition method . see further discussion under “ critical accounting policies and estimates – revenue recognition. ” research and development expenses our research and development expenses consist primarily of costs incurred to conduct research , such as the discovery and development of our product candidates , clinical development including activities with third parties , such as contract research organizations ( “ cro ” ) and contract development and manufacturing organizations ( “ cmo ” ) , the manufacture of drug products used in clinical trials , as well as the development of product candidates pursuant to our research , collaboration and license agreements . research and development expenses include personnel costs , including stock-based compensation expense , contractor services , laboratory materials and supplies , depreciation and maintenance of research equipment , and an allocation of related facilities costs . we expense research and development costs as incurred . we expect our research and development expenses to increase substantially in absolute dollars in the future as we advance our product candidates through clinical trials , initiate additional clinical trials , and pursue regulatory approval of our product candidates . examples include the recent initiation of our phase 2 clinical trials for each of cx-072 and cx-2009 and the continuation of our ongoing phase 1/2 clinical trials evaluating cx-072 , cx-2009 and cx-2029 . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming . the actual probability of success for our product candidates may be affected by a variety of factors including : the safety and efficacy of our product candidates , early clinical data , investment in our clinical program , the ability of collaborators to successfully develop our licensed product candidates , competition , manufacturing capability and commercial viability . we may never succeed in achieving regulatory approval for any of our product candidates . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates . general and administrative expenses general and administrative expenses include personnel costs , expenses for outside professional services and other allocated expenses . personnel costs consist of salaries , bonuses , benefits and stock-based compensation . outside professional services consist of accounting and audit services , legal and other consulting fees . allocated expenses primarily consist of rent expense related to our office and information technology related costs . interest income interest income primarily consists of interest income from our cash equivalents and short-term investments , and accretion of discounts or amortization of premiums on our short-term investments . other income ( expense ) , net other income ( expense ) , net consists primarily of changes to currency exchange rates . 76 provision f or ( benefit from ) income taxes income taxes are recorded in accordance with asc 740 , accounting for income taxes , or asc 740 , which provides for deferred taxes using an asset and liability approach . we recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns . we determine our deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities , which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . valuation allowances are provided , if based upon the weight of available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we also account for uncertain tax positions in accordance with the provisions of asc 740. when uncertain tax positions exist , we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized . the determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances . story_separator_special_tag comparison of years ended december 31 , 2019 and 2018 revenue year ended december 31 , 2019 2018 change ( in thousands ) revenue $ 57,489 $ 59,502 $ ( 2,013 ) revenue decreased by $ 2.0 million for 2019 compared to 2018. the following table summarizes our revenue by collaboration partner during the respective periods : replace_table_token_4_th the decrease in revenue of $ 2.0 million for 2019 compared to 2018 was primarily due to : a decrease in revenue from abbvie due to the $ 21.0 million milestone payment ( net of the associated sublicense fee of $ 4.0 million ) earned in may 2018 under the cd71 co-development and licensing agreement with abbvie ( the “ cd71 agreement ” ) , of which $ 11.7 million was recognized in 2018 ( reflecting the percentage completed to-date on the project ) ; the lower percentage of completion progress under the cd71 agreement in 2019 as a result of ongoing dose escalation in the continued development program for cx-2029 , which extended the estimated research service period ; a decrease in revenue from amgen of $ 1.0 million due to lower percentage of completion progress in 2019 as a result of a joint decision with amgen to perform additional research , which required a corresponding extension of the research service period under the collaboration and license agreement with amgen ( the “ amgen agreement ” ) ; a decrease in revenue from immunogen of $ 1.5 million due to the completion of the related research term in june 2018 under our research collaboration agreement with immunogen ( the “ immunogen research agreement ” ) ; and a decrease in revenue from pfizer of $ 1.4 million due to termination of our research collaboration , option and license agreement with pfizer inc. in march 2018. the above decreases were partially offset by the accelerated recognition of revenue of $ 17.4 million related to the termination of certain targets under the collaboration and license agreement with bristol-myers squibb ( the “ bms agreement ” ) in the first quarter of 2019 . 77 operating costs and expenses research and development expenses year ended december 31 , 2019 2018 change ( in thousands ) research and development $ 131,619 $ 103,866 $ 27,753 research and development expenses increased by $ 27.8 million during 2019 compared to 2018. the increase was attributable to the following : an increase of $ 7.9 million in personnel-related expenses primarily due to an increase in headcount ; a $ 5.0 million charge relating to the acquisition of technical know-how related to drug conjugate linker-toxin and cd3-based bispecific technologies during the first quarter of 2019 ; an increase of $ 11.2 million in license fees primarily due to ( 1 ) $ 3.4 million associated with entering into the amendment to the license agreement with ucsb ( the “ ucsb agreement ” ) in the second quarter of 2019 ( “ amendment no.3 ” ) ( representing the 150,000 shares of common stock issued for $ 1.6 million , the upfront payment of $ 1.0 million and the additional annual maintenance fee of $ 0.8 million ) and ( 2 ) a $ 7.5 million upfront license fee for the immunogen epcam agreement ( the “ immunogen 2019 license ” ) established in the fourth quarter of 2019 ; an increase of $ 1.8 million in clinical related expenses resulting from increased clinical trial activities ; an increase of $ 2.7 million in the allocation of information technology and facilities related expenses resulting from an increase in headcount and overall overhead expenses ; an increase of $ 1.4 million in consulting expenses resulting from increased clinical trial activities ; and an increase of $ 0.4 million in depreciation expense due to the addition of machinery and equipment . the above increases were partially offset by a decrease of $ 2.6 million in laboratory contracts and services as a result of timing of manufacturing activities and reduced related activities as well as reduced costs relating to cx-188 following our indefinite postponement of further development of such program . the following table summarizes our research and development expenses by program incurred during the respective periods presented : replace_table_token_5_th 78 the increase in cx-072 costs for 2019 compared to 2018 was primarily due to an increase in lab oratory contracts and services of $ 5.4 million and clinical trial expenses of $ 1.2 million . the decreases in cx-2009 and cx-2029 costs for 2019 compared to 2018 were primarily due to d e creased drug production runs in 201 9 . the increase in “ other wholly - owned and partnered programs ” for 2019 compared to 2018 was primarily due to the $ 7.5 million upfront license fee for the epcam pdc program we entered into with immunogen in the fourth quarter of 2019 ( the “ immunogen 2019 license ” ) , partially offset by reduced costs relating to cx-188 following our indefinite postponement of further development of such program at the end of 2018. the increase in general research and development expenses for 2019 compared to 2018 was primarily due to a $ 5.0 million charge relating to the acquisition of technical know-how during the first quarter of 2019 , and a $ 3.4 million expense associated with entering into amendment no.3 to the ucsb agreement in the second quarter of 2019. the increase in internal costs for 2019 was primarily due to increase in personnel - related expenses and allocation of information technology and facilities-related expenses resulting from an increase in headcount and overall overhead expenses .
| million from other assets ; and an increase of $ 2.0 million in cash flows from prepaid expenses and other current assets . 2018 during the year ended december 31 , 2018 , cash used in operating activities was $ 75.5 million , which consisted of a net loss of $ 84.6 million , adjusted by non-cash charges of $ 17.1 million and a net decrease of $ 8.0 million in our operating assets and liabilities . the non-cash charges primarily consisted of $ 16.9 million in stock-based compensation and $ 1.9 million in depreciation and amortization , partially offset by $ 1.7 million in accretion of discounts on our short-term investments . the net decrease in our operating assets and liabilities of $ 8.0 million was primarily attributable to : a net decrease in deferred revenue of $ 38.2 million resulting from the recognition of $ 59.2 million in upfront fees and milestone payments under asc 606 pursuant to our collaboration agreements , offset by the $ 21.0 million ( net of the payment of an associated sublicense fee of $ 4.0 million to sgen ) new milestone addition to deferred revenue in 2018 resulting from the abbvie cx-2029 milestone payment received ; a decrease of $ 4.9 million resulting from the increase in prepaid expenses and other current assets ; partially offset by an increase in cash flows from accounts receivable primarily from the $ 10.0 million we received from bristol-myers squibb for achieving the milestone of ind filing of bms-986249 in 2018 ; an increase of $ 24.8 million in accrued liabilities , income tax payable and other long-term liabilities resulting primarily from a $ 13.3 million increase in income tax payable , a $ 10.3 million in accrued liabilities driven by increases in laboratory services , ucsb sublicense fee accrual and cro expenses accrual relating to clinical trial activities ; and an increase in accounts payable
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we believe that separating our o utdoor p roducts and ac cessories business from our f irearm business and forming a new company to conduct the outdoor products and accessories business will enable the management team of each company to focus on its specific strategies , including , among others , ( 1 ) structuring its business to take advantage of growth opportunities in its specific markets , ( 2 ) tailoring its business operation and financial model to its specific long-term strategies , and ( 3 ) aligning its external financial resources , such as stock , access to markets , credit , and insurance factors , with its particular type of business . in our view , the separation is in the best interests of our company and our stockholders and would create two industry-leading companies with attributes that best position each company for long-term success . in preparation for the separation , on may 29 , 2020 , we changed our name to smith & wesson brands , inc. , and on june 1 , 2020 , we changed the name of the company that will operate our outdoor products and accessories business through its subsidiaries to american outdoor brand s , inc. , or aout . in connection with the proposed spin-off , we expect to incur restructuring charges of approximately $ 9.0 million to $ 12.0 million relating to legal , regulatory , and financial services , reorganization and restructuring costs , and start-up costs for the new company . thus far , we have incurred $ 5.5 million of restructuring charges relating to the spin-off . key performance indicators we evaluate the performance of our business based upon operating profit , which includes net sales , cost of sales , selling and administrative expenses , and certain components of other income and expense . we also track our return on invested capital , and we use adjusted ebitdas ( earnings before interest , taxes , depreciation , amortization , and stock-based compensation expense , excluding certain non-operational items ) , which is a non-gaap financial metric , as a supplemental measure of our performance in order to provide investors with an improved understanding of underlying performance trends . we evaluate our firearm products by such measurements as gross margin per unit produced , units produced per day , revenue by trade channel , and incoming orders per day . we evaluate our outdoor products and accessories products based upon a number of financial and operating measures , including sales , gross profit and gross margin , operating expenses , and operating margin . external factors that impact the firearm industry the firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for all companies within the industry . these factors include , among others , fears surrounding crime and terrorism ; tragic news events ; potential restrictions on the sale or makeup of firearms ; actual and potential legislative , judicial , and regulatory actions ; economic changes ; and changes in the social and political environment , including presidential elections . see item ia , risk factors , for further discussion of external factors that impact the firearm industry . although these external factors have created demand surges and volatility in the firearm market , and often make it difficult to predict demand , we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms . this increased consumer interest has helped the firearm industry generate a ten-year compound annual growth rate in units of approximately 5.6 % according to the u.s. bureau of alcohol , tobacco , firearms and explosives , or atf . we believe that this expanding base of consumers combined with our strong brand reputation and attractive price points are important factors in our goal to continue increasing our market share . based on data from calendar 2018 , we estimate that we have a 12.2 % share of the u.s. consumer market for handguns . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > by increased standards related to material and labor cost increases and by increased promotional product discounts . our firearm inventory levels increased slightly during fiscal 2020 due primarily to the change in timing related to federal excise tax that is now in inventory , which increased inventory by $ 5.4 million , combined with an increase in raw materials and work in process resulting from an increase in production to meet demand near the end of our fiscal year related to the covid-19 pandemic . these increases were almost entirely offset by a 19 % decrease in finished goods units as shipments in our fourth fiscal quarter increased to meet that demand . while inventory levels , both internally and in the distribution channel , in excess of demand may negatively impact future operating results , it is difficult to forecast the potential impact of distributor inventories on future revenue and income since demand is impacted by many factors , including seasonality , new product introductions , news events , political events , and consumer tastes . our firearms segment order backlog as of april 30 , 2020 and 2019 was $ 95.7 million and $ 39.2 million , respectively . we allow orders received that have not yet shipped to be cancelled , and therefore , our backlog may not be indicative of future sales . firearms segment fiscal 2019 revenue and gross profit compared with fiscal 2018 revenue for our handguns increased $ 10.6 million , or 3.3 % , over fiscal 2018 , primarily as a result of lower consumer rebates on our polymer pistols , the recognition of deferred revenue on shipments of promotional products , and higher demand for concealed carry m & p branded polymer pistols and revolvers , partially offset by lower shipments of performance center branded polymer pistols . story_separator_special_tag actual unit shipments into the sporting goods channel for our handgun products increased 1.3 % over fiscal 2018 , primarily as a result of increased demand for certain of our handgun products because of successful seasonal promotional programs , including a promotion that bundled one of our handgun products with a shooting accessories product . although overall consumer demand for handguns decreased 8.9 % from fiscal 2018 ( as indicated by adjusted background checks reported in nics ) , we believe consistent demand for the broad array of quality products that we offer , combined with a normalized level of distributor inventory ( rather than a sharp decline in such inventory in the prior year ) , had a positive impact on our fiscal 2019 results . revenue for our long guns increased $ 17.5 million , or 19.4 % , over fiscal 2018 , partially because of replenishment of inventory , specifically for our sport model modern sporting rifle , in the sporting goods channel and several successful promotional programs , including a promotion that bundled a firearm with shooting accessory products . as a result , we believe we increased our market share for long guns . other products and services revenue increased $ 1.4 million , or 4.3 % , over the prior year , primarily because of higher sales of parts and handcuffs . new products , defined as any new sku not shipped in the prior year , represented 20.1 % of firearm revenue for fiscal 2019 and included our new concealed carry performance center m & p branded polymer pistol and many other new product line extensions for our m & p and thompson/center arms branded products . the increase in the number of units sold favorably impacted firearm revenue by 1.0 % . 56 our firearm s segment order backlog as of april 30 , 2019 and 2018 was $ 39.2 million and $ 96.1 million , respectively . the decrease in order backlog from the prior fiscal year was primarily because of the normalization of channel inventories and the timing of order fulfillment . outdoor products & accessories segment revenue and gross profit the following table sets forth certain information regarding outdoor products & accessories segment revenue and gross profit for the fiscal years ended april 30 , 2020 , 2019 , and 2018 ( dollars in thousands ) : replace_table_token_5_th outdoor products & accessories segment fiscal 2020 revenue and gross profit compared with fiscal 2019 revenue for our outdoor products & accessories segment decreased $ 9.8 million , or 5.5 % , from fiscal 2019 , primarily because of $ 4.0 million of reduced sales to oem customers for our laser products , a $ 4.3 million decline in sales of our branded camping accessory products as a result of one large retailer accelerating a strategy towards its own private label brand , and $ 2.4 million of lower intercompany sales . in addition , we experienced reduced orders as a result of recent bankruptcies and other financial instability by certain of our customers and several factors r elated to the covid-19 pandemic , including a major online retail customer 's decision to halt or delay most non-essential product orders , covid-19-related supply chain issues , covid-19-related “ stay at home ” orders , and sporting goods store closures , which have significantly reduced retail foot traffic in many states . the reduced orders as a result of the covid-19 pandemic were partially offset by $ 6.8 million of increased sales growth in e-commerce from a shift to online orders . new products represented 14.0 % of outdoor products & accessories segment revenue for fiscal 2020. net sales for our outdoor products & accessories segment was 22.5 % of total company net sales compared with 25.0 % in fiscal 2019. gross margin for fiscal 2020 for our outdoor products & accessories segment declined 380 basis points compared to the prior year , primarily because of unfavorable variance capitalization for costs that were capitalized in fiscal 2019 and expensed in fiscal 2020 , which was caused by the reduction of laser manufacturing in fiscal 2019 , and higher tariff costs on imported goods . our outdoor products & accessories segment inventory was relatively flat as compared to fiscal 2019. we believe our inventory levels have enabled us to maintain minimal disruption from covid-19 pandemic responses with our suppliers . it is possible , however , that worsening of conditions or increased fears of a pandemic could have a renewed and prolonged effect on manufacturing or employment in china , travel to and from china , or other restrictions on imports , all of which could have a longer-term effect on our sales and profitability in future periods . our outdoor products & accessories segment order backlog as of april 30 , 2020 was $ 1.8 million , or $ 10.9 million lower than at the end of fiscal 2019. we allow orders received that have not yet shipped to be cancelled , and therefore , our backlog may not be indicative of future sales . outdoor products & accessories segment fiscal 2019 net sales and gross profit compared with fiscal 2018 net sales for our outdoor products & accessories segment for fiscal 2019 increased $ 1.9 million , or 1.2 % , over fiscal 2018. net sales increased primarily because of market acceptance of newly introduced accessories products over the past several years and increased revenue from strategic retailers , including internet retailers , partially offset from lower electro-optics products revenue as a result of a general decline in firearm market conditions mentioned above . 57 new products in our outdoor products & accessories segment represented 6.2 % of this segment 's revenue for fiscal 2019 and included more than 300 new products .
| fiscal 2019 consolidated net sales and gross profit compared with fiscal 2018 consolidated net sales for fiscal 2019 increased $ 31.4 million , or 5.2 % , over fiscal 2018 , primarily as a result of lower consumer rebates on our polymer pistols , the recognition of deferred revenue on shipments of promotional products , and higher demand for concealed carry m & p branded polymer pistols and revolvers , partially offset by lower shipments of performance center branded polymer pistols in our firearms segment . in our op & a segment , net sales increased primarily because of market acceptance of newly introduced accessories products over the past several years and increased revenue from strategic retailers , including internet retailers , partially offset from lower electro-optics products revenue . consolidated gross margin for fiscal 2019 increased 320 basis points over fiscal 2018 , primarily because of a combination of lower promotional product discounts , consumer rebates , and lower manufacturing spending in our firearms segment , and changes in customer mix , and lower promotional activity , offset by unfavorable product mix in our op & a segment . firearms segment revenue and gross profit the following table sets forth certain information regarding firearms segment revenue and gross profit for the fiscal years ended april 30 , 2020 , 2019 , and 2018 ( dollars in thousands ) : replace_table_token_3_th 54 the following table sets forth certain information regarding firearm units shipped by trade channel for the fiscal years ended april 30 , 20 20 , 20 19 , and 20 18 ( units in thousands ) : replace_table_token_4_th firearms segment fiscal 2020 revenue and gross profit compared with fiscal 2019 revenue for our handguns increased $ 53.8 million , or 16.0 % , over fiscal 2019. increases in our revenue included the change in the $ 28.4 million federal excise tax treatment described above , increased consumer demand for new products , and increased shipments of our performance center branded products , partially offset by lower shipments of our large frame m & p branded polymer pistols and medium frame
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while the estimate is generally based on a valuation by an independent appraiser or recent sales of similar properties , the amount that the company realizes from the sales of the assets could differ materially from the carrying value reflected in these financial statements , resulting in losses that could adversely impact earnings in future periods . carrying value of fdic-covered loans and indemnification asset the company considers that the determination of the carrying value of loans acquired in the march 20 , 2009 , september 4 , 2009 and october 7 , 2011 fdic-assisted transactions and the carrying value of the related fdic indemnification assets involve a high degree of judgment and complexity . the carrying value of the acquired loans and the fdic indemnification assets reflect management 's best ongoing estimates of the amounts to be realized on each of these assets . the company determined initial fair value accounting estimates of the assumed assets and liabilities in accordance with fasb asc 805 , business combinations . however , the amount that the company realizes on these assets could differ materially from the carrying value reflected in its financial statements , based upon the timing of collections on the acquired loans in future periods . because of the loss sharing agreements with the fdic on these assets , the company should not incur any significant losses . to the extent the actual values realized for the acquired loans are different from the estimates , the indemnification asset will generally be impacted in an offsetting manner due to the loss sharing support from the fdic . subsequent to the initial valuation , the company continues to monitor identified loan pools and related loss sharing assets for changes in estimated cash flows projected for the loan pools , anticipated credit losses and changes in the accretable yield . analysis of these variables requires significant estimates and a high degree of judgment . see note 5 of the accompanying audited financial statements for additional information . goodwill and intangible assets goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually and more frequently if circumstances indicate their value may not be recoverable . goodwill is tested for impairment using a process that estimates the fair value of each of the company 's reporting units compared with its carrying value . the company defines reporting units as a level below each of its operating segments for which there is discrete financial information that is regularly reviewed . as of december 31 , 2011 , the company has two reporting units to which goodwill has been allocated – the bank and the travel division ( which is a division of a subsidiary of the bank ) . if the fair value of a reporting unit exceeds its carrying value , then no impairment is recorded . if the carrying value amount exceeds the fair value of a reporting unit , further testing is completed comparing the implied fair value of the reporting unit 's goodwill to its carrying value to measure the amount of impairment . intangible assets that are not amortized will be tested for impairment at least annually by comparing the fair values to those assets to their carrying values . at december 31 , 2011 , goodwill consisted of $ 379,000 at the bank reporting unit and $ 878,000 at the travel reporting unit . other identifiable intangible assets that are subject to amortization are amortized on a straight-line basis over periods ranging from three to seven years . at 66 december 31 , 2011 , the amortizable intangible assets consisted of core deposit intangibles of $ 5.7 million at the bank reporting unit and $ 15,000 of non-compete agreements at the travel reporting unit . these amortizable intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value . see note 1 of the accompanying audited financial statements for additional information . for purposes of testing goodwill for impairment , the company used a market approach to value its reporting units . the market approach applies a market multiple , based on observed purchase transactions for each reporting unit , to the metrics appropriate for the valuation of the operating unit . significant judgment is applied when goodwill is assessed for impairment . this judgment may include developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables and incorporating general economic and market conditions . based on the company 's goodwill impairment testing , management does not believe any of its goodwill or other intangible assets are impaired as of december 31 , 2011. while the company believes no impairment existed at december 31 , 2011 , different conditions or assumptions used to measure fair value of reporting units , or changes in cash flows or profitability , if significantly negative or unfavorable , could have a material adverse effect on the outcome of the company 's impairment evaluation in the future . current economic conditions the current economic environment presents financial institutions with unprecedented circumstances and challenges which , in some cases , have resulted in large declines in the fair value of investments and other assets , constraints on liquidity and significant credit quality problems , including severe volatility in the valuation of real estate and other collateral supporting loans . the company 's financial statements have been prepared using values and information currently available to the company . given the volatility of current economic conditions , the values of assets and liabilities recorded in the financial statements could change rapidly , resulting in material future adjustments in asset values , the allowance for loan losses , or capital that could negatively impact the company 's ability to meet regulatory capital requirements and maintain sufficient liquidity . current economic conditions have impacted the markets in which we operate . throughout our market areas , the economic downturn negatively affected consumer confidence and elevated unemployment levels . story_separator_special_tag consequently , average prices for existing home sales in the midwest , which includes our market areas , were down 3.2 % in 2011 over 2010 according to the national association of realtors . in turn , this can potentially increase related losses upon foreclosure due to depressed values . higher vacancy rates have negatively impacted cash flows on commercial real estate loans . retail , office and industrial types of commercial real estate properties had vacancy rates that averaged 10.7 % , 16.4 % and 11.3 % , respectively , in the company 's primary markets for 2011 according to real estate services firms cbre and cassidy turley . these vacancy rates in the company 's primary markets are up from averages of 9.6 % , 15.1 % and 8.8 % , respectively , for 2007 , prior to the economic downturn . according to real estate services firms colliers international , jones lang lasalle and cassidy turley , national averages were 10.9 % , 17.6 % and 9.1 % , respectively , for 2011 , up from 10.0 % , 15.0 % and 8.2 % for 2007 , prior to the economic downturn . increased vacancy rates for commercial real estate properties can correlate to fewer commercial land development sales because of the risk involved in developing these types of properties when similar completed properties have vacancies . the missouri unemployment rate declined during the year ended december 31 , 2011 from 9.6 % at december 31 , 2010 to 8.0 % at december 31 , 2011 , on a preliminary basis , and was below the national average of 8.5 % at december 31 , 2011. the iowa and kansas unemployment rates also declined during the year ended december 31 , 2011 from 6.1 % and 6.8 % at december 31 , 2010 , respectively , to 5.6 % and 6.3 % at december 31 , 2011 , respectively . loan types specifically impacted by certain market areas in missouri include loans secured by condominiums and condominium development in the st. louis , central missouri and branson market areas . borrowers with loans secured by condominiums and condominium development are now changing business strategies to remarket units for rent as opposed to sale . the st. louis market area has experienced the highest level of unemployment among our market areas , with unemployment rates at 8.3 % , on a preliminary basis , and 9.4 % at december 31 , 2011 and 2010 , respectively . however , we have a minimal level of one- to four-family residential and consumer loans in this market and the negative impact of the economy specific to this area has generally been in condominium loans as previously discussed . the unemployment rate for the springfield market area was below the national average , on a preliminary basis , at 6.8 % at december 31 , 2011 , and overall lending activity has improved somewhat but is still below historic levels . general the profitability of the company and , more specifically , the profitability of its primary subsidiary , great southern bank ( the `` bank '' ) , depends primarily on its net interest income , as well as provisions for loan losses and the level of non-interest income and non-interest expense . net interest income is the difference between the interest income the bank earns on its loans and investment portfolio , and the interest it pays on interest-bearing liabilities , which consists mainly of interest paid on deposits and borrowings . net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances . when interest-earning assets approximate or exceed interest-bearing liabilities , any positive interest rate spread will generate net interest income . 67 in the year ended december 31 , 2011 , great southern 's total assets increased $ 378.5 million , or 11.1 % , from $ 3.41 billion at december 31 , 2010 , to $ 3.79 billion at december 31 , 2011. full details of the current year changes in total assets are provided in the “ comparison of financial condition at december 31 , 2011 and december 31 , 2010 ” section of this annual report on form 10-k. loans . in the year ended december 31 , 2011 , great southern 's net loans increased $ 247.2 million , or 13.2 % , from $ 1.88 billion at december 31 , 2010 , to $ 2.12 billion at december 31 , 2011. the increase was primarily due to the loans acquired in the sun security bank fdic-assisted transaction during 2011 which totaled $ 144.6 million at december 31 , 2011. excluding loans covered by loss sharing agreements , commercial real estate loans also increased $ 109.6 million , or 20.7 % , other commercial loans increased $ 50.5 million , or 27.2 % , and multi-family residential loans increased $ 32.9 million , or 15.6 % . commercial construction loans also increased but the increase was primarily offset by decreases in subdivision construction and land development loans . partially offsetting these increases was a decrease in net loans acquired through the 2009 fdic-assisted transactions of $ 52.9 million , or 17.4 % , primarily because of loan repayments . as loan demand is affected by a variety of factors , including general economic conditions , and because of the competition we face and our focus on pricing discipline and credit quality , we can not be assured that our loan growth will match or exceed the level of increases achieved in prior years . the net loan growth experienced during the year ended december 31 , 2011 , excluding the sun security bank fdic-assisted transaction , may continue into 2012. however , based upon the current lending environment and economic conditions , the company does not expect to grow the overall loan portfolio significantly at this time . the company 's strategy continues to be focused on maintaining credit risk and interest rate risk at appropriate levels .
| interest income from investment securities and other interest-earning assets was not significantly different in 2011 compared to 2010. interest income - loans during the year ended december 31 , 2011 compared to the year ended december 31 , 2010 , interest income on loans increased due to higher average interest rates , partially offset by slightly lower average balances . interest income increased $ 26.2 million as the result of higher average interest rates on loans . the average yield on loans increased from 7.22 % during the year ended december 31 , 2010 to 8.53 % during the year ended december 31 , 2011. this increase was due to additional yield accretion recognized in conjunction with the fair value of the loan pools acquired in the 2009 fdic-assisted transactions . on an on-going basis the company estimates the cash flows expected to be collected from the acquired loan pools . the cash flows estimate for the 2009 fdic-assisted transactions had increased each quarter since the third quarter of 2010 , based on the payment histories and reduced loss expectations of the loan pools , resulting in a total of $ 86.0 million of adjustments to be spread on a level-yield basis over the remaining expected lives of the loan pools . the increases in expected cash flows also reduced the amount of expected reimbursements under the loss sharing agreements with the fdic , which are recorded as indemnification assets . therefore , the expected indemnification assets for the 2009 fdic-assisted transactions have also been reduced each quarter since the third quarter of 2010 , resulting in a total of $ 75.7 million of adjustments to be amortized on a comparable basis over the remainder of the loss sharing agreements or the remaining expected life of the loan pools , whichever is shorter . the adjustments increased interest income by $ 49.2 million and decreased non-interest income 75 by $ 43.8 million during the year ended december 31 , 2011 , for a net impact of $ 5.4 million to pre-tax income . because the adjustments will
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each year the company incurs costs for actions to size its businesses to a level appropriate for current economic conditions and to improve its cost structure to enhance our competitive position and operating margins . such expenses include costs for moving facilities to low-cost locations , starting up plants after relocation , curtailing or downsizing operations because of changing economic conditions , and other costs resulting from asset redeployment decisions . shutdown costs include severance , benefits , stay bonuses , lease and contract terminations , asset write-downs , costs of moving fixed assets , moving , and relocation costs . vacant facility costs include maintenance , utilities , property taxes , and other costs . because of the diversity of the company 's businesses , end user markets and geographic locations , management does not use specific external indices to predict the future performance of the company , other than general information about broad macroeconomic trends . each of our individual business units serves niche markets and attempts to identify trends other than general business and economic conditions which are specific to their businesses and which could impact their performance . those units report pertinent information to senior management , which use it to the extent relevant to assess the future performance of the company . a description of any such material trends is described below in the applicable segment analysis . we monitor a number of key performance indicators ( kpis ) including net sales , income from operations , backlog , effective income tax rate , and gross profit margin . a discussion of these kpis is included in the discussion below . we may also supplement the discussion of these kpis by identifying the impact of foreign exchange rates , acquisitions , and other significant items when they have a material impact on the discussed kpi . we believe that the discussion of these items provides enhanced information to investors by disclosing their consequence on the overall trend in order to provide a clearer comparative view of the kpi where applicable . for discussion of the impact of foreign exchange rates on kpis , the company calculates the impact as the difference between the current period kpi calculated at the current period exchange rate as compared to the kpi calculated at the historical exchange rate for the prior period . for discussion of the impact of acquisitions , we isolate the effect to the kpi amount that would have existed regardless of our acquisition . sales resulting from synergies between the acquisition and existing operations of the company are considered organic growth for the purposes of our discussion . unless otherwise noted , references to years are to fiscal years . consolidated results from continuing operations ( in thousands ) : replace_table_token_6_th net sales for the fiscal year 2015 increased by $ 56.0 million , or 7.8 % , when compared to the prior year . the increase is driven by $ 34.2 million or 4.8 % of organic sales growth from three of our segments , $ 38.2 million or 5.3 % of acquisitions from enginetics , ultrafryer , and planar partially offset by unfavorable foreign exchange of $ 16.4 million or 2.3 % primarily from the strength of the u.s. dollar as compared to the euro and pound . sales growth is a result of success of our top-line growth initiatives and improvements in end-user markets . we expect unfavorable foreign exchange impacts to revenue to continue into our first and second quarters of fiscal year 2016. net sales for the fiscal year 2014 increased by $ 42.8 million , or 6.4 % , when compared to the prior year . the increase is driven by $ 38.5 million or 5.7 % of organic sales growth from all our segments and favorable foreign exchange of $ 4.0 million . sales growth is a result of success of our top-line growth initiatives and improvements in end-user markets . gross profit margin during 2015 , gross margin decreased to 32.1 % as compared to 33.3 % in 2014. this decrease is primarily a result of exchange rate declines , an unfavorable sales mix as compared to the prior year , coupled with $ 1.7 million of purchase accounting charges associated with the enginetics and ultrafryer acquisitions . during 2014 , gross margin increased to 33.3 % as compared to 32.4 % in 2013. this increase is primarily a result of sales volume and favorable sales mix , coupled with the absence of $ 1.5 million of purchase accounting charges incurred during 2013 associated with the meder acquisition . gross margin has increased at the engraving group due to strong automotive mold-tech sales . selling , general , and administrative expenses selling , general , and administrative expenses , ( sg & a ) for the fiscal year 2015 were $ 165.8 million or 21.5 % of sales compared to $ 165.8 million or 23.1 % of sales during the prior year . the decline in sg & a as a percentage of sales relates to three primary items : the absence of $ 3.9 million of management transition costs in the prior year ; increased selling and distribution expense in the current year associated with a 4.8 % increase in organic sales during the year ; and $ 6.6 million of incremental expenses as a result of the ultrafryer and enginetics acquisitions . selling , general , and administrative expenses for the fiscal year 2014 were $ 165.8 million or 23.1 % of sales compared to $ 153.6 million or 22.8 % of sales . the increase was driven by $ 3.9 million of management transition costs , $ 3.4 million of compensation expense due to improved performance and increase of $ 3.1 million of increased selling and distribution expenses due to incremental sales volume . the charge for management transition expense included search fees , relocation and other costs associated with the hiring of a new chief executive officer ( ceo ) and the acceleration of stock incentive compensation expenses related to the retired ceo . story_separator_special_tag story_separator_special_tag style= '' margin:0px '' > net sales for fiscal year 2014 increased $ 10.8 million , or 3.0 % , when compared to the prior year . the refrigerated solutions ( walk-in coolers and freezers and refrigerated cabinets ) and specialty solutions businesses grew approximately 5.8 % and 3.6 % , respectively , year over year , while the cooking solutions group net sales declined by 3.0 % year over year . the refrigeration business continued to see penetration into the dollar store segment with its new line of endless merchandising products . also strong were the general dealer markets and specialty cabinets for the beverage industry . this strength was partially offset by continued weakness in the drug retail segment as new store construction is at reduced levels compared to prior year , and to our quick-service restaurant chain customers that had reduced domestic capital spending due to customer changes in timing of deliveries . the specialty solutions group growth was driven by strong growth in the beverage pump business as demand returned in both the domestic and international markets , particularly with demand for new products in the european espresso market segment . this growth was partially offset by a sales decline in the specialty merchandising segment due to soft demand in the middle of the fiscal year . the sales decline in the cooking solutions group was driven by weakness at several key dealers , lapping of a chain rollout in the prior year and reductions in inventories at parts distributors . this was partially overcome by strengthening of the u.s. retail supermarket deli market segment , overcoming further softening of sales in the u.k. in addition , the cooking group benefited from $ 0.3 million of sales from the ultrafryer acquisition . income from operations for fiscal year 2014 increased $ 0.7 million , or 1.8 % , when compared to the prior year . the group 's return on sales was nearly flat as compared to the prior year . the positive impact of the year over year volume increase was partially offset by a combination of adverse product and customer mix changes . additionally , productivity was negatively impacted by disruption related to the manufacturing realignment . engraving replace_table_token_8_th net sales for fiscal year 2015 increased by $ 1.5 million or 1.4 % , compared to the prior year . unfavorable foreign exchange impacted sales $ 7.2 million . sales growth excluding foreign exchange losses were primarily driven by continued expansion of our asia pacific mold-tech business as a result of increased market share . north american sales volumes were down for the year due to lower new automotive model activity and some automotive projects that were pushed out from the fourth quarter to the first half of 2016. we continue to expand our mold-tech business with new operations established in the quarter in sweden and malaysia . sales of core forming tooling grew 25 % or $ 2.4 million as compared to prior year . first half softness in our roll plate and machinery business was offset as sales strengthened in the second half of the year . we expect sales improvements in 2016 in the north american market as new automotive model launches are anticipated to increase . income from operations in fiscal year 2015 increased by $ 2.1 million , or 9.5 % , when compared to the prior year . the increase is driven by increased volume in asia pacific partially offset by unfavorable foreign exchange and fewer new model launches which impeded margin growth in the mold texturing business . net sales for fiscal year 2014 increased by $ 15.9 million or 17.0 % , compared to the prior year . this growth was driven by record new model launches and refreshed platforms in the global automotive industry . increased market share gained by our mold-tech business resulted in a 26 % or $ 16.9 million increase in mold texturing sales as compared to the prior year . growth for mold-tech was strong in all markets we operate in worldwide . sales of core forming tooling grew 6 % or $ 0.5 million as compared to prior year . income from operations in fiscal year 2014 increased by $ 6.5 million , or 42 % , when compared to the prior year . high margins associated with new automotive model platform launches and refreshed platforms worldwide drove higher profitability for the year . engineering technologies replace_table_token_9_th net sales in the fiscal year 2015 increased $ 17.4 million , or 21.8 % , when compared to the prior year . acquisitions contributed $ 22.5 million or 28.3 % , partially offset by organic sales declines of $ 4.6 million , or 5.8 % . sales in the land based gas turbine and oil and gas segments were down 24.9 % from the prior year level . the decline was a result of reduced demand due to lower oil prices . based on current pricing levels , we expect this market to remain soft for at least the next 12 months . in response we have implemented plans to align operating costs with demand . space segment sales increased 26.3 % from the prior year driven by higher sales in both the launch vehicle and the manned space segments currently in the development phase . legacy sales in the aviation segment were up 24 % compared to the prior year due to recent contract awards . defense related sales were down 41.2 % due to the timing of project based contracts . sales in the medical segment were down 14.4 % primarily due to a shift in product mix . income from operations in the fiscal year 2015 increased $ 0.4 million , or 3.3 % , when compared to the prior year due to the impact of the enginetics acquisition . operating income was negatively impacted by $ 1.1 million of purchase accounting expenses and lower volume from oil and gas customers .
| interest expense of $ 2.2 million during 2014 was comparable with 2013. income taxes the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2015 was $ 20.9 million , an effective rate of 27.4 % , compared to $ 18.1 million , an effective rate of 26.6 % for the year ended june 30 , 2014 , and $ 15.2 million , an effective rate of 25.7 % for the year ended june 30 , 2013. changes in the effective tax rates from period to period may be significant as they depend on many factors including , but not limited to , the amount of the company 's income or loss , the mix of income earned in the u.s. versus outside the u.s. , the effective tax rate in each of the countries in which we earn income , and any one time tax issues which occur during the period . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2015 was impacted by the following items : ( i ) a benefit of $ 0.5 million related to the r & d tax credit that expired during the fiscal year on december 31 , 2014 ( ii ) a benefit of $ 4.0 million due to the mix of income earned in jurisdictions with beneficial tax rates . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2014 was impacted by the following items : ( i ) a benefit of $ 0.5 million related to the r & d tax credit that expired during the fiscal year on december 31 , ( ii ) a benefit of $ 0.5 million related to a decrease in the statutory tax rate in the united kingdom on prior period deferred tax liabilities recorded during the first quarter during the fiscal year , ( iii ) a benefit of $ 1.1 million due to non-taxable life insurance proceeds received in the third quarter and ( iv ) a benefit of $ 3.8 million due to the mix of income earned in jurisdictions with beneficial tax rates . the company 's income tax provision from continuing operations for the fiscal year ended june 30 , 2013 was impacted by the following items : ( i ) a benefit of $ 0.4 million related to the retroactive extension of the r & d credit recorded during the third quarter , ( ii ) a benefit of $ 0.3 million related to a decrease in the statutory tax rate in the united kingdom
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2016 operational objectives ( i ) sales channel expansion and optimization – our objective for 2016 is to increase revenue for each of our sbus at a faster rate than their respective markets by growing and optimizing our sales force while expanding our product portfolio with new and innovative products . specifically , in 2016 , we expect to accelerate our new product development with new product launches and product line extensions . the most important of these product launches is our next generation bone growth stimulation products for the biostim sbu ; a novel hip fracture system for the extremity fixation sbu ; and the introduction of our forza line of proprietary interbody products , which represents a significant upgrade and enhancement to our firebird ® pedicle screw system , and a new anterior cervicle plate in the spine fixation sbu . ( ii ) improvement of operating leverage – during 2016 we expect to drive higher margins by improving our operating leverage and reducing selling , general , and administrative expenses . we expect to make progress on this initiative in 2016 and for this to be a continued focus area in the years ahead . ( iii ) investment in clinical research – in order to ensure the long-term success of our company , we plan to invest significant resources in clinical research , particularly for our regenerative technologies . in 2016 , we plan to initiate or continue work on a variety of clinical studies supporting both our existing products and our continued effort to identify new indications for our pemf technologies . critical accounting policies and estimates our discussion of operating results is based upon the consolidated financial statements and accompanying notes to the consolidated financial statements prepared in conformity with u.s. gaap . the preparation of these statements 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 amount of revenues and expenses during the reporting period . these estimates and assumptions form the basis for the carrying values of assets and liabilities . on an ongoing basis , we evaluate these estimates , which are based on historical experience and various other assumptions that management believe to be reasonable under the circumstances at that certain point in time . actual results may differ , significantly at times , from these estimates . we have reviewed our critical accounting policies with the audit committee of the board of directors . we believe the following critical accounting policies and estimates affect the significant estimates and judgments we use in preparation of our consolidated financial statements . revenue recognition commercial revenue is related to the sale of our implant products , generally representing hospital customers . revenues are recognized when these products have been utilized and a confirming purchase order has been received from the hospital . revenue is also derived from third-party payors , including commercial insurance carriers , health maintenance organizations , preferred provider organizations and governmental payors such as medicare , in connection with the sale of our stimulation products . revenue is recognized when the stimulation product is placed on and accepted by the patient and all perfunctory documents that are required by the third-party payor have been obtained . amounts paid by these third-party payors are generally based on fixed or allowable reimbursement rates . these revenues are recorded at the expected or preauthorized reimbursement rates , net of any 42 contractual allowances or adjustments . certain billings are subject to review by the third-party payors and may be su bject to adjustment . revenue for certain government entities is recorded on a cash-basis as collectability is not reasonably assured . for all distributor revenue , which is primarily related to implant products , we recognize revenue on the sell-through basis , effective april 1 , 2013. prior to this date , we recognized revenue either on a sell-in or sell-through basis , depending on the specific circumstances of the distributor . in some cases we recognized distributor revenue as title and risk of loss passes at either shipment from our facilities or receipt at the distributor 's facility , assuming all other revenue recognition criteria had been achieved ( the “ sell-in method ” ) . in some cases the revenue recognition criteria for distributor sales were not satisfied at the time of shipment or receipt ; specifically , the existence of extra-contractual terms or arrangements caused us not to meet the fixed or determinable criteria for revenue recognition in some cases , and in others collectability had not been established . in situations where we are unable to satisfy the requirements to recognize revenue on the sell-in method , we recognize revenue relating to distributor arrangements once the product is delivered to the end customer ( the “ sell-through method ” ) . because we do not have reliable information about when our distributors sell the product through to end customers , we use cash collection from distributors as a basis for revenue recognition under the sell-through method . although in many cases we are legally entitled to the accounts receivable at the time of shipment , we have not recognized accounts receivables or any corresponding deferred revenues associated with distributor transactions for which revenue is recognized on the sell-through method . for distributors on the sell-in method prior to april 1 , 2013 , cost of sales were recognized upon shipment . for sell-through distributors , whose revenue is recognized upon cash receipt , we consider whether to match the related cost of sales expense with revenue or to recognize expense upon shipment . in making this assessment , we consider the financial viability of our distributors based on their creditworthiness to determine if collectability of amounts sufficient to realize the costs of the products shipped is reasonably assured at the time of shipment to these distributors . story_separator_special_tag in instances where the distributor is determined to be financially viable , we defer the costs of sales until the revenue is recognized . biologics revenue is primarily related to a collaborative arrangement with the mtf . we have exclusive global marketing rights and receive marketing fees from mtf based on products distributed by mtf . mtf is considered the primary obligor in these arrangements and therefore we recognize these marketing service fees on a net basis upon shipment of the product to the customer . revenues exclude any value added or other local taxes , intercompany sales , and trade discounts . shipping and handling costs are included in cost of sales . revenue recognition policies are “ critical accounting estimates ” because changes in the assumptions used to develop the estimates could materially affect key financial measures , including net sales , gross margin , net margin and net income . allowance for doubtful accounts and contractual allowances the process for estimating the ultimate collection of accounts receivable involves significant assumptions and judgments . historical collection and payor reimbursement experience is an integral part of the estimation process related to reserves for doubtful accounts and the establishment of contractual allowances . accounts receivable are analyzed on a quarterly basis to assess the adequacy of both reserves for doubtful accounts and contractual allowances . revisions in allowances for doubtful accounts estimates are recorded as an adjustment to bad debt expense within sales and marketing expenses . revisions to contractual allowances are recorded as an adjustment to net sales . our estimates are periodically tested against actual collection experience . we believe our allowance for doubtful accounts is sufficient to cover customer credit risks ; however , a 10 % increase in our allowance for doubtful accounts as of december 31 , 2015 would result in an additional charge of $ 0.9 million . our allowance for doubtful accounts and contractual allowances are “ critical accounting estimates ” because changes in the assumptions used to develop the estimates could materially affect key financial measures , including operating income , net income , and accounts receivable balances . inventory allowances inventory , net of an allowance for excess and obsolescence , is stated at the lower of cost or market . reserves for excess , slow moving , and obsolete inventory are calculated as the difference between the cost of inventory and market , and are based on product life cycle , forecasted demand , and market conditions . reserves for excess and obsolescence provisions are recorded as adjustments to cost of sales . according to u.s. gaap , a write-down of inventory to the lower-of-cost-or-market value at the close of a fiscal year creates a new cost basis that subsequently should not be marked up based on changes in underlying circumstances . our inventory allowance is a “ critical accounting estimate ” because changes in the assumptions used to develop the estimate could materially affect key financial measures , including gross profit , operating income , net income , and inventory balances . we regularly evaluate our exposure for inventory write-downs . if conditions or assumptions used in determining the market value change , additional inventory adjustments in the future may be necessary . 43 goodwill and other intangible assets in accordance with u.s. gaap , intangible assets with finite lives are tested for impairment if any adverse conditions exist or change in circumstances has occurred that would indicate impairment or a change in the remaining useful life . if an impairment indicator exists , we test the intangible asset for recoverability . for purposes of the recoverability test , we group our intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities . if the carrying value of the intangible asset ( asset group ) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset ( asset group ) , we will write the carrying value down to the fair value in the period identified . goodwill and other intangible assets are “ critical accounting estimates ” because changes in the assumptions used to develop the estimates could materially affect key financial measures , including operating income and net income . we generally calculate fair value of intangible assets as the present value of estimated future cash flows that we expect to generate from the asset using a risk-adjusted discount rate . in determining the estimated future cash flows associated with intangible assets , we use estimates and assumptions about future revenue contributions , cost structures and remaining useful lives of the asset ( asset group ) . the use of alternative assumptions , including estimated cash flows , discount rates , and alternative estimated remaining useful lives could result in different calculations of impairment . we test goodwill at least annually for impairment , and between annual tests if indicators of potential impairment exist . these indicators include , among others , declines in sales , earnings or cash flows , or the development of a material adverse change in the business climate . we assess goodwill for impairment at the reporting unit level , which is defined as an operating segment or one level below an operating segment , referred to as a reporting unit . we have identified four reporting units , which are consistent with our reporting segments ; biostim , biologics , extremity fixation , and spine fixation . in order to calculate the respective carrying values , we initially recorded goodwill based on the purchase price allocation performed at the time of acquisition . corporate assets and liabilities that directly relate to a reporting unit 's operations are ascribed directly to that reporting unit . corporate assets and liabilities that are not directly related to a specific reporting unit , but from which the reporting unit benefits , are allocated based on the respective contribution measure of each reporting unit .
| this sbu specializes in the marketing of the company 's regeneration tissue forms . biologics markets its tissues through a network of distributors , independent sales representatives and affiliates to supply to hospitals , doctors , and other healthcare providers , primarily in the u.s. our partnership with the mtf allows us to exclusively market our trinity evolution ® and trinity elite ® tissue forms for musculoskeletal defects to enhance bony fusion . extremity fixation the extremity fixation sbu offers products and solutions that allow physicians to successfully treat a variety of orthopedic conditions unrelated to the spine . this sbu specializes in the design , development , and marketing of the company 's orthopedic products used in fracture repair , deformity correction and bone reconstruction procedures . extremity fixation distributes its products through a network of distributors , sales representatives and affiliates to sell orthopedic products to hospitals , doctors , and other health providers , globally . spine fixation the spine fixation sbu specializes in the design , development and marketing of a broad portfolio of implant products used in surgical procedures of the spine . spine fixation distributes its products through a network of distributors , sales representatives , and affiliates to sell spine products to hospitals , doctors and other healthcare providers , globally . corporate corporate activities are comprised of the operating expenses , including share-based compensation , of orthofix international n.v. and its holding company subsidiaries , along with activities not necessarily identifiable within the four sbus . 2015 compared to 2014 net sales the table below presents net sales by sbu reporting segment . net sales include product sales and marketing service fees . replace_table_token_8_th net sales decreased $ 5.8 million in 2015 compared to 2014. the impact of foreign currency decreased sales by $ 15.3 million in 2015 when compared to 2014. excluding the impact of changes in foreign currency exchange rates , net sales increased $ 9.5 million or 2.4 % . net sales include product sales from biostim ,
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our product revenue from international sales can be significantly impacted by fluctuations in foreign currency exchange rates , as our sales are denominated in the local currency in the countries in which we sell our products . we expect our product revenue to fluctuate from quarter-to-quarter due to a variety of factors , including seasonality , as we have historically experienced lower sales in the summer months and around year-end , the timing of the introduction of our new products , if any , and the impact of the buying patterns and implant volumes of medical facilities . in april 2015 , we entered into a worldwide license agreement with microport orthopedics inc. , or microport , a wholly owned subsidiary of microport scientific corporation . under the terms of this license agreement , we granted a perpetual , irrevocable , non-exclusive license to microport to use patient-specific instrument technology covered by our patents and patent applications with off-the-shelf implants in the knee . this license does not extend to patient-specific implants . this license agreement provides for the payment to us of a fixed royalty at a high single to low double digit percentage of net sales on patient-specific instruments and associated implant components in the knee , including microport 's prophecy patient-specific instruments used with its advance and evolution implant components . we can not be certain as to the timing or amount of payment of any royalties under this license agreement . this license agreement also provided for a single lump-sum payment by microport to us of low-single digit millions of dollars upon entering into the license agreement , which has been paid . this license agreement will expire upon the expiration of the last to expire of our patents and patent applications licensed to microport , which currently is expected to occur in 2029. in april 2015 , we entered into a fully paid up , worldwide license agreement with wright medical group , inc. , or wright group , and its wholly owned subsidiary wright medical technology , inc. , or wright technology and collectively with wright group , wright medical . under the terms of this license agreement , we granted a perpetual , irrevocable , non-exclusive license to wright medical to use patient-specific instrument technology covered by our patents and patent applications with off-the-shelf implants in the foot and ankle . this license does not extend to patient-specific implants . this license agreement provided for a single lump-sum payment by wright medical to us of mid-single digit millions of dollars upon entering into the license agreement , which has been paid . this license agreement will expire upon the expiration of the last to expire of our patents and patent applications licensed to wright medical , which currently is expected to occur in 2031. we have accounted for the agreements with wright medical and microport under asc 605-25 , multiple-element arrangements and staff accounting bulletin no . 104 , revenue recognition ( asc 605 ) . in accordance with asc 605 , we were required to identify and account for each of the separate units of accounting . we identified the relative selling price for each and then allocated the total consideration based on their relative values . in connection with these agreements , in april 2015 , we recognized in aggregate ( i ) back-owed royalties of $ 3.4 million as royalty revenue and ( ii ) the value attributable to the settlements of $ 0.2 million as other income . additionally , we recognized an initial $ 5.1 million in aggregate as deferred royalty revenue , which is recognized as royalty revenue ratably through 2031. see “ note i — deferred revenue ” to the financial statements and related notes appearing elsewhere in this annual report on form 10-k. the on-going royalty from microport is recognized as royalty revenue upon receipt of payment . on august 31 , 2015 , we announced a voluntary recall of specific serial numbers of patient-specific instrumentation for our iuni , iduo , itotal cr and itotal ps knee replacement product systems . the recalled 76 products were manufactured and distributed from our wilmington manufacturing facility between july 18 , 2015 and august 28 , 2015. we isolated the root cause to a step in our ethylene oxide sterilization process conducted by a vendor . we have since completed final testing and implemented corrective actions , and we resumed normal production in october 2015. in particular , our voluntary recall announced on august 31 , 2015 has adversely affected our business and may continue to adversely affect our business in a number of ways , including through the financial impact from lost sales of the recalled products , reduction of our production capacity over the period of our investigation and resolution of the root cause of the recall , commercial disruption and damage to our reputation with orthopedic surgeons , consumers , healthcare providers , distributors and other business partners . cost of revenue we produce all of our computer aided designs , or cad , in-house and use them to direct all of our product manufacturing efforts . until july 2015 , we manufactured all of our patient-specific instruments , or ijigs , in our facilities in burlington and wilmington , massachusetts . since august 2015 , we have manufactured all of our ijigs in our wilmington facility . we also make in our facilities the majority of the tibial components used in our implants . we outsource the production of the remainder of the tibial components and the manufacture of femoral and other implant components to third-party suppliers . our suppliers make our customized implant components using the cad designs we supply . cost of revenue consists primarily of costs of raw materials , manufacturing personnel , manufacturing supplies , inbound freight and manufacturing overhead and depreciation expense . we calculate gross margin as revenue less cost of revenue divided by revenue . story_separator_special_tag our gross margin has been and will continue to be affected by a variety of factors , including primarily volume of units produced , mix of product components manufactured by us versus sourced from third parties , our average selling price , the geographic mix of sales , royalty revenue and product sales mix . we expect our gross margin from the sale of our products , which excludes royalty revenue , to expand over time to the extent we are successful in reducing our manufacturing costs per unit and increasing our manufacturing efficiency as sales volume increases . we believe that areas of opportunity to expand our gross margins in the future , if and as the volume of our product sales increases , include the following : absorbing overhead costs across a larger volume of product sales ; obtaining more favorable pricing for the materials used in the manufacture of our products ; increasing the proportion of certain components of our products that we manufacture in-house , which we believe we can manufacture at a lower unit cost than vendors we currently use ; developing new versions of our software used in the design of our customized joint replacement implants , which we believe will reduce costs associated with the design process ; and obtaining more favorable pricing of certain components of our products manufactured for us by third parties ; and applying our 3d printing technology to select metal components of our products , which we believe can lower our unit costs compared to our current manufacturing methods . we also plan to explore other opportunities to reduce our manufacturing costs . however , these and the above opportunities may not be realized . in addition , our gross margin may fluctuate from period to period . in connection with the voluntary recall announced in august 2015 , we incurred incremental charges amounting to approximately $ 1.1 million related to a write-down of recalled inventory and estimated surgery cancellations . this voluntary recall may depress our expected volume increases going forward as a result of potential damage to our reputation with consumers , healthcare providers , distributors and other business partners . 77 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 , benefits , stock-based compensation and sales commissions . sales and marketing . sales and marketing expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in sales , marketing , customer service , medical education and training , as well as investments in surgeon training programs , industry events and other promotional activities . in addition , our sales and marketing expense includes sales commissions and bonuses , generally based on a percentage of sales , to our sales managers , direct sales representatives and independent sales representatives . recruiting , training and retaining productive sales representatives and educating surgeons about the benefits of our products are required to generate and grow revenue . we expect sales and marketing expense to significantly increase as we build up our sales and support personnel and expand our marketing efforts . our sales and marketing expense may fluctuate from period to period due to the seasonality of our revenue and the timing and extent of our expenses . research and development . research and development expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for personnel employed in research and development , regulatory and clinical areas . research and development expense also includes costs associated with product design , product refinement and improvement efforts before and after receipt of regulatory clearance , development prototypes , testing , clinical study programs and regulatory activities , contractors and consultants , and equipment and software to support our development . as our revenue increases , we will also incur additional expenses for revenue share payments to our past and present scientific advisory board members , including our chief executive officer . we expect research and development expense to increase in absolute dollars as we develop new products to expand our product pipeline , add research and development personnel and conduct clinical activities . general and administrative . general and administrative expense consists primarily of personnel costs , including salary , employee benefits and stock-based compensation for our administrative personnel that support our general operations , including executive management , general legal and intellectual property , finance and accounting , information technology and human resources personnel . general and administrative expense also includes outside legal costs associated with intellectual property and general legal matters , financial audit fees , insurance , fees for other consulting services , depreciation expense , freight , medical device tax and facilities expense . we expect our general and administrative expense will increase in absolute dollars as we increase our headcount and expand our infrastructure to support growth in our business and our operations as a public company . we anticipate increased expenses associated with being a public company will include increases in audit , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , director and officer insurance premiums and investor relations costs . as our revenue increases we also will incur additional expenses for freight . our general and administrative expense may fluctuate from period to period due to the timing and extent of the expenses . other income ( expense ) , net other income ( expense ) , net consists primarily of interest expense and amortization of debt discount associated with our term loans and realized gains ( losses ) from foreign currency transactions . the effect of exchange rates on our foreign currency-denominated asset and liability balances are recorded in other income ( expense ) and are recorded as foreign currency translation adjustments in the consolidated statements of comprehensive loss .
| at this same time we also entered into a worldwide license agreement with microport for a single lump-sum payment by microport to us upon entering into the license agreement . royalty revenue related to these agreements was $ 4.1 million for the year ended december 31 , 2015 . cost of revenue , gross profit and gross margin . cost of revenue was $ 42.4 million for the year ended december 31 , 2015 compared to $ 30.6 million for the year ended december 31 , 2014 , an increase of $ 11.8 million or 38 % . the increase was due primarily to an increase in production and personnel costs associated with the increase in actual sales volume and , to a lesser extent , anticipated sales volume which was not achieved due to the recall announced in august 2015. gross profit was $ 24.5 million for the year ended december 31 , 2015 compared to $ 17.5 million for the year ended december 31 , 2014 , an increase of $ 6.9 million or 39 % . gross margin increased 100 basis points to 37 % for the year ended december 31 , 2015 from 36 % for the year ended december 31 , 2014 . this increase in gross margin was driven primarily by the royalty revenue and higher sales volume during the year ended december 31 , 2015 which was offset in part by the additional product costs , decrease in revenue due to the recall and foreign currency exchange rate changes . sales and marketing . sales and marketing expense was $ 40.2 million for the year ended december 31 , 2015 compared to $ 31.1 million for the year ended december 31 , 2014 , an increase of $ 9.1 million or 29 % . the increase was due primarily to a $ 6.9 million increase in personnel costs as a result of our hiring of additional direct sales representatives and sales support and increases in commissions as a result of the increase in sales
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we continue to see demand for active , return-oriented strategies , particularly in illiquid alternative and multi-asset and fixed income strategies , reflecting continued investor demand for returns that are less correlated to traditional equity markets , while we are experiencing outflows in quantitative strategies across liquid alternative strategies and equity strategies . in addition , investor demand for passively-managed products , including exchange traded funds has continued , and we have experienced outflows in certain equity strategies , consistent with this industry-wide trend . we believe the best-performing active equity managers ( whether global- , regional- , or country-specific ) will continue to have significant opportunities to grow as a result of net client cash inflows . we believe we are well-positioned to benefit from these trends . the following charts present information regarding the composition of our assets under management by active , return-oriented strategy as of december 31 , 2019 and 2020 : assets under management by strategy 21 table of contents ( 1 ) alternatives include illiquid alternative strategies , which accounted for 13 % and 14 % of our assets under management as of december 31 , 2019 and 2020 , respectively . ( 2 ) global equities include emerging markets strategies , which accounted for 9 % of our assets under management as of both december 31 , 2019 and 2020. the following table presents changes in our assets under management by active , return-oriented strategy : replace_table_token_3_th ( 1 ) foreign exchange reflects the impact of translating into u.s. dollars the assets under management of our affiliates whose functional currency is not the u.s. dollar . ( 2 ) other includes assets under management attributable to product transitions and reclassifications . the following charts present information regarding the composition of our assets under management by client type as of december 31 , 2019 and 2020 : assets under management by client type 22 table of contents the following table presents changes in our assets under management by client type : replace_table_token_4_th ( 1 ) foreign exchange reflects the impact of translating into u.s. dollars the assets under management of our affiliates whose functional currency is not the u.s. dollar . ( 2 ) other includes assets under management attributable to product transitions and reclassifications . aggregate fees aggregate fees consist of asset and performance based fees of our consolidated and equity method affiliates . asset based fees include advisory and other fees earned by our affiliates for services provided to their clients and are typically determined as a percentage of the value of a client 's assets under management . performance based fees are based on investment performance , typically on an absolute basis or relative to a benchmark , and are generally recognized when it is improbable that there will be a significant reversal in the amount of revenue recognized . performance based fees are generally billed less frequently than asset based fees , and although performance based fees inherently depend on investment performance and will vary from period to period , we anticipate performance based fees will be a recurring component of our aggregate fees . aggregate fees are generally determined by the level of our average assets under management and the composition of these assets across our strategies that realize different asset based fee ratios and performance based fees . our asset based fee ratio is calculated as asset based fees divided by average assets under management . aggregate fees were $ 4,626.4 million in 2020 , a decrease of $ 336.3 million or 7 % as compared to 2019. the decrease in our aggregate fees was due to a $ 525.0 million or 11 % decrease in asset based fees , partially offset by a $ 188.7 million or 4 % increase in performance based fees . the decrease in asset based fees was due to a decrease in our average assets under management , due to net client cash outflows principally in our quantitative strategies , and a change in the composition of our assets under management . financial and supplemental financial performance measures the following table presents our key financial and supplemental financial performance measures : replace_table_token_5_th ( 1 ) percentage change is not meaningful . ( 2 ) adjusted ebitda ( controlling interest ) and economic net income ( controlling interest ) are non-gaap performance measures and are discussed in “ supplemental financial performance measures. ” 23 table of contents adjusted ebitda ( controlling interest ) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business . adjusted ebitda ( controlling interest ) decreased $ 42.8 million or 5 % in 2020. the decrease in adjusted ebitda ( controlling interest ) was primarily due to a $ 336.3 million or 7 % decrease in aggregate fees and a $ 17.5 million increase in share-based compensation principally due to an event that accelerated certain share-based compensation , partially offset by a $ 6.0 million decrease in travel-related expenses attributable to the controlling interest . while adjusted ebitda ( controlling interest ) decreased $ 42.8 million or 5 % in 2020 , our net income ( controlling interest ) increased $ 186.5 million . the increase in net income ( controlling interest ) was primarily due to a $ 300.0 million decrease in equity method intangible amortization and impairments , partially offset by a $ 78.6 million increase in income tax expense attributable to the controlling interest . we believe economic net income ( controlling interest ) is an important supplemental financial performance measure because it represents our performance before non-cash expenses relating to our acquisition of interests in affiliates and improves comparability of performance between periods . story_separator_special_tag economic net income ( controlling interest ) decreased $ 95.8 million or 13 % in 2020 , primarily due to a $ 42.8 million decrease in adjusted ebitda ( controlling interest ) , a $ 37.2 million increase in current and other deferred taxes primarily attributable to the controlling interest and a $ 16.1 million increase in interest expense attributable to the controlling interest . story_separator_special_tag method . our share of earnings or losses from affiliates accounted for under the equity method , net of amortization and impairments , is included in equity method loss ( net ) in our consolidated statements of income . for a majority of these affiliates , we use structured partnership interests in which we contractually share in the affiliate 's revenue less agreed-upon expenses . we also use structured partnership interests in which we contractually share in the affiliate 's revenue without regard to expenses . our share of earnings or losses from affiliates accounted for under the equity method , net of amortization and impairments , is included in equity method loss ( net ) . our equity method revenue is derived primarily from asset and performance based fees from investment management services . equity method revenue incorporates the total asset and performance based fees earned by all of our affiliates accounted for under the equity method and is generally determined by the level of our equity method affiliate average assets under management and the composition of these assets across our strategies that realize different asset based fee ratios and performance based fees . our affiliates accounted for under the equity method manage a greater proportion of assets subject to 25 table of contents performance based fees than our consolidated affiliates and , as a result , equity method revenue will generally have more performance based fees than consolidated revenue . the following table presents equity method affiliate average assets under management and equity method revenue , as well as equity method earnings and equity method intangible amortization and impairments , which in aggregate form equity method loss ( net ) : replace_table_token_8_th ( 1 ) percentage change is not meaningful . our equity method revenue decreased $ 124.2 million or 5 % in 2020 , due to a $ 333.8 million or 13 % decrease in asset based fees , partially offset by a $ 209.6 million or 8 % increase in performance based fees . the decrease in asset based fees was primarily due to a decrease in equity method affiliate average assets under management , due to net client cash outflows principally in our quantitative strategies , and a change in the composition of our assets under management . these decreases were partially offset by the impact of new investments , which had higher asset based fee ratios than our average asset based fee ratio . while equity method revenue decreased $ 124.2 million or 5 % in 2020 , equity method earnings decreased $ 0.8 million or less than 1 % . equity method earnings decreased less than equity method revenue on a percentage basis due to the recognition of performance based fees at affiliates in which we hold more of an economic interest , partially offset by a decline in earnings at certain affiliates in which we share in revenue less agreed-upon expenses . equity method intangible amortization and impairments decreased $ 295.4 million or 47 % in 2020 , primarily due to a $ 300.0 million decrease in expenses to reduce the carrying value of certain affiliates to fair value . see note 10 of our consolidated financial statements . this decrease was partially offset by a $ 6.4 million increase in amortization expense due to investments in new affiliates . investment and other income the following table presents our investment and other income : replace_table_token_9_th investment and other income increased $ 8.9 million or 35 % in 2020 , primarily due to a $ 10.8 million increase in foreign currency gains , partially offset by a $ 1.4 million decrease in interest income . income tax expense the following table presents our income tax expense : replace_table_token_10_th 26 table of contents ( 1 ) percentage change is not meaningful . income tax expense increased $ 78.5 million in 2020 , primarily due to a $ 265.1 million increase in income before income taxes attributable to the controlling interest and an $ 18.7 million increase in valuation allowances against certain state and foreign loss carryforwards . these increases were partially offset by a $ 3.4 million decrease in stock compensation tax shortfalls during 2020. net income the following table presents net income , net income ( controlling interest ) and net income ( non-controlling interest ) : replace_table_token_11_th ( 1 ) percentage change is not meaningful . net income ( controlling interest ) increased $ 186.5 million in 2020 , primarily due to a decrease in equity method loss ( net ) . this increase was partially offset by an increase in income tax expense attributable to the controlling interest , an increase in share-based compensation attributable to the controlling interest and a decrease in consolidated revenue . supplemental financial performance measures adjusted ebitda ( controlling interest ) as supplemental information , we provide a non-gaap measure that we refer to as adjusted ebitda ( controlling interest ) . adjusted ebitda ( controlling interest ) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business before interest , taxes , depreciation , amortization , impairments , certain affiliate equity expenses , gains and losses on general partner and seed capital investments , and adjustments to contingent payment arrangements . we believe that many investors use this measure when assessing the financial performance of companies in the investment management industry . this non-gaap performance measure is provided in addition to , but not as a substitute for , net income ( controlling interest ) or other gaap performance measures .
| for these affiliates , the amount of expenses attributable to the non-controlling interests , including compensation , is generally determined by the percentage of revenue allocated to expenses as part of the structured partnership interests in place at the respective affiliate . accordingly , increases in revenue generally will increase a consolidated affiliate 's expenses attributable to the non-controlling interests and decreases in revenue will generally decrease a consolidated affiliate 's expenses attributable to the non-controlling interests . 24 table of contents the following table presents our consolidated expenses : replace_table_token_7_th compensation and related expenses decreased $ 59.3 million or 6 % in 2020 , primarily due to an $ 88.1 million decrease in bonus and salary expenses , principally as a result of a decline in consolidated revenue and headcount repositioning in 2019. this decrease was partially offset by a $ 17.5 million increase in share-based compensation , primarily due to an event that accelerated certain share-based compensation and an $ 11.3 million increase in affiliate equity compensation expense . selling , general and administrative expenses decreased $ 55.4 million or 15 % in 2020 , primarily due to a $ 21.7 million decrease in travel-related expenses , a $ 17.5 million decrease in sub-advisory and distribution expenses related to a decrease in certain assets under management , and a $ 12.1 million decrease in renewal commissions . intangible amortization and impairments decreased $ 4.0 million or 3 % in 2020 , primarily due to a $ 33.8 million reduction in amortization expense related to certain definite-lived assets being fully amortized and a $ 4.3 million reduction in amortization expense related to a decrease in actual and expected client attrition . these decreases were partially offset by a $ 34.1 million increase in expenses to reduce the carrying value of acquired client relationships at certain of our affiliates to fair value . see note 9 of our consolidated financial statements . interest expense increased $ 16.1 million or 21 % in 2020 , primarily due to an $ 11.1 million increase from the termination of our pound sterling-denominated forward foreign currency contracts , a $ 10.3 million increase from our debt securities issued in 2020 and a
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depending on our assessment of the data generated by this trial and on whether the new formulation is superior to the existing version , as well as on other factors , including our access to capital , clinical and regulatory considerations , and our assessment of the then-current state of our intellectual property estate , we intend to initiate either one additional phase iii trial in the u.s. with the existing formulation or two additional phase iii clinical trials in the u.s. with the new formulation , to be run in parallel . we anticipate that both program options could provide sufficient data for an nda submission to the fda in 2013. since our inception , we have had no revenue from product sales , and have funded our operations principally through debt financings , our initial public offering in 2010 and a public offering of our common stock in july 2011. our operations to date have been primarily limited to organizing and staffing our company , licensing our product candidates , developing clinical trials for our product candidates , establishing manufacturing for our product candidates , maintaining and improving our patent portfolio and raising capital . we have generated significant losses to date , and we expect to continue to generate losses as we progress towards the commercialization of our product candidates , including ven 307 and ven 309. as of december 31 , 2011 , we had a deficit accumulated during the development stage of $ 67,529,084. because we do not generate revenue from any of our product candidates , our losses will continue as we advance our product candidates towards regulatory approval and eventual commercialization . as a result , our operating losses are likely to be substantial over the next several years . we are unable to predict the extent of any future losses or when we will become profitable , if at all . 65 we believe that our existing cash will be sufficient to fund our projected operating requirements into the third quarter of 2013 , while we anticipate receiving data from the key clinical trials with ven 309 around june 2012 and ven 307 in the second quarter of 2012. until we can generate a sufficient amount of product revenue , if ever , we expect to finance future cash needs through public or private equity offerings , debt financings or corporate collaborations and licensing arrangements . financial operations overview critical accounting policies our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . our significant accounting policies are more fully described in note 2 to the december 31 , 2011 audited financial statements included in this report . the following accounting policies are critical to fully understanding and evaluating our financial results . use of estimates the preparation of financial statements in conformity with u.s. gaap requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements as well as the reported revenue , if any , and expenses during the reporting periods . on an ongoing basis , management evaluates their estimates and judgments . management bases estimates on historical experience and on various other factors that they believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results might differ from these estimates under different assumptions or conditions . stock-based compensation we account for stock options granted to employees , measured at grant date , based on the estimated fair value of the award , which is recognized as expense over the employee 's requisite service period on a straight-line basis . we account for stock options and warrants granted to non-employees on a fair value basis . the initial non-cash charge to operations for nonemployee options and warrants with vesting are revalued at the end of each reporting period based upon the change in the fair value of the options and recognized as consulting expense over the related service period . for the purpose of valuing options and warrants granted to employees and non-employees , we use the black-scholes option pricing model . to determine the risk-free interest rate , we utilize the u.s. treasury yield curve in effect at the time of grant with a term consistent with the expected term of the awards . we estimate the expected life of the options granted based on anticipated exercises in the future periods assuming the success of our business model as currently forecasted . for warrants and non-employee options , we use the contractual term of the warrant , the length of the note or option as the expected term . the expected dividend yield reflects our current and expected future policy for dividends on our common stock . the expected stock price volatility for our stock options will be calculated by examining historical volatilities for publicly traded industry peers as we do not now and for the near future will not have any significant trading history for our common stock . forfeiture rates will be calculated based on the expected service period for our employees . research and development expense research and development expenses consist primarily of costs associated with : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , and consultants ; ( iii ) technology and intellectual property license costs ; and ( iv ) patent reimbursements . all research and development is expensed as incurred . story_separator_special_tag license fees and pre-approved milestone payments due under each research and development arrangement that are paid prior to regulatory approval are expensed when the license is entered into or the milestone is achieved . 66 conducting a significant amount of research and development is central to our business model . since our inception on october 7 , 2005 to december 31 , 2011 , we incurred $ 39,529,243 in research and development expenses . product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . included in research and development expense is the purchase price we paid in 2011 for ven 309 , discussed below . we extended into an asset purchase agreement with amer ( the “ purchase agreement ” ) to acquire all rights , title and interest to ven 309 ( including patents , know how , other research materials and other indications ) , iferanserin inventory for use in clinical trials and a non-compete agreement . we paid $ 500,000 on execution of the agreement and $ 12 million at closing , which took place on november 14 , 2011. additionally , we paid amer $ 50,000 on execution and $ 5,000 per month through the closing for the consulting service . upon the closing of the acquisition , the exclusive license agreement that we had previously entered into with amer terminated . as part of the purchase agreement , the milestone payments from the original exclusive license agreement were reduced to an aggregate of $ 10.5 million as follows : $ 1.5 million upon the one year anniversary of fda approval of our planned nda for ven 309 ; $ 750,000 upon the attainment of $ 20 million in cumulative net sales of ven 309 ; $ 1.5 million upon the attainment of $ 50 million in cumulative net sales ; $ 3.0 million upon the attainment of $ 75 million in cumulative net sales ; and $ 3.75 million upon regulatory approval for over-the-counter sale of ven 309. these aggregate milestone payments represent an approximately 50 % reduction in the $ 20 million aggregate milestone payments under the exclusive license agreement . further , the royalties payable to amer upon commercialization also were reduced to between 3.0 % and 4.0 % of net sales in the u.s. , based on the level of net sales in the u.s. , and between 1.0 % and 1.33 % of sales outside of the u.s. , based on the level of gross sales outside the u.s. these royalty rates represent an approximately 66 % decrease in the royalty fees that would have been due to amer under the exclusive license agreement . we will pay amer a minimum royalty of 50 % of the royalties on the forecasted annual net sales in the u.s. and 50 % of the royalties on the forecasted annual gross sales outside the u.s. t he purchase agreement also prohibits amer , dr. amer and his wife for a period of five years after november 14 , 2012 from directly or indirectly , owning an interest in , managing , operating , joining , controlling or participating in the ownership , management , operation or control of any profit or non-profit business or organization other than us that conducts research , develops , formulates , tests , produces , licenses , commercializes , manufactures or distributes a product incorporating ven 309 or any other product which has the function of affecting the 5ht 2a receptor . the non-compete covers the united sates and its territories and any other jurisdiction in the world where a patent has issued for iferanserin . we determined that the non-compete agreement had minimal value due to the age of dr. and mrs. amer . accordingly , we allocated the entire purchase price to in-process research and development and concluded that there is no alternative future use for these assets . therefore , the entire $ 12.5 million has been recorded as a research and development expense in the statement of operations . we plan to increase our research and development expenses for the foreseeable future in order to complete development of our two most advanced product candidates , ven 309 and ven 307. the following table summarizes the research and development expenses related to our two most advanced product candidates and other projects . the table reflects expenses directly attributable to each development candidate , which are tracked on a project basis . 67 replace_table_token_4_th the process of conducting pre-clinical studies and clinical trials necessary to obtain fda approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's early clinical data , investment in the program , competition , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine with certainty the duration and completion costs of current or future clinical stages of our product candidates or when , or to what extent , we will generate revenues from the commercialization and sale of any of our product candidates . development timelines , probability of success and development costs vary widely . based on their current status , we anticipate that to complete the clinical trial process and commercialize our product candidates will cost approximately $ 20 million for ven 307 , $ 15 million for ven 308 and $ 40 million for ven 309. these estimates could change significantly depending on the progress , timing and results of non-clinical and clinical trials .
| we began increasing our operating activities in the second half of 2010. the largest g & a expense incurred in the year 2011 was associated with stock-based compensation expense for employees , consultants and directors which increased by $ 3,550,080 as well as g & a salaries of $ 1,331,211 which did not exist in 2010 . 68 interest expense interest expense was $ 418,991 for the year ended december 31 , 2011 , a decrease of $ 10,111,108 , or 2.413 % , from $ 10,530,099 for the year ended december 31 , 2010. the decrease was primarily due to not incurring certain one-time charges in 2011 , which we incurred in 2010. the one time charges in 2010 consisted of $ 6,001,496 associated with the conversion of convertible notes and $ 2,484,927 associated with amortization of debt discount on warrants issued with the 2010 notes . interest expense paid or payable in cash was $ 1,329,925 for the year ended december 31 , 2010. interest paid or payable in cash was $ 277,324 for the year ended december 31 , 2011. comparison of the years ended december 31 , 2010 and december 31 , 2009 research and development expense research and development expense was $ 1,850,666 for the year ended december 31 , 2010 , a decrease of $ 1,092,324 , or 59 % , from $ 2,942,992 for the year ended december 31 , 2009. the primary reason for the decrease was the contractual payment of approximately $ 1,600,000 that we expensed in 2009. the decrease was offset by the expense from the issuance of a warrant to purchase shares of our common stock issued to s.l.a . pharma in august 2010 and additional shares of common stock issued to s.l.a . pharma in december 2010 as a result of our initial public offering share price . these issuances were at a discount to the market price and therefore the warrants had a significant value . we expect to incur higher development costs in the future due to initiation of the phase iii clinical trial for ven 307 as well as product development and manufacturing costs to support the clinical study . general and administrative expense
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operating expenses our costs and expenses , excluding transportation costs , consist of commissions paid to our sales personnel , general and administrative expenses to run our business , changes in our contingent consideration , acquisition-related transaction costs , and depreciation and amortization . commissions paid to our sales personnel , including employees and agents , are a significant component of our operating expenses . these commissions are based on the net revenue we collect from the clients for which the sales personnel have primary responsibility . in 2017 , 2016 and 2015 , commission expense was $ 103.1 million , $ 95.6 million and $ 86.0 million , respectively . in 2017 , 2016 and 2015 , commission expense as a percentage of net revenue was 30.4 % , 30.0 % and 29.6 % , respectively . tl shipments typically have higher commission percentages than other modes . the percentage of net revenue paid 23 as commissions varies depending on the type of client , composition of the sales team and mode of transportation . commission expense , stated as a percentage of net revenue , could increase or decrease in the future depending on the composition and sources of our revenue growth . we accrue for commission expense when we recognize the related revenue . some of our sales personnel receive a monthly advance to provide them with a more consistent income stream . cash paid to our sales personnel in advance of commissions earned is recorded as a prepaid expense . as our sales personnel earn commissions , a portion of their commission payment is withheld and offset against their prepaid commission balance , if any . our selling , general and administrative expenses , which exclude commission expense and changes to contingent consideration , consist of compensation costs for our sales , operations , information systems , finance and administrative support employees as well as occupancy costs , professional fees , acquisition-related transaction costs , and other general and administrative expenses . in 2017 , 2016 and 2015 , our selling , general and administrative expenses were $ 183.1 million , $ 175.3 million and $ 157.1 million , respectively . in 2017 , 2016 and 2015 , selling , general and administrative expenses as a percentage of net revenue were 54.0 % , 55.0 % and 54.1 % , respectively . our contingent consideration expense or benefit is the change in the fair value of our contingent consideration assets and liabilities . the contingent consideration assets and liabilities presented on our consolidated balance sheets reflect the fair value of expected earn-out payments that may be paid to or received from the sellers of certain acquired businesses upon the achievement of certain performance measures . the fair value of the contingent consideration assets and liabilities are evaluated on a quarterly basis , and the change in fair value is included in selling , general and administrative expenses in our consolidated statements of operations . in 2017 , we recorded a charge of $ 1.0 million , compared to a net benefit of $ 0.1 million in 2016 and a charge of $ 0.2 million in 2015 due to fair value adjustments to our contingent consideration assets and liabilities . our depreciation expense is primarily attributable to our depreciation of computer equipment , software , including internal use software , furniture , fixtures and office equipment , and leasehold improvements . in 2017 , 2016 and 2015 , depreciation expense was $ 18.5 million , $ 16.3 million and $ 12.4 million , respectively . our amortization expense is attributable to our amortization of intangible assets acquired from business combinations , including customer and carrier relationships , non-compete agreements and trade names . in 2017 , 2016 and 2015 , amortization expense was $ 14.2 million , $ 15.8 million and $ 11.7 million , respectively . interest expense the interest expense included in our consolidated statements of operations consists of interest expense related to our $ 230 million aggregate principal amount of 2.50 % convertible senior notes due 2020 issued in may 2015 ( the `` notes '' ) and our senior secured revolving credit facility in an initial aggregate principal amount of up to $ 200 million entered into in june 2015 ( the `` abl facility '' ) . we amortize the debt discount and issuance costs related to the notes over the 5 year life of the notes using the effective interest method . we amortize the issuance costs related to our abl facility over the 5 year life of the facility using straight-line amortization , as the amount drawn on the line ( and thus the interest rate and commitment fee paid by echo ) will fluctuate from period to period . interest expense was $ 14.8 million , $ 14.2 million and $ 11.2 million for 2017 , 2016 and 2015 , respectively . critical accounting policies revenue recognition in accordance with accounting standards codification ( `` asc '' ) topic 605-20 revenue recognition - services , transportation revenue and related transportation costs are recognized when the shipment has been delivered by a third-party carrier . fee for service revenue is recognized when the services have been rendered . at the time of delivery or rendering of services , as applicable , our obligation to fulfill a transaction is complete and collection of revenue is reasonably assured . in accordance with asc topic 605-45 revenue recognition - principal agent considerations , we generally recognize revenue on a gross basis , as opposed to a net basis similar to a commission arrangement , because we bear the risks and benefits associated with revenue-generated activities by , among other things : ( 1 ) acting as a principal in the transaction ; ( 2 ) establishing prices ; ( 3 ) managing all aspects of the shipping process , including selection of the carrier ; and ( 4 ) taking the risk of loss for collection , delivery , and returns . story_separator_special_tag certain transactions to provide specific services are recorded at the net amount charged to the client due to the following key factors : ( a ) we do not have latitude in carrier selection ; ( b ) we do not establish rates with the carrier ; and ( c ) we have credit risk for only the net revenue earned from our client while the carrier has credit risk for the transportation costs . net revenue equals revenue minus transportation costs . 24 accounts receivable and allowance for doubtful accounts accounts receivable are uncollateralized customer obligations due under normal trade terms . we extend credit to certain clients in the ordinary course of business based on the customers ' credit history . invoices require payment within 30 to 90 days from the invoice date . accounts receivable are stated at the amount billed to the customer . customer account balances with invoices past due 90 days are considered delinquent . we generally do not charge interest on past due amounts . the carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management 's best estimate of amounts that will not be collected . the allowance is based on historical loss experience and any specific risks identified in client collection matters . accounts receivable are charged off against the allowance for doubtful accounts when it is determined that the receivable is uncollectible . goodwill and other intangibles goodwill represents the excess of consideration transferred over the value assigned to the net tangible and identifiable intangible assets of businesses acquired . in accordance with asc topic 350 intangibles - goodwill and other : testing goodwill for impairment , goodwill is not amortized , but instead is tested for impairment annually , or more frequently if circumstances indicate a possible impairment may exist . absent any special circumstances that could require an interim test , we have elected to test for goodwill impairment during the fourth quarter of each year . we manage the business as one operating segment and one reporting unit pursuant to the provisions of asc topic 280 segment reporting , which established accounting standards for segment reporting . in september 2011 , the financial accounting standards board ( `` fasb '' ) approved accounting standards update ( `` asu '' ) no . 2011-08 , “ intangibles - goodwill and other : testing goodwill for impairment . '' this asu permits an entity to first assess qualitative factors to determine whether it is more likely than not ( a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount . after assessing qualitative factors , if an entity determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount , no further testing is necessary . in october 2017 , we performed a qualitative goodwill impairment assessment of the reporting unit in accordance with asc 350. as part of the qualitative assessment , the company compared its current results to the forecasted expectations of our most recent quantitative analysis , along with analyzing macroeconomic conditions and industry trends . we concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount . asc topic 350 also requires that intangible assets with finite lives be amortized over their respective estimated useful lives and reviewed for impairment whenever impairment indicators exist in accordance with asc topic 360 property , plant and equipment . our intangible assets consist of customer relationships , carrier relationships , non-compete agreements and trade names , which are being amortized over their estimated weighted average useful lives of 14.8 years , 17.0 years , 6.7 years and 4.0 years , respectively . the customer relationships are being amortized using an accelerated method , while carrier relationships , trade names and non-compete agreements are being amortized using the straight-line method . refer to note 7. stock-based compensation we account for stock-based compensation in accordance with asc topic 718 compensation - stock compensation which requires all share-based payments to employees , including grants of stock options , to be recognized in the income statement based upon their fair values . share-based employee compensation costs are recognized as a component of selling , general and administrative expenses in the consolidated statements of operations . for more information about our stock-based compensation programs , see note 14 -- stock-based compensation plans . income taxes we account for income taxes in accordance with asc topic 740 income taxes , under which deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and their respective tax bases . a valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more likely than not that such assets will not be realized . any change in the valuation allowance would be charged to income in the period such determination was made . we recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities , based on technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement . on december 22 , 2017 , the act was signed into legislation . the act reduces the federal corporate tax rate from 35 % to 21 % , and imposes a one-time transition tax on certain foreign earnings , effective january 1 , 2018 . 25 on december 22 , 2017 , the sec staff issued staff accounting bulletin no . 118 ( `` sab 118 '' ) , which provides guidance on accounting for the tax effects of the act .
| in 2017 and 2016 , the primary investing activities were capital expenditures . in 2015 , the primary investing activities were the cash consideration transferred for the acquisitions of command and xpress , as well as capital expenditures . our capital expenditures were $ 20.7 million , $ 46.9 million and $ 14.7 million for the years ended december 31 , 2017 , 2016 and 2015 , respectively . our capital expenditures decreased in 2017 due to the 2016 expansion of our office space at our chicago headquarters , which included the purchases of computer equipment , software , including internal use software , furniture , fixtures and office equipment , and leasehold improvements . 29 cash ( used in ) provided by financing activities cash used in financing activities was $ 21.1 million and $ 52.7 million in 2017 and 2016 , respectively . cash provided by financing activities was $ 358.3 million in 2015 . in 2017 , the primary financing activities were the purchases of $ 20.7 million of treasury stock as part of the share repurchase program ( described in note 12 to our audited consolidated financial statements appearing elsewhere in this annual report on form 10-k ) , the $ 0.7 million payments of contingent consideration , and the $ 1.8 million use of cash to satisfy employee tax withholdings upon the vesting of restricted stock . we also drew $ 84.0 million on our abl facility ( all of which was repaid as of december 31 , 2017 ) . in 2016 , the primary financing activities were the purchases of $ 49.1 million of treasury stock as part of the share repurchase program ( described in note 12 to our audited consolidated financial statements appearing elsewhere in this annual report on form 10-k ) , the $ 2.3 million payments of contingent consideration , and the $ 4.9 million use of cash to satisfy employee tax withholdings upon the vesting of restricted stock . we also drew $
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total assets increased from $ 159.1 million at the end of fiscal 2012 to $ 175.4 million at the end of fiscal 2013 primarily as a result of updated real estate values , net of realized sales , and liabilities decreased approximately $ 47.4 million primarily as a result of payments made in accordance with the plan . the capital raised during the year ended march 1 , 2014 from the stock sale provided the company with additional liquidity necessary to satisfy obligations during the end of fiscal 2013 . 21 liquidity and capital resources as of february 28 , 2015 , the company had total cash of $ 45.4 million , of which approximately $ 23.9 million was cash and cash equivalents and approximately $ 21.5 million was restricted cash . as of march 1 , 2014 , the company had total cash of $ 15.3 million , of which approximately $ 9.7 million was cash and cash equivalents and approximately $ 5.6 million was restricted cash . restricted cash represents reserves used to pay operating expenses and claims payments as required under the plan , as well as reserves required under the loan payable ( see note 10 to the company 's consolidated financial statements ( loan payable ) ) , in the amount of 9 % of the outstanding loan . the increase in total cash during the period was primarily from the cash obtained from the loan , discussed further below , as well as property sales during the period . this increase in cash was partially offset by payments of allowed claims in accordance with the terms of the plan , professional fees related to the chapter 11 cases and the daily operations of the company . on february 9 , 2015 , tph borrower , a newly formed special purpose entity and wholly-owned subsidiary of the company entered into a loan agreement pursuant to which the lenders agreed to extend credit to tph borrower in the amount of $ 40 million , subject to increase pursuant to incremental loan facilities up to $ 50 million upon satisfaction of certain conditions . the loan bears interest at the greater of the u.s. prime rate plus 1.25 % or 4.5 % and does not amortize prior to maturity . the loan matures on february 8 , 2017 , subject to extension until august 8 , 2017 under certain circumstances . the collateral for the loan is the company 's fee interest in the trinity place property and the related air rights owned by the company with respect to the trinity place property . see note 10 to the company 's consolidated financial statements ( loan payable ) for further discussion . the company had estimated claims liabilities recorded in its consolidated financial statements of approximately $ 29.0 million and $ 62.1 million at february 28 , 2015 and march 1 , 2014 , respectively . the claims liability includes the obligation to the former majority shareholder of approximately $ 7.1 million at february 28 , 2015 and march 1 , 2014 ( see note 13 to the company 's consolidated financial statements ( related party transactions ) ) , and a liability for the multi-employer pension plan of approximately $ 4.0 million and $ 5.3 million at february 28 , 2015 and march 1 , 2014 , respectively , which is payable in quarterly distributions of $ 0.2 million until completely paid ( see note 8 to the company 's consolidated financial statements ( pension and profit sharing plans ) ) . the company believes through cash on hand , monetization of assets , its recent equity and debt financing , along with the possibility of additional equity and or debt financing , it will have the cash necessary to satisfy its required claims distributions and operating activities as contemplated by the plan and currently anticipates a general unsecured claim satisfaction and the required payment to the former majority shareholder will be made in advance of the outside date as described in the plan . if the company elects not to , or is unable to sell properties , it will likely need to raise additional capital from the sale of equity and or loan financings in the next six to twelve months to pursue its business plan . the plan imposes restrictions on the amount of operating expenses that the company is allowed to incur and pay from net cash proceeds realized upon the sale of its properties . as previously discussed , the company 's $ 5 million corporate overhead reserve initially contemplated by the plan has been depleted , primarily due to greater than expected professional fees , and the company has obtained the consent of the holder of the company 's series a preferred stock who has the sole authority to approve an increase in the operating reserves , to increase the corporate overhead reserve to $ 11 million , subject to certain limitations and a reduction of up to approximately $ 0.8 million if certain anticipated expenses are not incurred . up to $ 2.5 million of corporate overhead expenses previously paid by the company from available cash will count toward and be reimbursed from the increased corporate overhead reserve following receipt of net cash proceeds from future property sales . in addition , during fiscal year 2013 , the company raised $ 13.0 million , net of $ 0.5 million in offering costs , from the issuance of stock , which can be used to , among other things , fund overhead and other expenses . under the plan , the proceeds of a common equity financing can be used to fund operating expenses in excess of the reserves and for other uses , while the proceeds of a debt financing , following the establishment of reserves , generally must be used to pay approved creditor claims , as defined in the plan . story_separator_special_tag pursuant to the plan , with limited exceptions , any excess cash ( as defined in the plan ) from property sales not applied to fund operating expenses must be distributed in accordance with the priorities established in the plan . consistent with the terms of the plan , the company made payments to creditors of $ 30.0 million during fiscal year ended february 28 , 2015 and to creditors and the former majority shareholder in the amount of $ 33.7 million during the fiscal year ended march 1 , 2014 . 22 following a general unsecured claim satisfaction and the final payment to the former majority shareholder , as described above under “ - claims payment process , ” the company will have satisfied its remaining obligations under the plan and will no longer operate under the terms and restrictions of the plan . cash flows net cash used in operating activities totaled $ 0.1 million for the period from february 10 , 2015 through february 28 , 2015. the net cash used during this period reflects the net loss of $ 0.4 million and a decrease of accounts payable and accrued expenses of $ 0.1 million partially offset by stock based compensation expense of $ 0.3 million . net cash used in investing activities of $ 0.5 million represents certain property and general and administrative expenses that the company has capitalized as part of the properties that are under development . net operating losses the company believes that its u.s. federal nols as of the emergence date were approximately $ 162.8 million and believes its u.s. federal nols at february 28 , 2015 are approximately $ 195.0 million . the company believes that the rights offering and the redemption of the syms shares owned by the former majority shareholder that occurred in connection with the company 's emergence from bankruptcy on september 14 , 2012 resulted in the company undergoing an “ ownership change , ” as that term is used in section 382 of the code . however , while the analysis is complex and subject to subjective determinations and uncertainties , the company believes that it should qualify for treatment under section 382 ( l ) ( 5 ) of the code . as a result , the company currently believes that its nols are not subject to an annual limitation under code section 382. however , if the company were to undergo a subsequent ownership change in the future , the company 's nols could be subject to limitation under code section 382. notwithstanding the above , even if all of the company 's regular u.s. federal income tax liability for a given year is reduced to zero by virtue of utilizing its federal nols , the company may still be subject to the u.s. federal alternative minimum tax and to state , local or other non-federal income taxes . on february 12 , 2015 , the company amended its certificate of incorporation to , among other things , add a new provision to the certificate of incorporation intended to help preserve certain tax benefits primarily associated with the company 's nols ( the “ protective amendment ” ) . the protective amendment generally prohibits transfers of stock that would result in a person or group of persons becoming a 4.75 % stockholder , or that would result in an increase or decrease in stock ownership by a person or group of persons that is an existing 4.75 % stockholder . see note 1 to the company 's consolidated financial statements ( basis of presentation ) for additional information . contractual obligations , contingent liabilities and commitments the following tables summarize our contractual obligations as of february 28 , 2015 ( dollars in thousands ) : replace_table_token_6_th 23 ( 1 ) this represents the estimated remaining claims payments the company expects to make , which includes a claim for the multiemployer pension plan in respect of which payments are made quarterly extending through 2019 as well as $ 12.7 million of payments made subsequent to the end of the fiscal year . ( 2 ) this represents the remaining amount owed to the former majority shareholder under the terms of the plan . this payment will be due sooner conditioned upon a general unsecured claim satisfaction having occurred . ( 3 ) this represents the operating lease payments for the company 's corporate office in new york , ny . ( 4 ) the loan bears interest at a rate per annum equal to the greater of the u.s. prime rate plus 1.25 % or 4.5 % . see note 10 to the company 's consolidated financial statements ( loan payable ) for further discussion . change from liquidation accounting to going concern accounting in response to the chapter 11 filing the company adopted the liquidation basis of accounting on october 30 , 2011. under the liquidation basis of accounting , assets are stated at their net realizable value , liabilities are stated at their net settlement amount and estimated costs over the period of liquidation are accrued to the extent reasonably determinable . on february 10 , 2015 , the company changed its basis of accounting from the liquidation basis to the going concern basis of accounting . accordingly , the company 's accounting basis for its real estate and trademark assets were adjusted to their net book value at the date the company entered liquidation , adjusted for depreciation and amortization calculated from the date the company entered liquidation through the date it emerged from liquidation . this change in accounting basis resulted in a decrease in the reporting basis of the respective assets and liabilities . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) .
| net loss for the period was approximately $ 362,000 . 19 operating activities for the period from march 2 , 2014 through february 9 , 2015 under liquidation basis of accounting for an entity reporting under the liquidation basis of accounting , the entity is required to present a statement of net assets ( which replaces a balance sheet ) , whereby the assets are reported at estimated realizable amounts and the liabilities are reported at estimated settlement amounts ; and a statement of changes in net assets in liquidation ( which replaces the statement of operations ) , which reports changes in estimated fair value and other adjustments recognized during the fiscal year . certain information about the properties of the company sold during the period from march 2 , 2014 through february 9 , 2015 , including the proceeds generated , net of brokerage commissions and sale costs , is set forth below : replace_table_token_4_th the liquidation basis of accounting required management to make significant estimates and judgments . the company adjusted its real estate assets to reflect the estimated net realizable value of the owned property . the net realizable value was estimated by considering a number of factors and the views of multiple parties from various vantage points , including input from a third party valuation expert . the value of the company 's real estate assets increased slightly from $ 157.7 million as of march 1 , 2014 to $ 158.0 million as of february 9 , 2015 due mainly to the increase in the value of the trinity place property offset by the above sales . during the same period from march 2 , 2014 through february 9 , 2015 , the company used the aggregate net proceeds from asset sales to pay approximately $ 30.0 million of allowed claims in accordance with the terms of the plan , reducing the company 's liabilities under the plan . in addition to the sale transactions , the company received
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our revenue for the years ended december 31 , 2020 and 2019 was $ 84.7 million and $ 89.6 million , respectively , a decrease of $ 4.9 million , or 5.5 % . net losses were $ 38.1 million for the year ended december 31 , 2020 as compared to $ 38.2 million for the year ended december 31 , 2019. as of december 31 , 2020 we had an accumulated deficit of $ 165.2 million . our cash balance as of december 31 , 2020 was $ 84.5 million . we are pursuing proposals related to the expansion of our manufacturing facilities and corporate offices in the coyol free zone in costa rica . the initial $ 35.3 million project estimate includes approximately 170,000 square feet of facility space and would initially increase our manufacturing capacity by approximately 400,000 units per year , and potentially increase capacity by 800,000 units with an additional incremental $ 4.6 million investment in manufacturing equipment . currently we are in the design phase and anticipate to breaking ground in the first quarter of 2021. all plans are subject to final approval by the board of directors and the negotiation and execution of definitive agreements . we have made and continue to make significant investments in additional manufacturing capacity , marketing , customer service , and a direct sales force in certain territories like brazil and several countries in europe in order to drive and support further adoption of our motiva implants . we expect that we will continue to incur losses at least in the near term as we expand our organization to support planned sales growth , while also continuing to invest in research and development of our products , clinical trials to enable regulatory approval in the united states , and in other commercialization efforts . we also expect to incur significant additional expenditures as a public company . 64 in march 2020 , the world health organization declared the outbreak of a novel coronavirus , or covid-19 , as a pandemic which has spread globally , including locations where the company does business . this outbreak caused a material disruption of the operations of the company and its suppliers and customers in fiscal 2020 and resulted in delayed clinical trial enrollment within the reconstruction cohorts . however , the impact from the covid-19 outbreak has not had a material effect on the company 's liquidity or financial position . the full extent of any future impact of the continuing outbreak , related business and travel restrictions and changes to behavior intended to reduce its spread are uncertain and continues to evolve globally . management continues to monitor the impact that the covid-19 pandemic is having on the company , the breast aesthetics and reconstruction market and the economies in which the company operates . the company anticipates that its future results of operations , including the results for 2021 could be materially impacted by the covid-19 outbreak . however , given the speed and frequency of continuously evolving developments with respect to this pandemic , the company can not reasonably estimate the magnitude of the potential impact to the results of its operations . to the extent that the company 's customers continue to be materially and adversely impacted by the covid-19 outbreak , this could materially interrupt the company 's business operations . as a result of these and other factors , we expect to continue to incur net losses in the intermediate term and may need to raise additional capital through equity and debt financings in order to fund our operations . our operating results may fluctuate on a quarterly or annual basis in the future , and our growth or operating results may not be consistent with predictions made by securities analysts , if any . if we are unable to achieve our revenue growth objectives , we may not be able to achieve profitability . components of results of operations revenue we commenced sales of our motiva implants in october 2010 and these products have historically accounted for the majority of our revenues . sales of our motiva breast implants accounted for over 98 % of our revenues for the year ended december 31 , 2020 , and we expect our revenues to continue to be driven primarily by sales of these products . we primarily derive revenue from sales of our motiva implants to two types of customers : ( 1 ) medical distributors and ( 2 ) direct sales to physicians , hospitals , and clinics . we recognize revenue related to the sales of products at the time of shipment , except for a portion of our direct sales revenue that is generated from the sale of consigned inventory maintained at physician , hospital , and clinic locations . for consignment sales , revenue is recognized at the time we are notified by the consignee that the product has been implanted . our contracts with distributors do not typically contain right of return or price protection and have no post-delivery obligations . we expect our revenue to increase as we enter new markets , expand awareness of our products in existing markets , and grow our distributor network and direct sales force . we also expect our revenue to fluctuate from quarter to quarter due to a variety of factors , including seasonal fluctuations in demand for motiva implants . we are also affected by foreign currency fluctuations . cost of revenue and gross margin our implants are manufactured at our two facilities in costa rica . cost of revenue is primarily the cost of silicone but also includes other raw materials , packaging , components , quality assurance , labor costs , as well as manufacturing and overhead expenses . cost of revenue also includes depreciation expense for production equipment , and amortization of certain intangible assets . we calculate gross margin as revenue less cost of revenue for a given period divided by revenue . story_separator_special_tag our gross margin may fluctuate from period to period depending , in part , on the efficiency and utilization of our manufacturing facilities , targeted pricing programs , and sales volume based on geography , customer and product type . operating expenses sales , general and administrative sales , general and administrative , or sg & a , expenses primarily consist of compensation , including salary , share-based compensation and employee benefits for our sales and marketing personnel , and for administrative personnel that support our general operations such as information technology , executive management , financial accounting , customer service , and human resources personnel . sg & a expenses also includes costs attributable to marketing , sales support , travel , legal services , financial audit fees , insurance costs , and consulting services . 65 we expect to incur additional sg & a expenses in connection with us being a public company , which may increase further when we are no longer able to rely on the “ emerging growth company ” exemption we are afforded under the jumpstart our business startups act of 2012 , or jobs act . we expect our sg & a expenses to continue to increase in absolute dollars for the foreseeable future as our business grows and we continue to invest in our sales , marketing , medical education , training and general administration resources to build our corporate infrastructure . however , we expect our sg & a expenses to decrease as a percentage of our revenue over the long term , although our sg & a expenses may fluctuate from period to period due to the timing of expenses related to our sales and marketing campaigns . research and development our research and development , or r & d , activities primarily consist of engineering and research programs associated with our products under development , as well as r & d activities associated with our clinical development activities . our r & d expenses primarily consist of compensation , including salary , share-based compensation and employee benefits for our r & d and clinical personnel . we also incur significant expenses for supplies , development prototypes , design and testing , clinical study costs and product regulatory and consulting expenses . we expect our r & d expenses to continue to increase in absolute dollars and as a percentage of revenue for the foreseeable future as we continue to advance our products under development , as well as initiate and prepare for additional clinical studies . we received an approval of an investigational device exemption , or ide , from the fda in march 2018 to initiate a clinical trial and enrolled the first patient in april 2018. in august 2019 , we completed all patient surgeries for the ide aesthetic cohorts , which include primary augmentation and revision augmentation . as of december 31 , 2020 , we successfully completed enrollment in the revision reconstruction sub-cohort and we are continuing to enroll subjects in the remaining reconstruction cohorts . although we continue to activate trial sites and secure institutional review board approvals , the covid-19 pandemic has delayed enrollment in the reconstruction cohorts for our ide clinical trial , which could add at least six months to our planned regulatory timeline . we plan to enroll 800 patients in the study across 40 sites in the united states , germany and sweden . the results of the study are expected to support a pre-market approval , or pma , submission to the fda . we estimate that total costs for this ide clinical trial will be between $ 30.0 million and $ 40.0 million over ten years . we also have other products under development for which we may be required to conduct clinical trials in future periods in order to receive regulatory approval to market these products . interest expense interest expense consists primarily of cash and non-cash interest related to outstanding debt and amortization of debt discounts . as of december 31 , 2020 , we had $ 65.0 million in outstanding principal . change in fair value of derivative instruments change in fair value of derivative instruments consists of changes in the fair value of the put and call option liabilities associated with outstanding debt instruments . change in fair value of contingent consideration change in fair value of contingent consideration consists of changes in the fair value of contingent equity consideration related to past asset acquisitions . other income ( expense ) , net other income ( expense ) , net primarily consists of foreign currency gains/losses and interest income . income tax expense income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business . due to our history of losses , with the exception of belgium , we maintain a full valuation allowance for deferred tax assets including net operating loss carry-forwards , r & d tax credits , capitalized r & d and other book versus tax differences . business update regarding covid-19 the covid-19 pandemic has presented a substa ntial public health and economic challenge around the world and has materially and adversely affected our business . we continue to closely monitor developments related to the covid-19 pandemic and our decisions will continue to be driven by the health and well-being of our employees , our distributor and plastic surgeon customers , and their patients while maintaining operations to support our customers and their patients in the near-term . 66 surgery deferrals : from late march 2020 to mid-may 2020 , among other impacts on our business related to the pandemic , plastic surgeons and their patients deferred surgical procedures in which our products otherwise could have been used , including surgeries for our clinical trial participants . this decrease in demand for our products recovered to varying degrees in the latter half of may and into june 2020 , though still below pre-pandemic levels , as certain geographies reopened after an initial improvement in covid-19 infection rates and allowed plastic surgeons to resume providing procedures .
| million increase in insurance costs . research and development expense r & d expense decreased $ 1.2 million , or 8.0 % , to $ 13.8 million for the year ended december 31 , 2020 , compared to $ 15.0 million for the year ended december 31 , 2019. the decrease in r & d expense was primarily due to a $ 1.2 million decrease in personnel costs . the decrease in r & d expenses was primarily driven by covid-19 related delayed clinical trial enrollment within the reconstruction cohorts and our efforts to cut costs given the uncertain impact of the global covid-19 pandemic on revenue . interest expense interest expense increased $ 0.7 million , or 7.8 % , to $ 9.4 million for the year ended december 31 , 2020 , as compared to $ 8.7 million for the year ended december 31 , 2019. the increase was primarily due to $ 0.7 million of direct costs to amend the madryn credit agreement in august 2020 , which were expensed as interest expense . 69 change in fair value of derivative instruments change in fair value of derivative instruments for the year ended december 31 , 2020 resulted in a gain of $ 1.6 million , as compared to a gain of $ 3.1 million for the year ended december 31 , 2019. the change in fair value of derivative instruments was due to changes in the fair value of madryn derivatives embedded in the madryn credit agreement we entered into in august 2017. change in fair value of contingent consideration change in the fair value of contingent consideration for the years ended december 31 , 2020 and 2019 remained consistent , resulting in a gain of $ 0.3 million per year . the change in fair value of contingent consideration was due to changes in our stock price at reporting period-end and the number of remaining contingently-issuable shares . provision for income taxes provision for income taxes decreased $ 0.5
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our warranty obligation estimates are affected by historical product shipment levels , product performance , and material and labor costs incurred in correcting product performance problems . should product performance , material usage or labor repair costs differ from our estimates , revisions to the estimated warranty liability would be required . 18 inventory : the valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality . the determination of obsolete or excess inventory requires us to estimate the future demand for our products . the demand forecast is a direct input in the development of our short-term manufacturing plans . we record valuation reserves on our inventory for estimated excess and obsolete inventory and lower of cost or market concerns equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product demand , market conditions and product selling prices . if future product demand , market conditions or product selling prices are less than those projected by management or if continued modifications to products are required to meet specifications or other customer requirements , increases to inventory reserves may be required , which would have a negative impact on our gross margin . income taxes : we estimate our liability for income taxes based on the various jurisdictions where we conduct business . this requires us to estimate our ( i ) current taxes ; ( ii ) temporary differences that result from differing treatment of certain items for tax and accounting purposes and ( iii ) unrecognized tax benefits . temporary differences result in deferred tax assets and liabilities that are reflected in the consolidated balance sheet . the deferred tax assets are reduced by a valuation allowance if , based upon all available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . establishing , reducing or increasing a valuation allowance in an accounting period generally results in an increase or decrease in tax expense in the statement of operations . we must make significant judgments to determine the provision for income taxes , deferred tax assets and liabilities , unrecognized tax benefits and any valuation allowance to be recorded against deferred tax assets . our gross deferred tax asset balance as of december 26 , 2015 was approximately $ 45.4 million , with a valuation allowance of approximately $ 42.3 million . our deferred tax assets consist primarily of reserves and accruals that are not yet deductible for tax and tax credit and net operating loss carry-forwards . segment information : we applied the provisions of accounting standards codification ( “ asc ” ) topic 280 , segment reporting , ( “ asc 280 ” ) , which sets forth a management approach to segment reporting and establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products , major customers and the geographies in which the entity holds material assets and reports revenue . an operating segment is defined as a component that engages in business activities whose operating results are reviewed by the chief operating decision maker and for which discrete financial information is available . based on the provisions of asc 280 , we have determined that our identified operating segments qualify for aggregation under asc 280 due to similarities in their customers , their economic characteristics , and the nature of products and services provided . as a result , we report in one segment , semiconductor equipment . goodwill , purchased intangible assets and other long-lived assets : we evaluate goodwill for impairment annually on october 1st of each year and when an event occurs or circumstances change that indicate that the carrying value may not be recoverable . as a part of our annual assessment process for 2015 we performed a qualitative assessment to determine whether current events or changes in circumstances lead us to a determination that it is more likely than not ( defined as a likelihood of more than 50 percent ) that the fair value of our reporting unit is less than its carrying amount . under this approach , absent a qualitative determination that the fair value of our reporting unit is more likely than not to be less than its carrying value , we do not need to proceed to the traditional estimated fair value test for that asset , which would involve comparing the book value of net assets to the fair value of our identified reporting unit . as of october 1 , 2015 , the results of our qualitative assessment indicated there was no impairment . long-lived assets , other than goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable . conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset , a significant change in the extent or manner in which an asset is used , or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable . for long-lived assets , impairment losses are only recorded if the asset 's carrying amount is not recoverable through its undiscounted , probability-weighted future cash flows . we measure the impairment loss based on the difference between the assets carrying amount and estimated fair value . 19 contingencies : we are subject to certain contingencies that arise in the ordinary course of our businesses which require us to assess the likelihood that future events will confirm the existence of a loss or an impairment of an asset . if a loss or asset impairment is probable and the amount of the loss or impairment is reasonably estimable , we accrue a charge to operations in the period such conditions become known . story_separator_special_tag share-based compensation : share-based compensation expense related to stock options is recorded based on the fair value of the award on its grant date , which we estimate using the black-scholes valuation model . share-based compensation expense related to restricted stock unit awards is calculated based on the market price of our common stock on the grant date , reduced by the present value of dividends expected to be paid on our common stock prior to vesting of the restricted stock unit . share-based compensation on performance stock units with market-based goals is calculated using a monte carlo simulation model on the date of the grant . recent accounting pronouncements : for a description of accounting changes and recent accounting pronouncements , including the expected dates of adoption and estimated effects , if any , on our consolidated financial statements , see note 1 , `` recent accounting pronouncements '' in part iv , item 15 ( a ) of this form 10-k. story_separator_special_tag 10-year term of the lease in line with the recognition of rental expense related to the lease . income taxes the income tax provision expressed as a percentage of pre-tax income in 2015 and 2014 was 27.6 % and 23.9 % , respectively . the income tax provision for the years ended december 26 , 2015 and december 27 , 2014 differs from the u.s. federal statutory rate primarily due to tax credits , changes in the valuation allowance on our deferred tax assets , foreign income taxed at different rates and other factors . companies are required to assess whether a valuation allowance should be recorded against their deferred tax assets ( “ dtas ” ) based on the consideration of all available evidence , using a “ more likely than not ” realization standard . the four sources of taxable income that must be considered in determining whether dtas will be realized are , ( 1 ) future reversals of existing taxable temporary differences ( i.e . offset of gross deferred tax assets against gross deferred tax liabilities ) ; ( 2 ) taxable income in prior carryback years , if carryback is permitted under the tax law ; ( 3 ) tax planning strategies and ( 4 ) future taxable income exclusive of reversing temporary differences and carryforwards . in assessing whether a valuation allowance is required , significant weight is to be given to evidence that can be objectively verified . we have evaluated our dtas each reporting period , including an assessment of our cumulative income or loss over the prior three-year period and future periods , to determine if a valuation allowance was required . a significant negative factor in our assessment was cohu 's three-year cumulative u.s. loss history at the end of various fiscal periods including 2015. as a result of our cumulative , three-year u.s. gaap pretax loss from continuing operations of approximately $ 27.3 million at the end of 2015 , and our u.s. loss in 2015 , we were unable to conclude at december 26 , 2015 that it was “ more likely than not ” that our u.s. dtas would be realized . we will evaluate the realizability of our dtas at the end of each quarterly reporting period in 2016 and should circumstances change it is possible the remaining valuation allowance , or a portion thereof , will be reversed in a future period . 21 our valuation allowance on our dtas at december 26 , 2015 and december 27 , 2014 was approximately $ 42.3 million and $ 37.0 million , respectively . the remaining gross dtas for which a valuation allowance was not recorded are realizable primarily through future reversals of existing taxable temporary differences . for a full reconciliation of our effective tax rate to the u.s. federal statutory rate and further explanation of our provision for income taxes , see note 7 , “ income taxes ” , included in part iv , item 15 ( a ) of this form 10-k , which is incorporated herein by reference . income from continuing operations and net income as a result of the factors set forth above , our income from continuing operations was $ 5.8 million in 2015 , compared to $ 14.8 million in 2014. including the results of our discontinued operations , our net income in 2015 was $ 0.3 million as compared to $ 8.7 million in 2014 . 2014 compared to 2013 net sales cohu 's consolidated net sales increased 47.6 % from $ 214.5 million in 2013 to $ 316.6 million in 2014. our sales in 2014 benefitted from a ramp in customer demand and spending on test equipment which resulted in increased shipments of our products . gross margin our gross margin , as a percentage of net sales , increased to 33.5 % in 2014 from 26.8 % in 2013. improvement in our gross margin , resulted from better operating leverage as a result of increased business volume , the transition of our supply chain and manufacturing activities to asia , favorable product mix and lower charges to cost of sales related to excess , obsolete and lower of cost or market inventory adjustments . during 2014 and 2013 , we recorded net charges to cost of sales of approximately $ 2.6 million and $ 7.1 million , respectively , for excess and obsolete inventory . additionally , 2013 gross margin was negatively impacted by $ 1.0 million of inventory step-up costs recorded during the year and a one-time impact that resulted from ismeca 's adoption of cohu 's revenue recognition policy subsequent to our acquisition . research and development expense ( “ r & d expense ” ) r & d expense in 2014 was $ 36.0 million or 11.4 % of net sales decreasing from $ 40.5 million or 18.9 % of net sales , in 2013. the decrease in 2014 expense was a result of product development programs that had concluded or were nearing completion as planned and headcount reductions .
| while we believe our reserves for excess and obsolete inventory and lower of cost or market concerns are adequate to cover known exposures at december 26 , 2015 , reductions in customer forecasts or continued modifications to products , as a result of our failure to meet specifications or other customer requirements , may result in additional charges to operations that could negatively impact our gross margin in future periods . 20 research and development expense ( “ r & d expense ” ) r & d expense consists primarily of salaries and related costs of employees engaged in ongoing research , product design and development activities , costs of engineering materials and supplies and professional consulting expenses . our future operating results depend , to a considerable extent , on our ability to maintain a competitive advantage in the products we provide , and historically we have maintained our commitment to investing in r & d in order to be able to continue to offer new products to our customers . r & d expense in 2015 was $ 33.1 million , or 12.3 % of net sales , decreasing from $ 36.0 million , or 11.4 % of net sales in 2014. the reduction in 2015 was a result of the completion of certain development programs , as planned , and headcount reductions . selling , general and administrative expense ( “ sg & a expense ) sg & a expense consists primarily of salaries and benefit costs of employees , commission expense for independent sales representatives , product promotion and costs of professional services . sg & a expense as a percentage of net sales increased to 19.0 % in 2015 , from 16.0 % in 2014 , increasing from $ 50.6 million in 2014 to $ 51.2 million in 2015. we have benefitted from the strengthening of the u.s. dollar , which resulted in the recognition of $ 1.4 million and $ 2.0 million in foreign currency gains in 2015 and 2014 respectively . we incurred $ 1.0 million and $ 1.4 million of costs in connection with transitioning our manufacturing to asia and employee severance , in 2015 and 2014 , respectively . in 2015 we recognized an additional $ 1.1 million of employee share based compensation expense . this amount was driven primarily
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gross profit for the large account segment increased due to higher net sales and gross margin , which increased due to improved invoice selling margins ( 52 basis points ) and higher agency revenues ( 15 basis points ) . gross profit for the public sector segment increased due to an increase in net sales . invoice selling margins decreased by 54 basis points due to increased demand for lower margin products such as notebooks and desktops . selling , general and administrative expenses in 2014 increased in dollars , but decreased as a percentage of net sales compared to the prior year . sg & a expenses attributable to our three operating segments and the remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_12_th sg & a expenses for the smb segment increased in dollars , but decreased as a percentage of net sales . the dollar increase was attributable to investments in solution sales and services and incremental variable compensation associated with higher gross profits , but was partially offset by reduced advertising expense . the decrease in sg & a as a percentage of net sales was due to the leveraging of fixed costs over larger net sales . sg & a expenses for the large account segment increased in dollars , but was unchanged as a percentage of net sales due to the leveraging of fixed costs over larger net sales . the dollar increase was attributable to investments in solution sales and services and incremental variable compensation associated with higher gross profits . sg & a expenses for the public sector segment increased in dollars , but decreased as a percentage of net sales . the dollar increase was due to higher credit card fees and incremental variable compensation associated with higher gross profits . the decrease in sg & a as a percentage of net sales was due to the leveraging of fixed costs over larger net sales . 26 sg & a expenses for the headquarters/other group increased due to an increase in unallocated personnel and other related costs , including higher executive management oversight costs associated with our improved operating results in 2014. the headquarters/other group provides services to the three segments in areas such as finance , human resources , it , marketing , and product management . most of the operating costs associated with such corporate headquarters services are charged to the operating segments based on their estimated usage of the underlying services . the amounts shown above represent the remaining unallocated costs . income from operations increased by $ 12.1 million to $ 71.5 million in 2014 , from $ 59.4 million in 2013. income from operations as a percentage of net sales increased to 2.9 % for 2014 from 2.7 % in 2013. the increase in operating income resulted from an increase in sales and gross margin . income taxes . our effective tax rate was 40.2 % for the year ended december 31 , 2014 , compared to 39.8 % for the year ended december 31 , 2013. our tax rate will vary based on variations in state tax levels for certain subsidiaries , valuation reserves , and accounting for uncertain tax positions . however , we do not expect these variations to be significant in 2015. net income increased by $ 7.0 million to $ 42.7 million in 2014 from $ 35.7 million in 2013 , principally due to the increase in operating income . year ended december 31 , 2013 compared to year ended december 31 , 2012 net sales increased by 2.9 % to $ 2,221.6 million in 2013 from $ 2,158.9 million in 2012. changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_13_th net sales to small- and medium-sized businesses increased in dollars as a percentage of net sales due to higher demand for desktops and our focus on growing solution sales . software and networking product sales each grew at a faster rate than overall smb sales due to our investments in solution selling and increased customer demand . increased need for security and office productivity led to increased software sales , and the growing demand for data center products led to increased networking sales . net sales for the large account segment increased in dollars due to increased demand associated with improved corporate profits and was largely unchanged as a percentage of net sales . networking and software sales grew due to our investments in solution sales and support and increased demand for security , office productivity , and data center products . 27 net sales to government and education customers for the public sector segment decreased in dollars and as a percentage of net sales due to constrained government spending . federal government sales decreased year over year by 22.6 % , however , sales to state and local governments and educational institutions increased by 11.0 % compared to the prior year . sales of notebook/tablets to educational institutions increased due to higher demand associated with standardized digital testing requirements that will take effect in 2014. gross profit for 2013 increased in dollars and as a percentage of net sales , as explained below : gross profit for the smb segment increased in dollars due to higher net sales and an increase in gross margin . gross margin was higher due to an increase in agency revenues ( 15 basis points ) and invoice selling margins ( 7 basis points ) , and also benefitted from lower freight costs ( 5 basis points ) . gross profit for the large account segment increased in dollars due to higher net sales . gross margin was largely unchanged as higher invoice selling margins ( 16 basis points ) were offset by lower agency revenues ( 19 basis points ) . gross profit for the public sector segment decreased in dollars due lower net sales and gross margin . story_separator_special_tag lower invoice selling margins ( 15 basis points ) were partially offset by a decrease in contract administration fees ( 7 basis points ) . selling , general and administrative expenses in 2013 increased in dollars , however remained unchanged as a percentage of net sales compared to the prior year , as described below : sg & a expenses attributable to our operating segments , including headquarters/other group expenses allocated to segments , and remaining unallocated headquarters/other group expenses are summarized below ( dollars in millions ) : replace_table_token_14_th sg & a expenses for the smb segment increased in dollars and as a percentage of net sales due to incremental variable compensation associated with higher gross profits , and investments in solution sales and services . these increases were offset in part by lower catalog circulation costs . sg & a expenses for the large account segment increased in dollars and as a percentage of net sales primarily due to investments in sales and sales support , as well as incremental variable compensation associated with higher gross profits . sg & a expenses for the public sector segment increased in dollars and as a percentage of net sales . the increase was primarily due to investments in solution sales support . unallocated sg & a expenses for the headquarters/other group decreased in dollars due to lower unallocated personnel and other costs related to senior management . income from operations increased by $ 4.8 million to $ 59.4 million in 2013 , from $ 54.6 million in 2012. income from operations as a percentage of net sales increased to 2.7 % for 2013 from 2.5 % in 2012. the increase in operating income resulted from an increase in sales and gross margin . 28 income taxes . our effective tax rate was 39.8 % for the year ended december 31 , 2013 , compared to 39.3 % for the year ended december 31 , 2012. net income increased by $ 2.6 million to $ 35.7 million in 2013 from $ 33.1 million in 2012 , principally due to the increase in operating income . liquidity and capital resources liquidity overview our primary sources of liquidity have historically been internally generated funds from operations and borrowings under our bank line of credit . we have used those funds to meet our capital requirements , which consist primarily of working capital for operational needs , capital expenditures for computer equipment and software used in our business , repurchases of common stock for treasury , dividend payments , and as opportunities arise , possible acquisitions of new businesses . we believe that funds generated from operations , together with available credit under our bank line of credit , will be sufficient to finance our working capital , capital expenditures , and other requirements for at least the next twelve calendar months . we expect our capital needs for the next twelve months to consist primarily of capital expenditures of $ 10.0 to $ 12.0 million , including $ 4.0 million related to our new distribution center , and payments on leases and other contractual obligations of approximately $ 3.6 million . we have undertaken a comprehensive review and assessment of our entire business software needs , including commercially available software that meets , or can be configured to meet , those needs better than our existing software . while we have not finalized our decisions regarding the areas of future investment in our it infrastructure , the incremental capital costs of such a project , if fully implemented , would likely exceed $ 20.0 million over the next three to five years . we expect to meet our cash requirements for 2015 through a combination of cash on hand , cash generated from operations , and borrowings on our bank line of credit , as follows : cash on hand . at december 31 , 2014 , we had $ 60.9 million in cash . cash generated from operations . we expect to generate cash flows from operations in excess of operating cash needs by generating earnings and managing net changes in inventories and receivables with changes in payables to generate a positive cash flow . credit facilities . as of december 31 , 2014 , no borrowings were outstanding against our $ 50.0 million bank line of credit , which is available until february 24 , 2017. accordingly , our entire line of credit was available for borrowing at december 31 , 2014. this line of credit can be increased , at our option , to $ 80.0 million for approved acquisitions or other uses authorized by the bank . borrowings are , however , limited by certain minimum collateral and earnings requirements , as described more fully below . our ability to continue funding our planned growth , both internally and externally , is dependent upon our ability to generate sufficient cash flow from operations or to obtain additional funds through equity or debt financing , or from other sources of financing , as may be required . while we do not anticipate needing any additional sources of financing to fund our operations at this time , if demand for it products declines , our cash flows from operations may be substantially affected . see also related risks listed below under item 1a . risk factors. 29 summary sources and uses of cash the following table summarizes our sources and uses of cash over the last three years ( in millions of dollars ) : replace_table_token_15_th cash provided by operating activities totaled $ 35.4 million in 2014. operating cash flow in 2014 resulted primarily from net income before depreciation and amortization , which was offset partially by increases in accounts receivable and inventory .
| direct operating expenses relating to our purchasing function and receiving , inspection , warehousing , packing and shipping , and other expenses of our distribution center are included in our sg & a expenses . accordingly , our gross margin may not be comparable to those of other entities who include all of the costs related to their distribution network in cost of goods sold . such distribution costs included in our sg & a expenses were $ 13.9 million , $ 13.8 million , and $ 13.9 million for 2014 , 2013 , and 2012 , respectively . distribution costs as a percentage of net sales for the periods reported are as follows : replace_table_token_9_th 24 operating expenses the following table breaks out our more significant operating expenses for the last three years ( in millions of dollars ) : replace_table_token_10_th personnel costs increased in 2014 compared to 2013 due to investments in our sales force and solution sales support , in addition to increased variable compensation associated with higher gross profits . year-over-year comparisons year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales increased by 10.9 % to $ 2,463.3 million in 2014 from $ 2,221.6 million in 2013. changes in net sales and gross profit by operating segment are shown in the following table ( dollars in millions ) : replace_table_token_11_th net sales for the smb segment increased due to our focus on growing technical solution sales and the expiration in april 2014 of support for the windows xp operating system , which generated increased demand for desktops , notebooks , and software products . net sales for the large account segment increased due to our focus on growing technical solution sales , our acquisition of new customers , and the expiration in april 2014 of support for the windows xp operating system . in addition , sales increased due to the release of pent-up corporate refresh demand for it product rollouts that were delayed from 2013 . 25
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in this cll patient , we observed pharmacologic inhibition of phospho-btk ( 100 % inhibition 4hrs following administration of the first dose ) , an increase in peripheral blood lymphocytes ( or lymphocytosis ) classically ascribed as a response to inhibition of btk , and no treatment related adverse events . aptose is now dosing three patients enrolled at the third dose cohort ( 450mg bid ) . our clinical safety review committee reviews relevant data following completion of each cohort , and following completion of the third dose level the committee may approve escalation to the fourth dose level ( 600mg bid ) as appropriate . aptose also plans to seek allowance from the fda to move cg-806 into the aml patient population in a separate phase i trial . currently , we are finalizing our efforts to advance into a study in patients with aml . the fda has granted orphan drug designation to cg-806 for the treatment of patients with aml . orphan drug designation is granted by the fda to encourage companies to develop therapies for the treatment of diseases that affect fewer than 200,000 individuals in the united states . orphan drug status provides research and development tax credits , an opportunity to obtain grant funding , exemption from fda application fees and other benefits . if cg-806 is approved to treat aml , the orphan drug designation provides us with seven years of marketing exclusivity . manufacturing : we created a scalable chemical synthetic route for the manufacture of cg-806 drug substance and have scaled the manufacture of api ( active pharmaceutical ingredient , or drug substance ) to multi-kg levels . we manufactured and delivered a batch of api which was used for dose range finding studies that were performed and completed in early january 2018. we completed in march 2018 the manufacture of a multi-kg batch of good laboratory practice ( “ glp ” ) grade api and then formulated that api into a drug product for use in ind-enabling glp toxicology studies . we also completed the manufacture of a multi-kg batch of api under good manufacturing product ( “ gmp ” ) conditions as our api supply for our first-in-human clinical trials , and we manufactured under gmp conditions two dosage strengths of capsules to serve as our clinical supply in those human studies . since then , we have completed successful manufacture of multiple batches of api and drug product , and have planned numerous gmp production campaigns to supply the ongoing trial and planned trials into the future . although we have been able to manufacture api and capsules to support clinical supplies under gmp conditions , research and development funds are being utilized to support further exploratory formulation studies in an ongoing effort to craft a superior formulation for cg-806 . 36 preclinical program updates : we have completed several non-clinical studies that demonstrate the highly differentiated profile of cg-806 . key studies that have been presented at scientific forums are as follows : · on april 15 , 2018 , at the 2018 annual meeting of the american association for cancer research ( “ aacr ” ) , we presented with the ohsu knight cancer institute preclinical data demonstrating that cg-806 , a pan-flt3/pan-btk inhibitor , demonstrates broader activity and superior potency to other flt3 and btk inhibitors against primary bone marrow samples from patients with hematologic malignancies . we also presented preclinical data demonstrating cg-806 targets multiple pathways to kill diverse subtypes of aml and b-cell malignancies in vitro . · on june 15 , 2018 , at the 23rd congress of the european hematology association ( “ eha ” ) , we presented , during a poster presentation , preclinical data demonstrating a unique binding mode of cg-806 to wild type and c481s mutant btk . further , we presented that cg-806 suppresses the bcr , akt/pi3k , erk and nfkb signaling pathways and exerts broader and far greater potency of direct cancer cell killing that ibrutinib against malignant bone marrow cells from patients with cll , all and a host of other hematologic malignancies . · on december 3 , 2018 , we announced two separate poster presentations at the american society of hematology ( ash ) annual meeting being held on december 1-4 , 2018. the ohsu knight cancer institute and aptose presented data in one poster and the team at the university of texas md anderson cancer center ( “ mdacc ” ) presented data in a separate poster . these presentations highlighted several key findings . first , in collaboration with the mdacc , orally administered cg-806 demonstrated efficacy in a patient derived xenograft ( “ pdx ” ) study in which the bone marrow cells from a patient with aml having dual itd and d835 mutations in flt3 were implanted into a mouse . the dual flt3 mutant form of aml represents a very difficult-to-treat population that has shown resistance to other flt3 inhibitors , and data from the pdx model suggest that cg-806 may be useful in treating such patients . secondly , aptose presented high level data from preclinical glp toxicology studies that demonstrate orally administered cg-806 is a well-tolerated targeted molecule . finally , in collaboration with the ohsu knight cancer center , studies of cg-806 on 124 samples of freshly isolated bone marrow from cll patients demonstrated both broader and greater cell killing potency for cg-806 than ibrutinib . · on april 1 , 2019 , at the 2019 annual meeting of the aacr , aptose , along with our collaborators at ohsu knight cancer institute , presented data highlighting cg-806 was more potent in killing aml patient-derived samples than other flt3 inhibitors including midostaurin , sorafenib , sunitinib , dovitinib , quizartinib , crenolanib and gilteritinib . cg-806 was equally potent against cells from patients in the adverse , intermediate and favorable risk groups ( 2017 eln risk stratification ) , and cells from patients with relapsed or transformed aml ( world health organization classification ) were as sensitive as those from patients with de novo aml . story_separator_special_tag the data demonstrated potency on primary aml patient samples across all aml subgroups including relapsed/refractory/transformed aml and those with genetic abnormalities related to poor prognosis . while patient samples with flt3-itd mutations were expected to have greater sensitivity to cg-806 , the most surprising correlation was the sensitivity of patient samples with idh1 r132 mutations . the enhanced sensitivity of idh-1 mutant aml to cg-806 warrants investigation in the clinical setting . moreover , in studies of cg-806 on aml patient bone marrow samples , we demonstrated that mutations in p53 , asxl1 and npm1 do not hinder the potency of cg-806 . · on june 14 , 2019 , we presented new preclinical data for cg-806 in a poster presentation at the 24th congress of the eha in amsterdam , the netherlands . the poster , cg-806 , preclinical in vivo efficacy and safety profile as a pan-flt3 / pan-btk inhibitor , highlights the in vivo anti-leukemic efficacy of cg-806 and its glp toxicology and toxicokinetic profile . in a preclinical mv4-11 flt3-itd aml xenograft mouse model , cg-806 suppressed leukemia growth at all doses tested throughout the 28-day period of dosing . in the mice treated with 100 mg/kg , 5 of 11 ( 45 % ) were cured through day 120 , and in the 300 mg/kg group , 10 of 11 ( 91 % ) of the mice were cured . retreating the “ uncured ' mice in these two dose groups for an additional 28 days beginning on day 88 led to rapid and robust antitumor response in all retreated mice through day 120. in the “ re-treated ” mice , no drug resistance and no toxicities were observed . glp 28-day toxicology and tk studies mice and dogs showed no adverse cg-806-related effects on body weight , ophthalmic , respiratory or neurological examinations , clinical pathology ( coagulation , clinical chemistry , or urinalysis ) , organ weight or macroscopic evaluations . no cg-806-related cardiovascular effects were noted in the 28-day glp toxicology study or in a separate preclinical cardiovascular safety study . · on october 24 , 2019 , we presented preclinical data in a poster presentation at the 5th international conference on acute myeloid leukemia “ molecular and translational ” advances in biology and treatment in estoril , portugal . the poster , cg-806 pan-flt3/pan-btk inhibitor simultaneously suppresses multiple oncogenic signaling pathways to treat aml , highlighted that cg-806 acts on large xenograft tumors with no evidence of drug resistance and with no observed toxicity , enhances killing of patient-derived aml and b-cell cancer cells when combined with venetoclax , and retains activity in patient-derived aml cells even when cells harbor mutations of flt3 , idh-1 , npm1 , asxl1 or p53 . 37 · on december 8 and 9 , 2019 , we presented new preclinical data in two separate poster presentations at the 61st annual american society of hematology ( “ ash ” ) . on december 8 , 2019 , the poster cg-806 , a first-in-class pan-flt3/pan-btk inhibitor , exhibits broad signaling inhibition in chronic lymphocytic leukemia cells compared cg-806 and ibrutinib , the standard of care , on primary patient cells of cll highlighting that cg-806 broadly inhibits b-cell receptor signaling in cll cells , resulting in cll cell apoptosis and reduced proliferation , cg-806 is more potent than ibrutinib in inducing apoptosis of mec1 cll cells and , finally , cg-806 targets elements of the cll microenvironment , and thereby potentially targets pro-survival signals from the microenvironment . the poster presented on december 9 , 2019 titled synergistic targeting of btk and e-selectin/cxcr4 in the microenvironment of mantle cell lymphomas , explored the effects of cg-806 on cells of mcl , a rare subtype of aggressive b cell non hodgkin lymphoma that is incurable with standard therapy , and investigated the molecular mechanisms of acquired resistance to treatment , highlighted that cg-806 demonstrated superior anti-lymphoma effects compared with ibrutinib , exerting potent cell growth inhibitory effects on ibrutinib-resistant mcl cells , cg-806 suppresses phospho-btk , -stat3 , -akt , -erk , -src , nf-kb , and the anti-apoptotic protein mcl1 , while upregulating p53 , cg-806 increased autophagy in mcl cells , which may be associated with resistance to cg-806-mediated apoptosis . inhibition of autophagy re-sensitizes mcl cells to cg-806-induced apoptosis , cg-806 treatment upregulates cxcr4/e-selectin levels in mcl cells and finally , combination of cxcr4/e-selectin antagonists with cg-806 enhances cg-806-induced apoptotic killing of mcl cells in the presence of the tumor microenvironment . · on december 7 , 2019 at the 61st ash annual meeting and exposition in orlando , fl aptose hosted a corporate event and clinical update , where the company 's management and invited key opinion leaders highlighted some early clinical observations on safety , tolerability , pharmacokinetics , and activity , including . the discussion focused on key findings from dose levels one and two of cg-806 in heavily pretreated r/r cll patients , including : the clean safety profile to date , with no myelosuppression , drug-related adverse events or dose-limiting toxicity observed ; meaningful oral absorption and predictable pharmacokinetic ( pk ) profile ; evidence of target engagement manifesting as inhibition of phospho-btk , phospho-syk and phospho-erk in a plasma inhibitory assay ( pia ) using plasma from the cll patient on dose level two , and early evidence of clinical activity in the same patient manifesting as increase in peripheral blood lymphocytes ( lymphocytosis ) , typically associated with btk inhibition . apto-253 phase ib trial apto-253 , a small molecule inhibitor of myc gene expression , is being evaluated in a phase ib clinical trial in patients with r/r hematologic malignancies , particularly r/r-aml and high-risk mds . the phase ib , multicenter , open-label , dose-escalation clinical trial of apto-253 is designed to assess the safety , tolerability , pharmacokinetics and pharmacodynamic responses and efficacy of apto-253 as a single agent and determine the recommended phase ii dose . apto-253 is being administered once weekly , over a 28-day cycle .
| cg is eligible for development , regulatory and commercial-based milestones as well as royalties on future product sales . there were no license fees paid to cg or other collaborators in the year ended december 31 , 2019 . · an increase in research and development activities related to our cg-806 development program of approximately $ 2.4 million , mostly as a result of increases to our clinical trial operating costs for our cg-806 bcm phase ib clinical trial and planned cg-806 aml phase i clinical trial . for the year ended december 31 , 2019 , program costs consisted mostly of manufacturing costs to supply our clinical trials , operating costs to conduct our cg-806 bcm phase ib clinical trial , which was approved by the fda in march 2019 , as well as preparation costs for our planned cg-806 aml clinical trial . for the year ended december 31 , 2018 , program costs consisted mostly of manufacturing costs to supply our clinical trials , for preclinical studies to support the ind application we filed in february of 2019 to test cg-806 in patients with bcm , and for consultant and cro costs to prepare for the cg-806 bcm trial . · a decrease in research and development activities related to our apto-253 development program of approximately $ 313 thousand related to lower manufacturing costs to supply the trial , and offset by an increase in costs associated with conducted the phase ia/b clinical trial for apto-253 . for both the fiscal years ended december 31 , 2018 and 2019 , program costs consisted of costs for manufacturing apto-253 to supply the trial , and for operating costs to conduct the ongoing phase ib clinical trial . the apto-253 clinical trial , which had been on a clinical hold since november 2015 was taken off clinical hold in june 2018 . · an increase in personnel expenses of $ 1.6 million in the year ended december 31 ,
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in many cases these rental payments may include payments for common area maintenance as well as property tax assessments . the current management team in place since may 2018 has the opinion that rent costs for 2016 and 2017 as a percentage of total restaurant sales are too high . our rent strategy moving forward consists of a variable rent structure calculated on net sales of the restaurant . while this can have a negative effect on higher volume locations where we can not leverage a fixed rent , it provides a downside protection for lower volume locations . while we can not guarantee a favorable variable rent expense in all future leases , it is in our forecasts at an 8 % average level . other restaurant operating expenses other restaurant operating expenses , including preopening operating expenses , consist of company-operated restaurant-level ancillary expenses not inclusive of food and beverage , labor and rent expense . these expenses are generally marketing , advertisings , merchant and bank fees , utilities , leasehold and equipment repairs and maintenance . a portion of these costs are associated with third party delivery services such as uber eats , grub hub , doordash , seamless , etc . the fees associated with these third-party delivery services can range up to 25 % of the total order being delivered . management believes delivery is a critical component of our business model and industry trends will continue to push consumers towards delivery . our cost structure will need to be adjusted to reflect a different pricing model , portion sizes , menu offerings , etc to potentially offset these rising costs of delivery . 45 depreciation and amortization depreciation and amortization primarily consist of the depreciation of property and equipment and amortization of intangible assets at the restaurant level . general and administrative expenses general and administrative expenses include expenses associated with corporate and administrative functions that support our operations , including wages , benefits , travel expense , stock-based compensation expense , legal and professional fees , training , and other corporate costs . this expense item also includes national advertising and marketing campaigns to promote brand awareness which includes , but is not limited to , television , radio , social media , billboards , point-of-sale materials , sponsorships , and multi-media . a certain portion of these expenses are related to the preparation of an initial stock offering and should be considered one-time expenses . other ( expense ) income other ( expenses ) income primarily consists of amortization of debt discounts on the convertible notes payable to former parent and interest expense related to convertible notes payable . income taxes income taxes represent federal , state , and local current and deferred income tax expense . 46 story_separator_special_tag collapse ; width : 100 % ; font-size : 10pt '' > restaurant rent expense for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 927,610 , or 18 % , as a percentage of restaurant sales , and $ 728,064 , or 27 % , as a percentage of restaurant sales , respectively . the $ 199,546 increase results primarily from the addition of new company-owned locations noted above , offset by $ 248,437 of deferred rent expense for stores that closed during 2018. the decrease as a percentage of sales is primarily attributable to the impact of recognizing deferred rent expenses for stores that closed during 2018. additionally , we have executed new lease agreements that have higher rental charges as a percentage of current sales volumes than historical agreements . as the company seeks to grow brand concepts , several factors are considered when deciding on leased locations . these include , but are not limited to , estimated foot traffic , lease term , lease rate , adjacent businesses , surrounding community economics , etc . as such , new lease agreements may tend to have a higher percentage of revenue as the brand establishes itself in new markets and the surrounding markets themselves grow . current management in place since may 2018 believes rent as a percentage of company revenue net sales is too high . our current strategy focuses on new corporately owned non-traditional locations such as military bases with variable rent structures no greater than 8 % of corporate restaurant revenue net sales . this is a significantly lower number than what was reported in 2016 and 2017. other restaurant operating expenses for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 1,283,286 , or 25 % as a percentage of restaurant sales , and $ 586,248 , or 21 % as a percentage of restaurant sales , respectively . the $ 697,038 increase results primarily from the addition of new company-owned locations which opened throughout the year ended december 31 , 2017. cost of other revenues for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 330,367 , or 46 % , as a percentage of other revenue , and $ 295,231 , or 53 % , as a percentage of other revenue , respectively . the $ 35,136 increase as a percentage of other revenues resulted primarily from increased costs from service providers with no corresponding increase in monthly services fees being charged to our customers . depreciation and amortization expense for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 446,369 and $ 204,486 , respectively . the $ 241,883 increase is primarily attributable to new property and equipment related to the addition of three new company owned locations . impairment of intangible assets for the year ended december 31 , 2017 totaled $ 410,225 the impairment of the intangible assets was based on a recoverability test on the franchise agreements that failed the test based on projected future undiscounted cash flows . impairment of property and equipment for the year ended december 31 , 2017 totaled $ 1,375,790. the company performed an impairment analysis on various assets and concludes that they were fully impaired . story_separator_special_tag impairment of goodwill for the year ended december 31 , 2017 , totaled $ 2,521,468. the impairment charges resulted from decrease in the company 's estimates undiscounted cash flows from the expected future operations of the assets . these estimates considered factors such as expected future operating income , operating trends and prospects , as well as the effects of demands , competition and other factors . 49 general and administrative expenses for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 7,983,673 , or 101 % of total revenue , and $ 4,770,613 , or 96 % of total revenue , respectively . the $ 3,213,060 increase is primarily attributable to the “ build-up ” of the company 's corporate infrastructure to support new company owned store growth as well as third party related expenses to prepare the company for a private placement offering and ipo . wages and related expenses increased approximately $ 726,000 compared to the prior year with the addition of key management positions . travel and related expenses increased approximately $ 64,000 to support buildout and store openings as well as evaluate new site locations . advertising and marketing increased approximately $ 455,000 to grow national brand awareness . third party accounting and legal fees increased approximately $ 1,100,000 with temporary accounting services and nonrecurring legal reorganizational research to facilitate sec financial statement preparation . audit fees increased approximately $ 256,000 with audits for 2015 and 2016 and june 2017 and 2016 reviews . restricted stock compensation increased approximately $ 729,000 for restricted stock issued in 2017 and not in 2016. additionally , bonuses increased approximately $ 75,000 for incentives related to ipo efforts . loss from operations our loss from operations for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 11,931,024 , or 150 % of total revenues and $ 3,966,149 , or 80 % of total revenue , respectively . the increased loss of $ 7,964,875 is primarily attributable to growth in general administrative expenses to build company infrastructure , inefficiencies in preopening expenses , new rental charges , local and national marketing campaigns , and third-party consulting services to facilitate our anticipated private placement and ipo . in addition to impairment charges of our intangible assets , property and equipment and goodwill attributed an aggregate amount of $ 4,307,483 for reasons discussed previously . other ( expense ) income other ( expense ) income for the year ended december 31 , 2017 and december 31 , 2016 totaled $ ( 3,883,254 ) and $ ( 126,256 ) respectively . the $ 3,756,998 increase in expense was primarily attributable to an increase in amortization of debt discount of approximately $ 3,817,859 in connection with convertible notes payable to a former related party , partially offset by an increase in other income of $ 82,311. net loss our net loss for the year ended december 31 , 2017 increased by $ 11,348,064 to $ 15,567,751 as compared to $ 4,219,687 for the year ended december 31 , 2016 , resulting primarily from an increase in amortization of debt discounts to a former related party totaling $ 3,817,859 and significant increases in general and administrative expenses incurred for the contemplated ipo as well as employee expenses incurred for restricted stock . in addition , impairment charge associated with intangible assets , property and equipment and goodwill in an aggregate amount of $ 4,307,483 that was incurred during 2017. our net loss attributable to the controlling interest was $ 13,210,448 and $ 3,109,581 for the year ended december 31 , 2017 and december 31 , 2016 , respectively . 50 liquidity and capital resources liquidity we measure our liquidity in a number of ways , including the following : replace_table_token_4_th availability of additional funds and going concern based upon our working capital deficiency and accumulated deficit of $ 4,306,947 and $ 17,052,086 , respectively , as of december 31 , 2017 , plus our use of $ 3,676,999 of cash in operating activities during the year ended december 31 , 2017 , we require additional equity and or debt financing to continue our operations . these conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date of this filing . as a result of the foregoing factors , together with our recurring losses from operations and negative cash flows since inception , our independent registered public accounting firm included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements for the years ended december 31 , 2017 and 2016. during prior periods our operations have primarily been funded through proceeds from american restaurant holdings in exchange for equity and debt . our principal source of liquidity to date has been provided from american restaurant holdings , who is a private equity restaurant group , by loans from related and unrelated third parties and the sale of common stock through private placements . more specifically , american restaurant holdings has invested over $ 5 million in growth capital into muscle maker to date . we expect to have ongoing needs for working capital in order to ( a ) fund operations ; plus ( b ) expand operations by opening additional corporate-owned restaurants . to that end , we may be required to raise additional funds through equity or debt financing . however , there can be no assurance that we will be successful in securing additional capital . if we are unsuccessful , we may need to ( a ) initiate cost reductions ; ( b ) forego business development opportunities ; ( c ) seek extensions of time to fund its liabilities , or ( d ) seek protection from creditors .
| operating costs and expenses operating costs and expenses consist of restaurant food and beverage costs , restaurant labor expense , restaurant rent expense , other restaurant operating expenses , cost of other revenues , depreciation and amortization expenses , impairment losses and general and administrative expenses . restaurant food and beverage costs for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 1,946,643 or 37 % , as a percentage of company restaurant net sales , and $ 1,028,098 , or 38 % , as a percentage of company restaurant net sales , respectively . the $ 918,545 increase results primarily from the addition of five new company-owned locations for the full year of 2017 as compared to 2016 , and the addition of three company-owned restaurant opened during 2017 as noted above . the decrease as a percentage of sales is primarily attributable to fewer new company owned stores opened during 2017 compared to 2016. thus , there was less preopening training in which food and beverage inventory is utilized to train staff on the preparation of menu items , as well as lost efficiencies with new staff in portioning and preparation as compared to current period . the current management team in place since may 2018 believes the overall food cost percentages for both 2016 and 2017 are too high and new operational measures need to be implemented to lower these costs in 2018 and 2019. restaurant labor for the year ended december 31 , 2017 and december 31 , 2016 totaled $ 2,634,730 , or 51 % , as a percentage of company restaurant net sales , and $ 1,306,614 , or 48 % , as a percentage of company restaurant net sales , respectively . the $ 1,328,116 increase results primarily from the addition of new company-owned locations noted above . the increase as a percentage of sales is primarily attributable to the impact of preopening training with newly hired staff , as well as lost efficiencies that are inherent in the start-up of new restaurants given the high level of attrition and retraining that occurs . additionally , it is estimated that it takes approximately four to six months of extensive marketing efforts to effectively generate brand awareness in
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this reserve is recorded at the time of sale . in the future , if we are unable to estimate our stock rotation returns accurately , we may not be able to recognize revenue from sales to our distributors based on when we sell inventory to our distributors . instead , we may have to recognize revenue when the distributor sells through such inventory to an end-customer . we generally recognize revenue upon shipment of products to the distributor for the following reasons ( based on asc 605-15-25-1 revenue recognition – products – recognition – sales of products when right of return exists ) : ( 1 ) our price is fixed and determinable at the date of sale . we do not offer special payment terms , price protection or price adjustments to distributors where we recognize revenue upon shipment ( 2 ) our distributors are obligated to pay us and this obligation is not contingent on the resale of our products ( 3 ) the distributor 's obligation is unchanged in the event of theft or physical destruction or damage to the products ( 4 ) our distributors have stand-alone economic substance apart from our relationship ( 5 ) we do not have any obligations for future performance to directly bring about the resale of our products by the distributor ( 6 ) the amount of future returns can be reasonably estimated . we have the ability and the information necessary to track inventory sold to and held at our distributors . we maintain a history of returns and have the ability to estimate the stock rotation returns on a quarterly basis . if we enter into arrangements that have rights of return that are not estimable , we recognize revenue under such arrangements only after the distributor has sold our products to an end customer . approximately 10 % of our distributor sales are made through small distributors based on purchase orders rather than formal distribution arrangements . these distributors do not receive any stock rotation rights and , as such , hold very little inventory , if any . we do not have a history of accepting returns from these distributors and they are generally required to pay in advance of shipment . the terms in a majority of the company 's distribution agreements include the non-exclusive right to sell , and the agreement to use best efforts to promote and develop a market for , the company 's products in certain regions of the world and the ability to terminate the distribution agreement by either party with up to three months notice . the company provides a one year warranty against defects in materials and workmanship . under this warranty , the company will either repair the goods or provide replacements at no charge to the customer for defective products . estimated warranty returns and warranty costs are based on historical experience and are recorded at the time product revenue is recognized . two of the company 's u.s. distributors have distribution agreements where revenue is recognized upon sale by these distributors to their end customers because these distributors have certain rights of return which management believes are not estimable . the deferred revenue balance from these distributors for each of the years ended december 31 , 2011 and 2010 was $ 1.0 million . inventory valuation . we value our inventory at the lower of the standard cost ( which approximates actual cost on a first-in , first-out basis ) or its current estimated market value . we write down inventory for obsolescence or lack of demand , based on assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required . on the contrary , if market conditions are more favorable , we may be able to sell inventory that was previously reserved . accounting for income taxes . asc 740-10 income taxes – overall prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . this interpretation also provides guidance on derecognition , classification , interest and penalties , accounting in interim periods and disclosure . in accordance with asc 740-10 , we recognize federal , state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction . we also recognize federal , state and foreign deferred tax assets or liabilities for our estimate of future tax effects attributable to temporary differences and carryforwards . we record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that , based on available evidence and judgment , are not expected to be realized . our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws . our estimates of current and deferred tax assets and liabilities may change based , in part , on added certainty or finality or uncertainty to an anticipated outcome , changes in accounting or tax laws in the u.s. , or foreign jurisdictions where we operate , or changes in other facts or circumstances . in addition , we recognize liabilities for potential u.s. and foreign income tax for uncertain income tax positions taken on our tax returns if it has less than a 50 % likelihood of being sustained . if we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment , we may be required to recognize an income tax benefit or additional income tax expense in our financial statements in the period such determination is made . we have calculated our uncertain tax positions which were attributable to certain estimates and judgments primarily related to transfer pricing , cost sharing and our international tax structure exposure . story_separator_special_tag 27 as of december 31 , 2011 and 2010 , we had a valuation allowance of $ 14.6 million and $ 16.8 million , respectively , attributable to management 's determination that it is more likely than not that most of the deferred tax assets in the united states will not be realized . should it be determined that all or part of the net deferred tax asset will not be realized in the future , an adjustment to increase the deferred tax asset valuation allowance will be charged to income in the period such determination is made . likewise , in the event we were to determine that it is more likely than not that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount , an adjustment to the valuation allowance for the deferred tax asset would increase income in the period such determination was made . contingencies . we and certain of our subsidiaries are parties to actions and proceedings incident to our business in the ordinary course of business , including litigation regarding our intellectual property , challenges to the enforceability or validity of our intellectual property and claims that our products infringe on the intellectual property rights of others . the pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend . in addition , from time to time , we become aware that we are subject to other contingent liabilities . when this occurs , we will evaluate the appropriate accounting for the potential contingent liabilities using asc 450-20-25-2 contingencies – loss contingencies - recognition to determine whether a contingent liability should be recorded . in making this determination , management may , depending on the nature of the matter , consult with internal and external legal counsel and technical experts . based on the facts and circumstances in each matter , we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated . if we determine a loss is probable and estimable , we record a contingent loss in accordance with asc 450-20-25-2. in determining the amount of a contingent loss , we take into account advice received from experts for each specific matter regarding the status of legal proceedings , settlement negotiations ( which may be ongoing ) , prior case history and other factors . should the judgments and estimates made by management need to be adjusted as additional information becomes available , we may need to record additional contingent losses that could materially and adversely impact our results of operations . alternatively , if the judgments and estimates made by management are adjusted , for example , if a particular contingent loss does not occur , the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations . accounting for stock-based compensation . we account for stock-based compensation under the provisions of asc 718-10-30 compensation – stock compensation – overall – initial measurement . this standard requires us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award . that cost will be recognized over the period during which an employee is required to provide services in exchange for the award , known as the requisite service period ( usually the vesting period ) . we currently use the black-scholes option-pricing model to estimate the fair value of our share-based payments . the black-scholes option-pricing model is based on a number of assumptions , including historical volatility , expected life , risk-free interest rate and expected dividends . the amount of stock-based compensation that we recognize is also based on an expected forfeiture rate . if there is a difference between the forfeiture assumptions used in determining stock-based compensation costs and the actual forfeitures which become known over time , we may change the forfeiture rate , which could have a significant impact on our stock-based compensation expense . warranty reserves . we currently provide a 12-month warranty against defects in materials and workmanship and will either repair the goods or provide replacement products at no charge to the customer for defective products . we record estimated warranty costs by product , which are based on historical experience over the preceding 12 months , at the time we recognize product revenue . reserve requirements are recorded in the period of sale and are based on an assessment of the products sold with warranty and historical warranty costs incurred . as the complexity of our products increases , we could experience higher warranty claims relative to sales than we have previously experienced , and we may need to increase these estimated warranty reserves . 28 fair value of financial instruments . asc 820-10 fair value measurements and disclosures – overall defines fair value , establishes a framework for measuring fair value in generally accepted accounting principles in the united states of america , and requires that assets and liabilities carried at fair value be classified and disclosed in one of the three categories , as follows : · level 1 : quoted prices in active markets for identical assets ; · level 2 : significant other observable inputs ; and · level 3 : significant unobservable inputs . asc 820-10-35-51 fair value measurement and disclosure – overall – subsequent measurement – determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly provides additional guidance for estimating fair value in accordance with asc 820-10 fair value measurements and disclosures – overall , when the volume and level of activity for the asset or liability have significantly decreased . our financial instruments include cash and cash equivalents and short-term and long-term investments . cash equivalents are stated at cost , which approximates fair market value .
| in addition , in the fourth quarter of 2010 , sales were lower because distributors used up inventory that was shipped in the third quarter and the general demand for consumer products declined more than seasonally . sales during 2009 were generally weak , primarily from the deterioration in the general demand for electronic products as a result of a worldwide financial crisis and associated macro-economic slowdowns . in 2010 , we saw an increase in demand for our dc to dc products , with sales having increased by $ 59.5 million or 48.1 % over sales in 2009. the increase was primarily because of higher demand for electronic products in the consumer and communications markets . sales of our lighting control products increased slightly as a result of greater demand for our wled solution for consumer electronics products . this was partially offset by a reduction in the demand for our ccfl products . audio sales were down year over year due to lower demand and a decline in the average selling price for certain of our audio products . gross profit . gross profit as a percentage of revenue , or gross margin , was 51.7 % for the year ended december 31 , 2011 and 55.5 % for the year ended december 31 , 2010. for the year ended december 31 , 2011 , gross margin declined year-over-year as a result of declining average selling prices for certain of our products , unabsorbed test manufacturing costs and an increase in inventory reserves . gross profit as a percentage of revenue , or gross margin , was 55.5 % for the year ended december 31 , 2010 and 59.2 % for the year ended december 31 , 2009. gross margin declined year-over-year as a result of a change in the product mix , higher product costs from increased wafer and gold costs , underutilized capacity towards the end of 2010 and an increase in inventory reserves . research and development . research and development ( r & d ) expenses consist of salary and benefit expenses for design and product engineers , expenses related to new product development , and related facility costs . replace_table_token_7_th r & d expenses were $ 44.5
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we do not expect to add any new rigs to our fleet during 2016. in connection with the development of horizontal shale and other unconventional resource plays , we have added equipment to perform service intensive fracturing jobs . as of december 31 , 2015 , we had approximately 1.1 million hydraulic horsepower in our pressure pumping fleet . we have increased the horsepower of our pressure pumping fleet by more than eight-fold since the beginning of 2009 , although we have not ordered or committed to purchase any new horsepower since october 2014 and there is currently no new horsepower on order . in recent years , the industry-wide addition of new pressure pumping equipment to the marketplace and lower oil and natural gas prices have led to an excess supply of pressure pumping equipment in north america . we maintain a backlog of commitments for contract drilling revenues under term contracts , which we define as contracts with a fixed term of six months or more . our contract drilling backlog as of december 31 , 2015 and 2014 was $ 710 million and $ 1.5 billion , respectively . the decrease in backlog at december 31 , 2015 from december 31 , 2014 , is primarily due to the revenue earned since december 31 , 2014 , including from the receipt of early termination payments , and the expiration and termination of term contracts . approximately 40 percent of the total december 31 , 2015 backlog is reasonably expected to remain after 2016. we generally 22 calculate our backlog by multiplying the dayrate under our term drilling contracts by the number of days remaining under the contract . the calculation does not include any revenues related to other fees such as for mobilization , demobilization and customer reimbursables , nor does it include potential reductions in rates for unscheduled standby or during periods in which the ri g is moving or incurring maintenance and repair time in excess of what is permitted under the drilling contract . in addition , generally our term drilling contracts are subject to termination by the customer on short notice and provide for an early termina tion payment to us in the event that the contract is terminated by the customer . for contracts that we have received an early termination notice , our backlog calculation includes the early termination rate , instead of the dayrate , for the period we expect to receive the lower rate . see “ item 1a . risk factors – our current backlog of contract drilling revenue may continue to decline and may not ultimately be realized , as fixed-term contracts may in certain instances be terminated without an early termination payment . ” for the three years ended december 31 , 2015 , our operating revenues consisted of the following ( dollars in thousands ) : replace_table_token_8_th generally , the profitability of our business is impacted most by two primary factors in our contract drilling segment : our average number of rigs operating and our average revenue per operating day . during 2015 , our average number of rigs operating was 120 in the united states and four in canada compared to 203 in the united states and eight in canada in 2014 and 184 in the united states and eight in canada in 2013. our average rig revenue per operating day was $ 25,560 in 2015 compared to $ 23,880 in 2014 and $ 24,020 in 2013. we had a consolidated net loss of $ 294 million for 2015 compared to consolidated net income of $ 163 million for 2014. the financial results for 2015 include pretax non-cash charges totaling approximately $ 288 million . these charges include $ 125 million from the impairment of all goodwill associated with our pressure pumping business , $ 131 million from the write-down of drilling equipment primarily related to mechanical rigs and spare mechanical rig components , $ 22.0 from the write-down of pressure pumping equipment and closed facilities and $ 10.7 million related to the impairment of certain oil and natural gas properties . the financial results for 2014 include a pretax non-cash charge of $ 77.9 million related to the retirement of mechanical rigs and the write-off of excess spare components . our revenues , profitability and cash flows are highly dependent upon prevailing prices for oil and natural gas . during periods of improved commodity prices , the capital spending budgets of oil and natural gas operators tend to expand , which generally results in increased demand for our services . conversely , in periods when these commodity prices deteriorate , the demand for our services generally weakens and we experience downward pressure on pricing for our services . oil and natural gas prices and our monthly average number of rigs operating have significantly declined from recent highs . in december 2015 , our average number of rigs operating was 82 in the united states . in january 2016 , our average number of rigs operating decreased to 78 in the united states . we are also highly impacted by operational risks , competition , the availability of excess equipment , labor issues , weather and various other factors that could materially adversely affect our business , financial condition , cash flows and results of operations . please see “ risk factors ” in item 1a of this report . critical accounting policies in addition to established accounting policies , our consolidated financial statements are impacted by certain estimates and assumptions made by management . the following is a discussion of our critical accounting policies pertaining to property and equipment , goodwill , revenue recognition , the use of estimates and oil and natural gas properties . property and equipment — property and equipment , including betterments which extend the useful life of the asset , are stated at cost . maintenance and repairs are charged to expense when incurred . we provide for the depreciation of our property and equipment using the straight-line method over the estimated useful lives . story_separator_special_tag our method of depreciation does not change when equipment becomes idle ; we continue to depreciate idled equipment on a straight-line basis . no provision for salvage value is considered in determining depreciation of our property and equipment . we review our long-lived assets , including property and equipment , for impairment whenever events or changes in circumstances ( “ triggering events ” ) indicate that the carrying values of certain assets may not be recovered over their estimated remaining useful lives . in connection with this review , assets are grouped at the lowest level at which identifiable cash flows are largely independent of other asset groupings . the cyclical nature of our industry has resulted in fluctuations in rig utilization over periods of time . management believes that the contract drilling industry will continue to be cyclical and rig utilization will continue to fluctuate . based on management 's expectations of future trends , we estimate future cash flows over the life of the respective assets or asset groupings in our assessment of impairment . these estimates of cash flows are based on historical cyclical trends in the industry as well as management 's expectations regarding the continuation of these trends in the future . 23 provisions for asset impairment are charged against income when estimated future cash flows , on an undiscounted basis , are less than the asset 's net book value . any provision for impairment is measured at fai r value . on a periodic basis , we evaluate our fleet of drilling rigs for marketability based on the condition of inactive rigs , expenditures that would be necessary to bring them to working condition and the expected demand for drilling services by rig type ( such as drilling conventional , vertical wells versus drilling longer , horizontal wells using higher specification rigs ) . the components comprising rigs that will no longer be marketed are evaluated , and those components with continuing utility to our other marketed rigs are transferred to other rigs or to our yards to be used as spare equipment . the remaining components of these rigs will be retired . in 2015 , we identified 24 mechanical rigs and 9 non-apex® electric rigs that would no longer be marketed . also , we had 15 additional mechanical rigs that were not operating . although these 15 rigs remain marketable , we have lower expectations with respect to utilization of these rigs due to the industry shift to higher specification drilling rigs . in 2015 , we recorded a charge of $ 131 million related to the retirement of the 33 rigs , the 15 mechanical rigs that remain marketable but were not operating , and the write-down of excess spare rig components to their realizable values . in 2014 , we identified 55 mechanical rigs that we determined would no longer be marketed , and we recorded a charge of $ 77.9 million related to the retirement of these mechanical rigs and the write-off of excess spare components for the reduced size of our mechanical fleet . in 2013 , we identified 48 rigs that would no longer be marketed . also , we had 55 additional mechanical rigs that were not operating . although these 55 rigs remained marketable at the time , we had lower expectations with respect to utilization of these rigs due to the industry shift to electric powered drilling rigs . in 2013 , we recorded a charge of $ 37.8 million related to the retirement of the 48 rigs and the 55 mechanical rigs that remained marketable but were not operating . we also periodically evaluate our pressure pumping assets , and in 2015 , we recorded a charge of $ 22.0 million for the write-down of pressure pumping equipment and certain closed facilities . there were no similar charges in 2014 or 2013. we evaluate the recoverability of our long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable ( a “ triggering event ” ) . during the first quarter of 2015 , oil prices averaged $ 48.54 per barrel and reached a low of $ 43.39 per barrel in march 2015. oil prices improved during the second quarter of 2015 and averaged $ 57.85 per barrel . although the price improvement was earlier than we projected , this improvement was generally consistent with our assumption at december 31 , 2014 that oil prices would improve late in 2015 and continue to improve in 2016 , resulting in improved activity levels for both the contract drilling and pressure pumping businesses . during the second quarter of 2015 as oil prices increased , we received requests from customers to reactivate drilling rigs to resume operations in the third quarter of 2015. we believed this was an indication that future activity levels would be improving for both the contract drilling and pressure pumping businesses . during the third quarter of 2015 , however , oil prices declined and averaged $ 46.42 per barrel and reached a new low for 2015 of $ 38.22 per barrel in august 2015. with lower oil prices in august , we lowered our expectations with respect to future activity levels in both the contract drilling and pressure pumping businesses . in light of these revised expectations of the duration of the lower oil and natural gas commodity price environment and the related deterioration of the markets for contract drilling and pressure pumping services during the third quarter of 2015 , we deemed it necessary to assess the recoverability of long-lived asset groups for both contract drilling and pressure pumping . we performed a step 1 analysis as required by asc 360-10-35 to assess the recoverability of long-lived assets within our contract drilling and pressure pumping segments .
| depreciation , amortization and impairment expense for 2015 includes a charge of $ 131 million related to the write-down of drilling equipment primarily related to mechanical rigs and spare mechanical rig components . depreciation , amortization and impairment expense for 2014 includes a charge of $ 77.9 million related to the retirement of mechanical drilling rigs and the write-off of excess spare mechanical rig components . the increase in depreciation expense also reflects significant capital expenditures incurred in recent years to build new drilling rigs , to modify and upgrade existing drilling rigs and to acquire additional related equipment such as top drives , drill pipe , drill collars , engines , fluid circulating systems , rig hoisting systems and safety enhancement equipment . replace_table_token_14_th ( 1 ) margin is defined as revenues less direct operating costs and excludes depreciation , amortization and impairment and selling , general and administrative expenses . average margin per total job is defined as margin divided by total jobs . margin as a percentage of revenues is defined as margin divided by revenues . revenues and direct operating costs decreased primarily due to a decrease in the number of jobs , although the average size of the fracturing jobs increased . average revenue per fracturing job and average direct operating costs per total job increased as a result of the increased size of the jobs in 2015 as compared to 2014. the total number of jobs decreased as a result of the downturn in the oil and natural gas industry . depreciation , amortization and impairment expense for 2015 includes a charge of $ 22.0 million related to the write-down of pressure pumping equipment and closed facilities . there were no similar charges in 2014. depreciation expense also increased due to capital expenditures and acquisitions . all of the goodwill associated with our pressure pumping business was impaired during 2015. replace_table_token_15_th 33 ( 1 ) margin is defined as revenues less direct operating costs and excludes depletion and impairment .
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we drilled 161 gross wells with a success rate of over 99 % in 2011 compared to 113 gross wells with a success rate of 98 % in 2010. total capital and exploration expenditures increased by $ 14.0 million to $ 905.5 million in 2011 compared to $ 891.5 million in 2010. the increase in spending was substantially driven by an expanded marcellus shale horizontal drilling program and increases in our drilling programs in the eagle ford oil shale in south texas and the marmaton oil play in oklahoma . we believe our cash on hand and operating cash flow in 2012 will be sufficient to fund our budgeted capital and exploration spending between $ 750 and $ 790 million . any additional needs are expected to be funded by borrowings from our credit facility . our 2012 strategy will remain consistent with 2011. while we consider acquisitions from time to time , we remain focused on pursuing drilling opportunities that provide more predictable results on our 35 accumulated acreage position . additionally , we intend to maintain spending discipline and manage our balance sheet in an effort to ensure sufficient liquidity , including cash resources and available credit . for 2012 , we have allocated our planned program for capital and exploration expenditures primarily to the marcellus shale in northeast pennsylvania , the eagle ford oil shale in south texas and , to a lesser extent , the marmaton oil play in oklahoma . we believe these strategies are appropriate for our portfolio of projects and the current commodity pricing environment and will continue to add shareholder value over the long-term . the preceding paragraphs , discussing our strategic pursuits and goals , contain forward-looking information . please read `` forward-looking information '' for further details . financial condition capital resources and liquidity our primary sources of cash in 2011 were from funds generated from the sale of natural gas and crude oil production ( including hedge realizations ) , borrowings under our credit facility and the sales of properties and other assets during the year . these cash flows were primarily used to fund our capital and exploration expenditures , in addition to repayments of debt and related interest , contributions to our pension plans and dividends . see below for additional discussion and analysis of cash flow . we generate cash from the sale of natural gas and crude oil . operating cash flow fluctuations are substantially driven by commodity prices and changes in our production volumes . prices for crude oil and natural gas have historically been volatile , including seasonal influences characterized by peak demand and higher prices in the winter heating season ; however , the impact of other risks and uncertainties have also influenced prices throughout the recent years . in addition , fluctuations in cash flow may result in an increase or decrease in our capital and exploration expenditures . see `` results of operations '' for a review of the impact of prices and volumes on revenues . our working capital is also substantially influenced by variables discussed above . from time to time , our working capital will reflect a surplus , while at other times it will reflect a deficit . this fluctuation is not unusual . we believe we have adequate availability under our credit facility and liquidity available to meet our working capital requirements . replace_table_token_14_th operating activities key components impacting net operating cash flows are commodity prices , production volumes and operating expenses . net cash provided by operating activities in 2011 increased by $ 16.9 million over 2010. this increase was primarily due to increased operating income in 2011 as a result of higher operating revenues that outpaced the increase in operating expenses . this increase was offset by changes in working capital which decreased operating cash flows . the increase in operating revenues was primarily due to an increase in equivalent production partially offset by lower realized natural gas and crude oil prices . equivalent production volumes increased by 44 % for 2011 compared to 2010 as a result of higher natural gas and crude oil production . average realized natural gas prices decreased by 36 22 % for 2011 compared to 2010. average realized crude oil prices decreased by 8 % compared to the same period . net cash provided by operating activities in 2010 decreased by $ 129.1 million over 2009. this decrease was mainly due to a decrease in oil and gas revenues and higher operating and interest expense . average realized natural gas prices decreased by 25 % in 2010 compared to 2009 and average realized crude oil prices increased by 14 % over the same period . equivalent production volumes increased by 27 % in 2010 compared to 2009 primarily due to higher natural gas and crude oil production . see `` results of operations '' for additional information relative to commodity price , production and operating expense movements . we are unable to predict future commodity prices and , as a result , can not provide any assurance about future levels of net cash provided by operating activities . realized prices may decline in future periods . investing activities the primary use of cash in investing activities was capital and exploration expenditures . we established the budget for these amounts based on our current estimate of future commodity prices and cash flows . due to the volatility of commodity prices and new opportunities which may arise , our capital expenditures may be periodically adjusted during any given year . cash flows used in investing activities decreased by $ 126.1 million from 2010 to 2011 and increased by $ 82.7 million from 2009 to 2010. the decrease from 2010 to 2011 was due to an increase of $ 160.1 million of proceeds from the sale of assets partially offset by an increase of $ 34.0 million in capital and exploration expenditures . story_separator_special_tag the increase from 2009 to 2010 was due to an increase of $ 246.0 million in capital and exploration expenditures partially offset by an increase of $ 163.3 million of proceeds from the sale of assets . financing activities cash flows used in financing activities increased by $ 184.9 million from 2010 to 2011. this was primarily due to a decrease in borrowings of $ 195.0 million , partially offset by a decrease in cash paid for capitalized debt issuance costs of $ 12.8 million . at december 31 , 2011 , we had $ 188.0 million of borrowings outstanding under our unsecured credit facility at a weighted-average interest rate of 4.9 % and $ 711.0 million available for future borrowing . cash flows provided by financing activities increased by $ 215.6 million from 2009 to 2010. this was primarily due to an increase in borrowings of $ 420.0 million , partially offset by an increase in repayments of debt of $ 188.0 million , an increase in cash paid for capitalized debt issuance costs by a total of $ 3.4 million and a decrease of $ 13.7 million in the tax benefit associated with stock-based compensation . in december 2010 , we completed a private placement of $ 175.0 million aggregate principal amount of senior unsecured fixed-rate notes with a weighted-average interest rate of 5.58 % , consisting of amounts due in january 2021 , 2023 and 2026. in september 2010 , we amended and restated our revolving credit facility ( credit facility ) to increase the available credit line to $ 900 million with an accordion feature allowing us to increase the available credit line to $ 1.0 billion , if any one or more of the existing banks or new banks agree to provide such increased commitment amount , and to extend the term to september 2015. the available credit line is subject to adjustment on the basis of the present value of estimated future net cash flows from proved oil and gas reserves ( as determined by the banks based on our reserve reports and engineering reports ) and certain other assets and the outstanding principal balance of our senior notes . 37 the amended facility provided for an initial $ 1.5 billion borrowing base . effective april 1 , 2011 , the lenders under our revolving credit facility approved an increase in our borrowing base from $ 1.5 billion to $ 1.7 billion as part of the annual redetermination under the terms of the credit facility . our plan to sell certain oil and gas properties located in colorado , utah and wyoming triggered an interim redetermination of our borrowing base and the $ 1.7 billion borrowing base was reaffirmed by the lenders effective september 27 , 2011. in june 2010 , we amended the agreements governing our senior notes to amend the required asset coverage ratio ( the present value of our proved reserves plus working capital to debt ) contained in the agreements . the amendment also changed the ratio for maximum calculated indebtedness to borrowing base ( as defined in the credit facility agreement ) . we strive to manage our debt at a level below the available credit line in order to maintain borrowing capacity . our credit facility includes a covenant limiting our total debt . management believes that , with internally generated cash , existing cash on hand and availability under our credit facility , we have the capacity to finance our spending plans and maintain our strong financial position . capitalization information about our capitalization is as follows : replace_table_token_15_th ( 1 ) includes $ 188.0 million and $ 213.0 million of borrowings outstanding under our revolving credit facility at december 31 , 2011 and 2010 , respectively . for the year ended december 31 , 2011 , we paid dividends of $ 12.5 million ( $ 0.06 per share ) on our common stock . a regular dividend has been declared for each quarter since we became a public company in 1990. capital and exploration expenditures on an annual basis , we generally fund most of our capital and exploration activities , excluding any significant oil and gas property acquisitions , with cash generated from operations and , when necessary , borrowings under our credit facility . we budget these capital expenditures based on our projected cash flows for the year . 38 the following table presents major components of our capital and exploration expenditures : replace_table_token_16_th we plan to drill approximately 120 to 130 gross wells in 2012 compared with 161 gross wells drilled in 2011. this 2012 drilling program includes between $ 750 and $ 790 million in total capital and exploration expenditures , down from $ 905.5 million in 2011. this decrease is primarily due to decreased drilling activity as a result of lower commodity prices . we will continue to assess the natural gas and crude oil price environment and our liquidity position and may increase or decrease our capital and exploration expenditures accordingly . contractual obligations our material contractual obligations include long-term debt , interest on long-term debt , gas transportation agreements , drilling rig commitments , hydraulic fracturing services commitments and operating leases . we have no off-balance sheet debt or other similar unrecorded obligations . a summary of our contractual obligations as of december 31 , 2011 are set forth in the following table : replace_table_token_17_th ( 1 ) interest payments have been calculated utilizing the fixed rates of our $ 762.0 million long-term debt outstanding at december 31 , 2011. interest payments on our revolving credit facility were calculated by assuming that the december 31 , 2011 outstanding balance of $ 188.0 million will be outstanding through the september 2015 maturity date . a constant interest rate of 4.9 % was assumed , which was the december 31 , 2011 weighted-average interest rate . actual results will differ from these estimates and assumptions .
| 45 natural gas revenues the increase in natural gas revenues of $ 83.6 million , excluding the impact of the unrealized losses discussed above , is primarily due to increased production , partially offset by lower realized natural gas prices . the increased production is primarily due to increased production associated with our marcellus shale drilling program in northeast pennsylvania , partially offset by decreases in production primarily in east and south texas due to normal production declines , the sale of oil and gas properties in colorado , utah and wyoming and a shift from gas to oil projects . crude oil and condensate revenues the increase in crude oil and condensate revenues of $ 46.9 million is primarily due to increased production , partially offset by lower realized oil prices . the increase in production is primarily due to our drilling program in the eagle ford oil shale in south texas , partially offset by lower production in east texas due to decreased activity . brokered natural gas revenue and cost replace_table_token_20_th the decreased brokered natural gas margin of $ 1.5 million is primarily a result of a decrease in brokered volumes coupled with a decrease in the sales price that slightly outpaced the decrease in purchase price . impact of derivative instruments on operating revenues the following table reflects the realized impact of cash settlements and the net unrealized change in fair value of derivative instruments : replace_table_token_21_th 46 operating and other expenses replace_table_token_22_th total costs and expenses from operations increased by $ 33.4 million from 2010 to 2011. the primary reasons for this fluctuation are as follows : brokered natural gas cost decreased by $ 12.6 million from 2010 to 2011. see the preceding table titled `` brokered natural gas revenue and cost '' for further analysis . direct operations increased $ 7.8 million largely due to increased operating costs primarily driven by increased production . contributing to the increase are higher workover and environmental and regulatory costs associated with the remediation of certain wells in northeast pennsylvania as a result of the padep consent order and
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demand for molybdenum will be affected in 2015 by lower demand for special alloys coming from the oil drilling industry . this will add to the above mentioned supply issues . even though the current scenario for molybdenum prices is not positive , it is important to note that about 50 % of the supply of this metal comes from primary or dedicated molybdenum mines , which have a cash cost in the range of $ 9- $ 12 per pound . this creates a natural barrier for the molybdenum market to adjust production volume and thereby protect low cost secondary molybdenum producers such as our company . molybdenum is mainly used for the production of special alloys of stainless steel that require significant hardness , corrosion and heat resistance . a new use for this metal is in lubricants and sulfur filtering of heavy oils and shale gas production . · silver : represented 4.7 % of our sales in 2014 and it is currently our second most significant by-product . silver prices averaged $ 19.04 per ounce in 2014 , 20.1 % lower than its price in 2013. we believe that silver prices will have support due to its industrial uses as well as being perceived as a value shelter in times of economic uncertainty . · zinc : represented 3.6 % of our sales in 2014. we also believe that zinc has very good long-term fundamentals due to its significant industrial consumption and expected mine production shutdowns . in the last 12 months , zinc inventories have consistently decreased , improving this market 's fundamentals . we are expecting an increasing price scenario for zinc in the next few years . · production : for 2015 , improvements in operational practices and capital investments will reduce costs and increase the company 's copper and molybdenum production . we plan to produce 782,300 tons of copper , which will set a new record for scc copper production . additionally , during the fourth quarter of 2014 , we completed the construction of a new sx-ew plant that is expected to significantly increase production of leachable material by approximately 120,000 tons per year . for this guidance we are considering that our buenavista operation will produce 344,700 tons . of those , a total of 163,300 tons will come from our new projects . the sx-ew iii plant will contribute with 102,300 tons and the new concentrator at buenavista will add 61,000 tons . we expect to produce 21,500 tons of molybdenum in 2015 , 7 % lower than our 2014 production , this variance is due to lower ore grades and recoveries at our operations . 64 in 2015 , we also expect to produce 12.7 million ounces of silver and produce 86,200 tons of zinc , an increase of almost 20,000 tons of zinc compared to 2014 . · cost : our operating costs and expenses for the three-years ended december 2014 have increased in total in each of the years . our comparison of costs for the three year period is as follows : replace_table_token_30_th ( * ) operating costs and expenses for 2012 does not include a one-time expense of $ 316.2 million , for legal fees related to a shareholder derivative lawsuit . accordingly , operating costs and expenses for 2012 is a non-gaap measure , please see subheading non-gaap information reconciliation , for a reconciliation of this to a gaap measure in this item 7. operating costs and expenses in 2014 increased $ 134.1 million , compared to 2013 , principally due to a $ 91.4 million environmental remediation provision for the spill at buenavista , higher depreciation , amortization and depletion at our operations and higher exploration spending . operating costs and expenses in 2013 increased $ 176.6 million , compared to 2012 mainly due to higher cost of sales that was largely caused by the higher cost of fuel , power and labor . the sharp decrease in the purchase and sale of third-party metal concentrates in the 2013 and 2012 years , helped reduce cost of sales ; but higher depreciation , caused by the completion and placing in service of some capital assets for both our buenavista expansion program and our maintenance programs offset those reductions in overall operating costs . · capital expenditures : capital expenditures were $ 1,534.8 million for 2014 , 114.7 % of net income and 9.9 % lower than in 2013. our growth program to develop the full production potential of our company is fully underway . for 2015 , we plan to invest $ 2.7 billion in capital projects , an increase of $ 1.2 billion compared to 2014 and 201.6 % of 2014 's net income . as we have previously reported , our investment program aims to increase copper production capacity by approximately 89 % from our 2013 production level of 617,000 tons to 1,165,000 tons by 2018. the $ 2.7 billion investment will be mainly to ( i ) complete the expansion of the buenavista mine , which will reach a production capacity of 488,000 tons of copper per year ; ( ii ) expansion of toquepala which will increase annual production capacity by 100,000 tons of copper and ; ( iii ) construction of our tia maria project which will produce 120,000 tons of copper cathodes per year . · buenavista del cobre copper solution spill : on august 6 , 2014 , an accidental spill of approximately 40,000 cubic meters of copper sulfate solution occurred at a leaching pond that was under construction ten kilometers away from the mine of buenavista del cobre , s.a. de c.v. ( bvc ) , a subsidiary of the company . the accident was caused by a rock collapse that affected the system 's pumping station and by a construction defect in the seal of a pipe in the leaching system containment dam , a part of the new sx-ew iii plant . this solution reached the bacanuchi river , a branch of the sonora river . story_separator_special_tag all the immediate actions were properly taken in order to contain the spill , and to comply with all the legal requirements . on september 15 , 2014 , bvc , in agreement with the mexican federal government , established a trust of up to two billion pesos ( approximately $ 150 million ) to support the remedial efforts that bvc had already undertaken , to comply with the environmental remediation plan and to pay , as the case may be , material damages to the riverside residents of the seven counties affected by the spill . in 2014 , bvc estimated the contingent liability at $ 91.4 million , of which $ 16.4 million had been paid previous to the establishment of the trust , and approximately one billion pesos ( approximately $ 74.9 million ) was deposited in the trust . these funds have been available and have been used to compensate claims as they have arisen . this deposit was classified as restricted cash and was recorded as an operating expense in the 2014 results . a technical committee was created to manage the funds , comprised of representatives from the federal government , the company and specialists assisted by a team of environmental experts . the trust established by the company and the administrative agreement executed with the corresponding federal authorities , serves as an alternative mechanism for dispute resolution to mitigate public and private litigation risks . 65 key matters we discuss below several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) operating cash costs as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2014 ( in millions , except per share amounts ) : replace_table_token_31_th net sales decreased in the three-year period from 2012 to 2014 , due to lower metal prices for copper and silver , partially offset by an increase in copper and molybdenum sales volumes . the 2014 copper and molybdenum sales volume increased by 4.7 % and 16.1 % , respectively . the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , the latter of which increased in each of the years in the periods above . in 2014 , cost of sales decreased by $ 30.8 million and depreciation , amortization and depletion increased by $ 49.0 million . the decrease in cost of sales was due to lower cost of metals purchased from third parties , labor costs , workers ' participation expense , mining royalties , net currency translation effect and inventory consumption . the increase in depreciation was mainly due to maintenance capital acquisitions at most of our operations . the 2012 operating cost includes a charge of $ 316.2 million for legal fees related to our shareholders derivative lawsuit . this unique charge affects 2012 with no equivalent charge in the other years . in addition , the 2014 operating results include a charge for costs of remediating the spill at buenavista . net income in 2014 was 17.6 % lower mainly due to the above noted factors . production : the table below highlights , mine production data of our company for the three years ended december 31 , 2014 : replace_table_token_32_th 66 the tables below highlights copper production data at each of our mines for the three years ended december 31 , 2014 : replace_table_token_33_th 2014 compared to 2013 : mined copper in 2014 increased 131.3 million pounds , compared to 2013 production . this increase was due to : · higher production at our buenavista mine due to higher throughput at the concentrator and better ore grades and recoveries , as well as higher production from the sx-ew iii plant . · higher production at the toquepala mine and la caridad mine due to better ore grades and recoveries . · higher production at the cuajone mine resulting from higher ore grades and increased throughput from the hpgr production , partially offset by · lower production at immsa mines due to problems at the charcas and santa eulalia mines ; an accident occurred at the charcas mine that temporarily restricted production while the santa eulalia mine experienced flooding problems . molybdenum production increased 7.1 million pounds in 2014 , compared to 2013 , mainly at our buenavista and toquepala mines . zinc mine production from our immsa unit in mexico , decreased by 72.2 million pounds in 2014 , 33.0 % lower than in 2013 , mainly as a result of lower grades at all our immsa mines and lower production at the charcas and santa eulalia mines , as discussed above . our silver production decreased in 2014 , compared to 2013 production , due to lower production at the immsa mines offset by higher production at the toquepala , cuajone , buenavista and la caridad mines . 2013 compared to 2012 : mined copper in 2013 decreased 45.6 million pounds , compared to 2012 production . this decrease was due to : · lower production at our buenavista mine , which experienced temporary flooding problems . · lower production at the toquepala mine due to lower ore grades and throughput at the concentrator , and · lower sx-ew production because of a decrease in pls grades , all partially offset by , · higher production at the cuajone mine resulting from higher ore grades and recoveries . molybdenum production increased 3.6 million pounds in 2013 , compared to 2012. molybdenum production increased at all our mines . la caridad mine reached a new record production of 25.9 million pounds in 2013 compared to the prior year record of 24.2 million pounds .
| replace_table_token_42_th operating costs and expenses the table below summarized the production cost structure by major components for the three years ended 2014 as a percentage of total production cost : replace_table_token_43_th 2014-2013 : operating costs and expenses in 2014 increased $ 134.1 million , compared to 2013 , primarily due to : operating cost and expenses for 2013 $ 3,420.8 plus : · higher depreciation , amortization and depletion mainly at our mexican operations as a result of the acquisition of mine equipment and the start-up of some projects , including the quebalix iv project . in addition , higher depreciation at our peruvian operations from addition of new equipment . 49.0 · higher exploration expenses mainly in south america . 23.6 · environmental remediation expense due to the spill at buenavista . 91.4 · higher selling , general and administrative expenses . 0.9 less : · lower cost of sales ( exclusive of depreciation , amortization and depletion ) , mainly as a result of lower purchases of metals from third parties , mining royalties , labor costs , workers ' participation , net currency translation effect , inventory consumption and others . ( 30.8 ) operating cost and expenses for 2014 $ 3,554.9 76 2013-2012 : operating costs and expenses in 2013 decreased $ 126.7 million , compared to 2012 , primarily due to : operating cost and expenses for 2012 $ 3,560.4 less : · legal fees related to scc shareholder derivative lawsuit in 2012 . ( 316.2 ) plus : · higher cost of sales ( exclusive of depreciation , amortization and depletion ) , principally as a result of higher production cost ( labor , fuel and power and repair material costs ) and higher inventory consumption , partially offset by lower workers ' participation , mining royalties and cost of metals purchased from third parties . 102.1 · higher depreciation , amortization and depletion mainly at our mexican operations as a result of the acquisition of mine equipment and the start-up of some projects , including the quebalix iii project . 70.2 · higher exploration expenses . 3.1 · higher general and administrative
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product sales in 2015 increased 11 % from 2014 , primarily from increased demand from volvo and new sales from the acquisition of cpi . looking forward , the company anticipates that 2016 sales levels will decrease as compared to 2015 , due to lower demand from medium and heavy duty truck customers . medium and heavy duty truck customers as well as industry analysts are forecasting decreases in class 8 truck production of approximately 20 % in 2016 compared to 2015 . story_separator_special_tag $ 37,000,000 from new business starting production in 2014 and the full year impact of new business started in 2013. other customer demand increases positively impacted sales by approximately $ 9,000,000. partially offsetting these increases were lower product sales to paccar associated with programs nearing the end of their production life of approximately $ 10,000,000. sales to navistar in 2014 totaled $ 51,330,000 , compared to $ 47,356,000 reported for 2013. included in total sales are tooling sales of $ 76,000 and $ 972,000 for 2014 and 2013 , respectively . product sales to navistar increased 11 % in 2014 as compared to 2013 primarily due to a change in demand . sales to volvo in 2014 totaled $ 48,859,000 , compared to $ 12,444,000 reported for 2013. included in total sales are tooling sales of $ 2,519,000 and $ 936,000 for 2014 and 2013 , respectively . product sales to volvo increased by $ 34,832,000 in 2014 as compared to 2013 primarily due to the full year impact of 2013 business awards , which did not start generating product revenues for the company until the third quarter of 2013 , and due to a change in demand . sales to paccar in 2014 totaled $ 36,128,000 , compared to $ 50,154,000 reported for 2013. included in total sales are tooling sales of $ 526,000 and $ 7,370,000 for 2014 and 2013 , respectively . product sales to paccar decreased 17 % in 2014 as compared to 2013. this decrease was primarily due to lower sales of products nearing the end of their production life of approximately $ 10,000,000 , partially offset by sales of new products of approximately $ 2,000,000 and from a change in demand from paccar of approximately $ 1,000,000. sales to yamaha in 2014 totaled $ 16,911,000 , compared to $ 13,648,000 reported for 2013. this 24 % increase in sales was due to both yamaha transitioning additional business to the company and a change in demand from yamaha . sales to other customers in 2014 totaled $ 21,976,000 , increasing 7 % from $ 20,523,000 reported for 2013. included in total sales are tooling sales of $ 2,339,000 and $ 751,000 in 2014 and 2013 , respectively . product sales in 2014 totaled $ 19,637,000 , which remained consistent with 2013 sales of $ 19,772,000. gross margin was approximately 17.2 % of sales in 2014 and 16.4 % in 2013. improved fixed cost absorption favorably impacted gross margin as a percent of sales by 1.5 % , due to higher production volumes . in addition , production efficiencies favorably impacted gross margin as a percent of sales by 1.4 % . partially offsetting these improvements was the change in sales mix , which resulted in an unfavorable impact on gross margin of 2.1 % . selling , general and administrative expense ( “ sg & a ” ) totaled $ 15,539,000 in 2014 , compared to $ 13,460,000 in 2013. the increase is primarily driven by increases in labor and benefit related expenses of $ 1,049,000 , profit sharing of $ 734,000 , and outside service costs $ 347,000 , which were primarily incurred during the third quarter in connection with certain strategic initiatives , including an unsuccessful bid for a targeted acquisition . net interest expense totaled $ 122,000 for the year ended december 31 , 2014 , compared to net interest expense of $ 214,000 for the year ended december 31 , 2013. reductions in outstanding term loan balances and higher capitalized interest reduced interest expense by $ 130,000. partially offsetting this reduction was an increase in interest expense of $ 43,000 due to outstanding revolver line of credit balance during 2014. income tax expense was approximately 34 % and 31 % of total income before income taxes in 2014 and 2013 , respectively . income tax as a percent of total income in 2013 was lower , primarily due to a one-time $ 240,000 favorable credit to deferred income taxes associated with mexican tax reform . net income for 2014 was $ 9,634,000 or $ 1.28 per basic and diluted share , compared with net income of $ 6,866,000 or $ 0.95 per basic and $ 0.92 per diluted share for 2013 . 24 liquidity and capital resources 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 and acquisition . in 2008 , the company and its wholly owned subsidiary , corecomposites de mexico , s. de r.l . de c.v. , entered into a credit agreement to refinance some existing debt and borrow funds to finance the construction of the company 's manufacturing facility in mexico . under this credit agreement , the company received certain loans , subject to the terms and conditions stated in the agreement , which included ( 1 ) a $ 12,000,000 capex loan ; ( 2 ) an $ 8,000,000 mexican loan ; ( 3 ) an $ 8,000,000 revolving line of credit ; and ( 4 ) a letter of credit in an undrawn face amount of $ 3,332,493 with respect to the company 's existing industrial development revenue bond financing . the credit agreement is secured by a guarantee of each u.s. subsidiary of the company and by a lien on substantially all of the present and future assets of the company and its u.s. subsidiaries , except that only 65 % of the stock issued by corecomposites de mexico , s. de c.v. has been pledged . story_separator_special_tag the $ 8,000,000 mexican loan was also secured by substantially all of the present and future assets of the company 's mexican subsidiary . on march 27 , 2013 , the company and its wholly owned subsidiary , corecomposites de mexico , s. de r.l . de c.v. , entered into an eighth amendment ( the `` eighth amendment '' ) to the credit agreement . pursuant to the terms of the eighth amendment , the parties agreed to modify certain terms of the credit agreement . these modifications included ( 1 ) an increase to the borrowing limit on the revolving line of credit from $ 8,000,000 to $ 18,000,000 ; ( 2 ) modification to the fixed charge definition to exclude capital expenditures of up to $ 18,000,000 associated with the company 's compression molding capacity expansion and any sheet molding compound manufacturing capacity expansion ; ( 3 ) to extend the commitment period for the revolving line of credit to may 31 , 2015 ; and ( 4 ) to cancel , effective immediately , the unused $ 10,000,000 mexican expansion revolving loan . on october 31 , 2013 , the company and its wholly owned subsidiary , corecomposites de mexico , s. de r.l . de c.v. , entered into a ninth amendment ( the `` ninth amendment '' ) to the credit agreement . pursuant to the terms of the ninth amendment , the parties agreed to decrease the applicable margin for interest rates on eurodollar loans and daily libor loans to 160 basis points from 175 basis points . on march 20 , 2015 , the company and its wholly owned subsidiary , corecomposites de mexico , s. de r.l . de c.v. , entered into a tenth amendment ( the `` tenth amendment '' ) to the credit agreement . pursuant to the terms of the tenth amendment , the parties agreed to modify certain terms of the credit agreement . these modifications included an extension of the commitment period for the revolving line of credit to may 31 , 2017 and an agreement to make a term loan in an original amount of $ 15,500,000 , to finance the acquisition of cpi . on march 30 , 2015 , the company repaid $ 500,000 of unused proceeds from the original term loan . cash provided by operating activities totaled $ 18,615,000 for the year ended december 31 , 2015 . net income of $ 12,050,000 positively impacted operating cash flows . non-cash deductions of depreciation and amortization included in net income amounted to $ 6,041,000 . changes in working capital decreased cash provided by operating activities by $ 978,000 . changes in working capital primarily relate to a decrease in accrued and other liabilities , as well as increases in inventory and accounts receivable . these were partially offset by an increase in accounts payable , as well as decreases in tax receivables and prepaid assets . cash used in investing activities totaled $ 20,195,000 for the year ended december 31 , 2015 , which includes $ 14,512,000 to acquire cpi and $ 5,683,000 related to capacity expansions and equipment purchases at the company 's production facilities . the company anticipates spending approximately $ 7,000,000 during 2016 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 , 2015 , purchase commitments for capital expenditures in progress were approximately $ 1,102,000 . cash provided by financing activities totaled $ 8,211,000 for the year ended december 31 , 2015 . net new borrowings of $ 15,000,000 were utilized to fund the acquisition of cpi . cash used in financing activities included net repayments of $ 2,768,000 on the revolving line of credit and $ 3,964,000 of scheduled repayments of principal on the company 's capex and term loans . additionally reductions in taxes payable due to disqualified dispositions and vesting of restricted stock contributed $ 211,000 to cash flow . purchases of treasury stock to satisfy employee tax withholding requirements on vested restricted stock reduced cash flow from financing activities by $ 287,000 . at december 31 , 2015 , the company had cash on hand of $ 8,943,000 and an available revolving line of credit of $ 18,000,000. management believes that cash on hand , cash flow from operating activities and available borrowings under the credit agreement will be sufficient to meet the company 's current liquidity needs . if a material adverse change in the financial position of the 25 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 . the company is required to meet certain financial covenants included in the credit agreement with respect to leverage ratios , fixed charge ratios , capital expenditures as well as other customary affirmative and negative covenants . as of december 31 , 2015 , the company was in compliance with its financial covenants . management regularly evaluates the company 's ability to effectively meet its debt covenants . based on the company 's forecast , which is primarily based on industry analysts ' estimates of heavy and medium-duty truck production volumes , as well as other assumptions , management believes that the company will be able to maintain compliance with its financial covenants for the next 12 months .
| included in total sales are tooling sales of $ 978,000 and $ 526,000 for 2015 and 2014 , respectively . product sales to paccar decreased 6 % in 2015 as compared to 2014 . this decrease was primarily due to lower sales of products nearing the end of their production life , partially offset by a change in demand for other products . sales to yamaha in 2015 totaled $ 16,766,000 , compared to $ 16,911,000 reported for 2014 . the 1 % decrease in sales was due to changes in customer demand from yamaha . sales to other customers in 2015 totaled $ 36,332,000 , increasing 65 % from $ 21,976,000 reported for 2014 . included in total sales are tooling sales of $ 1,141,000 and $ 2,339,000 in 2015 and 2014 , respectively . product sales to other customers increased 79 % in 2015 as compared to 2014 . in 2015 , product sales were positively impacted from the acquisition of cpi and other new business starting production in 2015. the remaining increase is primarily due to changes in demand from other customers . gross margin was approximately 18.2 % of sales in 2015 and 17.2 % in 2014 . the gross margin increase , as a percent of sales , was due to favorable foreign currency exchange effects of 1.1 % , favorable net changes in selling price and material costs of 0.4 % and favorable contribution from cpi of 0.1 % . these increases were offset by product mix and production inefficiencies of 0.4 % and higher fixed spending of 0.2 % . selling , general and administrative expense ( “ sg & a ” ) totaled $ 17,754,000 in 2015 , compared to $ 15,539,000 in 2014 . contributing to the increase in sg & a expense were sg & a expenses of $ 993,000 from cpi , increased profit sharing costs of $ 603,000 , higher labor and benefits
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this curtailment resulted in a narrowing wcs differential in december 2018 , which ended the year at $ 15.75 per barrel , that has continued into the first quarter of 2019. as of february 22 , 2019 , the wti price was $ 57.11 and the wcs price was $ 44.26 , resulting in a wcs differential of $ 12.85. there remains a risk that prices for canadian oil sands crude oil related products could deteriorate for an extended period of time , and the discount between wcs crude prices and wti crude prices could continue to widen . the depressed price levels through the first quarter of 2016 negatively impacted exploration , development , maintenance and production spending and activity by canadian operators and , therefore , demand for our hospitality services . although we have seen an increase in oil prices since late 2016 and throughout 2017 and 2018 , we are not expecting significant improvement in customer activity in the near-term , partially due to the volatility in the wcs differential discussed above . the current outlook for expansionary projects in canada is primarily related to proposed pipeline and in-situ oil sands projects . however , continued uncertainty and commodity price volatility and regulatory complications could cause our canadian oil sands and pipeline customers to delay expansionary and maintenance spending and defer additional investments in their oil sands assets . additionally , if oil prices continue to decline , the resulting impact could negatively affect the value of our long-lived assets , including goodwill . our sitka lodge , within our canadian business , supports the british columbia lng market and related pipeline projects . from a macroeconomic standpoint , global lng imports set a record in 2018 , reaching 308 million tonnes per annum , up from 284 million tonnes per annum in 2017 , reinforcing the need for the global lng industry to expand access to natural gas . evolving government energy policies around the world have amplified support for cleaner energy supply , creating more opportunities for natural gas and lng . accordingly , the current view is additional investment in lng supply will be needed to meet the expected long-term lng demand growth . currently , western canada does not have any operational lng export facilities . however , on october 1 , 2018 , lng canada ( lngc ) , a large lng export project proposed by a joint venture between shell canada energy , an affiliate of royal dutch shell plc ( 40 percent ) , and affiliates of petronas , through its wholly-owned entity , north montney lng limited partnership ( 25 percent ) , petrochina ( 15 percent ) , korea gas corporation ( 5 percent ) and mitsubishi corporation ( 15 percent ) , announced that a positive final investment decision ( fid ) had been reached on the proposed kitimat liquefaction and export facility in kitimat , british columbia ( kitimat lng facility ) . with the project moving forward , british columbia lng activity and related pipeline projects could become a material driver of future activity for our sitka lodge , as well as for our mobile fleet assets , which are well suited for the related pipeline construction activity . our u.s. business supports oil shale drilling and completion activity and is primarily tied to wti oil prices in the u.s. shale formations in west texas , the bakken , the mid continent , and the rockies . with the recovery in oil prices through the third quarter of 2018 , coupled with ample capital availability for u.s. e & p companies , oil shale drilling and completion activity in the u.s. has significantly increased over the past year . the u.s. oil rig count has increased from its low of 316 rigs in may 2016 to 1,083 oil and gas rigs active at the end of 2018. further , this activity in the u.s. increased oil production from an average of 9.3 million barrels per day in 2017 to an average of 10.8 million barrels per day in 2018. while wti oil prices fell in the fourth quarter of 2018 , there has not been a reduction in the u.s. rig count . as of february 22 , 2019 , there were 853 active oil rigs in the u.s. ( as measured by bakerhughes.com ) . u.s. oil shale drilling and completion activity will continue to be dependent on sustained higher wti oil prices , pipeline capacity and sufficient capital to support e & p drilling and completion plans . in australia , approximately 80 % of our rooms are located in the bowen basin and primarily serve met coal mines in that region . met coal pricing and production growth in the bowen basin region is predominantly influenced by the levels of global steel production , which increased by 4.5 % during 2018 compared to 2017. as of february 22 , 2019 , met coal spot prices were $ 210.05 per metric tonne . current met coal pricing levels have not led our customers to approve many significant new projects . we expect that customers will look for a period of sustained higher prices before the volume of new projects being approved increases . long-term demand for steel is expected to be driven by increased steel consumption per capita in developing 50 economies , such as china and india , whose current consumption per capita is a fraction of developed countries . our customers continue to actively implement cost , productivity and efficiency measures to further drive down their cost base . recent wti crude , wcs crude and met coal pricing trends are as follows : replace_table_token_9_th _ ( 1 ) source : wti crude prices are from u.s. energy information administration ( eia ) , and wcs crude prices and seaborne hard coking coal contract prices are from bloomberg . overview as noted above , demand for our hospitality services is primarily tied to the outlook for crude oil and met coal prices . story_separator_special_tag other factors that can affect our business and financial results include the general global economic environment and regulatory changes in canada , australia , the u.s. and other markets . our business is predominantly located in northern alberta , canada and queensland , australia , and we derive most of our business from natural resource companies who are developing and producing oil sands and met coal resources and , to a lesser extent , other hydrocarbon and mineral resources . more than 80 % of our revenue is generated by our lodges and villages . where traditional accommodations and infrastructure are insufficient , inaccessible or cost ineffective , our lodge and village facilities provide comprehensive hospitality services similar to those found in an urban hotel . we typically contract our facilities to our customers on a fee-per-day basis that covers lodging and meals and is based on the duration of customer needs , which can range from several weeks to several years . generally , our customers are making multi-billion dollar investments to develop their prospects , which have estimated reserve lives ranging from ten years to in excess of 30 years . consequently , these investments are dependent on those customers ' long-term views of commodity demand and prices . during the period of low crude oil prices that extended through the first quarter of 2016 , many of our customers in canada curtailed their operations and spending , and most major oil sands mining operators began reducing their costs and limiting capital spending , thereby limiting the demand for hospitality services of the kind we provide . in the last several years , however , several catalysts have emerged that we believe could have favorable intermediate to long-term implications for our core end markets . since the announcement by opec in late november 2016 to cut production quotas and the subsequent rise in spot oil prices and future oil price expectations , certain operators with steam-assisted gravity drainage operations in the canadian oil sands increased capital spending in 2017. despite construction at the fort hill energy lp project ending in early 2018 , canadian oil sands capital spending in 2018 has been relatively flat , in the aggregate . opec announced additional production cuts in late 2018 in an effort to further support global oil prices . also on december 2 , 2018 , the government of alberta announced it would mandate temporary curtailments of the province 's oil production , which has 51 helped increase wcs prices . recent regulatory approvals of several major pipeline projects have the potential to both drive incremental demand for mobile accommodations assets and to improve take-away capacity for canadian oil sands producers over the longer term . however , these projects have been delayed due to the lack of agreement between the canadian federal government , which supports the pipeline projects , and the british columbia provincial government . the canadian federal government recently acquired kinder morgan 's trans mountain pipeline , emphasizing their support for this particular project . additionally , we believe that the keystone xl pipeline in the u.s. , if constructed , would be a positive catalyst for canadian oil sands producers , as it would bolster confidence in future take-away capacity from the region to u.s. gulf coast refineries . in australia , approximately 80 % of our rooms are located in the bowen basin and primarily serve met coal mines in that region , where our customers continue to implement operational efficiency measures , in order to drive down their cost base . we believe prices are currently at a level that may contribute to increased activity over the long term if our customers view these price levels as sustainable . while we believe that these macroeconomic developments are positive for our customers and for the underlying demand for our hospitality services , we do not expect an immediate improvement in our business . accordingly , we plan to continue focusing on enhancing the quality of our operations , maintaining financial discipline , proactively managing our business as market conditions continue to evolve and integrating the recently acquired noralta assets into our business . we began the expansion of our room count in kitimat , british columbia during the second half of 2015 to support potential lng projects on the west coast of british columbia . we were awarded a contract with lngc for the provision of open lodge rooms and associated services that ran through october 2017. to support this contract , we developed a new accommodations facility , sitka lodge , which includes private washrooms , recreational facilities and other amenities . this lodge currently has 646 rooms , with the potential to expand to serve future accommodations demand in the region . as previously discussed , on october 1 , 2018 , lngc 's participants announced a positive fid on the kitimat lng facility . with the project moving forward , british columbia lng activity and related pipeline projects could become a material driver of future activity for our sitka lodge , as well as for our mobile camp assets , which are well suited for the related pipeline construction activity . we previously announced contract awards totaling c $ 100 million in revenues to supply mobile accommodations for four locations along the cgl pipeline project in british columbia , canada . this pipeline would provide the natural gas for the kitimat lng facility . we expect to deploy approximately c $ 10 million in capital , primarily in 2019 , across all four locations . we expect to begin recognizing revenue from these contracts beginning in 2019. in addition , in the fourth quarter of 2018 , we were awarded room commitments from lngc , cgl and lngc 's engineering , procurement and construction firm to provide rooms and services from sitka lodge . the award covers expected room needs over an initial 18 month time period with a minimum room commitment and options for extension of up to 36 months .
| this increase was largely driven by increases in canada due to the noralta acquisition in the second quarter of 2018 and increased mobile facility rental revenue in 2018 compared to 2017 . additionally , higher activity levels in certain markets in australia and the u.s. contributed to increased revenues , partially offset by a weaker australian dollar relative to the u.s. dollar in 2018 compared to 2017 . please see the discussion of segment results of operations below for further information . cost of sales and services . our consolidated cost of sales increased $ 73.1 million , or 28 % , in 2018 compared to 2017 , primarily due to increases in canada due to the noralta acquisition in the second quarter of 2018 and increased mobile facility rental activity ; in australia due to higher occupancy levels in certain markets ; and the u.s. due to higher activity levels . additionally , a weaker australian dollar relative to the u.s. dollar in 2018 compared to 2017 contributed to decreased cost of sales and services . please see the discussion of segment results of operations below for further information . selling , general and administrative expenses . sg & a expense increased $ 5.6 million , or 9 % , in 2018 compared to 2017 . this increase was primarily due to costs incurred in connection with the noralta acquisition and higher personnel costs primarily associated with increased compensation . these items were partially offset by lower incentive compensation costs . depreciation and amortization expense . depreciation and amortization expense decreased $ 0.6 million , or 0 % , in 2018 compared to 2017 primarily due to reduced depreciation expense resulting from impairments recorded in 2017 and certain assets becoming fully depreciated during 2017 , partially offset by additional property , plant and equipment acquired through recent acquisitions as well as incremental intangible amortization expense related to our acquisitions . impairment expense . we recorded pre-tax impairment expense of $ 28.7 million in 2018 associated with long-lived assets in our canadian segment . impairment expense of $ 31.6 million in 2017 consisted of : pre-tax impairment losses of $ 27.2 million related to certain lodge assets in
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21 consolidated results of operations and financial highlights ( fiscal 2020 ( 52 weeks ) vs. fiscal 2019 ( 53 weeks ) ) results of operations by segment ( fiscal 2020 ( 52 weeks ) vs. fiscal 2019 ( 53 weeks ) ) replace_table_token_2_th replace_table_token_3_th ( 1 ) revenues are primarily derived from volt customer care solutions business through june 2019 . ( 2 ) the majority of intersegment sales results from north american staffing providing resources to volt customer care solutions business . results of operations consolidated ( fiscal 2020 ( 52 weeks ) vs. fiscal 2019 ( 53 weeks ) ) net revenue in fiscal 2020 decreased $ 175.0 million , or 17.6 % , to $ 822.1 million from $ 997.1 million in fiscal 2019 , including the impact of fiscal 2020 consisting of 52 weeks while fiscal 2019 consisted of 53 weeks . the revenue decline was primarily due to decreases in our north american staffing segment of $ 141.8 million , our international staffing segment of $ 19.1 million and the corporate and other category of $ 14.6 million ( related to the exit from our customer care solutions business in june 2019 ) . excluding the impact on net revenue of the 53rd week in fiscal 2019 of approximately $ 18.9 million , $ 14.6 million in revenue from a business exited last year , $ 14.1 million related to msp transitions and negative foreign currency fluctuations of $ 0.1 million , net revenue decreased $ 127.6 million , or 13.4 % . while difficult to accurately estimate the exact amount , approximately $ 90.0 million to $ 105.0 million of this decline is attributable to the impact of covid-19 in the form of business shutdowns or reduced hours from some of our customers and remain at home orders from various states and municipalities . operating loss in fiscal 2020 increased $ 19.6 million , or 198.7 % , to $ 29.4 million from $ 9.8 million in fiscal 2019 primarily due to higher impairment charges in fiscal 2020 and the additional week in fiscal 2019. excluding the business exited last year , the impact of the additional week in fiscal 2019 , as well as restructuring and severance costs and impairment charges , operating loss in fiscal 2020 increased $ 4.7 million , or 90.8 % . this increase in operating loss of $ 4.7 million was primarily due to lower results in our north american msp segment of $ 1.8 million , our international staffing segment of $ 1.4 million and our north american staffing segment of $ 0.9 million . 22 results of continuing operations by segments ( fiscal 2020 ( 52 weeks ) vs. fiscal 2019 ( 53 weeks ) ) net revenue the north american staffing segment revenue decreased $ 141.8 million , or 17.1 % , to $ 689.1 million in fiscal 2020 from $ 830.9 million in fiscal 2019. excluding the impact of the 53rd week in fiscal 2019 of approximately $ 15.8 million , $ 14.4 million in revenue from msp transitions and revenue from our customer care solutions business exited in june 2019 of $ 0.7 million , revenue decreased $ 110.9 million , or 13.9 % in fiscal 2020. while difficult to accurately estimate the exact amount , approximately , $ 90.0 million to $ 100.0 million of this decline is attributable to the impact of covid-19 in the form of business shutdowns or reduced hours from some of our customers and remain at home orders from various states and municipalities . in addition , the segment 's revenue was impacted by lower demand from certain larger customers , partially offset by growth from new and existing customers . the decrease was primarily experienced in our light industrial , information technology , as well as administrative and office job categories . the international staffing segment revenue decreased $ 19.1 million , or 16.7 % , to $ 95.3 million in fiscal 2020 from $ 114.4 million in fiscal 2019. excluding the negative impact of foreign currency fluctuations of $ 0.1 million and the impact of the 53rd week in fiscal 2019 of approximately $ 2.2 million , international staffing revenue decreased by $ 17.0 million , or 15.1 % , primarily due to adjustments to work orders related to statutory legislation changes in the united kingdom and decreases in france , partially offset by improvements in belgium and singapore . the north american msp segment revenue decreased $ 1.1 million , or 2.8 % , to $ 37.9 million in fiscal 2020 from $ 39.0 million in fiscal 2019. excluding the 53rd week in fiscal 2019 of approximately $ 0.9 million partially offset by $ 0.4 million in revenue from msp transitions , revenue decreased $ 0.5 million , or 1.4 % . the decrease was primarily the result of the completion of one project in fiscal 2019 and the impact of covid-19 on headcount in a small number of clients partially offset by increased demand in their payroll service business . the corporate and other category revenue decreased $ 14.6 million , or 95.6 % , to $ 0.7 million in fiscal 2020 from $ 15.3 million in fiscal 2019 primarily as a result of our exit from the customer care solutions business in the beginning of june 2019. cost of services and gross margin cost of services in fiscal 2020 decreased $ 150.3 million , or 17.8 % , to $ 694.2 million from $ 844.5 million in fiscal 2019. excluding the impact on cost of services of the 53rd week and a business exited in fiscal 2019 of approximately $ 29.6 million , cost of services in fiscal 2020 decreased $ 120.7 million , or 14.8 % . this decrease is primarily due to the 13.4 % decline in adjusted revenue partially offset by improvements in gross margin as a percent of revenue . story_separator_special_tag gross margin as a percent of revenue in fiscal 2020 increased to 15.6 % from 15.3 % in fiscal 2019. excluding the customer care solutions business which we exited in june 2019 and the additional week in fiscal 2019 , gross margin as a percentage of revenue in fiscal 2020 increased to 15.6 % from 15.4 % in fiscal 2019. our north american staffing segment margin as a percent of revenue increased primarily due to higher positive workers ' compensation adjustments and claims development and lower payroll tax expense as a percent of direct labor offset by other state-mandated benefit costs as a percent of revenue . in addition , the impact of covid-19 resulted in lower non-billable expenses . this was partially offset by a decrease in direct hire revenue in fiscal 2020 and a decline in administrative fee revenue as a result of the exit from our customer care solutions business . our international staffing segment margin as a percentage of revenue increased due to the decline in lower-margin business . our north american msp segment margin decreased as a result of a higher mix of payroll service revenue and lower margins in the managed service business . selling , administrative and other operating costs selling , administrative and other operating costs in fiscal 2020 decreased $ 19.4 million , or 12.3 % , to $ 137.7 million from $ 157.1 million in fiscal 2019. excluding the impact on selling , administrative and other operating costs of the 53rd week in fiscal 2019 of approximately $ 2.6 million , selling , administrative and other operating costs in fiscal 2020 decreased $ 16.8 million , or 10.9 % . the decrease was primarily due to cost reductions and covid-19 restrictions on travel and working remotely , including $ 12.3 million in labor and related costs primarily due to lower headcount , $ 2.0 million in lower non-capitalized professional fees , $ 1.2 million in facility related costs and $ 1.2 million in travel expenses . in addition , other professional fees decreased by $ 1.4 million in fiscal 2020 and fiscal 2019 included amortization of a deferred gain on the sale of real estate of $ 1.9 million . as a percent of revenue , these costs were 16.7 % and 15.8 % in fiscal years 2020 and 2019 , respectively . 23 restructuring and severance costs restructuring and severance costs in fiscal 2020 decreased $ 2.1 million to $ 2.6 million from $ 4.7 million in fiscal 2019. the costs in fiscal 2020 were primarily due to our continued efforts to reduce costs and to offset covid-19 related revenue losses . this included our plan to leverage the global capabilities of our staffing operations based in bangalore , india and offshore a significant number of strategically identified roles to this location . in october 2018 , the company approved a restructuring plan ( the “ 2018 plan ” ) based on an organizational and process redesign intended to optimize the company 's strategic growth initiatives and overall business performance . the costs in fiscal 2019 primarily included $ 2.1 million of severance and lease termination costs in connection with exiting our customer care solutions business , $ 1.0 million incurred under the 2018 plan and $ 0.9 million incurred in accordance with the separation agreement with our former chief financial officer . the remaining $ 0.7 million of restructuring and severance costs were from other restructuring actions taken by the company as part of its continued efforts to reduce costs and achieve operational efficiency . impairment charges impairment charges in fiscal 2020 increased $ 16.2 million to $ 16.9 million from $ 0.7 million in fiscal 2019. in fiscal 2020 , impairment charges were primarily related to consolidating and exiting certain leased office locations throughout north america based on where we can be fully operational and successfully support our clients and business operations remotely . in fiscal 2019 , impairment charges were primarily related to the impairment of equipment used in our customer care solutions business and previously purchased software . other income ( expense ) , net other expense in fiscal 2020 decreased $ 1.2 million , or 27.5 % , to $ 3.2 million from $ 4.4 million in fiscal 2019 due to a decrease in interest expense as a result of lower rates and a decrease in non-cash foreign exchange losses primarily on intercompany balances . income tax provision income tax provision of $ 1.0 million in both fiscal 2020 and 2019 , respectively , was primarily related to locations outside of the united states . liquidity and capital resources our primary source of liquidity is cash flows from operations and proceeds from our financing arrangements with dz bank . borrowing capacity under these arrangements is directly impacted by the level of accounts receivable , which fluctuates during the year due to seasonality and other factors . our business is subject to seasonality with our fiscal first quarter billings typically the lowest due to the holiday season and generally increasing in the fiscal third and fourth quarters when our customers increase the use of contingent labor . generally , the first and fourth quarters of our fiscal year are the strongest for operating cash flows . our operating cash flows consist primarily of collections of customer receivables offset by payments for payroll and related items for our contingent staff and in-house employees ; federal , foreign , state and local taxes ; and trade payables . we generally provide customers with 15 - 45 day credit terms , with few extenuating exceptions , while our payroll and certain taxes are paid weekly . we manage our cash flow and related liquidity on a global basis . we fund payroll , taxes and other working capital requirements using cash supplemented as needed from our borrowings . our weekly payroll payments inclusive of employment-related taxes and payments to vendors are approximately $ 15.0 million . we generally target minimum global liquidity to be 1.5 times our average weekly requirements taking into account seasonality and cyclical trends .
| our business experienced significant changes in revenue trends at the mid-point of our second quarter of fiscal 2020 as market conditions rapidly deteriorated and continued to decline through the beginning of our third quarter of fiscal 2020. during the second half of fiscal 2020 , revenue has increased sequentially month over month as a result of a combination of existing customers returning to work , expanding business with existing customers and winning new customers . beginning in mid-march 2020 and continuing throughout the year , a number of countries and u.s. federal , state and local governments issued stay-at-home orders requiring persons who were not engaged in essential activities and businesses as defined in those specific orders to remain at home . many other countries and jurisdictions without stay-at-home orders required nonessential businesses to close or otherwise reduce operations and capacity . our first priority , with regard to the covid-19 pandemic , was to ensure the health and safety of our employees , clients , suppliers and others with whom we partner in our business activities to continue our business operations in this unprecedented business environment . our business was largely converted to a remote in-house workforce and remained open as we provided key services to essential businesses , both remotely and onsite at our customers ' locations . we created a covid-19 incident response team comprised of key senior leaders in the organization , to track and manage our covid-19 activities , including monitoring the most up-to-date developments and safety standards from the centers for disease control and prevention , who , occupational safety and health administration and other key authorities . all internal and external information and communications relating to our covid-19 safety protocols , faqs and reporting on covid-19 incidents are managed by this central team . in addition to updating our external website , we actively shared information via regular emails , conference and video calls and other digital communications with clients and employees on how companies and workers can protect themselves during this time . while certain locations remained fully operational throughout the pandemic , other offices have opened on a limited voluntary basis . we continue to monitor the environment to determine whether to close offices , reduce capacity or change required mitigation measures based on federal , state and local regulations as well as guidance from the key authorities described above . the impact on sales
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although we have considered estimated future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowances , changes in these estimates and assumptions , as well as changes in tax laws , could require us to provide for valuation allowances for our deferred tax assets . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . in march 2016 , the fasb issued asu 2016-09 , `` compensation – stock compensation improvements to employee share-based payment accounting . '' this update requires that all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) should be recognized as income tax expense or benefit in the income statement . the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur . an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period . currently , an entity must determine , for each award , whether the difference between the deduction for tax purposes and the compensation cost recognized for 31 financial reporting purposes results in either an excess tax benefit or a tax deficiency . the amendments in this update are effective for us beginning january 1 , 2017. through december 31 , 2016 , we recognized excess tax benefits in additional paid-in capital , and tax deficiencies have been recognized as an offset to accumulated excess tax benefits . in 2017 , we recorded a tax deficiency in the first quarter and , under this new standard , we recognized it as a discrete item in our income statement rather than in additional paid-in capital . we also expect a tax deficiency in the first quarter of 2018 , which will be recognized as a discrete item in our income statement . as further discussed in note 3 , `` income taxes , '' the tax act was enacted on december 22 , 2017 , and significantly affected how the united states imposes income tax on multinational corporations . the u.s. department of the treasury and other regulatory bodies have not finalized potential changes to existing laws and regulations which may result from the tax act . in accordance with sec staff accounting bulletin no . 118 ( `` sab no . 118 '' ) , we have recorded provisional estimates to reflect the effects of the provisions of the tax act on our income tax assets and liabilities as of december 31 , 2017. we continue to collect additional information to support and refine our calculations of the impacts of these changes on our operations and recorded income tax assets and liabilities . the ultimate impacts of the tax act may differ from our provisional estimates due to changes in our interpretations and assumptions as well as additional regulatory guidance . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 to our consolidated financial statements . 32 liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . at december 31 , 2017 , we had working capital of $ 752 million , including cash and cash equivalents of $ 430 million . additionally , we had $ 500 million available through our revolving credit facility under a credit agreement further described below . in october 2014 , we entered into a credit agreement ( as amended , the `` credit agreement '' ) with a group of banks . in february 2018 , we entered into agreement and amendment no . 4 to credit agreement ( `` amendment no . 4 '' ) to the credit agreement . the credit agreement provides for a $ 500 million five-year revolving credit facility ( the `` revolving credit facility '' ) . the credit agreement previously provided for a $ 300 million three-year term loan , which we repaid in full in february 2018 , using net proceeds from our february 2018 offering of our 6.000 % senior notes due 2028 described further below . subject to certain conditions , the aggregate commitments under the revolving credit facility may be increased by up to $ 300 million at any time upon agreement between us and existing or additional lenders . borrowings under the revolving credit facility may be used for general corporate purposes . amendment no . 4 amended the credit agreement to , among other things , extend the maturity of the revolving credit facility to january 25 , 2023 with the extending lenders , which represent 90 % of the existing commitments of the lenders , such that ( a ) the total commitments for the revolving credit facility will be $ 500 million until october 25 , 2021 , and thereafter $ 450 million until january 25 , 2023. borrowings under the revolving credit facility bear interest at an adjusted base rate or the eurodollar rate ( both as defined in the credit agreement ) , at our option , plus an applicable margin based on our leverage ratio ( as defined in the credit agreement ) and , at our election , based on the ratings of our senior unsecured debt by designated ratings services , thereafter to be based on such debt ratings . the applicable margin varies : ( 1 ) in the case of advances bearing interest at the adjusted base rate , from 0.125 % to 0.750 % ; and ( 2 ) in the case of advances bearing interest at the eurodollar rate , from 1.125 % to 1.750 % . the adjusted base rate is the highest of ( 1 ) the per annum rate established by the administrative agent as its prime rate , ( 2 ) the federal funds rate plus 0.50 story_separator_special_tag although we have considered estimated future taxable income and ongoing prudent and feasible tax-planning strategies in assessing the need for the valuation allowances , changes in these estimates and assumptions , as well as changes in tax laws , could require us to provide for valuation allowances for our deferred tax assets . provisions for valuation allowances impact our income tax provision in the period in which such adjustments are identified and recorded . in march 2016 , the fasb issued asu 2016-09 , `` compensation – stock compensation improvements to employee share-based payment accounting . '' this update requires that all excess tax benefits and tax deficiencies ( including tax benefits of dividends on share-based payment awards ) should be recognized as income tax expense or benefit in the income statement . the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur . an entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period . currently , an entity must determine , for each award , whether the difference between the deduction for tax purposes and the compensation cost recognized for 31 financial reporting purposes results in either an excess tax benefit or a tax deficiency . the amendments in this update are effective for us beginning january 1 , 2017. through december 31 , 2016 , we recognized excess tax benefits in additional paid-in capital , and tax deficiencies have been recognized as an offset to accumulated excess tax benefits . in 2017 , we recorded a tax deficiency in the first quarter and , under this new standard , we recognized it as a discrete item in our income statement rather than in additional paid-in capital . we also expect a tax deficiency in the first quarter of 2018 , which will be recognized as a discrete item in our income statement . as further discussed in note 3 , `` income taxes , '' the tax act was enacted on december 22 , 2017 , and significantly affected how the united states imposes income tax on multinational corporations . the u.s. department of the treasury and other regulatory bodies have not finalized potential changes to existing laws and regulations which may result from the tax act . in accordance with sec staff accounting bulletin no . 118 ( `` sab no . 118 '' ) , we have recorded provisional estimates to reflect the effects of the provisions of the tax act on our income tax assets and liabilities as of december 31 , 2017. we continue to collect additional information to support and refine our calculations of the impacts of these changes on our operations and recorded income tax assets and liabilities . the ultimate impacts of the tax act may differ from our provisional estimates due to changes in our interpretations and assumptions as well as additional regulatory guidance . for a summary of our major accounting policies and a discussion of recently adopted accounting standards , please see note 1 to our consolidated financial statements . 32 liquidity and capital resources we consider our liquidity and capital resources adequate to support our operations and growth initiatives . at december 31 , 2017 , we had working capital of $ 752 million , including cash and cash equivalents of $ 430 million . additionally , we had $ 500 million available through our revolving credit facility under a credit agreement further described below . in october 2014 , we entered into a credit agreement ( as amended , the `` credit agreement '' ) with a group of banks . in february 2018 , we entered into agreement and amendment no . 4 to credit agreement ( `` amendment no . 4 '' ) to the credit agreement . the credit agreement provides for a $ 500 million five-year revolving credit facility ( the `` revolving credit facility '' ) . the credit agreement previously provided for a $ 300 million three-year term loan , which we repaid in full in february 2018 , using net proceeds from our february 2018 offering of our 6.000 % senior notes due 2028 described further below . subject to certain conditions , the aggregate commitments under the revolving credit facility may be increased by up to $ 300 million at any time upon agreement between us and existing or additional lenders . borrowings under the revolving credit facility may be used for general corporate purposes . amendment no . 4 amended the credit agreement to , among other things , extend the maturity of the revolving credit facility to january 25 , 2023 with the extending lenders , which represent 90 % of the existing commitments of the lenders , such that ( a ) the total commitments for the revolving credit facility will be $ 500 million until october 25 , 2021 , and thereafter $ 450 million until january 25 , 2023. borrowings under the revolving credit facility bear interest at an adjusted base rate or the eurodollar rate ( both as defined in the credit agreement ) , at our option , plus an applicable margin based on our leverage ratio ( as defined in the credit agreement ) and , at our election , based on the ratings of our senior unsecured debt by designated ratings services , thereafter to be based on such debt ratings . the applicable margin varies : ( 1 ) in the case of advances bearing interest at the adjusted base rate , from 0.125 % to 0.750 % ; and ( 2 ) in the case of advances bearing interest at the eurodollar rate , from 1.125 % to 1.750 % . the adjusted base rate is the highest of ( 1 ) the per annum rate established by the administrative agent as its prime rate , ( 2 ) the federal funds rate plus 0.50
| rov revenue in 2017 also included a $ 7.3 million sale of accessory equipment that was integrated into a customer 's rigs . both the days-on-hire and lower dayrates are a result of the continued decline in market conditions for offshore drilling and production . operating income in 2017 did not decline from 2016 , as we incurred $ 41.0 million of charges in 2016 further described below . our rov operating income decreased in the year ended december 31 , 2016 compared to the prior year , as a result of lower days on hire and lower average revenue per day-on-hire , as well as 2016 inventory write-downs and fixed asset write-offs totaling $ 36.0 million . during 2016 , the leading indicator for deepwater activity , contracted floating rigs , continued to decline as the rate of rigs being idled , either by contract termination or expiration , continued . this prevailing market condition required us to reassess the number of rovs we had in our fleet , as well as the associated inventory . as a result of our reassessment , in 2016 we recorded $ 36.0 million of charges consisting of : ( 1 ) $ 25.2 million for a reserve for excess inventory ; and ( 2 ) $ 10.8 million for the retirement of 39 rovs . during 2016 we also incurred charges related to restructuring expenses of $ 3.8 million and bad debt expenses of $ 1.2 million . in our financial statements , the charges incurred in 2016 are reflected in our cost of services and products , except for the charges related to bad debts , which are reflected in general and administrative expenses . for rovs in 2018 , we project increased days on hire . however , we expect lower operating income due to a shift in geographic mix and continued competitive pricing driving our average revenue per day lower . we normally expect to retire , on average , 4 % to 5 % of our fleet on an annual basis , although we retired a
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as of december 31 , 2015 we had one such residual interest financing outstanding , which was repaid in full in november 2016. generally , prior to a securitization transaction we fund our automobile contract purchases primarily with proceeds from warehouse credit facilities . our current short-term funding capacity is $ 300 million , comprising three credit facilities . the first $ 100 million credit facility was established in may 2012. this facility was renewed in august 2016 , extending the revolving period to august 2018 , and adding an amortization period through august 2019. in april 2015 , we entered into a $ 100 million facility , with a revolving period extending to april 2017 , followed by an amortization period to april 2019. in november 2015 , we entered into a third $ 100 million facility , with a revolving period extending to november 2017 , followed by an amortization period to november 2019 . 31 in a securitization and in our warehouse credit facilities , we are required to make certain representations and warranties , which are generally similar to the representations and warranties made by dealers in connection with our purchase of the automobile contracts . if we breach any of our representations or warranties , we will be obligated to repurchase the automobile contract at a price equal to the principal balance plus accrued and unpaid interest . we may then be entitled under the terms of our dealer agreement to require the selling dealer to repurchase the contract at a price equal to our purchase price , less any principal payments made by the customer . subject to any recourse against dealers , we will bear the risk of loss on repossession and resale of vehicles under automobile contracts that we repurchase . whether a securitization is treated as a secured financing or as a sale for financial accounting purposes , the related special purpose subsidiary may be unable to release excess cash to us if the credit performance of the securitized automobile contracts falls short of pre-determined standards . such releases represent a material portion of the cash that we use to fund our operations . an unexpected deterioration in the performance of securitized automobile contracts could therefore have a material adverse effect on both our liquidity and results of operations , regardless of whether such automobile contracts are treated as having been sold or as having been financed . credit risk retained whether a sale of automobile contracts in connection with a securitization or warehouse credit facility is treated as a secured financing or as a sale for financial accounting purposes , the related special-purpose subsidiary may be unable to release excess cash to us if the credit performance of the related automobile contracts falls short of pre-determined standards . such releases represent a material portion of the cash that we use to fund our operations . an unexpected deterioration in the performance of such automobile contracts could therefore have a material adverse effect on both our liquidity and our results of operations , regardless of whether such automobile contracts are treated for financial accounting purposes as having been sold or as having been financed . for estimation of the magnitude of such risk , it may be appropriate to look to the size of our `` managed portfolio , `` which represents both financed and sold automobile contracts as to which such credit risk is retained . our managed portfolio as of december 31 , 2016 was approximately $ 2,308.1 million . critical accounting policies we believe that our accounting policies related to ( a ) allowance for finance credit losses , ( b ) amortization of deferred origination costs and acquisition fees , ( c ) term securitizations , ( d ) accrual for contingent liabilities and ( e ) income taxes are the most critical to understanding and evaluating our reported financial results . such policies are described below . allowance for finance credit losses in order to estimate an appropriate allowance for losses incurred on finance receivables , we use a loss allowance methodology commonly referred to as `` static pooling , `` which stratifies our finance receivable portfolio into separately identified pools based on the period of origination . using analytical and formula driven techniques , we estimate an allowance for finance credit losses , which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts . for each monthly pool of contracts that we originate , we begin establishing the allowance in the month of acquisition and increase it over the subsequent 11 months , through a provision for credit losses charged to our consolidated statement of operations , with the goal of establishing an allowance that approximates the next 12 months of expected net losses . net losses incurred on finance receivables are charged to the allowance . we evaluate the adequacy of the allowance by examining current delinquencies , the characteristics of the portfolio , prospective liquidation values of the underlying collateral and general economic and market conditions . as circumstances change , our level of provisioning and or allowance may change as well . 32 broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio , as does the weighted average age of the receivables at any given time . our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives , with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months , after which they gradually decrease . the historical weighted average seasoning of our total owned portfolio excluding fireside , is summarized in the table below : replace_table_token_19_th the credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluating contracts for purchase from dealers . story_separator_special_tag we regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the credit performance of our portfolio , while maintaining competitive programs and levels of service for our dealers . amortization of deferred originations costs and acquisition fees upon purchase of a contract from a dealer , we generally either charge or advance the dealer an acquisition fee . in addition , we incur certain direct costs associated with acquisitions of our contracts . all such acquisition fees and direct costs are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method . term securitizations our term securitization structure has generally been as follows : we sell automobile contracts we acquire to a wholly-owned special purpose subsidiary , which has been established for the limited purpose of buying and reselling our automobile contracts . the special-purpose subsidiary then transfers the same automobile contracts to another entity , typically a statutory trust . the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . we structure our securitizations to include internal credit enhancement for the benefit the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts . the specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held by the trusts and on other conditions , and may also be varied by agreement among us , our special purpose subsidiary , the insurance company , if any , and the trustee . such levels have increased and decreased from time to time based on performance of the various portfolios , and have also varied from one transaction to another . the agreements governing the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance . 33 our september 2008 securitization and the subsequent re-securitization of the remaining receivables from such transaction in september 2010 were each in substance sales of the underlying receivables , and have been treated as sales for financial accounting purposes . they differ from those treated as secured financings in that the trust to which our special-purpose subsidiaries sold the automobile contracts met the definition of a `` qualified special-purpose entity '' under statement of financial accounting standards no . 140 ( asc 860 ) . as a result , assets and liabilities of those trusts are not consolidated into our consolidated balance sheet . our warehouse credit facility structures are similar to the above , except that ( i ) our special-purpose subsidiaries that purchase the automobile contracts pledge the automobile contracts to secure promissory notes that they issue , and ( ii ) no increase in the required amount of internal credit enhancement is contemplated . our current maximum revolving warehouse financing capacity is $ 300 million . upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes , whether a term securitization or a warehouse financing , we retain on our consolidated balance sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness . we receive periodic base servicing fees for the servicing and collection of the automobile contracts . under our securitization structures treated as secured financings for financial accounting purposes , such servicing fees are included in interest income from the automobile contracts . in addition , we are entitled to the cash flows from the trusts that represent collections on the automobile contracts in excess of the amounts required to pay principal and interest on the asset-backed securities , base servicing fees , and certain other fees and expenses ( such as trustee and custodial fees ) . required principal payments on the asset-backed notes are generally defined as the payments sufficient to keep the principal balance of such notes equal to the aggregate principal balance of the related automobile contracts ( excluding those automobile contracts that have been charged off ) , or a pre-determined percentage of such balance . where that percentage is less than 100 % , the related securitization agreements require accelerated payment of principal until the principal balance of the asset-backed securities is reduced to the specified percentage . such accelerated principal payment is said to create overcollateralization of the asset-backed notes .
| our operating expenses consist largely of provision for credit losses , interest expense , employee costs and general and administrative expenses . provision for credit losses and interest expense are significantly affected by the volume of automobile contracts we purchased during the trailing 12-month period and by the outstanding balance of finance receivables held by consolidated subsidiaries . employee costs and general and administrative expenses are incurred as applications and automobile contracts are received , processed and serviced . factors that affect margins and net income include changes in the automobile and automobile finance market environments , and macroeconomic factors such as interest rates and changes in the unemployment level . employee costs include base salaries , commissions and bonuses paid to employees , and certain expenses related to the accounting treatment of outstanding stock options , and are one of our most significant operating expenses . these costs ( other than those relating to stock options ) generally fluctuate with the level of applications and automobile contracts processed and serviced . other operating expenses consist largely of facilities expenses , telephone and other communication services , credit services , computer services , marketing and advertising expenses , and depreciation and amortization . total operating expenses were $ 372.6 million for the year ended december 31 , 2016 , compared to $ 302.3 million for the prior year , an increase of $ 70.4 million , or 23.3 % . the increase is primarily due to the increase in the amount of new contracts we purchased , the resulting increase in our consolidated portfolio and associated interest expense , servicing costs , and the related increase in our provision for credit losses . 36 employee costs increased by $ 6.0 million or 10.1 % , to $ 65.5 million during the year ended december 31 , 2016 , representing 17.6 % of total operating expenses , from $ 59.6 million for the prior year , or 19.7 % of total operating expenses . since 2010 ,
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the company is receiving monthly payments under the transition agreement which approximate the rental rate with the old operator plus the interest on the mezzanine loan . these payments are to continue as long as the transition agreement is in place . the transition agreement will terminate when the licenses are transferred to the new operator , at which time the new lease will become effective . during 2018 , the company did not receive , and thus did not recognize as revenue : ◦ approximately one and a half monthly rental payments in cash , reimbursement of expenses and late fees totaling approximately $ 0.3 million ( $ 0.018 per diluted share of ffo ) ; and ◦ approximately four months of interest payments and late fees totaling approximately $ 0.2 million ( $ 0.011 per diluted share of ffo ) . in addition , since the company entered into the transition agreement which anticipates the termination the lease with the old operator , the company has written-off straight-line rent of approximately $ 0.2 million ( $ 0.012 per diluted share of ffo ) at december 31 , 2018. the transition agreement includes provisions for the company to receive payment for the amounts it was due and not paid . the company anticipates collecting the amounts enumerated above . 45 the transition is ongoing and should be concluded no later than the end of the second quarter of 2019 at which time the lease with the new operator should become effective . while there may be some short-term effect from timing of receipts or reimbursement of expenses , the company does not anticipate any material adverse effect to its cash flows or net income on a going forward basis . purchase option provisions certain of the company 's leases provide the lessee with a purchase option or a right of first refusal to purchase the leased property . the purchase option provisions generally require the lessee to purchase the leased property at fair value or at an amount greater than the company 's gross investment in the leased property at the time of the purchase . at december 31 , 2018 , the company had a gross investment of approximately $ 3.3 million in one real estate property with a purchase option exercisable at december 31 , 2018 and has an aggregate gross investment at december 31 , 2018 in four additional properties totaling approximately $ 5.3 million with purchase options that become exercisable during 2019 . atm program on august 7 , 2018 , the company entered into an at-the-market offering program ( `` atm program '' ) with sandler o'neill & partners , l.p. , evercore group l.l.c. , suntrust robinson humphrey , inc. , bb & t capital markets , a division of bb & t securities , llc , fifth third securities inc. and janney montgomery scott llc , as sales agents ( collectively , the `` agents '' ) , under which the company may issue and sell shares of its common stock , having an aggregate gross sales price of up to $ 100.0 million , from time to time through or to one or more of the agents , as may be determined by the company in its sole discretion , subject to the terms and conditions of the agreement and applicable law . during 2018 , the company issued , through its atm program , 334,700 shares of common stock at an average gross sales price of $ 31.07 per share and received net proceeds of approximately $ 10.0 million after deducting commissions and offering expenses paid by the company , as discussed in note 8 to the consolidated financial statements . the proceeds were used to repay outstanding balances under the company 's credit facility , to fund investments , and for general corporate purposes . credit facility the company 's credit facility is by and among community healthcare op , lp , the company , the lenders from time to time party thereto , and suntrust bank , as administrative agent . the credit facility provides for a $ 150.0 million revolving credit facility ( the `` revolving credit facility '' ) and $ 100.0 million in term loans ( the `` term loans '' ) . the credit facility , through the accordion feature , allows borrowings up to a total of $ 450.0 million , including the ability to add and fund additional term loans . the revolving credit facility matures on august 9 , 2019 and includes two 12 -month options to extend the maturity date of the revolving credit facility , subject to the satisfaction of certain conditions . the term loans include a five -year term loan facility in the aggregate principal amount of $ 50.0 million ( the `` 5-year term loan '' ) , which matures on march 29 , 2022 , and a seven -year term loan facility in the aggregate principal amount of $ 50.0 million ( the `` 7-year term loan '' ) , which matures on march 29 , 2024 . at december 31 , 2018 , the company had $ 43.0 million outstanding under the revolving credit facility with a remaining borrowing capacity of $ 107.0 million and a weighted average interest rate of approximately 4.41 % . at december 31 , 2018 , the company had drawn the full $ 100.0 million under the term loans which had a fixed weighted average interest rate under the swaps of approximately 4.45 % . see note 6 to the consolidated financial statements for more details on the credit facility . lease expirations as of december 31 , 2018 , approximately 8.5 % to 10.2 % of our leases will expire in each of the next 5 years . management expects that many of the tenants will renew their leases , but in cases where they do not renew , the 46 company believes it will generally be able to re-lease the space to existing or new tenants without significant loss of rental income . story_separator_special_tag contractual obligations the company 's material contractual obligations at december 31 , 2018 are included in the table below . at december 31 , 2018 , the company had no long-term capital lease or purchase obligations . replace_table_token_4_th ( 1 ) the amounts shown include interest at the weighted average interest rate at december 31 , 2018 and the unused fee interest assuming the credit facility remains at $ 43.0 million through its maturity . ( 2 ) the amounts shown include interest at the current fixed rates through the in-place cash flow hedges assuming the term loans remain at $ 100.0 million outstanding through maturity . ( 3 ) in addition to the amounts in the table above , the company has tenant improvement allowances included in leases with its tenants totaling approximately $ 1.4 million that it could be obligated to reimburse the tenants for if the tenants completed such improvements . off-balance sheet arrangements we have no off-balance sheet arrangements that are reasonably likely to have a material effect on the company 's consolidated financial condition , results of operations or liquidity . inflation we believe inflation will have a minimal impact on the operating performance of our properties . many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation . these provisions include clauses that enable us to receive payment of increased rent pursuant to escalation clauses which generally increase rental rates during the terms of the leases . these escalation clauses often provide for fixed rent increases or indexed escalations ( based upon cpi or other measures ) . however , some of these contractual rent increases may be less than the actual rate of inflation . generally , our lease agreements require the tenant to pay property operating expenses , including maintenance costs , real estate taxes and insurance . this requirement reduces our exposure to increases in these costs and property operating expenses resulting from inflation . seasonality we do not expect our business to be subject to material seasonal fluctuations . new accounting pronouncements see note 1 to the company 's consolidated financial statements accompanying this report for information on new accounting standards not yet adopted . 47 story_separator_special_tag style= '' line-height:120 % ; padding-top:4px ; text-align : left ; font-size:10pt ; '' > the company recorded a $ 5.0 million impairment related to a mezzanine note with one of its operators . see note 11 to the consolidated financial statements for details . income tax benefit the company recorded income tax benefits generally related to the impairment of a mezzanine note in 2018 and deferred compensation in both 2018 and 2017. year ended december 31 , 2017 compared to december 31 , 2016 the table below shows our results of operations for the year ended december 31 , 2017 compared to the same period in 2016 and the effect of changes in those results from period to period on our net income . replace_table_token_6_th revenues revenues increased approximately $ 12.1 million or 48.2 % , for the year ended december 31 , 2017 compared to the same period in 2016 due mainly to the following : acquisitions during 2017 contributed revenues of approximately $ 6.7 million in 2017 ; 50 acquisitions during 2016 , including one mortgage note that was subsequently converted upon the acquisition of the real estate securing the note , contributed an increase in revenues of approximately $ 7.0 million in 2017 ; and revenues for 2017 decreased approximately $ 1.6 million related to the properties acquired during 2015 due to a reduction in tenant reimbursement revenue impacted by a reduction in operating expenses on certain properties , as well as decrease in revenues from the loss of certain tenants . expenses property operating expenses increased approximately $ 3.9 million , or 83.0 % , for the year ended december 31 , 2017 compared to the same period in 2016 mainly due to the following : acquisitions during 2017 accounted for an increase of approximately $ 0.9 million in 2017 ; acquisitions during 2016 accounted for an increase of approximately $ 1.7 million in 2017 ; we recorded contingent consideration related to three acquisitions during 2015 and 2016 and we recorded adjustments to the fair value of these contingent considerations during 2016 which resulted in a reduction to property operating expense during 2016 of approximately $ 1.3 million . general and administrative expenses general and administrative expenses increased approximately $ 0.6 million or 18.8 % , for the year ended december 31 , 2017 compared to the same period in 2016 due mainly to compensation-related expenses and occupancy costs related to our employees and corporate office , including the amortization of non-vested restricted common shares issued under the 2014 incentive plan and expenses related to the addition of employees . depreciation and amortization expense depreciation and amortization expense increased approximately $ 4.5 million or 34.3 % , for the year ended december 31 , 2017 compared to the same period in 2016 due mainly to the following : depreciation and amortization related to properties acquired during 2017 accounted for an increase of approximately $ 2.9 million in 2017 ; depreciation and amortization related to properties acquired during 2016 accounted for an increase of approximately $ 3.4 million in 2017 ; and real estate intangible assets acquired in 2015 that became fully depreciated resulted in a decrease of approximately $ 1.8 million in 2017. interest expense interest expense increased approximately $ 2.8 million for the year ended december 31 , 2017 compared to the same period in 2016 due mainly to the following : 51 in the first quarter of 2017 , the company amended its credit facility and borrowed $ 60.0 million in term loans which resulted in additional interest expense during 2017 of approximately $ 2.2 million ; interest related to our revolving credit facility increased approximately $ 0.6 million due mainly to an increase in our weighted average interest rate during 2017. income tax benefit the company recorded an income tax benefit related to deferred compensation in 2017. liquidity and capital
| 42.0 % , for the year ended december 31 , 2018 compared to the same period in 2017 due mainly to compensation-related expenses and occupancy costs related to our employees and corporate office , including the amortization of non-vested restricted common shares issued under the 2014 incentive plan and expenses related to the addition of employees . depreciation and amortization expense increased approximately $ 1.8 million , or 10.2 % , for the year ended december 31 , 2018 compared to the same period in 2017 due mainly to the following : depreciation and amortization related to properties acquired during 2018 accounted for an increase of approximately $ 1.2 million in 2018 ; depreciation and amortization related to properties acquired during 2017 accounted for an increase of approximately $ 3.3 million in 2018 ; and real estate intangible assets acquired in 2015 and 2016 that became fully depreciated resulted in a decrease of approximately $ 2.7 million in 2018. gain on sale of real estate during the fourth quarter of 2018 , the company disposed of a 61,000 square foot physician clinic in alabama , received net proceeds of approximately $ 3.2 million , and recognized a gain of approximately $ 0.3 million . the company disposed of the property pursuant to the tenant 's exercise of its purchase option on the property . interest expense interest expense increased approximately $ 2.4 million , or 59.5 % , for the year ended december 31 , 2018 compared to the same period in 2017 due mainly to the following : in the first quarter of 2017 , the company borrowed $ 60.0 million in term loans and borrowed the remaining $ 40.0 million in term loans in the first quarter of 2018. these term loans resulted in additional interest expense in 2018 of approximately $ 1.9 million ; the company amended its credit facility in the first quarter of 2017
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there can be no assurance that the company will be able to develop effective nanoviricides , or if developed , that we will have sufficient resources to be able to successfully manufacture and market these products to commence revenue-generating operations . there can be no assurance that other developments in the field would not impact our business plan adversely . for example , successful creation and availability of an effective vaccine may reduce the potential market size for a particular viral disease . our goal , which we can give no assurance that we will achieve , is for nanoviricides , inc. to become the premier company developing highly safe and effective drugs that employ an integrated multiplicity of actions as enabled by our nanomedicine approach for anti-viral therapy . to date , we have engaged in organizational activities ; developing and sourcing compounds and preparing nano-materials ; and experimentation involving preclinical studies using cell cultures and animals . we have generated funding through the issuances of debt and the sales of securities under our shelf registration and the private placement of common stock ( see , item 5 ) . the company does not currently have any long-term debt . a series c convertible debentures of $ 5m will mature on june 30 , 2018 as presented in the financial statements and more fully described herein . we have not generated any revenues and we do not expect to generate revenues in the near future . we may not be successful in developing our drugs and start selling our products when planned , or we may not become profitable in the future . we have incurred net losses in each fiscal period since inception of our operations . our collaborations and service contract agreements our development model is to employ collaborations and service contract relationships with renowned academic labs , government labs , as well as service contracts with external service providers in order to minimize our capital requirements . 49 all of our agreements provide for the evaluation of nanoviricides® substances created and provided by the company to the laboratory ( or collaborator ) . in general , the laboratory is compensated for certain material and personnel costs for these evaluations . the evaluations involve in vitro and in vivo scientific studies at the laboratory using their established protocols . in some cases , the company provides scientific input regarding certain modifications to their protocols as may be needed . the laboratory returns the results and data to the company . the laboratory is allowed to publish the results after allowing time for the company to protect intellectual property ( ip ) as needed . the company sends nanoviricides as well as positive control ( i.e . known therapeutics ) and negative control ( i.e . known not to work ) compounds as needed in a fully formulated , ready to use form , to the laboratory . all ip related to the nanoviricide materials , their formulations and reformulations , and their usage , rests with the company . any ip developed by the laboratory regarding their own know-how , such as laboratory tests , their modifications , etc . rests with the laboratory . joint inventions are treated as per applicable us laws . the company tries to choose the scientific laboratories with the most appropriate facilities and know-how relating to a particular field for the evaluation of an antiviral agent developed by the company . the company also tries to work with more than one laboratory for the evaluation of an antiviral agent developed by the company . the company also tries to work with more than one laboratory for a given group of viruses whenever possible . we seek to improve confidence by obtaining independent datasets for corroboration of the efficacy and safety of the nanoviricides we develop . in addition , the company tries to minimize dependence on a particular laboratory for the development of any specific drug candidate in our product pipeline . to date , the company has engaged in non-glp efficacy and safety evaluations in both in vitro ( cell culture models ) and in vivo ( animal models ) of our different nanoviricides® at different laboratories . our current relationships include : for herpes virus infections , shingles , and for viral diseases of the eye ( adenoviruses , herpesviruses - epidemic kerato-conjunctivitis ( ekc ) , herpes keratitis ) : 1. the moffat lab at suny upstate medical center , syracuse , ny . 2. the corl at the university of wisconsin , madison , wi 3. the campbell lab at the university of pittsburgh , pa 4. transpharm preclinical solutions , mi , a cro for influenza viruses : 1. the webster lab at st jude children 's hospital , tn 2. integrated biotherapeutics , inc. , md . 3. public health england , uk 4. southern research institute , al . for dengue hemorrhagic fever viruses : 1. university of california at berkeley , prof. eva harris lab . for hiv : 1. southern research institute , frederick , md . 2. other collaborations in development . for ebola/marburg viruses : 1. united states army medical institute of infectious diseases ( usamriid ) , dr. pamela glass lab . 2. public health england , uk . in addition , we have signed an agreement with the biologics consulting group ( bcg ) , alexandria , virginia , to help us with the us fda applications processes , and with the development of applications as well as drug development programs , as needed . we have also signed an agreement with australian biologics pty , ltd. to help us with the regulatory processes in australia . 50 we have also signed a master services agreement with basi to perform cglp and glp-like safety and toxicological studies that are necessary for filing an ind for each of our drugs . story_separator_special_tag in april 2014 , we finalized a master services agreement ( msa ) with public health england ( phe ) , uk , the british government 's equivalent of the u.s. centers for disease control , this agreement allows for animal efficacy evaluation of various nanoviricides drug candidates against viruses of mutual interest at the bsl2 , bsl3 or bsl4 facilities at phe-uk as the case may be . we have also recently signed a master services agreement with integrated biotherapeutics , inc. ( “ ibt ” ) , gaithersburg , md , a provider of pre-clinical anti-viral evaluation services . we have additional collaborations in the process of formalization . we have also signed a non-disclosure agreement with the lovelace respiratory research institute , albuquerque , nm . we typically employ more than one external laboratory to perform testing for a particular disease agent in order to limit possible laboratory level bias . we previously had a collaborative research agreement with the walter reed army institute of research ( wrair ) , dr. putnak lab , for work on dengue viruses . this agreement has since lapsed , but we believe it can be reactivated at an opportune time . to date , we have entered into the following collaborations . vzv ( hhv-3 ) nanoviricides efficacy evaluation agreement with the moffat lab at the sumy upstate medical center , syracuse , ny . in october 2016 , we entered into an agreement with suny upstate medical university for the testing of its nanoviricides® drug candidates against varicella zoster virus , i.e . the shingles virus . the research will be performed in the laboratory of dr. jennifer moffat and will include in vitro , ex vivo and possibly in vivo studies . dr. moffat has extensive experience in varicella zoster virus ( vzv ) infection and antiviral agent discovery . the goal of these studies is to help select a clinical drug development candidate for toxicology and safety evaluation intended for clinical trials for the treatment of shingles in humans . vzv is restricted to human tissue and only infects and replicates in human tissue . the in vitro studies will evaluate the effectiveness of the company 's nanoviricides antiviral agents against vzv infection of certain human cells in culture . the ex vivo studies will evaluate the efficacy of the company 's nanoviricides to inhibit vzv in human skin organ cultures . dr. moffat has developed the human skin organ culture vzv infection model for the evaluation of therapeutics . this model is a good representative model of natural vzv infection in humans as well as an important model for evaluating antiviral activity , because it demonstrates behavior similar to the skin lesions caused by vzv in human patients . dr. moffat is an internationally recognized expert on varicella zoster virus , and her research has focused on the pathogenesis and treatment of infection by this virus . the national institutes of health has recognized this vzv model via a contract with dr. moffat 's lab for evaluating antiviral compounds against vzv . dr. moffat is the director of two research core facilities at suny upstate : the center for humanized mouse models and in vivo imaging . the company has established a direct relationship with the moffat lab , without nih as an intermediary . subsequent to the reporting period , on july 10 , 2017 , the company announced the results of initial testing of our anti-herpes drug candidates in the ex vivo human skin patch model performed by dr. moffat . 51 the anti-shingles nanoviricides® drug candidates achieved dramatic reduction in infection of human skin by the varicella-zoster virus ( vzv ) , the shingles virus in this study . these findings corroborate the previously reported findings of inhibition of vzv infection of human cells in culture . the antiviral effect of certain nanoviricide drug candidates was substantially greater than the effect of the standard positive control of cidofovir added into media . even more remarkably , the effect of these nanoviricides drug candidates was equivalent to a topical formulation of 1 % cidofovir applied directly onto the skin patch . a topical skin cream containing 2 % cidofovir is clinically used in very severe cases of shingles . however , the cytotoxicity of cidofovir is known to cause ulceration of the skin to which it is applied , followed by natural wound healing . additional studies towards selection of the final drug candidate ( s ) to be studied in safety/toxicology are continuing at present . selection of clinical candidate for an investigational new drug application ( ind ) and human clinical studies is anticipated as these studies progress . with these results that corroborate findings in cell culture studies in both our lab and dr. moffat 's lab , we believe that the anti-shingles topical drug candidate is worthy of advancing into further pre-clinical development into safety/toxicology studies . we believe that the vzv drug candidate program is now our most advanced program to advance into safety/toxicology studies that are needed for an ind filing and human clinical trials . however , at present , we do not have a license from theracour to develop and commercialize drugs against vzv and there can be no assurance that the company will be able to enter into an agreement with theracour for such license on terms that are favorable to the company . hsv-1 and hsv-2 nanoviricides efficacy evaluation agreement with the collaborative ophthalmic research laboratories ( corl ) at the university of wisconsin , madison , wi . in january 2016 , we signed an agreement with corl . under this agreement , corl will perform evaluation of efficacy of our nanoviricides drug candidates in cell culture assays as well as in small animal studies towards the goal of filing an ind application for ocular herpes keratitis , and possibly for recurrent herpes labialis ( rhl , “ cold sores ” ) . the studies will be performed in the laboratory of dr. curtis brandt , an expert in herpes simplex virus infections and in evaluating anti-viral agents .
| income taxes - there is no provision for income taxes due to ongoing operating losses . as of june 30 , 2017 , we had estimated cumulative tax benefits and development tax credits and other deferred tax credits resulting in a deferred tax asset of approximately $ 40,393,660. this amount has been offset by a full valuation allowance . net loss - for the year ended june 30 , 2017 , the company had a net loss of $ 10,304,490 , or a basic loss per share of $ 0.17 and fully diluted loss per share of $ 0.17 compared to a net loss of $ 10,724,629 , or a basic loss per share of $ 0.19 and a fully diluted loss per share of $ 0.19 for the year ended june 30 , 2016. the decrease in the company 's net loss from the year ended june 30 , 2017 to the year ended june 30 , 2016 of $ 420,139 is generally attributable to the larger gain resulting from the change in fair value of derivatives , and decreases in interest expenses . liquidity and capital reserves the company had cash and cash equivalents of $ 15,099,461 and $ 24,162,185 at june 30 , 2017 and 2016 , respectively . on the same dates , current liabilities outstanding totaled $ 4,665,518 and $ 6,744,014 , respectively . since inception , the company has expended substantial resources on research and development . consequently , we have sustained substantial losses . the company has an accumulated deficit of $ 75,128,691 and $ 64,824,201 at june 30 , 2017 and 2016 , respectively . the company estimates that it can support current budgeted operations through september 2018. while our cash and cash equivalent balance is sufficient for us to continue our operations through september 2018 , it is insufficient to fully execute the company 's business plan . if the company is unable to obtain debt or equity financing to meet its cash needs it may have to severely
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we recognize development milestones associated with each agreement as revenue upon achievement of each milestone if the milestone is considered substantive . from inception through december 31 , 2011 , we recognized $ 32.2 million in development grant and other revenue , which includes milestones and services . cost of sales product cost of sales includes direct labor and materials costs related to each product sold or produced , including assembly , test labor and scrap , as well as factory overhead supporting our manufacturing operations . factory overhead includes facilities , material procurement and control , manufacturing engineering , quality assurance , supervision and management . these costs are primarily salary , fringe benefits , share-based compensation , facility expense , supplies and purchased services . the majority of our costs are currently fixed due to our relatively low production volumes compared to our potential capacity . all of our manufacturing costs are included in product cost of sales . development and other cost of sales consists primarily of salaries , fringe , facilities , and supplies directly attributable to our development contracts . research and development our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology , clinical trials , regulatory expenses , quality assurance programs , materials and products for clinical trials . research and development expenses are primarily related to employee compensation , including salary , fringe benefits , share-based compensation , and temporary employee expenses . we also incur significant expenses to operate our clinical trials including clinical site reimbursement , clinical trial product and associated travel expenses . our research and development expenses also include fees for design services , contractors and development materials . selling , general and administrative our selling , general and administrative expenses primarily consist of salary , fringe benefits and share-based compensation for our executive , financial , sales , marketing and administrative functions . other significant expenses include trade show expenses , sales samples , insurance , professional fees for our outside legal counsel and independent auditors , litigation expenses and consulting expenses . story_separator_special_tag style= '' margin-top:12px ; margin-bottom:0px ; text-indent:4 % '' > selling , general and administrative . selling , general and administrative expense increased $ 5.3 million to $ 40.5 million for the twelve months ended december 31 , 2010 , compared to $ 35.2 million for the twelve months ended december 31 , 2009. the increase was primarily due to higher selling , information technology , and international development costs to support revenue growth and the continued commercialization of our products . major elements of increased selling , general , and administrative expenses include $ 4.0 million in higher salaries , bonus , and payroll related costs , $ 0.6 million in higher depreciation expense , and $ 0.4 million in higher commissions . interest income . interest income decreased $ 0.3 million to $ 0.1 million for the twelve months ended december 31 , 2010 , compared to $ 0.4 million for the twelve months ended december 31 , 2009. the decrease in interest income was primarily due to lower average interest bearing cash and marketable securities balances and lower yields earned on those balances during the twelve months ended december 31 , 2010 as compared to the same period of 2009. interest expense . interest expense decreased $ 6.5 million to $ 1.5 million for the twelve months ended december 31 , 2010 , compared to $ 8.0 million for the twelve months ended december 31 , 2009. the decrease in interest expense was primarily due to lower non-cash interest expense relating to the accretion of the debt discount for the 4.75 % senior convertible notes ( the notes ) issued in march 2007 , and lower coupon interest expense relating to the notes outstanding as a result of the conversions of the notes that occurred during the twelve months ended december 31 , 2010. loss on debt extinguishment upon conversion of convertible debt for the twelve months ended december 31 , 2010 , we completed exchanges with prior holders of our issued and outstanding notes , under which we issued an aggregate of approximately 7.9 million shares of our common 54 stock , par value $ 0.001 per share , in exchange for $ 60.0 million in aggregate principal amount of the notes previously held by the exchanging holders . we incurred a loss on the extinguishment of the notes in the amount of $ 8.5 million for the twelve months ended december 31 , 2010 , which includes the difference between the carrying value and the fair value of the notes on the conversion date , other consideration given to note holders to induce early conversion and transaction costs incurred with third parties , other than the investors , to settle the conversion of the notes . liquidity and capital resources we are in the early commercialization stage and have incurred losses since our inception in may 1999. as of december 31 , 2011 , we had an accumulated deficit of $ 391.1 million and had working capital of $ 89.7 million . our cash , cash equivalents and short-term marketable securities totaled $ 81.9 million , excluding $ 0.9 million in restricted cash . we have funded our operations primarily from the sale of equity and debt securities and our bank line . in january 2010 , we completed a follow-on public offering of 4,025,000 shares of our common stock for net proceeds of approximately $ 33.0 million . in november 2010 , we completed a follow-on public offering of 3,277,500 shares of our common stock for net proceeds of approximately $ 33.0 million . in may 2011 , we completed a follow-on public offering of 4,700,000 shares of our common stock for net proceeds of approximately $ 71.2 million . net cash used in operating activities . story_separator_special_tag net cash used in operating activities decreased $ 12.6 million to $ 30.1 million for the twelve months ended december 31 , 2011 , compared to $ 42.7 million for the same period in 2010. the decrease in cash used in operating activities was primarily due to $ 10.4 million in lower net loss and $ 6.2 million in lower changes in operating assets and liabilities , offset by $ 4.1 million in lower non-cash charges primarily comprised of loss on the extinguishment of debt upon conversion of our notes . net cash used in investing activities . net cash used in investing activities was $ 46.4 million for the twelve months ended december 31 , 2011 , compared to $ 25.6 million for the same period of 2010. the increase in cash used in investing activities was primarily due to $ 29.2 million increase in cash used to purchase available-for-sale marketable securities offset by $ 9.6 million increase in proceeds from the maturity of available-for-sale marketable securities for the twelve months ended december 31 , 2011 as compared to the same period in 2010. for the twelve months ended december 31 , 2011 , we invested $ 8.0 million in equipment to support manufacturing improvements compared to $ 6.9 million during the same period in 2010. net cash provided by financing activities . net cash provided by financing activities increased $ 4.5 million to $ 74.2 million for the twelve months ended december 31 , 2011 , compared to $ 69.6 million for the same period of 2010. the increase was primarily due to the approximately $ 71.2 million in net proceeds generated by the sale of common stock in the follow on public offering completed in may 2011 for the twelve months ending december 31 , 2011 compared to approximately $ 66.0 million in the same period of 2010. operating capital and capital expenditure requirements we anticipate that we will continue to incur net losses for the foreseeable future as we incur expenses to continue to expand the commercialization of our approved products , develop additional continuous glucose monitoring products , and expand our marketing , manufacturing and corporate infrastructure . we believe that our cash , cash equivalents , short-term marketable securities balances , and projected cash contributions from existing partnership arrangements will be sufficient to meet our anticipated cash requirements with respect to the continued scale-up of our commercialization activities , research and development activities , including clinical trials , the expansion of our marketing , manufacturing and corporate infrastructure , and to meet our other anticipated cash needs through at least december 31 , 2012. if our available cash , cash equivalents and short-term marketable securities are insufficient to satisfy our liquidity requirements , or if we develop additional products , we may seek to sell additional equity or debt securities or obtain an additional credit facility . the sale 55 of additional equity and debt securities may result in additional dilution to our stockholders . if we raise additional funds through the issuance of debt securities or preferred stock , these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations . we may require additional capital beyond our currently forecasted amounts . any such required additional capital may not be available on reasonable terms , if at all . additionally , there can be no assurance that we will be successful in obtaining additional cash contributions from future partnership arrangements . our ability to transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure . if events or circumstances occur such that we do not meet our operating plan as expected , or if we are unable to obtain additional financing , we may be required to reduce planned increases in compensation related expenses or other operating expenses related to research , development , and commercialization activities , which could have an adverse impact on our ability to achieve our intended business objectives . because of the numerous risks and uncertainties associated with the development of continuous glucose monitoring technologies , we are unable to estimate the exact amounts of capital outlays and operating expenditures associated with our current and anticipated clinical trials . our future funding requirements will depend on many factors , including , but not limited to : the revenue generated by sales of our approved products and other future products ; the expenses we incur in manufacturing , developing , selling and marketing our products ; the quality levels of our products and services ; the third party reimbursement of our products for our customers ; our ability to efficiently scale our manufacturing operations to meet demand for our current and any future products ; the costs , timing and risks of delays of additional regulatory approvals ; the costs of filing , prosecuting , defending and enforcing any patent claims and other intellectual property rights , including , but not limited to , defending the patent infringement lawsuit filed against us by abbott ; the rate of progress and cost of our clinical trials and other development activities ; the success of our research and development efforts ; the emergence of competing or complementary technological developments ; the terms and timing of any collaborative , licensing and other arrangements that we may establish ; and the acquisition of businesses , products and technologies . on february 21 , 2012 , we entered into an agreement and plan of merger ( the merger agreement ) to acquire the stock of sweetspot diabetes care , inc. ( sweetspot ) . sweetspot is a healthcare-focused information technology company with a platform for uploading and processing data from diabetes devices to advance the treatment of diabetes . sweetspot specializes in turning raw output from patient devices into information for healthcare providers , patients and researchers .
| the decrease in costs associated with development was primarily due to fewer development obligations during the year with respect to our collaboration arrangements . research and development . research and development expense increased $ 7.5 million to $ 30.7 million for the twelve months ended december 31 , 2011 , compared to $ 23.2 million for the twelve months ended december 31 , 2010. the increase in research and development expense was primarily due to increased development efforts for our future generation ambulatory products and by decreased activity with respect to our development and collaboration agreements . major elements of increased research and development costs include $ 2.1 million in additional consulting costs , $ 1.8 million in additional salaries , bonus , and payroll related costs , and $ 1.7 million in additional share-based compensation . selling , general and administrative . selling , general and administrative expense increased $ 9.4 million to $ 49.9 million for the twelve months ended december 31 , 2011 , compared to $ 40.5 million for the twelve months ended december 31 , 2010. the increase was primarily due to higher selling , customer operations , and information technology costs to support revenue growth and the continued commercialization of our products . major elements of increased selling , general , and administrative expenses include $ 4.6 million in higher salaries , bonus , and payroll related costs , $ 1.5 million in higher share-based compensation , and $ 1.0 million in higher facility costs . interest income . interest income increased $ 12,000 to $ 0.1 million for the twelve months ended december 31 , 2011 , compared to $ 0.1 million for the twelve months ended december 31 , 2010. the increase in interest income was primarily due to higher average interest bearing cash and marketable securities balances offset by lower yields earned on those balances during the twelve months ended december 31 , 2011 as compared to the same
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operating profit operating profit decreased $ 98.8 million to $ 566.5 million ( 11.1 % of sales ) in 2020 compared to $ 665.3 million ( 12.9 % of sales ) in 2019. foreign currency had a 2 % unfavorable impact on operating profit in both the 2020 and 2019 periods . adjusted operating profit was $ 729.7 million ( 14.4 % of sales ) for 2020 , a decrease from $ 793.1 million ( 15.4 % of sales ) for 2019 , principally driven by unfavorable price versus input costs and mix and sales volume reductions on existing business due , principally , to covid-19 , partially offset by the impact of productivity , integration and cross selling initiatives . 37 story_separator_special_tag 39 replace_table_token_4_th taste segment profit taste segment profit decreased $ 46.0 million to $ 436.4 million ( 14.0 % of segment sales ) in 2020 from $ 482.4 million ( 15.1 % of segment sales ) in the comparable 2019 period . the decrease principally reflected volume reductions on existing business and unfavorable price versus input costs and mix , partially offset by new win performances ( net of losses ) , integration , cross selling and productivity initiatives . scent segment profit scent segment profit increased $ 7.8 million to $ 357.3 million ( 18.1 % of segment sales ) in 2020 , compared to $ 349.4 million ( 18.0 % of segment sales ) reported in 2019. the increase in segment profit principally reflected the impact of new win performances ( net of losses ) and productivity initiatives , partially offset by unfavorable price versus input costs and mix . global expenses global expenses represent corporate and headquarters-related expenses which include legal , finance , human resources and r & d and other administrative expenses that are not allocated to an individual business unit . in 2020 , global expenses were $ 64.0 million compared to $ 38.8 million during 2019. the increase was principally driven by higher incentive compensation expense in 2020 and lower gains from our currency hedging program . interest expense in 2020 , interest expense decreased $ 6.4 million to $ 131.8 million , compared to $ 138.2 million in 2019. this decrease was primarily driven by repayments on the 2018 term loan facility and teus . average cost of debt was 3.0 % for the 2020 and 2019 periods . other income , net other income , net , decreased approximately $ 23.7 million to $ 6.7 million of income in 2020 versus $ 30.4 million of income in 2019. the decrease was primarily driven by foreign exchange losses . income taxes the effective tax rate was 16.8 % in 2020 as compared to 17.4 % in 2019. the year-over-year decrease was largely due to a more favorable mix of earnings and lower repatriation costs , partially offset by loss provisions and the cost of global intangible low-taxed income ( `` gilti '' ) . 40 excluding the $ 32.8 million tax benefit associated with the pre-tax frutarom integration related costs , restructuring and other charges , net , losses on sale of assets , employee separation costs , a pension settlement , frutarom acquisition related costs , compliance review & legal defense costs , n & b transaction related costs and n & b integration related costs , the adjusted effective tax rate for 2020 was 17.5 % . for 2019 , the adjusted effective tax rate was 18.1 % excluding the $ 26.2 million tax benefit associated with the pre-tax operational improvement initiatives , frutarom integration related costs , restructuring and other charges , net , losses on sale of assets , fda mandated product recall , frutarom acquisition related costs , compliance review & legal defense costs and n & b transaction related costs . the year-over-year decrease was largely due to a more favorable mix of earnings and lower repatriation costs , partially offset by loss provisions and the cost of gilti . 2019 in comparison to 2018 for a comparison of our results of operations for the fiscal years ended december 31 , 2019 and december 31 , 2018 , see “ part ii , item 7. management 's discussion and analysis of financial condition and results of operations ” of exhibit 99.1 to our form 8-k for the fiscal year ended december 31 , 2019 , filed with the sec on june 18 , 2020. liquidity and capital resources cash and cash equivalents we had cash and cash equivalents of $ 649.5 million at december 31 , 2020 compared to $ 606.8 million at december 31 , 2019 and of this balance , a portion was held outside the united states . cash balances held in foreign jurisdictions are , in most circumstances , available to be repatriated to the united states . effective utilization of the cash generated by our international operations is a critical component of our strategy . we regularly repatriate cash from our non-u.s. subsidiaries to fund financial obligations in the u.s. as we repatriate these funds to the u.s. we will be required to pay income taxes in certain u.s. states and applicable foreign withholding taxes during the period when such repatriation occurs . accordingly , as of december 31 , 2020 , we have a deferred tax liability of $ 47.1 million for the effect of repatriating the funds to the u.s. restricted cash as discussed in note 1 to the consolidated financial statements , restricted cash relates to amounts escrowed for various items including for payments to be made to former frutarom option holders and for acquisition related payments . story_separator_special_tag at december 31 , 2020 we had a balance of $ 10.3 million ( of which $ 7.3 million is included in current assets and $ 3.0 million is included in other assets ) compared to $ 17.1 million at december 31 , 2019. cash flows from operating activities operating cash flows in 2020 were $ 714.1 million compared to $ 699.0 million in 2019 and $ 437.6 million in 2018. the increase in operating cash flows from 2019 to 2020 was principally driven by changes primarily related to accounts receivable , inventories , incentive compensation and accrued expenses , largely offset by lower cash earnings in the current year . the increase in operating cash flows from 2018 to 2019 was principally driven by higher earnings from inclusion of our frutarom acquisition and lower net working capital primarily related to accounts receivable . working capital ( current assets less current liabilities ) totaled $ 1.2 billion at year-end 2020 compared to $ 1.4 billion at year-end 2019. we have various factoring agreements in the u.s. and the netherlands under which we can factor up to approximately $ 100 million in receivables with a financial institution . additionally , we maintain factoring programs that are sponsored by certain customers . under all of the arrangements , we sell the receivables on a non-recourse basis to unrelated financial institutions and account for the transactions as a sale of receivables . the applicable receivables are removed from our consolidated balance sheet when the cash proceeds are received . as of december 31 , 2020 , 2019 and 2018 , we had sold receivables pursuant to these factoring programs of approximately $ 248.8 million , $ 205.7 million and $ 168.3 million , respectively . participation in the various programs increased cash provided by operations by approximately $ 43.1 million , $ 37.7 million and $ 13.6 million in 2020 , 2019 and 2018 , respectively . the cost of participating in these programs was approximately $ 4.4 million , $ 7.1 million , and $ 3.4 million in 2020 , 2019 , and 2018 , respectively ( see note 1 for additional information ) . cash flows used in investing activities net investing activities in 2020 utilized $ 187.5 million compared to $ 225.9 million and $ 5.0 billion in 2019 and 2018 , respectively . the decrease in cash paid for investing activities from 2019 to 2020 was primarily driven by lower payments for acquisitions and lower spending on property , plant and equipment , partially offset by lower proceeds from disposal of assets in 2020 and cash paid on settlement of derivative instruments in 2020 versus proceeds in 2019. the decrease in cash paid for investing activities from 2018 to 2019 was primarily driven by higher payments for acquisitions in 2018. in 2019 , we acquired 41 certain companies as described in note 3 for approximately $ 49.1 million , net of cash acquired . in 2018 , we acquired frutarom for approximately $ 7.0 billion ( net of cash acquired ) of which $ 4.9 billion was paid in cash . additions to property , plant and equipment were $ 191.8 million , $ 236.0 million and $ 170.1 million in 2020 , 2019 and 2018 , respectively ( net of grants and other reimbursements from government authorities ) . these investments largely arise from our ongoing focus to align our manufacturing facilities with customer demand , primarily in emerging markets , and new technology consistent with our strategy . in light of the covid-19 pandemic , we have evaluated and re-prioritized our capital projects . we expect that capital spending in 2021 will be approximately 4.5 % of sales ( net of potential grants and other reimbursements from government authorities ) . frutarom integration initiative we expect to achieve $ 145 million of synergy targets , with total savings in line with our original expectations . see note 2 for additional information related to the frutarom integration initiative . cash flows used in financing activities net cash used in financing activities in 2020 was $ 511.6 million , compared to $ 505.1 million in 2019 and cash provided by financing activities of $ 4.9 billion in 2018 , respectively . the slight increase in 2020 versus 2019 was principally driven by higher repayments of debt and higher dividend payments , largely offset by cash proceeds from issuance of new long-term debt in the current year . the decrease in 2019 versus 2018 was principally driven by frutarom related financing activities in 2018 , partially offset by higher dividend payments in 2019. at december 31 , 2020 and 2019 , we had approximately $ 4.4 billion of debt outstanding . we paid dividends totaling $ 322.6 million , $ 313.5 million and $ 230.2 million in 2020 , 2019 and 2018 , respectively . the cash dividend declared per share in 2020 , 2019 and 2018 was $ 3.04 , $ 2.96 and $ 2.84 , respectively . our capital allocation strategy is primarily focused on debt repayment to maintain our investment grade rating . we will also prioritize capital investment in our businesses to support the strategic long term plans . we are also committed to maintaining our history of paying a dividend to investors determined by our board of directors at its discretion based on various factors . we currently have a board approved stock repurchase program with a total remaining value of $ 279.7 million . as of may 7 , 2018 , we have suspended our share repurchases . capital resources operating cash flow provides the primary source of funds for capital investment needs , dividends paid to shareholders and debt service repayments . we anticipate that cash flows from operations and availability under our existing credit facilities will be sufficient to meet our investing and financing needs . we regularly assess our capital structure , including both current and long-term debt instruments , as compared to our cash generation and investment needs in order to provide ample flexibility and to optimize our leverage ratios .
| sales growth in the scent business unit was led by consumer fragrances , primarily driven by new win performances ( net of losses ) and volume increases in most product offerings , such as fabric and home care items , to support consumer demand related to the covid-19 pandemic . fragrance ingredients also contributed to a slight increase in the growth of the scent business unit , primarily driven by volume increases , offset by price reductions . performance in the scent business unit was offset by fine fragrances through the first nine months of 2020 , primarily driven by volume reductions caused by the disruption of consumer access to retail markets due to covid-19 . however , in the fourth quarter of 2020 , fine fragrances sales grew slightly compared to the fourth quarter of 2019 , primarily driven by new win performances ( net of losses ) , offset by volume reductions . cost of goods sold cost of goods sold , as a percentage of sales , increased to 59.0 % in 2020 compared to 58.9 % in 2019. research and development ( r & d ) overall r & d expenses , as a percentage of sales , increased to 7.0 % in 2020 compared to 6.7 % in 2019. selling and administrative ( s & a ) s & a expenses increased $ 72.7 million to $ 948.8 million , or 18.7 % as a percentage of sales , in 2020 compared to $ 876.1 million , or 17.0 % as a percentage of sales , in 2019. adjusted s & a expense increased by $ 19.8 million to $ 808.7 million ( 15.9 % as a percentage of sales ) in 2020 compared to $ 788.9 million ( 15.3 % as a percentage of sales ) in 2019. the increase in s & a expenses was due to higher employee related expenses ( including bonuses to essential workers in 2020 ) and incentive compensation . restructuring and other charges restructuring and other charges decreased to $ 17.3 million in 2020 compared to $ 29.8 million in 2019 primarily driven by the decrease in costs related to the 2019 severance plan ( see note 2 for additional information ) . amortization of acquisition-related intangibles amortization expenses decreased
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imaging restructuring on may 28 , 2003 the company announced that it was consolidating its domestic manufacturing of imaging chemicals into its norcross , georgia , facility and that it would be curtailing manufacturing at its st. louis , missouri , facility sometime during the second quarter of the fiscal year ending march 31 , 2004. the physical move of manufacturing and related equipment is expected to begin in the second quarter and complete consolidation is expected early in the company 's fourth quarter . the majority of the 26 employees at its st. louis facility will be given severance packages upon curtailment of operations . severance and costs of relocating the manufacturing operation are estimated to total approximately $ 500,000 net of tax ( $ 0.10 a diluted share ) and will be recognized in 2004. liquidity and capital resources the company has historically financed its operations and acquisitions with internally generated cash flows , supplemented with outside borrowings . the following table summarizes cpac , inc. 's consolidated cash flow information ( in thousands ) : replace_table_token_1_th net cash provided by ( used in ) operating activities consolidated net cash provided by operating activities decreased in 2003 as compared to 2002 primarily due to lower income before cumulative effect of change in accounting principle , caused by lower imaging segment profits . consolidated net cash provided by operating activities decreased in 2002 , as compared to 2001 , due primarily to the decline in net income in both segments . 16 net cash provided by ( used in ) investing activities consolidated net cash used in investing activities decreased in 2003 versus 2002 , due to the company 's 19 % equity investment in tura ag in 2002. property , plant and equipment additions in 2003 were relatively consistent with 2002 levels , with the largest expenditure related to cpac italia 's move and improvements to their new manufacturing facility in gorgonzola . cash used in investing activities in 2004 will be impacted by the company 's first quarter additional 21 % $ 1,300,000 investment in tura ag . consolidated net cash used in investing activities increased in 2002 over 2001 , primarily due to the company 's initial 19 % investment of $ 1,891,000 in tura ag . net cash provided by ( used in ) financing activities consolidated net cash used in financing activities decreased in 2003 over 2002. one of the contributors to the decrease was the reduction in common stock shares repurchased during the year , and reduced debt paydowns as a result of lower debt levels in 2003. in 2002 consolidated net cash used in financing activities decreased versus 2001 , due to lower debt reduction payments ( $ 235,000 ) , lower dividends due to less shares outstanding ( $ 104,000 ) , offset by increased stock repurchases ( $ 215,000 ) versus the prior year . working capital ratios working capital is the excess of current assets over current liabilities . the working capital ratio is calculated by dividing current assets by current liabilities . replace_table_token_2_th in 2003 the company continued to build working capital , despite lower sales and profits , due to tight cash controls , aggressive receivable collections , implementation of inventory reduction goals within the fuller brands segment , and reduction in working capital borrowings at cpac asia , as a result of continued strong cash flow . during fiscal 2002 , despite the shortfall in sales and profits , the company 's fuller brands segment continued to provide positive cash flow , allowing the consolidated company to continue its stock repurchase programs , acquire capital assets where needed , and fund the imaging segment 's investment in tura ag . during fiscal 2001 , reductions in capital spending ( $ 1.7 million ) and reductions in stock repurchases ( $ 4.2 million ) helped to offset lower earnings ( $ 1 million ) and contributed to increased working capital and an improvement in the working capital ratio . during june 2002 , the company renewed its existing line of credit agreement ( agreement ) , with a new two-year agreement , maturing on october 31 , 2004. the agreement continues the maximum borrowing capability of $ 20,000,000 , with interest at libor plus 1.25 % to 2 % , based on funded debt to ebita parameters . it also requires meeting various financial covenants with which the company was in compliance at march 31 , 2003. the agreement also contains a $ 6.2 million letter of credit facility , which the company uses to collateralize the fuller brands ' industrial revenue bonds . the company 's majority-owned subsidiary cpac asia imaging products limited has a line of credit with an international bank of 20 million baht ( approximately $ 464,000 based on the year-end conversion rate in thailand ) . interest is payable at the bank 's announced prime rate in thailand , which was 8.75 % at march 31 , 2003 , with the line collateralized by a standby letter of credit ( loc ) guaranteed by cpac , inc. cpac asia imaging products limited had borrowings against the line of credit of $ 13,107 at march 31 , 2003. management believes that its existing available lines of credit and cash flows from operations should be adequate to meet normal working capital needs , based on operations as of march 31 , 2003. it is expected that additional financing may be necessary to allow the company to pursue additional acquisitions . asset turnover ratios replace_table_token_3_th receivable days outstanding improved in 2003 versus 2002 , helped in part by improved collection efforts with the fuller brush segment . receivable days outstanding in 2002 remained consistent with 2001 , despite the decline in sales . 17 inventory turns decreased slightly in 2003 , due to lower net sales than anticipated . story_separator_special_tag inventory turns decreased slightly in 2002 as compared to 2001 , due to an increase in inventory levels over the last three to six months of fiscal 2002. profitability ratios operating return on net sales is the result of dividing operating income by net sales . net income on net sales is calculated by dividing net income by net sales . net income to net worth is calculated by dividing net income by the amount of ending shareholders ' equity . replace_table_token_4_th the decrease in operating return on net sales in 2003 as compared to 2002 , is largely a function of the imaging segment 's reduced sales with flat operating costs , higher unallocated corporate overhead , mitigated by an improvement in the fuller brands segment operating income led by its entrée into the television home shopping business . the negative return on net income ( loss ) on net sales and net income ( loss ) to net worth for 2003 is a function of the $ 6.3 million cumulative effect of a change in accounting principle charge taken upon adoption of sfas no . 142 in the company 's first quarter . the decrease in operating return on net sales , net income on net sales , and net income to net worth in 2002 , as compared to 2001 , is a result of the reduction in sales and earnings in both the fuller brands and imaging segments . leverage ratios debt to debt-plus-equity is calculated by dividing all liabilities by the sum of all liabilities plus shareholders ' equity . total debt to equity is calculated by dividing all liabilities by the amount of shareholders ' equity . these ratios measure the extent to which the company has been financed by debt and are an important measure to our lending institutions . replace_table_token_5_th in 2003 debt to debt plus equity and debt to equity remained relatively constant versus 2002 , despite the net loss incurred by the company , as a result of the sfas no . 142 adoption and related adjustment of $ 6.3 million , net of tax . also helping to minimize the decline was the fact that total liabilities decreased , while equity decreases slowed due to the reduction of the company 's stock buyback program . the ratios remained relatively consistent in 2002 as compared to 2001 , with continued debt paydown improving the debt to equity ratio . contractual cash obligations ( amounts in thousands ) the following table summarizes information about the company 's consolidated contractual cash obligations and other commercial commitments ( in thousands ) , as of march 31 , 2003 , and the effect such obligations are expected to have on its consolidated liquidity and cash flow in future periods : replace_table_token_6_th 18 amount of commitment expiration per period total less than 1 year 1 to 3 years 4 to 5 years after 5 years unused credit facilities ( 1 ) ( 2 ) $ 20,451 $ 0 $ 20,451 $ 0 $ 0 standby letters of credit 160 0 160 0 0 total commercial commitments $ 20,611 $ 0 $ 20,611 $ 0 $ 0 ( 1 ) as of march 31 , 2003 , the company had no borrowings against its $ 20 million line of credit with its primary domestic lending institution . ( 2 ) as of march 31 , 2003 , the company 's majority owned subsidiary cpac asia imaging products limited had borrowed approximately $ 13,000 against its $ 464,000 line of credit , leaving $ 451,000 of available borrowing capacity . the company believes that these liabilities have no material impact on cpac , inc. 's liquidity and capital resources . as of the date of the report , cpac , inc. had no other commercial commitments , which may impact its capital resources and liquidity . in the absence of unforeseen developments , cpac , inc. believes that it has sufficient liquidity to fund its operating expenses and other operational requirements at least for the 12 months following the date of this report . critical accounting policies and estimates the accompanying consolidated financial statements and notes to financial statements contain information that is pertinent to management 's discussion and analysis of financial condition and results of operations . the preparation of financial statements in conformity with generally accepted accounting principles in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , and expenses . actual results may differ from these estimates and assumptions . cpac , inc. believes that the critical accounting policies and estimates discussed below involve additional management judgement due to the sensitivity of the methods and assumptions necessary in determining the related asset , liability , revenue , and expense amounts . revenue recognition the company recognizes revenue when it is realized or realizable and earned , based on terms of sale with the customer . this occurs primarily when the product has been shipped and legal title and all risks of ownership have been transferred , sales price is fixed and determinable , and collectibility is reasonably assured . the terms and arrangements vary by product categories , owing to the different nature of the customers , distribution channels , and products . the company records estimated reductions to revenues for customer incentive programs offered including cash discounts , volume discounts , rebates , and specifically established customer product return programs . if market conditions were to change , the company may take actions to expand these customer offerings , which may result in incremental reductions to revenue . allowance for doubtful accounts the company regularly reviews its customer accounts and records specific provisions for doubtful accounts to reduce the related receivable to the amount that is estimated to be collectible . the company also records provisions for doubtful accounts based on a variety of factors including the company 's historical experience , current economic conditions , and other adverse industry or market trends .
| for the imaging segment in 2003 , net sales decreased 3.3 % over 2002. the decrease was partially caused by a 13.2 % decrease in net sales in the company 's domestic medical imaging business . this part of the imaging business continues to be impacted by the presence of digital imaging , as well as continued competition within its distribution network . while the company 's domestic photochemical imaging business ' net sales were down less than 1 % , this business continues to be impacted by the slowdown in picture taking in the u.s. , as well as price competition . the segment 's net sales performance was favorably impacted by the growth in its foreign imaging businesses ( see foreign operations section ) . in 2002 , net sales for the imaging segment decreased 7.6 % over 2001. this decrease was largely the result of sales decreases in the segment 's domestic photochemical , medical imaging , and equipment manufacturing operations , mitigated by combined sales increases in the segment 's international operations . the company 's domestic operations in 2002 continued to be impacted by the competition in the north american market , as well as the business slowdown experienced , as a result of the u.s. recession , and september 11 , 2001 terrorist attacks . the company 's income before the cumulative effect of a change in accounting principle for the year ended march 31 , 2003 , decreased 29.8 % as compared to the proforma net income for 2002 of $ 3,161,959. the proforma net income for 2002 represents net income as if the non-amortization provisions of sfas no . 142 had been applied in the prior year . sales declines , the continuation of investments in sales and marketing programs , and the rebuilding of management teams in both segments to position the company when economic recovery begins , contributed to this decline . proforma net income in 2002 decreased 34.4 % over the proforma net income of $ 4,820,852 in 2001 , as both segments ' profits declined . in the fuller brands segment , stanley home products and
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3 to tac acquisition corp. 's registration statement on form s-1 ( file no . 333-12382 ) filed on june 2 , 2005 . * * previously filed in connection with tac acquisition corp. 's registration statement on form s-1 ( file no . 333-123382 ) filed on march 17 , 2005 . * * * previously filed in connection with amendment no . 1 to tac acquisition corp. 's registration statement on form s-1 ( file no . 333-123382 ) filed on april 28 , 2005 . * * * * previously filed in connection with amendment no . 2 to tac acquisition corp. 's registration statement on form s-1 ( file no . 333-123382 ) filed on may 17 , 2005 . * * * * * previously filed in connection with tac acquisition corp. 's quarterly report on form 10-q ( file no . 000-51340 ) filed on november 11 , 2005 . 47 signatures pursuant to the requirements of section 13 or 15 ( d ) securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . tac acquisition corp. date : march 30 , 2006 j onathan h. c ohen jonathan h. cohen chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated . date : march 30 , 2006 j onathan h. c ohen jonathan h. cohen chief executive officer and chairman of the board ( principal executive officer and principal accounting and financial officer ) date : march 30 , 2006 s aul b. r osenthal saul b. rosenthal president and director date : march 30 , 2006 s teven p. n ovak steven p. novak director date : march 30 , 2006 d avid j. m oore david j. moore director date : march 30 , 2006 f rederick p. f orni frederick p. forni director 48 story_separator_special_tag story_separator_special_tag financial square treasury instruments fund , a money market fund that invests primarily in short-term securities issued or guaranteed by the united states , and approximately 40 % of the funds held in the trust account were invested in the j.p. morgan tax free money market fund , a money market fund that invests primarily in tax-exempt municipal bonds . we undertook this reallocation to lower the amount of taxes incurred on the funds held in the trust account . we anticipate reallocating the funds held in the trust account on a periodic basis in order to maintain the above percentages . for the year ended december 31 , 2005 , we paid or incurred an aggregate of approximately $ 858,000 in expenses for the following purposes : repayment of the note payable to our initial stockholder , mr. royce , which loan was repaid in full , without interest , and cancelled ; premiums associated with our directors and officers liability insurance ; payment of estimated taxes incurred as a result of interest income earned on funds currently held in the trust account ; expenses for due diligence and investigation of prospective target businesses ; expenses in legal and accounting fees relating to our sec reporting obligations and our investigation of prospective target businesses ; miscellaneous expenses . we have also sold to wedbush morgan securities inc. , for $ 100 , an option to purchase up to a total of 1,000,000 units , consisting of one share of common stock and two warrants , at $ 7.50 per unit , from the consummation of the business combination until up to five years after july 1 , 2005 , the date we completed our initial public offering . the warrants underlying such units will have terms that are identical to those being issued in the current offering , with the exception of the exercise price , which will be set at $ 6.65 per warrant . the purchase option may be transferred , in whole or in part , to any subsidiary or affiliate of wedbush morgan securities inc. upon notice to the company , or to any third party transferee , subject to the company 's consent . the purchase option also contains a cashless exercise feature that allows the holder of the purchase option to receive units on a net exercise basis . in addition , the purchase option provides for registration rights that will 26 permit the holder of the purchase option to demand that a registration statement be filed with respect to all or any part of the securities underlying the purchase option within five years of july 1 , 2005 , the date we completed our initial public offering . further , the holder of the purchase option is entitled to piggy-back registration rights in the event we undertake a subsequent registered offering within seven years of june 28 , 2005 , the date of the prospectus relating to our initial public offering . on november 8 , 2005 , we executed a promissory note establishing a $ 1 million revolving credit facility with wachovia bank , n.a . in order to ensure that we have sufficient funds to allow us to operate through january 1 , 2007 , assuming that a business combination is not consummated during that time . amounts borrowed under the promissory note will bear interest based upon one month libor , plus 1.50 % . all amounts borrowed under the promissory note will mature , and all accrued and unpaid interest thereunder will be due and payable , on the earlier of ( i ) the date that funds are withdrawn from the trust account for any purpose and ( ii ) january 1 , 2007. the promissory note also contains customary representations , warranties , covenants and events of default . there was no amount drawn story_separator_special_tag 3 to tac acquisition corp. 's registration statement on form s-1 ( file no . 333-12382 ) filed on june 2 , 2005 . * * previously filed in connection with tac acquisition corp. 's registration statement on form s-1 ( file no . 333-123382 ) filed on march 17 , 2005 . * * * previously filed in connection with amendment no . 1 to tac acquisition corp. 's registration statement on form s-1 ( file no . 333-123382 ) filed on april 28 , 2005 . * * * * previously filed in connection with amendment no . 2 to tac acquisition corp. 's registration statement on form s-1 ( file no . 333-123382 ) filed on may 17 , 2005 . * * * * * previously filed in connection with tac acquisition corp. 's quarterly report on form 10-q ( file no . 000-51340 ) filed on november 11 , 2005 . 47 signatures pursuant to the requirements of section 13 or 15 ( d ) securities exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . tac acquisition corp. date : march 30 , 2006 j onathan h. c ohen jonathan h. cohen chief executive officer pursuant to the requirements of the securities exchange act of 1934 , this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated . date : march 30 , 2006 j onathan h. c ohen jonathan h. cohen chief executive officer and chairman of the board ( principal executive officer and principal accounting and financial officer ) date : march 30 , 2006 s aul b. r osenthal saul b. rosenthal president and director date : march 30 , 2006 s teven p. n ovak steven p. novak director date : march 30 , 2006 d avid j. m oore david j. moore director date : march 30 , 2006 f rederick p. f orni frederick p. forni director 48 story_separator_special_tag story_separator_special_tag financial square treasury instruments fund , a money market fund that invests primarily in short-term securities issued or guaranteed by the united states , and approximately 40 % of the funds held in the trust account were invested in the j.p. morgan tax free money market fund , a money market fund that invests primarily in tax-exempt municipal bonds . we undertook this reallocation to lower the amount of taxes incurred on the funds held in the trust account . we anticipate reallocating the funds held in the trust account on a periodic basis in order to maintain the above percentages . for the year ended december 31 , 2005 , we paid or incurred an aggregate of approximately $ 858,000 in expenses for the following purposes : repayment of the note payable to our initial stockholder , mr. royce , which loan was repaid in full , without interest , and cancelled ; premiums associated with our directors and officers liability insurance ; payment of estimated taxes incurred as a result of interest income earned on funds currently held in the trust account ; expenses for due diligence and investigation of prospective target businesses ; expenses in legal and accounting fees relating to our sec reporting obligations and our investigation of prospective target businesses ; miscellaneous expenses . we have also sold to wedbush morgan securities inc. , for $ 100 , an option to purchase up to a total of 1,000,000 units , consisting of one share of common stock and two warrants , at $ 7.50 per unit , from the consummation of the business combination until up to five years after july 1 , 2005 , the date we completed our initial public offering . the warrants underlying such units will have terms that are identical to those being issued in the current offering , with the exception of the exercise price , which will be set at $ 6.65 per warrant . the purchase option may be transferred , in whole or in part , to any subsidiary or affiliate of wedbush morgan securities inc. upon notice to the company , or to any third party transferee , subject to the company 's consent . the purchase option also contains a cashless exercise feature that allows the holder of the purchase option to receive units on a net exercise basis . in addition , the purchase option provides for registration rights that will 26 permit the holder of the purchase option to demand that a registration statement be filed with respect to all or any part of the securities underlying the purchase option within five years of july 1 , 2005 , the date we completed our initial public offering . further , the holder of the purchase option is entitled to piggy-back registration rights in the event we undertake a subsequent registered offering within seven years of june 28 , 2005 , the date of the prospectus relating to our initial public offering . on november 8 , 2005 , we executed a promissory note establishing a $ 1 million revolving credit facility with wachovia bank , n.a . in order to ensure that we have sufficient funds to allow us to operate through january 1 , 2007 , assuming that a business combination is not consummated during that time . amounts borrowed under the promissory note will bear interest based upon one month libor , plus 1.50 % . all amounts borrowed under the promissory note will mature , and all accrued and unpaid interest thereunder will be due and payable , on the earlier of ( i ) the date that funds are withdrawn from the trust account for any purpose and ( ii ) january 1 , 2007. the promissory note also contains customary representations , warranties , covenants and events of default . there was no amount drawn
| we will use substantially all of the net proceeds discussed above to acquire one or more operating businesses , including identifying and evaluating prospective acquisition candidates , selecting one or more operating businesses , and structuring , negotiating and consummating the business combination , including the making of a down payment or the payment of exclusivity or similar fees and expenses , if any . however , we may not use all of the proceeds held in the trust account in connection with a business combination , either because the consideration for the business combination is less than the proceeds in trust or because we finance a portion of the consideration with capital stock or debt securities that we can issue . in that event , the proceeds held in the trust account as well as any other net proceeds not expended will be used to finance the operations of the target business or businesses . we may issue additional capital stock or debt securities to finance a business combination . the issuance of additional capital stock , including upon conversion of any convertible debt securities we may issue , or the incurrence of debt , could have material consequences on our business and financial condition . the issuance of additional shares of our capital stock ( including upon conversion of convertible debt securities ) : may significantly reduce the equity interest of our stockholders ; will likely cause a change in control if a substantial number of our shares of common stock or voting preferred stock are issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and may also result in the resignation or removal of one or more of our present officers and directors ; and may adversely affect prevailing market prices for our common stock . similarly , if we issue debt securities , it could result in : default and foreclosure on our assets if our operating revenues after a business combination are insufficient to pay our debt obligations ; 25 acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach the covenants contained
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in recent periods , customer demand for our applications and infrastructure technologies delivered through our oracle cloud services has increased . to address customer demand and enable customer choice , we have introduced certain programs for customers to pivot their applications and infrastructure licenses and the related license support to the oracle cloud for new deployments and to migrate to and expand with the oracle cloud for their existing workloads . we expect these trends to continue . our cloud and license business ' revenue growth is affected by many factors , including the strength of general economic and business conditions ; governmental budgetary constraints ; the strategy for and competitive position of our offerings ; the continued renewal of our cloud services and license support customer contracts by the customer contract base ; substantially all customers continuing to purchase license support contracts in connection with their license purchases ; the pricing of license support contracts sold in connection with the sales of licenses ; the pricing , amounts and volumes of licenses and cloud services sold ; and foreign currency rate fluctuations . on a constant currency basis , we expect that our total cloud and license revenues generally will continue to increase due to : expected growth in our cloud services and license support offerings ; and continued demand for our cloud license and on-premise license offerings . we believe these factors should contribute to future growth in our cloud and license business ' revenues , which should enable us to continue to make investments in research and development to develop and improve our cloud and license products and services . our cloud and license business ' margin has historically trended upward over the course of the four quarters within a particular fiscal year due to the historical upward trend of our cloud and license business ' revenues over those quarterly periods and because the majority of our costs for this business are generally fixed in the short term . the historical upward trend of our cloud and license business ' revenues over the course of the four quarters within a particular fiscal year is primarily due to the addition of new cloud services and license support contracts to the customer contract base that we generally recognize as revenues ratably ; the renewal of existing customers ' cloud services and license support contracts over the course of each fiscal year that we generally recognize as revenues ratably ; and the historical upward trend of our cloud license and on-premise license revenues , which we generally recognize at a point in time upon delivery ; in each case over those four quarterly periods . 38 index to financial statements hardware business our hardware business , which represented 9 % of our total revenues in each of fiscal 2020 and 2019 , provides a broad selection of hardware products and hardware-related software products including oracle engineered systems , servers , storage , industry-specific hardware offerings , operating systems , virtualization , management and other hardware-related software , and related hardware support . each hardware product and its related software , such as an operating system or firmware , are highly interdependent and interrelated and are accounted for as a combined performance obligation . the revenues for this combined performance obligation are generally recognized at the point in time that the hardware product and its related software are delivered to the customer and ownership is transferred to the customer . we expect to make investments in research and development to improve existing hardware products and services and to develop new hardware products and services . the majority of our hardware products are sold through indirect channels , including independent distributors and value-added resellers . our hardware support offerings provide customers with unspecified software updates for software components that are essential to the functionality of our hardware products and associated software products such as oracle solaris . our hardware support offerings can also include product repairs , maintenance services and technical support services . hardware support contracts are entered into and renewed at the option of the customer , are generally priced as a percentage of the net hardware products fees and are generally recognized as revenues ratably as the hardware support services are delivered over the contractual terms . we generally expect our hardware business to have lower operating margins as a percentage of revenues than our cloud and license business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . our quarterly hardware revenues are difficult to predict . our hardware revenues , cost of hardware and hardware operating margins that we report are affected by many factors , including our ability to timely manufacture or deliver a few large hardware transactions ; our strategy for and the position of our hardware products relative to competitor offerings ; customer demand for competing offerings , including cloud infrastructure offerings ; the strength of general economic and business conditions ; governmental budgetary constraints ; whether customers decide to purchase hardware support contracts at or in close proximity to the time of hardware product sale ; the percentage of our hardware support contract customer base that renews its support contracts and the close association between hardware products , which have a finite life , and customer demand for related hardware support as hardware products age ; customer decisions to either maintain or upgrade their existing hardware infrastructure to newly developed technologies that are available ; and foreign currency rate fluctuations . services business our services business , which represented 8 % of our total revenues in each of fiscal 2020 and 2019 , helps customers and partners maximize the performance of their investments in oracle applications and infrastructure technologies . we believe that our services are differentiated based on our focus on oracle technologies , extensive experience , broad sets of intellectual property and best practices . our services offerings include consulting services , advanced customer services and education services . story_separator_special_tag our services business has lower margins than our cloud and license and hardware businesses . our services revenues are affected by many factors including , our strategy for , and the competitive position of , our services ; customer demand for our cloud and license and hardware offerings and the associated services for these offerings ; general economic conditions ; governmental budgetary constraints ; personnel reductions in our customers ' it departments ; and tighter controls over customer discretionary spending . acquisitions our selective and active acquisition program is another important element of our corporate strategy . historically , we have invested billions of dollars to acquire a number of complementary companies , products , services and technologies . the pace of our acquisitions has slowed recently , but as compelling opportunities become available , we may acquire companies , products , services and technologies in furtherance of our corporate strategy . note 2 of 39 index to financial statements notes to consolidated financial statements included elsewhere in this annual report provides additional information related to our recent acquisitions . we believe that we can fund our future acquisitions with our internally available cash , cash equivalents and marketable securities , cash generated from operations , additional borrowings or from the issuance of additional securities . we estimate the financial impact of any potential acquisition with regard to earnings , operating margin , cash flows and return on invested capital targets before deciding to move forward with an acquisition . critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) as set forth in the financial accounting standards board 's ( fasb ) accounting standards codification ( asc ) , and we consider the various staff accounting bulletins and other applicable guidance issued by the sec . gaap , as set forth within the asc , requires us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented . to the extent that there are differences between these estimates , judgments or assumptions and actual results , our financial statements will be affected . the accounting policies that reflect our more significant estimates , judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include : revenue recognition ; business combinations ; goodwill and intangible assets—impairment assessments ; accounting for income taxes ; and legal and other contingencies . our senior management has reviewed our critical accounting policies and related disclosures with the finance and audit committee of the board of directors . note 1 of notes to consolidated financial statements included elsewhere in this annual report includes additional information about our critical and other accounting policies . revenue recognition the most critical judgments required in applying topic 606 and our revenue recognition policy relate to the determination of distinct performance obligations and the evaluation of the standalone selling price ( ssp ) for each performance obligation . many of our customer contracts include multiple performance obligations . judgment is required in determining whether each performance obligation within a customer contract is distinct . oracle products and services generally do not require a significant amount of integration or interdependency . therefore , multiple products and services contained within a customer contract are generally considered to be distinct and are not combined for revenue recognition purposes . we allocate the transaction price for each customer contract to each performance obligation based on the relative ssp ( the determination of ssp is discussed below ) for each performance obligation within each contract . we recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue as each performance obligation is delivered . we use historical sales transaction data and judgment , among other factors , in determining the ssp for products and services . for substantially all performance obligations except cloud licenses and on-premise licenses , we are able to establish the ssp based on the observable prices of products or services sold separately in comparable circumstances to similar customers . we typically establish an ssp range for our products and services , which is reassessed on a periodic basis or when facts and circumstances change . ssp for our products and services can 40 index to financial statements evolve over time due to changes in our pricing practices that are influenced by intense competition , changes in demand for our products and services , and economic factors , among others . our cloud licenses and on-premise licenses have not historically been sold on a standalone basis , as substantially all customers elect to purchase license support contracts at the time of a license purchase . license support contracts are generally priced as a percentage of the net fees paid by the customer to access the license . we are unable to establish the ssp for our cloud licenses and on-premise licenses based on observable prices given the same products are sold for a broad range of amounts ( that is , the selling price is highly variable ) and a representative ssp is not discernible from past transactions or other observable evidence . as a result , the ssp for a cloud license and an on-premise license included in a contract with multiple performance obligations is determined by applying a residual approach whereby all other performance obligations within a contract are first allocated a portion of the transaction price based upon their respective ssps , with any residual amount of transaction price allocated to cloud license and on-premise license revenues .
| refer to “ supplemental disclosure related to certain charges ” below for additional discussion of these items and note 15 of notes to consolidated financial statements included elsewhere in this annual report for a reconciliation of the summations of our total operating segment revenues as presented in the discussion below to total revenues as presented per our consolidated statements of operations for all periods presented . in addition , research and development expenses , general and administrative expenses , stock-based compensation expenses , amortization of intangible assets , certain other expense allocations , acquisition related and other expenses , restructuring expenses , interest expense , non-operating income , net and provision for income taxes are not attributed to our three operating segments because our management does not view the performance of our three businesses including such items and or it is impractical to do so . refer to “ supplemental disclosure related to certain charges ” below for additional discussion of certain of these items and note 15 of notes to consolidated financial statements included elsewhere in this annual report for a reconciliation of the summations of total segment margin as presented in the discussion below to total income before provision of income taxes as presented per our consolidated statements of operations for all periods presented . a discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found in “ management 's discussion and analysis of financial condition and results of operations ” in part ii , item 7 of our annual report on form 10-k for the fiscal year ended may 31 , 2019 , as filed with the sec on june 21 , 2019 , which is available free of charge on the sec 's website at www.sec.gov and on our investor relations website at www.oracle.com/investor . constant currency presentation our international operations have provided and are expected to continue to provide a significant portion of each of our businesses ' revenues and expenses . as a result , each businesses ' revenues and expenses and our total revenues and expenses will continue to be affected by changes in the u.s. dollar against major international currencies . in order to provide a framework for assessing how
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our depreciation , depletion and amortization expense increased $ 16.1 million , or 7 % , to $ 244.9 million for the year ended december 31 , 2015 from $ 228.8 million for the year ended december 31 , 2014 and decreased on an equivalent basis from $ 26.66 per boe to $ 23.73 per boe . the decrease in equivalent basis was primarily due to depreciation ceasing once assets were deemed held for sale coupled with a 20 % increase in sales volumes . impairment of oil and gas properties . our impairment of proved properties increased $ 572.9 million to $ 740.5 million for the year ended december 31 , 2015 when compared to year ended december 31 , 2014. we impaired our mid-continent assets by $ 321.2 million due to their depressed fair value from low commodity prices upon classification as held for sale and our rocky mountain assets by $ 419.3 million due to low commodity prices . for the year ended december 31 , 2014 , we impaired $ 127.3 million of proved properties within the dorcheat macedonia field due to low commodity prices , $ 25.0 million of non-core proved properties within the mckamie patton field due to low commodity prices , and $ 15.3 million of proved properties in our mccallum field due to low commodity prices and a strategic shift to horizontal drilling . please refer to note 1 - summary of significant accounting policies in part ii , item 8 of this annual report on form 10-k for additional discussion on our impairment policy and practice . abandonment and impairment of unproved properties . our abandonment and impairment of unproved properties increased to $ 33.5 million for the year ended december 31 , 2015 when compared to the year ended december 31 , 2014. we incurred $ 24.8 million of impairment charges relating to non-core leases expiring within the wattenberg field and $ 8.7 million of impairment charges to fully impair the north park basin due to a strategic shift in our development plan . there were no unproved properties abandoned or impaired during the year ended december 31 , 2014. general and administrative expense . our general and administrative expense decreased $ 11.3 million , or 14 % , to $ 70.3 million for the year ended december 31 , 2015 from $ 81.6 million for the comparable period in 2014 and decreased on an equivalent basis to $ 6.81 per boe from $ 9.51 per boe . the decrease in general and administrative expense for the year ended 66 december 31 , 2015 when compared to the same period in 2014 was primarily due to executive departure costs that occurred in 2014. the decrease in equivalent basis was caused by the 20 % increase in sales volumes outpacing the change in the expense . derivative gain . our derivative gain decreased $ 65.0 million to $ 56.6 million for the year ended december 31 , 2015 from a gain of $ 121.6 million for the comparable period in 2014. the decrease in gain is related to a reduction in hedged volumes during the year ended december 31 , 2015 when compared to the year ended december 31 , 2014. please refer to note 13 - derivatives in part ii , item 8 of this annual report on form 10-k for additional discussion . interest expense . our interest expense for the year ended december 31 , 2015 increased 23 % to $ 57.1 million compared to $ 46.4 million for the year ended december 31 , 2014 due to the average debt outstanding for the year ended december 31 , 2015 being $ 847.9 million as compared to $ 644.4 million for the comparable period in 2014. interest expense , including amortization of the premium and financing costs , on the senior notes for the years ended december 31 , 2015 and 2014 was $ 52.1 million and $ 42.3 million , respectively . income tax benefit ( expense ) . our estimate for federal and state income tax benefit for the year ended december 31 , 2015 was $ 164.9 million as compared to income tax expense of $ 11.0 million for the year ended december 31 , 2014. we are allowed to deduct various items for tax reporting purposes that are capitalized for purposes of financial statement presentation . our effective tax rate for the year ended december 31 , 2015 was 18.1 % as compared to 39.3 % for the year ended december 31 , 2014. these rates differ from the u.s. statutory income tax rate primarily due to the effects of state income taxes and a valuation allowance being placed against net deferred tax assets . results for discontinued operations during june of 2012 , the company began marketing , with an intent to sell , all of its oil and gas properties in california . the company determined , at that time , that our intent to sell out of an entire region qualified for discontinued operations accounting and these assets have been presented as discontinued operations in the accompanying statements of operations . the majority of these properties were sold in 2012. the remaining property located in the midway sunset field sold on march 21 , 2014 for approximately $ 6.0 million and resulted in a $ 5.5 million gain . the operating results before income taxes for our california properties for the year ended december 31 , 2014 were net revenues of $ 0.4 million , and operating expenses of $ 0.4 million , as compared to net revenues of $ 1.7 million , and operating expenses of $ 2.3 million for the year ended december 31 , 2013. sales volumes for the years ended december 31 , 2014 and 2013 were 10 boe/d and 47 boe/d , respectively . liquidity and capital resources our primary sources of liquidity have historically included cash from operating activities , borrowings under the revolving credit story_separator_special_tag our depreciation , depletion and amortization expense increased $ 16.1 million , or 7 % , to $ 244.9 million for the year ended december 31 , 2015 from $ 228.8 million for the year ended december 31 , 2014 and decreased on an equivalent basis from $ 26.66 per boe to $ 23.73 per boe . the decrease in equivalent basis was primarily due to depreciation ceasing once assets were deemed held for sale coupled with a 20 % increase in sales volumes . impairment of oil and gas properties . our impairment of proved properties increased $ 572.9 million to $ 740.5 million for the year ended december 31 , 2015 when compared to year ended december 31 , 2014. we impaired our mid-continent assets by $ 321.2 million due to their depressed fair value from low commodity prices upon classification as held for sale and our rocky mountain assets by $ 419.3 million due to low commodity prices . for the year ended december 31 , 2014 , we impaired $ 127.3 million of proved properties within the dorcheat macedonia field due to low commodity prices , $ 25.0 million of non-core proved properties within the mckamie patton field due to low commodity prices , and $ 15.3 million of proved properties in our mccallum field due to low commodity prices and a strategic shift to horizontal drilling . please refer to note 1 - summary of significant accounting policies in part ii , item 8 of this annual report on form 10-k for additional discussion on our impairment policy and practice . abandonment and impairment of unproved properties . our abandonment and impairment of unproved properties increased to $ 33.5 million for the year ended december 31 , 2015 when compared to the year ended december 31 , 2014. we incurred $ 24.8 million of impairment charges relating to non-core leases expiring within the wattenberg field and $ 8.7 million of impairment charges to fully impair the north park basin due to a strategic shift in our development plan . there were no unproved properties abandoned or impaired during the year ended december 31 , 2014. general and administrative expense . our general and administrative expense decreased $ 11.3 million , or 14 % , to $ 70.3 million for the year ended december 31 , 2015 from $ 81.6 million for the comparable period in 2014 and decreased on an equivalent basis to $ 6.81 per boe from $ 9.51 per boe . the decrease in general and administrative expense for the year ended 66 december 31 , 2015 when compared to the same period in 2014 was primarily due to executive departure costs that occurred in 2014. the decrease in equivalent basis was caused by the 20 % increase in sales volumes outpacing the change in the expense . derivative gain . our derivative gain decreased $ 65.0 million to $ 56.6 million for the year ended december 31 , 2015 from a gain of $ 121.6 million for the comparable period in 2014. the decrease in gain is related to a reduction in hedged volumes during the year ended december 31 , 2015 when compared to the year ended december 31 , 2014. please refer to note 13 - derivatives in part ii , item 8 of this annual report on form 10-k for additional discussion . interest expense . our interest expense for the year ended december 31 , 2015 increased 23 % to $ 57.1 million compared to $ 46.4 million for the year ended december 31 , 2014 due to the average debt outstanding for the year ended december 31 , 2015 being $ 847.9 million as compared to $ 644.4 million for the comparable period in 2014. interest expense , including amortization of the premium and financing costs , on the senior notes for the years ended december 31 , 2015 and 2014 was $ 52.1 million and $ 42.3 million , respectively . income tax benefit ( expense ) . our estimate for federal and state income tax benefit for the year ended december 31 , 2015 was $ 164.9 million as compared to income tax expense of $ 11.0 million for the year ended december 31 , 2014. we are allowed to deduct various items for tax reporting purposes that are capitalized for purposes of financial statement presentation . our effective tax rate for the year ended december 31 , 2015 was 18.1 % as compared to 39.3 % for the year ended december 31 , 2014. these rates differ from the u.s. statutory income tax rate primarily due to the effects of state income taxes and a valuation allowance being placed against net deferred tax assets . results for discontinued operations during june of 2012 , the company began marketing , with an intent to sell , all of its oil and gas properties in california . the company determined , at that time , that our intent to sell out of an entire region qualified for discontinued operations accounting and these assets have been presented as discontinued operations in the accompanying statements of operations . the majority of these properties were sold in 2012. the remaining property located in the midway sunset field sold on march 21 , 2014 for approximately $ 6.0 million and resulted in a $ 5.5 million gain . the operating results before income taxes for our california properties for the year ended december 31 , 2014 were net revenues of $ 0.4 million , and operating expenses of $ 0.4 million , as compared to net revenues of $ 1.7 million , and operating expenses of $ 2.3 million for the year ended december 31 , 2013. sales volumes for the years ended december 31 , 2014 and 2013 were 10 boe/d and 47 boe/d , respectively . liquidity and capital resources our primary sources of liquidity have historically included cash from operating activities , borrowings under the revolving credit
| the decreased volumes are a direct result of the company suspending all drilling and completion activities after the first quarter of 2016 . during the period from december 31 , 2015 through december 31 , 2016 , we drilled 17 gross ( 8.4 net ) and completed 21 gross ( 13.0 net ) wells in the rocky mountain region and drilled no wells in the mid-continent region . 61 the following table summarizes our operating expenses for the periods indicated . replace_table_token_16_th lease operating expense . our lease operating expense decreased $ 21.4 million or 33 % , to $ 43.7 million for the year ended december 31 , 2016 from $ 65.0 million for the year ended december 31 , 2015 and decreased on an equivalent basis from $ 6.30 per boe to $ 5.50 per boe . the majority of the decrease is due to continued operating cost reductions along with decreased activity levels . the company reduced operating costs and negotiated contract reductions resulting in decreased well servicing costs of $ 10.1 million , compression costs of $ 4.9 million and pumping and gauging costs of $ 2.7 million during the year ended december 31 , 2016 when compared to the same period in 2015. gas plant and midstream operating expense . our gas plant and midstream operating expense increased $ 1.5 million to $ 12.8 million for the year ended december 31 , 2016 from $ 11.4 million for the year ended december 31 , 2015 and increased on an equivalent basis from $ 1.10 per boe to $ 1.62 per boe . the increase in aggregate and on an equivalent basis is due to the start-up and continued buildout of rmi , which began in may of 2015. severance and ad valorem taxes . our severance and ad valorem taxes decreased by 18 % , or $ 3.3 million to $ 15.3 million for the year ended december 31 , 2016 from $ 18.6 million for the year ended december 31 , 2015 . severance and ad 62 valorem
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recent accounting standards new accounting standards in february 2013 , the fasb issued asu 2013-02 , comprehensive income ( topic 220 ) reporting of amounts reclassified out of accumulated other comprehensive income. this guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ( aoci ) , including changes in aoci balances by component and significant items reclassified out of aoci . this guidance does not amend any existing requirements for reporting net income or aoci in the financial statements . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in march 2013 , the fasb issued asu 2013-05 , foreign currency matters ( topic 830 ) parent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. this guidance issued amendments to address the accounting for the cumulative translation adjustment when a parent entity sells or transfers either a subsidiary or group of assets within a foreign entity . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in july 2013 , the fasb issued asu no . 2013-11 , income taxes ( topic 740 ) presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists. this guidance requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in may 2014 , the fasb issued asu 2014-9 , revenue from contracts with customers ( topic 606 ) . this guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . in august 2015 , this guidance was amended deferring the effective date to annual reporting periods beginning after december 15 , 2017. the company will adopt this standard in fiscal year 2019. the company has not yet determined the effect , if any , that the adoption of this standard will have on the company 's financial position or results of operations . in april 2015 , the fasb issued asu 2015-03 , interest ( topic 835 ) imputation of interest : simplifying the presentation of debt issuance costs. this guidance requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2015. the company will adopt this standard in fiscal year 2017. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in july 2015 , the fasb issued asu 2015-11 , inventory ( topic 330 ) simplifying the measurement of inventory. this guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value . net realizable value is defined as estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. the company will adopt this standard in fiscal year 2018. the company has not yet determined the effect , if any , that the adoption of this standard will have on the company 's financial position or results of operations . in november 2015 , the fasb issued asu 2015-17 , income taxes ( topic 740 ) balance sheet classification of deferred taxes. this guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position . instead , the update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016 , with early adoption permitted prospectively or retrospectively . the company early adopted this guidance prospectively beginning with the consolidated balance sheet at april 30 , 2016. prior periods were not retrospectively adjusted . 13 in february 2016 , the fasb issued asu 2016-2 , leases ( topic 842 ) . this guidance establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2018. the company will adopt this standard in fiscal year 2020. the company has not yet determined the effect story_separator_special_tag recent accounting standards new accounting standards in february 2013 , the fasb issued asu 2013-02 , comprehensive income ( topic 220 ) reporting of amounts reclassified out of accumulated other comprehensive income. this guidance adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ( aoci ) , including changes in aoci balances by component and significant items reclassified out of aoci . this guidance does not amend any existing requirements for reporting net income or aoci in the financial statements . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in march 2013 , the fasb issued asu 2013-05 , foreign currency matters ( topic 830 ) parent 's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. this guidance issued amendments to address the accounting for the cumulative translation adjustment when a parent entity sells or transfers either a subsidiary or group of assets within a foreign entity . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in july 2013 , the fasb issued asu no . 2013-11 , income taxes ( topic 740 ) presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists. this guidance requires that companies net their unrecognized tax benefits against all same-jurisdiction net operating losses or tax credit carryforwards that would be used to settle the position with a tax authority . the company adopted this standard effective may 1 , 2014. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in may 2014 , the fasb issued asu 2014-9 , revenue from contracts with customers ( topic 606 ) . this guidance requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . in august 2015 , this guidance was amended deferring the effective date to annual reporting periods beginning after december 15 , 2017. the company will adopt this standard in fiscal year 2019. the company has not yet determined the effect , if any , that the adoption of this standard will have on the company 's financial position or results of operations . in april 2015 , the fasb issued asu 2015-03 , interest ( topic 835 ) imputation of interest : simplifying the presentation of debt issuance costs. this guidance requires that debt issuance costs related to a recognized liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2015. the company will adopt this standard in fiscal year 2017. the company does not expect the adoption of this standard to have a significant impact on the company 's consolidated financial position or results of operations . in july 2015 , the fasb issued asu 2015-11 , inventory ( topic 330 ) simplifying the measurement of inventory. this guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value . net realizable value is defined as estimated selling prices in the ordinary course of business , less reasonably predictable costs of completion , disposal , and transportation . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016. the company will adopt this standard in fiscal year 2018. the company has not yet determined the effect , if any , that the adoption of this standard will have on the company 's financial position or results of operations . in november 2015 , the fasb issued asu 2015-17 , income taxes ( topic 740 ) balance sheet classification of deferred taxes. this guidance eliminates the requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position . instead , the update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2016 , with early adoption permitted prospectively or retrospectively . the company early adopted this guidance prospectively beginning with the consolidated balance sheet at april 30 , 2016. prior periods were not retrospectively adjusted . 13 in february 2016 , the fasb issued asu 2016-2 , leases ( topic 842 ) . this guidance establishes a right-of-use ( rou ) model that requires a lessee to record a rou asset and a lease liability on the balance sheet for all leases with terms longer than 12 months . leases will be classified as either finance or operating , with classification affecting the pattern of expense recognition in the income statement . a modified retrospective transition approach is required for lessees for capital and operating leases existing at , or entered into after , the beginning of the earliest comparative period presented in the financial statements , with certain practical expedients available . this guidance is effective for fiscal years , and interim periods within those years , beginning after december 15 , 2018. the company will adopt this standard in fiscal year 2020. the company has not yet determined the effect
| operating expenses were $ 18.0 million , $ 16.5 million and $ 16.1 million in fiscal years 2016 , 2015 and 2014 , respectively , and 14.0 % , 13.9 % and 14.5 % of sales , respectively . the increase in operating expense dollars in fiscal year 2016 as compared to fiscal year 2015 resulted primarily from an increase in nonrecurring expenses of $ 679,000 related to the retirement and replacement of a key executive and an increase of $ 219,000 in incentive compensation , an increase of $ 269,000 in pension expense , and an increase of $ 276,000 in the operating expense of the company 's international operations . the increase in operating expense dollars in fiscal year 2015 as compared to fiscal year 2014 resulted primarily from an increase in operating expenses of $ 640,000 attributed to the growth in international business , partially offset by decreases in pension expense of $ 214,000 and bad debt expense of $ 61,000. other income was $ 347,000 , $ 484,000 and $ 395,000 in fiscal years 2016 , 2015 and 2014 , respectively . the decrease in other income in fiscal year 2016 was primarily due to a decrease in interest income earned from cash on hand at the international subsidiaries . the increase in other income in fiscal year 2015 was primarily due to an increase in interest income from cash on hand at the international subsidiaries . interest expense was $ 306,000 , $ 325,000 and $ 373,000 in fiscal years 2016 , 2015 and 2014 , respectively . the decreases in interest expense for fiscal years 2016 and 2015 were primarily due to lower levels of bank borrowings . income tax expense was $ 1,862,000 , $ 1,745,000 and $ 1,983,000 in fiscal years 2016 , 2015 and 2014 , respectively , or 32.4 % , 32.4 % and 33.1 % of pretax earnings , respectively . the effective tax rate for each of these years is lower than the statutory rate due to the favorable impact of tax rates for the company 's international subsidiaries and the impact of state and federal tax credits . the decrease in the effective tax
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skyhook operates a global location network with more than 1 billion geolocated wifi access points , providing hybrid wireless positioning technology and contextual location intelligence solutions worldwide . the large amount of data collected by skyh ook powers all of its products and provides skyhook the ability to offer location and geo-informed context to any mobile app or device . skyhook 's location-based context solutions provide a way for companies and agencies to understand consumers ' mobile behavior and improve mobile customer experience , while also allowing advertisers to reach their audiences in new and relevant ways . charter is one of the largest providers of cable services in the united states with approximately 6 . 7 million residential and small and medium business customers at december 31 , 201 5 , offering a variety of entertainment , information and communications solutions to residential and commercial customers , including traditional cable video programming , internet services , and voice services , as well as advanced video services such as video on demand , hd television and dvr service . charter also sells local advertising on cable networks and provides fiber connectivity to cellular towers and office buildings . its infrastructure consists of a hybrid of fiber and coaxial cable plant with approximately 12 . 9 million estimated passings , with 97 % at 550 mhz or greater and 9 8 % of plant miles two-way active and 99 % of plant all-digital . a national ip infrastructure interconnects charter markets . liberty acquired its interest in charter on may 1 , 2013. at december 31 , 201 5 , liberty broadband owned approximately 28.8 million shares of charter common stock , representing an approximate 26 % ownership interest in the issued and outstanding shares . under the charter stockholders agreement , liberty has the right to nominate four directors to the charter board of directors , subject to certain exclusions and requirements . liberty broadband also has the right to cause one of its nominees to serve on the nominating and corporate governance , audit and compensation and benefits committees of the board , provided they meet the independence and other qualifications for membership on those committees . these rights were transferred from liberty to liberty broadband in connection with the broadband spin-off . the second amended and restated stockholders agreement continues to provide us with board nomination rights . key drivers of revenue trueposition earns revenue from the sale of hardware and licensing of software required to generate location records for wireless phones and other wireless devices on a cellular network and from the design , installation , testing and commissioning of such hardware and software . in addition , trueposition earns software maintenance revenue through the provision of ongoing technical and software support . through its skyhook subsidiary , trueposition earns revenue from device manufacturers , application providers and advertising networks by licensing access to skyhook 's location and geo-informed context network . charter revenue is derived principally from the monthly fees customers pay for the residential and commercial video , internet and voice services provided . charter also earns revenue from one-time installation fees and advertising sales . charter expects to continue to grow revenue by increasing the number of products in the company 's current customer homes and obtaining new customers with an improved value offering . in addition , char ter expects to increase revenue by expanding the sales of services to its commercial customers . current trends affecting our business trueposition 's location system s compete agai nst a number of suppliers of both wifi based technology solutions and other satellite and terrestrial based technology offerings . in addition , there are a number of new location technologies in development which may further increase competition to be a location solution for new air interfaces to provide commercial location based services and to meet more stringent commercial and governmental accuracy standards . other large technology companies , such as google , similarly facilitate the provision of location information to devices and applications operating on their mobile platforms . charter faces competition for both residential and commercial customers in the areas of price , service offerings , and service reliability . with respect to its residential business , charter competes with other providers of video , high-speed internet ii- 5 access , telephone services , and other sources of home entertainment . with respect to its commercial business , charter competes with other providers of video , high-speed internet access and related value-added services , fiber solutions , business telephony , and ethernet services . in the broadband communications industry , charter 's principal competitors for video services are dbs and telephone companies that offer video services . charter 's principal competitors for high-speed internet services are the broadband services provided by telephone companies , including both traditional dsl , fiber-to-the-node , and fiber-to-the-home offerings . charter 's principal competitors for telephone services are established telephone companies , other telephone service providers , and other carriers , including voip providers . at this time , charter does not consider other traditional cable operators to be significant competitors in the overall market , as overbuilds are infrequent and geographically spotty ( although in any particular market , a cable operator overbuilder would likely be a significant competitor at the local level ) . charter could , however , face additional competition from multi-channel video providers if they began distributing video over the internet to customers residing outside their current territories . trueposition and charter must stay abreast of rapidly evolving technological developments and offerings to remain competitive and increase the utility of their products and services . these companies must be able to incorporate new technologies into their products and services in order to address the needs of their customers . results of operations—consolidated story_separator_special_tag operating income ( loss ) operating income ( loss ) improved $ 101.9 million and declined $ 42.9 million for the years ended december 31 , 201 5 and 201 4 , respectively , as compared to the corresponding prior year periods . story_separator_special_tag i n addition to those items impacting adjusted oibda , operating income ( loss ) for the year ended december 31 , 201 5 was further impacted by a favorable net legal settlement of $ 60.5 million ( an improvement of $ 54.5 million from the prior year ) due to the settlement of skyhook 's patent infringement lawsuit against google during the first quarter of 2015 and a decrease in depreciation and amortization of $ 3.0 million , partially offset by a $ 20.7 million impairment expense ( a $ 14.6 million improvement from the prior year ) recorded during the current year and an increase in stock-based compensation expense of $ 5.4 million . in addition to those items impacting adjusted oibda , operating income ( loss ) for the year ended december 31 , 201 4 was further impacted by an in crease in depreciation and amortization of $ 4.7 million and a $ 35.2 million impairment of goodwill and intangible assets , partially offset by a $ 6.0 million favorable legal settlement of the antitrust lawsuit in july 2014. stock-based compensation expense increased $ 5.4 million and $ 3 thousand for the years ended december 31 , 201 5 and 201 4 , respectively . the increase in stock-based compensation during the current year was primarily due to the vesting of options to purchase shares of liberty broadband series c common stock granted during december 2014 and an increase in the number of options to purchase shares of series c liberty broadband common stock granted during the current year . additionally , trueposition 's stock-based compensation increased during the current year due to the issuance of new awards and additional vesting of the outstanding awards under the plans , partially offset by cancelled awards . depreciation and amortization de creased $ 3.0 million and increased $ 4.7 million for the years ended december 31 , 201 5 and 201 4 , respectively , as compared to the corresponding prior year periods . the decrease in depreciation and amortization expense during the current year is primarily due to lower amortization expense resulting from the impairment of trueposition 's intangible assets related to skyhook during the fourth quarter of 2014 and write-off of fixed assets during the first quarter of 2015. the assets written off were comprised of assets related to the abandonment of a product development project by trueposition during the period . the increase in 2014 was primarily due to the acquisi tion of skyhook during the year . on september 10 , 2010 , skyhook wireless , inc. filed a patent infringement lawsuit in the u.s. district court for the district of massachusetts against google , inc. in march 2013 , skyhook amended its lawsuit to add additional claims . the case had been scheduled to be tried before a jury commencing march 9 , 2015 , with skyhook alleging at that time that google infringed on eight skyhook patents involving location technology and seeking an injunction and or award of damages in an amount to be determined at trial . however , on march 5 , 2015 , the parties advised the district court that the case had been settled and thereby dismissed the action without costs and without prejudice to the right , upon good cause shown within 45 days , to reopen the action if settlement is not consummated . on march 27 , 2015 , the parties consummated a final settlement agreement and on april 24 , 2015 , google paid skyhook settlement consideration of $ 90 million . in return for payment of the settlement consideration , google received dismissal of the action with prejudice , a license to the existing skyhook patents and patent applications ( and their continuations , divisionals , continuations-in-part ) , a three-year covenant not to sue ( subject to limited exceptions ) and a mutual release of claims . as a result of the settlement , skyhook realized a net gain , after legal fees , of approximately $ 60.5 million during the first quarter of 2015. during september 2015 , at & t gave notice to trueposition that it did not intend to renew its contract , which expired on december 31 , 2015. the company believed that the receipt of the notification represented a significant change in circumstances since we last performed our annual goodwill impairment test . accordingly , we performed a goodwill impairment test upon receipt of the notification from trueposition . at that time , the estimated fair value of the reporting unit was primarily determined based on the cash and cash equivalents held by the reporting unit , and when compared to its carrying value , it was concluded that a goodwill impairment did not exist . as previously discussed , the carrying value of trueposition included a $ 35.5 million deferred revenue liability related to the contract with the largest customer . upon expiration of the contract on december 31 , 2015 , the deferred revenue was recognized , as all contractual obligations were satisfied at that time . the recognition of this deferred revenue liability increased the reporting unit carrying value . as a result , the company determine d the fair value of trueposition . as the reporting unit 's carrying value exceeded the fair value , we per formed a step 2 impairment test and recorded a $ 20.7 million impairment loss related to trueposition 's goodwill during december 2015 . see note 2 and note 7 in the accompanying consolidated financial statements for additional discussion re garding this impairment loss .
| additionally , trueposition experienced reduced hardware and software license sales in the international markets which was partially offset by skyhook revenue subsequent to its acquisition in early 2014. on january 29 , 2015 , the fcc adopted indoor location accuracy rules in its fourth report and order , redefining location accuracy standards that wireless carriers will be required to meet in future years . ii- 6 trueposition 's technologies , including new technologies now under development , will compete with other technologies to satisfy the new standards in the coming years . adjusted oibda we define adjusted oibda as revenue less operating expenses and selling , general and administrative expenses ( excluding stock compensation ) . our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses . we believe this is an important indicator of the operational strength and performance of our businesses , including each business 's ability to service debt and fund capital expenditures . in addition , this measure allows us to view operating results , perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance . this measure of performance excludes such costs as depreciation and amortization , stock-based compensation , separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to gaap . accordingly , adjusted oibda should be considered in addition to , but not as a substitute for , operating income , net income , cash flow provided by operating activities and other measures of financial performance prepared in a ccordance with gaap . see note 15 to the accompanying consolidated financial statements for a reconciliation of adjusted oibda to earnings ( loss ) from continuing operations before income taxes . adjusted oibda improved $ 35.4 million and decreased $ 9.0 million in the years ended december 31 , 201 5 and 201 4 , respectively , as compared to the corresponding prior
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additional 32 growth opportunities include opportunistic investments and tactical redevelopment . management intends to use proceeds from the sale of lower growth assets and other investments to fund opportunistic investing and redevelopment activity . the company believes the following serve as cornerstones for the execution of its strategy : maximization of recurring cash flows through strong leasing and core property operations ; enhancement of property cash flows through creative , proactive redevelopment efforts that result in the profitable adaptation of assets to better suit dynamic retail tenant and community demands ; growth in company cash flows through capital recycling , especially the redeployment of capital from mature , slower growing assets into opportunistic acquisitions at attractive rates that offer leasing and redevelopment potential ; risk mitigation through continuous focus on maintaining prudent leverage levels and lengthy average debt maturities , as well as access to a diverse selection of capital sources , including the secured and unsecured debt markets , a large unsecured line of credit and equity from a wide range of joint venture partners and sustainability of growth through a constant focus on relationships with investor , tenant , employee , community and environmental constituencies . story_separator_special_tag tenant categories account for 11 % of the company 's pro rata share of annualized base rents . company fundamentals the following table lists the company 's 10 largest tenants based on total annualized rental revenues of the wholly-owned properties and the company 's proportionate share of unconsolidated joint venture properties combined as of december 31 , 2020 : replace_table_token_14_th ( a ) includes t.j. maxx , marshalls , homegoods , sierra trading post , homesense and combo store ( b ) includes bed bath & beyond , cost plus world market and buybuy baby ( c ) includes dick 's sporting goods and golf galaxy ( d ) includes gap , old navy and banana republic 34 the following table lists the company 's 10 largest tenants ( segregated by wholly-owned properties and the consolidated and unconsolidated joint venture properties ) based on total annualized rental revenues at 100 % as of december 31 , 2020 : replace_table_token_15_th ( a ) includes t.j. maxx , marshalls , homegoods , sierra trading post , homesense and combo store ( b ) includes bed bath & beyond , cost plus world market and buybuy baby ( c ) includes dick 's sporting goods and golf galaxy ( d ) includes gap , old navy and banana republic ( e ) includes ross dress for less and dd 's discounts ( f ) includes stop & shop , food lion and martin 's ( g ) includes kroger , harris teeter , king soopers , lucky 's and mariano 's the company leased approximately five million square feet of gla , in 2020 in its wholly-owned and joint venture portfolios , comprised of 126 new leases and 312 renewals , for a total of 438 leases executed in 2020. in addition , the company 's quarterly leasing volume for the fourth quarter of 2020 was the highest since the third quarter of 2018 and represented a year-over-year increase of 51 % as compared to the fourth quarter of 2019. the company continued to execute both new leases and renewals at positive rental spreads . at december 31 , 2020 , the company had 345 leases expiring in 2021 with an average base rent per square foot of $ 19.59 , on a pro rata basis . for the comparable leases executed in 2020 , at the company 's interest , the company generated positive leasing spreads of 8.0 % for new leases and 2.7 % for renewals , or 3.4 % on a blended basis . however , for the fourth quarter of 2020 , new leasing spreads were -3.8 % and renewal leasing spreads were -1.9 % , both on a pro rata basis . the fourth quarter of 2020 , renewal spreads were impacted by the company 's decision to prioritize occupancy . the company may experience additional pressure on leasing spreads in order to maintain occupancy . leasing spreads are a key metric in real estate , representing the percentage increase over rental rates on existing leases versus rental rates on new and renewal leases , though leasing spreads exclude consideration of the amount of capital expended in connection with new leasing activity . the company 's leasing spread calculation includes only those deals that were executed within one year of the date the prior tenant vacated and , as a result , is a good benchmark to compare the average annualized base rent of expiring leases with the comparable executed market rental rates . for new leases executed during 2020 , the company expended a weighted-average cost of tenant improvements and lease commissions estimated at $ 6.81 per rentable square foot , on a pro rata basis , over the lease term , as compared to $ 6.56 per rentable square foot in 2019. the company generally does not expend a significant amount of capital on lease renewals . summary—2020 financial results for the year ended december 31 , 2020 , net income attributable to common shareholders decreased compared to the prior year , primarily due to the impact of the covid-19 pandemic , lower fee income , debt extinguishment costs related to the redemption of the 35 senior notes due 2022 and reduced gain on sale of , partially offset by gain on sale of the company 's interest in the ddrtc j oint v enture assets and lower preferred dividends on account of the redemption of the company 's series j preferred shares in late 2019 . story_separator_special_tag the following provides an overview of the company 's key financial metrics ( see “ non-gaap financial measures ” ) ( in thousands except per share amounts ) : replace_table_token_16_th the following discussion of the company 's financial condition and results of operations provides information that will assist in the understanding of the company 's financial statements , the changes in certain key items and the factors that accounted for changes in the financial statements , as well as critical accounting policies that affected these financial statements . critical accounting policies the consolidated financial statements of the company include the accounts of the company and all subsidiaries where the company has financial or operating control . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has used available information , including the company 's history , industry standards and the current economic environment , among other factors , in forming its estimates and judgments of certain amounts included in the company 's consolidated financial statements , giving due consideration to materiality . it is possible that the ultimate outcome as anticipated by management in formulating its estimates inherent in these financial statements might not materialize . application of the critical accounting policies described below involves the exercise of judgment and the use of assumptions as to future uncertainties . accordingly , actual results could differ from these estimates . in addition , other companies may use different estimates that may affect the comparability of the company 's results of operations to those of companies in similar businesses . revenue recognition and accounts receivable the company has adopted accounting standards update no . 2016-02— leases , as amended ( “ topic 842 ” ) as of january 1 , 2019 , using the modified retrospective approach by applying the transition provisions at the beginning of the period of adoption . rental income includes contractual lease payments for which collection is considered probable that generally consists of the following : fixed lease payments , which include fixed payments associated with expense reimbursements from tenants for common area maintenance , taxes and insurance from tenants in shopping centers , are recognized on a straight-line basis over the non-cancelable term of the lease , which generally ranges from one month to 30 years , and include the effects of applicable rent steps and abatements . variable lease payments , which include percentage and overage income , which are recognized after a tenant 's reported sales have exceeded the applicable sales breakpoint set forth in the applicable lease . variable lease payments associated with expense reimbursements from tenants for common area maintenance , taxes , insurance and other property operating expenses , based upon the tenant 's lease provisions , which are recognized in the period the related expenses are incurred . lease termination payments , which are recognized upon the effective termination of a tenant 's lease when the company has no further obligations under the lease . ancillary and other property-related rental payments , primarily composed of leasing vacant space to temporary tenants , kiosk income and parking income , which are recognized in the period earned . rental income has been reduced for the elimination of unpaid contractual lease payments for tenants that are on the cash basis of accounting due to collectability concerns . the company makes estimates of the collectability of its accounts receivable related to base rents , including straight-line rentals , expense reimbursements and other revenue or income . upon adoption of topic 842 , rental income for the periods beginning on or after january 1 , 2019 , has been reduced for amounts the company believes are not probable of being collected both on a tenant lease basis , as well as for certain retail or tenant sectors . the company analyzes tenant credit worthiness , as well as both current economic 36 and tenant - specific sector trends when evaluating the probability of collection of accounts receivable . in evaluating tenant credit worthiness , the company 's assessment may include a review of payment history , tenant sales performance and financial position . for larger national tenants , the company also evaluates projected liquidity , as well as the tenant 's access to capital and the overall health of the particular sector . in addition , with respect to tenants in bankruptcy , the company makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the probability of collection of the related receivable . the time to resolve these claims may exceed one year . these estimates have a direct impact on the company 's earnings because once the amount is considered not probable of being collected , earnings are reduced by a corresponding amount until the receivable is collected . management fees are recorded in the period earned . fee income derived from the company 's unconsolidated joint venture investments is recognized to the extent attributable to the unaffiliated ownership interest . lease commission revenue is generally recognized in its entirety upon lease execution . payments received from the company 's insurance company related to its claims for business interruption losses incurred as a result of hurricane losses are recorded as business interruption income . consolidation all significant inter-company balances and transactions have been eliminated in consolidation . investments in real estate joint ventures in which the company has the ability to exercise significant influence , but does not have financial or operating control , are accounted for using the equity method of accounting . accordingly , the company 's pro rata share of the earnings ( or loss ) of these joint ventures is included in consolidated net income . the company has a number of joint venture arrangements with varying structures .
| however , the covid‑19 pandemic caused a slow-down in leasing activity in march , though the company witnessed a relative increase in new lease discussions and renewal negotiations with tenants beginning in late may and continuing through year-end . although the leasing volumes through june 30 , 2020 , were below average historic levels , quarterly leasing volume for the fourth quarter of 2020 was the highest since the third quarter of 2018 and represented a quarter-over-quarter increase of 51 % , as compared to the fourth quarter of 2019. operating highlights for 2020 included : signed new leases and renewals for approximately 2.8 million square feet of gla , which included 0.6 million square feet of new leasing volume , both on a pro rata share ; achieved new lease spreads of 8.0 % and renewal spreads of 2.7 % at the company 's pro rata share ; 33 increased the annualized base rent per occupied square foot on a pro rata basis to $ 18.50 at december 31 , 2020 , as compared to $ 18.25 at december 31 , 2019 , an increase of 1.4 % and continued to maintain strong aggregate occupancy on a pro rata basis of 89.0 % at december 31 , 2020 , as compared to 90.8 % at december 31 , 2019. the decrease year-over-year primarily was due to tenant bankruptcies . retail environment the company continues to see demand from a broad range of tenants for its space , particularly as larger retailers incorporate omni-channel strategies that leverage brick and mortar infrastructure to drive incremental business . value-oriented retailers continue to take market share from conventional and national chain department stores . as a result , while certain of those conventional and national department stores have announced bankruptcies , store closures and or reduced expansion plans , other retailers , specifically those in the value and convenience category , continue to expand their store fleets and launch new concepts . many of the company 's largest tenants , including tjx companies , dicks sporting goods , michaels , ross , five below and burlington , have remained well positioned with access to capital while outperforming other retail categories on a relative basis despite
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the potential transaction is subject to , among other things , further due diligence , the negotiation and agreement on terms of a definitive and binding purchase and sale agreement , and customary closing conditions , including applicable regulatory approvals . our current expectation is that we will complete the sale of cah during fiscal year 2016. our goal is to maintain the adjusted debt-to-equity ratio at or below 6.00-to-1 . however , because of the increase in outstanding loan balances during the fiscal year 2015 and the expected further increase during fiscal 2016 , we anticipate additional borrowings to support our loan growth . as a result , our adjusted debt-to-equity ratio will likely continue to be higher than 6.00-to-1 in the near term . critical accounting policies and estimates the preparation of financial statements in accordance with u.s. gaap requires management to make a number of judgments , estimates and assumptions that affect the amount of assets , liabilities , income and expenses in the consolidated 26 financial statements . understanding our accounting policies and the extent to which we use management 's judgment and estimates in applying these policies is integral to understanding our financial statements . we provide a summary of our significant accounting policies under “ note 1—summary of significant accounting policies. ” we have identified certain accounting policies as critical because they involve significant judgments and assumptions about highly complex and inherently uncertain matters , and the use of reasonably different estimates and assumptions could have a material impact on our results of operations or financial condition . our most critical accounting policies and estimates involve the determination of the allowance for loan losses and fair value . we evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions . management has discussed any significant changes in judgments and assumptions in applying our critical accounting policies with the audit committee of our board of directors . see “ item 1a . risk factors ” for a discussion of the risks associated with management 's judgments and estimates in applying our accounting policies and methods . allowance for loan losses we maintain an allowance for loan losses that represents management 's estimate of probable losses inherent in our loan portfolio as of each balance sheet date . our allowance for loan losses , which totaled $ 34 million and $ 56 million as of may 31 , 2015 and 2014 , respectively , includes a collective allowance for all loans in our portfolio that are not individually impaired and a specific allowance for individually impaired loans . collective allowance as part of our credit risk management process , we regularly evaluate each borrower and loan in our loan portfolio and assign an internal risk rating . the collective loss reserve is calculated using an internal model to estimate incurred losses for segments within our loan portfolio that have similar risk categories . our loan segments , which are based on member borrower type , are stratified further into loan pools based on the borrower risk rating . we then apply loss factors to the outstanding principal balance of each of these loan pools . the loss factors reflect the probability of default , or default rate , and the loss severity , or recovery rate , over an estimated loss emergence period of five years for each loan pool . we utilize third-party industry default data to estimate default rates . we utilize our historical loss experience for each borrower type , adjusted for management 's judgment , to estimate recovery rates . management may also apply judgment to adjust the loss factors derived from our models , taking into consideration model imprecision and specific , known events , such as current credit conditions , that may affect the credit quality of our loan portfolio but are not yet reflected in our model-generated loss factors . we determine the collective allowance by applying the default rate and recovery rate to each loan pool . specific allowance the specific allowance for individually impaired loans that are not collateral dependent is calculated based on the difference between the recorded investment in the loan and the present value of the expected future cash flows , discounted at the loan 's effective interest rate . if the loan is collateral dependent , we measure the impairment based on the current fair value of the collateral less estimated selling costs . key assumptions determining the appropriateness of the allowance for loan losses is a complex process subject to numerous estimates and assumptions requiring significant management judgment about matters that involve a high degree of subjectivity and are difficult to predict . the key assumptions in determining our collective allowance that require significant management judgment and may have a material impact on the amount of the allowance include our evaluation of the risk profile of various loan portfolio segments and the internally assigned borrower risk ratings ; the estimated loss emergence period ; the selection of third-party proxy data to determine the probability of default ; our historical loss experience and assumptions regarding recovery rates ; and management 's judgment in the selection and evaluation of qualitative factors to assess the overall current level of exposure within our loan portfolio . the key assumptions in determining our specific allowance that require significant management judgment and may have a material impact on the amount of the allowance include estimating the amount and timing of expected cash flows from impaired loans and estimating the value of underlying collateral , which impacts loss severity and certain cash flow assumptions . the degree to which any particular assumption affects the allowance for loan losses depends on the severity of the change and its relationship to the other assumptions . story_separator_special_tag 27 we regularly evaluate the underlying assumptions we use in determining the allowance for loan losses and periodically update our assumptions to better reflect present conditions , including current trends in borrower risk and or general economic trends , portfolio concentration risk , changes in risk management practices , changes in the regulatory environment and other environmental factors specific to our loan portfolio segments . in the fourth quarter of fiscal year 2015 , we adjusted the recovery rate assumptions used in determining the collective allowance for loan losses for certain portfolio segments to reflect our most recent historical loss experience and made adjustments to selected qualitative factors that we consider in estimating losses . these adjustments resulted in an $ 18 million reduction in the allowance for loan losses as of may 31 , 2015 . of the $ 18 million reduction , $ 13 million was attributable to the changes in the recovery rate assumptions for certain portfolio segments , and the remaining $ 5 million was attributable to our qualitative factor reassessment . sensitivity analysis as noted above , our allowance for credit losses is sensitive to numerous factors , depending on the portfolio segment . changes in our assumptions or economic conditions could affect our estimate of probable credit losses inherent in the portfolio at the balance sheet date , which would also impact the related provision for loan losses recognized in our consolidated results of operations . for example , changes in the inputs below , without consideration of any offsetting or correlated effects of other inputs , would have the following effects on our total allowance of loan losses as of may 31 , 2015 . a 10 % increase or decrease in the default rates for all of our portfolio segments would result in a corresponding decrease or increase of $ 3 million . a 1 % increase or decrease in the recovery rates for all of our portfolio segments would result in a corresponding decrease or increase of $ 3 million . a one-notch downgrade in the internal risk ratings for our entire loan portfolio would result in an increase of approximately $ 38 million , while a one-notch upgrade would result in a decrease of approximately $ 18 million . the purpose of these sensitivity analyses is to provide an indication of the isolated impacts of hypothetical alternative assumptions on modeled loss estimates . it is difficult to estimate how potential changes in a specific factor might affect the total allowance for loan losses because management evaluates a variety of factors and inputs in estimating the allowance for loan losses . we provide additional information on the methodology for determining the allowance for loan losses in “ note 1—summary of significant accounting policies ” and changes in our allowance for loan losses in “ note 3—loans and commitments. ” fair value financial instruments fair value is defined as 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 ( also referred to as an exit price ) . the fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments . this hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable . fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety . the three levels of the fair value hierarchy are summarized below : level 1 : quoted prices ( unadjusted ) in active markets for identical assets or liabilities level 2 : observable market-based inputs , other than quoted prices in active markets for identical assets or liabilities level 3 : unobservable inputs the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted prices in active markets or observable market parameters . when quoted prices and observable data in active markets are not fully available , management 's judgment is necessary to estimate fair value . changes in market conditions , such as reduced liquidity in the capital markets or changes in secondary market activities , may reduce the availability and reliability of quoted prices or observable data used to determine fair value . 28 significant judgment may be required to determine whether certain financial instruments measured at fair value are classified as level 2 or level 3. in making this determination , we consider all available information that market participants use to measure the fair value of the financial instrument , including observable market data , indications of market liquidity and orderliness , and our understanding of the valuation techniques and significant inputs used . based upon the specific facts and circumstances of each instrument or instrument category , judgments are made regarding the significance of the level 3 inputs to the instruments ' fair value measurement in its entirety . if level 3 inputs are considered significant , the instrument is classified as level 3. the process for determining fair value using unobservable inputs is generally more subjective and involves a high degree of management judgment and assumptions . financial instruments recorded at fair value on a recurring basis , primarily investment securities , deferred compensation investments and derivatives , represented 1 % of our total assets as of may 31 , 2015 and 2014 , and 2 % of total liabilities as of both may 31 , 2015 and 2014 . the fair value of these financial instruments was determined using either level 1 or 2 inputs . we did not have any financial instruments recorded at fair value on a recurring basis for which the fair value was determined using level 3 inputs as of may 31 , 2015 and 2014 .
| in comparison , we reported adjusted net income of $ 153 million and adjusted tier of 1.21 for fiscal year 2014 , and adjusted net income of $ 217 million and adjusted tier of 1.29 for fiscal year 2013 . our adjusted debt-to-equity ratio increased to 6.26 -to-1 as of may 31 , 2015 , from 5.90 -to-1 as of may 31 , 2014 . our adjusted net income for fiscal year 2015 reflects the unfavorable impact of the cah impairment charges of $ 111 million , which more than offset the improvements in our core operations resulting from strategic actions taken to reduce our funding costs . as a result of these actions , we experienced a reduction in our average debt cost that contributed to an increase in adjusted net interest income . our adjusted results for fiscal year 2015 also include the favorable impact of higher fee and other non-interest income and the release in the allowance for loan losses . lending activity total loans outstanding , which consists of the unpaid principal balance and excludes deferred loan origination costs , was $ 21,459 million as of may 31 , 2015 , an increase of $ 992 million , or 5 % , from may 31 , 2014 . the increase was primarily due to an increase in cfc distribution and power supply loans of $ 1,060 million and $ 95 million , respectively , which was attributable to members refinancing with us loans issued by other lenders and member advances for capital investments . this increase was partially offset by a decrease in ncsc loans of $ 96 million and a decrease in rtfc loans of $ 64 million . cfc had long-term fixed-rate loans totaling $ 1,227 million that repriced during fiscal year 2015. of this total , $ 994 million repriced to a new long-term fixed rate ; $ 157 million repriced to a long-term variable rate ; and $ 76 million were repaid in full . funding activity our outstanding debt volume generally increases and decreases in response to member loan demand . as outstanding loan balances increased during fiscal year 2015 , our
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we have a proven and highly profitable store model that has produced consistent financial results and returns , and our new stores have achieved average payback periods of less than one year . our new store model assumes a store size of approximately 8,500 square feet that achieves annual sales of approximately $ 1.8 million in the first full year of operation . our new store model also assumes an average new store investment of approximately $ 0.3 million . our new store investment includes our store build-out ( net of tenant allowances ) , inventory ( net of payables ) and cash pre-opening expenses . 36 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 maintain adequate distribution capacity , enhance our store management systems , financial and management controls , information systems and other operational system capabilities . in addition , we will be required to hire , train and retain store management and other qualified personnel . for further information , see part i , item 1a “ risk factors-risk relating to our business and industry. ” over the past five years we have invested a significant amount of capital in infrastructure and systems necessary to support our future growth and we expect to incur additional capital expenditures related to expansion of our infrastructure and systems in future periods . in fiscal 2015 , we invested in a new erp and began the multi-year implementation of the erp , which is designed to enhance functionality and provide timely information to the company 's management team related to the operation of the business . in fiscal 2015 , we opened a distribution center in pedricktown , new jersey . we occupy approximately 1,000,000 square feet at this distribution center , having expanded from 800,000 square feet in september 2018. in fiscal 2016 , we signed a 15-year lease for a new corporate headquarters location in philadelphia , pennsylvania . we currently occupy approximately 190,000 square feet of office space with multiple options to expand in the future . in march 2019 , we completed the purchase of an approximately 700,000 square foot distribution center in forsyth , georgia . we began operating the distribution center in april 2019. in august 2019 , we acquired land in conroe , texas , to build an approximately 860,000 square foot distribution center for approximately $ 56 million . we expect to occupy the distribution center in conroe , texas in 2020. we are planning to lease or build new distribution centers over the next few years to support our growth objectives . we continuously assess ways to maximize the productivity and efficiency of our existing facilities , infrastructure and systems . the timing and amount of investments in our facilities , infrastructure and systems could affect the comparability of our results of operations in future periods . the completion date and ultimate cost of future projects could differ significantly from initial expectations due to construction-related or other reasons . we believe our business strategy will continue to offer significant opportunity , but it also presents risks and challenges . these risks and challenges include , but are not limited to , that we may not be able to effectively identify and respond to changing trends and customer preferences , that we may not be able to find desirable locations for new stores and that we may not be able to effectively manage our future growth . in addition , our financial results can be expected to be directly impacted by substantial increases in product costs due to commodity cost increases or general inflation which could lead to a reduction in our sales as well as greater margin pressure as costs may not be able to be passed on to consumers . to date , changes in commodity prices and general inflation have not materially impacted our business . in response to increasing commodity prices or general inflation , we seek to minimize the impact of such events by sourcing our merchandise from different vendors and changing our product mix . see part i , item 1a “ risk factors ” for a description of these and other important factors that could adversely impact us and our results of operations . how we assess the performance of our business in assessing the performance of our business , we consider a variety of performance and financial measures . these key measures include net sales , comparable sales , cost of goods sold and gross profit , selling , general and administrative expenses and operating income . net sales net sales constitute gross sales net of merchandise returns for damaged or defective goods . net sales consist of sales from comparable stores , non-comparable stores , and e-commerce , which includes shipping and handling revenue . revenue from the sale of gift cards is deferred and not included in net sales until the gift cards are redeemed to purchase merchandise or as breakage revenue in proportion to the pattern of redemption of the gift cards by the customer . our business is seasonal and as a result , our net sales fluctuate from quarter to quarter . net sales are usually highest in the fourth fiscal quarter due to the year-end holiday season . comparable sales comparable sales include net sales from stores that have been open for at least 15 full months from their opening date , and e-commerce sales . comparable stores include the following : stores that have been remodeled while remaining open ; stores that have been relocated within the same trade area , to a location that is not significantly different in size , in which the new store opens at about the same time as the old store closes ; and stores that have expanded , but are not significantly different in size , within their current locations . story_separator_special_tag 37 for stores that are relocated or expanded , the following periods are excluded when calculating comparable sales : the period beginning when the closing store receives its last merchandise delivery from one of our distribution centers through : ▪ the last day of the fiscal year in which the store was relocated or expanded ( for stores that increased significantly in size ) ; or ▪ the last day of the fiscal month in which the store re-opens ( for all other stores ) ; and the period beginning on the first anniversary of the date the store received its last merchandise delivery from one of our distribution centers through the first anniversary of the date the store re-opened . comparable sales exclude the 53rd week of sales for 53-week fiscal years . in the 52-week fiscal year subsequent to a 53-week fiscal year , we exclude the sales in the non-comparable week from the same-store sales calculation . due to the 53rd week in fiscal 2017 , all comparable sales related to any reporting period during the year ended february 2 , 2019 are reported on a restated calendar basis using the national retail federation 's restated calendar comparing similar weeks . there may be variations in the way in which some of our competitors and other retailers calculate comparable or “ same store ” sales . as a result , data in this annual report regarding our comparable sales may not be comparable to similar data made available by other retailers . non-comparable sales are comprised of new store sales , sales for stores not open for a full 15 months , and sales from existing store relocation and expansion projects that were temporarily closed ( or not receiving deliveries ) and not included in comparable sales . measuring the change in fiscal year-over-year comparable sales allows us to evaluate how we are performing . various factors affect comparable sales , including : consumer preferences , buying trends and overall economic trends ; our ability to identify and respond effectively to customer preferences and trends ; our ability to provide an assortment of high-quality , trend-right and everyday product offerings that generate new and repeat visits to our stores ; the customer experience we provide in our stores and online ; the level of traffic near our locations in the power , community and lifestyle centers in which we operate ; competition ; changes in our merchandise mix ; pricing ; our ability to source and distribute products efficiently ; the timing of promotional events and holidays ; the timing of introduction of new merchandise and customer acceptance of new merchandise ; our opening of new stores in the vicinity of existing stores ; the number of items purchased per store visit ; and weather conditions . opening new stores is an important part of our growth strategy . as we continue to pursue our growth strategy , we expect that a significant percentage of our net sales will continue to come from new stores not included in comparable sales . accordingly , comparable sales is only one measure we use to assess the success of our growth strategy . cost of goods sold and gross profit gross profit is equal to our net sales less our cost of goods sold . gross margin is gross profit as a percentage of our net sales . cost of goods sold reflects the direct costs of purchased merchandise and inbound freight , as well as shipping and handling costs , store occupancy , distribution and buying expenses . shipping and handling costs include both internal and third-party fulfillment and shipping costs related to our e-commerce operations . store occupancy costs include rent , common area maintenance , utilities and property taxes for all store locations . distribution costs include costs for receiving , processing , warehousing and shipping of merchandise to or from our distribution centers and between store locations . buying costs include compensation expense and other costs for our internal buying organization , including our merchandising and product development team and our planning and allocation group . these costs are significant and can be expected to continue to increase as our company grows . the components of our cost of goods sold may not be comparable to the components of cost of goods sold or similar measures of our competitors and other retailers . as a result , data in this annual report regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors and other retailers . 38 the variable component of our cost of goods sold is higher in higher volume quarters because the variable component of our cost of goods sold generally increases as net sales increase . we regularly analyze the components of gross profit as well as gross margin . any inability to obtain acceptable levels of initial markups , a significant increase in our use of markdowns , and a significant increase in inventory shrinkage or inability to generate sufficient sales leverage on the store occupancy , distribution and buying components of costs of goods sold could have an adverse impact on our gross profit and results of operations . changes in the mix of our products may also impact our overall cost of goods sold . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses are composed of payroll and other compensation , marketing and advertising expense , depreciation and amortization expense and other selling and administrative expenses . sg & a expenses as a percentage of net sales are usually higher in lower sales volume quarters and lower in higher sales volume quarters . the components of our sg & a expenses may not be comparable to those of other retailers . we expect that our sg & a expenses will increase in future periods due to our continuing store growth .
| the increase in cost of goods sold was primarily the result of an increase in the merchandise costs of goods resulting from an increase in sales . also contributing to the increase in cost of goods sold was an increase in store occupancy costs resulting from new store openings . gross profit increased to $ 674.0 million in fiscal year 2019 from $ 565.1 million in fiscal year 2018 , an increase of $ 108.9 million , or 19.3 % . gross margin increased to 36.5 % in fiscal year 2019 from 36.2 % in fiscal year 2018 , an increase of approximately 30 basis points . the increase in gross margin was primarily the result of a decrease as a percentage of sales in merchandise cost of goods sold partially offset by an increase as a percentage of sales in store occupancy costs . selling , general and administrative expenses selling , general and administrative expenses increased to $ 456.7 million in fiscal year 2019 from $ 377.9 million in fiscal year 2018 , an increase of $ 78.8 million , or 20.8 % . as a percentage of net sales , selling , general and administrative expenses increased approximately 50 basis points to 24.7 % in fiscal year 2019 compared to 24.2 % in fiscal year 2018 . the increase in selling , general and administrative expenses was the result of increases of $ 67.2 million in store-related expenses to support new store growth , which also includes the impact of the new lease accounting standard , and $ 11.6 million of corporate-related expenses . income tax expense income tax expense increased to $ 46.5 million in fiscal year 2019 from $ 42.2 million in fiscal year 2018 , an increase of $ 4.3 million , or approximately 10.3 % . this increase in income tax expense was primarily due to a $ 29.8 million increase in pre-tax net income partially offset by discrete items , which includes the impact of asu 2016-09 , `` improvements to employee share-based payment accounting , '' with respect
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core area of operations the oil and liquids-rich permian basin is characterized by multiple target horizons , long-lived reserves , high drilling success rates and high initial production rates . as of december 31 , 2018 , we had assembled 120,617 net acres in the permian basin . pricing and reserves our results of operations are heavily influenced by oil , ngl and natural gas prices . oil , ngl and natural gas price fluctuations are caused by changes in global and regional supply and demand , market uncertainty , economic conditions , transportation constraints and a variety of additional factors . historically , commodity prices have experienced significant fluctuations , and additional changes in commodity prices may affect the economic viability of , and our ability to fund , our drilling projects , as well as the economic valuation and economic recovery of oil , ngl and natural gas reserves . we have entered into a number of derivative contracts that have enabled us to offset a portion of the changes in our cash flow caused by fluctuations in price and basis differentials for our sales of oil , ngl and natural gas , as discussed in `` item 7a . quantitative and qualitative disclosures about market risk . '' the realized prices utilized to value our reserves as of december 31 , 2018 and december 31 , 2017 , were $ 59.29 per bbl for oil , $ 21.42 per bbl for ngl and $ 1.38 per mcf for natural gas , and $ 46.34 per bbl for oil , $ 18.45 per bbl for ngl and $ 2.06 per mcf for natural gas , respectively . the realized prices used to estimate proved reserves do not include derivative transactions . the unamortized cost of our evaluated oil and natural gas properties did not exceed the full cost ceiling amount as of december 31 , 2018 or december 31 , 2017. as more specifically addressed in `` recent developments '' above , if prices remain at or below the current low levels , subject to numerous factors and inherent limitations , and all other factors remain constant , it is possible we would incur a non-cash full cost impairment in 2019 , which would have an adverse effect on our results of operations . see notes 2.h and 6.a to our consolidated financial statements included elsewhere in this annual report for discussion of our full cost method of accounting . horizontal drilling of unconventional wells using enhanced completions techniques , including , but not limited to , hydraulic fracturing , is a relatively new process and , as such , forecasting the long-term production of such wells is inherently uncertain and subject to varying interpretations . as we receive and process geological and production data from these wells over time , we analyze such data to confirm whether previous assumptions regarding original forecasted production and reserves continue to appear accurate or require modification . while all production forecasts have elements of uncertainty over the life of the related wells , we are seeing indications that the oil portion of such reserves may be less and the decline curves steeper than originally anticipated . initial production results , production decline rates , well density , completion design and operating method are examples of the numerous uncertainties and variables inherent in the estimation of proved reserves in future periods . the quantity of proved reserves is one of the many variables inherent in the calculation of depletion . negative revisions in the estimated quantities of proved reserves have the effect of increasing the rates of depletion on the affected properties , which decreases earnings and increases losses through higher depletion expense . we have experienced increased depletion per boe sold for each of the quarters of 2018 . 55 the table below presents our depletion per boe sold for the periods presented : replace_table_token_15_th sources of our revenue our revenues are derived from the sale of produced oil , ngl and natural gas , the sale of purchased oil and providing midstream services to third parties , all within the continental united states and do not include the effects of derivatives . our oil , ngl and natural gas revenues may vary significantly from period to period as a result of changes in volumes of production , pricing differentials and or changes in commodity prices . our sales of purchased oil revenue may vary due to changes in oil prices , pricing differentials and the amount of volumes purchased . our midstream service revenues may vary due to oil throughput fees and the level of services provided to third parties for ( i ) oil and natural gas gathering and transportation systems and related facilities , ( ii ) gas lift , rig fuel and centralized compression infrastructure and ( iii ) water storage , recycling and transportation infrastructure . see notes 2.n and 5.b to our consolidated financial statements included elsewhere in this annual report for additional information regarding our revenue recognition policies . the following table presents our sources of revenue as a percentage of total revenues : replace_table_token_16_th principal components of our cost structure lease operating expenses . these are daily costs incurred to bring oil , ngl and natural gas out of the ground and to market , together with the daily costs incurred to maintain our producing properties . such costs also include maintenance , repairs and non-routine workover expenses related to our oil and natural gas properties . production and ad valorem taxes . production taxes are based on and fluctuate in proportion to our oil , ngl and natural gas sales revenues , and are established by federal , state or local taxing authorities . we take full advantage of all credits and exemptions in our various taxing jurisdictions . ad valorem taxes are based on and fluctuate in proportion to the taxable value assessed by the various counties where our oil and natural gas properties are located . transportation and marketing expenses . story_separator_special_tag transportation and marketing expenses are the costs incurred to transport a portion of our production to the u.s. gulf coast market . midstream service expenses . these are costs incurred to operate and maintain our ( i ) oil and natural gas gathering and transportation systems and related facilities , ( ii ) centralized oil storage tanks , ( iii ) natural gas lift , rig fuel and centralized compression infrastructure and ( iv ) water storage , recycling and transportation facilities . costs of purchased oil . these are costs incurred for obtaining oil from third parties and , in some cases , transporting such oil utilized in our marketing activities . our costs of purchased oil may vary due to changes in oil prices , pricing differentials , the amount of volumes purchased and fluctuations in transportation fees . general and administrative ( `` g & a '' ) . these are costs incurred for overhead , including payroll and benefits for our corporate staff , costs of maintaining our headquarters , costs of managing our production and development operations , franchise taxes , audit and other fees for professional services , legal compliance and compensation expense related to employee and director stock awards , option awards and performance share awards with market criteria , which have been recognized on a straight-line basis over the vesting period associated with the award , and performance share awards with performance criteria , which have been recognized based on an estimated probability of how many shares will be earned at the end of the performance period with expense trued-up at each reporting period . the 2013 performance unit awards ' fair value was re-measured at the end of each reporting period until settlement in first-quarter 2016. see note 8.c to our consolidated financial statements included elsewhere in this annual report for additional information regarding our stock-based compensation . 56 depletion , depreciation and amortization ( `` dd & a '' ) . under the full cost method of accounting for our oil and natural gas properties , we capitalize all acquisition , exploration and development costs , including certain related employee costs , incurred for the purpose of exploring for or developing oil and natural gas properties and then systematically expense those costs on a unit-of-production basis based on proved oil , ngl and natural gas reserve quantities . unevaluated costs and related carrying costs are excluded from the depletion base until the properties associated with these costs are evaluated . the depletion base includes estimated future development costs and dismantlement , restoration and abandonment costs , net of estimated salvage values . we calculate depreciation on our midstream service assets and other fixed assets utilizing the straight-line method based on estimated useful lives of the assets or , in the case of leasehold improvements , over the shorter of the estimated useful lives of the assets or the terms of the related leases . see note 6 to our consolidated financial statements included elsewhere in this annual report for additional information regarding the dd & a of our property and equipment . impairment expense . impairment of our oil and natural gas properties is based principally on the estimated future net revenues from our proved oil and natural gas properties discounted at 10 % . our realized prices are utilized to calculate the discounted future net revenues in our full cost ceiling calculation . in the event the unamortized cost of our evaluated oil and natural gas properties being depleted exceeds the full cost ceiling as defined by the sec , the excess is charged to expense in the period such excess occurs . once incurred , a write-down of oil and natural gas properties is not reversible . with the continuing volatility in commodity prices , we may incur additional write-downs on our oil and natural gas properties . see note 6.a to our consolidated financial statements included elsewhere in this annual report for additional information regarding our full cost ceiling calculation . impairment losses are recorded on long-lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets ' carrying amount . impairment is measured based on the excess of the carrying amount over the fair value of the asset . materials and supplies inventory used in production activities of oil and natural gas properties and midstream service assets , frac pit water inventory used in developing oil and natural gas properties and line-fill in third-party pipelines are carried at the lower of cost or net realizable value ( `` nrv '' ) with costs determined using the weighted-average cost method . see notes 2.i , 6.b and 10.b to our consolidated financial statements included elsewhere in this annual report for additional information regarding our inventory and long-lived assets . other operating expenses . these costs include accretion expense due to the passage of time on our asset retirement obligations for the years ended december 31 , 2018 , 2017 and 2016 and firm transportation payments on excess pipeline capacity and other contractual penalties for the years ended december 31 , 2017 and 2016. see notes 2.k and 14.d to our consolidated financial statements included elsewhere in this annual report for additional information regarding our asset retirement obligations and firm transportation payments on excess pipeline capacity and other contractual penalties , respectively . non-operating income ( expense ) gain ( loss ) on derivatives , net . we utilize derivatives to reduce our exposure to fluctuations in commodity prices , commodity transportation costs and differences in commodity prices between where we produce and where we sell our products . this amount represents ( i ) the recognition of gains and losses associated with our open derivatives as commodity and location differential prices change and contracts expire or new contracts are entered into , and ( ii ) our gains and losses on the settlement , termination and modification of these derivatives . we classify these gains and losses as operating activities in our consolidated statements of cash flows .
| our oil sales revenue is a function of oil production volumes sold and average oil sales realized prices received for those volumes . the increase in oil sales revenue of $ 160.2 million , or 36 % , for the year ended december 31 , 2018 as compared to 2017 , is due to a 27 % increase in average oil sales realized prices and a 7 % increase in oil sales volumes . the increase in oil sales revenue of $ 126.5 million , or 40 % , for the year ended december 31 , 2017 as compared to 2016 , is due to a 24 % increase in average oil sales realized prices and a 12 % increase in oil sales volumes . ngl sales revenue . our ngl sales revenue is a function of ngl production volumes sold and average ngl sales realized prices received for those volumes . the increase in ngl sales revenue of $ 48.4 million , or 48 % , for the year ended december 31 , 2018 as compared to 2017 , is due to a 25 % increase in ngl sales volumes and an 18 % increase in average ngl sales realized prices . the increase in ngl sales revenue of $ 44.5 million , or 78 % , for the year ended december 31 , 2017 as compared to 2016 , is due to a 47 % increase in average ngl sales realized prices and a 21 % increase in ngl sales volumes . natural gas sales revenue . our natural gas sales revenue is a function of natural gas production volumes sold and average natural gas sales realized prices received for those volumes . the decrease in natural gas sales revenue of $ 21.6 million , or 29 % , for the year ended december 31 , 2018 as compared to 2017 , is due to a 43 % decrease in average natural gas sales realized prices , partially offset by a 24 % increase in natural gas sales volumes . the increase in natural gas sales revenue of
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the 77 greenwich loan can be increased up to $ 50.0 million subject to satisfaction of certain conditions . the 77 greenwich loan bears interest at a rate per annum equal to the greater of ( i ) the rate published from time to time in the wall street journal as the u.s. prime rate plus 1.25 % ( the “ contract rate ” ) or ( ii ) 4.50 % and requires interest only payments through maturity . the interest rate on the 77 greenwich loan was 4.50 % through december 16 , 2015 , when it was then increased to 4.75 % through december 15 , 2016 and then increased to 5.00 % . the 77 greenwich loan was extended to august 8 , 2017 after having satisfied certain conditions . we are currently evaluating our options which include , among others , an extension of the existing loan or refinancing as part of a construction loan . the collateral for the 77 greenwich loan is our fee interest in 77 greenwich and the related air rights owned by us with respect to 77 greenwich . see note 10 – loans payable to our consolidated financial statements for further discussion . we had claims liabilities recorded in our consolidated financial statements of approximately $ 2.5 million and $ 10.5 million at december 31 , 2016 and december 31 , 2015 , respectively . the claims liability included the multi-employer pension plan of approximately $ 2.5 million and $ 3.4 million at december 31 , 2016 and december 31 , 2015 , respectively , which is payable in quarterly distributions of $ 0.2 million until completely paid ( see note 8 - pension and profit sharing plans to our consolidated financial statements ) as well as the obligation to the former majority shareholder of approximately $ 7.1 million at december 31 , 2015. on march 8 , 2016 , a general unsecured claim satisfaction occurred and on march 14 , 2016 , we made the final payment to the majority shareholder in the amount of approximately $ 6.9 million . following this general unsecured claim satisfaction and final payment to the former majority shareholder as described above “ - claims payment process , ” we satisfied our payment and reserve obligations under the plan and we had no liability to the former majority shareholder at december 31 , 2016 ( see note 13 - related party transactions to our consolidated financial statements ) . 28 at-the-market equity offering program in december 2016 , we entered into an `` at-the-market '' equity offering program ( the “ atm program ” ) , to sell up to an aggregate of $ 12.0 million of our common stock . during the year ended december 31 , 2016 , we sold 120,299 shares of our common stock for aggregate gross proceeds of $ 1.2 million ( excluding approximately $ 218,000 in professional and brokerage fees ) at a weighted average price of $ 9.76 per share . as of december 31 , 2016 , $ 10.8 million of common stock remained available for issuance under the atm program . cash flows cash flows for the year ended december 31 , 2016 net cash used in operating activities was approximately $ 14.8 million for the year ended december 31 , 2016. the net cash used during this period reflects the net loss available to common stockholders of $ 7.4 million , a decrease in the obligation to the former majority shareholder of $ 6.9 million , a decrease in pension liabilities of $ 1.4 million and a decrease in accounts payable and accrued expenses of $ 1.5 million . this was partially offset by the impact of non-cash stock-based compensation expense of $ 2.8 million . net cash used in investing activities for year ended december 31 , 2016 was approximately $ 26.2 million . the net cash used reflects the payments for certain property development and redevelopment costs of $ 11.9 million capitalized as part of the real estate under development as well as our equity investment of $ 14.3 million in the joint venture which acquired the berkley property in brooklyn , new york . net cash provided by financing activities for year ended december 31 , 2016 was approximately $ 7.6 million . this amount was primarily from the net proceeds of $ 8.6 million received from the wpb loan , net proceeds of $ 0.9 million from the at-the-market stock offering , net of professional fees and brokerage fees , partially offset by the repurchase of approximately $ 2.0 million of common stock units from certain employees in order to pay withholding taxes on those common stock units for those employees . cash flows for the period ended december 31 , 2015 net cash used in operating activities was approximately $ 7.0 million for the period ended december 31 , 2015. the net cash used during this period reflects the net loss available to common stockholders of $ 6.6 million as well as a decrease in other liabilities , primarily lease settlement liabilities , of $ 16.2 million and a decrease in accounts payable and accrued expenses of $ 1.9 million related mainly to payments of other non-lease related claims , as well as a decrease in pension liabilities of $ 1.2 million . this was partially offset by a reduction of $ 18.0 million of restricted cash for the use of paying claims , as well as the impact of non-cash stock-based compensation expense of $ 1.4 million . net cash used in investing activities for the period ended december 31 , 2015 was approximately $ 6.3 million . the net cash used reflects the payments for certain property development and redevelopment costs capitalized as part of the real estate under development . net cash provided by financing activities for period ended december 31 , 2015 was approximately $ 27.6 million . this amount was primarily from the net story_separator_special_tag the 77 greenwich loan can be increased up to $ 50.0 million subject to satisfaction of certain conditions . the 77 greenwich loan bears interest at a rate per annum equal to the greater of ( i ) the rate published from time to time in the wall street journal as the u.s. prime rate plus 1.25 % ( the “ contract rate ” ) or ( ii ) 4.50 % and requires interest only payments through maturity . the interest rate on the 77 greenwich loan was 4.50 % through december 16 , 2015 , when it was then increased to 4.75 % through december 15 , 2016 and then increased to 5.00 % . the 77 greenwich loan was extended to august 8 , 2017 after having satisfied certain conditions . we are currently evaluating our options which include , among others , an extension of the existing loan or refinancing as part of a construction loan . the collateral for the 77 greenwich loan is our fee interest in 77 greenwich and the related air rights owned by us with respect to 77 greenwich . see note 10 – loans payable to our consolidated financial statements for further discussion . we had claims liabilities recorded in our consolidated financial statements of approximately $ 2.5 million and $ 10.5 million at december 31 , 2016 and december 31 , 2015 , respectively . the claims liability included the multi-employer pension plan of approximately $ 2.5 million and $ 3.4 million at december 31 , 2016 and december 31 , 2015 , respectively , which is payable in quarterly distributions of $ 0.2 million until completely paid ( see note 8 - pension and profit sharing plans to our consolidated financial statements ) as well as the obligation to the former majority shareholder of approximately $ 7.1 million at december 31 , 2015. on march 8 , 2016 , a general unsecured claim satisfaction occurred and on march 14 , 2016 , we made the final payment to the majority shareholder in the amount of approximately $ 6.9 million . following this general unsecured claim satisfaction and final payment to the former majority shareholder as described above “ - claims payment process , ” we satisfied our payment and reserve obligations under the plan and we had no liability to the former majority shareholder at december 31 , 2016 ( see note 13 - related party transactions to our consolidated financial statements ) . 28 at-the-market equity offering program in december 2016 , we entered into an `` at-the-market '' equity offering program ( the “ atm program ” ) , to sell up to an aggregate of $ 12.0 million of our common stock . during the year ended december 31 , 2016 , we sold 120,299 shares of our common stock for aggregate gross proceeds of $ 1.2 million ( excluding approximately $ 218,000 in professional and brokerage fees ) at a weighted average price of $ 9.76 per share . as of december 31 , 2016 , $ 10.8 million of common stock remained available for issuance under the atm program . cash flows cash flows for the year ended december 31 , 2016 net cash used in operating activities was approximately $ 14.8 million for the year ended december 31 , 2016. the net cash used during this period reflects the net loss available to common stockholders of $ 7.4 million , a decrease in the obligation to the former majority shareholder of $ 6.9 million , a decrease in pension liabilities of $ 1.4 million and a decrease in accounts payable and accrued expenses of $ 1.5 million . this was partially offset by the impact of non-cash stock-based compensation expense of $ 2.8 million . net cash used in investing activities for year ended december 31 , 2016 was approximately $ 26.2 million . the net cash used reflects the payments for certain property development and redevelopment costs of $ 11.9 million capitalized as part of the real estate under development as well as our equity investment of $ 14.3 million in the joint venture which acquired the berkley property in brooklyn , new york . net cash provided by financing activities for year ended december 31 , 2016 was approximately $ 7.6 million . this amount was primarily from the net proceeds of $ 8.6 million received from the wpb loan , net proceeds of $ 0.9 million from the at-the-market stock offering , net of professional fees and brokerage fees , partially offset by the repurchase of approximately $ 2.0 million of common stock units from certain employees in order to pay withholding taxes on those common stock units for those employees . cash flows for the period ended december 31 , 2015 net cash used in operating activities was approximately $ 7.0 million for the period ended december 31 , 2015. the net cash used during this period reflects the net loss available to common stockholders of $ 6.6 million as well as a decrease in other liabilities , primarily lease settlement liabilities , of $ 16.2 million and a decrease in accounts payable and accrued expenses of $ 1.9 million related mainly to payments of other non-lease related claims , as well as a decrease in pension liabilities of $ 1.2 million . this was partially offset by a reduction of $ 18.0 million of restricted cash for the use of paying claims , as well as the impact of non-cash stock-based compensation expense of $ 1.4 million . net cash used in investing activities for the period ended december 31 , 2015 was approximately $ 6.3 million . the net cash used reflects the payments for certain property development and redevelopment costs capitalized as part of the real estate under development . net cash provided by financing activities for period ended december 31 , 2015 was approximately $ 27.6 million . this amount was primarily from the net
| of this amount , approximately $ 2.8 million related to stock-based compensation , $ 1.6 million related to payroll and payroll related expenses and $ 1.5 million related to other corporate costs including board fees , corporate office rent and insurance . general and administrative expenses for the ten-month period ended december 31 , 2015 were approximately $ 4.3 million . of this amount , approximately $ 1.4 million related to stock-based compensation , $ 1.5 million related to payroll and payroll related costs and $ 1.4 million related to other corporate costs including board fees , corporate office rent and insurance . the total increase of $ 1.6 million in general and administrate expenses from 2015 mainly related to the vesting of stock-based compensation related to the december 2015 rights offering . professional fees for the year ended december 31 , 2016 were approximately $ 1.5 million . these costs consisted of general corporate legal fees of approximately $ 473,000 , bankruptcy related professional fees of approximately $ 277,000 , accounting , tax , audit and audit related fees of approximately $ 336,000 , intellectual property maintenance , licensing , operating and start-up costs ( inclusive of filenesbasement.com ) of approximately $ 317,000 , and other professional fees of approximately $ 120,000. professional fees for the ten-month period ended december 31 , 2015 were approximately $ 2.2 million which consisted of general corporate legal fees of approximately $ 296,000 , bankruptcy related professional fees of approximately $ 449,000 , accounting , tax , audit and audit related fees of approximately $ 511,000 , professional fees related to work on our intellectual property of $ 937,000 and other professional fees of approximately $ 44,000. the total decrease in professional fees of $ 714,000 from 2015 mainly related to the one-time startup costs incurred in 2015 related to the launch of our e-commerce marketplace at filenesbasement.com . transaction related costs of $ 243,000 represent professional fees and other costs incurred in connection with formation activities and underwriting and evaluating potential acquisitions and investments which are required to be expensed in accordance with the accounting for business combinations . depreciation and amortization expenses for the year
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in addition , we anticipate that our expenses will increase significantly in connection with our ongoing activities , as we : ● advance our product candidates through clinical development , including our ongoing potentially registrational phase 3 clinical trial for nirogacestat and ongoing potentially registrational phase 2b clinical trial for mirdametinib ; ● advance our other preclinical and clinical development programs , including our combination therapies , into and through clinical development ; ● seek regulatory approvals for any product candidates that successfully complete clinical trials ; ● increase the amount of research and development activities to identify , acquire and develop product candidates ; ● hire additional clinical , quality control , medical , scientific and other technical personnel ; ● expand our operational , financial and management systems and increase personnel , including personnel to support our clinical development , manufacturing , business development and commercialization efforts and our operations as a public company ; ● maintain , expand and protect our intellectual property portfolio ; ● complete commercial-scale outsourced manufacturing activities ; ● establish sales , marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own or jointly with third parties ; and ● invest in or in-license other technologies or product candidates . we will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates . in addition , if we obtain regulatory approval for nirogacestat or mirdametinib , we expect to incur significant expenses related to developing our commercialization capabilities to support product sales , marketing and distribution activities , either alone or in collaboration with others . 122 our license and collaboration agreements pfizer license agreements in august 2017 , we entered into a license agreement , or the nirogacestat license agreement , with pfizer pursuant to which we acquired exclusive worldwide rights to nirogacestat . we subsequently amended the nirogacestat license agreement in july of 2019 with regard to certain provisions relating to intellectual property . pursuant to the nirogacestat license agreement , as amended , we are required to pay pfizer payments of up to an aggregate of $ 232.5 million upon achievement of certain commercial milestone events . we will pay pfizer tiered royalties on sales of nirogacestat at percentages ranging from the mid-single digits to the low 20s , which may be subject to deductions for expiration of valid claims , amounts due under third-party licenses and generic competition . in august 2017 , we entered into a license agreement , or the mirdametinib license agreement , with pfizer ( collectively with the nirogacestat license agreement referred to as the “ pfizer license agreements ” ) pursuant to which we acquired exclusive worldwide rights to mirdametinib . we subsequently amended the mirdametinib license agreement in august of 2019 with regard to certain provisions relating to intellectual property . pursuant to the mirdametinib license agreement , as amended , we are required to pay pfizer up to an aggregate of $ 229.8 million upon achievement of certain commercial milestone events . we will pay pfizer tiered royalties on sales of mirdametinib at percentages ranging from the mid-single digits to the low 20s , which may be subject to deductions for expiration of valid claims , amounts due under third-party licenses and generic competition . in connection with entering into the pfizer license agreements , we issued an aggregate of 6,437,500 junior series a convertible preferred units to pfizer , which units were converted into 6,437,500 shares of our junior series a convertible preferred stock pursuant to the reorganization . at the closing of the ipo , the junior series a shares were automatically converted into shares of common stock at a conversion rate of 6.5810-for-one ( or 978,194 common shares ) . as of december 31 , 2020 , we had not made any milestone or royalty payments under the pfizer license agreements . beigene clinical collaboration agreement in august 2018 , we entered into a clinical collaboration agreement with beigene , ltd. , or beigene , to evaluate the safety , tolerability and preliminary efficacy of combining lifirafenib and mirdametinib , in a phase 1b clinical trial for patients with advanced or refractory solid tumors . each party will be solely responsible for its costs associated with manufacturing and supply of its compound for the clinical trial . we and beigene will share equally the other costs associated with the clinical trial . gsk clinical trial collaboration and supply agreement in june 2019 , we entered into a clinical trial collaboration and supply agreement with glaxosmithkline , or gsk , to evaluate nirogacestat in combination with belantamab mafodotin in patients with relapsed or refractory multiple myeloma , in an adaptive phase 1b clinical trial . gsk will be responsible for the conduct and expenses of the collaboration , which will be governed by a joint development committee with equal representation from each party . allogene clinical trial collaboration and supply agreement in january 2020 , we entered into a clinical trial collaboration and supply agreement with allogene therapeutics , inc. , or allogene , to evaluate nirogacestat in combination with allo-715 , allogene 's investigational allogeneic b-cell maturation antigen , or bcma , targeted chimeric antigen receptor , or car , t cell product , in patients with relapsed or refractory multiple myeloma . allogene is responsible for administering the phase 1 clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial , other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights . the collaboration is managed by a joint development committee with equal representation by us and allogene . story_separator_special_tag 123 janssen clinical collaboration agreement in september 2020 , we entered into a clinical collaboration and supply agreement with janssen biotech , inc. , or janssen , to evaluate our investigational gamma secretase inhibitor , or gsi , nirogacestat , in combination with janssen 's bispecific antibody targeting bcma , and cd3 , teclistamab , in patients with relapsed or refractory multiple myeloma . janssen is responsible for administering the phase 1 clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial , other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights . the collaboration is managed by a joint oversight committee of equal representation by us and janssen . precision biosciences clinical collaboration agreement in september 2020 , we entered into a clinical trial collaboration agreement with precision biosciences , inc. , or precision , to evaluate nirogacestat in combination with pbcar269a , an investigational allogeneic car-t cell therapy candidate targeting bcma , in patients with relapsed or refractory multiple myeloma . precision is responsible for administering the phase 1/2a clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial , other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights . the collaboration is managed by a joint steering committee of equal representation by us and precision . pfizer clinical collaboration agreement in october 2020 , we entered into a clinical trial collaboration and supply agreement with pfizer , to evaluate nirogacestat in combination with pfizer 's bispecific antibody targeting bcma and cd3 , elranatamab , in patients with relapsed or refractory multiple myeloma . pfizer is responsible for administering the phase 1b/2 clinical trial and is responsible for all costs associated with the direct conduct of the clinical trial , other than the manufacture and supply of nirogacestat and certain expenses related to intellectual property rights . the collaboration is managed by a joint development committee of equal representation by us and pfizer . jazz pharmaceuticals asset purchase and exclusive license agreement in october 2020 , we and jazz announced an asset purchase and exclusive license agreement , pursuant to which jazz acquired our fatty acid amide hydrolase , or faah , inhibitor program including pf-04457845 . jazz made an upfront payment of $ 35 million to us with potential future payments of up to $ 375 million based upon the achievement of certain clinical development , regulatory , and commercial milestones . in addition , jazz is obligated to pay us sales-based royalties on future net sales of pf-04457845 . see “ business—license and collaboration agreements ” for more information on our license and collaboration agreements . covid-19 impact in december 2019 , a novel strain of the coronavirus disease , severe acute respiratory syndrome coronavirus 2 , or sars-cov-2 , covid-19 , was identified in wuhan , china . this virus disease resulting from covid-19 has now become a global pandemic . since the onset of covid-19 , we have undertaken a number of business continuity measures to mitigate potential disruption to our operations and preserve the integrity of our research and development programs . as of the date of this report we have not experienced any material disruptions to the execution of the research and development activities that we currently have underway , however , as a result of the pandemic we may experience disruptions that could impact our research and development timelines and outcomes . we are continuing to evaluate the impact of the covid-19 pandemic on our business . based on our cash , cash equivalents and marketable securities balance at december 30 , 2020 , of $ 561.8 million , management estimates that its current liquidity position will enable it to meet operating expenses . for further details on our liquidity position , see the `` results of operations '' section . 124 story_separator_special_tag track on a program-by-program basis after a clinical product candidate has been identified . other research and development expenses include internal research and development costs , such as compensation related costs for our research and development employees , as well as depreciation and other indirect costs , which we do not track on a program-by-program basis , as we deploy our internal resources across multiple projects under development . 127 our research and development expenses are summarized in the table below : replace_table_token_4_th general and administrative expenses general and administrative expenses were $ 29.5 million and $ 16.7 million for the years ended december 31 , 2020 and december 31 , 2019 , respectively , as follows : replace_table_token_5_th the increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions , as we continued to expand our operations to support the organization , and an increase in non-cash share-based compensation expense . in addition , general and administrative expense included an increase of $ 4.4 million in consulting and professional services , including legal , regulatory and compliance . other income the decrease in other income is driven by a decrease in interest income , net , during the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. this decrease was attributable to a significant decline in interest rates as a result of the economic impact of the covid-19 pandemic , which drove a lower return on cash , cash equivalents and marketable securities during the year ended december 31 , 2020. comparison of the years ended december 31 , 2019 and december 31 , 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and december 31 , 2018. replace_table_token_6_th 128 research and development expenses research and development expense increased by $ 32.6 million to $ 42.5 million for the year ended december 31 , 2019 from $ 9.9 million for the year ended december 31 , 2018 , an increase of 330 % .
| expenditures for clinical development , including upfront licensing fees and milestone payments associated with our product candidates , are charged to research and development expense as incurred . these expenses consist of expenses incurred in performing development activities , including salaries and benefits , materials and supplies , preclinical expenses , clinical trial and related clinical manufacturing expenses , depreciation of equipment , contract services and other outside expenses . costs for certain development activities , such as manufacturing and clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using either time-based measures or data such as information provided to us by our vendors on their actual costs incurred . we expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in activities related to developing our product candidates and our preclinical programs , and as certain product candidates advance into later stages of development , including our ongoing potentially registrational phase 3 clinical trial for nirogacestat , or the defi trial , and our ongoing potentially registrational phase 2b clinical trial for mirdametinib , or the reneu trial . the process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming , and the successful development of our product candidates is highly uncertain . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance , corporate and business development and administrative functions . general and administrative expenses also include legal fees relating to patent and corporate matters ; professional fees for accounting , auditing , tax and administrative consulting services ; insurance costs ; administrative travel expenses ; and facility-related 125 expenses , which include direct depreciation costs and allocated expenses
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we believe the changes in consumer preferences for discretionary spending , the current global economic conditions and economic uncertainty continue to impact the business of each of our operating groups and the apparel industry as a whole . we believe the retail apparel market is evolving very rapidly and in ways that are having a disruptive impact on traditional fashion retailing . the application of technology , including the internet and mobile devices , to fashion retail provides consumers increasing access to multiple , responsive distribution platforms and an unprecedented ability to communicate directly with brands and retailers . as a result , consumers have more information and greater control over information they receive as well as broader , faster and cheaper access to goods than ever before . this , along with the coming of age of the “ millennial ” generation , is revolutionizing the way that consumers shop for fashion and other goods , which is evidenced by weakness and store closures for certain department stores and mall-based retailers , decreased consumer retail traffic , a more promotional retail environment , expansion of off-price and discount retailers , and a shift from bricks and mortar to internet purchasing . these changes may require that brands and retailers approach their operations , including marketing and advertising , very differently than historical practices and may result in increased operating costs to generate growth or even maintain their current sales levels . while this evolution in the fashion retail industry presents significant risks , especially for traditional retailers who fail or are unable to adapt , we believe it also presents a tremendous opportunity for brands and retailers to capitalize on the changing consumer environment . we believe our brands have true competitive advantages in this new retailing paradigm , and we are leveraging technology to serve our consumers when and where they want to be served . we continue to believe that our lifestyle brands , with their strong emotional connections with consumers , are well suited to succeed and thrive in the long term while managing the various challenges facing our industry . specifically , we believe our lifestyle brands have opportunities for long-term growth in our direct to consumer businesses . we anticipate increased sales in our e-commerce operations , which are expected to grow at a faster rate than bricks and mortar comparable store sales . we also believe growth can be achieved through prudent expansion of bricks and mortar full-price retail store and restaurant operations and modest comparable full-price retail store and restaurant sales increases . we expect there will continue to be desirable locations for additional retail stores , but at a more measured growth rate than prior years . we believe our lifestyle brands have an opportunity for modest sales increases in their wholesale businesses in the long term . however , we must be diligent in our effort to avoid compromising the integrity of our brands by maintaining or growing sales with wholesale customers that may not be aligned with our long-term strategy . this is particularly important with the challenges in the department store channel , which represented approximately 12 % of our consolidated net sales in fiscal 2018 , compared to approximately 14 % in fiscal 2017 . the management of wholesale distribution for our lifestyle brands resulted in a decrease in wholesale sales in fiscal 2018 . while we anticipate modest growth in our wholesale sales in fiscal 2019 , there could be additional reductions in wholesale sales in future years , as the amount of sales to certain wholesale accounts could decrease if the number of of doors that carry our product decreases , the volume sold for a particular door is reduced or the account is exited altogether . we anticipate that sales increases in our wholesale businesses in the long term will stem primarily from current customers adding within their existing door count and increasing their online business ; increased sales to online retailers ; and our selective addition of new wholesale customers who generally present and merchandise our products in a way that is consistent with our full-price , direct to consumer distribution strategy . we also believe that there are opportunities for modest sales growth for lanier apparel in the future through new product programs and licenses . we believe we must continue to invest in our lifestyle brands to take advantage of their long-term growth opportunities . investments include capital expenditures primarily related to the direct to consumer operations , such as technology enhancements , e-commerce initiatives and retail store and restaurant build-out for new , relocated or remodeled locations , as well as distribution center and administrative office expansion initiatives . additionally , we anticipate increased employment and other costs to support ongoing business operations and fuel future sales growth . 40 in the midst of the changes in our industry , an important initiative for us in recent years was to increase the profitability of the tommy bahama business . these initiatives generally focused on increasing gross margin and operating margin through efforts such as : product cost reductions ; selective price increases ; reducing inventory purchases ; redefining our approach to inventory clearance ; effectively managing controllable and discretionary operating expenses ; taking a more conservative approach to retail store openings and lease renewals ; and continuing our efforts to reduce asia-pacific operating losses . while progress was made on these initiatives in both fiscal 2018 and fiscal 2017 , we expect to make further progress on improving the profitability of the tommy bahama business in the future . we continue to believe it is important to maintain a strong balance sheet and liquidity . we believe positive cash flow from operations , coupled with the strength of our balance sheet and liquidity , will provide us with sufficient resources to fund future investments in our owned lifestyle brands . story_separator_special_tag while we believe we have significant opportunities to appropriately deploy our capital and resources in our existing lifestyle brands , our strong cash flows from operations provide us the ability to continue to evaluate opportunities to add additional lifestyle brands to our portfolio in the future if we identify appropriate targets that meet our investment criteria . while we are actively exploring acquisition opportunities , investment opportunities for the types of large brands with the attributes that we desire are not always available at an acceptable price . therefore , our interest in acquiring smaller brands and earlier stage companies has increased in recent years , particularly in businesses where we may have the opportunity to more fully integrate the brand into our existing infrastructure and shared services functions . important factors relating to certain risks , many of which are beyond our ability to control or predict , which could impact our business are described in part i , item 1a . risk factors of this report . the following table sets forth our consolidated operating results from continuing operations ( in thousands , except per share amounts ) for fiscal 2018 compared to fiscal 2017 : replace_table_token_10_th the higher net earnings per diluted share in fiscal 2018 was due to ( 1 ) the improved operating results in corporate and other , primarily due to the favorable net impact of lifo accounting and the operations of tbbc , ( 2 ) increased operating income in southern tide primarily due to higher net sales , ( 3 ) lower interest expense , and ( 4 ) improved operating income in lilly pulitzer primarily reflecting higher sales . these items were partially offset by ( 1 ) the higher effective tax rate reflecting the net impact of a lower corporate income tax rate in fiscal 2018 offset by the revaluation of deferred tax amounts in fiscal 2017 , ( 2 ) lower operating income in lanier apparel , primarily due to lower sales , and ( 3 ) lower operating income in tommy bahama , primarily due to charges related to the restructure and downsizing of our tommy bahama japan operations and lower wholesale sales . operating groups our business is primarily operated through our tommy bahama , lilly pulitzer , lanier apparel and southern tide operating groups . we identify our operating groups based on the way our management organizes the components of our business for purposes of allocating resources and assessing performance . our operating group structure reflects a brand-focused management approach , emphasizing operational coordination and resource allocation across each brand 's direct to consumer , wholesale and licensing operations , as applicable . tommy bahama , lilly pulitzer and southern tide each design , source , market and distribute apparel and related products bearing their respective trademarks and license their trademarks for other product categories , while lanier apparel designs , sources and distributes branded and private label men 's tailored clothing , sportswear and other products . corporate and other is a reconciling category for reporting purposes and includes our corporate offices , substantially all financing activities , the elimination of inter-segment sales and any other items that are not allocated to the operating groups including lifo accounting adjustments . because our lifo inventory pool does not correspond to our operating group definitions , lifo inventory accounting adjustments are not allocated to the operating groups . corporate and other also includes the operations of other businesses which are not included in our operating groups . the operations of tbbc , which we acquired in december 2017 , and our lyons , georgia distribution center are included in corporate and other . 41 for additional information about each of our operating groups , see part i , item 1. business and note 2 to our consolidated financial statements , both included in this report . comparable store sales we often disclose comparable store sales in order to provide additional information regarding changes in our results of operations between periods . our disclosures of comparable store sales include net sales from full-price retail stores and our e-commerce sites , excluding sales associated with e-commerce flash clearance sales . we believe that the inclusion of both our full-price retail stores and e-commerce sites in the comparable store sales disclosures is a more meaningful way of reporting our comparable store sales results , given similar inventory planning , allocation and return policies , as well as our cross-channel marketing and other initiatives for the direct to consumer channel . for our comparable store sales disclosures , we exclude ( 1 ) outlet store sales , warehouse sales and e-commerce flash clearance sales , as those clearance sales are used primarily to liquidate end of season inventory , which may vary significantly depending on the level of end of season inventory on hand and generally occur at lower gross margins than our non-clearance direct to consumer sales , and ( 2 ) restaurant sales , as we do not currently believe that the inclusion of restaurant sales in our comparable store sales disclosures is meaningful in assessing our consolidated results of operations . comparable store sales information reflects net sales , including shipping and handling revenues , if any , associated with product sales . for purposes of our disclosures , we consider a comparable store to be , in addition to our e-commerce sites , a physical full-price retail store that was owned and open as of the beginning of the prior fiscal year and which did not have during the relevant periods , and is not within the current fiscal year scheduled to have , ( 1 ) a remodel or other event which would result in a closure for an extended period of time ( which we define as a period of two weeks or longer ) , ( 2 ) a greater than 15 % change in the size of the retail space due to expansion , reduction or relocation to a new retail space or ( 3 ) a relocation to a new space that
| net sales 43 replace_table_token_14_th consolidated net sales increased $ 21 million , or 2 % , in the 52 week fiscal 2018 compared to the 53 week fiscal 2017. the increase in consolidated net sales was primarily driven by ( 1 ) a $ 19 million , or 4 % , calendar-adjusted comparable store sales increase from $ 481 million in the 52-week period ended february 3 , 2018 to $ 500 million in fiscal 2018 , ( 2 ) an incremental net sales increase of $ 18 million associated with the operation of non-comp full-price retail stores , primarily in lilly pulitzer , ( 3 ) an incremental net sales increase of $ 11 million of e-commerce and wholesale sales for tbbc , which we acquired in the fourth quarter of fiscal 2017 , ( 4 ) a $ 6 million increase in net sales through our off-price direct to consumer channels reflecting an increase in lilly pulitzer e-commerce flash clearance sales partially offset by lower sales at tommy bahama outlets and ( 5 ) a $ 1 million increase in restaurant sales in tommy bahama . these increases in consolidated net sales were partially offset by ( 1 ) a $ 28 million net decrease in wholesale sales , consisting of decreases in tommy bahama , lilly pulitzer and lanier apparel partially offset by an increase in southern tide , and ( 2 ) a $ 5 million decrease in direct to consumer sales due to the impact on comparable store sales of one less week in fiscal 2018 than fiscal 2017. we estimate that the 53rd week in fiscal 2017 , with no corresponding week in fiscal 2018 , resulted in approximately $ 17 million of lower sales in fiscal 2018 when considering the impact on direct to consumer comparable store sales noted above , as well as the impact on non comparable direct to consumer , restaurant , outlet and wholesale sales . by way of comparison , on a fiscal period basis , consolidated comparable store sales increased 3 % in fiscal 2018 relative to fiscal 2017 . the changes in net sales by operating group are discussed below . tommy bahama : the tommy bahama net sales decrease of $ 11 million , or 2 % , in fiscal 2018 compared to fiscal 2017 was primarily due to ( 1 ) a $ 15 million decrease in wholesale sales , including lower full-price wholesale sales , as tommy bahama
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the customer relationships intangible asset had been amortized since its acquisition in 2002 using the straight-line method over a twenty year expected life . management 's re-evaluation concluded that the original twenty year life continued to be a reasonable expectation . however , because of the expectation that revenues and profits from these customers will likely decline in future years , management concluded that an accelerated method of amortization of the customer relationships intangible asset would be more appropriate . the accelerated method results in amortization of the net unamortized june 30 , 2007 balance over the remaining 14.5 year life at a rate that declines at approximately 8 % per year . the company adopted the new method in the third quarter of 2007 and the resulting change in amortization is being accounted for on a prospective basis in accordance with sfas no . 142. amortization expense in 2007 was increased by $ 0.5 million as a result of the change . income taxes . the company 's reported effective tax rates on loss from continuing operations before income taxes and discontinued operations approximated ( 30.6 ) % , ( 5.1 ) % , and ( 0.03 ) % for the years ended december 31 , 2007 , 2006 and 2005 , respectively . the reflection of tax expense in spite of reported losses from continuing operations primarily results from taxes on foreign income and the non-recognition of tax benefits on operating loss carry-forwards through the use of a valuation allowance against deferred tax assets ( discussed below ) . the company 's effective tax rate is based on historical and anticipated future taxable income , statutory tax rates and tax planning opportunities available to the company in the various jurisdictions in which it operates . significant judgment is required in determining the effective tax rate and in evaluating the company 's tax positions . tax regulations require items to be included in the tax returns at different times than the items are reflected in the financial statements . as a result , the company 's effective tax rate reflected in its consolidated financial statements included in item 8 of this form 10-k is different than that reported in its tax returns . some of these differences are permanent , such as expenses that are not deductible on the company 's tax returns , and some are temporary differences , such as depreciation expense . temporary differences create deferred tax assets and liabilities . deferred tax assets generally represent items that can be used as a tax deduction or credit in the company 's tax returns in future years for which it has already recorded the tax benefit in the statement of operations . the company establishes valuation allowances to reduce deferred tax assets to the amounts that it believes are more likely than not to be realized . these valuation allowances are adjusted in light of changing facts and circumstances . deferred tax liabilities generally represent tax expense recognized in the company 's consolidated financial statements for which payment has been deferred , or expense for which a deduction has already been taken on the company 's tax returns but has not yet been recognized as an expense in its consolidated financial statements . sfas no . 109 , accounting for income taxes , requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible . in making this determination , management considers all available positive and negative evidence affecting specific deferred tax assets , including the company 's past and anticipated future performance , the reversal of deferred tax liabilities , the length of carry-back and carry-forward periods , and the implementation of tax planning strategies . objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of deferred tax assets when significant negative evidence exists . cumulative losses in recent years are the most compelling form of negative evidence considered by management in this determination . for the years ended december 31 , 2007 and 2006 , management determined that based on all available evidence , a valuation allowance of $ 79.8 million and $ 79.2 million , respectively , were appropriate as of 25 those dates , as compared to a valuation allowance in the amount of $ 139.3 million as of the year ended december 31 , 2005. the significant reduction in the valuation allowance compared to 2005 was primarily attributable to the write-off in 2006 of a number of deferred tax assets as a result of an ownership change as defined in irc section 382 , and the corresponding limitations imposed on certain tax attributes as a result of this ownership change . the impact of irc section 382 on the deferred tax assets of the company is discussed in more detail in note 10 of notes to consolidated financial statements included in item 8 of this form 10-k. in june 2006 , the financial accounting standards board ( fasb ) issued interpretation no . 48 accounting for uncertainty in income taxes an interpretation of fasb statement no . 109 ( fin no . 48 ) . the interpretation prescribes a more-likely-than-not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . the interpretation also offers guidance on derecognition , classification , interest and penalties , accounting in interim periods , disclosure , and transition . the company adopted fin no . 48 effective january 1 , 2007. in accordance with fin no . 48 , paragraph 19 , the company 's policy for recording interest and penalties associated with tax positions is to record such items as a component of income before taxes . story_separator_special_tag as a result of the implementation of fin no . 48 , the company recognized a $ 0.3 million increase in liability for unrecognized tax benefits , which was accounted for as an increase to the january 1 , 2007 accumulated deficit balance . stock-based compensation . in december 2004 , the financial accounting standards board ( fasb ) issued sfas no . 123 ( r ) , share-based payment ( sfas no . 123 ( r ) ) . this pronouncement amended sfas no . 123 , accounting for stock-based compensation , ( sfas no . 123 ) and superseded accounting principles board ( apb ) opinion no . 25 , accounting for stock issued to employees ( apb 25 ) . sfas no . 123 ( r ) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations . the company adopted sfas no . 123 ( r ) on january 1 , 2006 , using the modified prospective method and , accordingly , did not restate the consolidated statements of operations for periods prior to january 1 , 2006. under sfas no . 123 ( r ) , the company is required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in its consolidated statements of operations over the service period over which the awards are expected to vest . the company recognizes compensation expense over the indicated vesting periods using the straight-line method . prior to january 1 , 2006 , the company accounted for stock-based compensation , as permitted by sfas no . 123 , under the intrinsic value method described in apb 25 and related interpretations . under the intrinsic value method , no stock-based employee compensation cost is recorded when the exercise price is equal to , or higher than , the market value of the underlying common stock on the date of grant . in accordance with apb 25 guidance , no stock-based compensation expense was recognized for the year ended december 31 , 2005 except for compensation amounts relating to grants of shares of nonvested stock . the fair value of all time-vested options is estimated as of the date of grant using the black-scholes option valuation model . the black-scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable . the fair value of market condition options ( also known as path-dependent options ) may be estimated as of their date of grant using more complex option valuation models such as binomial lattice and monte carlo simulations . the company chose to use the monte carlo simulation method for its valuations of market condition options . option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . because the company 's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate , it is management 's opinion that existing models do not necessarily provide a reliable single measure of the fair value of the company 's employee stock options . the company estimates the fair value of awards of restricted shares and nonvested shares , as defined in sfas 123 ( r ) , as being equal to the market value of the common stock on the date of the award . also , under sfas 123 ( r ) , companies must classify their share-based payments as either liability-classified awards or as equity-classified awards . liability-classified awards are remeasured to fair value at each balance sheet date until the award is settled . equity-classified awards are measured at grant date fair value 26 and are not subsequently remeasured . the company has classified its share-based payments which are settled in company common stock as equity-classified awards and its share-based payments that are settled in cash as liability-classified awards . compensation costs related to equity-classified awards are generally equal to the fair value of the award at grant-date amortized over the vesting period of the award . the liability for liability-classified awards is generally equal to the fair value of the award as of the balance sheet date times the percentage vested at the time . the change in the liability amount from one balance sheet date to another is charged ( or credited ) to compensation cost . during the years ended december 31 , 2007 , 2006 and 2005 , stock-based compensation charges aggregated $ 21.0 million , $ 6.4 million and $ 0.4 million , respectively . stock-based compensation is discussed in more detail in note 1 ( m ) and note 14 of notes to consolidated financial statements included in item 8 of this form 10-k. results of operations the following table sets forth the percentage of revenues represented by certain items in the company 's consolidated statements of operations for the periods indicated : replace_table_token_6_th prior to the second quarter of 2007 , the company had two reportable operating segments , accounts payable services and meridian . also , the company included the unallocated portion of corporate selling , general and administrative expenses not specifically attributable to accounts payable services or meridian in a category referred to as corporate support . on may 30 , 2007 , the company completed the sale of meridian and , as a result , meridian 's operating results for all periods presented have been reclassified and are reported in discontinued operations . beginning with the fourth quarter of 2007 , the company segregated accounts payable services into two reportable operating segments domestic and international . the company continues to include the unallocated portion of corporate selling , general and administrative expenses not specifically attributable to domestic or international accounts payable services in a category referred to as corporate support .
| as of december 31 , 2006 the company 's days sales outstanding ( dso ) had improved by 18 % compared to the prior year , providing in excess of $ 7.2 million of additional cash . renegotiating and paying vendors according to terms provided an additional $ 5.2 million . investing activities and depreciation expense . depreciation and amortization expense for the years ended december 31 , 2007 , 2006 and 2005 amounted to $ 6.8 million , $ 10.1 million and $ 13.5 million , respectively . net cash used in investing activities was $ 4.0 million , $ 1.3 million and $ 4.9 million during the years ended december 31 , 2007 , 2006 and 2005 , respectively . cash used in investing activities for all three years was attributable to capital expenditures net of proceeds from sales . the increase in 2007 compared to 2006 was primarily related to the company 's initiative on developing and expanding its medicare auditing capabilities . the 2007 total amount , though higher than 2006 , was still significantly lower than the company 's historical spending levels , which will result in the continued decline in depreciation expense in the foreseeable future . however , if the company does not participate in the national rollout of the medicare recovery audit program , it is likely that it will be necessary to record a significant impairment charge related to the company 's capital expenditures related to the program . financing activities and interest expense . net cash provided by ( used in ) in financing activities was $ ( 36.2 million ) , $ ( 0.2 million ) and $ 14.9 million for the years ended december 31 , 2007 , 2006 and 2005 , respectively . as a result of the 2007 induced conversions of the company 's 10 % senior convertible notes and series a convertible preferred stock and the repayment of other debt obligations with funds generated from operations and the sale of meridian , the company 's long-term debt at december 31 ,
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see note 3 of the notes to consolidated financial statements for additional information about our recent acquisitions and note 15 of the notes to consolidated financial statements for additional information about a pending acquisition . story_separator_special_tag 1pt ; text-align : left ; vertical-align : middle '' > basic earnings per common share $ 10.95 $ 11.08 $ 9.32 diluted earnings per common share $ 10.62 $ 10.73 $ 9.01 our businesses are aligned in four business segments : instrumentation , digital imaging , aerospace and defense electronics and engineered systems . our four business segments and their respective percentage contributions to our total sales in 2020 , 2019 and 2018 are summarized in the following table : replace_table_token_7_th 22 results of operations 2020 compared with 2019 net sales ( dollars in millions ) 2020 2019 % change instrumentation $ 1,094.5 $ 1,105.1 ( 1.0 ) % digital imaging 986.0 992.9 ( 0.7 ) % aerospace and defense electronics 589.4 690.1 ( 14.6 ) % engineered systems 416.3 375.5 10.9 % total net sales $ 3,086.2 $ 3,163.6 ( 2.4 ) % results of operations ( dollars in millions ) 2020 2019 % change instrumentation $ 213.2 $ 200.4 6.4 % digital imaging 192.8 176.5 9.2 % aerospace and defense electronics 80.8 143.4 ( 43.7 ) % engineered systems 50.1 36.5 37.3 % corporate expense ( 56.8 ) ( 65.1 ) ( 12.7 ) % operating income 480.1 491.7 ( 2.4 ) % interest and debt expense , net ( 15.3 ) ( 21.0 ) ( 27.1 ) % non-service retirement benefit income 12.1 8.0 51.3 % other expense , net ( 7.2 ) ( 5.0 ) 44.0 % income before income taxes 469.7 473.7 ( 0.8 ) % provision for income taxes 67.8 71.4 ( 5.0 ) % net income $ 401.9 $ 402.3 ( 0.1 ) % sales and cost of sales by segment and total company ( dollars in millions ) : replace_table_token_8_th 23 we reported net sales of $ 3,086.2 million in 2020 , compared with net sales of $ 3,163.6 million for 2019 , a decrease of 2.4 % . net income was $ 401.9 million ( $ 10.62 per diluted share ) in 2020 , compared with net income of $ 402.3 million ( $ 10.73 per diluted share ) in 2019 , a decrease of 0.1 % . total year 2020 and 2019 reflected pretax charges totaling $ 33.3 million and $ 8.8 million , respectively , primarily in severance , facility consolidation , acquisition and certain changes in contract cost estimates . net income for 2020 and 2019 also included net discrete tax benefits of $ 34.6 million and $ 26.1 million , respectively . net sales the decrease in net sales in 2020 , compared with 2019 , reflected lower net sales in each segment except the engineered systems segment . net sales in 2020 included $ 68.9 million in incremental net sales from recent acquisitions . sales under contracts with the u.s. government were approximately 26 % of net sales in 2020 and 24 % of net sales in 2019. sales to international customers represented approximately 45 % of net sales in 2020 and 44 % of net sales in 2019. cost of sales cost of sales decreased by $ 15.0 million in 2020 , compared with 2019 , which primarily reflected the impact of lower net sales , partially offset by higher severance and facility consolidation expense . cost of sales as a percentage of net sales for 2020 was 61.7 % , compared with 60.7 % for 2019. selling , general and administrative expenses selling , general and administrative expenses , including research and development expense , were lower in 2020 , compared with 2019. the decrease primarily reflected the impact of lower net sales . corporate administrative expense in 2020 was $ 56.8 million , compared with $ 65.1 million in 2019. the lower 2020 amount primarily reflected lower compensation expense . for 2020 , we recorded a total of $ 24.7 million in stock option expense , of which $ 7.2 million was recorded within corporate expense and $ 17.5 million was recorded in the operating segment results . for 2019 , we recorded a total of $ 26.1 million in stock option expense , of which $ 9.7 million was recorded within corporate expense and $ 16.4 million was recorded in the operating segment results . selling , general and administrative expenses as a percentage of sales was 22.7 % for 2020 , compared with 23.8 % for 2019. pension service expense pension service expense is included in both cost of sales and selling , general and administrative expense . pension service expense in 2020 was $ 10.4 million compared with $ 9.4 million in 2019. operating income operating income for 2020 was $ 480.1 million , compared with $ 491.7 million for 2019 , a decrease of 2.4 % . the decrease in operating income primarily reflected lower operating income in the aerospace and defense electronics segment , partially offset by higher operating income in our other three segments . operating income in 2020 and 2019 included charges of $ 33.3 million and $ 8.8 million , respectively , primarily related to severance , facility consolidation and acquisition expense and certain changes in contract cost estimates . of these amounts , severance and facility consolidation expense totaled $ 20.8 million in 2020 and $ 3.2 million in 2019. the incremental operating income included in the results for 2020 from recent acquisitions was $ 4.1 million . story_separator_special_tag interest expense , interest income , non-service retirement benefit income and other expense interest expense , including credit facility fees and other bank charges , was $ 15.8 million in 2020 compared with $ 22.0 million in 2019 and reflected the impact of lower average debt levels in 2020. interest income was $ 0.5 million in 2020 and $ 1.0 million in 2019. non-service retirement benefit income was $ 12.1 million in 2020 , compared with $ 8.0 million in 2019. other expense was $ 7.2 million for 2020 , compared with expense of $ 5.0 million in 2019 and reflected higher foreign currency expense . income taxes the company 's effective tax rate for 2020 was 14.4 % , compared with 15.1 % for 2019. for 2020 net discrete income tax benefits were $ 34.6 million , which included a $ 20.9 million income tax benefit related to share-based accounting , $ 9.8 million primarily related to u.s. export sales , u.s. research credits and other items . for 2019 net discrete income tax benefits were $ 26.1 million , which included a $ 15.4 million income tax benefit related to share-based accounting , $ 13.1 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations , a favorable tax settlement and a tax benefit related to u.s. export sales . excluding the net discrete income tax benefits in both years , the effective tax rates would have been 21.8 % for 2020 and 20.6 % for 2019 . 24 2019 compared with 2018 sales ( dollars in millions ) 2019 2018 % change instrumentation $ 1,105.1 $ 1,021.2 8.2 % digital imaging 992.9 875.3 13.4 % aerospace and defense electronics 690.1 640.2 7.8 % engineered systems 375.5 365.1 2.8 % total sales $ 3,163.6 $ 2,901.8 9.0 % results of operations ( dollars in millions ) 2019 2018 % change instrumentation $ 200.4 $ 147.4 36.0 % digital imaging 176.5 155.5 13.5 % aerospace and defense electronics 143.4 131.8 8.8 % engineered systems 36.5 37.9 ( 3.7 ) % corporate expense ( 65.1 ) ( 56.0 ) 16.3 % operating income 491.7 416.6 18.0 % interest and debt expense , net ( 21.0 ) ( 25.5 ) ( 17.6 ) % non-service retirement benefit income 8.0 13.5 ( 40.7 ) % other expense , net ( 5.0 ) ( 10.7 ) ( 53.3 ) % income before income taxes 473.7 393.9 20.3 % provision for income taxes 71.4 60.1 18.8 % net income $ 402.3 $ 333.8 20.5 % sales and cost of sales by segment and total company ( dollars in millions ) : replace_table_token_9_th 25 we reported net sales of $ 3,163.6 million in 2019 , compared with net sales of $ 2,901.8 million for 2018 , an increase of 9.0 % . net income was $ 402.3 million ( $ 10.73 per diluted share ) in 2019 , compared with net income of $ 333.8 million ( $ 9.01 per diluted share ) in 2018 , an increase of 20.5 % . total year 2019 and 2018 reflected pretax charges totaling $ 3.2 million and $ 7.8 million , respectively , for severance and facility consolidation charges . net income for 2019 and 2018 also included net discrete tax benefits of $ 26.1 million and $ 23.8 million , respectively . net sales the increase in net sales in 2019 , compared with 2018 , reflected higher net sales in each segment . net sales in 2019 included revenue growth of $ 128.7 million plus $ 133.1 million in incremental net sales from recent acquisitions . sales under contracts with the u.s. government were approximately 24 % of net sales in 2019 and 23 % of net sales in 2018. sales to international customers represented approximately 44 % of net sales in 2019 and 47 % of net sales in 2018. cost of sales cost of sales increased by $ 129.3 million in 2019 , compared with 2018 , which primarily reflected the impact of higher net sales . cost of sales as a percentage of sales for 2019 was 60.7 % , compared with 61.7 % for 2018. selling , general and administrative expenses selling , general and administrative expenses , including research and development expense , were higher in 2019 , compared with 2018. the increase primarily reflected the impact of higher sales and higher research and development expense . corporate administrative expense in 2019 was $ 65.1 million , compared with $ 56.0 million in 2018. the higher 2019 amount reflected higher compensation expense including higher stock option expense . for 2019 , we recorded a total of $ 26.1 million in stock option expense , of which $ 9.7 million was recorded within corporate expense and $ 16.4 million was recorded in the operating segment results . for 2018 , we recorded a total of $ 19.8 million in stock option expense , of which $ 6.3 million was recorded within corporate expense and $ 13.5 million was recorded in the operating segment results . selling , general and administrative expenses as a percentage of sales was 23.8 % for 2019 , compared with 23.9 % for 2018. pension service expense pension service expense is included in both cost of sales and selling , general and administrative expense . pension service expense in 2019 was $ 9.4 million compared with pension service expense of $ 10.7 million in 2018. operating income operating income for 2019 was $ 491.7 million , compared with $ 416.6 million for 2018 , an increase of 18.0 % . the increase in operating income primarily reflected higher operating income in each segment , except the engineered systems segment . operating income in 2019 and 2018 reflected $ 3.2 million and $ 7.8 million in severance and facility consolidation costs , respectively .
| consolidated operating results our fiscal year is determined based on a 52- or 53-week convention ending on the sunday nearest to december 31. fiscal year 2020 contained 53 weeks while fiscal years 2019 and 2018 each contained 52 weeks . the following are selected financial highlights for 2020 , 2019 and 2018 ( in millions , except per-share amounts ) : 2020 2019 2018 net sales $ 3,086.2 $ 3,163.6 $ 2,901.8 costs and expenses cost of sales 1,905.3 1,920.3 1,791.0 selling , general and administrative expenses 700.8 751.6 694.2 total costs and expenses 2,606.1 2,671.9 2,485.2 operating income 480.1 491.7 416.6 interest and debt expense , net ( 15.3 ) ( 21.0 ) ( 25.5 ) non-service retirement benefit income 12.1 8.0 13.5 other expense , net ( 7.2 ) ( 5.0 ) ( 10.7 ) income before income taxes 469.7 473.7 393.9 provision for income taxes 67.8 71.4 60.1 net income $ 401.9 $ 402.3 $ 333.8 < td colspan= '' 3 '' style= '' background-color : # ffffff ; border-top:3pt double # 000000 ; padding:2px
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if the results of the company 's step one test indicate that the reporting unit 's estimated fair value is less than its recorded value , a step two analysis is performed . in the step two analysis , the estimated fair value of assets and liabilities is calculated in order to determine the implied fair value of the company 's goodwill . if the implied value of the goodwill exceeds the recorded value of goodwill , then goodwill is not considered to be impaired . a significant amount of judgment is involved in determining if an indicator of goodwill impairment has occurred . such indicators may include , among others ; a significant decline in the expected future cash flows ; a sustained , significant decline in the company 's stock price and market capitalization ; a significant adverse change in legal factors or in the business climate ; adverse assessment or action by a regulator ; and unanticipated competition . key assumptions used in the annual goodwill impairment test are highly judgmental and include : selection of comparable companies , amount of control premium , projected cash flows , discount rate applied to projected cash flows and method of estimating the fair value of loans . any change in these indicators or key assumptions could have a significant negative impact on the company 's financial condition , impact the goodwill impairment analysis or cause the company to perform a goodwill impairment analysis more frequently than once per year . during the quarter ended june 30 , 2014 , the company engaged a third party firm specializing in goodwill impairment valuations for financial institutions to help perform the annual test for goodwill impairment . the test concluded that recorded goodwill was not impaired . as of september 30 , 2014 , there have been no events or changes in the circumstances that would indicate a potential impairment . no assurance can be given , however , that the company will not record an impairment loss on goodwill in the future . other real estate owned ( “ oreo ” ) and other repossessed assets . oreo and other repossessed assets consist of properties or assets acquired through or in lieu of foreclosure , and are recorded initially at the estimated fair value of the properties less estimated costs of disposal . costs relating to development and improvement of the properties or assets are capitalized while costs relating to holding the properties or assets are expensed . valuations are periodically performed by management , and a charge to earnings is recorded if the recorded value of a property exceeds its estimated net realizable value . new accounting pronouncements for a discussion of new accounting pronouncements and their impact on the company , see note 1 of the notes to the consolidated financial statements contained in “ item 8. financial statements and supplementary data. ” 53 operating strategy the company is a bank holding company which operates primarily through its subsidiary , the bank . the bank is a community-oriented bank which has traditionally offered a wide variety of savings products to its retail customers while concentrating its lending activities on real estate loans . in spite of persistently weak economic conditions and exceptionally low interest rates which have created an unusually challenging banking environment for an extended period , the company experienced marked improvement in profitability in fiscal year 2014 as real estate values modestly improved along with general economic conditions resulting in materially lower loan charge-offs and write-downs of oreo as compared to prior periods . although there continue to be indications that economic conditions in the united states , including washington state where we hold substantially all of our loans and conduct all of our operations , are improving from the recessionary downturn , the pace of recovery has been modest and uneven and ongoing stress in the economy will likely continue to be challenging going forward . in response to the financial challenges in our market areas we have taken actions to manage our capital , reduce our exposure to speculative construction and land development loans and land loans and maintain higher levels of on balance sheet liquidity . we continue to originate residential fixed rate mortgage loans primarily for sale in the secondary market . we also continue to manage the growth of our commercial and multi-family real estate loan portfolios in a disciplined fashion while continuing to dispose of other real estate owned properties and increase retail deposits . we believe the resolution of problem financial institutions and continued bank consolidation in western washington will provide opportunities for the company to increase market share within the communities it serves . we are currently pursuing the following strategies : improve asset quality . we are focused on monitoring existing performing loans , resolving non-performing assets and selling foreclosed assets . we have sought to reduce the level of non-performing assets through collections , write-downs , modifications and sales of oreo . we have taken proactive steps to resolve our non-performing loans , including negotiating payment plans , forbearances , loan modifications and loan extensions and accepting short payoffs on delinquent loans when such actions have been deemed appropriate . expand our presence within our existing market areas by capturing opportunities resulting from changes in the competitive environment . we currently conduct our business primarily in western washington . we have a community bank strategy that emphasizes responsive and personalized service to our customers . as a result of consolidation of banks in our market areas , we believe there is an opportunity for a community and customer focused bank to expand its customer base . by offering timely decision making , delivering appropriate banking products and services , and providing customer access to our senior managers we believe community banks , such as timberland bank , can distinguish themselves from larger banks operating in our market areas . we believe we have a significant opportunity to attract additional borrowers and depositors and expand our market presence and market share within our extensive branch footprint . story_separator_special_tag continue generating revenues through mortgage banking operations . the substantial majority of the fixed rate residential mortgage loans we originate are sold into the secondary market with servicing retained . this strategy produces gains on the sale of such loans and reduces the interest rate and credit risk associated with fixed rate residential lending . we continue to originate custom construction and owner builder loans for sale into the secondary market upon the completion of construction . portfolio diversification . in recent years , we have strictly limited the origination of speculative construction , land development and land loans in favor of loans that possess credit profiles representing less risk to the bank . we continue originating owner/builder and custom construction loans , multi-family loans , commercial business loans and certain commercial real estate loans which offer higher risk adjusted returns , shorter maturities and more sensitivity to interest rate fluctuations than fixed rate one-to four-family loans . we anticipate capturing more of each customer 's banking relationship by cross selling our loan and deposit products and offering additional services to our customers . increase core deposits and other retail deposit products . we focus on establishing a total banking relationship with our customers with the intent of internally funding our loan portfolio . we anticipate that the continued focus on customer relationships will increase our level of core deposits and locally-based retail certificates of deposit . in addition to our retail branches we maintain technology based products such as business cash management and a business remote deposit product that enables us to compete effectively with banks of all sizes . limit exposure to increasing interest rates . for many years the majority of the loans the bank has retained in its portfolio have generally possessed periodic interest rate adjustment features or have been relatively short term in nature . loans originated for portfolio retention have generally included arm loans , short term construction loans , and to a lesser extent commercial business loans with interest rates tied to a market index such as the prime rate . longer term fixed-rate mortgage loans have generally been originated for sale into the secondary market . 54 market risk and asset and liability management general . market risk is the risk of loss from adverse changes in market prices and rates . the bank 's market risk arises primarily from interest rate risk inherent in its lending , investment , deposit and borrowing activities . the bank , like other financial institutions , is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities . management actively monitors and manages its interest rate risk exposure . although the bank manages other risks , such as credit quality and liquidity risk , in the normal course of business management considers interest rate risk to be its most significant market risk that could potentially have the largest material effect on the bank 's financial condition and results of operations . the bank does not maintain a trading account for any class of financial instruments nor does it engage in hedging activities . furthermore , the bank is not subject to foreign currency exchange rate risk or commodity price risk . 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 difference between asset and liability maturities and interest rates . the principal element in achieving this objective is to increase the interest-rate sensitivity of the bank 's interest-earning assets by retaining in its portfolio , short-term loans and loans with interest rates subject to periodic adjustments . the bank relies on retail deposits as its primary source of funds . as part of its interest rate risk management strategy , the bank promotes transaction accounts and certificates of deposit with terms of up to six years . the bank has adopted a strategy that is designed to substantially match the interest rate sensitivity of assets relative to its liabilities . the primary elements of this strategy involve originating arm loans for its portfolio , maintaining residential construction loans as a portion of total net loans receivable because of their generally shorter terms and higher yields than other one- to four-family residential mortgage loans , matching asset and liability maturities , investing in short-term securities , and originating fixed-rate loans for retention or sale in the secondary market while retaining the related mortgage servicing rights . sharp increases or decreases in interest rates may adversely affect the bank 's earnings . management of the bank monitors the bank 's interest rate sensitivity through the use of a model provided by fimac solutions , llc ( “ fimac ” ) , a company that specializes in providing interest rate risk and balance sheet management services to the financial services industry . based on a rate shock analysis prepared by fimac based on data at september 30 , 2014 , an immediate increase in interest rates of 200 basis points would increase the bank 's projected net interest income by approximately 7.0 % , primarily because a larger portion of the bank 's interest rate sensitive assets than interest rate sensitive liabilities would reprice within a one year period . see “ - quantitative aspects of market risk ” below for additional information . management has sought to sustain the match between asset and liability maturities and rates , while maintaining an acceptable interest rate spread . pursuant to this strategy , the bank actively originates adjustable-rate loans for retention in its loan portfolio . fixed-rate mortgage loans with maturities greater than seven years generally are originated for the immediate or future resale in the secondary mortgage market . at september 30 , 2014 , adjustable-rate mortgage loans constituted $ 365.0 million or 73.3 % , of the bank 's total mortgage loan portfolio due after one year .
| these forward-looking statements are subject to known and unknown risks , uncertainties and other factors that could cause our actual results to differ materially from the results anticipated or implied by our forward-looking statements , including , but not limited to : the credit risks of lending activities , including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets which may lead to increased losses and non-performing loans in our loan portfolio , and may result in our allowance for loan losses not being adequate to cover actual losses , and require us to materially increase our loan loss reserves ; changes in general economic conditions , either nationally or in our market areas ; changes in the levels of general interest rates , and the relative differences between short and long term interest rates , deposit interest rates , our net interest margin and funding sources ; fluctuations in the demand for loans , the number of unsold homes , land and other properties and fluctuations in real estate values in our market areas ; secondary market conditions for loans and our ability to sell loans in the secondary market ; results of examinations of us by the board of governors of the federal reserve system and of our bank subsidiary by the federal deposit insurance corporation , the washington state department of financial institutions , division of banks or other regulatory authorities , including the possibility that any such regulatory authority may , among other things , institute a formal or informal enforcement action against us or our bank subsidiary which could require us to increase our allowance for loan losses , write-down assets , change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits or impose additional requirements or restrictions on us , any of which could adversely affect our liquidity and earnings ; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles , or the interpretation of regulatory capital or other rules including as a result of basel iii ; the impact of the dodd frank wall street reform and consumer protection act and implementing regulations ; our ability to attract and retain deposits ; increases in premiums for deposit insurance ; our ability to control operating costs and expenses ; the use of estimates in determining fair value of certain of our assets , which estimates may prove to be incorrect and result in significant declines in valuation ; difficulties in reducing risks associated with the loans on our consolidated balance sheet ; staffing
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legislation and regulatory decisions implementing legislation establish a framework for networks ' operations . other factors affecting networks ' financial results are operational matters , such as the ability to manage expenses , uncollectibles and capital expenditures , in addition to major weather disturbances and environmental regulation . networks expects to continue to make significant capital investments in its distribution and transmission infrastructure . pursuant to maine law , cmp earns revenue for the delivery of energy to its retail customers , but is prohibited from selling power to them . cmp generally does not enter into purchase or sales arrangements for power with iso-ne , the new england power pool , or any other iso or similar entity . cmp generally sells all of its power entitlements under its nonutility generator and other ppas to unrelated third parties under bilateral contracts . if the mpuc does not approve the terms of bilateral contracts , it can direct cmp to sell power entitlements that it receives from those contracts on the spot market through iso-ne . nyseg and rg & e enter into power purchase and sales transactions with the nyiso to have adequate supplies for their customers who choose to purchase energy directly from them . customers may also choose to purchase energy from other energy supply companies . under connecticut law , ui 's retail electricity customers are able to choose their electricity supplier while ui remains their electric distribution company . ui purchases power for those of its customers under standard service rates who do not choose a retail electric supplier and have a maximum demand of less than 500 kilowatts and its customers under supplier of last resort service for those who are not eligible for standard service and who do not choose to purchase electric generation service 44 from a retail electric supplier . the cost of the power is a “ pass-through ” to those customers through the generation services charge on their bills . ui has wholesale power supply agreements in place for its entire standard service load for the first half of 2021 , 70 % of its standard service load for the second half of 2021 and 20 % of its standard service load for the first half of 2022. supplier of last resort service is procured on a quarterly basis and ui has a wholesale power supply agreement in place for the second quarter of 2021. however , from time to time , there are no bidders in the procurement process for supplier of last resort service and ui manages the load directly . for additional information regarding networks , including a comprehensive overview of our regulated businesses , please see the section entitled , “ business—networks ” in part i , item 1 in this report . revenues networks utilizes regulatory deferrals to evaluate its financial condition and operating performance by reconciling differences between actual revenue received or cost incurred with the rate allowances provided under the tariffs set by the state utilities commissions and the ferc . regulatory deferrals create regulatory assets and liabilities under the ferc , consistent with generally accepted accounting principles for financial reporting in the united states , or u.s. gaap . regulatory deferrals in new york include electric and gas supply costs , ppas , net plant reconciliations ( downward only ) , revenue decoupling , system benefit charges , rps , energy efficiency portfolio standards , including heat pumps , economic development programs , earnings sharing mechanism , electric vehicle program costs , labor fte 's , low income programs , pension costs , other post-employment benefits costs , environmental remediation costs , major storm costs , distribution vegetation management costs ( downward only ) , gas research and development , incremental maintenance initiatives ( downward only ) , management audit consultant and implementation costs , property taxes , reforming the energy vision , or rev , initiatives , nuclear electric insurance limited credits , credit and debit card fees , debt costs , power tax , 2017 tax act , exogenous costs and certain legislative , accounting , regulatory and tax related actions . regulatory deferrals in maine include stranded costs , distribution revenue decoupling , power tax regulatory asset , 2017 tax act , environmental remediation , storm reserve accounting , electric thermal storage pilot costs , standard offer retainage costs , ami opt-out program costs , ami deferral costs , ami legal/health proceeding costs , conservation program costs , demand side management costs , low income program costs , electric lifeline program costs , make-ready line extension costs , electric vehicle pilot program costs and transmission planning and related cost allocation . regulatory deferrals in connecticut include electric and gas supply costs , ppas , revenue decoupling , earnings sharing mechanism , system benefit charges , certain hardship bad debt expense , transmission revenue requirements , gas distribution integrity management program costs , gas system expansion costs , certain public policy costs , certain environmental remediation costs , major storm costs and certain legislative , accounting , regulatory and tax related actions . regulatory deferrals in massachusetts include gas supply costs , gas supply-related bad debt costs , environmental remediation costs , arrearage management program costs , gas system enhancement program costs , energy efficiency program costs , 2017 tax act and certain other public policy costs . each of networks ' regulated utilities ' rate plans , other than mng , contain an rdm under which their actual energy delivery revenues are compared on a periodic basis with the authorized delivery revenues and the difference accrued , with interest , for refund to or recovery from customers , as applicable . nyseg , rg & e and ui are energy delivery companies and also provide energy supply as providers of last resort . story_separator_special_tag energy costs that are set on the wholesale markets are passed on to consumers . the difference between actual energy costs that are incurred and those that are initially billed are reconciled in a process that results in either immediate or deferred tariff adjustments . these procedures apply to other costs , which are in most cases exceptional , such as the effects of extreme weather conditions , environmental factors , regulatory and accounting changes and treatment of vulnerable customers , that are offset in the tariff process . pursuant to agreements with , or decisions of the nypsc and the mpuc , networks ' maine and new york regulated utilities are each subject to a minimum equity ratio requirement that is tied to the capital structure assumed in establishing revenue requirements . pursuant to these requirements , each of nyseg , rg & e , cmp and mng must maintain a minimum equity ratio equal to the ratio in its currently effective rate plan or decision measured using a trailing 13-month average . on a monthly basis , each utility must maintain a minimum equity ratio of no less than 300 basis points below the equity ratio used to set rates . the minimum equity ratio requirement has the effect of limiting the amount of dividends that can be paid if the minimum equity ratio is not maintained and can , under certain circumstances , require that avangrid contribute equity capital . for cmp and mng , equity distributions that would result in equity falling below the minimum level are prohibited . for 45 nyseg and rg & e , equity distributions that would result in a 13-month average common equity less than the maximum equity ratio utilized for the earnings sharing mechanism , or esm , are prohibited if the credit rating of nyseg , rg & e , avangrid or iberdrola are downgraded by a nationally recognized rating agency to the lowest investment grade with a negative watch or downgraded to noninvestment grade . ui , scg , cng and bgc may not pay dividends if paying such dividend would result in a common equity ratio lower than 300 basis points below the equity percentage used to set rates in the most recent distribution rate proceeding as measured using a trailing 13-month average calculated as of the most recent quarter end . in addition , ui , scg , cng and bgc are prohibited from paying dividends to their parent if the utility 's credit rating , as rated by any of the three major credit rating agencies , falls below investment grade , or if the utility 's credit rating , as determined by two of the three major credit rating agencies , falls to the lowest investment grade and there is a negative watch or review downgrade notice . we believe that these minimum equity ratio requirements do not present any material risk with respect to our performance , cash flow or ability to pay quarterly dividends . in the ordinary course , networks utilities manage their capital structures to allow the maximum level of returns consistent with the levels of equity authorized to set rates , and accordingly , compliance with these requirements does not alter ordinary equity level management . the regulated utility subsidiaries are also prohibited by regulation from lending to unregulated affiliates . rates in december 2016 , pura approved new distribution rate schedules for ui for three years , which became effective january 1 , 2017 and , among other things , provide for annual tariff increases and an roe of 9.10 % based on a 50.00 % equity ratio , continued ui 's existing esm pursuant to which ui and its customers share on a 50/50 basis all distribution earnings above the allowed roe in a calendar year , continued the existing decoupling mechanism and approved the continuation of the requested storm reserve . any dollars due to customers from the esm continue to be first applied against any storm regulatory asset balance ( if one exists at that time ) or refunded to customers through a bill credit if such storm regulatory asset balance does not exist . in december 2017 , pura approved new tariffs for scg effective january 1 , 2018 , for a three-year rate plan with annual rate increases . the new tariffs also include an rdm and distribution integrity management program ( dimp ) mechanism , esm , the amortization of certain regulatory liabilities ( most notably accumulated hardship deferral balances and certain accumulated deferred income taxes ) and tariff increases based on a roe of 9.25 % and approximately 52.00 % equity level . any dollars due to customers from the esm will be first applied against any environmental regulatory asset balance as defined in the settlement agreement ( if one exists at that time ) or refunded to customers through a bill credit if such environmental regulatory asset balance does not exist . in december 2018 , pura approved new tariffs for cng effective january 1 , 2019 for a three-year rate plan with annual rate increases . the new tariffs continued the rdm and dimp mechanism , esm and tariff increases based on an roe of 9.30 % and an equity ratio of 54.00 % in 2019 , 54.50 % in 2020 and 55.00 % in 2021. on january 18 , 2019 , the dpu approved new distribution rates for bgc . the distribution rate increase is based on an roe of 9.70 % and 54.00 % equity ratio . the new tariffs provide for the implementation of an rdm and pension expense tracker and also provide that bgc will not file to change base distribution rates to become effective before november 1 , 2021. on june 15 , 2016 , the nypsc approved nyseg 's and rg & e 's 2016 joint proposal for a three-year rate plan for electric and gas service which balanced the varied interests of
| electricity and gas revenues increased by $ 60 million , primarily due to the impact of increased customer rates for the year ended december 31 , 2020 compared to the same period of 2019 and increased by $ 26 million primarily due to make whole period revenue adjustment from new rate case activity in ny . electricity and gas revenues also increased by $ 24 million due to higher transmission revenues , negative revenues adjustments in 2019 totaling $ 16 million related to earnings sharing , net plant reconciliation and other regulatory deferrals and $ 3 million of other increases . these were offset by a decrease of $ 10 million from a pension deferral write-off and a $ 10 million decrease from the inability to charge late payment fees due to regulatory orders . electricity and gas revenues changed due to the following items that have offsets within the income statement : a decrease of $ 124 million in purchased power and purchased gas ( offset in purchased power ) , a decrease of $ 42 million which is offset in income taxes . these were offset by an increase of $ 69 million of amortizations that are offset in operating expenses and an increase of $ 12 million in taxes other than income taxes . purchased power , natural gas and fuel used for the year ended december 31 , 2020 decreased by $ 124 million , or 10 % , from $ 1,249 million for the year ended december 31 , 2019 , to $ 1,125 million . the decrease is primarily driven by a $ 131 million decrease in average commodity prices and an overall decrease in electricity and gas units procured due to a decline in degree days offset by a $ 7 million increase in other power supply purchases in the period . 58 operations and maintenance during the year ended december 31 , 2020 increased by $ 106 million , or 5 % , from $ 1,932 million for the year ended december 31 , 2019 , to $ 2,038 million . the increase is driven by $ 22 million in increased salaries due to additional headcount offset by favorable capitalized labor , a $ 10 million increase in outage restoration costs , a $ 7 million increase in uncollectible expenses , a $
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22nd century and uva will use the most promising varieties for expanded hemp plantings in 2018. we are also working with uva on the development of high-value medicinal cannabinoid varieties of hemp and specialized cannabinoid extraction processes for use in human therapeutics . on november 2 , 2017 , we announced the hiring of james e. swauger , ph.d. , as our senior vice president of science and regulatory affairs . dr. swauger was previously the leader of the scientific and regulatory functions at reynolds american inc. ( “ reynolds ” ) . dr. swauger 's career with reynolds spanned 23 years and included management positions in science and regulatory affairs . from 2008 through 2016 , while serving as the vice president of regulatory oversight , dr. swauger managed the creation , submission and oversight of numerous scientific applications and regulatory filings with the fda and other federal , state , and local regulatory agencies . dr. swauger received his ph.d. degree in biochemical toxicology from the johns hopkins university in 1990 and his bachelor of science degree in toxicology ( magna cum laude ) from northeastern university in 1985. dr. swauger 's primary responsibilities are to lead and oversee our scientific and regulatory affairs , plant biotechnology , research and development , and external scientific activities , including re-submitting to the fda our modified risk tobacco product application for brand a very low nicotine cigarettes . on november 30 , 2017 , we announced that we had shipped 2.4 million spectrum ® research cigarettes for nida , which is part of nih . as a subcontractor under federal government contracts , we have supplied proprietary spectrum ® research cigarettes for nida since 2011. the spectrum ® product line consists of a series of 24 cigarette styles ( 11 regular and 13 menthol versions ) that have 8 different levels of nicotine – from very low to high . on december 4 , 2017 , we announced the hiring of juan sanchez tamburrino , ph.d. , as our vice president of research and development . dr. tamburrino was previously the head of the plant biotechnology division of british american tobacco ( nyse : bti ) . dr. tamburrino earned his ph.d. degree in molecular biology and genetics at the weill cornell graduate school of medical sciences at cornell university , a partnership program with the sloan kettering cancer research institute . after completing six years of post-doctoral research in plant biology at the rockefeller university in new york , dr. tamburrino served as an associate professor at universidad tarapacá in chile before becoming the research manager at pioneer hi-bred international ( a dupont company now known as dupont pioneer ) . dr. tamburrino will be an integral part of our scientific and regulatory team working on our resubmission to the fda of our modified risk tobacco product application for brand a very low nicotine cigarettes , and our continuing research and development of improved very low nicotine tobacco plants . 39 story_separator_special_tag december 31 , 2016 , as compared to the year ended december 31 , 2015. general and administrative expense 2017 vs. 2016 general and administrative expense was $ 7,116,535 for the year ended december 31 , 2017 , an increase of $ 923,266 , or 14.9 % , from $ 6,193,269 for the year ended december 31 , 2016. the increase was primarily due to an increase in payroll and payroll related benefits of approximately $ 858,000 , an increase in travel expenses of approximately $ 79,000 , an increase in annual meeting costs and seminars and conference fees of approximately $ 84,000 and a net increase in various other general and administrative expenses of approximately $ 15,000 , partially offset by a decrease in equity based compensation of approximately $ 69,000 and a decrease in legal and accounting fees of approximately $ 44,000 , during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 . 41 2016 vs. 2015 general and administrative expense was $ 6,193,269 for the year ended december 31 , 2016 , a decrease of $ 1,566,858 , or 20.2 % , from $ 7,760,127 for the year ended december 31 , 2015. the decrease was primarily due to a decrease in equity based compensation to third-party service providers in the approximate amount of $ 2,238,000 ( approximately $ 1,979,000 of the decrease pertained to the crede consulting fee ) , a decrease in employee equity based compensation of approximately $ 428,000 , a decrease in payroll and employee related costs of approximately $ 237,000 , a decrease in legal and accounting fees of approximately $ 33,000 , and a decrease in nyse american related costs of approximately $ 65,000 , partially offset by an increase in investor relations costs of approximately $ 931,000 , an increase in consulting fees of approximately $ 150,000 , an increase relating to press release costs of approximately $ 50,000 , an increase in costs relating to information technology of approximately $ 40,000 , an increase in general business insurance of approximately $ 17,000 , an increase in director fees of approximately $ 98,000 and a net increase in various other general and administrative expenses of approximately $ 148,000 during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. sales and marketing costs 2017 vs. 2016 sales and marketing costs were $ 1,161,952 for the year ended december 31 , 2017 , a decrease of 419,789 , or 26.5 % , from $ 1,581,741 for the year ended december 31 , 2016. the decrease in the sales and marketing costs were primarily the result of a decrease in advertising and promotion costs of approximately $ 529,000 and a decrease in travel related costs of approximately $ 48,000 , partially offset by an increase in payroll and expenses related to payroll of approximately $ 89,000 and an increase in equity-based compensation of approximately $ 78,000 , during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 story_separator_special_tag . 2016 vs. 2015 sales and marketing costs were $ 1,581,741 for the year ended december 31 , 2016 , an increase of $ 224,223 , or 16.5 % , from $ 1,357,518 for the year ended december 31 , 2015. the increase in the sales and marketing costs were primarily the result of an increase of payroll and expenses related to payroll of approximately $ 312,000 , an increase in equity based compensation of approximately $ 15,000 , partially offset by a decrease in advertising and promotion of costs of approximately $ 103,000 during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. depreciation 2017 vs. 2016 depreciation expense for the year ended december 31 , 2017 amounted to $ 353,435 , an increase of $ 27,311 , or 8.4 % , from $ 326,124 for the year ended december 31 , 2016. this increase is primarily due to additional depreciation expenses on some assets acquired and placed in service during 2017 and a full year of depreciation expense taken on assets acquired during 2016. machinery and equipment acquired during 2017 in the amount of $ 1,234,819 related primarily to packing equipment at our factory in north carolina that was not placed in service during 2017 and is expected to be placed in service during the first quarter of 2018 . 2016 vs. 2015 depreciation expense for the year ended december 31 , 2016 amounted to $ 326,124 , an increase of $ 6,425 , or 2.0 % , from $ 319,699 for the year ended december 31 , 2015. this increase is primarily due to additional depreciation expensed on newly acquired assets during the year ended december 31 , 2016 in the amount of $ 204,994 . 42 amortization 2017 vs. 2016 amortization expense , relating to amortization taken on capitalized patent costs and license fees , for the year ended december 31 , 2017 amounted to $ 593,562 , an increase of $ 77,506 , or 15.0 % , from $ 516,056 for the year ended december 31 , 2016. the increase is primarily due to amortization on additional patent costs incurred during the years ended december 31 , 2017 and 2016 in the amounts of $ 582,040 and $ 541,882 , respectively . 2016 vs. 2015 amortization expense , relating to amortization taken on capitalized patent costs and license fees , for the year ended december 31 , 2016 amounted to $ 516,056 , an increase of $ 61,444 , or 13.5 % , from $ 454,612 for the year ended december 31 , 2015. the increase is primarily due to amortization on additional patent costs incurred during the years ended december 31 , 2016 and 2015 in the amounts of $ 541,882 and $ 654,069 , respectively . warrant liability ( loss ) gain - net 2017 vs. 2016 the warrant liability loss of $ 157,809 for the year ended december 31 , 2017 was due to the increase in the estimated fair value of the warrants during the year . the increase in the estimated fair value of the warrants was primarily attributable to an increase in our underlying stock price from $ 1.09 per share at december 31 , 2016 , as compared to $ 2.80 per share at december 31 , 2017 , and with the expiration of certain warrants during 2017. the warrant liability gain of $ 29,615 for the year ended december 31 , 2016 was due to the decrease in the estimated fair value of certain outstanding warrants during the year . the decrease in the estimated fair value of the warrants was primarily attributable to a decrease in our underlying stock price from $ 1.40 per share at december 31 , 2015 , as compared to $ 1.09 per share at december 31 , 2016 , and with certain warrants aging closer to their expiration dates with the passage of time . 2016 vs. 2015 the warrant liability gain of $ 29,615 for the year ended december 31 , 2016 was due to the decrease in the estimated fair value of the warrants during the year . the decrease in the estimated fair value of the warrants was primarily attributable to a decrease in our underlying stock price from $ 1.40 per share at december 31 , 2015 , as compared to $ 1.09 per share at december 31 , 2016 , and with the expiration of certain warrants during 2016. the warrant liability gain of $ 144,550 for the year ended december 31 , 2015 was due to the decrease in the estimated fair value of certain outstanding warrants during the year . the decrease in the estimated fair value of the warrants was primarily attributable to a decrease in our underlying stock price from $ 1.65 per share at december 31 , 2014 , as compared to $ 1.40 per share at december 31 , 2015 , and with certain warrants aging closer to their expiration dates with the passage of time . 43 settlement proceeds 2017 vs. 2016 there were no settlement proceeds during the years ended december 31 , 2017 and 2016 . 2016 vs. 2015 on april 10 , 2015 , we entered into a settlement of legal disputes with an unrelated third-party pursuant to which the third-party became obligated to pay us a total of $ 1,000,000. during 2015 , we received payments under the settlement in the aggregate amount of $ 1,000,000 in full settlement of the dispute . gain ( loss ) on investment 2017 vs. 2016 on february 17 , 2017 , a dilutive event reduced our ownership in anandia to 19.4 % , an ownership percentage below the 20 % ownership threshold for the use of the equity method of accounting . accordingly , we discontinued applying the equity method of accounting for our equity investment in anandia , effective on the date of the dilutive event .
| excise taxes and certain regulatory fees in the approximate amount of $ 8,533,000 are included in the cost of goods sold . we were not operating the factory at full production capacity during 2017 , but we began utilizing a portion of the excess capacity as a result of the new filtered cigar contract manufacturing agreement that commenced in mid-may of 2017. as a result , the cost of goods sold , which included the cost of raw material components , direct manufacturing costs and an overhead allocation , was in excess of net sales revenue . additionally , included in the cost of goods sold during 2017 was a net write off of obsolete finished goods and raw materials inventory in the approximate amount of $ 257,000 , resulting in an increase in the cost of goods sold by such amount . during the year ended december 31 , 2016 , cost of goods sold were $ 12,709,678 , or 103.5 % of net revenue . excise taxes and certain regulatory fees in the approximate amount of $ 7,452,000 are included in the cost of goods sold . we were not operating the factory at full production capacity during 2016. as a result , the cost of goods sold , which included the cost of raw material components , direct manufacturing costs and an overhead allocation , was in excess of net sales revenue . additionally , included in the cost of goods sold for the year ended december 31 , 2016 is an increase in inventory reserves in the amount of $ 145,000 . 40 2016 vs. 2015 during the year ended december 31 , 2016 , cost of goods sold were $ 12,709,678 , or 103.5 % of net revenue . excise taxes and certain regulatory fees in the approximate amount of $ 7,452,000 are included in the cost of goods sold . we were not operating the factory at full production capacity during 2016. as a result , the cost of goods sold , which included the cost of raw
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27 selling , general , and administrative ( `` sg & a '' ) expenses the increase in sg & a expenses in 2016 resulted primarily from ( 1 ) higher sales and marketing expenses in the united states and europe , mainly to support our thvt program , and ( 2 ) higher personnel-related costs . these increases were partially offset by the suspension of the medical device excise tax in the united states , which was suspended for calendar years 2016 and 2017. the decrease in sg & a expenses as a percentage of net sales in 2016 was due primarily to higher sales in the united states and japan . the decrease in sg & a expenses in 2015 resulted primarily from foreign currency , which reduced expenses by $ 61.1 million due primarily to the weakening of the euro and the japanese yen against the united states dollar . this decrease was partially offset by ( 1 ) higher sales and marketing expenses in europe , the united states , and japan , mainly to support our thvt program and ( 2 ) higher personnel-related costs . the decrease in sg & a expenses as a percentage of net sales in 2015 was due primarily to higher sales in the united states , europe , and japan . research and development ( `` r & d '' ) expenses the increase in r & d expenses in 2016 was due primarily to mitral and aortic thvt product development efforts . the suspension of the united states medical device excise tax during 2016 provided additional flexibility to accelerate investments in structural heart initiatives . 28 the increase in r & d expenses in 2015 was due primarily to new thvt and shvt product development efforts . these costs were partially offset by lower spending for thvt clinical trials . intellectual property litigation expenses ( income ) , net in may 2014 , we entered into an agreement with medtronic , inc. ( `` medtronic '' ) to settle all outstanding patent litigation between the companies , and , pursuant to the agreement , we received an upfront payment from medtronic in the amount of $ 750.0 million . we incurred external legal costs related to intellectual property litigation of $ 32.6 million , $ 7.0 million , and $ 9.6 million for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . the increase in intellectual property litigation expenses in 2016 was due primarily to the first quarter resolution of an intellectual property litigation matter , and increased costs associated with ongoing litigation in the united states and europe . special charges for information on special charges , see note 4 to the `` consolidated financial statements. `` interest expense interest expense was $ 19.2 million , $ 17.2 million , and $ 17.2 million in 2016 , 2015 , and 2014 , respectively . the increase in interest expense for 2016 as compared to 2015 resulted primarily from higher average interest rates . interest expense for 2015 remained flat compared to 2014 as the impact of higher average interest rates was offset by a lower average debt balance compared to 2014. interest income interest income was $ 10.8 million , $ 7.9 million , and $ 6.4 million in 2016 , 2015 , and 2014 , respectively . the increase in interest income for 2016 resulted primarily from higher average interest rates . the increase in interest income for 2015 resulted primarily from higher average investment balances and higher average interest rates . other expense , net ( in millions ) replace_table_token_7_th in march 2016 , we contributed $ 5.0 million to the edwards lifesciences foundation , a related-party not-for-profit organization intended to provide philanthropic support to health- and community-focused charitable organizations . the contribution was irrevocable and was recorded as an expense at the time of payment . the foreign exchange losses relate to the foreign currency fluctuations primarily in our intercompany receivable and payable balances , partially offset by the gains and losses on derivative instruments intended to hedge those exposures . the ( gain ) loss on investments represents our net share of gains and losses in investments accounted for under the equity method , and realized gains and losses on our available-for-sale and cost method investments . during 2014 , we recorded an other-than-temporary impairment charge of $ 3.5 million related to one of our cost method investments . 29 in december 2014 , we recorded a $ 4.0 million impairment charge related to a promissory note receivable because it was likely that we would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the promissory note agreement . in march 2014 , we recorded a $ 3.7 million insurance settlement gain related to inventory that was damaged in the fourth quarter of 2013. in september 2014 , we committed to purchase our draper , utah facility under a purchase option provided in the lease agreement . under the terms of the lease agreement , we accrued $ 1.0 million for certain lease contract termination costs . provision for income taxes our effective income tax rates for 2016 , 2015 , and 2014 were impacted as follows ( in millions ) : replace_table_token_8_th uncertain tax positions as of december 31 , 2016 and 2015 , the gross uncertain tax positions were $ 245.5 million and $ 216.1 million , respectively . we estimate that these liabilities would be reduced by $ 44.9 million and $ 40.6 million , respectively , from offsetting tax benefits associated with the correlative effects of potential transfer pricing adjustments , state income taxes , and timing adjustments . the net amounts of $ 200.6 million and $ 175.5 million , respectively , if not required , would favorably affect our effective tax rate . story_separator_special_tag a reconciliation of the beginning and ending amount of uncertain tax positions , excluding interest , penalties , and foreign exchange , is as follows ( in millions ) : replace_table_token_9_th we recognize interest and penalties , if any , related to uncertain tax positions in the provision for income taxes . as of december 31 , 2016 , we had accrued $ 14.7 million ( net of $ 10.8 million tax benefit ) of interest related to uncertain tax positions , and as of december 31 , 2015 , we had accrued $ 10.7 million ( net of $ 7.6 million tax benefit ) of interest related to uncertain tax positions . during 2016 , 2015 , and 2014 , we recognized interest expense , net of tax benefit , of $ 4.0 million , $ 3.9 million , and $ 2.3 million , respectively , in “ provision for income taxes ” on the consolidated statements of operations . 30 we strive to resolve open matters with each tax authority at the examination level and could reach agreement with a tax authority at any time . while we have accrued for matters we believe are more likely than not to require settlement , the final outcome with a tax authority may result in a tax liability that is more or less than that reflected in the consolidated financial statements . furthermore , we may later decide to challenge any assessments , if made , and may exercise our right to appeal . the uncertain tax positions are reviewed quarterly and adjusted as events occur that affect potential liabilities for additional taxes , such as lapsing of applicable statutes of limitations , proposed assessments by tax authorities , negotiations between tax authorities , identification of new issues , and issuance of new legislation , regulations , or case law . management believes that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . at december 31 , 2016 , all material state , local , and foreign income tax matters have been concluded for years through 2008. the internal revenue service ( `` irs '' ) has substantially completed its fieldwork for the 2009 through 2012 tax years . however , the audits are currently in suspense pending a final determination with respect to a pending application for an advance pricing agreement ( `` apa '' ) . the irs began its examination of the 2014 tax year during the fourth quarter of 2016. we have been pursuing an apa between the switzerland and united states governments for the years 2009 through 2013 covering transfer pricing matters with the possibility of a roll-forward of the results to subsequent years . these discussions remain ongoing as of december 31 , 2016. these transfer pricing matters are significant to our consolidated financial statements as the disputed amounts are material , and the final outcome is uncertain . we continue to believe our positions are supportable . additionally , during the fourth quarter of 2016 , we received notification of preliminary agreement on methodology between the respective competent authorities for the requested apas for 2015-2019 between the united states and japan , switzerland and japan , and singapore and japan . these are expected to be formalized and executed during 2017. during 2014 , we filed with the irs a request for a pre-filing agreement associated with a tax return filing position on a portion of the litigation settlement payment received from medtronic in may 2014. during the first quarter of 2015 , the irs accepted the pre-filing agreement into the pre-filing agreement program . the closing agreement for this matter was finalized during the fourth quarter of 2016. there remains a disputed issue and we expect to enter the fast-track appeals process during 2017. we made an advance payment of tax in december 2015 solely to prevent the further accrual of interest on any potential deficiency , not to signify any potential agreement to a contrary position that may be taken by the irs . management believes that adequate amounts of tax and related penalty and interest have been provided in income tax expense for any adjustments that may result from our uncertain tax positions . based upon the information currently available and numerous possible outcomes , we can not reasonably estimate what , if any , changes in our existing uncertain tax positions may occur in the next 12 months and thus have recorded the gross uncertain tax positions as a long-term liability . however , if the apa and or the appeals process related to the pre-filing agreement is finalized in the next 12 months , it is reasonably possible that these events could result in a significant change in our uncertain tax positions within the next 12 months . the effective income tax rate for the year ended december 31 , 2016 was higher than the rate for the year ended december 31 , 2015 primarily because of fluctuations in the relative contribution of our foreign operations and united states operations to worldwide pre-tax income , offset by an increase in benefits from the federal and california research credits . we have received tax incentives in certain non-u.s. tax jurisdictions , the primary benefit of which will expire in 2024. the tax reductions as compared to the local statutory rates were $ 77.4 million ( $ 0.32 per diluted share ) , $ 59.1 million ( $ 0.25 per diluted share ) , and $ 68.3 million ( $ 0.31 per diluted share ) for the years ended december 31 , 2016 , 2015 , and 2014 , respectively . our dr branch receives tax incentives , including an exemption from paying dr income taxes , under a free trade zone law .
| the increase in international net sales of thvt products was due primarily to : the edwards sapien 3 valve , driven primarily by its launch in europe in january 2014 ; and the edwards sapien xt valve in japan , driven by its launch in october 2013 ; partially offset by : lower sales of the edwards sapien xt valve in europe , as customers converted to edwards sapien 3 ; and 24 foreign currency exchange rate fluctuations , which decreased net sales by $ 71.2 million , due primarily to the weakening of the euro against the united states dollar . in march 2016 , we received approval from the the fda to expand use of the edwards sapien xt transcatheter heart valve for pulmonic valve replacement procedures . the approval enables the treatment of adult and pediatric patients who suffer from either a narrowed pulmonary valve , or moderate or greater pulmonary regurgitation caused by congenital heart disease . also in march 2016 , we received approval for sapien 3 in japan for the treatment of patients suffering from severe , symptomatic aortic stenosis . in august 2016 , we received approval from the fda , and in september 2016 , we received ce mark in europe , to expand use of the edwards sapien 3 transcatheter heart valve for the treatment of patients suffering from severe , symptomatic aortic stenosis who have been determined to be at intermediate risk for open-heart surgery . in january 2017 , we received fda approval for early-tavr , our trial that will study patients diagnosed with severe aortic stenosis who have not yet developed symptoms . patients will be randomized to receive either transfemoral sapien 3 or clinical surveillance . surgical heart valve therapy 2016 compared with 2015 the decrease in net sales of shvt products was due primarily to : lower sales of aortic tissue valves in the united states , as sales of edwards sapien 3 increased ; and lower international sales of mitral tissue valves , primarily in europe and rest of world , primarily due to supply constraints ; partially offset by : higher sales of aortic tissue valves in europe , japan , and rest of world ; and foreign currency exchange rate fluctuations , which increased net sales by $ 2.2 million , due primarily to the strengthening of the
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two of the companies acquired in 2015 , which are reported in our united states mechanical construction and facilities services segment , generated incremental revenues of $ 12.5 million and less than $ 0.1 million of operating income , net of $ 0.3 million of amortization expense associated with identifiable intangible assets . the results of operations for the third company acquired in 2015 , which are reported in our united states building services segment , were de minimis . discussion and analysis of results of operations revenues as described in more detail below , revenues for 2015 were $ 6.7 billion compared to $ 6.4 billion for 2014. the increase in revenues for 2015 was primarily attributable to : ( a ) increased revenues from both of our domestic construction segments , ( b ) increased demand for our industrial field services within our united states industrial services segment and ( c ) increased revenues from our mobile mechanical services operations within our united states building services segment . revenues increased within our united states industrial services segment despite a nationwide strike by union employees of certain major oil refineries that negatively impacted the first half of 2015 . 21 the following table presents our revenues for each of our operating segments and the approximate percentages that each segment 's revenues were of total revenues for the years ended december 31 , 2015 and 2014 ( in thousands , except for percentages ) : replace_table_token_7_th revenues of our united states electrical construction and facilities services segment were $ 1,367.1 million for the year ended december 31 , 2015 compared to revenues of $ 1,312.0 million for the year ended december 31 , 2014. the increase in revenues was primarily attributable to an increase in revenues from commercial , healthcare and manufacturing construction projects , partially offset by a decrease in revenues from institutional construction projects . our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2015 were $ 2,312.8 million , a $ 111.6 million increase compared to revenues of $ 2,201.2 million for the year ended december 31 , 2014. the increase in revenues was primarily attributable to an increase in revenues from commercial and institutional construction projects , partially offset by a decline in revenues from manufacturing , water and wastewater and transportation construction projects . the results for the year ended december 31 , 2015 included $ 12.5 million of revenues generated by companies acquired in 2015. revenues of our united states building services segment were $ 1,739.3 million and $ 1,721.3 million in 2015 and 2014 , respectively . the increase in revenues was primarily attributable to increased revenues from : ( a ) our mobile mechanical services operations , in part due to significant activity in the california and new england regions and increased project and retrofit activities , and ( b ) our energy services operations . these increases were partially offset by decreased revenues from : ( a ) our government site-based services operations as a result of the completion in 2014 of two large long-term site-based joint venture projects not renewed pursuant to rebid , ( b ) our commercial site-based services operations as a result of : ( i ) a decline in add-on project activities , ( ii ) a decrease in revenues from its snow removal activities , as a result of less snowfall in geographical areas in which many of our contracts are based on a per snow event basis , and ( iii ) a decrease in revenues from supplier management contracts . revenues of our united states industrial services segment for the year ended december 31 , 2015 increased by $ 82.1 million compared to the year ended december 31 , 2014. the increase in revenues was primarily due to large capital and maintenance project activity within our industrial field services operations . revenues increased within this segment despite a nationwide strike by union employees of certain major oil refineries that negatively impacted the first half of 2015. our united kingdom building services segment revenues were $ 377.5 million in 2015 compared to $ 350.4 million in 2014. the increase in revenues was due to an increase in activity in the commercial market attributable to several new contract awards as well as increased work under existing contracts . the increase in revenues was partially offset by a decrease of $ 29.2 million relating to the effect of unfavorable exchange rates for the british pound versus the united states dollar . 22 backlog the following table presents our operating segment backlog from unrelated entities and their respective percentages of total backlog ( in thousands , except for percentages ) : replace_table_token_8_th our backlog at december 31 , 2015 was $ 3.77 billion compared to $ 3.63 billion at december 31 , 2014. this increase in backlog was primarily attributable to an increase in backlog from our united states mechanical construction and facilities services segment and our united states building services segment , partially offset by lower backlog from our other reportable segments . backlog increases with awards of new contracts and decreases as we perform work on existing contracts . backlog is not a term recognized under united states generally accepted accounting principles ; however , it is a common measurement used in our industry . we include a project within our backlog at such time as a contract is awarded and agreement on contract terms has been reached . backlog includes unrecognized revenues to be realized from uncompleted construction contracts plus unrecognized revenues expected to be realized over the remaining term of services contracts . however , we do not include in backlog contracts for which we are paid on a time and material basis and a fixed amount can not be determined , and if the remaining term of a services contract exceeds 12 months , the unrecognized revenues attributable to such contract included in backlog are limited to only the next 12 months of revenues provided for in the contract award . story_separator_special_tag our backlog also includes amounts related to services contracts for which a fixed price contract value is not assigned when a reasonable estimate of total revenues can be made from budgeted amounts agreed to with our customer . our backlog is comprised of : ( a ) original contract amounts , ( b ) change orders for which we have received written confirmations from our customers , ( c ) pending change orders for which we expect to receive confirmations in the ordinary course of business and ( d ) claim amounts that we have made against customers for which we have determined we have a legal basis under existing contractual arrangements and as to which we consider recovery to be probable . such claim amounts were immaterial for all periods presented . our backlog does not include anticipated revenues from unconsolidated joint ventures or variable interest entities and anticipated revenues from pass-through costs on contracts for which we are acting in the capacity of an agent and which are reported on the net basis . we believe our backlog is firm , although many contracts are subject to cancellation at the election of our customers . historically , cancellations have not had a material adverse effect on us . cost of sales and gross profit the following table presents cost of sales , gross profit ( revenues less cost of sales ) , and gross profit margin ( gross profit as a percentage of revenues ) for the years ended december 31 , 2015 and 2014 ( in thousands , except for percentages ) : replace_table_token_9_th our gross profit for the year ended december 31 , 2015 was $ 944.5 million , a $ 37.2 million increase compared to the gross profit of $ 907.2 million for the year ended december 31 , 2014. our gross profit margin was 14.1 % for both 2015 and 2014. favorable variances in both gross profit and gross profit margin within : ( a ) our united states mechanical construction and facilities services segment , which included revenues of $ 12.1 million recognized as a result of the settlement of a claim on an institutional project located in the southeastern united states , and ( b ) our united states building services segment were partially offset by decreases in gross profit and gross profit margin within our united kingdom building services and our united states electrical construction and facilities services segment . gross profit within our united states industrial services segment slightly increased ; however , gross margin within this segment declined due to a decrease in the billing rates and related gross profit margins within our industrial shop services operations due to competitive market conditions resulting from decreased demand for new heat exchangers as a result of volatility in crude oil prices that led to a curtailment in capital spending . 23 selling , general and administrative expenses the following table presents selling , general and administrative expenses and sg & a margin ( selling , general and administrative expenses as a percentage of revenues ) for the years ended december 31 , 2015 and 2014 ( in thousands , except for percentages ) : replace_table_token_10_th our selling , general and administrative expenses for the year ended december 31 , 2015 were $ 656.6 million , a $ 30.1 million increase compared to selling , general and administrative expenses of $ 626.5 million for the year ended december 31 , 2014. selling , general and administrative expenses as a percentage of revenues were 9.8 % for both 2015 and 2014. the increase in selling , general and administrative expenses was due to higher employee related costs such as incentive compensation , salaries and medical insurance costs , as well as certain other costs including computer hardware and software expenses , partially offset by a decrease in legal costs . increased incentive compensation was principally due to higher annual operating results within certain operations than in 2014 , which resulted in increased accruals for their incentive compensation plans . the increase in salaries was attributable to an increase in headcount , commensurate with an increase in revenues , as well as cost of living adjustments and merit pay increases . restructuring expenses restructuring expenses were $ 0.8 million and $ 1.2 million for 2015 and 2014 , respectively . the 2015 restructuring expenses included $ 0.9 million of employee severance obligations and the reversal of $ 0.1 million relating to the termination of leased facilities . the 2014 restructuring expenses included $ 0.6 million of employee severance obligations and $ 0.6 million relating to the termination of leased facilities . as of december 31 , 2015 and 2014 , the balance of restructuring related obligations yet to be paid was $ 0.1 million and $ 0.3 million , respectively . the majority of obligations outstanding as of december 31 , 2014 was paid during 2015. the obligations outstanding as of december 31 , 2015 will be paid during the first half of 2016. gain on sale of building on july 22 , 2014 , we sold a building and land owned by one of our subsidiaries reported in the united states mechanical construction and facilities services segment . we recognized a gain of approximately $ 11.7 million on this transaction in the third quarter of 2014 , which has been classified as a “ gain on sale of building ” in the consolidated statements of operations . impairment loss on goodwill and identifiable intangible assets no impairment of our identifiable intangible assets was recognized for the year ended december 31 , 2015. in conjunction with our 2014 annual impairment test on october 1 , we recognized a $ 1.5 million non-cash impairment charge related to subsidiary trade names within the united states mechanical construction and facilities services segment and the united states building services segment . the 2014 impairment primarily resulted from lower forecasted revenues from two companies within these segments . additionally , no impairment of our goodwill was recognized for the years ended december 31 , 2015 and 2014 .
| our united states mechanical construction and facilities services segment revenues for the year ended december 31 , 2014 were $ 2,201.2 million , a $ 128.6 million decrease compared to revenues of $ 2,329.8 million for the year ended december 31 , 2013. this decrease in revenues was primarily attributable to a decline in revenues from manufacturing construction projects , partially as the result of the completion in 2013 of several large projects within this market sector , which were not replaced . this decrease was partially offset by : ( a ) an increase in revenues from commercial , hospitality and institutional construction projects and ( b ) incremental revenues of $ 19.2 million generated by companies acquired in 2013. this amount reflects acquired companies ' revenues in 2014 only for the time period these entities were not owned by emcor in the comparable 2013 period . revenues of our united states building services segment were $ 1,721.3 million and $ 1,795.0 million in 2014 and 2013 , respectively . this decrease in revenues was primarily attributable to decreased revenues from : ( a ) our commercial site-based services operations , as a result of a decline in revenues from supplier management contracts , including a large contract that was terminated by agreement of both parties , ( b ) our energy services operations , due to a reduction in large project work , and ( c ) our government site-based services operations , as a result of the completion of a large long-term site-based joint venture project located in the pacific northwest not renewed pursuant to rebid . these decreases were partially offset by an increase in revenues from our mobile mechanical service operations , primarily within the california and new england markets . revenues of our united states industrial services segment for the year ended december 31 , 2014 increased by $ 320.6 million compared to the year ended december 31 , 2013. for the seven months ended july 31 , 2014 , rsi generated incremental revenues of $ 212.0 million . this amount reflects rsi 's revenues in 2014 only for the time period rsi was not owned by emcor in the comparable 2013 period . the increase in revenues was also attributable to an increased demand for our industrial field services operations , partially offset by a decrease in revenues from our industrial shop services operations . our united kingdom building services
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we ended 2020 with $ 517 million in cash and cash equivalents . net cash provided by operating activities was $ 244 million for the year . at december 31 , 2020 , accounts receivable were $ 863 million and inventories were $ 672 million . recent developments covid-19 pandemic the world health organization ( “ who ” ) declared covid-19 a pandemic in march 2020. the broader implications of covid-19 on our results of operations and overall financial performance remain uncertain . starting at the end of the first quarter of 2020 and throughout the second quarter , we experienced constrained supply and slowed customer demand , as well as temporary closures of several of our adi global distribution branches , that adversely impacted business , results of operations and overall financial performance . during the second half of 2020 customer demand improved and on-going cost actions and transformation efforts contributed to improvements in the company 's results of operations and overall financial performance . as there remains uncertainty around the impacts of the covid-19 pandemic , the company addresses and evaluates the impacts frequently . see “ item 1a . risk factors ” of this form 10-k for further discussion of the possible impact of the covid-19 pandemic on our business . u.s. and international government responses to the covid-19 outbreak have included “ shelter in place , ” “ stay at home ” and similar types of orders . these orders exempt certain products and services needed to maintain continuity of operations of critical infrastructure sectors as determined by the u.s. federal government and certain other countries globally . although certain of the company 's operations are currently considered essential and exempt in the united states , canada and certain other countries globally , there remain certain jurisdictions where there have been and may continue to be restrictions on manufacturing or operations or other government lockdown mandates or recommendations , under which we have temporarily closed certain manufacturing and sales facilities , and restricted operations in others , including manufacturing in mexico and restricted operations in certain adi sales branches , although these facilities have since reopened or remained opened with restricted sales activities . if any of the applicable exemptions are curtailed or revoked in the future , that could adversely impact our business , operating results and financial condition . furthermore , to the extent these exemptions do not extend to our key suppliers and customers , this could also adversely impact our business , operating results and financial condition . we have also implemented work-from-home policies for a significant percentage of our employees , which could negatively impact productivity , disrupt conduct of our business in the ordinary course and delay our production timelines . due to the significant remote workforce populations , we may also face informational technology infrastructure and connectivity issues from the vendors that we rely on for certain information technologies to administer , store and support the company 's multiple business activities . finally , we are incurring increased costs associated with cleaning and other employee safety measures . our visibility toward future performance is more limited than is typical due to the uncertainty surrounding the duration and ultimate impact of covid-19 and the mitigation measures that are implemented by governmental authorities . we also expect business conditions to remain challenging . in response to these challenges , we will continue to focus on those factors that we can control : closely managing and controlling our expenses ; 25 resideo technologies , inc. aligning our production schedules with demand in a proactive manner as there are changes in market conditions to minimize our cash operating costs ; and pursuing further improvements in the productivity and effectiveness of our manufacturing , selling and administrative activities . 2020 public offering of common stock on november 17 , 2020 , we entered into an underwriting agreement ( the “ underwriting agreement ” ) which provided for the offer and sale of 17,000,000 shares of common stock at the public offering price of $ 15.00 per share ( the “ offering ” ) . the offering closed on november 20 , 2020. on december 14 , 2020 the closing of the exercise of the underwriters ' option to purchase an additional 2,550,000 shares of common stock of the offering price of $ 15.00 per share as allowed in the underwriting agreement . net proceeds received were approximately $ 279 million . amended and restated credit facilities on february 12 , 2021 , we entered into an amended and restated credit agreement ( the “ a & r credit agreement ” ) . the a & r credit agreement provides for ( i ) a seven-year senior secured term b loan facility in an aggregate principal amount of $ 950 million ( the “ a & r term b facility ” ) and ( ii ) a five-year senior secured revolving credit facility in an aggregate principal amount of $ 500 million ( the “ a & r revolving credit facility ” and , together with the term loan facilities , the “ a & r senior credit facilities ” ) . basis of presentation prior to becoming an independent publicly traded company ( the “ spin-off ” ) on october 29 , 2018 , our historical financial statements were prepared on a stand-alone combined basis and were derived from the consolidated financial statements and accounting records of honeywell international inc. ( “ honeywell ” ) . accordingly , for periods prior to october 29 , 2018 , our financial statements are presented on a combined basis and for the periods subsequent to october 29 , 2018 are presented on a consolidated basis ( collectively , the historical financial statements for all periods presented are referred to as “ consolidated and combined financial statements ” ) . the consolidated and combined financial statements have been prepared in accordance with u.s. gaap . story_separator_special_tag the historical combined financial information prior to the spin-off may not be indicative of our future performance and does not necessarily reflect what our consolidated and combined results of operations , financial condition and cash flows would have been had we operated as a separate , publicly traded company during the periods presented , particularly because of changes that we experienced as a result of our separation from honeywell , including changes in the financing , cash management , operations , cost structure , and personnel needs of our company . the combined financial statements prior to the spin-off include certain assets and liabilities that were held at the honeywell corporate level but were specifically identifiable or otherwise attributable to us . additionally , honeywell historically provided certain services , such as legal , accounting , information technology , human resources and other infrastructure support , on our behalf . the costs of these services were allocated to us on the basis of the proportion of net revenue . actual costs that would have been incurred if we had been a stand-alone company for the entire period being presented would depend on multiple factors , including organizational structure and strategic decisions made in various areas , including information technology and infrastructure . both we and honeywell consider the basis on which the expenses were allocated during the period before the spin-off to be a reasonable reflection of the utilization of services provided to or the benefits received by us during the periods presented . since the completion of the spin-off , we have incurred expenditures consisting of employee-related costs , costs to start up certain stand-alone functions and information technology systems and other one-time transaction related costs . recurring stand-alone costs include establishing the internal audit , treasury , investor relations , tax and corporate secretary functions as well as the annual expenses associated with running an independent publicly traded company including listing fees , compensation of non-employee directors , related board of director fees and other fees and expenses related to insurance , legal and external audit . prior to spin-off , our environmental expenses for specified honeywell properties contaminated through historical business operations ( “ honeywell sites ” ) , now subject to the reimbursement agreement , were reported within other expense , net in our consolidated and combined statements of operations , which reflect an estimated liability for resolution of pending and future environmental-related liabilities . prior to the spin-off , this estimated 26 resideo technologies , inc. liability was calculated as if we were responsible for 100 % of the environmental-liability payments associated with certain sites . see environmental matters and reimbursement agreement sections of note 19 . commitments and contingencies of notes to consolida ted and combined financial statements for additional information . reclassification on january 1 , 2020 , we changed our classification of research and development expenses from cost of goods sold to selling , general and administrative expenses , such that research and development expenses are excluded from the calculation of gross profit . this change had no impact on net income ( loss ) and earnings ( loss ) per share or the consolidated balance sheet , consolidated and combined statements of cash flow or equity . the company determined the impact on previously issued consolidated and combined annual and interim financial statements was not material . the impact for the years ended december 31 , 2019 and 2018 , was a decrease in cost of goods sold and an increase in gross profit and in selling , general and administrative expenses of $ 87 million and $ 59 million , respectively . the impact of the reclassification for the year ended december 31 , 2019 is also reflected in note 7. restructuring charges of notes to consolidated and combined financial statements . in addition , the prior year segment information was recast to present corporate separately as well as present operating profit which replaces segment adjusted ebitda . see note 21. segment financial data of notes to consolidated and combined financial statements for additional information . certain reclassifications have been made to prior period financial statements to conform to the classification adopted in the current period . components of operating results net revenue we manage our global business operations through two reportable segments , products & solutions and adi global distribution : products & solutions : we generate the majority of our products & solutions net revenue primarily from residential end-markets . our products & solutions segment includes traditional products , as well as connected products , which we define as any device with the capability to be monitored or controlled from a remote location by an end-user or service provider . our products are sold through a network of hvac , plumbing , security , and electrical distributors including our adi global distribution business , oems , and service providers such as hvac contractors , security dealers and plumbers . we also sell some products via retail and online channels . adi global distribution : we generate revenue through the distribution of low-voltage electronic and security products , as well as smart home , fire , power , audio and proav , networking , communications , wire and cable , enterprise connectivity , and structured wiring products that are delivered through a comprehensive network of professional contractors , distributors and oems , as well as major retailers and online merchants . in addition to our own security products , adi global distribution distributes products from industry-leading manufacturers , and also carries a line of private label products . we sell these products to contractors that service non-residential and residential end-users . 14 % of adi global distribution 's net revenue is supplied by our products & solutions segment . management estimates that in 2020 approximately two-thirds of adi global distribution 's net revenue was attributed to non-residential end markets and one-third to residential end markets .
| operating profit decreased from $ 210 million in 2019 to $ 194 million in 2020 , or 8 % . operating profit was negatively impacted by commercial investments , unfavorable sales mix , acquisition related costs , and other cost inflation totaling $ 34 million . negative impacts were partially offset by transformation program cost savings , other expense productivity and cost reduction programs totaling $ 18 million . 2019 compared with 2018 adi global distribution revenue increased 6 % in 2019 compared to 2018 , driven by increased sales volume growth across all regions . operating profit increased from $ 205 million in 2018 to $ 210 million in 2019 , or 2 % . operating profit was positively impacted by increased volume , transformation program cost savings , and other expense productivity and cost reduction programs totaling $ 38 million . positive impacts were partially offset by increased functional expenses previously captured in corporate costs prior to spin-off , commercial investments , increased expenses related to transformation programs , unfavorable changes in foreign exchange rates , and other cost inflation totaling $ 33 million . corporate 2020 2019 % change 2018 % change corporate costs $ ( 290 ) $ ( 279 ) 4 % $ ( 303 ) ( 8 ) % 2020 compared with 2019 corporate costs for 2020 were $ 290 million , an increase of $ 11 million , from $ 279 million in 2019 , or 4 % , and were negatively impacted by costs related to transformation programs and related restructuring expenses , 32 resideo technologies , inc. increased bonus payouts from improved performance of the business , increase in service cost related to pension , and labor and other inflation totaling $ 5 9 million . negative impacts were partially offset by transformation program cost savings , reduced spin-off related costs , other expense productivity and cost reduction programs totaling $ 48 million . 2019 compared with 2018 corporate costs for 2019 were $ 279 million , a decrease of $ 24 million , from $
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application of these principles requires management to make estimates , assumptions , and judgments that affect the amounts reported in 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 consolidated financial statements at fair value warrants an impairment write-down or 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 certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources , when available . when third-party information is not available , valuation adjustments are estimated in good faith by management primarily through the use of internal forecasting techniques . the most significant accounting policies followed by the company are presented in note 1 , `` summary of significant accounting policies '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. these policies , along with the disclosures presented in the other financial statement notes and in management 's discussion and analysis of operations , provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the determination of the allowance for loan losses to be the accounting area that requires the most subjective or complex judgments , and as such could be most subject to revision as new information becomes available . allowance for loan losses the allowance for loan losses ( `` all '' ) represents management 's estimate of probable credit losses inherent in the loan portfolio . determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of losses inherent in classifications of homogeneous loans based on the bank 's historical loss experience and consideration of current economic trends and conditions , all of which may be susceptible to significant change . non-homogeneous loans are specifically evaluated due to the increased risks inherent in those loans . the loan portfolio also represents the largest asset type in the consolidated balance sheet . note 1 , `` summary of significant accounting policies '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k , describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses . investment securities investment securities at the time of purchase are classified as one of the following : held-to-maturity securities - includes securities that the company has the positive intent and ability to hold to maturity . these securities are reported at amortized cost . available-for-sale securities - includes debt and equity securities not classified as held-to-maturity that will be held for indefinite periods of time . these securities may be sold in response to changes in market interest or prepayment rates , needs for liquidity and changes in the availability of and yield of alternative investments . such securities are reported at fair value , with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders ' equity , net of estimated income tax effect . the amortized cost of investment in debt securities is adjusted for amortization of premiums and accretion of discounts , computed by a method that results in a level yield . gains and losses on the sale of investment securities are computed on the basis of specific identification of the adjusted cost of each security . securities are periodically reviewed for other-than-temporary impairment . for debt securities , management considers whether the present value of future cash flows expected to be collected are less than the security 's amortized cost basis ( the difference defined as the credit loss ) , the magnitude and duration of the decline , the reasons underlying the decline and the company 's intent to sell the security or whether it is more likely than not that the company would be required to sell the security before its anticipated 39 recovery in market value , to determine whether the loss in value is other than temporary . once a decline in value is determined to be other than temporary , if the company does not intend to sell the security , and it is more-likely-than-not that it will not be required to sell the security , before recovery of the security 's amortized cost basis , the charge to earnings is limited to the amount of credit loss . any remaining difference between fair value and amortized cost ( the difference defined as the non-credit portion ) is recognized in other comprehensive income , net of applicable taxes . for equity securities where the fair value has been significantly below cost for one year , the company 's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted . story_separator_special_tag a decline in value that is considered to be other-than-temporary is recorded as a loss within noninterest income in the consolidated statement of income . common stock of the federal home loan bank represents ownership in an institution which is wholly owned by other financial institutions . these equity securities are accounted for at cost and are classified as other assets . see note 2 , `` investment securities '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k for the company 's policy regarding the other than temporary impairment of investment securities . goodwill and other intangible assets as discussed in note 1 , `` summary of significant accounting policies '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k , the company must assess goodwill and other intangible assets each year for impairment . this assessment involves estimating the fair value of the company 's reporting units . if the fair value of the reporting unit is less than its carrying value including goodwill , we would be required to take a charge against earnings to write down the assets to the lower value . deferred tax assets we use an estimate of future earnings to support our position that the benefit of our deferred tax assets will be realized . if future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied , the asset may not be realized and our net income will be reduced . management also evaluates deferred tax assets to determine if it is more likely than not that the deferred tax benefit will be utilized in future periods . if not , a valuation allowance is recorded . our deferred tax assets are described further in note 8 , `` income taxes '' of the notes to the consolidated financial statements included in item 8 , financial statements and supplementary data , of this annual report on form 10-k. recent accounting pronouncements and developments in december 2016 , the financial accounting standards board ( `` fasb '' ) issued accounting standards update ( `` asu '' ) 2016-20 , technical corrections and improvements to topic 606 , revenue from contracts with customers . the amendments in this asu cover a variety of topics in the codification related to the new revenue recognition standard ( asu 2014-09 ) and represent changes to make minor corrections or minor improvements to the codification that are not expected to have a significant impact on current accounting practice or create a significant administrative cost to most entities . for public companies , this update will be effective for fiscal years beginning after december 15 , 2017 , including all interim periods within those fiscal years . the adoption of this guidance is not expected to be material to the consolidated financial statements . in december 2016 , the fasb issued asu 2016-19 , technical corrections and improvements . the amendments in this asu cover a wide range of topics in the codification and represent changes to make corrections or improvements to the codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities . for public companies , this update will be effective for fiscal years beginning after december 15 , 2016 , including all interim periods within those fiscal years . early application is permitted . the adoption of this guidance will not have a material impact on the company 's consolidated financial statements . in november 2016 , the fasb issued asu 2016-18 , statement of cash flows ( topic 230 ) : restricted cash ( a consensus of the fasb emerging issues task force ) . the new guidance clarifies the classification within the statement of cash flows for certain transactions , including debt extinguishment costs , zero-coupon debt , contingent consideration related to business combinations , insurance proceeds , equity method distributions and beneficial interests in securitizations . the guidance also clarifies that cash flows with aspects of multiple classes of cash flows or that can not be separated by source or use should be classified based on the activity that is likely to be the predominant source or use of cash flows for the item . this guidance is effective for fiscal years beginning after december 15 , 2017 and interim periods within those fiscal years . the adoption of this guidance will not have a material impact on the company 's consolidated financial statements . 40 in october 2016 , the fasb issued asu 2016-17 , consolidation ( topic 810 ) : interests held through related parties that are under common control . the new guidance changes the accounting for the consolidation of vies in certain situations involving entities under common control . specifically , the amendments change how the indirect interests held through related parties that are under common control should be included in a reporting entity 's evaluation of whether it is a primary beneficiary of a vie . under the amended guidance , the reporting entity is only required to include the indirect interests held through related parties that are under common control in a vie on a proportionate basis . currently , the indirect interests held by the related parties that are under common control are considered to be the equivalent of direct interests in their entirety . this guidance is effective for fiscal years beginning after december 15 , 2016 and interim periods within those fiscal years . the adoption of this guidance will not have a material impact on the company 's consolidated financial statements . in october 2016 , the fasb issued asu 2016-16 , income taxes ( topic 740 ) : intra-entity transfers of assets other than inventory .
| % in 2014 . this cost of funds , combined with the earning asset yield , resulted in a net interest margin of 3.07 % in 2015 compared to 3.01 % in 2014 . interest income and expense net interest income is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing liabilities . interest-earning assets include loans , investment securities and certificates of deposit in other banks . interest-bearing liabilities include interest-bearing deposits and borrowed funds such as sweep accounts and repurchase agreements . net interest income remains the primary source of revenue for the bank . net interest income is also impacted by changes in market interest rates , as well as the mix of interest-earning assets and interest-bearing liabilities . net interest income is also impacted favorably by increases in noninterest bearing demand deposits and equity . net interest margin is calculated by dividing net interest income by average interest-earning assets and serves as a measurement of the net revenue stream generated by the bank 's balance sheet . as noted above , the net interest margin was 3.22 % in 2016 compared to 3.07 % and 3.01 % in 2015 and 2014 , respectively . the net interest margin continues to face considerable pressure due to competitive pricing of loans and deposits in the bank 's markets . during 2016 , the federal reserve raised its key interest rate from a range of 0.25 % to 0.50 % to a range of 0.50 % to 0.75 % . management 's estimate of the impact of future changes in market interest rates is shown in the section captioned “ interest rate risk. ” company management continues to analyze methods to deploy assets into an earning asset mix which will result in a stronger net interest margin . loan growth continues to be strong and management anticipates that loan activity will remain strong in the near term future . during 2016 ,
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'' `` plans , '' `` likely '' and `` probable '' or the negative thereof or other variations thereon or comparable terminology , constitute `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 , as amended , and section 21e of the exchange act and are subject to the safe harbors created thereby . these statements should be considered as subject to the many risks and uncertainties that exist in the company 's operations and business environment . such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors , including , but not limited to , those under the heading item 1a . risk factors . 10 story_separator_special_tag and gross profit from period to period . pricing on large orders was extremely competitive and therefore resulted in relatively low gross margins in all periods . filtration products ' demand is partially impacted by government regulation of air quality at the federal and state levels . the company believes that growth in the sale of its filtration products and services will be materially dependent on continued enforcement of environmental laws such as the clean air act . although there can be no assurance what the ultimate effect of the clean air act will be on filtration products , the company believes the clean air act is likely to have a positive long-term effect on demand for the company 's filtration products and services . replace_table_token_3_th net sales decreased 13.6 % to $ 68.4 million in 2013 from $ 79.1 million in 2012 . sales declines were the result of lower market demand for domestic fabric filter bag products due to significant decreases in coal fire power generation and steel industries ' demand . gross margin decreased slightly to 13.1 % of net sales in 2013 from 13.3 % of net sales in 2012 . in the fourth quarter , filtration products recorded a $ 0.6 million inventory reserve for slow-moving and obsolete materials . gross profit decreased 14.6 % to $ 8.9 million in 2013 from $ 10.5 million in the prior-year due to lower sales volume offset by the aforementioned product mix . in response to lower demand for fabric filter bags , the company has reduced its workforce . over the past year , the company has implemented many initiatives to resize the fabric filter business and lower manufacturing costs in all plants . the company continues to expand its geographic market coverage and improve its margin through expense controls to strengthen this segment . general and administrative expense decreased to $ 4.6 million , or 6.8 % of net sales , in 2013 from $ 6.5 million , or 8.2 % of net sales , in 2012 . the decrease was due to reduced health insurance costs and staffing reductions . this decrease was partially offset by a one-time pension expense resulting from the freezing of the defined benefit pension plan . in the fourth quarter of 2012 , filtration products recorded a $ 1.5 million impairment on fixed assets relating to its idle manufacturing facility located in cicero , illinois . selling expense decreased to $ 5.9 million in 2013 from $ 6.9 million in 2012 due to reduction in staff . as a percentage of net sales , selling expense decreased to 8.7 % in 2013 from 8.8 % in 2012 . corporate corporate expenses include interest expense and general and administrative expenses that are not allocated to the segments . general and administrative expenses increased 2 % to $ 9.5 million in 2013 from $ 9.3 million in 2012 . as a percentage of sales , it decreased to 4.2 % from 5.5 % . the spending increased in incentive compensation expense in connection with improved earnings partially offset by reduced health insurance costs . interest expense decreased to $ 1.9 million in 2013 from $ 2.0 million in 2012 due to a reduction in borrowings relative to the prior-year . income taxes the company 's worldwide effective tax rates ( `` etr '' ) were negative 4.0 % and negative 132.4 % in 2013 and 2012 , respectively . the etr in 2013 was less than the statutory u.s. federal income tax rate , mainly due to the mix of the u.a.e . earnings ( loss ) versus total earnings ( loss ) because the u.a.e . is not subject to any local country income tax . additionally , the etr in 2013 is impacted by the $ 1.2 million release of the full valuation allowance related to the company 's deferred tax assets in saudi arabia . as a result of two quarters of positive operating income as well as management 's expectations of this subsidiary 's profitability for the fiscal year 2013 , the company believes the second quarter of 2013 was the appropriate time to release the valuation allowance . the etr in 2012 was less than the statutory u.s. federal income tax rate , primarily due to the full valuation allowance of $ 13.9 million recorded on the domestic deferred tax assets . as of january 31 , 2014 , the company had undistributed earnings of foreign subsidiaries for which deferred taxes have not been provided . the company intends and has the ability to reinvest these earnings for the foreseeable 11 future outside the u.s. if these amounts were distributed to the u.s. , in the form of dividends or otherwise , the company would be subject to additional u.s. income taxes . story_separator_special_tag determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability , if any , is dependent on circumstances existing if and when remittance occurs . a reconciliation of the etr to the u.s. statutory tax rate is as follows : replace_table_token_4_th for further information , see note 8 - income taxes , in the notes to consolidated financial statements . liquidity and capital resources cash and cash equivalents as of january 31 , 2014 were $ 13.4 million , compared to $ 7.0 million at january 31 , 2013 . at january 31 , 2014 , $ 0.2 million was held in the u.s. and $ 13.2 million was held in the foreign subsidiaries . the company 's working capital was $ 47.6 million at january 31 , 2014 compared to $ 35.1 million at january 31 , 2013 . piping systems ' net sales increased 77 % from the prior-year , causing the saudi arabian subsidiary 's accounts receivable to increase $ 19.6 million . cash provided by operations in 2013 was $ 6.4 million compared to $ 5.3 million in 2012 . the company does not believe that it will be necessary to repatriate equity held outside of the u.s. net cash provided by investing activities in 2013 was $ 12.4 million . on april 30 , 2013 , the company completed an asset sale of thermal care , inc. , a subsidiary , for $ 16.3 million cash , of which $ 1.1 million is held in escrow until may 1 , 2014. this subsidiary and others included in discontinued operations did not have a significant impact on cashflow . the proceeds from the sale paid down a portion of the debt under the loan agreement ( as defined below ) . the company estimates that capital expenditures for 2014 will be approximately $ 7.4 million , of which the company may finance capital expenditures through real estate mortgages , equipment financing loans , internally generated funds and its revolving line of credit . the majority of such expenditures relates to piping systems . debt totaled $ 31.7 million at january 31 , 2014 , a decrease of $ 9.2 million since january 31 , 2013 . net cash used in financing activities was $ 11.7 million . for additional information , see note 6 - debt , in the notes to consolidated financial statements . other long-term liabilities of $ 2.2 million were composed primarily of accrued pension cost and deferred compensation . 12 the following table summarizes the company 's estimated contractual obligations at january 31 , 2014 . replace_table_token_5_th notes to contractual obligations table ( 1 ) interest obligations exclude floating rate interest on debt payable under the domestic revolving line of credit . based on the amount of such debt at january 31 , 2014 , and the weighted average interest rate of 3.86 % on that debt , such interest was being incurred at an annual rate of approximately $ 0.4 million . ( 2 ) scheduled maturities , including interest . ( 3 ) scheduled maturities of foreign revolver line , including interest . ( 4 ) term loan obligations exclude floating rate interest on term loan with a january 31 , 2014 balance of $ 0.2 million . based on the amount of such debt as of january 31 , 2014 , and the weighted average interest rate of 4.21 % on that debt , such interest was being incurred at an annual rate of approximately $ 17 thousand . ( 5 ) minimum contractual amounts , assuming no changes in variable expenses . ( 6 ) includes estimated future benefit payments . ( 7 ) non-qualified deferred compensation plan - the company has a supplemental retirement and deferred compensation plan ( `` supplemental plan '' ) , pursuant to which key employees deferred compensation . refer to note 9 - retirement plans , in the notes to consolidated financial statements . ( 8 ) refer to the proxy statement for a description of compensation plans for named executive officers . ( 9 ) included payments for other liabilities . ( 10 ) refer to note 8 - income taxes , in the notes to consolidated financial statements for a description of the uncertain tax position obligations . financing on july 11 , 2002 , the company entered into a secured loan and security agreement with a financial institution ( as amended , `` loan agreement '' ) . under the terms of the loan agreement , which matures on november 30 , 2016 , the company can borrow up to $ 25.0 million , subject to borrowing base and other requirements , under a revolving line of credit . the loan agreement covenants restrict debt , liens , and certain investments , do not permit payment of dividends , and require attainment of specific levels of profitability and cash flows when reaching certain levels of availability . at january 31 , 2014 , the company was in compliance with all covenants under the loan agreement . interest rates are based on options selected by the company as follows : ( a ) a margin in effect of 0.25 in effect plus prime rate ; and or ( b ) a margin of 2.25 in effect plus the libor rate for the corresponding interest period . as of january 31 , 2014 , the company had borrowed $ 7.0 million at prime and libor rates and had $ 13.0 million available to it under the revolving line of credit .
| income from discontinued operations net of tax was $ 8.2 million and $ 2.3 million for the years ended january 31 , 2014 and 2013 , respectively . 2013 compared to 2012 net sales were $ 226.8 million in 2013 , an increase of 34 % from $ 168.8 million in 2012 . piping systems sales increased 77 % or $ 68.8 million compared to the prior-year due to sales growth in saudi arabia and the u.a.e . for major projects , such as expanding the grand mosque in mecca and the king abdul-aziz international airport in jeddah , and a significant domestic oil and gas project . filtration products sales decreased by $ 10.7 million due primarily to reduced domestic demand for fabric filter bag products . gross profit increased 90 % to $ 52.2 million in 2013 from $ 27.5 million in 2012 mainly due to the sales increase in piping systems . filtration products ' gross profit decreased 14.6 % to $ 10.5 million in 2013 from $ 12.5 million in 2012 resulting from the decline in sales . operating expenses increased 7.8 % to $ 39.1 million from $ 36.3 million . improved performance led to increased incentive compensation expense partially offset by reduced health insurance costs . in 2012 , there was a non-cash $ 1.5 million charge to recognize the impairment of fixed assets in filtration products related to its idle manufacturing facility located in cicero , illinois . the company 's worldwide effective income tax rates on continuing operations for 2013 and 2012 were negative 4.0 % and negative 132.4 % , respectively . in the fourth quarter of 2012 , the company recorded a full valuation allowance on domestic deferred tax assets . this resulted in a $ 13.9 million non-cash charge . for additional information , see the income tax section of the md & a and see note 8 - income taxes , in the notes to consolidated financial statements . net
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net income increased $ 82.2 million to $ 84.1 million for the year ended december 31 , 2011 , compared to $ 1.9 million in 2010. the increase in net revenues from the prior year was primarily attributable to higher commission revenues as a result of increased client assets and higher productivity ; growth in asset management and service fees as a result of an increase in assets under management through market performance and the merger with twpg ; and increased net interest revenues as a result of the growth of net interest-earning assets at stifel bank . the increase in revenue growth was offset by a decline in fixed income institutional brokerage revenues , and a decrease in investment banking revenues , which were negatively impacted by the challenging market conditions present throughout 2011. the results for the year ended december 31 , 2011 include litigation-related expenses associated with the civil lawsuit and related regulatory investigation in connection with the ongoing matter with five southeastern wisconsin school districts and certain merger-related . for a discussion of our legal matters , including the opeb litigation , see item 3 , “ legal proceedings. ” the results for the year ended december 31 , 2010 include compensation expense for the acceleration of deferred compensation as a result of the modification of the company 's deferred compensation plan and certain compensation and non-compensation operating expenses associated with the merger of twpg . external factors impacting our business performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity . overall market conditions are a product of many factors , which are beyond our control and mostly unpredictable . these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors , including the demand for investment banking services as reflected by the number and size of equity and debt financings and merger and acquisition transactions , the volatility of the equity and fixed income markets , the level and shape of various yield curves , the volume and value of trading in securities , and the value of our customers ' assets under management . the municipal underwriting market is challenging as state and local governments reduce their debt levels . investors are showing a lack of demand for longer-dated municipals and are reluctant to take on credit or liquidity risks . investor confidence has been dampened by the debt concerns in europe , continued economic turmoil related to the disasters in japan , weakening employment and economic data in the u.s. and the uncertainty with the u.s. budget . our overall financial results continue to be highly and directly correlated to the direction and activity levels of the united states equity and fixed income markets . at december 30 , 2011 , the key indicators of the markets ' performance , the dow jones industrial average and the nasdaq closed 5.5 % higher , and 1.8 % lower than their december 31 , 2010 closing prices , respectively . at december 30 , 2011 , the s & p 500 closed at price that was consistent with its closing price at december 31 , 2010. as a participant in the financial services industry , we are subject to complicated and extensive regulation of our business . the recent economic and political environment has led to legislative and regulatory initiatives , both enacted and proposed , that could substantially intensify the regulation of the financial services industry and may significantly impact us . on july 21 , 2010 , the dodd-frank act was signed into law . the dodd-frank act will have a broad impact on the financial services industry and will impose significant new regulatory and compliance requirements , including the designation of certain financial companies as systemically significant , the imposition of increased capital , leverage , and liquidity requirements , and numerous other provisions designed to improve supervision and oversight of , and strengthen safety and soundness within , the financial services sector . the expectation is that this new legislation will significantly restructure and increase regulation in the financial services industry , which could increase our cost of doing business , change certain business practices , and alter the competitive landscape . 29 story_separator_special_tag performance , offset by a reduction in fees for money-fund balances due to the waiving of fees by certain fund managers . in addition , asset management and service fee revenues for the year ended december 31 , 2011 were positively impacted by the addition of the twpg asset management business starting on july 1 , 2010. see “ assets in fee-based accounts ” included in the table in “ results of operations – global wealth management. ” investment banking – investment banking revenues include : ( i ) capital raising revenues representing fees earned from the underwriting of debt and equity securities , and ( ii ) strategic advisory fees related to corporate debt and equity offerings , municipal debt offerings , mergers and acquisitions , private placements and other investment banking advisory fees . for the year ended december 31 , 2011 , investment banking revenues decreased 8.5 % , to $ 199.6 million from $ 218.1 million in 2010. the decrease is primarily attributable to a decrease in capital raising and advisory fees as a result of the challenging market conditions that existed during 2011. capital raising revenues decreased 8.3 % to $ 124.6 million for the year ended december 31 , 2011 from $ 135.9 million in 2010. for the year ended december 31 , 2011 , equity capital raising decreased 9.6 % to $ 98.0 million from $ 108.4 million in 2010. for the year ended december 31 , 2011 , fixed income capital raising revenues decreased 2.9 % to $ 26.6 million from $ 27.5 million in 2010. strategic advisory fees decreased 8.8 % to story_separator_special_tag $ 74.9 million for the year ended december 31 , 2011 from $ 82.2 million in 2010. other income – for the year ended december 31 , 2011 , other income decreased 0.6 % to $ 19.7 million from $ 19.9 million in 2010. the decrease is primarily attributable to lower investment gains recognized during 2011 , offset by an increase in mortgage fees due to the increase in loan originations at stifel bank . year ended december 31 , 2010 compared with year ended december 31 , 2009 except as noted in the following discussion of variances , the increase in revenue can be attributed principally to the increased number of private client group offices and financial advisors in our global wealth management segment , the increased number of revenue producers in our institutional group segment , and the acquisitions of the ubs acquired locations during the third and fourth quarters of 2009 and twpg on july 1 , 2010. the results of operations for the ubs acquired locations are included in our results prospectively from the date of their respective acquisitions . for the year ended december 31 , 2010 , the acquisition generated net revenues of $ 111.4 million compared to $ 27.1 million during 2009. the prior year revenues of the ubs acquired locations were generated from the date of acquisition through the end of the year . the investment banking , research , and institutional brokerage businesses of twpg were integrated with stifel nicolaus immediately after the merger ; therefore , the revenues , expenses , and net income of the integrated businesses are not distinguishable within the results of our company . principal transactions – for the year ended december 31 , 2010 , principal transactions revenues decreased 1.0 % to $ 453.5 million from $ 458.2 million in 2009. the growth of our company , both organically and through acquisitions , has been negatively impacted by the challenging fixed income market conditions that existed during most of 2010 , which significantly impacted the flow in our fixed income business . the decline in principal transactions from 2009 is primarily attributable to decreases in revenue from corporate bonds and mortgage-backed securities . commissions – commission revenues are primarily generated from agency transactions in otc and listed equity securities , insurance products , and options . in addition , commission revenues also include distribution fees for promoting and distributing mutual funds . for the year ended december 31 , 2010 , commission revenues increased 28.9 % to $ 445.3 million from $ 345.5 million in the prior year . the increase is primarily attributable to an increase in the number of financial advisors , client assets , and higher productivity . 32 investment banking – investment banking revenues include : ( i ) capital-raising revenues representing fees earned from the underwriting of debt and equity securities , ( ii ) sales credits , and ( iii ) strategic advisory fees related to corporate debt and equity offerings , municipal debt offerings , merger and acquisitions , private placements , and other investment banking advisory fees . for the year ended december 31 , 2010 , investment banking revenues increased $ 92.3 million , or 73.4 % , to $ 218.1 million from $ 125.8 million in 2009. the increase was primarily attributable to our acquisition of twpg on july 1 , 2010 , and improved equity markets during the second half of 2010. for the year ended december 31 , 2010 , capital-raising revenues increased $ 59.3 million , or 77.5 % , to $ 135.9 million from $ 76.6 million in 2009. for the year ended december 31 , 2010 , equity capital-raising revenues increased 93.7 % to $ 108.4 million from $ 56.0 million in 2009. for the year ended december 31 , 2010 , fixed income capital-raising revenues increased 33.4 % to $ 27.5 million from $ 20.6 million in 2009. for the year ended december 31 , 2010 , strategic advisory fees increased 66.9 % to $ 82.2 million from $ 49.2 million in the prior year . the increase is primarily attributable to an increase in the number of completed equity transactions and the aggregate transaction value from the prior year . asset management and service fees – asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients , fees from investment partnerships we manage , and fees we earn from the management of equity distributions we receive from our clients . asset management and service fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2010 , asset management and service fee revenues increased 64.6 % to $ 193.2 million from $ 117.4 million in 2009. the increase is primarily a result of an increase in the value of assets in fee-based accounts , the number of managed accounts during 2010 , and the impact of the addition of the twpg asset management business . during the year ended december 31 , 2010 , we experienced a reduction in fees for money-fund balances due to the waiving of fees by certain fund managers of approximately $ 50.0 million compared to approximately $ 30.0 million in the prior year . see “ assets in fee-based accounts ” included in the table in “ results of operations – global wealth management.
| the increase in net revenues for the year ended december 31 , 2011 is attributable to the previously mentioned factors and the acquisition of twpg on july 1 , 2010. the operations of twpg were integrated with stifel nicolaus immediately after the merger , therefore the results of the business , as acquired , does not exist as a discrete entity within our internal reporting structure . commissions – commission revenues are primarily generated from agency transactions in otc and listed equity securities , insurance products and options . in addition , commission revenues also include distribution fees for promoting and distributing mutual funds . for the year ended december 31 , 2011 , commission revenues increased 26.0 % to $ 561.1 million from $ 445.3 million in 2010. the increase is primarily attributable to an increase in client assets and higher productivity . principal transactions – for the year ended december 31 , 2011 , principal transactions revenues decreased 24.3 % to $ 343.2 million from $ 453.5 million in 2010. the decrease is primarily attributable to a decline in fixed income institutional brokerage revenues , which was negatively impacted by the challenging market conditions present during throughout 2011. in addition to the items impacting our commissions and principal transactions , as described above , a portion of the increase in commissions and corresponding decrease in principal transactions was attributable to a change in classification of certain equity trades that were recorded as principal transactions during the year ended december 31 , 2010 that are now being recorded as commission revenues as a result of regulatory changes . 31 asset management and service fees – asset management and service fees include fees for asset-based financial services provided to individuals and institutional clients . investment advisory fees are charged based on the value of assets in fee-based accounts . asset management and service fees are affected by changes in the balances of client assets due to market fluctuations and levels of net new client assets . for the year ended december 31 , 2011 , asset management and service fee revenues increased 18.5 % to $ 228.8 million from $ 193.2 million in 2010. the increase is primarily a result of an increase in the value of assets in fee-based accounts and
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none of our clients accounted for more than 5 % of our total revenues for the years ended december 31 , 2008 , 2007 , or 2006. operating expense direct operating expense . direct operating expense consists primarily of salaries , benefits , claim processing costs , other direct costs , and stock-based compensation related to personnel who provide services to clients , including staff who implement new clients . although we expect that direct operating expense will increase in absolute terms for the foreseeable future , the direct operating expense is expected to decline as a 48 percentage of revenues as we further increase the percentage of transactions that are resolved on the first attempt . in addition , over the longer term , we expect to increase our overall level of automation and to reduce our direct operating expense as a percentage of revenues as we become a larger operation , with higher volumes of work in particular functions , geographies , and medical specialties . in 2008 and 2007 , we include in direct operating expense the service costs associated with our athenaclinicals offering , which includes transaction handling related to lab requisitions , lab results entry , fax classification , and other services . we also expect these costs to increase in absolute terms for the foreseeable future but to decline as a percentage of revenue . this decrease will be driven by increased levels of automation and by economies of scale . direct operating expense does not include allocated amounts for rent , depreciation , and amortization , except for amortization related to purchased intangible assets . selling and marketing expense . selling and marketing expense consists primarily of marketing programs ( including trade shows , brand messaging , and on-line initiatives ) and personnel-related expense for sales and marketing employees ( including salaries , benefits , commissions , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) . although we recognize substantially all of our revenue when services have been delivered , we recognize a large portion of our sales commission expense at the time of contract signature and at the time our services commence . accordingly , we incur a portion of our sales and marketing expense prior to the recognition of the corresponding revenue . we plan to continue to invest in sales and marketing by hiring additional direct sales personnel to add new clients and increase sales to our existing clients . we also plan to expand our marketing activities in certain areas , such as attending trade shows , expanding user groups , and creating new printed materials . as a result , we expect that , in the future , sales and marketing expense will increase in absolute terms but decline over time as a percentage of revenue . research and development expense . research and development expense consists primarily of personnel-related expenses for research and development employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) and consulting fees for third-party developers . we expect that , in the future , research and development expense will increase in absolute terms but not as a percentage of revenue as new services and more mature products require incrementally less new research and development investment . for our revenue-cycle-related application development , we expense nearly all of the development costs as we are at the operational stage of the development cycle . for our clinical cycle related application development , we capitalized nearly all of our research and development costs during the years ended december 31 , 2008 and 2007 , which capitalized costs represented approximately 13 % of our total research and development expenditures in 2008 and approximately 15 % in 2007. these capitalized expenditures began to amortize during the first quarter of 2007 when we began to implement our services to clients who are not part of our beta-testing program . general and administrative expense . general and administrative expense consists primarily of personnel-related expense for administrative employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) , occupancy and other indirect costs ( including building maintenance and utilities ) , and insurance , as well as software license fees ; outside professional fees for accountants , lawyers , and consultants ; and compensation for temporary employees . we expect that general and administrative expense will increase in absolute terms for the foreseeable future as we invest in infrastructure to support our growth and incur additional expense related to being a publicly traded company . though expenses are expected to continue to rise in absolute terms , we expect general and administrative expense to decline as a percentage of overall revenues . depreciation and amortization expense . depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of capitalized software development costs , which we amortize over a two-year period from the time of release of related software code . because our core revenue cycle application is relatively mature , we expense those costs as incurred , and , as a result , in 2008 approximately 87 % of our software development expenditures were expensed rather than capitalized . in the year ended december 31 , 2007 , approximately 85 % were expensed rather than capitalized . as we grow , we will continue to make capital investments in the infrastructure of the business , and we will continue to develop software that 49 we capitalize . at the same time , because we are spreading fixed costs over a larger client base , we expect related depreciation and amortization expense to decline as a percentage of revenues over time . other income ( expense ) . interest expense consists primarily of interest costs related to our former working capital line of credit , our equipment-related term leases , our term loan and revolving loans under our credit facility , and our former subordinated term loan , offset by interest income on investments . story_separator_special_tag interest income represents earnings from our cash , cash equivalents , and investments . the loss on interest rate derivative contract represents the change in the fair market value of a derivative instrument that is not designated a hedge under fas 133. although this derivative has not been designated for hedge accounting , we believe that such instrument is correlated with the underlying cash flow exposure related to variability in interest rate movements on our term loan . in 2007 , the loss on warrant liability represents the change in the fair value of our warrants to purchase shares of our preferred stock at the end of each reporting period . this warrant liability and associated accounting to recognize this liability at its fair value , ceased upon the completion of our initial public offering , at which time the associated liability converted to additional paid-in-capital . critical accounting policies we prepare our financial statements in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue , expense , and related disclosures . we base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . we believe the critical accounting policies set forth below , among others , affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition and accounts receivable we recognize revenue when all of the following conditions are satisfied : there is evidence of an arrangement ; the service has been provided to the client ; the collection of the fees is reasonably assured ; and the amount of fees to be paid by the client is fixed or determinable . our arrangements do not contain general rights of return . all revenue , other than implementation revenue , is recognized when the service is performed . relative to our business services offering that is based on the collections of amounts by our customers ; we do not recognize revenue until our customers have been paid . as the implementation service is not separable from the ongoing business services , we record implementation fees as deferred revenue until the implementation service is complete , at which time we recognize revenue ratably on a monthly basis over the expected performance period . our clients typically purchase one-year contracts that renew automatically upon completion . in most cases , our clients may terminate their agreements with 90 days notice without cause . we typically retain the right to terminate client agreements in a similar timeframe . our clients are billed monthly , in arrears , based either upon a percentage of collections posted to athenanet , minimum fees , flat fees , or per-claim fees where applicable . invoices are generated within the first two weeks of the month and delivered to clients primarily by email . for most of our clients , fees are then deducted from a pre-defined bank account one week after invoice receipt via an auto-debit transaction . amounts that have been invoiced are recorded as revenue or deferred revenue , as appropriate , and are included in our accounts receivable balances . deposits received for future services ( such as implementation fees ) are recorded as deferred revenue and amortized over the term of the service agreement when ongoing services commence . 50 we maintain allowances for doubtful accounts based on an assessment of the collectability of specific customer accounts , the aging of accounts receivable , and other economic information on both an historical and prospective basis . customer account balances are charged against the allowance when it is probable the receivable will not be recovered . changes in the allowance during fiscal 2008 and 2007 were not material . there is no off-balance sheet credit exposure related to customer receivable balances . software development costs we account for software development costs under the provisions of american institute of certified public accountants statement of position ( sop ) 98-1 , accounting for the costs of computer software developed or obtained for internal use . under sop 98-1 , costs related to the preliminary project stage of subsequent versions of athenanet or other technology are expensed as incurred . costs incurred in the application development stage are capitalized . such costs are amortized over the software 's estimated economic life of two years . in 2008 , approximately 87 % of our software development expenditures were expensed rather than capitalized , based upon the stage of development of the software . in the year ended december 31 , 2007 , approximately 85 % of our software development expenditures were expensed rather than capitalized . stock-based compensation prior to january 1 , 2006 , we accounted for stock-based awards to employees using the intrinsic value method as prescribed by accounting principles board ( apb ) opinion no . 25 , accounting for stock issued to employees , and related interpretations . under the intrinsic value method , compensation expense is measured on the date of grant as the difference between the deemed fair value of our common stock and the option exercise price , multiplied by the number of options granted . generally , we grant stock options with exercise prices equal to or above the estimated fair value of our common stock . no compensation expense was recorded for options issued to employees prior to january 1 , 2006. on january 1 , 2006 , we adopted sfas no . 123 ( r ) , share-based payment , which requires companies to expense the grant date fair value of employee stock options and other forms of share-based awards .
| as of december 31 , 2008 , the numbers of accounts live on our revenue cycle management service , athenacollector , increased by 305 accounts since december 31 , 2007. as of december 31 , 2008 , the numbers of accounts live on our clinical cycle management service , athenaclinicals , increased by 80 accounts since december 31 , 2007. the increase in implementation and other revenue is the result of the increase in the volume of our business . year ended december 31 , 2008 2007 change amount amount amount percent direct operating costs $ 58,799 $ 46,135 $ 12,664 27 % direct operating costs . direct operating costs for the year ended december 31 , 2008 , was $ 58.8 million , an increase of $ 12.7 million , or 27 % , over direct operating costs of $ 46.1 million for the year ended december 31 , 2007. this increase was primarily due to an increase in the number of claims that we processed on behalf of our clients and the related expense of providing services , including transactions expense and salary and benefits expense . the amount of collections processed for the year ended december 31 , 2008 , was $ 3.7 billion , which was 37 % higher than the $ 2.7 billion of collection processed for the year ended december 31 , 2007. the increase in collections increased at a higher rate than the increase in the related direct operating expense as we benefited from economies of scale . replace_table_token_7_th selling and marketing expense . selling and marketing expense for the year ended december 31 , 2008 , was $ 22.8 million , an increase of $ 5.6 million , or 33 % , over costs of $ 17.2 million for the year ended december 31 , 2007. this increase was primarily due to increases in internal and external commissions of $ 1.7 million , a $ 1.3 million increase in stock compensation expense , an increase in salaries and benefits of $ 2.3 million , and an increase in marketing-related expenses of $ 0.3 million . research and development expense .
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after-tax operating income available to arch common shareholders , a “ non-gaap measure ” as defined in the sec rules , represents net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method , net foreign exchange gains or losses and transaction costs and other , net of income taxes . management uses operating roae as a key measure of the return generated to arch common shareholders . see “ comment on non-gaap financial measures. ” our operating roae was 10.7 % for 2018 , compared to 5.7 % for 2017 and 9.4 % for 2016 . the higher operating roae for 2018 reflected strong mortgage insurance underwriting performance , while 2017 returns reflected a higher level of catastrophic loss activity . total return on investments total return on investments includes investment income , equity in net income or loss of investments accounted for using the equity method , net realized gains and losses and the change in unrealized gains and losses generated by arch 's investment portfolio . total return is calculated on a pre-tax basis and before investment expenses excluding amounts reflected in the ‘ other ' segment , and reflects the effect of financial market conditions along with foreign currency fluctuations . management uses total return on investments as a key measure of the return generated to arch common shareholders on the capital held in the business , and compares the return generated by our investment portfolio against benchmark returns which we measured our portfolio against during the periods . the following table summarizes the pre-tax total return ( before investment expenses ) of investment held by arch compared to the benchmark return ( both based in u.s. dollars ) against which we measured our portfolio during the periods : replace_table_token_9_th ( 1 ) our investment expenses were approximately 0.36 % , 0.30 % and 0.34 % , respectively , of average invested assets in 2018 , 2017 and 2016 . total return for our investment portfolio outperformed that of the benchmark return index in 2018 , reflecting strong performance from our alternative investments . excluding foreign exchange , total return was 1.13 % for 2018 , compared to 4.98 % for 2017 and 2.35 % for 2016 . total return for 2018 reflected the impact of rising interest rates and widening credit spreads , which dampened the total return on our investment grade fixed income portfolio , and negative returns on equities . the benchmark return index is a customized combination of indices intended to approximate a target portfolio by asset mix and average credit quality while also matching the approximate estimated duration and currency mix of our insurance and reinsurance liabilities . although the estimated duration and average credit quality of this index will move as the duration and rating of its constituent securities change , generally we do not adjust the composition of the benchmark return index except to incorporate changes to the mix of liability currencies and durations noted above . the benchmark return index should not be interpreted as expressing a preference for or aversion to any particular sector or sector weight . the index is intended solely to provide , unlike many master indices that change based on the size of their constituent indices , a relatively stable basket of investable indices . at december 31 , 2018 , the benchmark return index had an average credit quality of “ aa2 ” by moody 's , an estimated duration of 3.23 years . arch capital 57 2018 form 10-k the benchmark return index included weightings to the following indices : replace_table_token_10_th comment on non-gaap financial measures throughout this filing , we present our operations in the way we believe will be the most meaningful and useful to investors , analysts , rating agencies and others who use our financial information in evaluating the performance of our company . this presentation includes the use of after-tax operating income available to arch common shareholders , which is defined as net income available to arch common shareholders , excluding net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method , net foreign exchange gains or losses , transaction costs and other , loss on redemption of preferred shares and income taxes , and the use of annualized operating return on average common equity . the presentation of after-tax operating income available to arch common shareholders and annualized operating return on average common equity are non-gaap financial measures as defined in regulation g. the reconciliation of such measures to net income available to arch common shareholders and annualized return on average common equity ( the most directly comparable gaap financial measures ) in accordance with regulation g is included under “ results of operations ” below . we believe that net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method , net foreign exchange gains or losses , transaction costs and other and loss on redemption of preferred shares in any particular period are not indicative of the performance of , or trends in , our business . story_separator_special_tag although net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method and net foreign exchange gains or losses are an integral part of our operations , the decision to realize investment gains or losses , the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized gains or losses , the recognition of net impairment losses , the recognition of equity in net income or loss of investments accounted for using the equity method and the recognition of foreign exchange gains or losses are independent of the insurance underwriting process and result , in large part , from general economic and financial market conditions . furthermore , certain users of our financial information believe that , for many companies , the timing of the realization of investment gains or losses is largely opportunistic . in addition , net impairment losses recognized in earnings on our investments represent other-than-temporary declines in expected recovery values on securities without actual realization . the use of the equity method on certain of our investments in certain funds that invest in fixed maturity securities is driven by the ownership structure of such funds ( either limited partnerships or limited liability companies ) . in applying the equity method , these investments are initially recorded at cost and are subsequently adjusted based on our proportionate share of the net income or loss of the funds ( which include changes in the market value of the underlying securities in the funds ) . this method of accounting is different from the way we account for our other fixed maturity securities and the timing of the recognition of equity in net income or loss of investments accounted for using the equity method may differ from gains or losses in the future upon sale or maturity of such investments . transaction costs and other include advisory , financing , legal , severance , incentive compensation and other transaction costs related to acquisitions , including ugc . during the 2016 fourth quarter , transaction costs and other included non-recurring expenses related to a change in the our approach on the deferral of certain internal underwriting costs which are no longer being deferred . we believe that transaction costs and other , due to their non-recurring nature , are not indicative of the performance of , or trends in , our business performance . the loss on redemption of preferred shares related to the redemption of our series c preferred shares in september 2017 and january 2018 and had no impact on shareholders ' equity or cash flows . due to these reasons , we exclude net realized gains or losses , net impairment losses recognized in earnings , equity in net income or loss of investments accounted for using the equity method , net foreign exchange gains or losses , transaction costs and other and loss on redemption of preferred shares from the calculation of after-tax operating income available to arch common shareholders . in addition , income tax expense for 2017 included a $ 21.5 million charge arch capital 58 2018 form 10-k due to the revaluation of the company 's net deferred tax asset resulting from the reduction in the u.s. corporate income tax rate from 35 % to 21 % effective january 1 , 2018. due to the non-recurring nature of this item , we excluded it from after-tax operating income available to arch common shareholders . we believe that showing net income available to arch common shareholders exclusive of the items referred to above reflects the underlying fundamentals of our business since we evaluate the performance of and manage our business to produce an underwriting profit . in addition to presenting net income available to arch common shareholders , we believe that this presentation enables investors and other users of our financial information to analyze our performance in a manner similar to how management analyzes performance . we also believe that this measure follows industry practice and , therefore , allows the users of financial information to compare our performance with our industry peer group . we believe that the equity analysts and certain rating agencies which follow us and the insurance industry as a whole generally exclude these items from their analyses for the same reasons . our segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss before the contribution from the ‘ other ' segment . such measures represent the pre-tax profitability of our underwriting operations and include net premiums earned plus other underwriting income , less losses and loss adjustment expenses , acquisition expenses and other operating expenses . other operating expenses include those operating expenses that are incremental and or directly attributable to our individual underwriting operations . underwriting income or loss does not incorporate items included in our corporate ( non-underwriting ) segment . while these measures are presented in note 4 , “ segment information , ” to our consolidated financial statements in item 8 , they are considered non-gaap financial measures when presented elsewhere on a consolidated basis . the reconciliations of underwriting income or loss to income before income taxes ( the most directly comparable gaap financial measure ) on a consolidated basis and a subtotal before the contribution from the ‘ other ' segment , in accordance with regulation g , is shown in note 4 , “ segment information , ” to our consolidated financial statements in item 8. we measure segment performance for our three underwriting segments based on underwriting income or loss . we do not manage our assets by underwriting segment , with the exception of goodwill and intangible assets , and , accordingly , investment income and other non-underwriting related items are not allocated to each underwriting segment . for the ‘ other ' segment , performance is measured based on net income or loss .
| the simulation results noted above are informational only , and no assurance can be given that our ultimate losses will not be significantly different than the simulation results shown above , and such differences could directly and significantly impact earnings favorably or unfavorably in the period they are determined . we do not have significant exposure to pre-2002 liabilities , such as asbestos-related illnesses and other long-tail liabilities . it is difficult to provide meaningful trend information for certain liability/casualty coverages for which the claim-tail may be especially long , as claims are often reported and ultimately paid or settled years , or even decades , after the related loss events occur . any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors , including the fact that relatively limited historical information has been reported to us through december 31 , 2018 . mortgage operations supplemental information the mortgage segment 's insurance in force ( “ iif ” ) and risk in force ( “ rif ” ) were as follows at december 31 , 2018 and 2017 : replace_table_token_40_th ( 1 ) represents the aggregate dollar amount of each insured mortgage loan 's current principal balance . ( 2 ) includes participation in gse credit risk-sharing transactions and international insurance business . ( 3 ) represents the aggregate amount of each insured mortgage loan 's current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and or loss ratio caps for credit risk-sharing or reinsurance transactions . the insurance in force and risk in force for our u.s. primary mortgage insurance business by policy year were as follows at december 31 , 2018 : replace_table_token_41_th ( 1 ) represents the ending percentage of loans in default . arch capital 72 2018 form 10-k the insurance in force and risk in force for our u.s. primary mortgage insurance business by policy year were as follows at december 31 , 2017 : replace_table_token_42_th ( 1 ) represents the ending percentage of loans in default . the following tables provide supplemental disclosures on risk in force for our
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the company calculates core deposits as total deposits ( as reported on the consolidated statements of condition ) less certificates of deposit and brokered deposits . management believes core deposits is a useful measure to assess the company 's deposit base , including its potential volatility . replace_table_token_7_th 29 average core deposits . average core deposits are used by management to measure the portion of the company 's total deposits that management believes to be more stable and at a lower interest rate cost . the company calculates average core deposits as total deposits ( as disclosed on the average balance , interest and yield/rate analysis table ) less certificates of deposit . management believes core deposits is a useful measure to assess the company 's deposit base , including its potential volatility . replace_table_token_8_th 30 critical accounting policies critical accounting policies are defined as those that are reflective of significant judgments and uncertainties , and could potentially result in materially different results under different assumptions and conditions . in preparing the company 's consolidated financial statements , management is required to make significant estimates and assumptions that affect assets , liabilities , revenues , and expenses reported . actual results could materially differ from our current estimates , as a result of changing conditions and future events . several estimates are particularly critical and are susceptible to significant near-term change , including ( i ) the all ; ( ii ) accounting for acquisitions and the subsequent review of goodwill and intangible assets generated in an acquisition for impairment ; ( iii ) otti of investments ; ( iv ) income taxes ; and ( v ) accounting for defined benefit and postretirement plans . refer to note 1 of the consolidated financial statements for additional details of the company 's accounting policies , including new accounting standards recently adopted and those yet to be adopted . allowance for loan losses . management is committed to maintaining an all that is appropriate to absorb likely loss exposure in the loan portfolio . evaluating the appropriateness of the all is a key management function and one that requires the most significant amount of management estimates and assumptions . the all , which is established through a charge to the provision for credit losses , consists of two components : ( i ) a reduction to total gross loans in the asset section of the consolidated statements of condition , and ( ii ) the reserve for unfunded commitments included in other liabilities on the consolidated statements of condition . we regularly evaluate the all for adequacy by taking into consideration , among other factors , historical trends in charge-offs and delinquencies , overall risk characteristics and size of the portfolios , ongoing review of significant individual loans , trends in levels of watched or criticized assets , business and economic conditions , regulatory guidance , and other relevant factors . in determining the appropriate level of all , we use a methodology to systematically measure the amount of estimated loan loss exposure inherent in the loan portfolio . the methodology focuses on three key elements : ( i ) identification of loss allocations for specific loans , ( ii ) loss allocation factors for certain loan types based on credit grade and loss experience , and ( iii ) general loss allocations for other qualitative and environmental factors . loans for which a specific loss allocation may be required are identified and assessed at least quarterly by reviewing individual loans with an outstanding principal balance of $ 500,000 or more that are risk rated as substandard or doubtful and are on non-accrual status in accordance with our internal policy . we believe loans that meet the above criteria most often demonstrate the qualities and characteristics of an impaired loan and are individually significant enough to the company to warrant individual assessment . once a loan is deemed to be impaired , an allowance may be established to reduce its net carrying value to its estimated value , if the estimated value of an impaired loan is lower than its recorded investment . the estimated value of an impaired loan is determined using one of three methods : ( i ) calculating the present value of expected future cash flows discounted at the loan 's effective interest rate ( i.e . discounted cash flow method ) ; ( ii ) the loan 's observable market price ; or ( iii ) the fair value of the collateral if the loan is collateral dependent and repayment of the loan is expected to be provided solely by the underlying collateral . the remaining loan portfolio is separated into risk pools by portfolio segment and subject to a general reserve factor . at least annually , we reassess and revise the loss allocation factor used in constructing the reserve for each risk pool . the factors we consider in constructing each risk pool include : ( i ) risk rating ; ( ii ) historical losses ; ( iii ) market conditions ; and ( iv ) other economic factors . in assessing the risk rating of a particular loan , we consider , among other factors , the obligor 's debt capacity , financial condition , the level of the obligor 's earnings , the amount and sources of repayment , the performance with respect to loan terms , the adequacy of collateral , the level and nature of contingent liabilities , management strength , and the industry in which the obligor operates . these factors are based on an evaluation of historical information , as well as a subjective assessment and interpretation of current conditions . emphasizing one factor over another , or considering additional factors that may be relevant in determining the risk rating of a particular loan but which are not currently an explicit part of our methodology , could impact the risk rating assigned to that loan . story_separator_special_tag three times a year , management conducts a thorough review of adversely risk rated commercial and commercial real estate exposures exceeding certain thresholds to re-evaluate the risk rating and identify impaired loans . this extensive review takes into account the obligor 's repayment history and financial condition , collateral value , guarantor support , local economic and industry trends , and other factors relevant to the particular loan relationship . 31 because the methodology is based upon historical experience and trends , and significant judgments , there are factors that may arise that result in different estimations . significant factors that could give rise to changes in these estimates may include , but are not limited to , changes in economic conditions in our market area , concentration of risk , declines in local property values , and the results of regulatory examinations . as of december 31 , 2019 , the recorded all of $ 25.2 million represents our best estimate , however , under adversely different conditions or assumptions the all may need to be increased . the all is reviewed on a monthly basis to assess recent asset quality trends and impact on the company 's financial condition . the all is reviewed and approved on a quarterly basis at each of the bank 's board of directors meetings . the company will adopt the new accounting standard for credit losses , asu no . 2016-13 , financial instruments - credit losses ( topic 326 ) : measurement of credit losses on financial instruments , as amended , effective january 1 , 2020. this new accounting standard , commonly referred to as `` cecl , '' significantly changes the company 's accounting for reserves on loans , unfunded loan commitments , and certain guarantees , as well as introduces the consideration for establishment of a reserve on htm investments . under cecl , companies are required to estimate future credit losses over the contractual life of certain assets , adjusted for expected prepayments , including homogeneous pools of loans and htm investments , as well as establish reserves for unfunded loan commitments and certain guarantees . cecl became effective for the company on january 1 , 2020. the initial adjustment will not be reported in net income , but as a cumulative-effect adjustment to retained earnings . we have worked steadily over the past several years in anticipation of our implementation of cecl , which included : ( i ) the creation of an internal project team comprised of members from credit risk , accounting , treasury , operations , information technology and internal audit ; ( ii ) engaging third party consultants to assist with internal data validation , cecl software implementation , review of the control framework design , including review and changes to our overall governance structure for cecl oversight , and other general consultative matters ; and ( iii ) performing parallel calculations and analyzing differences between today 's incurred model and cecl . the company has performed a parallel calculation as of december 31 , 2019 and is in the process of finalizing its calculation , internal cecl policy and internal controls framework . based on our fourth quarter parallel calculation , we believe that the adoption of cecl will result in an immaterial impact to the company 's retained earnings and the company and bank 's regulatory capital ratios as of january 1 , 2020. the company and bank will continue to exceed regulatory guidelines , and the bank 's capital ratios will meet the requirements for it to be considered `` well capitalized '' under prompt correct action . as such , the company does not anticipate adopting the transition relief provided by the regulatory agencies for regulatory capital purposes . the company expects that cecl may create more volatility in the level of allowance for credit losses from quarter to quarter as changes in the level of allowance for credit losses will be dependent upon , among other things , macroeconomic forecasts and conditions , loan portfolio volumes and credit quality . refer to note 1 of the consolidated financial statements for further details on cecl . purchase price allocation and impairment of goodwill and identifiable intangible assets . we record all acquired assets and liabilities at fair value , which is an estimate determined by the use of internal valuation techniques . we also may engage external valuation services to assist with the valuation of material assets and liabilities acquired , including , but not limited to , loans , core deposit intangibles and or other intangible assets , real estate and time deposits . as part of purchase accounting , we typically acquire goodwill and other intangible assets as part of the purchase price . these assets are subject to ongoing periodic impairment tests under differing accounting models . we did not acquire any other company or assets for the year ended december 31 , 2019 or 2018. goodwill impairment evaluations are required to be performed at least annually , but may be required more frequently if certain conditions indicate a potential impairment may exist . our policy is to perform the goodwill impairment analysis annually as of november 30 th , or more frequently as warranted . the goodwill impairment evaluation is required to be performed at the reporting unit level and is performed using the two-step process outlined in asc 350-20 , goodwill ( `` asc 350-20 '' ) . as of november 30 , 2019 , we assessed goodwill for impairment at the consolidated company-level as the company 's operating segment was also its only reporting unit . we used the qualitative analysis ( i.e . `` step zero '' ) outlined in asc 350-20 to test goodwill for impairment , and considered such factors as the macroeconomic environment ; overall industry environment and performance ; company specific factors , including , but not limited to , competition , performance and personnel . through completion of our analysis , we concluded it was not more-likely-than-not that the company 's carrying value exceeded its fair value .
| two halves . interest rate momentum in 2018 , which included four federal fund rate increases for a total of 100 basis points , carried forward into the first half of 2019. for the first half of 2019 , the average federal funds effective rate was 2.40 % , and the average 10-year u.s. treasury rate was 2.48 % , including a rate range during this period of 2.00 % – 2.79 % . in the second half of 2019 , the federal funds rate was cut three times for a total of 75 basis points . by the end of 2019 , the federal funds effective rate was 1.55 % , and the average 10-year u.s. treasury rate for the second half of 2019 was 1.79 % , including a range during this period of 1.47 % – 2.13 % . our interest-earning asset yield for 2019 was 4.15 % , an increase of 18 basis points over 2018. loan yields increased 16 basis points to 4.65 % for 2019 , and cash and investment yields increased 18 basis points to 2.60 % for 2019. the increase in loan yields was driven by strong net loan growth for the 12-months leading up to june 30 , 2019 of $ 232.8 million , or 8 % , in the period in which interest rates were rising . however , as interest rates decreased in the second half of 2019 , new loans were priced at lower yields and existing loans re-priced to lower yields , causing our loan yield to steadily decrease throughout the second half of 2019. the increase in our yield on cash and investments year over year was attributable to various investment portfolio restructuring activities we completed in 2018 and 2019 , and continued re-investment of cash flows into higher yielding securities , which included increasing the duration of our debt investments portfolio . refer to `` —financial condition—investments `` for additional details . our cost of funds for 2019 was 1.05 % , an increase of
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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 . accordingly , we will need to raise additional capital prior to the commercialization of dkn-01 , trx518 or any other product candidate . until such time , if ever , as we can generate substantial revenue from product sales , we expect to finance our operating activities through a combination of equity offerings , debt financings , government or other third-party funding , commercialization , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements . however , we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates . as of december 31 , 2018 , we had cash and cash equivalents of $ 16.3 million . on february 5 , 2019 , we completed a public offering whereby we issued 7,557,142 shares of our common stock and warrants to purchase 7,557,142 shares of our common stock at a price of $ 1.75 per unit , which included 985,714 shares and warrants to purchase 985,714 shares issued pursuant to the underwriters ' exercise of their option to purchase additional securities . the aggregate net proceeds received by us from the offering were approximately $ 12.1 million , net of underwriting discounts and commissions and estimated offering expenses . we believe that our cash and cash equivalents as of december 31 , 2018 , together with the net proceeds from the february 2019 public offering and the anticipated receipt of $ 0.8 million of research and development tax incentive payments , representing the applicable percentage of our expected eligible expenses net of our current australia tax liability , will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from issuance of the financial statements included in this annual report on form 10-k. see `` liquidity and capital resources . '' financial overview research and development expenses our research and development activities have included conducting nonclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings for dkn-01 and trx518 . we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and related overhead expenses for personnel in research and development functions , including costs related to stock-based compensation ; fees paid to consultants and cros for our nonclinical and clinical trials , and other related clinical trial fees , including but not limited to laboratory work , clinical trial database management , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials ; and costs related to compliance with regulatory requirements . we plan to increase our research and development expenses for the foreseeable future as we continue the development of dkn-01 , trx518 and any other product candidates , subject to the availability of additional funding . 73 our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs , such as employee costs , including salaries and stock-based compensation , other internal costs , fees paid to consultants , central laboratories , contractors and cros in connection with our clinical and preclinical trial development activities . we use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities . we participate , through our subsidiary in australia , in the australian government 's r & d incentive program , such that a percentage of our eligible research and development expenses are reimbursed by the australian government as a refundable tax offset and such incentives are reflected as other income . the percentage was 43.5 % for both the years ended december 31 , 2018 and 2017. the table below summarizes our research and development expenses incurred by development program and the r & d incentive income for the years ended december 31 , 2018 and 2017 : replace_table_token_2_th the successful development of our clinical 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 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 developing drugs , 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 ; future clinical trial results ; and the timing and receipt of any regulatory approvals . a change in the outcome of any of these variables with respect to the development of a product candidate could result in 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 on the completion of clinical development . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs , including stock-based compensation , for personnel in executive , finance and administrative functions . story_separator_special_tag general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal , patent , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product 74 candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance , director and officer insurance costs as well as investor and public relations expenses associated with being a public company . interest income interest income consists primarily of interest income earned on cash and cash equivalents . during the years ended december 31 , 2018 and 2017 , interest income was $ 0.4 million and $ 0.2 million , respectively . interest expenserelated party interest expenserelated party consists of interest accrued on notes payablerelated party that we issued during 2017 and prior to december 31 , 2016 , the outstanding amounts of which were due on march 31 , 2017. on january 20 , 2017 , prior and subject to the consummation of our merger with macrocure , all of our notes payable and accrued interest were converted into 1,950,768 shares of common stock . research and development incentive income research and development incentive income includes payments under the r & d incentive program from the government of australia . the r & d incentive is one of the key elements of the australian government 's support for australia 's innovation system . it was developed to assist businesses to recover some of the costs of undertaking research and development . the research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities . companies engaged in research and development may be eligible for either : a 43.5 % refundable tax offset for entities with an aggregated turnover of less than a $ 20 million per annum , or a 38.5 % non-refundable tax offset for all other entities . we recognize as other income the amount we expect to be reimbursed for qualified expenses . foreign currency translation adjustment foreign currency translation adjustment consists of gains ( losses ) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our australian subsidiary . income taxes since our inception , we have not recorded any u.s. federal , state or foreign income tax benefits for the net losses we have incurred in each year , due to our uncertainty of realizing a benefit from those items . as of december 31 , 2018 , we had federal , state and foreign net operating loss carryforwards of $ 106.9 million , $ 87.9 million and $ 69.9 million , respectively . the federal and state net operating losses begin to expire in 2030 , while the foreign net operating losses carryforward indefinitely . our federal net operating losses include $ 25.6 million which can be also carried forward indefinitely . we may be able to utilize our net operating loss carryforwards to reduce future federal and state income tax liabilities . however , these net operating losses are subject to various limitations under internal revenue code ( `` irc '' ) section 382 , which limits the use of net operating loss carryforwards to the extent there has been an ownership change of more than 50 percentage points . in addition , the net operating loss carryforwards are subject to examination by the taxing authorities and could be adjusted 75 or disallowed due to such exams . although we have not undergone an irc section 382 analysis , it is possible that the utilization of our net operating loss carryforwards may be limited . as of december 31 , 2018 , we also had federal and state research and development tax credit carryforwards of $ 2.8 million and $ 0.5 million , respectively , which begin to expire in 2030. there is no provision for income taxes in the united states or israel , because we have historically incurred operating losses and maintain a full valuation allowance against our deferred tax assets in these jurisdictions . the deferred tax asset recorded in the consolidated balance sheets relates to our australian operations . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses during the reporting periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 2 to our consolidated financial statements appearing elsewhere in this report , we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations . accrued research and development expenses as part of the process of preparing consolidated financial statements , we are required to estimate accrued research and development expenses . this process involves communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost .
| interest income we recorded interest income of $ 0.4 million and $ 0.2 million , respectively , for the years ended december 31 , 2018 and 2017. the increase in interest income is primarily due to a higher average cash balance during the year ended december 31 , 2018 as compared to 2017. interest expenserelated party we recorded interest expenserelated party of $ 0.1 million for the year ended december 31 , 2017 related to borrowings under our note payablerelated party . on january 20 , 2017 , in connection with and prior to the completion of the merger with macrocure , the outstanding note payable and accrued interest was converted into 1,950,768 shares of common stock . we did not record any interest expenserelated party for the year ended december 31 , 2018. australian research and development incentives we recorded r & d incentive income of $ 0.8 million and $ 1.7 million for the years ended december 31 , 2018 and 2017 , respectively , based upon the applicable percentage of eligible research and development activities under the australian incentive program , net of our australia tax liability , which expenses included the cost of manufacturing of clinical trial material . we perform certain supporting research and development activity outside of australia when there are no australian facilities that support the activity ( `` overseas research and development activities '' ) . in october 2017 , the commonwealth of australia issued us a favorable ruling on our overseas research and development activities , considering such activities to be eligible research and development activities under the australian incentive program . as such , we recorded $ 0.7 million of r & d incentive income during the year ended december 31 , 2017 for our overseas research and development activities performed during the year ended december 31 , 2016. during the year ended december 31 , 2018 , we received $ 0.7 million of research and development tax incentive payments from the commonwealth of australia as a result of the 2016 overseas research and development activities of our australian subsidiary , hcp australia and $ 0.8 million of research and development tax incentive payments as a result of the 2017 research and development activites . during the year ended december 31 , 2017 ,
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additionally , other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses . we believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements , which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in “ note 2 – summary of significant accounting policies ” to our consolidated financial statements . goodwill impairment we evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value , by reporting unit , may not be recoverable . the risks and uncertainties involved in applying the principles related to goodwill impairment include , but are not limited to , the following : we estimate the fair value of the reporting units , which we have determined is the same as our reportable segments , using discounted cash flows and relevant competitor multiples . we monitor factors that may impact the fair value including market comparable company multiples , interest rates and global economic conditions . we use a combined income and market approach in evaluations for potential impairment , which requires management to make key assumptions related to revenue growth rate , cash flow assumptions , discount rate and selection of comparable companies . see note 10 – fair value measures for discussion regarding our sensitivity analysis performed around these assumptions . intangible asset impairment the company evaluates intangible assets for impairment when an event occurs or circumstances change that indicate the carrying value may not be recoverable . the risks and uncertainties involved in applying the principles related to intangible impairment include , but are not limited to , the following : we estimate fair value using a discounted cash flow model specific to the applicable managed reits . we monitor factors that could impact fair value including the ability to timely reinstate certain selling agreements , timing of and aggregate capital raised and deployed on behalf of the managed reits , the actual timing of closing an offering or executing a liquidity event on behalf of a managed reit and operations of future managed real estate programs . we utilized the income approach in evaluation for impairment , which requires management to make key assumptions related to future cash flows and a discount rate . see note 10 – fair value measures for discussion regarding our sensitivity analysis performed around these assumptions . real estate investment impairment we invest in real estate assets and subsequently monitor those investments quarterly for impairment , including the review of real estate properties subject to direct financing leases . additionally , we record depreciation and amortization related to our investments . the risks and uncertainties involved in applying the principles related to real estate investments include , but are not limited to , the following : the estimated useful lives of our depreciable assets affects the amount of depreciation and amortization recognized on our investments . the review of impairment indicators and subsequent determination of the undiscounted future cash flows could require us to reduce the value of assets and recognize an impairment loss . the fair value of held for sale assets is estimated by management . this estimated value could result in a reduction of the carrying value of the asset . changes in assumptions based on actual results may have a material impact on the company 's financial results . 37 loans held for investment impairment we evaluate loans held for investment on a quarterly basis . as a first step in the notes receivable impairment process , we must determine , based on current information and events , if it is probable that we will be unable to collect the amounts due in accordance with the loan agreement . the risks and uncertainties involved in applying the principles related to notes receivable include , but are not limited to , the following : evaluating the financial condition and other current obligations of the borrower involve judgment in assessing their liquidity and financial stability . program development costs we assess the collectability of the program development costs , considering the offering period and historical and forecasted sales of shares under the managed reits ' respective offerings and reserve for any balances considered not collectible . additional reserves are generally recorded if actual proceeds raised from the offerings and corresponding program development costs incurred differ from management 's assumptions.the risks and uncertainties involved in applying the principles related to program development costs include , but are not limited to , the following : estimating recoverability for each program which involves an analysis of expected reimbursement revenue and projected organization and offering costs . utilizing assumptions to calculate impairment charges related to goodwill and impairment , as discussed above . assessing the impact of the change in calculations of recoverability percentages . consolidation of equity investments we hold equity investments in unconsolidated joint ventures and each of the managed reits and account for these investments using the equity method of accounting as we have the ability to exercise significant influence , but not control , over operating and financial policies of these investments . we must continually evaluate these and other non-controlling interests for consolidation based on standards set forth in u.s. gaap . for legal entities being evaluated , we must first determine whether the interests that we hold and fees we receive qualify as variable interests in the entity , as discussed in “ note 2 – summary of significant accounting policies ” to our consolidated financial statements . the difference between consolidating the vie and accounting for it using the equity method could be material to the company 's consolidated financial statements . story_separator_special_tag the risks and uncertainties involved in applying the principles related to equity investments include , but are not limited to , the following : consideration for variable interest entities involves determining their ability to finance their operations without additional subordinated financial support , whether the equity holders lack the characteristic of controlling financial interest , or whether the entity is established with non-substantive voting rights . we perform significance calculations based on investments , total assets and income , on an individual basis or on an aggregated basis , by any combination of unconsolidated subsidiaries and equity-method investees . allocation of purchase price of business combinations , including acquired properties in connection with our acquisition of properties , we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their respective estimated fair values . tangible assets consist of land , buildings , fixtures and tenant improvements . intangible assets consist of above- and below- market lease values and the value of in-place leases . our purchase price allocations are developed utilizing third-party appraisal reports , industry standards and management experience . the risks and uncertainties involved in applying the principles related to purchase price allocations include , but are not limited to , the following : the value allocated to land as opposed to buildings , fixtures and tenant improvements affects the amount of depreciation expense we record . if more value is attributed to land , depreciation expense is lower than if more value is attributed to buildings , fixtures and tenant improvements ; intangible lease assets and liabilities can be significantly affected by estimates , including market rent , lease term including renewal options at rental rates below estimated market rental rates , carrying costs of the property during a hypothetical expected lease-up period , and current market conditions and costs , including tenant improvement allowances and rent concessions ; and we determine whether any financing assumed is above- or below- market based upon comparison to similar financing terms for similar investment properties . 38 income taxes as a reit , the general partner generally is not subject to federal income tax , with the exception of its trs entities . however , the general partner , including its trs entities , and the operating partnership are still subject to certain state and local income and franchise taxes in the various jurisdictions in which they operate . we provide for income taxes in accordance with current authoritative accounting and tax guidance . the tax provision or benefit related to significant or unusual items is recognized in the quarter in which those items occur . in addition , the effect of changes in enacted tax laws , rates or tax status is recognized in the quarter in which the change occurs . the risks and uncertainties involved in applying the principles related to income taxes include , but are not limited to , the following : our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in the application of complex tax laws and regulations across the tax jurisdictions where we operate ; we file income tax returns in the u.s. federal jurisdiction , the canadian federal jurisdiction and various state and local jurisdictions , and are subject to routine examinations by the respective tax authorities . we may be challenged upon review by the applicable taxing authorities , and positions we have taken may not be sustained ; and the accounting estimates used to compute the provision for or benefit from income taxes may change as new events occur , additional information is obtained or the tax environment changes . recently issued accounting pronouncements recently issued accounting pronouncements are described in “ note 2 – summary of significant accounting policies ” to our consolidated financial statements . operating highlights and key performance indicators 2015 activity disposed of 228 properties , including two properties owned by consolidated joint ventures , and its interest in one consolidated joint venture , whose only assets consisted of investments in three unconsolidated joint ventures , for aggregate sales price of $ 1.5 billion , of which our share was $ 1.4 billion based on our ownership interest in the respective consolidated joint ventures , resulting in consolidated proceeds of $ 1.0 billion after disposition fees and debt assumptions . decreased outstanding mortgage loans through property dispositions , mortgage loan maturities and monthly principal payments by $ 651.4 million during the year ended december 31 , 2015 , bringing the outstanding principal amount of mortgage loans to $ 3.0 billion at december 31 , 2015 . reduced the maximum capacity under the credit facility from $ 3.6 billion to $ 3.3 billion and reduced our minimum unencumbered asset value ( as defined in the credit agreement ) from $ 10.5 billion to $ 8.0 billion . paid down $ 1.8 billion on the revolving credit facility during the year ended december 31 , 2015 , bringing the outstanding principal balance to $ 0.5 billion at december 31 , 2015 . declared a quarterly dividend of $ 0.1375 per share of common stock for the third and fourth quarters of 2015 , representing an annualized dividend rate of $ 0.55 per share . real estate portfolio metrics in managing our portfolio , we are committed to diversification by property type , tenant , geography and industry . below is a summary of our property type diversification and our top ten concentrations as of december 31 , 2015 , based on annualized rental income of $ 1.3 billion for the year ended december 31 , 2015 . 39 our financial performance is influenced by the timing of acquisitions and dispositions and the operating performance of our real estate properties . the following table shows the property statistics of our real estate assets , excluding properties owned through our unconsolidated joint ventures as of december 31 , 2015 : 40 replace_table_token_3_th ( 1 ) economic occupancy rate equals the sum of square feet leased ( including month-to-month ) divided by total square feet .
| convertible debt summary and obligations on july 29 , 2013 , the company issued $ 300.0 million aggregate principal amount of convertible senior notes due 2018 ( the “ 2018 convertible notes ” ) and , pursuant to an over-allotment exercise by the underwriters of such 2018 convertible notes offering , issued an additional $ 10.0 million aggregate principal amount of its 2018 convertible notes on august 1 , 2013. on december 10 , 2013 , the company issued an additional $ 287.5 million of the 2018 convertible notes through a reopening of the indenture governing the 2018 convertible notes . also on december 10 , 2013 , the company issued $ 402.5 million aggregate principal amount of convertible senior notes due 2020 ( the “ 2020 convertible notes and together with the 2018 convertible notes , the “ convertible notes ” ) . the 2018 convertible notes have a weighted average interest rate of 3.00 % , a conversion rate of 60.5997 and mature on 55 august 1 , 2018 and the 2020 convertible notes have a weighted average interest rate of 3.75 % , a conversion rate of 66.7249 and mature on december 15 , 2020. the convertible notes are convertible into cash or shares of the company 's common stock at the company 's option . there were no changes to the terms of our convertible notes during the year ended december 31 , 2015 . mortgage notes payable and other debt summary and obligations as of december 31 , 2015 , we had non-recourse mortgage indebtedness of $ 3.0 billion , which was collateralized by 654 properties , reflecting a decrease from december 31 , 2014 of $ 649.9 million derived primarily from our disposition activity during the period from january 1 , 2015 to december 31 , 2015. our mortgage indebtedness bore interest at the weighted-average rate of 5.08 % per annum and had a weighted-average maturity of 5.1 years . we may in the future incur additional mortgage debt on the properties we currently own or use long-term non-recourse financing to acquire additional properties . the payment terms of our loan obligations vary . in general , only interest amounts are payable monthly with all unpaid principal and interest due at maturity . some of our loan agreements require that we comply with specific reporting and financial covenants mainly related to debt coverage ratios and loan-to-value ratios . each loan that has these requirements has specific ratio thresholds that must be met . as of december 31 , 2015 , the company believes that it was in compliance with the debt covenants under
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management evaluates the long-lived assets on an ongoing basis and records an impairment charge when there is an indicator of impairment . the estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions . the estimates consider matters such as current and historical rental rates , occupancies for the respective and or comparable properties , and recent sales data for comparable properties . changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses , which , under the applicable accounting guidance , could be substantial . recent accounting pronouncements on january 1 , 2011 , we adopted asu no . 2010-29 , disclosure of supplementary pro forma information for business combinations. this accounting standard requires that if a public entity presents comparative financial statements , the entity should disclose revenue and earnings of the combined entity as though the business combination ( s ) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only . this accounting standard expands the supplemental pro forma disclosures under fasb asu topic 805 , business combinations to include a description of the nature and amount of material , nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings . the adoption of this standard did not have a material effect on our consolidated financial statements . in december 2011 , the fasb issued an accounting standard classified under fasb asc topic 360 , property , plant , and equipment. this accounting standard amends existing guidance to resolve the diversity in practice about whether the guidance for real estate sales applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary 's nonrecourse debt . this accounting standard is effective for fiscal years , and interim periods with those years , beginning on or after june 15 , 2012. management is currently evaluating the impact that these standards may have on our consolidated financial statements . subsequent events sale of preferred stock on january 4 , 2012 , we issued and sold 125 shares of our newly designated 12.5 % series a cumulative non-voting preferred stock , $ 0.01 par value per share , which we refer to as the series a preferred stock , for a purchase price of $ 1,000 per share , or $ 125,000 in the aggregate , to 125 accredited investors who are not affiliated with us . we intend to qualify and elect to be taxed as a reit beginning with the taxable year ending december 31 , 2011. one requirement we must meet to qualify as a reit is that 100 or more persons must own our outstanding shares of capital stock during at least 335 days of a taxable year of 12 months , other than our first reit taxable year . we expect that the sale of our series a preferred stock will ensure that we can meet this requirement . in connection with our sale of the series a preferred stock , our operating partnership created a series of 125 preferred units of the operating partnership designated as 12.5 % series a preferred units , which we refer to as the series a preferred units . the series a preferred units rank senior to all other equity securities issued by our operating partnership and have preferential rights with respect to distributions , liquidation and redemption . promptly after the closing of our sale of the series a preferred stock to our sponsor , we contributed the proceeds from such sale to our operating partnership in exchange for 125 series a preferred units . declaration of distributions on february 15 , 2012 , our board of directors authorized and declared distributions on our series a preferred stock for the quarterly period ending on march 31 , 2012. the distributions will be payable to the holders of the series a preferred stock of record at a rate of $ 0.34153005 per day , which is an amount that is equivalent to a 12.5 % annualized distribution rate based on a share price of $ 1,000.00. the distributions will be aggregated and paid in cash on july 29 , 2012 , pursuant to the requirements of our charter . on february 15 , 2012 , our board of directors authorized and declared distributions on our common stock for the months of january , february and march 2012. the distributions will be payable to the holders of our common stock of record at a rate of $ 0.00163934 per day , which is an amount that is equivalent to a 6.0 % annualized distribution rate based on a share price of $ 10.00. the distributions for each month will be aggregated and paid on or before the fifteenth day following the completion of each respective month . all distributions will be paid in cash or reinvested in stock for those participating in our distribution reinvestment plan . status of our public offering and sale of common stock to our sponsor pursuant to the terms of our offering , which we commenced our offering on june 10 , 2011 , we are required to terminate the offering and promptly return investors ' subscription payments , with interest , in the event that we do not sell a minimum of $ 2,500,000 in shares of our common stock . on february 29 , 2012 , we satisfied the minimum offering amount as a result of our sale of $ 3,000,000 in shares of our common stock for $ 10.00 per share in our offering to a wholly owned subsidiary of our sponsor in exchange for cash story_separator_special_tag management evaluates the long-lived assets on an ongoing basis and records an impairment charge when there is an indicator of impairment . the estimated cash flows used for the impairment analysis and the determination of estimated fair value are based on our plans for the respective assets and our views of market and economic conditions . the estimates consider matters such as current and historical rental rates , occupancies for the respective and or comparable properties , and recent sales data for comparable properties . changes in estimated future cash flows due to changes in our plans or views of market and economic conditions could result in recognition of impairment losses , which , under the applicable accounting guidance , could be substantial . recent accounting pronouncements on january 1 , 2011 , we adopted asu no . 2010-29 , disclosure of supplementary pro forma information for business combinations. this accounting standard requires that if a public entity presents comparative financial statements , the entity should disclose revenue and earnings of the combined entity as though the business combination ( s ) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only . this accounting standard expands the supplemental pro forma disclosures under fasb asu topic 805 , business combinations to include a description of the nature and amount of material , nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings . the adoption of this standard did not have a material effect on our consolidated financial statements . in december 2011 , the fasb issued an accounting standard classified under fasb asc topic 360 , property , plant , and equipment. this accounting standard amends existing guidance to resolve the diversity in practice about whether the guidance for real estate sales applies to a parent that ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary 's nonrecourse debt . this accounting standard is effective for fiscal years , and interim periods with those years , beginning on or after june 15 , 2012. management is currently evaluating the impact that these standards may have on our consolidated financial statements . subsequent events sale of preferred stock on january 4 , 2012 , we issued and sold 125 shares of our newly designated 12.5 % series a cumulative non-voting preferred stock , $ 0.01 par value per share , which we refer to as the series a preferred stock , for a purchase price of $ 1,000 per share , or $ 125,000 in the aggregate , to 125 accredited investors who are not affiliated with us . we intend to qualify and elect to be taxed as a reit beginning with the taxable year ending december 31 , 2011. one requirement we must meet to qualify as a reit is that 100 or more persons must own our outstanding shares of capital stock during at least 335 days of a taxable year of 12 months , other than our first reit taxable year . we expect that the sale of our series a preferred stock will ensure that we can meet this requirement . in connection with our sale of the series a preferred stock , our operating partnership created a series of 125 preferred units of the operating partnership designated as 12.5 % series a preferred units , which we refer to as the series a preferred units . the series a preferred units rank senior to all other equity securities issued by our operating partnership and have preferential rights with respect to distributions , liquidation and redemption . promptly after the closing of our sale of the series a preferred stock to our sponsor , we contributed the proceeds from such sale to our operating partnership in exchange for 125 series a preferred units . declaration of distributions on february 15 , 2012 , our board of directors authorized and declared distributions on our series a preferred stock for the quarterly period ending on march 31 , 2012. the distributions will be payable to the holders of the series a preferred stock of record at a rate of $ 0.34153005 per day , which is an amount that is equivalent to a 12.5 % annualized distribution rate based on a share price of $ 1,000.00. the distributions will be aggregated and paid in cash on july 29 , 2012 , pursuant to the requirements of our charter . on february 15 , 2012 , our board of directors authorized and declared distributions on our common stock for the months of january , february and march 2012. the distributions will be payable to the holders of our common stock of record at a rate of $ 0.00163934 per day , which is an amount that is equivalent to a 6.0 % annualized distribution rate based on a share price of $ 10.00. the distributions for each month will be aggregated and paid on or before the fifteenth day following the completion of each respective month . all distributions will be paid in cash or reinvested in stock for those participating in our distribution reinvestment plan . status of our public offering and sale of common stock to our sponsor pursuant to the terms of our offering , which we commenced our offering on june 10 , 2011 , we are required to terminate the offering and promptly return investors ' subscription payments , with interest , in the event that we do not sell a minimum of $ 2,500,000 in shares of our common stock . on february 29 , 2012 , we satisfied the minimum offering amount as a result of our sale of $ 3,000,000 in shares of our common stock for $ 10.00 per share in our offering to a wholly owned subsidiary of our sponsor in exchange for cash
| we believe our available cash balances , other financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months . we expect to raise capital in our offering , increase our borrowings and make future acquisitions , which would have a significant impact on our future results of operations . in general , we expect that our income and expenses related to our portfolio will increase in future periods as a result of anticipated future acquisitions of real estate . should our liquidity needs exceed our available sources of liquidity , we believe that we could sell assets to raise additional cash . we may not be able to obtain additional financing when we desire to do so or on terms and conditions acceptable to us . if we fail to obtain additional financing , our ability to maintain or grow our business will be constrained . our primary cash requirements are to : make investments and fund the associated costs ; repay our indebtedness ; pay our operating and organization and offering expenses , including fees paid to our advisor and jupiter communites , llc , our property manager ; fund repurchases of shares pursuant to our share repurchase program ; and distribute a minimum of 90 % of our reit taxable income and to make investments in a manner that enables us to maintain our qualification as a reit . we intend to meet these liquidity requirements primarily through : the use of our cash and cash equivalent balances of $ 1.1 million as of december 31 , 2011 ; cash generated from operating activities ; proceeds from the sale of our common stock pursuant to our offering and our distribution reinvestment plan ; and proceeds from future borrowings . 35 cash flows as of december 31 , 2011 and 2010 , we maintained cash and cash equivalents of approximately $ 1.1 million and $ 0.2
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this information is not necessarily indicative of results of future operations , and should be read in conjunction with part i , item 1a , “ risk factors , ” part ii , item 7 , “ management 's discussion and analysis of financial condition and results of operations ” and the consolidated financial statements and accompanying notes 27 thereto included in part ii , item 8 of this annual report to fully understand factors that may affect the comparability of the information presented below . replace_table_token_1_th full-year 2019 compared to full-year 2018 consolidated revenue grew 18.2 % to $ 129.9 million . gross margin grew 30.1 % to $ 43.5 million . gross margin percentage improved 3.1 % to 33.5 % of revenue . total operating expenses grew 22.1 % to $ 26.4 million and represented 20.3 % of total consolidated revenue . income tax expense grew 7.1 % to $ 3.0 million . the effective income tax rate was 17.4 % . net income grew 60.5 % to $ 14.0 million and represented 10.8 % of total revenue . earnings per share was $ 0.51 compared with $ 0.32 in 2018 . key business metric - non-gaap financial measures our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets . we believe that the most important measure to the company is earnings before interest , taxes , depreciation , and amortization ( “ ebitda ” ) . ebitda is a non-gaap financial measure . we believe ebitda provides helpful information with respect to our operating performance as viewed by management , including a view of our business that is not dependent on ( i ) the impact of our capitalization structure and ( ii ) items that are not part of our day-to-day operations . management uses ebitda ( 1 ) to compare our operating performance on a consistent basis , ( 2 ) to calculate incentive compensation for our employees , ( 3 ) for planning purposes including the preparation of our internal annual operating budget , ( 4 ) to evaluate the performance and effectiveness of our operational strategies , and ( 5 ) to assess compliance with various metrics associated with the agreements governing our indebtedness . accordingly , we believe that ebitda provides useful information in understanding and evaluating our operating performance in the same manner as management . we define ebitda as net income plus ( a ) total depreciation and amortization , ( b ) interest expense , net , and ( c ) income tax expense . 28 the following table is a reconciliation of net income to ebitda for the years ended december 31 , replace_table_token_2_th use of non-gaap financial measures ebitda should be considered in addition to , not as a substitute for , or superior to , financial measures calculated in accordance with gaap . it is not a measurement of our financial performance under gaap and should not be considered as alternatives to revenue or net income , as applicable , or any other performance measures derived in accordance with gaap and may not be comparable to other similarly titled measures of other businesses . ebitda has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our operating results as reported under gaap . ebitda does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations ; and other companies in our industry may calculate ebitda differently than we do , limiting their usefulness as comparative measures . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; color : # 000000 ; '' > the year ended december 31 , 2018 and represented 26.6 % and 22.9 % of total product revenue for the years ended december 31 , 2019 and 2018 , respectively . the increases in product gross margin percentages were primarily due to a lower percentage of sales to lower margin distributors ( primarily our china distributor ) and improvements in product costs and operating leverage . service gross margin increased approximately $ 2.0 million for the year ended december 31 , 2019 , and represented 76.8 % and 80.4 % of total service revenue for the years ended december 31 , 2019 and 2018 , respectively . the decrease in service gross margin percentage for these periods versus the prior year periods was primarily due to a higher percentage of lower margin installation labor costs relative to other higher margin service revenue components and increases in design costs related to continued investments in dap . operating expenses sales and marketing expenses for the year ended december 31 , 2019 increased 11.5 % compared to 2018 . these expenses represented 5.8 % and 6.2 % of consolidated revenue for the years ended december 31 , 2019 and 2018 , respectively . this increase was primarily attributable to increases in sales staff and other marketing related expenses incurred to support the ongoing growth of the business . general and administrative expenses grew approximately $ 4.0 million , or 27.0 % , during the year ended december 31 , 2019 . these costs represented 14.5 % and 13.5 % of total consolidated revenue for the years ended december 31 , 2019 and 2018 , respectively . the increase was due mainly to increases in personnel , occupancy costs , information technology costs and research and development costs to support the ongoing growth of the business and increases in professional fees due primarily to the ancillary costs associated with the preparation and filing of the company 's registration statement on form 10 . story_separator_special_tag 31 income tax expense income tax expense for the year ended december 31 , 2019 grew 7.1 % to $ 3.0 million . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act of tax reform act . the tax reform act made broad and complex changes to the u.s. tax code that affected the company including , but not limited to , a permanent reduction of the u.s. corporate income tax rate from 34 % to 21 % effective january 1 , 2018. the company 's effective tax rate for the years ended december 31 , 2019 and 2018 was 17.4 % and 24.0 % . the decrease in the effective rate was due primarily to 2018 return to provision adjustments and the impact of certain provisions of the tax reform act . net income net income for the year ended december 31 , 2019 increased by $ 5.3 million from the prior year to $ 14.0 million due primarily to increased revenue and improved margins . liquidity and capital resources the primary sources of liquidity for our business are cash and cash equivalents and cash flows provided by operations . as of december 31 , 2019 , we had cash and cash equivalents of $ 11.5 million we expect to continue to have cash requirements to support working capital needs , capital expenditures , and to pay interest and service debt , if applicable . we believe we have the ability and sufficient capacity to meet these cash requirements by using available cash and internally generated funds and borrowing under committed credit facilities . we are focused on continuing to generate positive operating cash to fund our operational and capital investment initiatives . we believe we have sufficient liquidity to operate for at least the next 12 months from the date of filing this report . operating activities . cash flows provided by operations totaled approximately $ 11.0 million for the year ended december 31 , 2019 , compared to $ 6.8 million for the year ended december 31 , 2018 . this increase was driven primarily by increased net income partially offset by increases in net working capital investments . investing activities . cash flows used in investing activities totaled approximately $ 2.3 million during the year ended december 31 , 2019 compared $ 3.1 million during the year ended december 31 , 2018 . this decrease was due primarily to fewer acquisitions during the year ended december 31 , 2019. financing activities . cash flows used in financing activities during the year ended december 31 , 2019 totaled approximately $ 1.1 million compared to $ 3.1 million for the same period in 2018. the decrease in cash flows used in financing activities were due primarily to lower debt levels . debt obligations as of december 31 , 2019 and december 31 , 2018 totaled approximately $ 0.8 million and $ 1.8 million , respectively . credit facilities our credit facilities consist of an $ 8.5 million revolving line of credit agreement with the bank of san antonio and a revolving credit facility maintained by our canadian subsidiary . the bank of san antonio facility is utilized to fund our working capital needs and is secured by a security interest in substantially all of our current and future assets . the line has a variable interest rate of the wall street journal prime rate plus 0.75 % with a floor of 4.25 % and matures in may 2020. the interest rate as of december 31 , 2019 and december 31 , 2018 was 5.50 % and 6.00 % , respectively . as of december 31 , 2019 and december 31 , 2018 , no balance was outstanding on this line . the credit agreement contains customary covenants including covenants relating to complying with applicable laws , delivery of financial statements , payment of taxes and maintaining insurance . the credit agreement also requires that xpel must maintain debt service coverage ( ebitda divided by the current portion of long-term debt plus interest ) of 1.25:1 and debt to tangible net worth of 4.0:1 on a rolling four quarter basis . the credit agreement also contains customary events of default including the failure to make payments of principal and interests , the breach of any covenants , the occurrence of a material adverse change , and certain bankruptcy and insolvency events . as of december 31 , 2019 , the company was in compliance with all covenants . 32 during 2018 , xpel canada corp. , a wholly-owned subsidiary of xpel , inc. , entered into a canadian dollar ( “ cad ” ) $ 4.5 million revolving credit facility through hsbc bank canada . this facility is utilized to fund our working capital needs in canada . this facility bears interest at hsbc canada bank 's prime rate plus .25 % per annum and is guaranteed by the parent company . as of december 31 , 2019 and december 31 , 2018 , no balance was outstanding on this facility . contractual obligations the company has contractual obligations to purchase stated quantities of inventory from its primary supplier through march 2020. the agreement in place requires that the company use commercially reasonable efforts to purchase $ 5,000,000 worth of products from this supplier on a quarterly basis and includes an annual purchase requirement of $ 20,000,000. this supply agreement will renew on march 21 , 2020 for an additional two-year term .
| the decline in china in 2019 was primarily due to the need to sell through inventory built up in the region during 2018. this sell through of the 2018 inventory build occurred primarily during the first half of 2019 after which growth in sales to china resumed . service revenue . service revenue consists of revenue from fees for dap software access , cutbank credit revenue which represents per-cut fees charged for the use of our dap software , revenue from the labor portion of installation sales in our company-owned installation centers and revenue from training services provided to our customers . service revenue grew 23.2 % over the service revenue for the year ended december 31 , 2018 . service revenue represented 13.6 % and 13.1 % of our total consolidated revenue from the years ended december 31 , 2019 and 2018 , respectively . within the service revenue category , software revenue increased 27.1 % from the year ended december 31 , 2018 . software revenue represented 2.5 % and 2.3 % of our total consolidated revenue for the years ended december 31 , 2019 and 2018 , respectively . this increase was due primarily to increases in customers subscribing to our software . cutbank credit revenue grew 17.0 % from the year ended december 31 , 2018 . cutbank sales represented 5.6 % and 5.6 % of our total consolidated revenue for the years ended december 31 , 2019 and 2018 , respectively . this increase was due primarily to the aforementioned increases in demand for our products and services . installation labor revenue increased 27.0 % from the year ended december 31 , 2018 , due mainly to the increase in demand for installation services . training revenue increased 41.2 % from the year ended december 31 , 2018 . this growth was due to continued strong interest in the company 's training program coupled with increased training capacity added in 2019 . total installation revenue ( labor and product combined ) at our company-owned installation centers
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as the transition was completed during fiscal 2017 , corporate support expense decreased by $ 0.9 million in fiscal year 2018 as compared to fiscal year 2017. we continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation . we also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation . accordingly , we recorded a provision for bad debts of $ 797,100 and $ 674,200 for fiscal year 2018 and fiscal year 2017 , respectively . interest , net . net interest expense increased , from $ 58,600 in fiscal year 2017 to $ 429,100 in fiscal year 2018. the increase is primarily related higher borrowing levels on our secured revolving credit facility . refer to note 6 through 8 to the financial statements included as part of this annual report on form 10-k for additional information on our borrowings . income taxes , net income and diluted earnings per share . the effective tax rates in fiscal year 2018 and 2017 were 30.5 % and 41.9 % , respectively . the effective tax rate was lower for fiscal 2018 , primarily due to the 2017 tax act that went into effect in the third quarter of fiscal 2018 , as well as a change in treatment of a deferred tax liability relating to our accounting for a key man life insurance policy , discussed below . the 2017 tax act requires fiscal year companies to blend their federal tax rates this year . our annual federal rate for fiscal 2018 will be based on 9 months at the old rate of approximately 35 % rate and 3 months at the new 21 % rate . we were also able to take a benefit on our net deferred tax liabilities in fiscal 2018 , which now reflect the lower federal rate . see note 13 income taxes to the financial statements included as part of this annual report on form 10-k for additional information on the effect of the 2017 tax act and the change in treatment of the deferred tax liability . as a result of the factors discussed above , net income and diluted earnings per share for fiscal year 2018 increased 259.5 % and 258.8 % , respectively , compared with fiscal year 2017. after we announced our fourth quarter fiscal year 2018 financial results by press release dated may 7 , 2018 , we determined it necessary to change how we account for the cash surrender value of certain key-man life insurance policies held by us . we had for many years recorded a deferred tax liability related to the incremental increase year over year in the cash surrender value of the policies . after further analysis , it was determined that the annual change in cash surrender value , which has accumulated slowly over many years , should have been treated as an offset to the non-deductible insurance premiums related to the same policies , and not as a deferred tax liability . as such , we adjusted our fiscal 2018 financial results to reflect the favorable change in tax treatment as applied to the aggregate amount of the incremental increases that have accumulated over the multi-year period . specifically , net deferred tax assets increased by an aggregate of $ 0.5 million and income tax expense correspondingly decreased by an aggregate of $ 0.5 million . correspondingly , net income and earnings per share for the fourth quarter of fiscal 2018 increased by $ 0.5 million and $ 0.06 per share , respectively , due to a one-time adjustment resulting from this change in tax treatment . there was no impact on net cash flow used in operations . this change has no impact on previously filed tax returns . fiscal year 2017 compared to fiscal year 2016 revenues . revenue for fiscal year 2017 increased slightly by 0.5 % as compared to fiscal year 2016. revenue from our government market increased by 11.1 % for fiscal year 2017 as compared to fiscal year 2016. we have continued to invest in this market , which has led to an increase in government contracts , especially with our state and local government customers . revenues within our private system operators market increased by 7.4 % for fiscal year 2017 as compared to fiscal year 2016 , primarily due to an increase in sales to our utility customers . revenue from the public carrier and value-added resellers markets , decreased by 8.0 % and 1.4 % , respectively , due to a dramatic slowdown in the purchases by our cellular carrier customers and the general contractors and integrators doing work on their behalf , beginning in the third quarter of fiscal 2015. during the second half of fiscal 2017 , we saw improved year-over-year quarterly sales in the carrier markets as purchases increased from key contractors and integrators . revenue in the second half of fiscal 2017 increased 23.0 % in the public carrier market as compared to the same period of fiscal 2016 as a result of these increased purchases . gross profit . gross profit was essentially flat with a 0.2 % decrease in fiscal year 2017 compared to fiscal year 2016. this decrease was primarily driven by a 9.6 % decrease in our public carriers market for fiscal year 2017 as compared 32 to fiscal year 2016. this decrease was almost fully offset by increases in gross profit of our government market and our value-added resellers market of 6.8 % and 2.0 % , respectively . overall gross profit margin decreased slightly to 21.0 % in fiscal year 2017 , compared to 21.1 % in fiscal year 2016 , primarily due to changes in customer and product mix . our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions is dependent upon a number of factors . story_separator_special_tag the terms , and accordingly the factors , applicable to each relationship often differ . among these factors are the strength of the customer 's or vendor 's business , the supply and demand for the product or service , including price stability , changing customer or vendor requirements , and our ability to support the customer or vendor and to continually demonstrate that we can improve the way they do business . in addition , the agreements or arrangements on which our customer and vendor relationships are based are typically of limited duration , typically do not include any obligation in respect of any specific product purchase or sale and are terminable by either party upon several months or otherwise short notice . our customer relationships could also be affected by wireless carrier consolidation or global financial crisis . we account for inventory at the lower of cost or net realizable value , and as a result write-offs/write-downs occur due to damage , deterioration , obsolescence , changes in prices and other causes . these expenses have been less than 1 % of overall purchases for each of the last three fiscal years . selling , general , administrative and restructuring expenses . total selling , general , administrative and restructuring expenses increased 6.1 % during fiscal year 2017 as compared to fiscal year 2016. total selling , general , administrative and restructuring expenses as a percentage of revenues increased slightly from 19.4 % in fiscal year 2016 to 20.5 % in fiscal year 2017. the following are descriptions of changes in significant components of selling , general , administrative and restructuring expenses : · marketing expenses increased by $ 1.4 million , or 16.7 % , in fiscal year 2017 as compared to fiscal year 2016 , primarily due to direct marketing costs associated with improved design and content of our tessco.com website and increased market development funds associated with sales to our retail customers . · compensation and benefits expense increased by $ 4.2 million , or 6.8 % , in fiscal year 2017 as compared to fiscal year 2016 , primarily related to higher business generation across all markets and operations compensation costs to support the increase in retail sales volume . additionally , we incurred $ 0.8 million in onetime severance costs in relation to a restructuring of our sales and product teams . · performance bonus expense ( including both cash and equity plans ) increased by $ 1.1 million in fiscal year 2017 as compared to fiscal year 2016. this increase is primarily related to bonuses paid to our former and current ceo related to the transition that occurred during this fiscal year . · during the fourth quarter of fiscal year 2016 , we received the results of a software license audit conducted by a major software provider . after significant negotiations , we settled the audit for $ 1.5 million , which was accrued in the fourth quarter of fiscal year 2016 and was paid in the first quarter of fiscal year 2017. the ongoing annual cost from the results of this audit is minimal . we continually evaluate the credit worthiness of our existing customer receivable portfolio and provide an appropriate reserve based on this evaluation . we also evaluate the credit worthiness of prospective and current customers and make decisions regarding extension of credit terms to such customers based on this evaluation . accordingly , we recorded a provision for bad debts of $ 674,200 and $ 637,100 for fiscal year 2017 and fiscal year 2016 , respectively . interest , net . net interest expense decreased , from $ 161,300 in fiscal year 2016 to $ 58,600 in fiscal year 2017. the decrease is primarily related to the extinguishment of our term loan and lower borrowing levels on our secured revolving credit facility . refer to note 6 through 8 to the consolidated financial statements included as part of this annual report on form 10-k for additional information on our borrowings . income taxes , net income and diluted earnings per share . the effective tax rates in fiscal year 2017 and 2016 were 41.9 % and 39.8 % , respectively . the increased rate is primarily a result of lower pre-tax income which increases the impact of non-deductible tax differences . as a result of the factors discussed above , net income and diluted earnings per share for fiscal year 2017 decreased 72.9 % and 73.8 % , respectively , compared with fiscal year 2016 . 33 liquidity and capital resources in summary , our cash flows were as follows : replace_table_token_6_th we used $ 9.2 million of net cash from operating activities during fiscal year 2018. this outflow was driven by increases in accounts receivable and inventory , partially offset by net income ( net of depreciation and amortization and non-cash stock compensation expense ) , and an increase in accounts payable . increasing sales to our public carrier customers required significant investments in inventory and at times has resulted in larger accounts receivable balances . accounts payable also increased in response to our higher inventory levels . both current and potential opportunities within our public carrier business have required an increase in working capital investments . as such , on october 19 , 2017 we entered into the amended and restated credit agreement , as discussed below , based upon our anticipated borrowing and cash needs . we generated $ 3.1 million of net cash from operating activities during fiscal year 2017. this inflow was driven by net income ( net of depreciation and amortization and non-cash stock compensation expense ) , an increase in accounts payable and a decrease in prepaid expenses and other current assets partially offset by an increase in accounts receivable and product inventory .
| gross profit within our government market increased by 8.7 % in fiscal year 2018 as compared to fiscal year 2017. the growth in the public carriers , private systems and government markets was partially offset by a decrease in gross profit of 0.6 % within our value-added resellers market . within the retail segment , gross profit increased by 7.4 % in fiscal year 2018 as compared to fiscal year 2017 , despite a decline in revenue . this increase in gross margin was a result of product mix and increased support from our vendors . overall gross profit margin decreased slightly to 20.7 % in fiscal year 2018 , compared to 21.0 % in fiscal year 2017 , primarily due to changes in customer and product mix . our ongoing ability to earn revenues and gross profits from customers and vendors looking to us for product and supply chain solutions is dependent upon a number of factors . the terms , and accordingly the factors , applicable to each relationship often differ . among these factors are the strength of the customer 's or vendor 's business , the supply and demand for the product or service , including price stability , changing customer or vendor requirements , and our ability to support the customer or vendor and to continually demonstrate that we can improve the way they do business . in addition , the agreements or arrangements on which our customer and vendor relationships are based are typically of limited duration , typically do not include any obligation in respect of any specific product purchase or sale and are terminable by either party upon several months or otherwise short notice . our customer relationships could also be affected by wireless carrier consolidation or global financial crisis . we account for inventory at the lower of cost or net realizable value and as a result write-offs/write-downs occur due to damage , deterioration , obsolescence , changes in prices and other causes . these
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hardware products sold to this customer integrate hardware purchased from third parties with software from other third parties as well as software from aware . we evaluated the classification of gross versus net revenue recognition and determined gross recognition was appropriate . hardware revenue decreased 78 % from $ 4.9 in 2014 to $ 1.1 million in 2015. as a percentage of total revenue , hardware revenue decreased from 21 % in 2014 to 6 % in 2015. the dollar decrease in hardware revenue was due to a decrease in units ordered by the navy in 2015. hardware revenue increased 55 % from $ 3.2 in 2013 to $ 4.9 million in 2014. as a percentage of total revenue , hardware revenue increased from 16 % in 2013 to 21 % in 2014. the dollar increase in hardware revenue was due to an increase in units ordered by the navy in 2014. we have a $ 0.3 million order for hardware products in backlog as of december 31 , 2015. beyond this order , we believe that future hardware orders from the navy may be minimal as we believe it has completed the bulk of its purchasing . it is worth noting that our strategy does not include maintaining or growing biometrics hardware revenue . we agreed to provide hardware products as an accommodation to this important customer . royalties royalties consist primarily of royalty payments we receive under dsl silicon contracts with two customers that incorporate our silicon intellectual property ( “ ip ” ) in their dsl chipsets . we sold the assets of our dsl ip business in 2009 , but we continue to receive royalty payments from these customers . royalties are reported in continuing operations in accordance with asc 205-20 , reporting discontinued operations , because we have continuing ongoing cash flows from this business . royalties decreased 44 % from $ 0.7 million in 2014 to $ 0.4 million in 2015. as a percentage of total revenue , royalties decreased from 3 % in 2014 to 2 % in 2015. royalties decreased 21 % from $ 0.9 million in 2013 to $ 0.7 million in 2014. as a percentage of total revenue , royalties decreased from 5 % in 2013 to 3 % in 2014 . 29 the royalty dollar decrease in 2015 and 2014 was primarily due to lower dsl royalties from both of our licensees . we do not consider dsl royalties to be a key element of our business and we expect that this revenue will continue to decline in future periods . cost of hardware cost of hardware consists primarily of the cost of third party equipment and software included in hardware shipments . cost of hardware decreased by 79 % from $ 3.5 million in 2014 to $ 0.7 million in 2015. cost of hardware as a percentage of hardware revenue decreased from 71 % in 2014 to 65 % in 2015 , which means that product gross margins increased from 29 % in 2014 to 35 % in 2015. the dollar decrease in cost of hardware was due to lower unit shipments of hardware products in the current year period compared to the prior year period . cost of hardware increased by 47 % from $ 2.4 million in 2013 to $ 3.5 million in 2014. cost of hardware as a percentage of hardware revenue decreased from 74 % in 2013 to 71 % in 2014 , which means that product gross margins increased from 26 % in 2013 to 29 % in 2014. the dollar increase in cost of hardware was due to higher unit shipments of hardware products in the current year period compared to the prior year period . cost of services cost of services consists of engineering costs to perform customer services projects . such costs primarily include : i ) engineering salaries , stock-based compensation , fringe benefits , and facilities ; and ii ) engineering consultants and contractors . cost of services decreased 24 % from $ 2.4 million in 2014 to $ 1.8 million in 2015. cost of services as a percentage of services increased from 46 % in 2014 to 54 % in 2015 , which means that gross margins on services decreased from 54 % to 46 % . the dollar decrease in cost of services was attributable to a decrease in services revenue . cost of services increased 57 % from $ 1.5 million in 2013 to $ 2.4 million in 2014. cost of services as a percentage of services decreased from 48 % in 2013 to 46 % in 2014 , which means that gross margins on services increased from 52 % to 54 % . the dollar increase in cost of services was attributable to an increase in services revenue . gross margins on services of 46 % , 54 % , and 52 % in 2015 , 2014 and 2013 , respectively , were a function of : i ) the nature of the projects ; ii ) the level of engineering difficulty and labor hours required to complete project tasks ; and iii ) how much we were able to charge . gross margins in these years reflect the profitability mix of customer projects . we expect that gross margins on services will continue to fluctuate in future periods based on the nature , complexity , and pricing of future projects . research and development expense research and development expense consists of costs for : i ) engineering personnel , including salaries , stock-based compensation , fringe benefits , and facilities ; ii ) engineering consultants and contractors , and iii ) other engineering expenses such as supplies , equipment depreciation , dues and memberships and travel . engineering costs incurred to develop our technology and products are classified as research and development expense . as described in the cost of services section , engineering costs incurred to provide engineering services for customer projects are classified as cost of services , and are not included in research and development expense . story_separator_special_tag the classification of total engineering costs to research and development expense and cost of services was ( in thousands ) : replace_table_token_4_th 30 research and development expense increased 5 % from $ 5.5 million in 2014 to $ 5.8 million in 2015. as a percentage of total revenue , research and development expense increased from 23 % in 2014 to 29 % in 2015. the increase in research and development expense was primarily due to engineers rotating off of customer projects and onto internal development projects . as the table above indicates , total engineering costs decreased from $ 7.9 million in 2014 to $ 7.6 million in 2015. the spending decrease is due to the following factors , which in the aggregate resulted in $ 0.3 million less expense : i ) higher compensation expenses for engineers hired in 2014 for which there was a partial year of expense in 2014 versus a full year in 2015 ; ii ) higher amortization expenses for acquired technology ; iii ) lower compensation and contractor expenses due to the termination of employees and contractors working on government service projects ; iv ) lower contractor expenses due to the termination of contractors working on internal development projects ; and v ) lower recruiting fees due to reduced hiring in 2015. our engineering headcount declined by one head in 2015. we believe our engineering organization was adequately staffed as of december 31 , 2015. research and development expense increased 35 % from $ 4.1 million in 2013 to $ 5.5 million in 2014. as a percentage of total revenue , research and development expense increased from 21 % in 2013 to 23 % in 2014. as the table above indicates , total engineering costs increased from $ 5.6 million in 2013 to $ 7.9 million in 2014. the spending increase was primarily due to the hiring of engineering employees and contractors . in the 18 month period from june 30 , 2013 to december 31 , 2014 , engineering headcount , excluding contractors , grew from 30 to 48 employees . the expansion of our engineering organization during this period was designed to provide the resources we required to : i ) pursue new product development initiatives ; and ii ) staff customer engineering services projects . as we described in the strategy section in part 1 of this form 10-k , we intend to introduce new products that will allow us to offer more complete biometrics solutions . we believe this strategy will allow us to sell more software into biometrics systems projects in order to grow our revenue . our preference is to develop such products internally , however to the extent we are unable to do that , we may purchase or license technologies from third parties . we anticipate that we will continue to focus our future research and development activities on enhancing existing products and developing new products . selling and marketing expense selling and marketing expense primarily consists of costs for : i ) sales and marketing personnel , including salaries , sales commissions , stock-based compensation , fringe benefits , travel , and facilities ; and ii ) advertising and promotion expenses . sales and marketing expense increased 5 % from $ 3.7 million in 2014 to $ 3.9 million in 2015. as a percentage of total revenue , sales and marketing expense increased from 16 % in 2014 to 20 % in 2015. the dollar increase in selling and marketing expense was primarily due to the addition of one employee in our sales organization which was partially offset by the departure of another employee in the second half of the year . sales commissions were $ 35,000 higher in 2015 despite a $ 4.1 million decrease in total revenue . the small commission increase was due to higher license sales and brazilian sales agent commissions . there was not a significant reduction of commission expense related to hardware and royalties , which declined by a total of $ 4.2 million in 2015 , because we pay reduced commissions on hardware sales and no commissions on royalties . sales and marketing expense increased 12 % from $ 3.3 million in 2013 to $ 3.7 million in 2014. as a percentage of total revenue , sales and marketing expense decreased from 18 % in 2013 to 16 % in 2014. the dollar increase in selling and marketing expense was primarily due to higher sales commissions on higher revenue in 2014 , and the addition of one sales and marketing employee in early 2014. general and administrative expense general and administrative expense consists primarily of costs for : i ) officers , directors and administrative personnel , including salaries , bonuses , director compensation , stock-based compensation , fringe benefits , and facilities ; ii ) professional fees , including legal and audit fees ; iii ) public company expenses ; and iv ) other administrative expenses , such as insurance costs and bad debt provisions . 31 general and administrative expense decreased 5 % from $ 3.7 million in 2014 to $ 3.5 million in 2015. as a percentage of total revenue , general and administrative expense increased from 15 % in 2014 to 18 % in 2015. the dollar decrease in general and administrative expense in 2015 was primarily due to lower stock-based compensation and patent filing costs . general and administrative expense increased 4 % from $ 3.5 million in 2013 to $ 3.7 million in 2014. as a percentage of total revenue , general and administrative expense decreased from 18 % in 2013 to 15 % in 2014. the increase in general and administrative expense in 2014 was primarily due to an increase in stock-based compensation which was partially offset by lower patent filing expenses .
| 2014 compared to 2013 revenue and operating income in 2014 were $ 23.7 million and $ 7.1 million , respectively , which compared to revenue and operating income in 2013 of $ 19.4 million and $ 5.3 million , respectively . revenue increased by $ 4.4 million in 2014 primarily as a result of $ 3.5 million of higher revenue from the navy and usmc and $ 0.9 million of higher net revenue from other sources . operating income increased by $ 1.8 million in 2014 because : i ) the $ 4.4 million revenue increase resulted in $ 0.5 million more operating income ; and ii ) patent related income increased by $ 1.3 million . operating income in 2014 would have been higher had we not increased engineering expenses by $ 2.3 million to invest in product development . software licenses software licenses consist of revenue from the sale of biometrics and imaging software products . sales of software products depend on our ability to win proposals to supply software for biometrics systems projects either directly to end user customers or indirectly through channel partners . software license revenue increased 18 % from $ 8.5 million in 2014 to $ 10.1 million in 2015. as a percentage of total revenue , software license revenue increased from 36 % in 2014 to 51 % in 2015. the $ 1.6 million increase in software license revenue was primarily due to : i ) a $ 0.8 million increase in biometrics software license sales ; and ii ) a $ 0.8 million increase in imaging software license sales . the reasons for the increases in biometrics and imaging software licenses were : i ) biometrics software licenses – biometrics software license revenue was $ 7.9 million in 2015 versus $ 7.1 million in 2014. the $ 0.8 million increase was primarily due to higher sales to four commercial customers , which was partially offset by lower sales to u.s. government customers . we derived a significant amount of license revenue in 2015 from certisign ,
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critical accounting policies and significant accounting estimates the preparation of the consolidated financial statements in accordance with gaap requires management to make estimates and assumptions that affect the reported amounts of some assets and liabilities and , in some instances , the reported amounts of net sales and expenses during the applicable reporting period . differences between actual amounts and estimates are recorded in the period identified . estimates used when evaluating revenue recognition , inventory , the impairment of goodwill and other intangibles , the impairment of long-lived assets , warranty programs , pension and post-retirement obligations , income taxes and stock-based compensation can require a significant amount of judgment , and a different set of judgments could result in changes to our reported results . a summary of our policies concerning these significant estimates is included in note 2 , summary of significant accounting policies in part ii , item 8 , of this annual report on form 10-k. off-balance sheet arrangements we are not a party to any off-balance sheet arrangements . recently adopted accounting pronouncements refer to note 2 , summary of significant accounting policies in part ii , item 8 , of this annual report on form 10-k. 32 non-gaap financial measures we use adjusted net income to measure our overall profitability because we believe it better reflects our cash flow generation by capturing the actual cash interest paid and cash taxes paid rather than our interest expense and tax expense as calculated under accounting principles generally accepted in the united states of america ( gaap ) and excludes the impact of the non-cash annual amortization of certain intangible assets and other certain non-recurring items . we use adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin , adjusted ebitda margin excluding technology-related license expenses and adjusted free cash flow to evaluate and control our cash operating costs and to measure our operating profitability . we believe the presentation of adjusted net income , adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin , adjusted ebitda margin excluding technology-related license expenses and adjusted free cash flow enhances our investors ' overall understanding of the financial performance and cash flow of our business . you should not consider adjusted net income , adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin and adjusted ebitda margin excluding technology-related license expenses as an alternative to net income , determined in accordance with gaap , as an indicator of operating performance . you should not consider adjusted free cash flow as an alternative to net cash provided by operating activities , determined in accordance with gaap , as an indicator of our cash flow . a directly comparable gaap measure to adjusted net income , adjusted ebitda and adjusted ebitda excluding technology-related license expenses is net income . a directly comparable gaap measure to adjusted free cash flow is net cash provided by operating activities . the following is a reconciliation of net income to adjusted net income , adjusted ebitda , adjusted ebitda excluding technology-related license expenses , adjusted ebitda margin and adjusted ebitda margin excluding technology-related license expenses , and a reconciliation of net cash provided by operating activities to adjusted free cash flow : replace_table_token_8_th 33 ( a ) represents a charge associated with the impairment of long-lived assets related to the production of the h3000 and h4000 hybrid-propulsion systems . ( b ) represents a charge ( recorded in other expense , net ) for investments in co-development agreements to expand our position in transmission technologies . ( c ) represents fees and expenses ( recorded in other expense , net ) related to our secondary offerings in september 2014 , june 2014 , april 2014 , february 2014 , december 2013 , november 2013 and august 2013 , proposed secondary offering in april 2013 and initial public offering in march 2012 . ( d ) represents a payment ( recorded in other expense , net ) to terminate a services agreement with the carlyle group and onex corporation ( collectively , the sponsors ) . ( e ) represents losses ( recorded in other expense , net ) on the mark-to-market of our foreign currency hedge contracts and on intercompany financing transactions related to investments in plant assets for our india facility . ( f ) during 2014 , 2013 and 2012 , we conducted a review of the dual power inverter module ( dpim ) extended coverage program resulting in an increase of the dpim liability in 2014 , a reduction of the dpim liability in 2013 and an increase of the dpim liability in 2012 , partially offset by a respective increase , reduction and increase of the associated general motors company ( gm ) receivable ( recorded in selling , general and administrative expenses ) . the total liability and gm receivable will continue to be reviewed for any changes in estimate as additional claims data and field information become available . ( g ) represents ( gains ) losses ( recorded in other expense , net ) on the mark-to-market of our commodity hedge contracts . ( h ) represents a charge ( recorded in selling , general and administrative , and engineering research and development ) related to employee headcount reductions in the second quarter of 2014 and second quarter of 2013 . ( i ) represents losses ( recorded in other expense , net ) realized on the repayments and repurchases of allison transmission , inc. 's ( ati ) , our wholly owned subsidiary , long-term debt . ( j ) represents a settlement charge ( recorded in other expense , net ) related to the settlement of pension obligations for certain qualified hourly employees from our hourly defined benefit pension plan to gm 's pension plan as part of the asset purchase agreement dated june 28 , 2007 . story_separator_special_tag ( k ) represents a bonus ( recorded in cost of sales , selling , general and administrative expenses , and engineering research and development ) to eligible employees recorded in the fourth quarter of 2012 as a result of uaw local 933 represented employees ratifying a labor contract effective november 2012 through november 2017 . ( l ) represents employee stock compensation expense ( recorded in cost of sales , selling , general and administrative expenses , and engineering research and development ) and service fees paid to the sponsors ( recorded in selling , general and administrative expenses ) . ( m ) represents payments ( recorded in engineering research and development ) for licenses to expand our position in transmission technologies . ( n ) represents the amount of tax benefit ( recorded in income tax expense ) related to stock-based compensation adjusted from cash flows from operating activities to cash flows from financing activities . 34 story_separator_special_tag increase in net sales of parts and other products , and a $ 15.0 million , or 1 % , increase in net sales of global on-highway products . see trends impacting our business above for additional information on net sales by end markets . gross profit gross profit for the year ended december 31 , 2013 was $ 841.9 million compared to $ 954.3 million for the year ended december 31 , 2012 , a decrease of 12 % . the decrease was principally driven by $ 132.0 million related to decreased sales , partially offset by $ 7.7 million related to the fourth quarter 2012 uaw local 933 contract signing bonus , $ 6.0 million of favorable foreign exchange and $ 4.0 million of favorable manufacturing performance . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2013 were $ 334.9 million compared to $ 419.0 million for the year ended december 31 , 2012 , a decrease of 20 % . the decrease was principally driven by $ 44.7 million of lower intangible asset amortization , a $ 9.4 million charge in 2012 related to the dpim extended coverage program , $ 8.0 million of unfavorable product warranty adjustments in 2012 from prior period estimates , a $ 2.4 million favorable adjustment in 2013 related to the dpim extended coverage program , $ 1.0 million related to the fourth quarter 2012 uaw local 933 contract signing bonus and reduced global commercial spending activities , partially offset by $ 6.0 million of higher stock compensation expense . engineering - research and development engineering expenses for the year ended december 31 , 2013 were $ 97.1 million compared to $ 115.1 million for the year ended december 31 , 2012 , a decrease of 16 % . the decrease was principally driven by $ 12.0 million of technology-related license expenses in 2012 to expand our position in transmission technologies , $ 0.1 million related to the fourth quarter 2012 uaw local 933 contract signing bonus , lower product initiative spending and reduced global spending activities , partially offset by $ 6.0 million of technology-related license expenses in 2013 to further expand our position in transmission technologies . 37 interest expense , net interest expense , net for the year ended december 31 , 2013 was $ 132.9 million compared to $ 151.2 million for the year ended december 31 , 2012 , a decrease of 12 % . the decrease was principally driven by $ 14.4 million of lower interest expense as a result of debt repayments and purchases , an $ 8.8 million decrease in mark-to-market expense for our interest rate derivatives , $ 3.8 million of lower interest expense as a result of a decrease in effective interest rate swaps and $ 3.4 million of lower amortization of deferred financing fees , partially offset by $ 9.0 million of higher interest expense as a result of higher interest rates on the senior secured credit facility , $ 3.0 million of higher interest expense related to higher interest rates on our effective interest rate swaps and $ 0.1 million of lower interest income . other expense , net other expense , net for the year ended december 31 , 2013 was $ 10.9 million compared to $ 52.8 million for the year ended december 31 , 2012 , a decrease of 79 % . the decrease in expense was principally driven by $ 21.3 million of lower premiums and expenses related to payments on and redemptions of long-term debt , a $ 16.0 million payment in 2012 to terminate the services agreement with the sponsors , $ 9.4 million of lower technology-related investment impairment expense , $ 4.5 million of lower public offering expenses , $ 2.3 million related to the hourly pension plan settlement in 2012 and $ 0.7 million of reduced miscellaneous expenses , partially offset by $ 3.9 million of higher expenses related to unrealized and realized losses on derivative contracts , $ 2.1 million of higher unfavorable foreign exchange and $ 6.3 million of lower grant program income . income tax ( expense ) benefit income tax expense for the year ended december 31 , 2013 was ( $ 100.7 ) million compared to an income tax benefit of $ 298.0 million for the year ended december 31 , 2012 , resulting in an effective tax rate of ( 38 % ) for the year ended december 31 , 2013 versus an effective tax rate of 138 % for the year ended december 31 , 2012. the change in effective tax rate was principally driven by the release of the domestic valuation allowance on our deferred tax assets in the second quarter of 2012 . 38 liquidity and capital resources we generate cash primarily from our operating activities to fund our operating , investing and financing activities . our principal uses of cash are operating expenses , capital expenditures , debt service , stock repurchases , dividends on common stock and working capital needs .
| xng ) , and a $ 7.0 million , or 8 % , decrease in net sales of outside north america off-highway products principally driven by lower demand from the energy sector . see trends impacting our business above for additional information on net sales by end markets . gross profit gross profit for the year ended december 31 , 2014 was $ 975.9 million compared to $ 841.9 million for the year ended december 31 , 2013 , an increase of 16 % . the increase was principally driven by $ 122.0 million related to increased net sales , $ 20.0 million of price increases on certain products and $ 3.0 million of favorable foreign exchange , partially offset by $ 5.8 million of higher incentive compensation expense and $ 5.2 million of higher manufacturing expense commensurate with increased net sales . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2014 were $ 344.6 million compared to $ 334.9 million for the year ended december 31 , 2013 , an increase of 3 % . the increase was principally driven by $ 7.1 million of higher incentive compensation expense , increased global commercial spending activities , a $ 2.4 million favorable adjustment in 2013 related to the dpim extended coverage program and a $ 1.0 million unfavorable adjustment in 2014 related to the dpim extended coverage program , partially offset by $ 6.5 million of lower intangible asset amortization . 35 engineering research and development engineering expenses for the year ended december 31 , 2014 were $ 103.8 million compared to $ 97.1 million for the year ended december 31 , 2013 , an increase of 7 % . the increase was principally driven by increased spending on product initiatives and $ 2.7 million of higher incentive compensation expense . loss associated with impairment of long-lived assets during 2014 , we reviewed certain of our long-lived assets related to the production of the h3000 and h4000 hybrid-propulsion systems , resulting in a $ 15.4 million loss recorded for the year ended december
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when testing goodwill for impairment , we may assess qualitative factors for some or all of our reporting units to determine whether it is more likely than not ( that is , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . alternatively , we may bypass this qualitative assessment for some or all of our reporting units and determine whether the carrying value exceeds the fair value using a quantitative assessment as described below . the recoverability of long-lived assets are evaluated for impairment by determining whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of the asset . in the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset , an impairment loss equal to the excess of the asset 's carrying value over its fair value is recorded . the long-term nature of these assets requires the estimation of cash inflows and outflows several years into the future and only takes into consideration technological advances known at the time of the impairment test . to evaluate goodwill using a quantitative assessment , the company determines the current fair value of the reporting units using a combination of “ market ” and “ income ” approaches . in the market approach , the “ guideline company ” method is used , which focuses on comparing the company 's risk profile and growth prospects to reasonably similar publicly traded companies . key assumptions used for the guideline company method are total invested capital ( “ tic ” ) multiples for revenues and operating cash flows , as well as consideration of control premiums . the tic multiples are determined based on public furniture companies within our peer group , and if appropriate , recent comparable transactions are considered . control premiums are determined using recent comparable transactions in the open market . under the income approach , a discounted cash flow method is used , which includes a terminal value , and is based on external analyst financial projection estimates , as well as internal financial projection estimates prepared by management . the long-term terminal growth rate assumptions reflect our current long-term view of the market in which we compete . discount rates use the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . the fair value of our trade name , which is the company 's only indefinite-lived intangible asset other than goodwill , is valued using the relief-from-royalty method . significant factors used in trade name valuation are rates for royalties , future growth , and a discount factor . royalty rates are determined using an average of recent comparable values . future growth rates are based on the company 's perception of the long-term values in the market in which we compete , and the discount rate is determined using the weighted average cost of capital for companies within our peer group , adjusted for specific company risk premium factors . 23 i n the fourth quarter of fiscal 2012 , the company performed a qualitative assessment of the fair value of the wholesale reporting unit and concluded that the fair value of its goodwill exceeded its carrying value . in fiscal years 2011 and 2010 the company performed a quantitative assessment and determined the fair value of its wholesale reporting unit exceeded its carrying value by a substantial margin . the fair value of the trade name exceeded its carrying value by a substantial margin in fiscal years 2012 , 2011 and 2010. to calculate fair value of these assets , management relies on estimates and assumptions which by their nature have varying degrees of uncertainty . wherever possible , management therefore looks for third party transactions as described above to provide the best possible support for the assumptions incorporated . management considers several factors to be significant when estimating fair value including expected financial outlook of the business , changes in the company 's stock price , the impact of changing market conditions on financial performance and expected future cash flows , and other factors . deterioration in any of these factors may result in a lower fair value assessment , which could lead to impairment of the long-lived assets and goodwill of the company . income taxes – income taxes are accounted for under the asset and liability 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 and operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . additional factors that we consider when making judgments about the deferred tax valuation include tax law changes , a recent history of cumulative losses , and variances in future projected profitability . the company evaluates quarterly uncertain tax positions taken or expected to be taken on tax returns for recognition , measurement , presentation , and disclosure in its financial statements . if an income tax position exceeds a 50 % probability of success upon tax audit , based solely on the technical merits of the position , the company recognizes an income tax benefit in its financial statements . the tax benefits recognized are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . the liability associated with an unrecognized tax benefit is classified as a long-term liability except for the amount for which a cash payment is expected to be made or tax positions settled within one year . story_separator_special_tag we recognize interest and penalties related to income tax matters as a component of income tax expense . business insurance reserves – we have insurance programs in place to cover workers ' compensation and property/casualty claims . the insurance programs , which are funded through self-insured retention , are subject to various stop-loss limitations . we accrue estimated losses using actuarial models and assumptions based on historical loss experience . although we believe that the insurance reserves are adequate , the reserve estimates are based on historical experience , which may not be indicative of current and future losses . in addition , the actuarial calculations used to estimate insurance reserves are based on numerous assumptions , some of which are subjective . we adjust insurance reserves , as needed , in the event that future loss experience differs from historical loss patterns . other loss reserves – we have a number of other potential loss exposures incurred in the ordinary course of business such as environmental claims , product liability , litigation , tax liabilities , restructuring charges , and the recoverability of deferred income tax benefits . establishing loss reserves for these matters requires the use of estimates and judgment with regard to maximum risk exposure and ultimate liability or realization . as a result , these estimates are often developed with our counsel , or other appropriate advisors , and are based on our current understanding of the underlying facts and circumstances . because of uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts and circumstances , additional charges related to these issues could be required in the future . 24 basis of presentation as of june 30 , 2012 , ethan allen interiors inc. has no material assets other than its ownership of the capital stock of ethan allen global , inc. and conducts all significant transactions through ethan allen global , inc. ; therefore , substantially all of the financial information presented herein is that of ethan allen global , inc. results of operations our company and the furniture industry remain in a slow recovery period following the 'great recession ' in the united states and abroad . total unemployment remained persistently above 8 % in fiscal 2012 , consumer confidence remains low , and capital markets volatile . on the positive side , housing starts and housing turnover have improved this year , and 30 year mortgage rates are at an all time low . we have seen consumer spending slowly improve beginning in fiscal 2010 , but economic recovery remains slow . throughout this economic downturn and slow recovery period , we continued to take actions to significantly reduce costs and increase revenue . during fiscal 2012 , having consolidated our u.s. manufacturing footprint to six facilities , where approximately 70 % of our products are made , we increased our manufacturing capacity by expanding our upholstery plant in mexico and acquired a case goods plant in honduras . we estimate our manufacturing facilities are currently operating at approximately 75 % of capacity and we believe we have sufficient scalable capacity domestically and abroad to meet higher volumes of demand . our retail design centers are supported by 14 retail service centers operated by the company , plus six third party service companies at june 30 , 2012. we continuously reexamine our retail footprint to optimize our structure to do more business and improve profitability . at june 30 , 2012 and june 30 , 2011 , the company operated 147 design centers . independent retailers operated 151 design centers at june 30 , 2012 compared with 139 at june 30 , 2011. the increase in international design centers increased our international net sales to 6.6 % of our consolidated net sales for the year ended june 30 , 2012 , with most of the growth in sales and number of design centers coming from china , where the number of design centers increased to 70 at june 30 , 2012 , from 53 at june 30 , 2011. despite continued macroeconomic uncertainties and highly competitive conditions for our industry , both our wholesale and retail business segments continue to make substantial progress . we have now had ten consecutive quarters of year over year sales growth and eight consecutive quarterly profits . during fiscal 2012 we added associates in our manufacturing segment to support our expanded capacity , and in our retail segment to grow sales . during the last three quarters of fiscal 2012 , the company introduced significantly more new products than normal , incurring significant costs in refreshing our design center display inventory . we also continued to increase our spending in marketing and advertising to broaden our reach to a larger demographic audience . in taking these actions to grow the business , we continue to operate the business with cautious optimism while aggressively pursuing our business objectives . income tax valuation allowance : as a result of losses we sustained for fiscal 2010 and 2009 , which were brought on by the severe economic factors which began in fiscal 2009 , we recorded a $ 34.1 million valuation allowance against deferred tax assets , with a non-cash charge to earnings in the fourth quarter of fiscal 2010. at the end of the third quarter of fiscal 2012 , our operations had returned to a position of cumulative pre-tax operating profits for the most recent 36 month period , we had eight consecutive quarters of pre-tax operating profits , our written business and backlog had grown significantly , and our business plan projected continued profitability . the preponderance of this positive evidence provides support that our future tax benefits more likely than not will be realized . accordingly , at the end of the third quarter of fiscal 2012 , we released all of united states federal , most of the state , and all of the canadian valuation allowance against net deferred tax assets .
| million from $ 422.9 million in the prior year . the year-over-year increase was primarily attributable to a 14.9 % increase in the incoming order rate for the first half of fiscal 2012 , as we began to see a gradual though inconsistent improvement in consumer spending . orders during the second half of fiscal 2012 decreased 5.6 % , compared to a very strong same prior year period , but were up 6.1 % over the first half of fiscal 2012. for the full year , orders increased 3.3 % in fiscal 2012 compared to fiscal 2011. we believe this improvement in year-over-year sales and orders is due to our promotional activities , significant new product offerings , our ability to increase production through operating efficiencies , staffing increases , and an increase in the number of total design centers globally to 298 at june 30 , 2012 from 286 at june 30 , 2011. the independently operated retail network grew by twelve net design centers to 151 at june 30 , 2012 including a net increase of 17 locations to 70 in china . while the count of ethan allen operated design centers was 147 at june 30 of 2012 and 2011 , we opened two new locations , relocated two others , closed five and acquired three design centers during the current fiscal year . retail revenue from ethan allen operated design centers for the twelve months ended june 30 , 2012 increased by $ 53.5 million , or 10.6 % , to $ 559.4 million from $ 505.9 million for the twelve months ended june 30 , 2011. we believe the increase in retail sales by ethan allen operated design centers is due to our promotional marketing campaigns and the design solutions approach of our interior design professionals , continued use of both our national television and direct mail media , our digital communications to prospective clients , the positive effects of repositioning the retail network , and an increase in the number of highly skilled interior designers , retail management ,
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option agreement with allergan plc in may 2013 , we entered into an agreement with allergan , under which we granted to allergan an exclusive option to license trv027 . we received no consideration upon the grant of the option to allergan . in march 2015 , we signed a letter agreement with allergan pursuant to which allergan paid us $ 10.0 million to fund the expansion of the phase 2b trial of trv027 in ahf from 500 patients to 620 patients . the $ 10.0 million received in march 2015 was recorded as deferred revenue . the collaboration revenue was recorded on a straight-line basis through the expected term of the trial and was fully recognized as of june 30 , 2016. in august 2016 , allergan notified us of its decision to not exercise its option . as such , we have retained all rights to trv027 . senior secured tranched term loan credit facility in september 2014 , we entered into a loan and security agreement with oxford finance llc and pacific western bank , or the lenders , pursuant to which they agreed to lend us up to $ 35.0 million in a three-tranche series of term loans ( term loans a , b , and c ) . upon initially entering into the agreement , we borrowed $ 2.0 million under term loan a. on april 13 , 2015 , we amended the agreement with the lenders to change the draw period for term loan b. on december 23 , 2015 , we further amended the agreement with the lenders to , among other things , change the draw period for term loan c , modify the interest only period , and modify the maturity date of the loan . in december 2015 , we borrowed the term loan b tranche of $ 16.5 million . our ability to draw an additional $ 16.5 million under term loan c was subject to the satisfaction of one or more specified triggers related to the results of our phase 2b clinical trial of trv027 . although those triggers were not attained , in december 2016 , we and the lenders modified the terms and conditions under which we could exercise an option to draw $ 10.0 million of term loan c. as modified , we may draw $ 10.0 million of term loan c no later than march 31 , 2017 and upon the lender 's receipt of ( a ) satisfactory evidence that each of the two phase 3 efficacy trials of olinvo ( apollo-1 and apollo-2 ) have met their respective primary endpoints and ( b ) a certificate from us concerning the ongoing athena open label safety study of olinvo . based upon the positive results of the phase 3 efficacy trials of olinvo announced in february 2017 , we believe we are now eligible to draw $ 10.0 million of term loan c under the credit facility until march 31 , 2017. borrowings under terms loans a and b accrue interest at a fixed rate of 6.50 % per annum . the applicable interest rate for term loan c will be the greater of ( i ) 6.5 % and ( ii ) the sum of ( a ) 6.0 % and ( b ) the 30-day u.s. libor rate as of the date that is three days prior to the funding date of term loan c. we are required to make payments of interest only on borrowings under the loan agreement on a monthly basis through and including january 1 , 2018 , after which payments of principal in equal monthly installments and accrued interest will be due until the loan matures on march 1 , 2020. if during the period from october 4 , 2016 to march 31 , 2017 we have received net cash proceeds of at least $ 50.0 million from the sale of our equity securities or from a joint venture , collaboration or other strategic partnering transaction , the maturity date will be further extended to december 1 , 2020. we paid the lenders a facility fee of $ 0.2 million in connection with the execution of the original agreement and an immaterial amendment fee in connection with the execution of the second and third amendments to the agreement . upon the last payment date of the amounts borrowed under the agreement , we will be required to pay a final payment fee equal to 6.6 % of the aggregate amounts borrowed , which is further increased to 7.0 % if during the period from october 4 , 2016 to march 31 , 2017 we have received net cash proceeds of at least $ 50.0 million from the sale of our equity securities or from a joint venture , collaboration or other strategic partnering transaction . in addition , if we repay term loan a and term loan b prior to the applicable maturity date , we will pay the lenders a prepayment fee of 3.0 % 62 of the total amount prepaid if the prepayment occurs prior to december 23 , 2016 , 2.0 % of the total amount prepaid if the prepayment occurs between december 23 , 2016 and december 23 , 2017 , and 1.0 % of the total amount prepaid if the prepayment occurs on or after december 24 , 2017. our obligations are secured by a first priority security interest in substantially all of our assets , other than intellectual property . in addition , we have agreed not to pledge or otherwise encumber our intellectual property , with specified exceptions . we used a placement agent in connection with the agreement . story_separator_special_tag we paid the agent $ 0.1 million upon execution of the agreement and $ 0.1 million upon our draw of term loan b. in connection with entering into the original agreement , we issued to the lenders and placement agent warrants to purchase an aggregate of 7,678 shares of our common stock ; warrants to purchase an aggregate of 5,728 shares remain outstanding as of december 31 , 2016. these warrants are exercisable immediately and have an exercise price of $ 5.8610 per share . the warrants may be exercised on a cashless basis and will terminate on the earlier of september 19 , 2024 or the closing of a merger or consolidation transaction in which we are not the surviving entity . in connection with draw of term loan b , we issued to the lenders and placement agent additional warrants to purchase an aggregate of 34,961 shares of our common stock . these warrants have substantially the same terms as those noted above , and have an exercise price of $ 10.6190 per share and an expiration date of december 23 , 2025. critical accounting policies and significant judgments and estimates the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . a summary of our significant accounting policies appears in the notes to our audited consolidated financial statements for the year ended december 31 , 2016 included in this annual report on form 10-k. however , we believe that the following accounting policies are important to understanding and evaluating our reported financial results , and we have accordingly included them in this discussion . research and development research and development costs are charged to expense as incurred . these costs include , but are not limited to , employee‑related expenses , including salaries , benefits and travel and stock based compensation of our research and development personnel ; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies ; the cost of acquiring , developing and manufacturing clinical trial materials ; other laboratory supplies ; allocated facilities , depreciation and other expenses , which include rent and utilities ; insurance ; and costs associated with preclinical activities and regulatory operations . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our vendors with respect to their actual costs incurred . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in the financial statements as prepaid or accrued research and development expense , as the case may be . as part of the process of preparing our financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors , clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials . the financial terms of these contracts are subject to negotiations , which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts . our objective is to reflect the appropriate trial expenses in our financial statements by matching those expenses with the period in which services are performed and efforts are expended . we may account for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial . we determine accrual estimates through financial models taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation 63 of trials , or the services completed . during the course of a clinical trial , we adjust our clinical expense recognition if actual results differ from estimates . we make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time . our clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third party vendors . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period . for the years ended december 31 , 2016 , 2015 and 2014 , there were no material adjustments to our prior period estimates of accrued expenses for clinical trials . stock‑based compensation we have applied the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation — stock compensation , or asc 718 , to account for stock-based compensation for employees . we recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant . determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date . we recognize stock-based compensation expense over the requisite service period , which is the vesting period of the award .
| 65 research and development expenses increased by $ 45.9 million , or 104 % , from $ 44.1 million for the year ended december 31 , 2015 to $ 90.0 million for the year ended december 31 , 2016. the following table summarizes our research and development expenses ( in thousands ) : replace_table_token_4_th the increase in research and development expenses during the year ended december 31 , 2016 was primarily driven by ( i ) increased expenditures on the development of olinvo including expenses associated with initiating our phase 3 program in 2016 partially offset by a decrease in expenses primarily associated with the completion of the olinvo phase 2b abdominoplasty clinical trial in 2015 , ( ii ) the initiation of trv250 ind-enabling studies during 2016 , and ( iii ) increased headcount and associated salary , benefits and stock based compensation expense , all partially offset by ( iv ) decreased expenditures on the development of trv027 due to the completion of the phase 2b study in june 2016. other income ( expense ) other expense increased during the year ended december 31 , 2016 primarily due to interest expense related to our term loan b tranche of $ 16.5 million that was drawn in december 2015. comparison of years ended december 31 , 2015 and 2014 replace_table_token_5_th revenue collaboration revenue increased $ 6.2 million for the year ended december 31 , 2015 , as compared to the same period in 2014 as a result of entering into the letter agreement with allergan on march 5 , 2015 under which allergan paid us $ 10.0 million to fund the expansion of our phase 2b trial of trv027 from 500 patients to 620 patients . the 66 collaboration revenue was recognized on a straight‑line basis through the remaining period of the trial and was fully recognized as of june 30 , 2016. general and administrative expense general and administrative expenses increased by $ 3.4 million , or 36 % , for the year ended december 31 , 2015 compared to
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to ensure access to our treprostinil-based products , and in accordance with our long-standing inventory policy , we have sufficient inventory of finished treprostinil-based drug products ( remodulin , tyvaso , and orenitram ) to supply the market for at least two years at current levels of demand . in addition , we manufacture our own treprostinil active pharmaceutical ingredient ( api ) at our silver spring , maryland facility and have three years ' worth of treprostinil api on hand at any given time , as well as a substantial inventory of the key raw material necessary to manufacture it . these products and api supplies are all stored at our own warehouses in the united states . manufacturing of our treprostinil-based products , both internally and at our contract manufacturers , continues mostly as usual , and we do not currently anticipate any supply shortages of our treprostinil-based products . we also have a significant amount of inventory of unituxin drug supply and raw materials for additional production , and intend to continue manufacturing unituxin in quantities sufficient to meet current patient demand . unlike our treprostinil-based products , unituxin is a biologic with a shorter shelf life , so our ability to maintain longer-term inventories is limited ; however , we do not currently anticipate any supply shortages of unituxin . we have redundant qualified manufacturing sites for our two current best-selling products : remodulin and tyvaso . should either site be impacted by an outbreak , production activities could be diverted to the other qualified site , each of which is capable of supplying the worldwide market . our internal manufacturing and packaging operations are independently staffed and physically segregated by technical capability ( e.g. , oral solid dose , aseptic vial filling , etc. ) . if any internal operation is impacted by an outbreak , we believe that area and staff could shut down and isolate , respectively , without affecting the other manufacturing areas . to date , we have not experienced any interruption of our supply of drug products and devices needed to support our ongoing clinical trials . distribution of drug product to patients continues without interruption . specialty pharmacy distributors , which we require to maintain at least 30 days ' worth of inventory on hand at any given time , continue to ship our products to patients and hospitals . specialty pharmacies have assured us that they have exercised their continuity plans to avoid supply disruptions . they have also assured us that their nursing support services , which are required for therapy initiation and over the course of treatment to train patients to safely administer their medicine , continue through a combination of in-person and virtual visits . similarly , we are not aware of any disruption to the distribution of unituxin treatment for patients with neuroblastoma . we have a contingency plan in place to secure alternative product transportation capability to deliver our products to distributors in the event traditional freight operations are disrupted . our commercial efforts continue but could be disrupted as a result of the covid-19 pandemic . our commercial field-based teams are predominantly meeting with prescribing physicians virtually instead of in person , although we have recommenced in-person visits to those sites where it is possible to do so safely . during the second quarter of 2020 , we observed several covid-19 related impacts on u.s. demand for our treprostinil-based therapies : in the second quarter of 2020 , we saw a reduction in new patient prescriptions and new patient starts across all of our treprostinil-based products , which was due to the inability of patients to visit their physician 's office to determine whether our medicines may be appropriate , and physician concerns about initiating new pah therapies via telemedicine . by the end of the third quarter , the number of new patient prescriptions and new patient starts had reached or exceeded pre-pandemic levels for all of our products , a trend that continued through the end of 2020. drug shipments to patients during the second quarter were stable relative to prior quarters due to lower discontinuation rates for patients already on our medicines . drug shipments steadily increased during the second half of the year , consistent with growth in the number of patients on our therapies . we believe the reduction in new patient starts had a negative impact on sales of remodulin , and to a lesser extent tyvaso and orenitram , during the second quarter of 2020. during the second half of 2020 , new patient starts recovered to pre-pandemic levels . 50 united therapeutics we have overcome pandemic-related delays in launching the remunity pump . we recently launched sales of the remunity pump for remodulin in february 2021 , following a delay due to pandemic-related issues impacting our partner deka 's ability to secure certain components and raw materials necessary to manufacture a continuous supply of pumps , pump disposables , and pump controllers . we launched the product once deka built safety stock of these components and raw materials to a level that we believe will allow us to withstand a significant supplier disruption without adverse impact to our patient base . we implemented this strategy due to the increasing covid-19 infection rates observed in the united states during the second quarter of 2020 , as many of the remunity pump component suppliers are located domestically . we will continue to closely monitor infection rates and their geographic intensity , which may cause us to increase safety stock further for certain suppliers based on location . our clinical studies remain open . most of our ongoing clinical studies initially paused enrollment during the first quarter of 2020 due to the pandemic , but patients already enrolled in studies continued to receive the study drug and complete necessary clinical evaluations as appropriate . this enrollment pause has been lifted for all of our studies . story_separator_special_tag however , we have only been able to re-open enrollment at a limited number of clinical trial sites , and it is difficult to predict when we will be able to re-open enrollment at additional sites for these studies , and whether we will experience further disruptions as the pandemic unfolds . in addition , it is unclear what impact the pandemic may have on the timing of future studies , such as teton . as such , we expect that completion and data readouts for several of our ongoing and planned studies will be delayed , but we do not currently expect delays of our potential product launch plans relative to the near- and medium-term windows described in the table above under part i , item 1—business—research and development . to mitigate these delays , we expanded our efforts to enter into contracts with additional clinical study sites and complete other site activation activities for certain studies where practicable , so that we may rapidly resume enrollment of our clinical studies at the appropriate time . for additional discussion of the risks to our business associated with covid-19 , please see the risk factor above entitled , we face risks and uncertainties related to the covid-19 pandemic , which could significantly disrupt our operations and or business for an unknown period of time . overview of marketed products we market and sell the following commercial products : remodulin , a continuously-infused formulation of the prostacyclin analogue treprostinil , approved by the fda for subcutaneous and intravenous administration to diminish symptoms associated with exercise in patients with pah . remodulin has also been approved in various countries outside of the united states . in february 2021 , we launched sales of the remunity pump , a new subcutaneous delivery system for remodulin . tyvaso , an inhaled formulation of treprostinil , approved by the fda and regulatory authorities in argentina and israel to improve exercise ability in pah patients . orenitram , a tablet dosage form of treprostinil , approved by the fda to delay disease progression and improve exercise capacity in pah patients . unituxin , a monoclonal antibody approved by the fda and health canada for the treatment of high-risk neuroblastoma . adcirca , an oral pde-5 inhibitor approved by the fda to improve exercise ability in pah patients . for additional detail regarding our commercial products , see part i , item 1—business—our commercial products . research and development we are engaged in research and development of new indications and delivery devices for our existing products . in particular , we are developing the implantable system for remodulin , trevyent , and remolife , all of which are new delivery systems for remodulin . we are developing tyvaso dpi , a dry powder inhalation form of tyvaso . we are studying tyvaso in patients with who group 3 pulmonary hypertension and in idiopathic pulmonary fibrosis . in addition , we are developing new products to treat pah ( orenipro , remopro , ralinepag , and aurora-gt ) . we are also heavily engaged in early-stage research and development of a number of organ transplantation-related technologies including regenerative medicine , xenotransplantation , and ex-vivo lung perfusion . finally , we are engaged in additional , early-stage research and development efforts in pah and other diseases . for additional detail regarding our research and development programs , see part i , item 1 — business — research and development . revenues our net product sales consist of sales of the five commercial products noted above . we have entered into separate , non-exclusive distribution agreements with accredo and cvs specialty to distribute remodulin , tyvaso , and orenitram in the united states , and we have entered into an exclusive distribution agreement with asd , an affiliate of amerisourcebergen corporation , to distribute unituxin in the united states . we also sell remodulin , tyvaso , and unituxin to distributors internationally . we sell adcirca 2020 annual report 51 through lilly 's pharmaceutical wholesale network . to the extent we have increased the price of any of these products , increases have typically been in the single-digit percentages per year , except for adcirca , the price of which is set solely by lilly . we require our specialty pharmaceutical distributors to maintain reasonable levels of inventory reserves because the interruption of remodulin , tyvaso , or orenitram therapy can be life threatening . our specialty pharmaceutical distributors typically place monthly orders based on current utilization trends and contractual minimum and maximum inventory requirements . as a result , sales of remodulin , tyvaso , and orenitram can vary depending on the timing and magnitude of these orders and do not precisely reflect changes in patient demand . acquisition of steadymed ltd. on august 30 , 2018 , we completed the acquisition of steadymed . as consideration for the acquisition , we paid the former holders of steadymed securities approximately $ 141 million , and issued them contingent value rights to receive additional cash payments upon the achievement of a milestone defined as 3,000 patients initiating treatment using steadymed 's trevyent product on a commercial basis on or before august 30 , 2023 ( the milestone ) . aggregate contingent consideration of $ 75.0 million will become payable if the milestone is achieved . operating expenses since our inception , we have devoted substantial resources to our various clinical trials and other research and development efforts , which are conducted both internally and through third parties . from time to time , we also license or acquire additional technologies and compounds to be incorporated into our development pipeline . our operating expenses include the costs described below . cost of product sales our cost of product sales primarily includes costs to manufacture and acquire products sold to customers , royalty , and milestone payments under license agreements granting us rights to sell related products , direct and indirect distribution costs incurred in the sale of products , and the costs of inventory reserves for current and projected obsolescence .
| orenitram net product sales increased in 2020 , as compared to 2019 , primarily resulting from an increase in quantities sold , reflecting a growing number of patients that we believe was driven by the expansion of orenitram 's labeling to reflect the freedom-ev clinical trial results . adcirca net product sales decreased in 2020 , as compared to 2019 , due to a continuing decline in bottles sold as a result of generic competition for adcirca . 54 united therapeutics gross-to-net deductions we recognize revenues net of : ( 1 ) rebates and chargebacks ; ( 2 ) prompt pay discounts ; ( 3 ) allowance for sales returns ; and ( 4 ) distributor fees . these are referred to as gross-to-net deductions and are primarily based on estimates reflecting historical experiences as well as contractual and statutory requirements . we currently estimate our allowance for sales returns using reports from our distributors and available industry data , including our estimate of inventory remaining in the distribution channel . the tables below include a reconciliation of the liability accounts associated with these deductions ( in millions ) : replace_table_token_1_th replace_table_token_2_th replace_table_token_3_th 2020 annual report 55 cost of product sales the table below summarizes cost of product sales by major category ( dollars in millions ) : replace_table_token_4_th ( 1 ) refer to share-based compensation section below for discussion . ( 2 ) calculation is not meaningful . cost of product sales , excluding share-based compensation . the decrease in cost of product sales for the year ended december 31 , 2020 , as compared to the same period in 2019 , was primarily attributable to decreases in royalty expense for adcirca , as fewer bottles were sold following the onset of generic competition for adcirca beginning in august 2018. research and development the table below summarizes research and development expense by major category ( dollars in millions ) : replace_table_token_5_th ( 1 ) refer to share-based compensation section below for discussion . ( 2 ) calculation is not meaningful . research and development , excluding share-based compensation . the decrease in research and development expense for the year ended december 31 , 2020 , as compared to the same period in
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housing prices have recovered from their post-financial crisis lows with the s & p corelogic case-shiller u.s. national home price nsa index reporting a 5.6 % annual gain in november 2016 , now exceeding the record high set in july 2006. the recovery has been supported by various economic factors , including low interest rates , falling unemployment and consistent gains in per-capita disposable personal income . the new presidential administration is seeking faster economic growth , increased investment in infrastructure , and changes in tax policy which could affect housing and home prices . mortgage rates have increased since the election and stronger economic growth could push rates higher . further gains in personal income and employment may increase the demand for housing and add to price pressures when home prices are currently rising significantly faster than inflation . recent government activity uncertainty over the new administration 's policies , together with questions regarding the administration 's ability to work with congress in order to implement such policies , are likely to increase market and credit volatility over 2017. we expect vigorous debate and discussion in a number of areas , including residential housing and mortgage reform , taxation , fiscal policy and monetary policy , to continue over the next few years ; however , we can not be certain if or when any specific proposal or policy might be announced , emerge from committee or be approved by congress , and if so , what the effects on us may be . story_separator_special_tag cellspacing= '' 0 '' style= '' border-collapse : collapse ; width:100 % ; '' > ( 1 ) represents the fair value of the agency mbs which underlie our tba forward purchase and sale commitments executed as dollar roll transactions . in accordance with gaap , our tba forward purchase and sale commitments are reflected on the consolidated balance sheets as a component of “ derivative assets , at fair value ” and “ derivative liabilities , at fair value , ” with a collective net asset carrying value of $ 1,156 and a net liability carrying value of $ 553 as of december 31 , 2016 and 2015 , respectively . 31 agency mbs investment portfolio our specified agency mbs , excluding our inverse interest-only agency mbs , consisted of the following as of december 31 , 2016 ( dollars in thousands ) : replace_table_token_9_th replace_table_token_10_th the actual cpr for the company 's agency mbs was 11.29 % for the year ended december 31 , 2016 compared to 10.21 % for the year ended december 31 , 2015. as of december 31 , 2016 , the company 's agency mbs was comprised of securities specifically selected for their relatively lower propensity for prepayment , which includes approximately 94 % in specified pools of low balance loans while the remainder includes specified pools of loans originated in certain geographical areas , loans refinanced through the u.s. government sponsored home affordable refinance program ( “ harp ” ) or with other characteristics selected for their relatively lower propensity for prepayment . our agency mbs investment portfolio also includes net long tba positions , which are primarily the result of executing sequential series of “ dollar roll ” transactions that are settled on a net basis . in accordance with gaap , we account for our net long tba positions as derivative instruments . information about the company 's net long tba positions as of december 31 , 2016 is as follows ( dollars in thousands ) : replace_table_token_11_th ( 1 ) “ notional amount ” represents the unpaid principal balance of the underlying agency mbs . ( 2 ) “ implied cost basis ” represents the contractual forward price for the underlying agency mbs . ( 3 ) “ implied fair value ” represents the current fair value of the underlying agency mbs . ( 4 ) “ net carrying amount ” represents the difference between the implied cost basis and the current fair value of the underlying mbs . this amount is reflected on the company 's consolidated balance sheets as a component of “ derivative assets , at fair value ” and “ derivative liabilities , at fair value. ” 32 private-label mbs investment portfolio our private-label mbs , excluding our interest-only mbs , consisted of the following as of december 31 , 2016 ( dollars in thousands ) : gross unrealized weighted-average face amount discount amortized cost gains losses fair value coupon gaap yield $ 2,098 $ ( 752 ) $ 1,346 $ — $ ( 173 ) $ 1,173 2.25 % 5.67 % as of december 31 , 2016 , the private-label mbs portfolio consists of “ re-remic ” securities . the company 's investments in re-remic securities represent “ mezzanine ” interests in underlying , re-securitized senior class mbs issued by private-label real estate mortgage investment conduit ( “ remic ” ) securitization trusts . the senior class remic securities that serve as collateral to the company 's investments in re-remic securities represent beneficial interests in pools of prime or alt-a residential mortgage loan collateral that hold the first right to cash flows and absorb credit losses only after their respective subordinate remic classes have been fully extinguished . the trusts that issued the company 's investments in re-remic securities employ a “ sequential ” principal repayment structure . accordingly , the company 's mezzanine class re-remic securities are not entitled to receive principal repayments until the principal balance of the senior interest in the respective collateral group has been reduced to zero . principal shortfalls are allocated on a “ reverse sequential ” basis . accordingly , any principal shortfalls on the underlying senior class remic securities are first absorbed by the company 's mezzanine class re-remic securities , to the extent of their respective principal balance , prior to being allocated to the senior interest in the respective collateral pool . periodic interest accrues on each re-remic security 's outstanding principal balance at its contractual coupon rate . story_separator_special_tag during the year ended december 31 , 2016 , we received proceeds of $ 125.0 million from sales of our private-label mbs , realizing $ 4.5 million in net gains . economic hedging instruments the company attempts to hedge a portion of its exposure to interest rate fluctuations associated with its agency mbs primarily through the use of interest rate derivatives . specifically , these interest rate derivatives are intended to economically hedge changes , attributable to changes in benchmark interest rates , in agency mbs fair values and future interest cash flows on the company 's short-term financing arrangements . as of december 31 , 2016 , the interest rate derivative instruments used by the company were centrally cleared interest rate swap agreements and exchange-traded put and call options on 10-year u.s. treasury note futures . the company 's interest rate swap agreements represent agreements to make semiannual interest payments based upon a fixed interest rate and receive quarterly variable interest payments based upon the prevailing three-month libor on the date of reset . information about the company 's outstanding centrally cleared interest rate swap agreements in effect as of december 31 , 2016 is as follows ( dollars in thousands ) : replace_table_token_12_th the company also has forward-starting interest rate swap agreements as of december 31 , 2016 which have effective dates in september and october of 2017 and mature two years from their respective effective dates . the effective dates of these forward-starting interest rate swap agreements were set to occur within reasonable proximity to the maturity dates of certain of the company 's existing interest rate swap agreements , economically extending the life of the maturing instruments . information about the company 's forward-starting interest rate swap agreements as of december 31 , 2016 is as follows ( dollars in thousands ) : weighted-average : notional amount fixed pay rate term after effective date ( years ) fair value effective in september / october 2017 $ 375,000 1.13 % 2.0 $ 5,154 33 in addition to interest rate swap agreements , the company had also purchased and sold exchange-traded options on u.s. treasury note futures contracts as of december 31 , 2016 with the objective of hedging a portion of the interest rate sensitivity of the company 's agency mbs portfolio . as of december 31 , 2016 , the company holds put options which provide the company with the right to sell 10-year u.s. treasury note futures to a counterparty with an equivalent notional amount of $ 1,650 million that were struck at a weighted average strike price that equates to a 10-year u.s. treasury note rate of approximately 2.77 % . in addition , the company has sold , or written , call options that provide a counterparty with the option to buy 10-year u.s. treasury note futures from the company with an equivalent notional amount of $ 1,000 million that were struck at a weighted average strike price per contract that equates to a 10-year u.s. treasury note rate of approximately 2.24 % . in order to limit its exposure on the sold call options from a significant decline in long-term interest rates , the company also purchased contracts that provide the company with the option to buy 10-year u.s. treasury note futures from a counterparty with an equivalent notional amount of $ 1,000 million as of december 31 , 2016 that were struck at a weighted average strike price per contract that equates to a 10-year u.s. treasury note rate of approximately 2.12 % . the options may be exercised at any time prior to their expiry , which occurs in the first quarter of 2017 , and , if exercised , are expected to be net settled in cash . information about the company 's outstanding put and call options on 10-year u.s. treasury note futures contracts as of december 31 , 2016 is as follows ( dollars in thousands ) : replace_table_token_13_th ( 1 ) the implied strike rate is estimated based upon the weighted average strike price per option contract and the price of an equivalent 10-year u.s. treasury note futures contract . results of operations net interest income net interest income determined in accordance with gaap primarily represents the interest income recognized from our investments in specified agency mbs and private-label mbs ( including the amortization of purchase premiums and accretion of purchase discounts ) , net of the interest expense incurred from repurchase agreement financing arrangements or other short- and long-term borrowing transactions . net interest income determined in accordance with gaap does not include tba agency mbs dollar roll income , which we believe represents the economic equivalent of net interest income generated from our investments in non-specified fixed-rate agency mbs , nor does it include the implied net interest income or expense of our interest rate swap agreements , which are not designated as hedging instruments for financial reporting purposes . in our consolidated statements of comprehensive income prepared in accordance with gaap , tba agency mbs dollar roll income and the implied net interest income or expense incurred from our interest rate swap agreements are reported as a component of the overall periodic change in the fair value of derivative instruments within the line item “ gain ( loss ) from derivative instruments , net ” of the “ investment gain ( loss ) , net ” section . investment gain ( loss ) , net “ investment gain ( loss ) , net ” primarily consists of periodic changes in the fair value ( whether realized or unrealized ) of investments in mbs classified as trading securities , periodic changes in the fair value ( whether realized or unrealized ) of derivative 34 instruments , gains ( losses ) realized upon the sale of investments in mbs classified as available-for-sale , and other-than-t emporary impairment charges for investments in mbs classified as available-for-sale . general and administrative expenses “ compensation and benefits expense ” includes base salaries , annual incentive cash compensation , and non-cash stock-based compensation .
| ” since the company 's fixed-rate agency mbs have generally been purchased at a premium to par value , high prepayments can have a negative impact on the company 's asset yields and interest income , while slow prepayments can have a positive impact . the actual constant prepayment rate ( “ cpr ” ) for the company 's agency mbs increased to 11.29 % for the year ended december 31 , 2016 from 10.21 % in the prior year , resulting in a decline in the average asset yield to 2.70 % during the current year compared to 2.86 % in the prior year . the company 's average cost of short-term funding during the year ended december 31 , 2016 was 0.70 % , an increase of 29 basis points from the prior year attributable primarily to the increase in benchmark short-term rates . in the second half of 2016 , the company 's spread earnings benefited from an improvement in the spread between the three-month libor that the company receives on its interest rate swap agreements and the funding rates that it pays on its repurchase agreement financing . the average rate the 30 company receives on its interest rate swap agreements increased more than the average financing rate the company pays on its repurchase agreement financing during the second half of 2016. as of december 31 , 2016 , the company 's agency investment portfolio totaled $ 4,631 million , comprised of $ 3,911 million of specified agency mbs and $ 720 million of net tba agency mbs . during the year ended december 31 , 2016 , the company increased its agency investment allocation to tba agency mbs to take advantage of higher risk adjusted returns in the tba dollar roll market as compared to owning specified agency mbs financed with repurchase agreement financing . the company generated tba dollar roll income of $ 19.3 million during the year ended december 31 , 2016 compared to $ 6.7 million in the prior year . the company continues to maintain a substantial hedge position with the intent to protect the company 's capital and earnings potential against increased interest rates over
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based upon and as of the date of that evaluation , the chief executive officer and chief financial officer concluded that the company 's disclosure controls and procedures are effective . management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act ) for the company . with the participation of the chief executive officer and the chief financial officer , management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework and the criteria established in internal control — integrated framework , issued in 1992 by the committee of sponsoring organizations of the treadway commission . based on this evaluation , management has concluded that internal control over financial reporting was effective as of march 30 , 2014. the company 's internal control system was designed to provide reasonable assurance to the company 's management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements in accordance with gaap . all internal control systems , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only a reasonable , rather than absolute , assurance that the company 's financial statements are free of any material misstatement , whether caused by error or fraud . 14 changes in internal control over financial reporting the company 's management , with the participation of the company 's chief executive officer and chief financial officer , conducted an evaluation of the company 's internal control over financial reporting as required by rule 13a-15 ( d ) under the exchange act and , in connection with such evaluation , determined that no changes occurred during the company 's fourth fiscal quarter ended march 30 , 2014 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . part iii item 10. directors , executive officers and corporate governance the information with respect to the company 's directors and executive officers will be set forth in the company 's proxy statement for the annual meeting of stockholders to be held in 2014 ( the `` proxy statement '' ) under the captions `` proposal 1 – election of directors '' and “ executive officers ” and is incorporated herein by reference . the information with respect to item 405 of regulation s-k will be set forth in the proxy statement under the caption `` section 16 ( a ) beneficial ownership reporting compliance '' and is incorporated herein by reference . the information with respect to item 406 of regulation s-k will be set forth in the proxy statement under the caption “ code of business conduct and ethics ” and is incorporated herein by reference . the information with respect to item 407 of regulation s-k will be set forth in the proxy statement under the captions “ board committees and meetings ” and “ report of the audit committee ” and is incorporated herein by reference . item 11. executive compensation the information set forth under the caption `` executive compensation '' in the proxy statement is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information set forth under the caption `` security ownership of certain beneficial owners and management '' in the proxy statement is incorporated herein by reference . securities authorized for issuance under equity compensation plans the table below sets forth information regarding shares of the company 's common stock that may be issued upon the exercise of options , warrants and other rights granted to employees , consultants or directors under all of the company 's existing equity compensation plans as of march 30 , 2014. plan category number of securities to be issued upon exercise of outstanding options , warrants and rights weighted-average exercise price of outstanding options , warrants and rights number of securities remaining available for future issuance under equity compensation plans equity compensation plans approved by security holders : 2006 omnibus incentive plan 185,000 $ 5.76 385,702 item 13. certain relationships and related transactions , and director independence the information set forth under the captions “ director independence ” and `` certain relationships and related transactions '' in the proxy statement is incorporated herein by reference . 15 item 14. principal accountant fees and services the information set forth under the caption “ proposal 2 – ratification of appointment of independent auditor ” in the proxy statement is incorporated herein by reference . 16 part iv item 15. exhibits and financial statement schedules ( a ) ( 1 ) . financial statements the following consolidated financial statements of the company are filed with this report and included in part ii , item 8 : - report of independent registered public accounting firm - consolidated balance sheets as of march 30 , 2014 and march 31 , 2013 - consolidated statements of income for the fiscal years ended march 30 , 2014 and march 31 , 2013 - consolidated statements of changes in shareholders ' equity for the fiscal years ended march 30 , 2014 and march 31 , 2013 - consolidated statements of cash flows for the fiscal years ended march 30 , 2014 and march 31 , 2013 - notes to consolidated financial statements ( a ) ( 2 ) . financial statement schedule the following financial statement schedule of the company is filed with this report : schedule ii — valuation and qualifying accounts page 18 all other schedules not listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto . 17 schedule ii crown story_separator_special_tag based upon and as of the date of that evaluation , the chief executive officer and chief financial officer concluded that the company 's disclosure controls and procedures are effective . management 's annual report on internal control over financial reporting the company 's management is responsible for establishing and maintaining adequate internal control over financial reporting ( as such term is defined in rules 13a-15 ( f ) and 15d-15 ( f ) under the exchange act ) for the company . with the participation of the chief executive officer and the chief financial officer , management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework and the criteria established in internal control — integrated framework , issued in 1992 by the committee of sponsoring organizations of the treadway commission . based on this evaluation , management has concluded that internal control over financial reporting was effective as of march 30 , 2014. the company 's internal control system was designed to provide reasonable assurance to the company 's management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements in accordance with gaap . all internal control systems , no matter how well designed , have inherent limitations . therefore , even those systems determined to be effective can provide only a reasonable , rather than absolute , assurance that the company 's financial statements are free of any material misstatement , whether caused by error or fraud . 14 changes in internal control over financial reporting the company 's management , with the participation of the company 's chief executive officer and chief financial officer , conducted an evaluation of the company 's internal control over financial reporting as required by rule 13a-15 ( d ) under the exchange act and , in connection with such evaluation , determined that no changes occurred during the company 's fourth fiscal quarter ended march 30 , 2014 that have materially affected , or are reasonably likely to materially affect , the company 's internal control over financial reporting . part iii item 10. directors , executive officers and corporate governance the information with respect to the company 's directors and executive officers will be set forth in the company 's proxy statement for the annual meeting of stockholders to be held in 2014 ( the `` proxy statement '' ) under the captions `` proposal 1 – election of directors '' and “ executive officers ” and is incorporated herein by reference . the information with respect to item 405 of regulation s-k will be set forth in the proxy statement under the caption `` section 16 ( a ) beneficial ownership reporting compliance '' and is incorporated herein by reference . the information with respect to item 406 of regulation s-k will be set forth in the proxy statement under the caption “ code of business conduct and ethics ” and is incorporated herein by reference . the information with respect to item 407 of regulation s-k will be set forth in the proxy statement under the captions “ board committees and meetings ” and “ report of the audit committee ” and is incorporated herein by reference . item 11. executive compensation the information set forth under the caption `` executive compensation '' in the proxy statement is incorporated herein by reference . item 12. security ownership of certain beneficial owners and management and related stockholder matters the information set forth under the caption `` security ownership of certain beneficial owners and management '' in the proxy statement is incorporated herein by reference . securities authorized for issuance under equity compensation plans the table below sets forth information regarding shares of the company 's common stock that may be issued upon the exercise of options , warrants and other rights granted to employees , consultants or directors under all of the company 's existing equity compensation plans as of march 30 , 2014. plan category number of securities to be issued upon exercise of outstanding options , warrants and rights weighted-average exercise price of outstanding options , warrants and rights number of securities remaining available for future issuance under equity compensation plans equity compensation plans approved by security holders : 2006 omnibus incentive plan 185,000 $ 5.76 385,702 item 13. certain relationships and related transactions , and director independence the information set forth under the captions “ director independence ” and `` certain relationships and related transactions '' in the proxy statement is incorporated herein by reference . 15 item 14. principal accountant fees and services the information set forth under the caption “ proposal 2 – ratification of appointment of independent auditor ” in the proxy statement is incorporated herein by reference . 16 part iv item 15. exhibits and financial statement schedules ( a ) ( 1 ) . financial statements the following consolidated financial statements of the company are filed with this report and included in part ii , item 8 : - report of independent registered public accounting firm - consolidated balance sheets as of march 30 , 2014 and march 31 , 2013 - consolidated statements of income for the fiscal years ended march 30 , 2014 and march 31 , 2013 - consolidated statements of changes in shareholders ' equity for the fiscal years ended march 30 , 2014 and march 31 , 2013 - consolidated statements of cash flows for the fiscal years ended march 30 , 2014 and march 31 , 2013 - notes to consolidated financial statements ( a ) ( 2 ) . financial statement schedule the following financial statement schedule of the company is filed with this report : schedule ii — valuation and qualifying accounts page 18 all other schedules not listed above have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto . 17 schedule ii crown
| also , the company 's interest income on its daily cash balances held at its lender , cit group/commercial services , inc. ( “ cit ” ) , was $ 40,000 lower during fiscal year 2014 than in fiscal year 2013 due to lower average cash balances during the current year . income tax expense : the company 's provision for income taxes increased to 38.3 % during fiscal year 2014 from 36.3 % in fiscal year 2013. the increase in the effective tax rate is primarily due to a decrease in the current year in the amount of certain expenses that are deductible for tax purposes but not book purposes , as well as a decrease in california enterprise zone wage credits . inflation : the company has endeavored to increase its prices to offset inflationary increases in its raw materials and other costs , but there can be no assurance that the company will be successful in maintaining such price increases or in effecting such price increases in a manner that will provide a timely match to the cost increases in the future . known trends and uncertainties the company 's financial results are closely tied to sales to the company 's top two customers , which represented approximately 60 % of the company 's gross sales in fiscal year 2014. a significant downturn experienced by any or all of these customers could lead to pressure on the company 's revenues . at times , the company has also faced higher raw material costs , primarily cotton , as well as increases in labor , transportation and currency costs associated with the company 's sourcing activities in china . increases in these costs could adversely affect the profitability of the company if it can not pass the cost increases along to its customers in the form of price increases or if the timing of price increases does not closely match the cost increases , or if the company can not further reduce its dependence on
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resulted from the origination of new sba non-affiliate investments year over year . 70 dividend income dividend income is dependent on portfolio company earnings . current year dividend income may not be indicative of future year dividend income . the increase in dividend income is primarily related to an increase of dividends generated from premier of $ 1,135,000 , an increase of $ 682,000 in dividends generated from nts , an increase of $ 348,000 in dividends generated from sbl , an increase of $ 210,000 in dividends generated from upsw , and $ 300,000 of dividends generated from bsp , a new wholly owned controlled portfolio company investment we made in june 2016. these increases were offset by one-time dividends of $ 1,080,000 and $ 1,162,000 received from exponential business development co. , inc. and summit systems and designs , llc , respectively in 2015 , both of which are no longer operating portfolio company businesses . nsbf servicing portfolio and related servicing income the following table represents nsbf originated servicing portfolio and servicing income earned for the years ended december 31 , 2016 and 2015 : replace_table_token_14_th ( 1 ) of this amount , the total average nsbf originated portfolio earning servicing income was $ 633,126,000 and $ 520,794,000 for the years ended december 31 , 2016 and 2015 , respectively . the increase in servicing income was attributable to the increase in total portfolio investments for which we earn servicing income . the portfolio earning servicing income increased $ 112,332,000 year over year . the increase was a direct result of increased investments in sba 7 ( a ) non-affiliate investments from 2015 to 2016. other income other income relates primarily to legal , packaging , prepayment , and late fees earned from sba loans . the increase is related to the increase in the number of loans funded to 402 for the year ended december 31 , 2016 from 292 during the year ended december 31 , 2015. this increase resulted in an increase in legal and packaging fees earned on such loans . expenses : replace_table_token_15_th salaries and benefits salaries and benefits increased $ 2,481,000 primarily due to an increase in employees at nsbf performing underwriting , processing , closing and servicing functions as a result of the increase in annual loan originations . the increase was also attributable to $ 577,000 of stock based compensation expense incurred during the year ended december 31 , 2016 related to the issuance of restricted stock awards to employees . no stock based compensation expense was incurred during the year ended december 31 , 2016. interest expense the following is a summary of interest expense by facility for the years ended december 31 , 2016 and 2015 : 71 replace_table_token_16_th in september 2015 and april 2016 , the company issued $ 8,324,000 of 7.50 % notes due 2022 , and $ 40,250,000 of 7.00 % notes due 2021 , respectively . the company incurred $ 2,889,000 in related interest expense during the year ended december 31 , 2016 on the notes . the increase is attributed to incurring a full year of interest expense on the notes due 2022 and the issuance of the notes due 2021 in 2016. interest expense on notes payable - related parties was $ 260,000 and $ 621,000 during the years ended december 31 , 2016 and 2015 , respectively , and represents interest on amounts borrowed under an unsecured revolving line of credit extended by upsw and nts . the decrease is attributed to a decrease in the average outstanding balance on notes payable - related parties during the year . 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 nbs capital one term loan and line of credit were paid in full and extinguished in june 2015 , and as such , no interest expense was incurred during the year ended december 31 , 2015. other general and administrative costs other general and administrative costs include professional fees , marketing , loan related costs , rent and loss on lease expense . the increase in other general and administrative costs is primarily related to an increase in loan related costs , rent expense and loss on lease expense . loan related costs include referral fees , servicing expenses , appraisal fees , legal fees , search fees and other collateral preservation costs . loan related costs increase as the number of loans we originate and service increase . at december 31 , 2016 , our loan portfolio consisted of 1,228 sba 7 ( a ) loans as compared to 948 at december 31 , 2015. loan related costs increased $ 1,775,000 year over year as a result of the increase in the loan portfolio . additionally , rent expense increased as a result of the move to our lake success offices . in april 2016 , the company moved its headquarters to lake success , new york . as a result , the company vacated its spaces in west hempstead , new york and new york , new york . the company recorded a loss of $ 604,000 related to the remaining liabilities under the west hempstead lease , offset by future rental income , during the year ended december 31 , 2016. the company has sublet both spaces . net realized gains and net unrealized appreciation and depreciation net realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized and includes investments charged off during the period , net of recoveries . realized gains for the year ended december 31 , 2016 and 2015 were $ 32,437,000 and $ 29,575,000 , respectively . realized losses were $ 925,000 and $ 1,189,000 during the years ended december 31 , 2016 and 2015 , respectively . story_separator_special_tag the net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period , including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized . net realized gains on sba non-affiliate investments 72 replace_table_token_17_th ( 1 ) realized gains greater than 110.00 % must be split 50/50 with the sba in accordance with sba regulations . the realized gains recognized above reflects amounts net of split with the sba . net realized gains on controlled investments for the year ended december 31 , 2016 , realized gains on controlled investments were $ 108,000 and primarily represented distributions from sbl in excess of our cost basis . for the year ended december 31 , 2015 , realized gains on controlled investments were $ 5,473,000 and represent distributions in excess of our cost basis from controlled affiliates . included in the $ 5,473,000 is a distribution in excess of basis from upsw and first bankcard alliance of alabama , llc of $ 4,892,000 and $ 572,000 , respectively . net unrealized appreciation ( depreciation ) on investments replace_table_token_18_th net unrealized appreciation ( depreciation ) on sba guaranteed non-affiliate investments relates to guaranteed portions of sba debt investments made which the company sells into a secondary market . unrealized appreciation of sba guaranteed investments represents the fair value adjustment of guaranteed portions of loans which have not yet been sold . unrealized depreciation represents the reversal of unrealized appreciation when the sba 7 ( a ) loans are sold . the decrease in net unrealized appreciation on sba unguaranteed non-affiliate investments resulted from an increase in discount rates on performing sba unguaranteed non-affiliate investments . the discount rate increased from 5.30 % to 5.50 % year over year on performing sba unguaranteed non-affiliate investments . net unrealized appreciation on controlled investments for the year ended december 31 , 2016 consisted of unrealized appreciation of $ 10,552,000 and $ 4,562,000 on our investments in upsw and premier , respectively offset by unrealized depreciation of $ 2,200,000 , $ 975,000 , and $ 175,000 on our investments in sbl , nts , and nbc , respectively . the primary driver of the increases were increases in multiples of comparable companies and increases in revenue growth projections . the decrease in sbl , nts , and nbc was based on weaker than projected financial performance . net unrealized appreciation on controlled investments was $ 12,250,000 for the year ended december 31 , 2015. this consisted primarily of $ 6,948,000 of unrealized appreciation on our investment in upsw and $ 5,565,000 of unrealized appreciation on our investment in sbl which were offset by unrealized depreciation of approximately $ 966,000 on our investment in nbc . the primary driver of the increase in upsw was better than projected financial performance and an increase in multiples of comparable companies . the 73 primary driver for the increase in sbl was the addition of a new third party servicing contract which provides a longer-term stable revenue stream . provision for deferred taxes on net unrealized appreciation of investments certain consolidated subsidiaries of ours are subject to u.s. federal and state income taxes . these taxable subsidiaries are not consolidated with the company for income tax purposes , but are consolidated for gaap purposes , and may generate income tax liabilities or assets from temporary differences in the recognition of items for financial reporting and income tax purposes at the subsidiaries . during the years ended december 31 , 2016 and 2015 we recognized a provision for deferred taxes on net unrealized gains of $ 5,128,000 and $ 857,000 , respectively . the increase is mainly attributed to unrealized gains related to our investments in upsw and premier . net unrealized depreciation on servicing assets ( in thousands ) december 31 , 2016 december 31 , 2015 change net unrealized depreciation on servicing assets $ ( 2,269 ) $ ( 1,268 ) $ ( 1,001 ) the increase in unrealized depreciation on servicing assets is primarily related to the increase in the discount rate from 12.03 % to 12.20 % and an increase in the cumulative prepayment rate from 15.5 % to 18.5 % . 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 ) . 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 . 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 .
| we consolidate the following wholly-owned subsidiaries : newtek small business finance , llc newtek asset backed securities , llc the whitestone group , llc wilshire colorado partners , llc wilshire dc partners , llc wilshire holdings i , inc. wilshire louisiana bidco , llc wilshire louisiana partners ii , llc wilshire louisiana partners iii , llc wilshire louisiana partners iv , llc wilshire new york advisers ii , llc wilshire new york partners iii , llc wilshire new york partners iv , llc wilshire new york partners v , llc wilshire partners , llc ccc real estate holdings , llc banc-serv acquisition inc. exponential business development co. , inc. newtek lsp holdco , llc newtek business services holdco 1 , inc. 67 our common shares are currently listed on the nasdaq global market under the symbol “ newt ” . nsbf has been granted preferred lender program ( “ plp ” ) status and originates , sells and services sba 7 ( a ) small business loans and is authorized to place sba guarantees on loans without seeking prior sba review and approval . being a national lender , plp status allows nsbf to expedite the origination of loans since nsbf is not required to present applications to the sba for concurrent review and approval . the loss of plp status could adversely impact our marketing efforts and ultimately our loan origination volume which could negatively impact our results of operations . as a bdc , our investment objective is to generate both current income and capital appreciation primarily through loans originated by our small business finance platform and our equity investments in certain portfolio companies that we control . we target our debt investments , which are principally made through our small business finance platform under the sba 7 ( a ) program , to produce a coupon rate of prime plus 2.75 % which enables us to generate rapid sales of loans in the secondary market . we typically structure our debt investments with the maximum seniority and collateral along with personal guarantees from portfolio company owners , in many cases collateralized by other assets including real estate . in most cases , our debt investment will be collateralized by a first lien on the assets of the portfolio company and a first or second lien on assets of guarantors , in both cases primarily real estate . all sba loans are made with personal guarantees from any owner ( s ) of 20 % or more of the portfolio company 's equity . we typically structure our debt investments
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we expect that the rate of growth in our revenue will continue to decline over the long term as our business scales , even if our revenue continues to grow in absolute terms . we have continued to make significant expenditures and investments , including in personnel-related costs , sales and marketing , infrastructure and operations , and have incurred net losses in each period since our inception , including net losses of $ 45.3 million , $ 61.1 million , and $ 67.5 million for the years ended march 31 , 2018 , 2017 , and 2016 , respectively . our accumulated deficit as of march 31 , 2018 was $ 305.5 million . internationally , we currently offer our products in europe , middle east , and africa , or emea ; asia-pacific , or apac ; and other non-u.s. locations , as determined based on the billing address of our customers , and our revenue from those regions constituted 18 % , 7 % , and 6 % , respectively , of our revenue for the year ended march 31 , 2018 , 19 % , 8 % , and 6 % , respectively , of our revenue for the year ended march 31 , 2017 , and 19 % , 8 % , and 6 % , respectively , of our revenue for the year ended march 31 , 2016 . we believe there is further opportunity to increase our international revenue overall and as a proportion of our revenue , and we are increasingly investing in our international operations and intend to invest in further expanding our footprint in international markets . our employee headcount has increased to 1,284 employees as of march 31 , 2018 from 1,088 as of march 31 , 2017 and we plan to continue to invest aggressively in the growth of our business to take advantage of our market opportunity . for example , we intend to continue to increase our investment in sales and marketing , including further expanding our sales teams , increasing our marketing activities , and growing our international operations , particularly as we increase our sales to larger organizations . in addition , we plan to continue to invest in research and development to enhance and further develop our products and platform capabilities . while these areas represent significant opportunities for us , we also face significant risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results . we are continuing to incur expenses in the near term as we continue to invest in the growth of our sales and expansion of paid business accounts . however , we may not realize any long-term benefit from these investments in the growth of our business . in addition , any investments that we make in sales and marketing or other areas will occur in advance of our experiencing any benefits from such investments , so it may be difficult for us to determine if we are efficiently allocating our resources in these areas . as a result , we have never achieved profitability and we do not expect to be profitable in the near future . further , our reported revenue , operating results , and cash flows for a given period may not be indicative of future results due to our limited operating history and fluctuations in the number of new employees , the rate of our expansion , the timing of expenses we incur to grow our business and operations , levels of competition , market demand for our products , and any equity or debt financings we may undertake in the future . factors affecting our performance market adoption of our products . we are defining a new category of enterprise software that is designed to make every aspect of modern software and infrastructure observable . our success is dependent on the market adoption of this emerging category of software , which may not yet be well understood by the market . for the foreseeable future , we expect that our revenue growth will be primarily driven by the pace of adoption and penetration of our products and we will incur significant expenses associated with educating the market about the benefits of our products . increasing the number of paid business accounts . our future growth is dependent on our ability to increase the number of accounts that pay us to use our products . many users experience our products with a free trial after which they have the 38 option to purchase one or more of our subscription plans . we believe that we have a significant competitive advantage as our users experience the ease of installation and the full set of features that our products deliver during the free trial period . retention and expansion within paid business accounts . a key factor in our success is the retention and expansion of our subscription agreements with our existing customers . in order for us to continue to grow our business , it is important to generate additional revenue from our existing customers , and we do this in several ways . as we improve our existing products and platform capabilities and introduce new products , we believe that the demand for our products will generally grow . we also believe that there is a significant opportunity for us to increase the number of subscriptions we sell to our current customers as they become more familiar with our products and adopt our products to address additional business use cases . investment in sales and marketing . we expect to continue to invest aggressively in sales and marketing to drive additional revenue . any investments that we make in sales and marketing will occur in advance of our experiencing any benefits from such investments , so it may be difficult for us to determine if we are efficiently allocating our resources . story_separator_special_tag as we continue to focus sales and marketing investments primarily towards large organizations , this may require more of our resources . in addition , we expect our sales cycle to be longer and less predictable with respect to larger customers , which may delay realization of future sales . we also intend to increase our sales and marketing investment in international markets , such as europe , and those markets may take longer and be more costly to develop than the u.s. market . key operating metrics we review the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans , and make key strategic decisions : number of paid business accounts and number of paid business accounts with annual recurring revenue over $ 100,000 . we believe that our ability to increase our number of paid business accounts is one indicator of our market penetration , the growth of our business , and our potential future prospects . we define the number of paid business accounts at the end of any particular period as the number of accounts at the end of the period as identified by a unique account identifier for which we have recognized revenue on the last day of the period indicated . a single organization or customer may have multiple paid business accounts for separate divisions , segments , or subsidiaries . we round the number of total paid business accounts that we report as of a particular date down to the nearest hundred . we expect the growth rate at which we add paid business accounts to decrease over time as we scale our business , but it may fluctuate from period to period as a result of the introduction of alternative pricing options for our products or other factors . the following table summarizes the number of paid business accounts at each quarter end presented : replace_table_token_6_th as a subset of our paid business accounts metric , we believe that our number of paid business accounts with annual recurring revenue over $ 100,000 is another indicator of our business as it relates to the acquisition of larger accounts within our overall customer base , including our market penetration of larger mid-market and enterprise customers , as well as deeper penetration into our existing customer base . for this purpose , we define annual recurring revenue as the revenue we would contractually expect to receive from those customers over the following 12 months , without any increase or reduction in any of their subscriptions . the following table summarizes the number of paid business accounts with annual recurring revenue over $ 100,000 at each quarter end presented : replace_table_token_7_th we had 703 paid business accounts with annual recurring revenue over $ 100,000 as of march 31 , 2018 , which was a 36.0 % increase compared to 517 paid business accounts with annual recurring revenue over $ 100,000 as of march 31 , 2017 . we believe this increase reflects our continued sales and marketing focus on larger mid-market and enterprise customers . as with our total paid business accounts , we expect the rate at which we add paid business accounts with annual recurring revenue over $ 100,000 to decrease over time as a result of deeper penetration into the enterprise market . 39 percentage of annualized recurring revenue from enterprise paid business accounts . we believe that our ability to increase the percentage of annualized recurring revenue from enterprise paid business accounts relative to our overall business is an important indicator of our success with respect to our focus in recent periods to improve our market penetration with enterprise companies . we define an enterprise paid business account as a paid business account that we measure to have over 1,000 employees . growth or reduction reflected in this figure would include , in addition to the acquisition , loss , or consolidation of enterprise paid business accounts , any changes we make to the categorization of existing paid business accounts , for example to reflect that they have expanded beyond the employee threshold , which we review periodically . the following table summarizes the percentages of annualized recurring revenue from enterprise paid business accounts at each quarter end presented : replace_table_token_8_th our percentage of annualized recurring revenue from enterprise paid business accounts was 54 % as of march 31 , 2018 compared to 46 % as of march 31 , 2017 . we expect the percentage of annualized recurring revenue from enterprise paid business accounts to increase over time . however , because of the size of our large installed base and potential seasonality in regard to selling into enterprise customers , we believe the percentage may not move significantly from quarter to quarter . annualized revenue per average paid business account . we believe that our annualized revenue per average paid business account is another indicator of our business as it relates to the acquisition of larger accounts within our overall customer base , including our market penetration of larger mid-market and enterprise customers , as well as deeper penetration into our existing customer base . we define our annualized revenue per average paid business account as the annualized revenue for the current period divided by the average of the number of paid business accounts at the end of the current period and the end of the prior period . we round down our annualized revenue per average paid business account to the nearest $ 500. our annualized revenue per average paid business account for the quarter ended march 31 , 2018 grew to over $ 23,000 , an increase of 21.1 % compared to over $ 19,000 for the quarter ended march 31 , 2017 . we believe this increase reflects our continued focus on larger mid-market and enterprise customers .
| our revenue from emea increased $ 15.2 million , or 44 % , 44 in the fiscal year ended march 31 , 2017 compared to the fiscal year ended march 31 , 2016 , and our revenue from apac increased $ 5.8 million , or 41 % , in the fiscal year ended march 31 , 2017 compared to the fiscal year ended march 31 , 2016 , as a result of an increase in the number of paid business accounts and an increase in product adoption by existing paid business accounts located in these geographic regions . cost of revenue replace_table_token_15_th cost of revenue increased $ 12.7 million , or 25 % , in the fiscal year ended march 31 , 2018 compared to the fiscal year ended march 31 , 2017 . the increase was primarily a result of an increase in personnel-related costs and hosting-related costs necessary to support our growth , as well as an increase in payment processing costs due to the increase in revenue . personnel-related costs increased by $ 5.7 million , driven by higher headcount , and hosting-related costs and payment processing fees increased by $ 3.6 million , primarily due to increased operating costs to support revenue growth . depreciation expense and amortization expense increased by $ 3.4 million . cost of revenue increased $ 12.8 million , or 34 % , in the fiscal year ended march 31 , 2017 compared to the fiscal year ended march 31 , 2016. the increase was primarily a result of an increase in personnel-related costs and hosting-related costs necessary to support our growth , as well as an increase in payment processing costs due to the increase in revenue . personnel-related costs increased by $ 6.5 million , driven by higher headcount , and hosting-related costs and payment processing fees increased by $ 3.1 million , primarily due to increased operating costs to support revenue growth . depreciation expense and amortization expense increased by $ 2.7 million , and software costs and other miscellaneous expenses increased by $ 0.5 million . research and development replace_table_token_16_th research and development expenses increased $ 13.3 million , or
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