document stringlengths 8.64k 13.4k | summary stringlengths 179 2.97k | __index_level_0__ int64 0 16.8k |
|---|---|---|
31 we refer to our standard seller services financial model as the service fee model . in this model , our clients own the inventory and are the merchants of record and engage us to provide various infrastructure , technology and digital agency services in suppo rt of their business operations . we derive our service fee revenues from a broad range of service offerings that include digital agency and marketing , ecommerce technologies , system integration , order management , customer care , logistics and fulfillment , f inancial management and professional consulting . we offer our services as an integrated solution , which enables our clients to outsource their complete ecommerce needs to a single source and to focus on their core competencies , though clients are also able to select individual or groupings of our various service offerings on an à la carte basis . we currently provide services to clients that operate in a range of vertical markets , including technology manufacturing , computer products , cosmetics , fragile good s , coins and collectibles , apparel , telecommunications , consumer electronics and consumer packaged goods , among others . in the service fee model , we typically charge for our services on a cost-plus basis , a percent of shipped revenue basis , a time and materials , project or retainer basis for our professional services or a per-transaction basis , such as a per-labor hour basis for web-enabled customer contact center services and a per-item basis for fulfillment services . additional fees are billed for other services . we price our services based on a variety of factors , including the depth and complexity of the services provided , the amount of capital expenditures or systems customization required , the length of contract and other factors . many of our service fee contracts involve third-party vendors who provide additional services , such as package delivery . the costs we are charged by these third-party vendors for these services are often passed on to our clients . our billings for reimbursements of these costs and other ‘ out-of-pocket ' expenses include travel , shipping and handling costs and telecommunication charges and are included in pass-through revenue . as an additional service , we offer the agent , or flash , financial model , in which our clients maintain ownership of the product inventory stored at our locations as in the service fee model . when a customer orders the product from our clients , a “ flash ” sale transaction passes product ownership to us for each order and we in turn immediately re-sell the product to the customer . the “ flash ” ownership exchange establishes us as the merchant of record , which enables us to use our existing merchant infrastructure to process sales to end customers , removing the need for the clients to establish these business processes internally , but permitting them to control the sales process to end customers . in this model , based on the terms of our current client arrangements , we record product revenue net of cost of product revenue as a component of service fee revenue in our consolidated statement of operations . finally , our retail model allows us to purchase inventory from the client . in this model , we place the initial and replenishment purchase orders with the client and take ownership of the product upon delivery to our facility . in this model , depending on the terms of our client arrangements , we may own the inventory and the accounts receivable arising from our product sales . under the retail model , depending upon the product category and sales characteristics , we may require the client to provide product price protection as well as product purchase payment terms , right of return , and obsolescence protection appropriate to the product sales profile . depending on the terms of our client arrangements in the retail model , we record in our consolidated statement of operations either : 1 ) product revenue as a component of product revenue , or 2 ) product revenue net of cost of product revenue as a component of service fee revenue . in general , we seek to structure client relationships in our retail model under the net revenue approach to more closely align with our service fee revenue financial presentation and mitigate inventory ownership , although we have one client still utilizing the gross revenue approach . freight costs billed to customers are reflected as components of product revenue . this business model generally requires significant working capital , for which we have credit available either through credit terms provided by our clients or under senior credit facilities . in general , we provide the service fee model through all of our subsidiaries , the agent ( or flash ) model through our pfs and supplies distributors subsidiaries and the retail model through our supplies distributors subsidiary . growth is a key element to achieving our future goals , including achieving and maintaining sustainable profitability . growth in our service fee and agent models is driven by two main elements : new client relationships and organic growth from existing clients . we focus our sales efforts on larger contracts with brand-name companies within four primary target markets , health and beauty , home goods and collectibles , fashion and consumer packaged goods , which , by nature , require a longer duration to close but also have the potential to be higher quality and longer duration engagements . through recent acquisitions , we have expanded our service offering capabilities and added new client relationships , which we currently expect to enhance our growth opportunities . currently , we are targeting growth within our retail model to be through relationships with clients under which we can record service fee revenue ( product revenue net of cost of product revenue ) in our consolidated statement of operations as opposed to product revenue as generated in the agent or flash model above . story_separator_special_tag these relationships are often driven by the sales and marketing efforts of the manufacturers and third party sales partners . in addition , as a result of certain operational restructuring of its business , our primary client relationship operating in the retail model , ricoh , has implemented , and will continue to implement , certain changes in the sale and distribution of ricoh products . the changes have resulted , and are expected to continue to result , in reduced product revenues and profitability under our retail model . 32 we continue to monitor and control our costs to focus on profitability . while we are targeting our new service fee contracts to yield incremental gross profit , we also expect to incur incremental investments in technology development , operational and support management and sales and marketing expenses to help generate growth . our expenses comprise primarily four categories : 1 ) cost of service fee revenue , 2 ) cost of product revenue , 3 ) cost of pass-through revenue and 4 ) selling , general and administrative expenses . cost of service fee revenue – consists primarily of compensation and related expenses for our web-enabled customer contact center services , international fulfillment and distribution services and professional , digital agency and technology services , and other fixed and variable expenses directly related to providing services under the terms of fee based contracts , including certain occupancy and information technology costs and depreciation and amortization expenses . cost of product revenue – consists of the purchase price of product sold and freight costs , which are reduced by certain reimbursable expenses . these reimbursable expenses include pass-through customer marketing programs , direct costs incurred in passing on any price decreases offered by vendors to cover price protection and certain special bids , the cost of products provided to replace defective product returned by customers and certain other expenses as defined under the distributor agreements . cost of pass-through revenue – the related reimbursable costs for pass-through expenditures are reflected as cost of pass-through revenue . selling , general and administrative expenses – consist of expenses such as compensation and related expenses for sales and marketing staff , distribution costs ( excluding freight ) applicable to the supplies distributors business and the retail model , executive , management and administrative personnel and other overhead costs , including certain occupancy and information technology costs and depreciation and amortization expenses and acquisition related costs . monitoring and controlling our available cash balances and our expenses continues to be a primary focus . our cash and liquidity positions are important components of our financing of both current operations and our targeted growth . 33 story_separator_special_tag style= '' text-align : justify ; margin-bottom:0pt ; margin-top:12pt ; text-indent:4.54 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > we target to earn an overall average gross profit on our service fee activity of 27-32 % on existing and new service fee contracts , but we have accepted , and may continue to accept , lower gross margin percentages on certain contracts depending on contract scope and other factors , including projected volumes . we are focused on continuing to increase our level of higher margin service fee activity , including our professional and technology services , to help offset other lower margin activities . in addition , we are targeting to improve the profitability results of the remaining large , new fulfillment solutions implemented in 2016. based on our currently projected continued growth in the professional services area of our business , including the benefit of our acquisitions , we are projecting to be at the middle to high end of the targeted range in 2017. our service fee gross profit will continue to be impacted by the relative proportion of our infrastructure related services versus our professional services activity , as well as project work . cost of product revenue . cost of product revenue decreased by $ 9.7 million , or 17.5 % , to $ 45.9 million in 2016 as compared to 2015. the resulting gross profit margin was $ 2.8 million or 5.8 % of product revenue for the year ended december 31 , 2016 and $ 3.1 million or 5.2 % of product revenue for 2015. we currently expect our product revenue gross profit margin to be approximately 5 % in 2017. selling , general and administrative ( “ sg & a ” ) expenses . sg & a expenses were $ 76.3 million , or 22.8 % of total revenues in 2016 and $ 66.3 million , or 23.0 % of total revenues in 2015. the year ended december 31 , 2016 includes $ 13.1 million of sg & a expenses for our newly consolidated acquisitions , moda , crossview and conexus ( including $ 3.5 million of amortization of acquisition related intangible assets ) , which were either not yet acquired as of december 31 , 2015 or not included for the full year 2015. the year ended december 31 , 2015 included $ 5.2 million of sg & a expenses for moda and crossview ( including $ 1.9 million of amortization of acquisition related intangible assets ) and $ 0.4 million of expense related to the settlement of a claim relating to a discontinued business in 2015. sg & a expenses for 2016 and 2015 include approximately $ 3.5 million and $ 5.8 million , respectively of restructuring and acquisition related charges and approximately $ 4.0 million and $ 2.9 million , respectively of amortization of identifiable intangible assets related to our acquisitions . excluding the restructuring and acquisition related charges and amortization of acquired identifiable intangibles assets in 2016 and 2015 and the claim settlement in 2015 , sg & a expenses were 21.0 % and 20.0 % of total revenues in 2016 and 2015 , respectively .
| the growth of existing client relationships in 2016 includes the benefit of a full period of client activity applicable to client relationships acquired in conjunction with th e moda acquisition in june 2015 and crossview acquisition in august 2015 , compared to only a partial period of revenue in 2015. the new service contract relationships include an aggregate of approximately $ 3.3 million of revenue applicable to conexus , acqu ired in june 2016. our 2016 service fee revenue includes approximately $ 31.0 million of service fee revenues from clients who either concluded their relationship with us during 2016 or have notified us they will conclude their relationship during 2017 , rep resenting both project focused and recurring revenue client engagements , and also including one of the three clients for whom we implemented a new fulfillment solution during 2016. based on current client projections , we expect the reduction in revenue fro m these terminated client programs to be offset by service fee revenue generated in 2017 by new or expanded client opportunities and revenues generated by our newly acquired subsidiaries . for 2017 , we are currently targeting an increase in service fee reve nues of approximately 5-10 % from 2016 including the impact of a full year of operations for our conexus entity versus a partial year in 2016. product revenue , net . product revenue decreased $ 10.0 million , or 17.0 % , in 2016 as compared to 2015. this reduction in revenue was primarily due to the operational restructuring by ricoh of its business , including discontinuance of certain product lines , which has resulted , and is expected to continue to result , in lower product revenue from the sale of ricoh products . we currently expect product revenue to continue to decline and be approximately $ 38 million to $ 45 million in 2017. cost of service fee revenue . service fee gross profit as a percentage of service fees decreased to 31.2 % in 2016 from 32.2 % in 2015. during 2016 we implemented three new , large fulfillment solutions in the u.s. along with several other engagements . the decline in gross margin is primarily due to incremental facility , labor and other costs incurred to support the setup and launch of new client relationships , especially for certain of these new clients
| 13,780 |
42 all subjects who complete treatment in either the 201 study or 202 study have the option to roll over into a long-term open label study of abi-h0731 ( the 211 study ) and receive a combination of abi-h0731 with ongoing standard of care nuc therapy . subjects on the 211 study will be treated for up to an additional year from the time of completion of their participation in the 201 study or the 202 study , as applicable . subject in the 211 study who achieve a complete response , defined as hbsag < 100 iu , loss of hbeag and viral load below limits of detection , will have the opportunity to stop all treatment ( abi-h0731 and standard of care nuc therapy ) and be monitored for six months off therapy to assess whether combination therapy improves the rate of sustained viral responses . abi-h2158 abi-h2158 , our second product candidate in the hbv-cure program , is an internally discovered and developed drug product candidate that is chemically distinct from abi-h0731 . in november 2018 , we initiated a phase 1a/1b dose-ranging clinical study of abi-h2158 in new zealand , to assess the safety , tolerability and pk of abi-h2158 in healthy volunteers and then subsequently assess the safety , tolerability , pk and initial antiviral potency in non-cirrhotic patients with chronic hbv infection . we expect to advance abi-h2158 into the phase 1b portion of this study in the second quarter of 2019. initial data from the healthy volunteer cohort of this study is expected in mid-2019 . abi-h3733 we also recently selected a third clinical product candidate , abi-h3733 for the treatment of hbv , a novel chemical scaffold separate from abi-h0731 and abi-h2158 , that is currently undergoing ind-enabling studies . other product candidates we plan to conduct additional research and development to identify additional product candidates for our hbv-cure program . microbiome program our microbiome program consists of a fully integrated platform that includes a disease-targeted strain isolation , identification , characterization and selection process , methods for strain purification and growth under current good manufacturing practice ( cgmp ) conditions , and a licensed patented delivery system that we call gemicel® , which is designed to allow for targeted oral delivery of live biologic and conventional therapies to the lower gastrointestinal ( gi ) tract . in connection with our microbiome program , we filed an investigational new drug ( ind ) application in december 2018 for abi-m201 ( ulcerative colitis ) . in february 2019 , initiated a phase 1b human clinical study for abi-m201 in patients with mildly to moderately active ulcerative colitis to evaluate safety , efficacy and exploratory endponits . using our microbiome platform capabilities , we are exploring additional product candidates for other disease indications , including crohn 's disease , irritable bowel syndrome , non-alcoholic steatohepatitis ( nash ) and immuno-oncology , which indications we will pursue with allergan pharmaceuticals international limited ( allergan ) to the extent covered by the collaboration agreement discussed below or pursue either internally or in collaboration with other partners to the extent outside the scope of the collaboration agreement . on january 6 , 2017 , we entered into the research , development , collaboration and license agreement ( the collaboration agreement ) with allergan to develop and commercialize select microbiome gastrointestinal programs . pursuant to the terms of the collaboration agreement , in connection with the closing of the transaction in february 2017 , allergan paid us an upfront payment of $ 50.0 million . additionally , we are eligible to receive up to approximately $ 631.0 million in payments related to seven development milestones and up to approximately $ 2.14 billion in payments related to 12 commercial development and sales milestones in connection with the successful development and commercialization of licensed compounds for up to six different indications . we have agreed with allergan to share development costs up to an aggregate of $ 75.0 million through proof-of-concept ( poc ) studies on a ⅔ , ⅓ basis , respectively , and allergan has agreed to assume all post-poc development costs . additionally , we have an option to co-promote the licensed programs in the united states and china , subject to certain conditions set forth in the collaboration agreement . operations we currently have corporate and administrative offices in carmel , indiana , administrative offices and research laboratory space in south san francisco , california and research , development and small-scale manufacturing activities in groton , connecticut . since our inception , we have had no revenue from product sales and have funded our operations principally through debt financings prior to our initial public offering in 2010 and through equity financings and collaborations . our operations to date have been primarily limited to organizing and staffing our company , licensing our product candidates , discovering and developing our product candidates , establishing initial manufacturing capabilities 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 continue to develop our product candidates . as of december 31 , 2018 , we had an accumulated deficit of approximately $ 341.8 million . because we do not generate revenue from any of our product candidates , our losses will continue as we further develop and seek regulatory approval for , and commercialize , our product candidates . as a result , our operating losses are likely to be substantial over the next several years as we continue the development of our product candidates and thereafter if none is approved or successfully launched . we are unable to predict the extent of any future losses or when we will become profitable , if at all . story_separator_special_tag 43 financial operations overview research and development expense research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , target validation , lead optimization and the development of our product candidates , which include : employee-related expenses including salaries , benefits , and stock-based compensation expense ; expenses incurred under agreements with third parties , including contract research organizations ( cros ) that conduct research and development , nonclinical and clinical activities on our behalf and the cost ofconsultants , and contract manufacturing organizations ( cmos ) that manufacture all of our drug substance and the drug product used in our hbv-cure program ; the cost of lab supplies and acquiring , developing , and manufacturing nonclinical and , in the case of our microbiome program , early stage clinical study materials ; fees related to our license agreements ; and facilities , depreciation , and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance , and other operating costs . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are rendered . we use our employee and infrastructure resources across multiple research and development programs , and we allocate internal employee-related and infrastructure costs , as well as certain third-party costs , to each of our programs based on the personnel resources allocated to such program . our research and development expenses , by major program , are outlined in the table below : replace_table_token_2_th the successful discovery and development of our product candidates is highly uncertain . as such , at this time , we can not reasonably estimate , or know the nature , timing and estimated costs , of the efforts that will be necessary to complete the remainder of their development . we are also unable to predict when , if ever , material net cash inflows will commence from our product candidates . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainty of : the timing , progress and success of our phase 2 clinical development of abi-h0731 , our phase 1 clinical development of abi-h2158 and abi-m201 , and our nonclinical and planned clinical development activities for abi-h3733 and other product candidates we may identify in each of the hbv-cure and microbiome programs ; establishing an appropriate safety profile with ind-enabling toxicology studies sufficient to advance additional product candidates into clinical development ; successful enrollment in , and completion of , clinical studies ; receipt of marketing approvals from applicable regulatory authorities ; establishing internal commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and maintaining a continued acceptable safety profile of the products following approval and wide use . a change in the outcome of any of these variables or variables discussed in “ item 1a . risk factors ” with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical studies . we expect research and development costs to increase significantly for the foreseeable future as our product candidate development programs progress . however , we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . 44 general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development , legal and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , insurance costs , legal fees relating to patents and corporate matters and fees for accounting and consulting services . we anticipate that our general and administrative expenses will increase in the future to support continued research and development activities , potential commercialization of our product candidates and increased costs of operating as a public company . these increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants , lawyers and accountants , among other expenses . additionally , we anticipate increased costs associated with being a public company , including expenses related to services associated with maintaining compliance with exchange listing and sec requirements , insurance , and investor relations costs . interest income interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with accounting principles generally accepted in the united states .
| stock-based compensation expense was approximately $ 11.8 million for the year ended december 31 , 2018 , an increase of approximately $ 6.4 million from approximately $ 5.4 million for the year ended december 31 , 2017. general and administrative expense general and administrative expense , excluding stock-based compensation expense , was approximately $ 18.1 million for the year ended december 31 , 2018 , an increase of approximately $ 4.3 million from approximately $ 13.8 million for the same period in 2017. the increase in general and administrative expenses was primarily due to an increase of approximately $ 2.1 million in salary and benefits expenses due to additional employees in information technology , human resources and finance , $ 0.6 million in office and equipment rent expenses , $ 0.4 million in professional expenses , $ 0.4 million in recruitment expenses , $ 0.3 million in tax expenses , $ 0.2 million in insurance expenses and $ 0.2 million in legal expenses . stock-based compensation expense was approximately $ 16.7 million for the year ended december 31 , 2018 , an increase of approximately $ 13.5 million from approximately $ 3.2 million for the year ended december 31 , 2017. the increase was due , in part , to a $ 4.3 million onetime expense related to the departure and transition to consultant of one of our former executive officers and an incremental expense of approximately $ 5.0 million was recognized due to the addition of a new executive officer in 2018. interest and other income interest and other income was approximately $ 3.1 million for the year ended december 31 , 2018 compared to approximately $ 1.0 million for the same period in 2017. interest income for the years ended december 31 , 2018 and 2017 was primarily related to interest income on marketable securities , corporate bonds and money market fund . income tax ( expense ) benefit income tax expense for the year ended december 31 , 2018 was approximately $ 1.1 million compared to an income tax benefit for year ended december 31 , 2017 of $ 9.1 million . the income tax expense in the current year is primarily due to change in the company 's realizability of its state and local effective tax rate . the income tax benefit recognized
| 13,781 |
we have succeeded in growing core deposits by promoting a sales culture in our branch offices that is supported by the use of technology and by offering a variety of products for our business customers , such as sweep and insured money sweep services , remote electronic deposit , online banking with bill pay , mobile banking , and automated clearinghouse . · supplement fee income through our insurance operations . fee income earned through our insurance agency , exchange underwriters , supplements our income from banking operations . we intend to pursue opportunities to grow this line of business , including hiring insurance producers with established books of business and through acquisitions . critical accounting policies critical accounting policies are those that involve significant judgments and assumptions by management and that have , or could have , a material impact on the company 's income or the carrying value of its assets . the company 's critical accounting policies are those related to its allowance for loan losses , the evaluation of other-than-temporary impairment of investment securities , the valuation of and its ability to realize deferred tax assets , and the measurement of fair values of financial instruments . allowance for loan losses . the allowance for loan losses is calculated with the objective of maintaining an allowance necessary to absorb credit losses inherent in the loan portfolio . management 's determination of the adequacy of the allowance is based on periodic evaluations of the loan portfolio and other relevant factors . however , this evaluation is inherently subjective , as it requires an estimate of the loss content for each risk rating and for each impaired loan , an estimate of the amounts and timing of expected future cash flows , and an estimate of the value of collateral . the company has established a systematic method of periodically reviewing the credit quality of the loan portfolio in order to establish an allowance for loan losses . the allowance for loan losses is based on current judgments about the credit quality of individual loans and segments of the loan portfolio . the allowance for loan losses is established through a provision for loan losses based on the company 's evaluation of the probable losses inherent in the loan portfolio , and considers all known internal and external factors that affect loan collectability as of the reporting date . the evaluation , which includes a review of loans on which full collectability may not be reasonably assured , considers , among other matters , the estimated net realizable value or the fair value of the underlying collateral , economic conditions , historical loan loss experience , knowledge of inherent losses in the portfolio that are probable and reasonably estimable and other factors that warrant recognition in providing an appropriate loan loss allowance . management believes this is a critical accounting policy because this evaluation involves a high degree of complexity and requires it to make subjective judgments that often require assumptions or estimates about various matters . the allowance for loan losses consists primarily of specific allocations and general allocations . specific allocations are made for loans that are determined to be impaired . impairment is measured by determining the present value of expected future cash flows or , for collateral-dependent loans , the fair value of the collateral , including adjustments for market conditions and selling expenses . the general allocation is determined by segregating the remaining loans by type of loan , risk weighting and payment history . the company also analyzes delinquency trends , general economic conditions , and geographic and industry concentrations . this analysis establishes factors that are applied to the loan groups to determine the amount of the general allowance . the principal assumption used in calculating the allowance for loan losses is the estimate of loss for each risk rating . actual loan losses may be significantly more than the allowance the company has established , which could have a material negative effect on its financial results . 40 goodwill . we recorded goodwill in connection with our merger with fedfirst . goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired . goodwill is not amortized but is tested for impairment annually or more frequently if impairment indicators arise . goodwill and other intangibles are subject to impairment testing at the reporting unit level , which must be conducted at least annually . we perform impairment testing during the fourth quarter of each year , or more frequently if impairment indicators exist . determining the fair value of a reporting unit under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions . estimates of fair value are primarily determined using discounted cash flows , market comparisons and recent transactions . these approaches use significant estimates and assumptions including projected future cash flows , discount rates reflecting the market rate of return , projected growth rates and determination and evaluation of appropriate market comparables . however , future events could cause us to conclude that goodwill has become impaired , which would result in recording an impairment loss . any resulting impairment loss could have a material adverse impact on our financial condition and results of operations . our annual assessment of potential goodwill impairment was completed in the fourth quarter of 2017. based on the fair value of the reporting unit that has goodwill , no impairment of goodwill was recognized in 2017 , 2016 and 2015. other-than-temporary impairment . in estimating other-than-temporary impairment of investment securities , securities are evaluated on at least a quarterly basis to determine whether a decline in their value is other-than-temporary . story_separator_special_tag in estimating other-than temporary impairment losses , management considers ( 1 ) the length of time and the extent to which the fair value has been less than cost , ( 2 ) the financial condition and near-term prospects of the issuer , and ( 3 ) whether or not the company intends to sell or expect that it is more likely than not that it will be required to sell the investment security before an anticipated recovery in fair value . once a decline in value for a debt security is determined to be other than temporary , the other-than-temporary impairment is separated in ( a ) the amount of total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit loss ) and ( b ) the amount of other-than-temporary impairment related to all other factors . the amount of the total other-than-temporary impairment related to credit loss is recognized in earnings . the amount of other-than-temporary impairment related to other factors is recognized in other comprehensive income ( loss ) . valuation of deferred tax assets . in evaluating the ability to realize deferred tax assets , management considers all positive and negative information , including the company 's past operating results and its forecast of future taxable income . in determining future taxable income , management utilizes a budget process that makes business assumptions , and the implementation of feasible and prudent tax planning strategies . the company also utilizes a monthly forecasting tool to incorporate activity throughout the calendar year . these assumptions require it to make judgments about its future taxable income that are consistent with the plans and estimates it uses to manage its business . the net deferred tax asset is offset by an equal valuation allowance . any change in estimated future taxable income may result in a reduction of the valuation allowance against the deferred tax asset , which would result in income tax benefit in the period . fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date . valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs . a three-level of fair value hierarchy prioritizes the inputs used to measure fair value : · level 1—quoted prices in active markets for identical assets or liabilities ; includes certain u.s. treasury and other u.s. government agency debt that is highly liquid and actively traded in over-the-counter markets . · level 2—inputs other than level 1 that are observable , either directly or indirectly , such as quoted prices for similar assets or liabilities , quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . · level 3—unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities . level 3 assets and liabilities include financial instruments whose value is determined using pricing models , discounted cash flow methodologies or similar techniques , as well as instruments for which the determination of fair value requires significant management judgment or estimation . the asset or liability 's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement . comparison of financial condition at december 31 , 2017 , and december 31 , 2016 assets . total assets increased $ 88.4 million , or 10.4 % , to $ 934.5 million at december 31 , 2017 compared to $ 846.1 million at december 31 , 2016. cash and due from banks increased $ 6.3 million , or 44.4 % , to $ 20.6 million at december 31 , 2017 compared to $ 14.3 million at december 31 , 2016. this is primarily the result of deposit growth in excess of loan demand . investment securities classified as available-for-sale increased $ 17.4 million , or 16.4 % , to $ 123.6 million at december 31 , 2017 compared to $ 106.2 million at december 31 , 2016. this increase was primarily the result of new security purchases funded by deposit growth . 41 loans , net , increased $ 61.5 million , or 9.1 % , to $ 735.6 million at december 31 , 2017 compared to $ 674.1 million at december 31 , 2016. this was primarily due to net loan originations of $ 27.0 million on commercial and industrial loans , $ 25.5 million on construction loans , $ 8.0 million on commercial real estate loans and $ 1.9 million on residential mortgage loans . premises and equipment , net , increased $ 2.6 million , or 18.3 % , to $ 16.7 million at december 31 , 2017 compared to $ 14.1 million at december 31 , 2016. this is due to the additions related to the new operations center that was placed into service in the second quarter . total premises and equipment capitalized for the new operations center totaled $ 5.3 million . in addition , there was $ 250,000 in additions for fixed assets in process related to the construction of the corporate center in the current period . the corporate center building was previously taken into premise and equipment from a previously defaulted loan relationship in the first quarter of 2016. liabilities .
| interest income on loans decreased $ 49,000 primarily due to accretion on the acquired loan portfolio credit mark for the year ended december 31 , 2017 of $ 762,000 , or 11 basis points compared to $ 1.4 million , or 21 basis points for the year ended december 31 , 2016. there was an increase in average loans outstanding of $ 9.2 million for the year ended december 31 , 2017. the increase in average loans was mainly due to commercial , indirect and line of credit loan originations in the later part of the current period . 42 interest expense increased $ 504,000 , or 17.6 % , to $ 3.4 million for the year ended december 31 , 2017 compared to $ 2.9 million for the year ended december 31 , 2016. interest expense on deposits increased $ 527,000 due to current year rate increases and an increase in average interest-bearing deposits of $ 40.4 million which we attribute primarily to time deposits , interest-bearing demand deposits and savings accounts . the average cost of interest-bearing deposits increased 6 basis points . in addition , short-term borrowings increased $ 9,000 in the current period due to increased interest rates on securities sold under agreements to repurchase . interest expense on other borrowed funds decreased $ 30,000 due to a decrease in long-term borrowings as a result of a fhlb long-term borrowing for $ 3.5 million that matured in the current period . provision for loan losses . the provision for loan losses decreased $ 170,000 , to $ 1.9 million , for the year ended december 31 , 2017 , of which $ 250,000 was attributed to the acquired loan portfolio , compared to $ 2.0 million of provision for loan losses for the year ended december 31 , 2016 , of which $ 714,000 was attributed to the acquired loan portfolio . net charge-offs for the year ended december 31 , 2017 were $ 877,000 , which included $ 616,000 of net charge-offs on automobile loans , compared to net charge-offs of $
| 13,782 |
revenue recognition and accounts receivable most of our leases contain non-contingent rent escalations for which we recognize income on a straight-line basis over the non-cancelable lease term . this method results in rental income in the early years of a lease being higher than actual cash received , creating a straight-line rent receivable asset which is included in the “ other assets ” line item in our consolidated balance sheets . we review our unbilled straight-line rent receivable balance to determine the future collectability of revenue that will not be billed to or collected from tenants due to early lease terminations , lease modifications , bankruptcies and other factors . an allowance to write down the straight-line receivable balance is taken in the period that future collectability is uncertain . additionally , we provide for bad debt expense based upon the allowance method of accounting . we continuously monitor the collectability of our accounts receivable from specific tenants , analyze historical bad debts , customer creditworthiness , current economic trends and changes in tenant payment terms when evaluating the adequacy of the allowance for bad debts . allowances are taken for those balances that we have reason to believe will be uncollectible . for more information refer to note 1 organization and summary of significant accounting policies , revenue recognition and accounts receivable subtopics of the notes to the consolidated financial statements . acquisitions acquisitions of properties are accounted for utilizing the acquisition method ( which requires all assets acquired and liabilities assumed be measured at acquisition date fair value ) and , accordingly , the results of operations of an acquired property are included in our results of operations from the date of acquisition . estimates of fair values are based upon future cash flows and other valuation techniques in accordance with our fair value measurements policy , which are used to allocate the purchase price of acquired property among land , buildings on an “ as if vacant ” basis , tenant improvements , identifiable intangibles and any gain on purchase . identifiable intangible assets and liabilities include the effect of above-and below-market leases , the value of having leases in place ( “ as-is ” versus “ as if vacant ” and absorption costs ) , other intangible assets such as assumed tax increment revenue bonds and out-of-market assumed mortgages . depreciation and amortization are computed using the straight-line method over the estimated useful lives of 40 years for buildings , and over the remaining terms of any intangible asset contracts and the respective tenant leases , which may include bargain renewal options . the impact of these estimates , including estimates in connection with acquisition values and estimated useful lives , could result in significant differences related to the purchased assets , liabilities and subsequent depreciation or amortization expense . for more information , refer to note 1 , organization and summary of significant accounting policies - real estate of the notes to the consolidated financial statements . 26 impairment we review our investment in real estate , including any related intangible assets , for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of the property may not be recoverable . these changes in circumstances include , but are not limited to , changes in occupancy , rental rates , tenant sales , net operating income , geographic location , real estate values and expected holding period . the viability of all projects under construction or development , including those owned by unconsolidated joint ventures , is regularly evaluated under applicable accounting requirements , including requirements relating to abandonment of assets or changes in use . to the extent a project or an individual component of the project , is no longer considered to have value , the related capitalized costs are charged against operations . impairment provisions resulting from any event or change in circumstances , including changes in our intentions or our analysis of varying scenarios , could be material to our consolidated financial statements . we recognize an impairment of an investment in real estate when the estimated undiscounted cash flow are less than the net carrying value of the property . if it is determined that an investment in real estate is impaired , then the carrying value is reduced to the estimated fair value as determined by cash flow models and discount rates or comparable sales in accordance with our fair value measurement policy . refer to note 1 organization and summary of significant accounting policies - accounting for the impairment of long-lived assets for further information regarding impairment provisions . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 5.2 million primarily due to the sale of the martin square property by our joint venture during the year . the gain represents the difference between our share of the distributed proceeds and the carrying value of our equity investment in the joint venture . 28 comparison of the year ended december 31 , 2017 to the year ended december 31 , 2016 the following summarizes certain line items from our audited statements of operations which we believe are important in understanding our operations and or those items which have significantly changed during the year ended december 31 , 2017 as compared to 2016 : replace_table_token_11_th total revenue in 2017 increase d $ 4.2 million , or 1.6 % , from 2016 . the increase is primarily due to the following : $ 17.3 million increase related to acquisitions completed in 2017 and 2016 ; $ 3.1 million increase at existing centers ; offset by $ 14.8 million decrease related to properties sold in 2017 and 2016 ; $ 1.1 million decrease related to disposal of our office building ; and a $ 0.1 million decrease in management and other fee income . the $ 3.1 million increase at existing centers was primarily the result of higher minimum rent . story_separator_special_tag recovery income from tenants decreased $ 1.4 million , or 2.2 % , primarily due to lower net recoverable operating expenses and real estate taxes of $ 1.0 million . real estate tax expense in 2017 increase d $ 0.9 million , or 2.3 % , from 2016 primarily due to incremental tax increases within existing properties of $ 0.6 million , as well as net tax increases from acquisition and disposition activity of $ 0.3 million . recoverable operating expense in 2017 decrease d $ 1.9 million , or ( 6.5 ) % , from 2016 primarily due to a decrease at existing centers of $ 1.3 million , as a result of lower spending , as well as a net decrease in operating expenses from acquisition and disposition activity of $ 0.6 million . non-recoverable operating expense in 2017 increase d $ 1.1 million . or 30.5 % , from 2016 primarily due to ground rent expense at a property acquired in the fourth quarter of 2016. depreciation and amortization expense in 2017 decrease d $ 0.5 million , or ( 0.5 ) % , from 2016 . the net decrease was primarily attributable to tenant bankruptcy and vacancy write-offs in 2017 resulting in partial year expense recognition , lease origination costs reaching full amortization and a reduction in expense from property dispositions . the net decrease was partially offset by depreciations and amortization on new building and improvement assets and lease origination costs from the 2017 and 2016 acquisitions . general and administrative expense in 2017 increase d $ 3.9 million , or 17.7 % , from 2016 . the increase was primarily due to increased costs associated with professional fees , the change in performance-based executive compensation recognized in the respective periods and an increase in wages . 29 during 2017 we recorded an impairment provision totaling $ 9.4 million , of which $ 8.4 million was on shopping centers classified as income producing and $ 1.0 million on land held for development or sale . the adjustments were triggered by changes in associated sales price assumptions , a purchase price reduction at one property and changes in the expected use of the land . impairment provisions of $ 1.0 million recorded in 2016 related to developable land held for sale triggered by unforeseen increases in development costs and changes in associated sales price assumptions . refer to note 1 organization and summary of significant accounting policies - accounting for the impairment of long-lived assets of the notes to the consolidated financial statements for further information related to impairment provisions . gain on sale of real estate was $ 52.8 million in 2017 . in the comparable period in 2016 we had a gain of $ 35.8 million . refer to note 4 of the notes to the consolidated financial statements for further detail on dispositions . earnings from unconsolidated joint ventures in 2017 decrease d $ 0.2 million from 2016 . the decrease was primarily due to the reduced level of properties in unconsolidated joint ventures for the majority of 2017 as compared to 2016. interest expense increase d in 2017 by $ 0.4 million , or 0.8 % , from 2016 primarily due to a 7 % increase in our average outstanding debt and lower debt premium amortization , offset partially by a 30 basis point decline in our weighted average interest rate . loss on extinguishment of debt of approximately $ 1.3 million in 2016 resulted from a $ 0.9 million loss upon the conveyance of our aquia office property to the lender and a $ 0.4 million cash prepayment penalty on a mortgage payoff in 2016 . there was no loss on extinguishment of debt in 2017 . liquidity and capital resources our primary uses of capital include principal and interest payments on our outstanding indebtedness , recurring capital expenditures such as tenant improvements , leasing commissions , improvements made to individual properties , shareholder dividends , redevelopments , operating expenses of our business , debt maturities , acquisitions and developments . we generally strive to cover our principal and interest payments , operating expenses , shareholder distributions , and recurring capital expenditures from cash flow from operations , although from time to time we may borrow or sell assets to finance a portion of those uses . we believe the combination of cash flow from operations , cash balances , available borrowings under our unsecured credit facility , issuance of long-term debt , property dispositions , and issuance of equity securities will provide adequate capital resources to fund all of our expected uses over at least the next 12 months . although we believe that the combination of factors discussed above will provide sufficient liquidity , no such assurance can be given . we believe our current capital structure provides us with the financial flexibility to fund our current capital needs . we intend to continue to enhance our financial and operational flexibility by extending the duration of our debt , appropriately laddering our debt maturities and further expanding our unencumbered asset base . in addition , we believe we have access to multiple forms of capital which includes unsecured corporate debt , preferred equity and common equity including our at-the-market equity program we have in place . at december 31 , 2018 and 2017 , we had $ 44.7 million and $ 12.9 million , respectively , in cash and cash equivalents and restricted cash . restricted cash of $ 3.7 million and $ 4.8 million as of december 31 , 2018 and 2017 , respectively , was comprised primarily of funds held in escrow by lenders to pay real estate taxes , insurance premiums and certain capital expenditures . as of december 31 , 2018 we had no debt maturing in 2019. as of december 31 , 2018 we had $ 349.8 million available to be drawn on our $ 350.0 million unsecured revolving credit facility subject to our compliance with certain covenants .
| the decrease is primarily a result of properties sold during 2018 and 2017 , partially offset by higher asset write offs in 2018 for tenant lease terminations prior to their original estimated term , and higher depreciation expense from acquisitions completed in 2017. during 2018 we recorded acquisition costs of $ 0.2 million related to legal and professional fees associated with a potential shopping center acquisition that was abandoned during the year . general and administrative expense in 2018 increase d $ 7.9 million , or 30.5 % , from 2017 . the increase was primarily due to the following : $ 9.7 million of executive management reorganization expenses , which included severance costs associated with former executives as well as executive recruiting fees , sign on bonuses and relocation fees associated with the new executive team ; $ 0.8 million of severance costs resulting from the reduction-in-force associated with the reorganization of the company 's operating structure ; offset by $ 0.8 million decrease in service-based and performance-based stock compensation expense ; and $ 0.5 million decrease in other severance costs . during 2018 we recorded an impairment provision totaling $ 13.7 million , of which $ 13.4 million was on shopping centers classified as income producing and $ 0.2 million on land held for development . the adjustments related to shopping centers were triggered by changes in associated market prices and expected hold period assumptions , as well as a purchase price reduction at one property . the provision related to land held for development was triggered by changes in the expected use of the land and higher costs . during 2017 we recorded an impairment provision totaling $ 9.4 million , of which $ 8.4 million was on shopping centers classified as income producing and $ 1.0 million on land held for development . the adjustments were triggered by changes in associated sales price assumptions , a purchase price reduction at one property and changes in the expected use of
| 13,783 |
payments to us under these agreements may include upfront fees , option fees , exercise fees , payments for research activities , payments for the manufacture of preclinical or clinical materials , payments based upon the achievement of certain milestones and royalties on product sales . we follow the provisions of the financial accounting standards board , or fasb , accounting standards codification , or asc , topic 605 ‑25 , “ revenue recognition—multiple ‑element arrangements , ” and asc topic 605 ‑28 , “ revenue recognition—milestone method , ” in accounting for these agreements . in order to account for these agreements , we must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on whether certain criteria are met , including whether the delivered element has stand ‑alone value to the collaborator . the consideration received is allocated among the separate units of accounting , and the applicable revenue recognition criteria are applied to each of the separate units . at june 30 , 2016 , we had the following two types of agreements with the parties identified below : · development and commercialization licenses , which provide the party with the right to use our adc technology and or certain other intellectual property to develop compounds to a specified antigen target : amgen ( two exclusive single ‑target licenses * ) bayer healthcare ( one exclusive single ‑target license ) biotest ( one exclusive single ‑target license ) lilly ( three exclusive single ‑target licenses ) novartis ( five exclusive single ‑target licenses and one license to two related targets : one target on an exclusive basis and the second target on a non ‑exclusive basis ) roche , through its genentech unit ( five exclusive single ‑target licenses ) sanofi ( one exclusive single ‑target license and one exclusive license to multiple individual targets ) takeda , through its wholly owned subsidiary , millennium pharmaceuticals , inc. ( one exclusive single ‑target license ) · research license/option agreement for a defined period of time to secure development and commercialization licenses to use our adc technology to develop anticancer compounds to specified targets on established terms ( referred to herein as right ‑to ‑test agreements ) : cytomx takeda , through its wholly owned subsidiary , millennium pharmaceuticals , inc. * amgen has sublicensed one of its exclusive single-target licenses to oxford biotherapeutics ltd. there are no performance , cancellation , termination or refund provisions in any of the arrangements that contain material financial consequences to us . development and commercialization licenses the deliverables under a development and commercialization license agreement generally include the license to our adc technology with respect to a specified antigen target , and may also include deliverables related to rights to future technological improvements , research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner . 43 generally , development and commercialization licenses contain non ‑refundable terms for payments and , depending on the terms of the agreement , provide that we will ( i ) at the collaborator 's request , provide research services at negotiated prices which are generally consistent with what other third parties would charge , ( ii ) at the collaborator 's request , manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge , ( iii ) earn payments upon the achievement of certain milestones and ( iv ) earn royalty payments , generally until the later of the last applicable patent expiration or 10 to 12 years after product launch . in the case of kadcyla , however , the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country ‑by ‑country basis , regardless of patent protection . royalty rates may vary over the royalty term depending on our intellectual property rights and or the presence of comparable competing products . we may provide technical assistance and share any technology improvements with our collaborators during the term of the collaboration agreements . we do not directly control when or whether any collaborator will request research or manufacturing services , achieve milestones or become liable for royalty payments . as a result , we can not predict when or if we will recognize revenues in connection with any of the foregoing . in determining the units of accounting , management evaluates whether the license has stand ‑alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement . factors considered in this determination include the research capabilities of the partner and the availability of adc technology research expertise in the general marketplace . if we conclude that the license has stand ‑alone value and therefore will be accounted for as a separate unit of accounting , we then determine the estimated selling prices of the license and all other units of accounting based on market conditions , similar arrangements entered into by third parties , and entity ‑specific factors such as the terms of our previous collaborative agreements , recent preclinical and clinical testing results of therapeutic products that use our adc technology , our pricing practices and pricing objectives , the likelihood that technological improvements will be made , and , if made , will be used by our collaborators and the nature of the research services to be performed on behalf of our collaborators and market rates for similar services . upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand ‑alone value from the undelivered elements , which generally include rights to future technological improvements , research services , delivery of cytotoxic agents and the manufacture of preclinical and clinical materials . story_separator_special_tag we recognize revenue related to research services that represent separate units of accounting as they are performed , as long as there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collection of the related receivable is probable . we recognize revenue related to the rights to future technological improvements over the estimated term of the applicable license . we may also provide cytotoxic agents to our collaborators or produce preclinical and clinical materials for them at negotiated prices which are generally consistent with what other third parties would charge . we recognize revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator . arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple ‑deliverable arrangement is below our full cost , and our full cost is not expected to ever be below our contract selling prices for our existing collaborations . during the fiscal years ended june 30 , 2016 , 2015 and 2014 , the difference between our full cost to manufacture preclinical and clinical materials on behalf of our collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $ 6.9 million , $ 9.2 million , and $ 2.3 million , respectively . the majority of our costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period . therefore , our costs to produce these materials are significantly impacted by the number of batches produced during the period . the volume of preclinical and clinical materials we produce is directly related to the number of clinical trials we and our collaborators are preparing for or currently have underway , the speed of enrollment in those trials , the dosage schedule of each clinical trial and the time period such trials last . accordingly , the volume of preclinical and clinical materials produced , and therefore our per ‑batch costs to manufacture these preclinical and clinical materials , may vary significantly from period to period . we may also produce research material for potential collaborators under material transfer agreements . additionally , we perform research activities , including developing antibody specific conjugation processes , on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development . we record amounts received for research materials produced or services performed as a component of research and development support revenue . we also develop conjugation processes for materials for later stage testing 44 and commercialization for certain collaborators . we are compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue . our development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories : ( i ) development milestones , ( ii ) regulatory milestones , and ( iii ) sales milestones . development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases . regulatory milestones are typically payable upon submission for marketing approval with the fda or other countries ' regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications . sales milestones are typically payable when annual sales reach certain levels . at the inception of each agreement that includes milestone payments , we evaluate whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone . this evaluation includes an assessment of whether ( a ) the consideration is commensurate with either ( 1 ) the entity 's performance to achieve the milestone , or ( 2 ) the enhancement of the value of the delivered item ( s ) as a result of a specific outcome resulting from the entity 's performance to achieve the milestone , ( b ) the consideration relates solely to past performance and ( c ) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement . we evaluate factors such as the scientific , regulatory , commercial and other risks that must be overcome to achieve the respective milestone , the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment . non ‑refundable development and regulatory milestones that are expected to be achieved as a result of our efforts during the period of substantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone , assuming all other revenue recognition criteria are met . milestones that are not considered substantive because we do not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone , as there are no undelivered elements remaining and no continuing performance obligations , assuming all other revenue recognition criteria are met . under our development and commercialization license agreements , we receive royalty payments based upon our licensees ' net sales of covered products . generally , under these agreements we are to receive royalty reports and payments from our licensees approximately one quarter in arrears , that is , generally in the second or third month of the quarter after the licensee has sold the royalty bearing product or products . we recognize royalty revenues when we can reliably estimate such amounts and collectability is reasonably assured . as such , we generally recognize royalty revenues in the quarter reported to us by our licensees , or one quarter following the quarter in which sales by our licensees occurred .
| included in license and milestone fees for the year ended june 30 , 2015 is $ 15.6 million of license revenue earned upon the execution of two development and commercialization licenses by lilly , $ 25.7 million of license revenue earned upon the execution of three development and commercialization licenses by novartis , two $ 5 million development milestones achieved under our collaboration agreement with novartis and $ 4 million in development milestones achieved under our collaboration agreement with sanofi . also , during fiscal 2015 , we made a change in estimate to our period of substantial involvement as it relates to an exclusive license with sanofi which resulted in an increase to license and milestone fees of $ 1.5 million in fiscal 2015 compared to amounts that would have been recognized pursuant to the company 's previous estimate . additionally , during fiscal 2015 , janssen biotech terminated its exclusive development and commercialization license with us , and as a result , we recognized the remaining $ 241,000 of the $ 1 million upfront fee received upon execution of the license which had been previously deferred . included in license and milestone fees for the year ended june 30 , 2014 is $ 7.8 million of license revenue earned upon the execution of a development and commercialization license by lilly , two $ 5 million regulatory milestones achieved under our collaboration agreement with roche , $ 18.2 million of license revenue earned upon the execution of two development and commercialization licenses and a one ‑year extension of the original term of the multi ‑target agreement by novartis , and $ 2.2 million of revenue from amgen related to a modification of an existing arrangement . the amount of license and milestone fees we earn is directly related to the number of our collaborators , the collaborators ' advancement of the product candidates , and the overall success in the clinical trials of the product candidates . as such , the amount of license and milestone fees may vary widely from quarter to quarter and year to year . total revenue recognized from
| 13,784 |
the advance is to be repaid through $ 5,999 weekly payments story_separator_special_tag executive overview on august 31 , 2016 , pct ltd entered into a securities exchange agreement ( the “ exchange agreement ” ) with paradigm convergence technologies corporation , a nevada corporation ( “ paradigm ” or “ pct corp. ” ) . pursuant to the terms of the exchange agreement , pct corp. became the wholly owned subsidiary of pct ltd after the exchange transaction . pct ltd is a holding company , which through pct corp. , is engaged in the business of marketing new products and technologies through licensing and joint ventures . pct ltd had not recorded revenues for the two fiscal years prior to its acquisition of pct corp. and was dependent upon financing to continue basic operations . pct corp. has recorded revenue since it initiated operations in 2012 ; however , those revenues have not been sufficient to finance operations , recording annual net losses of $ 8,138,287 and $ 16,578,564 for the years ended december 31 , 2020 and 2019 , respectively . pct ltd remains dependent upon additional financing to continue operations . the company intends to raise additional financing through private placements of its common/preferred stock and debt financing . we expect that we would issue such stock pursuant to exemptions to the registration requirements provided by federal and state securities laws . the purchasers and manner of issuance will be determined according to our financial needs , as discussed below , and the available exemptions to the registration requirements of the securities act of 1933. we also note that if we issue more shares of our common stock , then our stockholders may experience dilution in the value per share of their common stock . the expected costs for the next twelve months include : continuation of commercial launch of non-toxic sanitizing , disinfecting and sterilizing products and technologies with a strong emphasis on health care facilities , including hospitals , nursing homes , assisted living facilities , clinics and medical , dental and veterinarian offices ; continued research and development on product generation units including those designed for on-site deployment at customers ' facilities ; accelerated research and development and initial commercialization on applications of the products in the agricultural sector , most specifically with respect to abatement of a specific crop disease crisis caused by a bacterium in the u.s. and elsewhere and continued in-field testing within the oil and gas market ; acquiring available complementary technology rights ; payment of short-term debt ; hiring of additional personnel in 2021 ; and general and administrative operating costs . management projects these costs to total approximately $ 3,500,000. to minimize these costs , the company intends to maintain its practice of controlling operating overheads with efficient facilities commitments , generally below market salaries and consulting fees , and rigorous prioritization of expenditure requirements . based on its understanding of the commercial readiness of its products and technologies , the capabilities of its personnel ( current and being hired ) , established business relationships and the general market conditions , management believes that the company expects to be covering its fixed operating expenses ( “ burn rate ” ) by the end of the second quarter of 2021 . 26 liquidity and capital resources replace_table_token_1_th the company recorded a net loss of $ 8,138,287 and had a working capital deficit of $ 14,479,722 for the year ended december 31 , 2020. we have recorded significant incremental increases in revenues from operations since inception and we are establishing ongoing source of revenue sufficient to cover our operating costs . during 2020 and 2019 the company relied on raising equity capital and borrowing from stockholders and third parties to fund its ongoing day-to-day operations and its corporate overhead . as december 31 , 2020 we had $ 115,196 in cash compared to $ 67,613 in cash at december 31 , 2019. we had total liabilities of $ 15,364,398 at december 31 , 2020 compared to $ 14,290,486 at december 31 , 2019. total assets increased by $ 259,835 to $ 4,634,610 at december 31 , 2020 compared to $ 4,374,775 at december 31 , 2019. this increase is primarily from increases in accounts receivable , prepaid expenses and right of use assets . this was offset by depreciation and amortization recorded on intangible assets and property and equipment during the year ended december 31 , 2020. total liabilities increased by $ 1,073,912 to $ 15,364,398 at december 31 , 2020 compared to $ 14,290,486 at december 31 , 2019. this increase is primarily additions to convertible notes payable ( net of discount ) of approximately $ 420,370 , derivative liabilities of $ 911,170. our current cash flow is not sufficient to meet our monthly expenses of approximately $ 280,000 and to fund future research and development . we intend to rely on additional debt financing , loans from existing shareholders and private placements of common/preferred stock for additional funding ; however , there is no assurance that additional funding will be available . we do not have material commitments for future capital expenditures . however , we can not assure that we will be able to obtain short-term financing , or that sources of such financing , if any , will continue to be available , and if available , that they will be on favorable terms . during the next 12 months we anticipate incurring additional costs related to the filing of exchange act periodic reports . we believe we will be able to meet these costs through funds provided by management , significant stockholders and or third parties . we may also rely on the issuance of our common stock in lieu of cash to convert debt or pay for expenses . the table below presents information regarding cash flows : replace_table_token_2_th 27 commitments and obligations at december 31 , 2020 the company recorded notes payable totaling story_separator_special_tag the advance is to be repaid through $ 5,999 weekly payments story_separator_special_tag executive overview on august 31 , 2016 , pct ltd entered into a securities exchange agreement ( the “ exchange agreement ” ) with paradigm convergence technologies corporation , a nevada corporation ( “ paradigm ” or “ pct corp. ” ) . pursuant to the terms of the exchange agreement , pct corp. became the wholly owned subsidiary of pct ltd after the exchange transaction . pct ltd is a holding company , which through pct corp. , is engaged in the business of marketing new products and technologies through licensing and joint ventures . pct ltd had not recorded revenues for the two fiscal years prior to its acquisition of pct corp. and was dependent upon financing to continue basic operations . pct corp. has recorded revenue since it initiated operations in 2012 ; however , those revenues have not been sufficient to finance operations , recording annual net losses of $ 8,138,287 and $ 16,578,564 for the years ended december 31 , 2020 and 2019 , respectively . pct ltd remains dependent upon additional financing to continue operations . the company intends to raise additional financing through private placements of its common/preferred stock and debt financing . we expect that we would issue such stock pursuant to exemptions to the registration requirements provided by federal and state securities laws . the purchasers and manner of issuance will be determined according to our financial needs , as discussed below , and the available exemptions to the registration requirements of the securities act of 1933. we also note that if we issue more shares of our common stock , then our stockholders may experience dilution in the value per share of their common stock . the expected costs for the next twelve months include : continuation of commercial launch of non-toxic sanitizing , disinfecting and sterilizing products and technologies with a strong emphasis on health care facilities , including hospitals , nursing homes , assisted living facilities , clinics and medical , dental and veterinarian offices ; continued research and development on product generation units including those designed for on-site deployment at customers ' facilities ; accelerated research and development and initial commercialization on applications of the products in the agricultural sector , most specifically with respect to abatement of a specific crop disease crisis caused by a bacterium in the u.s. and elsewhere and continued in-field testing within the oil and gas market ; acquiring available complementary technology rights ; payment of short-term debt ; hiring of additional personnel in 2021 ; and general and administrative operating costs . management projects these costs to total approximately $ 3,500,000. to minimize these costs , the company intends to maintain its practice of controlling operating overheads with efficient facilities commitments , generally below market salaries and consulting fees , and rigorous prioritization of expenditure requirements . based on its understanding of the commercial readiness of its products and technologies , the capabilities of its personnel ( current and being hired ) , established business relationships and the general market conditions , management believes that the company expects to be covering its fixed operating expenses ( “ burn rate ” ) by the end of the second quarter of 2021 . 26 liquidity and capital resources replace_table_token_1_th the company recorded a net loss of $ 8,138,287 and had a working capital deficit of $ 14,479,722 for the year ended december 31 , 2020. we have recorded significant incremental increases in revenues from operations since inception and we are establishing ongoing source of revenue sufficient to cover our operating costs . during 2020 and 2019 the company relied on raising equity capital and borrowing from stockholders and third parties to fund its ongoing day-to-day operations and its corporate overhead . as december 31 , 2020 we had $ 115,196 in cash compared to $ 67,613 in cash at december 31 , 2019. we had total liabilities of $ 15,364,398 at december 31 , 2020 compared to $ 14,290,486 at december 31 , 2019. total assets increased by $ 259,835 to $ 4,634,610 at december 31 , 2020 compared to $ 4,374,775 at december 31 , 2019. this increase is primarily from increases in accounts receivable , prepaid expenses and right of use assets . this was offset by depreciation and amortization recorded on intangible assets and property and equipment during the year ended december 31 , 2020. total liabilities increased by $ 1,073,912 to $ 15,364,398 at december 31 , 2020 compared to $ 14,290,486 at december 31 , 2019. this increase is primarily additions to convertible notes payable ( net of discount ) of approximately $ 420,370 , derivative liabilities of $ 911,170. our current cash flow is not sufficient to meet our monthly expenses of approximately $ 280,000 and to fund future research and development . we intend to rely on additional debt financing , loans from existing shareholders and private placements of common/preferred stock for additional funding ; however , there is no assurance that additional funding will be available . we do not have material commitments for future capital expenditures . however , we can not assure that we will be able to obtain short-term financing , or that sources of such financing , if any , will continue to be available , and if available , that they will be on favorable terms . during the next 12 months we anticipate incurring additional costs related to the filing of exchange act periodic reports . we believe we will be able to meet these costs through funds provided by management , significant stockholders and or third parties . we may also rely on the issuance of our common stock in lieu of cash to convert debt or pay for expenses . the table below presents information regarding cash flows : replace_table_token_2_th 27 commitments and obligations at december 31 , 2020 the company recorded notes payable totaling
| total other expenses decreased to $ 6,737,058 for the 2020 year compared to $ 14,896,628 for the 2019 year . the overall decrease was mainly from a decrease in loss on fair value of derivative liability of $ 7,487,509. interest expense decreased by $ 656,745. as a result of the changes described above , the net loss decreased to $ 8,138,287 for the 2020 year compared to $ 16,578,564 for the 2019 year . 28 off-balance sheet arrangements we have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources and would be considered material to investors . critical accounting policies our financial statements and accompanying notes have been prepared in accordance with united states generally accepted accounting principles applied on a consistent basis . the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we regularly evaluate the accounting policies and estimates that we use to prepare our financial statements . a complete summary of these policies is included in the notes to our financial statements . in general , management 's estimates are based on historical experience , on information from third party professionals , and on various other assumptions that are believed to be reasonable under the facts and circumstances . actual results could differ from those estimates made by management .
| 13,785 |
net loss our consolidated net loss for the year ended december 31 , 2019 was $ 33.6 million compared to a net loss of $ 17.8 million for the year ended december 31 , 2018 for the aforementioned reasons . 46 year ended december 31 , 2018 compared to year ended december 31 , 2017 the following table shows our consolidated income statement data for the periods indicated : replace_table_token_4_th nm = not meaningful 47 the following table shows our segment income statement data and selected performance measures for the periods indicated : replace_table_token_5_th nm = not meaningful 48 revenue for the year ended december 31 , 2018 , our consolidated revenue decreased by $ 6.3 million , or 1.7 % , from the year ended december 31 , 2017 to $ 375.8 million . this decrease was driven by a $ 10.2 million , or 2.8 % , decrease in revenue from our consumer payments segment , partially offset by a $ 2.1 million , or 8.2 % , increase in revenue from our commercial payments segment and revenue of $ 1.8 million in our new integrated partners segment . consolidated bankcard processing dollar value and merchant bankcard transactions increased 10.1 % and 6.1 % , respectively . for the year ended december 31 , 2018 , the decrease in consumer payments revenue was primarily attributable to a decrease in revenue of $ 39.6 million from certain subscription-billing e-commerce merchants , largely offset by revenue resulting from the overall increases in bankcard processing dollar value and merchant bankcard transactions of 9.9 % and 6.0 % , respectively , compared to the year ended december 31 , 2017. the higher merchant bankcard processing dollar value and transaction volume in 2018 were mainly due to the continuation of higher consumer spending trends in 2018 and positive net onboarding of new merchants . additionally , the average dollar amount per bankcard transaction increased to $ 81.39 , or 3.7 % , in 2018 from $ 78.50 in 2017. the increase in commercial payments revenue for the year ended december 31 , 2018 was attributable in part by increases in cpx merchant bankcard processing dollar value and the number of merchant bankcard transaction volume of 35.2 % and 24.2 % , respectively . revenues from our managed services customers grew in 2018 due to an increase in headcount of our in-house sales force dedicated to selling merchant financing products on behalf of our financial institution partners , for which we record revenue on a cost-plus basis . integrated partners revenue increased in 2018 due to the acquisitions of radpad and payright . operating expenses our consolidated operating expenses increased $ 11.8 million , or 3.4 % , from $ 347.7 million for the year ended december 31 , 2017 to $ 359.4 million for the year ended december 31 , 2018 , driven primarily by a $ 9.9 million , or 44.9 % , increase in sg & a expenses . the increase in sg & a expenses was due primarily to in-house sales force expansion and corporate expenses related to transaction costs associated with the business combination and conversion to a public company , such as legal , accounting and other advisory and consulting expenses . higher consolidated operating expenses were partially offset by lower costs of merchant card fees attributable to 2018 acquisitions of residual portfolio commission rights , partially offset by growth in processing volume . costs of merchant card fees as a percentage of merchant card fee revenue dropped by 10 basis points in 2018 from 2017. salary and employee benefits increased $ 6.0 million , or 18.4 % , related to increases in corporate and operations headcount and increases in headcount from business acquisition in 2018. depreciation and amortization increased $ 5.1 million , or 34.5 % attributable mainly to the internally developed software for the mx connect and cpx platforms and amortization of intangible assets . income from operations consolidated income from operations decreased $ 18.1 million , or 52.5 % , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017. our consolidated operating margin for the year ended december 31 , 2018 was 4.4 % compared to 9.0 % for the year ended december 31 , 2017. the margin decrease was primarily due to the loss of certain subscription-billing e-commerce merchants and increases in expenses related to the business combination , conversion to a public company , and certain legal matters . our consumer payments segment earned $ 47.0 million in segment income from operations for the year ended december 31 , 2018 , a decrease of $ 7.7 million , or 14.1 % , from $ 54.7 million for the year ended december 31 , 2017. this decrease largely reflected the loss of certain subscription-billing e-commerce merchants , which contributed $ 21.3 million and $ 32.7 million of income from operations in the years ended december 31 , 2018 and 2017 , respectively , partially offset by income resulting from the growth in merchant bankcard processing dollar value and transaction volume . our commercial payments segment earned $ 1.0 million in income from operations for the year ended december 31 , 2018 , compared to a $ 1.0 million loss from operations for the year ended december 31 , 2017 . 49 our integrated partners segment incurred a loss from operations of $ 2.0 million for the year ended december 31 , 2018. this loss was due to the startup of this new segment . corporate expenses were $ 27.7 million for year ended december 31 , 2018 , an increase of $ 6.5 million over expenses of $ 21.2 million in the year ended december 31 , 2017. this increase was driven primarily by a $ 6.8 million increase in expenses associated with our business combination , conversion to a public company , and certain legal matters . these expenses were $ 12.4 million and $ 5.6 million for the years ended december 31 , 2018 and 2017 , respectively . story_separator_special_tag interest expense interest expense , including amortization of deferred debt issuance costs and discount , increased by $ 4.9 million , or 19.5 % , to $ 29.9 million in 2018 from $ 25.1 million in 2017. this increase was due to higher outstanding borrowings in 2018 , partially offset by lower applicable interest rates as a result of the debt modification in january 2018. other , net other , net decreased $ 1.2 million from a net expense of $ 5.6 million in the year ended december 31 , 2017 to a net expense of $ 6.8 million in the year ended december 31 , 2018. this change was primarily due to debt modification costs of $ 2.0 million in the year ended december 31 , 2018. income tax expense ( benefit ) we became part of a `` c-corporation '' reporting tax group on july 25 , 2018 in connection with the business combination . on july 25 , 2018 , we recognized a net deferred income tax asset of $ 47.5 million , which also resulted in a credit to our additional paid-in capital within our consolidated stockholders ' deficit . the net deferred tax asset is the result of the difference between the initial tax bases in the assets and liabilities and their respective carrying amounts for financial statement purposes . for the year ended december 31 , 2018 , our income tax benefit was $ 2.5 , resulting in an effective income tax rate of 12.5 % . this income tax benefit was based on the pre-tax loss incurred after july 25 , 2018. on a pro-forma basis assuming c-corp status for the full year 2018 , our income tax benefit would have been $ 3.2 million , resulting in a pro-forma effective income tax rate of 15.6 % . our annualized pro-forma effective income tax rate for 2018 was less than the statutory rate due to timing and permanent differences between amounts calculated under gaap and the tax code . net income ( loss ) our consolidated net loss for the year ended december 31 , 2018 was $ 17.8 million compared to net income $ 3.8 million for the year ended december 31 , 2017 for the aforementioned reasons . 50 certain non-gaap financial measures we periodically review the following key non-gaap measures to evaluate our business and trends , measure our performance , prepare financial projections and make strategic decisions . ebitda , which represents net income ( loss ) before interest , income tax , and depreciation and amortization , is reconciled to net income ( loss ) calculated under gaap . adjusted ebitda starts with ebitda and further adjusts for certain non-cash , non-recurring or non-core expenses including : 1 ) non-cash equity-based compensation ; 2 ) debt modification and extinguishment costs and fair value changes ; 3 ) certain legal expenses ; 4 ) certain professional , accounting and consulting fees ; and 5 ) temporary transition services related to acquisitions . in addition , the financial covenants under the debt agreements of the company 's subsidiaries ( the `` borrowers '' ) are based on a non-gaap measure referred to as consolidated adjusted ebitda . the calculation of consolidated adjusted ebitda starts with adjusted ebitda and further adjusts for the pro-forma impact of acquisitions and residual streams and run rate adjustments for certain contracted savings on an annualized basis , other consulting and professional fees , and other tax expenses and other adjustments , which are not included as adjustments to adjusted ebitda . we believe these non-gaap measures illustrate the underlying financial and business trends relating to our results of operations and comparability between current and prior periods . we also use these non-gaap measures to establish and monitor operational goals . these non-gaap measures are not in accordance with , or an alternative to , gaap and should be considered in addition to , and not as a substitute or superior to , the other measures of financial performance prepared in accordance with gaap . using only the non-gaap financial measures , particularly adjusted ebitda and consolidated adjusted ebitda , to analyze our performance would have material limitations because their calculations are based on subjective determination regarding the nature and classification of events and circumstances that investors may find significant . we compensate for these limitations by presenting both the gaap and non-gaap measures of our operating results . although other companies may report measures entitled `` adjusted ebitda '' or similar in nature , numerous methods may exist for calculating a company 's adjusted ebitda or similar measures . as a result , the methods we use to calculate adjusted ebitda may differ from the methods used by other companies to calculate their non-gaap measures . the non-gaap reconciliations of ebitda , adjusted ebitda , and consolidated adjusted ebitda to net income ( loss ) , the most directly comparable financial measure calculated and presented in accordance with gaap , are shown in the table below : 51 replace_table_token_6_th ( 1 ) interest expense includes amortization of debt issuance costs and discount . ( 2 ) legal expenses related to business and asset acquisition activity and settlement negotiation and other litigation expenses . ( 3 ) primarily transaction-related , capital markets and accounting advisory services . ( 4 ) presented to reflect the definition in the company 's credit agreements , as amended ( see note 10 , long-term debt and warrant liability ) .
| year ended december 31 , 2019 compared to year ended december 31 , 2018 replace_table_token_2_th nm = not meaningful 43 the following table shows our segment income statement data and selected performance measures for the periods indicated : replace_table_token_3_th nm = not meaningful 44 revenue for the year ended december 31 , 2019 , our consolidated revenue decreased by $ 4.0 million , or 1.1 % , from the year ended december 31 , 2018 to $ 371.9 million . this decrease was driven by a $ 16.4 million , or 4.7 % , decrease in revenue from our consumer payments segment and a $ 1.1 million , or 4.0 % , decrease in revenue from our commercial payments segment , partially offset by a $ 13.5 million increase in revenue from our integrated partners segment . consolidated bankcard processing dollar value and merchant bankcard transactions increased 12.7 % and 10.2 % , respectively . for the year ended december 31 , 2019 , the decrease in consumer payments revenue was primarily attributable to a decrease in revenue of $ 51.5 million from certain subscription-billing e-commerce merchants , largely offset by revenue resulting from the overall increases in bankcard processing dollar value and merchant bankcard transactions of 11.6 % and 9.9 % , respectively , compared to the year ended december 31 , 2018. the higher merchant bankcard processing dollar value and transaction volume in 2019 were mainly due to the continuation of higher consumer spending trends in 2019 and positive net onboarding of new merchants . additionally , the average dollar amount per bankcard transaction increased to $ 82.65 , or 1.5 % , in 2019 from $ 81.39 in 2018. for the year ended december 31 , 2019 , the decrease in commercial payments revenue was attributable to a $ 2.3 million decrease in revenue from our curated managed services program , partially offset by a $ 1.2 million increase in revenue from our cpx accounts payable solutions . the managed services decline was largely driven by lower incentive revenue and the cpx increase was driven by customer additions and higher merchant bankcard processing dollar value . for the year
| 13,786 |
23 replace_table_token_34_th item 13. certain relationships and related transactions , director independence . not applicable . item 14. principal accountant fees and services . mnp , llp , chartered accountants , examined our financial statements for the years ended december 31 , 2016 and 2015. audit fees mnp was paid $ 72,375 and $ 64,553 for the fiscal years ended december 31 , 2017 and 2016 , respectively , for professional services rendered in the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports on form 10-q during these fiscal years . tax fees mnp was paid nil and $ 5,663 for the fiscal years ended december 31 , 2017 and 2016 , respectively , for professional services rendered for the preparation and filing of our income tax returns for the fiscal years ended december 31 , 2016 and 2015. all other fees mnp was not paid any other fees for professional services during the fiscal years ended december 31 , 2017 and 2016 . 24 audit committee pre-approval policies rules adopted by the sec in order to implement requirements of the sarbanes-oxley act of 2002 require public company audit committees to pre-approve audit and non-audit services . our audit committee has adopted a policy for the pre-approval of all audit , audit-related and tax services , and permissible non-audit services provided by our independent auditors . the policy provides for an annual review of an audit plan and budget for the upcoming annual financial statement audit , and entering into an engagement letter with the independent auditors covering the scope of the audit and the fees to be paid . our audit committee may also from time-to-time review and approve in advance other specific audit , audit-related , tax or permissible non-audit services . in addition , our audit committee may from time-to-time give pre-approval for audit services , audit-related services , tax services or other non-audit services by setting forth such pre-approved services on a schedule containing a description of , budget for , and time period for such pre-approved services . the policies require our audit committee to be informed of each service and the policies do not include any delegation of our audit committee 's responsibilities to management . our audit committee may delegate pre-approval authority to one or more of its members . the member to whom such authority is delegated will report any pre-approval decisions to our audit committee at its next scheduled meeting . during the year ended december 31 , 2017 our audit committee approved all of the fees paid to mnp . our audit committee has determined that the rendering of all non-audit services by mnp is compatible with maintaining mnp 's independence . during the year ended december 31 , 2017 , none of the total hours expended on our financial audit by mnp were provided by persons other than mnp 's full-time permanent employees . replace_table_token_35_th ( 1 ) previously filed as an exhibit to our registration statement on form 10-sb filed with the commission on february 22 , 2000 , and incorporated herein by reference . ( 2 ) previously filed as an exhibit to our registration statement on form sb-2 filed with the commission on january 22 , 2003 , and incorporated herein by reference . 25 signatures in accordance with the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . april 2 , 2018 flexible solutions international , inc. by : daniel b. o'brien name : daniel b. o'brien title : president and chief executive officer in accordance with the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated : signature title date daniel b. o'brien president , principal executive officer , principal financial april 2 , 2018 daniel b. o'brien and accounting officer and a director john h. bientjes director april 2 , 2018 john h. bientjes robert t. helina director april 2 , 2018 robert t. helina thomas fyles director april 2 , 2018 thomas fyles ben seaman director april 2 , 2018 ben seaman david fynn director april 2 , 2018 david fynn 26 story_separator_special_tag story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > we are committed to minimum rental payments for property and premises aggregating approximately $ 735,670 over the term of three leases , the last expiring on october 31 , 2021. commitments for rent in the next four years are as follows : replace_table_token_4_th other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2018. other than as disclosed in item 7 of this report , we do not know of any trends , demands , commitments , events or uncertainties that will result in , or that are reasonable likely to result in , our liquidity increasing or decreasing in any material way . other than as disclosed in item 7 of this report , we do not know of any significant changes in our expected sources and uses of cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies . 14 critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic story_separator_special_tag 23 replace_table_token_34_th item 13. certain relationships and related transactions , director independence . not applicable . item 14. principal accountant fees and services . mnp , llp , chartered accountants , examined our financial statements for the years ended december 31 , 2016 and 2015. audit fees mnp was paid $ 72,375 and $ 64,553 for the fiscal years ended december 31 , 2017 and 2016 , respectively , for professional services rendered in the audit of our annual financial statements and for the reviews of the financial statements included in our quarterly reports on form 10-q during these fiscal years . tax fees mnp was paid nil and $ 5,663 for the fiscal years ended december 31 , 2017 and 2016 , respectively , for professional services rendered for the preparation and filing of our income tax returns for the fiscal years ended december 31 , 2016 and 2015. all other fees mnp was not paid any other fees for professional services during the fiscal years ended december 31 , 2017 and 2016 . 24 audit committee pre-approval policies rules adopted by the sec in order to implement requirements of the sarbanes-oxley act of 2002 require public company audit committees to pre-approve audit and non-audit services . our audit committee has adopted a policy for the pre-approval of all audit , audit-related and tax services , and permissible non-audit services provided by our independent auditors . the policy provides for an annual review of an audit plan and budget for the upcoming annual financial statement audit , and entering into an engagement letter with the independent auditors covering the scope of the audit and the fees to be paid . our audit committee may also from time-to-time review and approve in advance other specific audit , audit-related , tax or permissible non-audit services . in addition , our audit committee may from time-to-time give pre-approval for audit services , audit-related services , tax services or other non-audit services by setting forth such pre-approved services on a schedule containing a description of , budget for , and time period for such pre-approved services . the policies require our audit committee to be informed of each service and the policies do not include any delegation of our audit committee 's responsibilities to management . our audit committee may delegate pre-approval authority to one or more of its members . the member to whom such authority is delegated will report any pre-approval decisions to our audit committee at its next scheduled meeting . during the year ended december 31 , 2017 our audit committee approved all of the fees paid to mnp . our audit committee has determined that the rendering of all non-audit services by mnp is compatible with maintaining mnp 's independence . during the year ended december 31 , 2017 , none of the total hours expended on our financial audit by mnp were provided by persons other than mnp 's full-time permanent employees . replace_table_token_35_th ( 1 ) previously filed as an exhibit to our registration statement on form 10-sb filed with the commission on february 22 , 2000 , and incorporated herein by reference . ( 2 ) previously filed as an exhibit to our registration statement on form sb-2 filed with the commission on january 22 , 2003 , and incorporated herein by reference . 25 signatures in accordance with the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized . april 2 , 2018 flexible solutions international , inc. by : daniel b. o'brien name : daniel b. o'brien title : president and chief executive officer in accordance with the exchange act , this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated : signature title date daniel b. o'brien president , principal executive officer , principal financial april 2 , 2018 daniel b. o'brien and accounting officer and a director john h. bientjes director april 2 , 2018 john h. bientjes robert t. helina director april 2 , 2018 robert t. helina thomas fyles director april 2 , 2018 thomas fyles ben seaman director april 2 , 2018 ben seaman david fynn director april 2 , 2018 david fynn 26 story_separator_special_tag story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0 ; text-align : justify ; text-indent : 0.5in '' > we are committed to minimum rental payments for property and premises aggregating approximately $ 735,670 over the term of three leases , the last expiring on october 31 , 2021. commitments for rent in the next four years are as follows : replace_table_token_4_th other than as disclosed above , we do not anticipate any material capital requirements for the twelve months ending december 31 , 2018. other than as disclosed in item 7 of this report , we do not know of any trends , demands , commitments , events or uncertainties that will result in , or that are reasonable likely to result in , our liquidity increasing or decreasing in any material way . other than as disclosed in item 7 of this report , we do not know of any significant changes in our expected sources and uses of cash . we do not have any commitments or arrangements from any person to provide us with any equity capital . see note 2 to the consolidated financial statements included as part of this report for a description of our significant accounting policies . 14 critical accounting policies and estimates allowances for product returns . we grant certain of our customers the right to return product which they are unable to sell . upon sale , we evaluate the need to record a provision for product returns based on our historical experience , economic
| gross profit , as a % of sales d temporary increase in costs after loss of the ewcp manufacturing plant to fire along with increased aspartic acid costs . wages i increased wages to retain employees . administrative salaries and benefits i increased wages to retain employees . rent i additional storage and capacity space for bcps products . professional fess i increased legal fees related to ip and general legal representation along with increased accounting costs . gain on involuntary disposition i result of fire at taber , ab manufacturing facility . 13 the factors that will most significantly affect future operating results will be : ● the sale price of crude oil which is used in the manufacture of aspartic acid we import from china . aspartic acid is a key ingredient in our tpa product ; ● activity in the oil and gas industry , as we sell our tpa product to oil and gas companies ; and ● drought conditions , since we also sell our tpa product to farmers . other than the foregoing we do not know of any trends , events or uncertainties that have had , or are reasonably expected to have , a material impact on our revenues or expenses . capital resources and liquidity our sources and ( uses ) of cash for the years ended december 31 , 2017 and 2016 are shown below : replace_table_token_3_th we have sufficient cash resources to meets our future commitments and cash flow requirements for the coming year . as of december 31 , 2017 , our working capital was $ 11,259,028 and we have no substantial commitments that require significant outlays of cash over the coming fiscal year . < p
| 13,787 |
prior to the business combination , legacy xl financed its operations primarily through private placements of convertible preferred stock and issuance of convertible notes payable , raising aggregate gross proceeds of approximately $ 64 million since our inception in 2009. on december 21 , 2020 , legacy xl and pivotal consummated the business combination and as a result we had cash of approximately $ 340 million after payment of transaction costs and expenses . as of december 31 , 2020 , our accumulated deficit since inception was approximately $ 89.6 million . 38 reorganization and public company costs we were originally known as pivotal investment corporation ii . on december 21 , 2020 , pivotal consummated the merger of its wholly-owned subsidiary merger sub , with and into legacy xl , pursuant to the merger agreement , among pivotal , legacy xl and merger sub . in connection with the closing , pivotal changed its name to xl fleet corp. following the closing , legacy xl was deemed the accounting predecessor of the merger and is the successor registrant for sec purposes , meaning that legacy xl 's financial statements for previous periods will be disclosed in our future periodic reports filed with the sec . the merger is accounted for as a reverse recapitalization . under this method of accounting , pivotal is treated as the acquired company for financial statement reporting purposes . the most significant change in the successor 's reported financial position and results are an increase in cash and cash equivalents of approximately $ 340 million as a result of the net proceeds from the business combination and the private placement of 15 million shares of common stock pursuant to certain subscriptions agreements entered into by pivotal and certain investors , dated september 17 , 2020 ( the “ pipe ” ) . as a consequence of the merger , we are an nyse-listed company , which will require us to hire a chief financial officer and additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices . we expect to incur additional annual expenses as a public company for , among other things , directors ' and officers ' liability insurance , director fees and additional internal and external accounting , legal and administrative resources , including increased audit and legal fees . additionally , we expect our capital and operating expenditures will increase significantly in connection with ongoing activities as we : ● increase our investment in marketing , advertising , sales and distribution infrastructure for our existing and future products and services ; ● develop additional new products and enhancements to existing products ; ● obtain , maintain and improve our operational , financial and management performance ; ● hire additional personnel ; ● obtain , maintain , expand and protect our intellectual property portfolio ; and ● operate as a public company . recent developments public health emergency of international concern : on january 30 , 2020 , the world health organization declared the covid-19 outbreak a “ public health emergency of international concern ” and on march 11 , 2020 , declared it to be a pandemic . actions taken around the world to help mitigate the spread of covid-19 include restrictions on travel , quarantines in certain areas and forced closures for certain types of public places and businesses . the coronavirus and actions taken to mitigate its spread have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries , including the geographical area in which we operate . on march 27 , 2020 , the cares act was enacted to , among other things , provide emergency assistance for individuals , families and businesses affected by the coronavirus pandemic . as the coronavirus pandemic continues to evolve , we believe the extent of the impact to our business , operating results , cash flows , liquidity and financial condition will be primarily driven by the severity and duration of the coronavirus pandemic , the pandemic 's impact on the u.s. and global economies and the timing , scope and effectiveness of federal , state and local governmental responses to the pandemic . those primary drivers are beyond our knowledge and control , and as a result , at this time we are unable to predict the cumulative impact , both in terms of severity and duration , that the coronavirus pandemic will have on our business , operating results , cash flows and financial condition , but it could be material if the current circumstances continue to exist for a prolonged period of time . although we have made our best estimates based upon current information , actual results could materially differ from the estimates and assumptions developed by management . accordingly , it is reasonably possible that the estimates made in the financial statements have been , or will be , materially and adversely impacted in the near term as a result of these conditions , and if so , we may be subject to future impairment losses related to long-lived assets as well as changes to recorded reserves and valuations . in addition , we believe that the impact of the global microchip shortage that the entire vehicle industry is currently experiencing will adversely impact our operating results in fiscal year 2021 . 39 while we still believe that we have increasing sales opportunities for the full year 2021 , we expect sales for the first quarter of 2021 will be [ less than they were in the first quarter of 2020 ] and we believe it will increase in the second quarter , with a greater increase expected in the third and fourth quarters , based on the sales pattern we saw drive our third and fourth quarter performance for fiscal year 2020. payroll protection program loan : on may 8 , 2020 , we received loan proceeds in the amount of $ 1.1 million under the payroll protection program ( “ ppp ” ) . story_separator_special_tag the ppp was established as part of cares act and provided for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business , subject to certain limitations . the loan bears interest at a rate of 1.0 % per annum and requires payment of principal in full upon the maturity date of april 21 , 2022. interest on the loan accrues from the date inception of the loan , interest payments are deferred for deferral period , and commencing one month from the expiration of the first six months ( the “ deferral period ” ) , principal and interest shall be paid monthly in equal payments in such amounts which shall fully amortize the principal and interest amount by the maturity date of the loan . the loan and accrued interest are forgivable to the extent the borrower uses the loan proceeds for eligible purposes over a 24 week period subsequent to receiving the loan , including payroll , benefits , rent and utilities , and so long as the borrower maintains threshold levels of pre-funding employment and wage levels . we have utilized the proceeds of the loan to fund payroll , benefits , rent and utilities . the ppp loan and accrued interest were repaid in full in december 2020 following consummation of the business combination . comparability of financial information our historical operations and statements of assets and liabilities may not be comparable to our operations and statements of assets and liabilities as a result of the business combination . story_separator_special_tag text-indent : 0.5in '' > we expect to continue to incur net losses in the short term , as we continue to execute on our strategic initiatives to optimize our production for scale , invest in the sales and channel teams , and expand our products and services . based on our current liquidity , no additional capital will be needed to execute our business plan over the next 12 months . based on our current business plan , we expect to use approximately $ 25 million of our funds to scale for core profitability , approximately $ 50 million to develop new products and services , approximately $ 25 million to expand internationally , approximately $ 80 million for eaas including providing financing to customers and related potential acquisitions , and approximately $ 150 million for working capital , other potential acquisitions and general corporate purposes . in order to fully realize our strategic objectives , we may need to raise additional capital . our ability to access capital when needed is not assured and , if capital is not available when , and in the amounts needed , we could be required to delay , scale back or abandon some or all of our development programs and other operations , which could materially harm our business , prospects , financial condition and operating results . 42 silicon valley bank loan and security agreement effective december 10 , 2018 , and as amended on august 12 , 2020 and december 1 , 2020 , we entered into a loan and security agreement for a revolving line of credit and term loan with silicon valley bank . the revolving line of credit features a maximum borrowing base equal to the lesser of the defined borrowing base less any outstanding principal or a minimum aggregate principal amount of $ 3 million , which may increase dependent upon certain revenue targets . in november 2019 , we amended the loan and security agreement to extend the maturity of the revolving line of credit to december 8 , 2020. in december 2020 , we amended the loan and security agreement to extend the maturity of the revolving line of credit to january 18 , 2021. the term loan was structured to be paid in two tranche periods of up to $ 1 million in each period , or up to $ 2 million in total . the revolving line of credit bears interest at a floating per annum rate equal to the greater of ( i ) the prime rate plus 4.50 % or ( ii ) a fixed rate of 7.75 % . the term loan has an interest rate equal to the greater of ( i ) the prime rate plus 2.00 % or ( ii ) a fixed rate of 7.00 % . the term loan matures in december 2021. in connection with the november 2019 amendment to the loan and security agreement , we secured access to an additional growth capital term loan , structured to be paid in two tranche periods of up to $ 1.5 million in the first period and up to $ 0.5 million in the second period , or up to $ 2 million in total . this growth capital term loan has an interest rate equal to the greater of ( i ) the prime rate plus 2.00 % or ( ii ) a fixed rate of 7.00 % . the growth capital loan matures in june 2022. the term loan and growth capital loan and accrued interest thereon were repaid in december 2020 following the consummation of the business combination . convertible promissory notes in march 2019 , we executed a subordinated convertible promissory note in the amount of $ 1 million which had an interest rate of 8.00 % with a maturity date of the earlier of march 29 , 2020 or the date of a change of control ( as defined therein ) ( the “ march 2019 note ” ) . in june 2019 , we executed subordinated convertible promissory notes in the aggregate amount of $ 10 million , for $ 9 million in new proceeds and the exchange of the march 2019 note ( collectively , the “ june 2019 notes ” ) .
| key components of statements of operations research and development expense research and development expenses consist primarily of costs incurred for the discovery and development of our electrified powertrain offerings , which include : ● personnel-related expenses including salaries , benefits , travel and share-based compensation , for personnel performing research and development activities ; ● fees paid to third parties such as consultants and contractors for outsourced engineering services ; ● expenses related to prototype materials , supplies and third-party services ; and ● depreciation for equipment used in research and development activities . we expect our research and development costs to increase substantially for the foreseeable future as we expect to use a significant portion of the proceeds from the business combination and the pipe to accelerate development of product enhancements and additional new products . 40 selling , general and administrative expense selling , general and administrative expenses consist of personnel-related expenses for our corporate , executive , finance , sales , marketing and other administrative functions , expenses for outside professional services , including legal , audit and accounting services , as well as expenses for facilities , depreciation , amortization , travel , sales and marketing costs . personnel-related expenses consist of salaries , benefits and share-based compensation . we expect our selling , general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business , and as a result of operating as a public company , including compliance with the rules and regulations of the sec that may include legal , audit , additional insurance expenses , investor relations activities and other administrative and professional services . other income ( expense ) , net other income and expense consists of interest expense net of interest income , loss on extinguishment of debt and change in fair value of convertible notes payable derivative liabilities . results of operations comparison of years ended december 31 , 2020 and 2019 the consolidated statements of operations for the years ended december 31 , 2020
| 13,788 |
in transportation , we continue to believe that our products and services are critical to our customers to ensure that they maximize revenue and efficiencies in fare collection in a resource constrained environment . some customers have responded to the current market environment by seeking financing for their projects from the system supplier . an example of this is our contract with the chicago transit authority , awarded in late 2011. we are designing and manufacturing a new fare collection system for the chicago transit authority and will receive monthly payments for the system over an approximate ten-year period expected to begin in the second quarter of fiscal 2014. while future defense plans , changes in defense spending levels and changes in spending for mass transit projects could have a materially adverse effect on our consolidated financial position , we have and plan to continue to make strategic investments and acquisitions to align our businesses in growth areas of our respective markets that we believe are the most critical priorities and mission areas for our customers . segment overview cubic transportation systems cts is a systems integrator that develops and provides fare collection infrastructure , services and technology and real-time passenger information systems and services for public transportation authorities and operators worldwide . we offer fare collection devices , software , systems and multiagency , multimodal integration technologies , as well as a full suite of operational services that help agencies efficiently collect fares , manage operations , reduce revenue leakage and make public transit more convenient . the public transportation markets we serve are undergoing a substantial change . mounting pressure on public transportation authorities to stretch their operating budgets is fueling a trend toward outsourced services and payment systems that lower operating cost . we believe we are positioned at the forefront of this change . we provide a wide range of services for public transportation authorities in major markets worldwide , including computer hosting services , call center and web services , payment media issuance and distribution services , retail point of sale network management , payment processing , financial clearing and settlement , software application support and outsourced asset operations and maintenance . significant regions where we currently provide services include london , sydney , brisbane , sweden , washington d.c. , los angeles , san francisco and atlanta . cts operates full service operation centers in north america , europe and australia . in 2013 , revenues from services provided by cts were $ 275.4 million , or 53 % of cts sales in 2013. cts is a prime contractor and has active projects worldwide , including in the new york ( metrocard® ) / new jersey ( patco® , path smartlink® ) region , chicago ( ventra® ) , vancouver , sydney ( opal® ) , brisbane ( go card® ) , the frankfurt / rmv region , sweden , the washington , d.c. / maryland / virginia region ( smartrip® ) , the los angeles region , the san diego region , miami , minneapolis / st. paul and atlanta . in addition to helping us secure similar projects in new markets , our comprehensive suite of new technologies and capabilities enable us to benefit from a recurring stream of revenues in established markets resulting from innovative new services , technology obsolescence , equipment refurbishment and the introduction of new or adjacent applications . we are currently designing and building major new systems in chicago , sydney and vancouver . typically , profit margins during the design and build phase of major projects are lower than during the operate and maintain phase . this has in the past caused , and may in the future cause , swings in profitability from period to period . in addition , cash flows are often negative during portions of the design and build phase , until major milestones are reached and cash payments are received . this was the case in 2013 , as we experienced negative cash flows from all three of these major projects . each of these projects includes a ten-year operate and maintain period and we expect cash flows from these projects to be positive in future years . 34 cash payment terms offered by our mass transit customers in a competitive environment are sometimes not favorable to us . the customers ' budget constraints often result in less funding available for the build of a new system , with more funds becoming available when the system becomes operational . this , coupled with the inherent risks in managing large infrastructure projects , can yield negative cash flows and lower and less predictable profit margins on contracts during the design and build phase . conversely , during the operate and maintain phase , revenues and costs are typically more predictable and profit margins tend to be higher . gross profit margins from services sales in cts were 35 % and 31 % for fiscal years 2013 and 2012 , respectively , and gross profit margin from product sales was 16 % and 26 % in 2013 and 2012 , respectively . thus , the trend toward more services revenues has helped to generate higher profit margins from the segment in recent years than in the past . the mix of product and services sales can produce fluctuations in margin from period-to-period ; however , we expect the trend of increasing services sales to continue in the next several years . most of our sales in cts for fiscal year 2013 were from fixed-price contracts . however , some of our service contracts provide for variable payments , in addition to the fixed payments , based on meeting certain service level requirements and , in some cases , based on system usage . service level requirements are generally contingent upon factors that are under our control , while system usage payments are contingent upon factors that are generally not under our control , other than basic system availability . story_separator_special_tag development and system integration contracts in cts are usually accounted for on a percentage-of-completion basis using the cost-to-cost method to measure progress toward completion , which requires us to estimate our costs to complete these contracts on a regular basis . our actual results can vary significantly from these estimates and changes in estimates can result in significant swings in revenues and profitability from period to period . generally , we are at risk for increases in our costs , unless an increase results from customer-requested changes . at times , there can be disagreement with a customer over who is responsible for increases in costs . in these situations we must use judgment to determine if it is probable that we will recover our costs and any profit margin . revenue under contracts for services in cts is generally recognized either as services are performed or when a contractually required event has occurred , depending on the contract . revenue under such contracts is generally recognized on a straight-line basis over the period of contract performance , unless evidence suggests that the revenue is earned or the obligations are fulfilled in a different pattern . costs incurred under these services contracts are expensed as incurred , and may vary from period to period . incentive fees included in some of our cts service contracts are recognized when they become fixed and determinable based on the provisions of the contract . as described above , often these fees are based on meeting certain contractually required service levels or based on system usage levels . contractual terms can also result in variation of both revenues and expenses , resulting in fluctuations in earnings from period to period . for our contract for the new fare collection system for the chicago transit authority , the contract specifies that we will not be paid until we enter the service period . in accordance with authoritative accounting literature , we did not begin recognizing revenue on this contract until it entered the service period in august 2013. as of september 30 , 2013 , we had capitalized $ 75.5 million in direct costs associated with developing the new fare collection system . selling , general and administrative ( sg & a ) costs associated with this contract are not being capitalized , but are being expensed as incurred . capitalized costs are being amortized into cost of sales based upon the ratio of revenue recorded during a period compared to the revenue expected to be recognized over the term of the contract . in january 2013 , we announced the acquisition of nextbus as well as certain contracts from its parent company , webtech wireless . the purchase consideration was approximately $ 20.2 million . nextbus provides real-time passenger information systems using a software-as-a-service solution . the nextbus acquisition is part our nextcity vision and it expands cts ' potential market beyond fare collection to information-based solutions . for fiscal year 2013 , nextbus had $ 7.8 million of revenue and was slightly dilutive to our earnings per share , after consideration of costs for transaction integration , retention and the amortization of purchased intangibles . on november 26 , 2013 we acquired all of the outstanding capital stock of intelligent transport management solutions limited ( itms ) , a wholly owned u.k. subsidiary of serco limited . itms is a provider of traffic management systems technology , traffic and road enforcement and maintenance of traffic signals , emergency equipment and other critical road and tunnel infrastructure . the total acquisition-date fair value of consideration transferred for itms was approximately $ 70 million . mission support services mss is a leading provider of highly specialized support services to the u.s. government and allied nations . services provided include live , virtual and constructive training , real-world mission rehearsal exercises , professional military education , intelligence support , information technology , information assurance and related cyber support , development of military doctrine , consequence management , infrastructure protection and force protection , as well as support to field operations , force deployment and redeployment and logistics . 35 mss is a highly specialized and customer centric business which we believe knows how to meet the unique requirements of each of its many customers . in the government services marketplace , reputation , quality and relationships are always important . we uphold our credentials for professional excellence by consistently providing high-value and cost-effective support for our customers . mss is focused on customers within the u.s. government , extending to the dod , all branches of the u.s. armed services , the department of homeland security , non-military agencies , and allied nations under fms contracts funded by the u.s. government . mss is the prime contractor at more than 40 military training and support facilities and supports more than 200,000 exercises and training events per year . the segment supports all four of the u.s. army 's combat training centers ( ctcs ) comprised of : the joint readiness training center ( jrtc ) in fort polk , louisiana , which is the nation 's premier training center for light infantry forces ; the national training center ( ntc ) in fort irwin , california , the army 's premier heavy maneuver ctc ; the joint multinational readiness center ( jmtc ) in hohenfels , germany , which is the u.s. army europe 's combat maneuver training center for realistic training from the individual to the brigade level ; and the mission command training program ( mctp ) in fort leavenworth , kansas , which delivers mission command training to the army 's senior commanders and is the army 's only worldwide deployable ctc . mss continues its role as a long-time prime contractor for the marine corps air and ground forces under the marine air ground task force ( magtf ) training systems support ( mtss ) contract .
| cds operating profits were negatively impacted in 2013 by lower margins on lower sales from a ground training system in the far east , a $ 2.8 million write-down of inventory in our global asset tracking product line and $ 7.8 million of restructuring charges incurred in 2013. mss recorded a $ 50.9 million goodwill impairment in 2013 as discussed in the mss segment disclosures below . mss also experienced a decrease in gross margins on a decrease in sales , particularly in the fourth quarter of 2013 due to lower training activity and continued pressure on bid prices . mss bid rates have recently been impacted by the tougher competitive environment , where the lowest price technically acceptable bid often wins the contract award . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar , resulted in a decrease in operating income of $ 0.1 million for 2013. operating income increased 13 % to $ 128.0 million in 2012 compared to $ 113.5 million in 2011. cts and cds each contributed to the growth in operating income in 2012 , while mss operating income was down in 2012 from 2011. growth in cts sales was the primary reason for the increase in operating income , while cds operating income grew primarily due to a decrease in our investment in cross domain and global asset tracking products in 2012 compared to 2011. the current competitive environment in the government services industry is driving mss profit margins lower than in recent years , resulting in lower operating income . operating results for mss include an operating loss from abraxas of $ 1.3 million in 2012 , including amortization of intangible assets of $ 9.3 million , compared to a loss of $ 3.5 million in 2011 , which included amortization of intangible assets of $ 8.2 million and acquisition costs of $ 0.7 million . the average exchange rates between the prevailing currencies in our foreign operations and the u.s. dollar , resulted in a decrease in operating income of $ 0.6 million for 2012. see the segment discussions below
| 13,789 |
the increase in revenue in 2019 compared to 2018 was due primarily to increased net interest income and gains on sales of mortgage loans . net interest income increased to $ 63.5 million in 2019 compared to $ 59.6 million in 2018. gain on sales of mortgage loans were $ 2.3 million in 2019 compared to $ 924,000 in 2018. total noninterest expense was $ 44.2 million in 2019 compared to $ 44.3 million in 2018. we recorded a negative provision for loan losses of $ 450,000 in 2019 and a provision for loan losses of $ 450,000 in 2018. these provisions resulted from low levels of nonperforming loans , strong asset quality and the levels of net loan charge-offs/recoveries realized in each of these periods . these items are discussed more fully below . net interest income : net interest income totaled $ 63.5 million during 2019 compared to $ 59.6 million during 2018. the increase in net interest income during 2019 compared to 2018 marked our fifth consecutive year with an increase in net interest income . this increase was due to an increase in average earning assets of $ 113.5 million from $ 1.77 billion in 2018 to $ 1.89 billion in 2019 as well as improvement in yields on earning assets . average yield on securities , interest earning assets and net interest margin are presented on a fully taxable equivalent basis . our net interest income as a percentage of average interest-earning assets ( i.e . “ net interest margin ” or “ margin ” ) was 3.38 % for both the years ended december 31 , 2019 and december 31 , 2018. the yield on earning assets increased 13 basis points from 3.91 % for 2018 to 4.04 % for 2019. the increase from 2018 to 2019 was generally due to increases in short-term interest rates including the federal funds rate , the prime rate and libor throughout 2018 , providing a higher average in 2019 , despite the decreases in the federal funds rate in late 2019. our margin in recent years has been negatively impacted by our decision to hold significant balances in liquid and short-term investments . net interest income for 2019 increased $ 3.9 million compared to 2018. of this increase , $ 980,000 was due to changes in rates earned or paid , while $ 2.9 million was from changes in the volume of average interest earning assets and interest bearing liabilities . the largest changes came in commercial loan interest income which increased by $ 4.5 million in 2019. of the $ 4.5 million increase in interest income on commercial loans , $ 2.2 million was due to increases in rates earned and $ 2.3 million was due to increases in average balances . average interest earning assets totaled $ 1.89 billion for 2019 compared to $ 1.77 billion in 2018. increases of $ 81.8 million in average short-term investment balances and $ 40.4 million in average loan balances from 2018 to 2019 were the primary drivers of the increase in total earning assets . yield on commercial loans increased from 4.52 % in 2018 to 4.72 % in 2019. yield on residential mortgage loans increased from 3.57 % in 2018 to 3.72 % in 2019 , while yield on consumer loans increased from 4.79 % in 2018 to 5.19 % in 2019. the increases in yields on commercial loans and consumer loans , in particular , were the result of the predominance of loans in these categories with variable rates of interest tied to prime and libor which increased significantly in 2017 through early 2019. our net interest margin for 2019 was negatively impacted from an 18 basis point increase in our cost of funds from 0.76 % for 2018 to 0.94 % for 2019. average interest bearing liabilities increased from $ 1.24 billion in 2018 to $ 1.32 billion in 2019. increases in the rates paid on certain deposit account types in response to market rates and additional other borrowings caused the increase in our cost of funds . while these costs have increased , the yields on our interest earning assets increased enough to offset this effect , allowing our net interest margin to remain unchanged from 2018 to 2019 . - 25 - in 2020 , we expect that net interest margin will be pressured by the recent decreases in the federal funds rate and our higher levels of short-term investment balances held . the following table shows an analysis of net interest margin for the years ended december 31 , 2019 , 2018 and 2017 ( dollars in thousands ) . replace_table_token_16_th ( 1 ) yields are presented on a tax equivalent basis using a 21 % tax rate for 2019 and 2018 and a 35 % tax rate for 2017 . ( 2 ) loan fees of $ 946,000 , $ 701,000 and $ 701,000 for 2019 , 2018 and 2017 , respectively , are included in interest income . includes average nonaccrual loans of approximately $ 375,000 , $ 316,000 and $ 492,000 for 2019 , 2018 and 2017 , respectively . - 26 - the following table presents the dollar amount of changes in net interest income due to changes in volume and rate . replace_table_token_17_th provision for loan losses : the provision for loan losses for 2019 was a negative $ 450,000 compared to $ 450,000 for 2018. the level of provision in each period was the result of continued realization of recoveries , a reduction in the balances of and required reserves on nonperforming loans , and stabilizing real estate values on problem credits . while we did have net charge-offs in 2018 , this followed a period when we experienced net recoveries in five consecutive full years and we again had net recoveries in 2019. our low net charge-offs in 2018 and net recoveries in other recent years were attributable to positive results from our active collection efforts . our overall commercial loan grade has been below 4.00 for the past several years . story_separator_special_tag our weighted average commercial loan grade was 3.67 at december 31 , 2019 and 3.68 at december 31 , 2018. the amounts of loan loss provision in each period were the result of establishing our allowance for loan losses at levels believed necessary based upon our methodology for determining the adequacy of the allowance . the sustained level of net recoveries over the past several years has had a significant effect on the historical loss component of our methodology . more information about our allowance for loan losses and our methodology for establishing its level may be found in this item 7 of this report under the heading “ allowance for loan losses ” below and in item 8 of this report in note 3 of the consolidated financial statements . noninterest income : noninterest income totaled $ 19.7 million in 2019 compared to $ 17.5 million in 2018. the components of noninterest income are shown in the table below ( in thousands ) : replace_table_token_18_th net gains on sales of mortgage loans increased $ 1.4 million from 2018 to 2019 due to higher sales volumes in 2019. net gains on mortgage loans included gains on the sale of real estate mortgage loans in the secondary market . we sell the majority of the fixed-rate mortgage loans we originate . we do not retain the servicing rights for the loans we sell . - 27 - a summary of gain on sales of loans and related loan volume was as follows ( in thousands ) : replace_table_token_19_th as demonstrated in the table above , volume of mortgage loans originated for sale was up significantly in 2019 compared to 2018. the declining interest rates in 2019 have significantly impacted mortgage sale production volume . during 2019 , more of our mortgage production volume was in products we sell on the secondary market than in the prior year , also contributing to the increase in gains on sales of mortgage loans in 2019. in addition , during the past year we have seen a shift in our mortgage production from purchase activity to refinance activity . trust service revenue increased $ 169,000 in 2019. this increase was due to growth in our trust service customer base and improvements in general market conditions through most of 2019. atm and debit card processing income increased $ 218,000 in 2019 to $ 5.8 million compared to $ 5.5 million in 2018. this increase reflected a continued increase in usage from current customers and overall growth in the number of debit and atm card customers . promotional efforts to increase volume in these low cost transaction alternatives continued to be successful . we did not sell any securities in 2019 or 2018. we continually review our securities portfolio and will dispose of securities that pose higher than desired credit or market risk . investment services fees increased $ 257,000 in 2019. this increase was due to growth in our investment services customer base along with a shift in the choice of investments by customers to those with higher associated fees . earnings from bank owned life insurance increased by $ 30,000 in 2019 compared to 2018 due to the general performance of the underlying investments . other real estate rental income was $ 495,000 in 2019 compared to $ 506,000 in 2018. the year over year changes were a result of changes in rental arrangements on some of these properties . noninterest expense : noninterest expense was $ 44.2 million in 2019 and $ 44.3 million in 2018. the slight decrease in total noninterest expense reflected our active management of controllable costs . the components of noninterest expense are shown in the table below ( in thousands ) : replace_table_token_20_th salaries and benefits expense was the largest component of noninterest expense and was $ 24.7 million in 2019 and $ 25.2 million in 2018. the decrease in 2019 was primarily driven by lower medical insurance costs resulting from lower claims experience in 2019 , partially offset by an increase in variable compensation tied to higher mortgage loan production and investment services fees in 2019 . - 28 - costs associated with nonperforming assets remained at low levels , totaling $ 253,000 in 2019 and $ 69,000 in 2018. these costs included legal costs , repossessed and foreclosed property administration expense and losses ( gains ) on repossessed and foreclosed properties . repossessed and foreclosed property administration expense included survey and appraisal , property maintenance and management and other disposition and carrying costs . net gains on repossessed and foreclosed properties included both net gains and losses on the sale of properties and unrealized losses from value declines for outstanding properties . the increase in these costs in 2019 over 2018 was due to a higher level of realized gains on these properties in 2018. these costs are itemized in the following table ( in thousands ) : replace_table_token_21_th during 2019 , we did not add any other real estate properties and sold $ 618,000 of other real estate and repossessed assets , allowing for another meaningful reduction in our year-end balance , bringing it from $ 3.4 million at december 31 , 2018 to $ 2.7 million at december 31 , 2019. during 2018 , we received a distribution of $ 675,000 from the sale of a property held by a partnership in which we had acquired an interest in satisfaction of a loan in the 1990s . this property had been carried at $ 0 , so the entire distribution resulted in net gain treatment . during 2019 we received an additional $ 68,000 related to this property as a distribution of funds that had been held in escrow following the sale of the property in 2018. this additional distribution was treated as net gain in 2019. in 2018 , we added $ 293,000 in other real estate and sold $ 2.4 million .
| million at december 31 , 2018. the balance at december 31 , 2019 primarily consisted of u.s. agency securities , agency mortgage backed securities and various municipal investments . our held to maturity portfolio increased from $ 70.3 million at december 31 , 2018 to $ 82.7 million at december 31 , 2019. our held to maturity portfolio is comprised of state aid notes and locally sourced municipal and commercial bonds . the commercial bond component of this category declined by $ 2.9 million in 2019. these bonds represent financing provided to some of our non-profit commercial customers who qualified for borrowing on a tax-exempt basis . portfolio loans and asset quality : total portfolio loans decreased by $ 20.0 million to $ 1.39 billion at december 31 , 2019 compared to $ 1.41 billion at december 31 , 2018. during 2019 , our commercial portfolio increased by $ 16.0 million , while our residential mortgage portfolio decreased by $ 27.1 million and our consumer portfolio decreased by $ 8.9 million . the volume of residential mortgage loans originated for sale in 2019 increased significantly compared to 2018 due to the mortgage rate environment and customer preference for loan types that we sell , primarily longer term fixed rate mortgages . residential mortgage loans originated for sale were $ 82.3 million in 2019 compared to $ 33.9 million in 2018. we experienced year over year growth in commercial loan balances for the past three years , increasing $ 39.8 million in 2017 , $ 74.9 million in 2018 and $ 16.0 million in 2019. we plan to continue measured , high quality loan portfolio growth in 2020. commercial and commercial real estate loans remained our largest loan segment and accounted for 79.2 % of the total loan portfolio at december 31 , 2019 and 77.0 % at december 31 , 2018. residential mortgage and consumer loans comprised 20.8 % of total loans at december 31 , 2019 and 23.0 %
| 13,790 |
as part of the consumer storage transaction , we received an initial equity interest of approximately 34 % in the makespace jv ( the “ makespace investment ” ) . in the second quarter of 2020 , we committed to participate in a round of equity funding for the makespace jv whereby we agreed to contribute $ 36.0 million of the $ 45.0 million being raised in installments beginning in may 2020 through october 2021. at december 31 , 2020 , we owned approximately 39 % of the outstanding equity in the makespace jv . as described in note 4 to notes to consolidated financial statements included in this annual report , we have concluded that the divestment of the im consumer storage assets in the consumer storage transaction does not meet the criteria to be reported as discontinued operations in our consolidated financial statements . in connection with the consumer storage transaction and the makespace investment , we also entered into a storage and service agreement with the makespace jv to provide certain storage and related services to the makespace jv ( the “ makespace agreement ” ) . revenues and expenses associated with the makespace agreement are presented as a component of our global rim business segment . during the years ended december 31 , 2020 and 2019 , we recognized revenue of approximately $ 33.6 million and $ 22.5 million , respectively , associated with the makespace agreement . as a result of the consumer storage transaction , we recorded a gain on sale of approximately $ 4.2 million to other expense ( income ) , net , in the first quarter of 2019 , representing the excess of the fair value of the consideration received over the sum of ( i ) the carrying value of our consumer storage operations and ( ii ) the cash contribution . iron mountain 2020 form 10-k 27 part ii changes impacting comparability with prior year during the fourth quarter of 2020 , we made changes to the definitions of the following non-gaap measures : adjusted ebitda , adjusted eps , ffo ( nareit ) and ffo ( normalized ) ( each as defined below ) . these changes were implemented to align our definitions more closely with our peers . these changes impacted the results reported for these non-gaap measures for fiscal years 2019 and 2018. however , these changes did not materially impact the discussion to what was included in previous filings . all prior periods have been recast to conform to these changes . see “ item 7. management 's discussion and analysis of financial condition and results of operations ” in our annual report on form 10-k for the year ended december 31 , 2019 for a comparison of 2019 to 2018. general results of operations - key trends in spite of the covid-19 pandemic , we have experienced relatively steady volume in our global rim business segment , with organic storage rental revenue growth driven primarily by revenue management . we expect organic storage rental revenue growth to benefit from revenue management and volume to be relatively stable in the near term . we expect our total organic storage rental revenue growth rate for 2021 to be approximately 2 % to 4 % . our organic service revenue during 2020 was significantly impacted by the covid-19 pandemic , with declines primarily due to decreases in our service activity , particularly in regions where governments have imposed restrictions on our customers ' non-essential business operations . the severity of future service level declines is uncertain and is dependent , in part , on the duration and severity of the covid-19 pandemic , the resulting governmental and business actions and the duration and strength of any ensuing economic recovery that may follow , particularly within the markets in which we operate and among our customers . our revenues consist of storage rental revenues as well as service revenues and are reflected net of sales and value-added taxes . storage rental revenues , which are considered a key driver of financial performance for the storage and information management services industry , consist primarily of recurring periodic rental charges related to the storage of materials or data ( generally on a per unit basis ) that are typically retained by customers for many years and revenues associated with our data center operations . service revenues include charges for related service activities , the most significant of which include : ( 1 ) the handling of records , including the addition of new records , temporary removal of records from storage , refiling of removed records , customer termination and permanent withdrawal fees , project revenues , and courier operations , consisting primarily of the pickup and delivery of records upon customer request ; ( 2 ) destruction services , consisting primarily of secure shredding of sensitive documents and the subsequent sale of shredded paper for recycling , the price of which can fluctuate from period to period ; and ( 3 ) digital solutions , including the scanning , imaging and document conversion services of active and inactive records , and consulting services . our service revenue growth has been negatively impacted by declining activity rates as stored records are becoming less active . while customers continue to store their records and tapes with us , they are less likely than they have been in the past to retrieve records for research and other purposes , thereby reducing service activity levels . breakdown of revenues 28 iron mountain 2020 form 10-k part ii cost of sales ( excluding depreciation and amortization ) consists primarily of labor , including wages and benefits for field personnel , facility occupancy costs ( including rent and utilities ) , transportation expenses ( including vehicle leases and fuel ) , other product cost of sales and other equipment costs and supplies . of these , labor and facility occupancy costs are the most significant . story_separator_special_tag selling , general and administrative expenses consist primarily of wages and benefits for management , administrative , it , sales , account management and marketing personnel , as well as expenses related to communications and data processing , travel , professional fees , bad debts , training , office equipment and supplies . cost of sales ( excluding depreciation and amortization ) and selling , general and administrative expenses for the year ended december 31 , 2020 consists of the following : cost of sales selling , general and administrative expenses trends in facility occupancy costs are impacted by : the total number of facilities we occupy ; the mix of properties we own versus properties we lease ; fluctuations in per square foot occupancy costs ; and the levels of utilization of these properties . trends in total wages and benefits in dollars and as a percentage of total consolidated revenue are influenced by : changes in headcount and compensation levels ; achievement of incentive compensation targets ; workforce productivity ; and variability in costs associated with medical insurance and workers ' compensation . the expansion of our international businesses has impacted the major cost of sales components and selling , general and administrative expenses . our international operations are more labor intensive relative to revenue than our operations in north america and , therefore , labor costs are a higher percentage of international operational revenue . the overhead structure of our expanding international operations has generally not achieved the same level of overhead leverage as our north american operations , which may result in an increase in selling , general and administrative expenses as a percentage of consolidated revenue as our international operations become a larger percentage of our consolidated results . our depreciation and amortization charges result primarily from depreciation related to storage systems , which include racking structures , buildings , building and leasehold improvements and computer systems hardware and software . amortization relates primarily to customer relationship intangible assets , contract fulfillment costs and data center lease-based intangible assets . both depreciation and amortization are impacted by the timing of acquisitions . our consolidated revenues and expenses are subject to the net effect of foreign currency translation related to our operations outside the united states . it is difficult to predict the future fluctuations of foreign currency exchange rates and how those fluctuations will impact our consolidated statements of operations . as a result of the relative size of our international operations , these fluctuations may be material on individual balances . our revenues and expenses from our international operations are generally denominated in the local currency of the country in which they are derived or incurred . therefore , the impact of currency fluctuations on our operating income and operating margin is partially mitigated . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percentage change in the results from one period to another period in this report using constant currency presentation . the constant currency growth rates are calculated by translating the 2019 results at the 2020 average exchange rates and the 2018 results at the 2019 average exchange rates . constant currency growth rates are a non-gaap measure . iron mountain 2020 form 10-k 29 part ii the following table is a comparison of underlying average exchange rates of the foreign currencies that had the most significant impact on our united states dollar-reported revenues and expenses : replace_table_token_6_th replace_table_token_7_th the percentage of united states dollar-reported revenues for all other foreign currencies was 13.8 % , 12.7 % and 12.6 % for the years ended december 31 , 2020 , 2019 and 2018 , respectively . non-gaap measures adjusted ebitda during the fourth quarter of 2020 , we changed our definition of adjusted ebitda to ( a ) exclude stock-based compensation expense and ( b ) include our share of adjusted ebitda from our unconsolidated joint ventures . we now define adjusted ebitda as income ( loss ) from continuing operations before interest expense , net , provision ( benefit ) for income taxes , depreciation and amortization ( inclusive of our share of adjusted ebitda from our unconsolidated joint ventures ) , and excluding certain items we do not believe to be indicative of our core operating results , specifically : excluded significant acquisition costs restructuring charges intangible impairments ( gain ) loss on disposal/write-down of property , plant and equipment , net ( including real estate ) other expense ( income ) , net stock-based compensation expense covid-19 costs ( as defined below ) adjusted ebitda margin is calculated by dividing adjusted ebitda by total revenues . we also show adjusted ebitda and adjusted ebitda margin for each of our reportable operating segments under “ results of operations – segment analysis ” below . 30 iron mountain 2020 form 10-k part ii adjusted ebitda excludes both interest expense , net and the provision ( benefit ) for income taxes . these expenses are associated with our capitalization and tax structures , which we do not consider when evaluating the operating profitability of our core operations . adjusted ebitda also does not include depreciation and amortization expenses , in order to eliminate the impact of capital investments , which we evaluate by comparing capital expenditures to incremental revenue generated and as a percentage of total revenues . adjusted ebitda and adjusted ebitda margin should be considered in addition to , but not as a substitute for , other measures of financial performance reported in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) , such as operating income , income ( loss ) from continuing operations , net income ( loss ) or cash flows from operating activities from continuing operations ( as determined in accordance with gaap ) . reconciliation of income ( loss ) from continuing operations to adjusted ebitda ( in thousands ) : replace_table_token_8_th ( 1 ) includes foreign currency transaction losses ( gains ) , net , debt extinguishment expense and other , net .
| storage rental revenues and service revenues primary factors influencing the change in reported storage rental revenue and reported service revenue for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 include the following : storage rental revenues organic storage rental revenue growth driven by volume growth in faster growing markets and revenue management ; a 2.1 % increase in global records management volume due to acquisitions ( excluding acquisitions , global records management volume decreased 1.1 % ) ; and a decrease of $ 29.1 million due to foreign currency exchange rate fluctuations . service revenues a decrease in service activity as a result of the covid-19 pandemic , particularly in regions where governments have imposed restrictions on our customers ' non-essential business operations ; organic service revenue declines reflecting lower service activity levels ; and a decrease of $ 15.7 million due to foreign currency exchange rate fluctuations . 39 iron mountain 2020 form 10-k part ii operating expenses cost of sales consolidated cost of sales ( excluding depreciation and amortization ) consists of the following expenses ( in thousands ) : replace_table_token_16_th replace_table_token_17_th primary factors influencing the change in reported consolidated cost of sales for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 include the following : a decrease in labor costs driven by cost containment actions taken in response to lower service activity levels due to the covid-19 pandemic , partially offset by incremental labor costs associated with recent acquisitions ; a decrease in transportation costs primarily driven by lower third party carrier cost and fuel cost reflecting cost containment actions taken in response to lower service activity levels ; an increase in facilities expenses driven by increases in rent expense , in part due to recent acquisitions and the impact from our recent sale-leaseback activity ( which we expect to continue in 2021 as we continue to look for future opportunities to monetize a small portion of our owned industrial real estate assets as part of our ongoing capital recycling program ) ; and a decrease of $ 23.5 million due to foreign currency exchange rate fluctuations . iron mountain 2020 form 10-k 40 part ii selling , general and administrative expenses consolidated selling , general and administrative expenses consists of the following expenses ( in thousands ) : replace_table_token_18_th replace_table_token_19_th primary factors influencing the change in reported consolidated selling ,
| 13,791 |
as of december 31 , 2020 , we had total debt outstanding of approximately $ 2.2 billion , with a weighted average interest rate of 3.91 % and a weighted average maturity of 8.2 years and 94.2 % of which is fixed-rate indebtedness . excluding principal amortization , we have no outstanding debt maturing until november 2024. as of december 31 , 2020 , we had cash and cash equivalents of $ 526.7 million . our consolidated net debt to total market capitalization was approximately 37.2 % as of december 31 , 2020. impact of covid-19 in march 2020 , the outbreak of the novel coronavirus disease 2019 ( `` covid-19 '' ) was recognized as a pandemic by the world health organization . the spread of covid-19 has created a global public health crisis that has resulted in unprecedented economic , social and political uncertainty , volatility and disruption in the united states and globally . we have taken the following actions in response to the impact of the covid-19 pandemic on our business . liquidity during 2020 , we bolstered our balance sheet to ensure proper liquidity by raising $ 480.0 million in net proceeds in three financings . in march 2020 , we drew down $ 550.0 million under our $ 1.1 billion unsecured revolving facility and in september 2020 , we repaid the $ 550.0 million draw . we currently hold $ 526.7 million in cash on our balance sheet and have $ 1.1 billion undrawn capacity under our revolving credit facility . our revolving credit facility matures in august 2021 and has two six-month extension options , subject to certain conditions . as expected , we have begun a process to evaluate a potential recast or extension of the credit facility . property operations all of our office buildings have remained open during the covid-19 pandemic to tenants that provide essential goods and services , as permitted by the authorities . we have scaled back certain building operations in cleaning , security , lobby concierge and recurring maintenance , which will reduce costs until buildings are repopulated . a portion of the reduction in operating expenses will be offset by a reduction in tenant expense recoveries . 44 our operations team worked diligently to develop plans for tenants ' reoccupation of our buildings to ensure a safe , clean and healthy work environment . these plans involve additional staffing , cleaning and maintenance , and changes to building operations for access by tenants and their guests . all new york state capital improvement work , except for essential work as defined by the authorities which includes safety-related work and work to demobilize previously started projects , was stopped in march 2020 until june 8 , 2020 , when government restrictions were lifted . our spend on such capital improvement work in 2020 was significantly curtailed under the restrictions . despite the challenge of the uncertain near-term environment , we continue to believe in the long-term demand for office space . we believe many tenants have now experienced the inefficiencies of working from home and miss the connectivity and productivity that an office environment provides . that said , we believe the pandemic may cause some fundamental changes to how tenants use their office space in the future including less densification and smarter open floor plans with appropriate spacing . we also believe current co-working build-outs are too dense and will be poorly positioned for tenant demand in the new paradigm . leasing the economic uncertainty relating to the covid-19 pandemic has slowed the pace of our leasing activity and could result in higher vacancy than we otherwise would have experienced , a longer amount of time to fill vacancies and potentially lower rental rates . as of december 31 , 2020 , our portfolio was 88.7 % leased , including signed leases not yet commenced , including 6.4 % subject to leases scheduled to expire in 2021 and 5.5 % subject to leases scheduled to expire in 2022. new leasing activity was impacted during 2020 by the pandemic and shelter-in-place rules that were in effect for much of the period . during this time period , we instituted a number of online measures to maintain our relationships with brokers and expose our availabilities to the market . while physical tours resumed on june 22 , 2020 and coincided with phase 2 reopening , we had lower leasing volumes for the third and fourth quarters of 2020 based on current tenant activity . our smaller food and service type retailers have been hit particularly hard . they provide critical amenities and services to our office tenants . in many instances , we have converted some of their fixed rent to a percentage rent structure , with a payback of the difference between current and percentage rent over a defined period . we intend to support our food and service retailers so that they can service our office tenants when they re-occupy . observatory operations on march 16 , 2020 , we complied with governmental mandates regarding the closing of non-essential businesses in response to the covid-19 pandemic and closed the empire state building observatory . while closed , we reduced our annualized operating expense run-rate from $ 35 million in february 2020 to approximately $ 14 million in may 2020 , a 60 % reduction . approximately two-thirds of the reduction was attributable to lower payroll expenses as we furloughed staff and the balance is due to lower operational and other costs . story_separator_special_tag the observatory reopened under new york state 's phase 4 guidelines , low-risk outdoor arts and entertainment , on july 20 , 2020. the 102nd observation deck was reopened on august 24 , 2020. we anticipate that initially we will have a higher local visitor mix , followed by a ramp up of nationally sourced travel , which will then be followed by a restoration of our typical visitor mix that is approximately two-thirds international which we do not expect to be achieved until the broad resumption of international air travel some time in 2022. with the observatory reopened , for the balance of 2020 , we operated with reduced hours , staffing , services , operating costs , credit card fees and marketing expenses . the closure of our observatory caused us during each quarter of 2020 to choose to perform an impairment test related to goodwill . we engaged a third-party valuation consulting firm to perform the valuation process . based upon the results of the goodwill impairment test of the stand-alone observatory reporting unit , which is after the intercompany rent expense paid to the real estate reporting unit , we determined that the fair value of the observatory reporting unit exceeded its carrying value by less than 5.0 % . many of the factors employed in determining whether or not goodwill is impaired are outside of our control and it 45 is reasonably likely that assumptions and estimates will change in future periods . we will continue to assess the impairment of the observatory reporting unit goodwill going forward and that continued assessment may again utilize a third-party valuation consulting firm . goodwill allocated to the observatory reporting unit was $ 227.5 million at december 31 , 2020. expense reductions we have undertaken meaningful cost reduction measures to ensure our ongoing strength and position the business optimally through the current environment broken down as follows : named executive officer ( `` neo '' ) compensation : ▪ ( $ 0.4 ) million from reduction in annual base salary for anthony e. malkin , our chairman , president and chief executive officer , and thomas p. durels , our executive vice president , real estate , through december 31 , 2020 ; ▪ ( $ 1.2 ) million from the change in age requirement from 60 to 65 for the accounting vesting period for time-based equity compensation ; and ▪ ( $ 2.7 ) million from the departure of our former chief operating officer . other corporate overhead : ▪ ( $ 1.5 ) million of net changes from the addition of investment personnel and reductions in executive and corporate staff , and temporary corporate salary reductions through december 31 , 2020 ; and ▪ balance from department budget cuts and lower anticipated spending due to the covid-19 pandemic . in addition , we announced a $ 3.9 million reduction in 2021 neo annual equity compensation , comprised of a $ 2.7 million reduction for mr. malkin and $ 1.2 million reduction for mr. durels . property operating expenses ▪ for the year ended december 31 , 2020 , we reduced property operating expenses by $ 39 million compared to the prior year period , driven by reduced tenant utilization and our cost reduction initiatives . ▪ $ 4 million on an annualized basis of permanent cost reductions due to staffing and other reductions . observatory expenses ▪ 2020 expenses totaled $ 24 million , reduced from 2019 pre-covid level of $ 34 million . results of operations overview the discussion below relates to the financial condition and results of operations for the years ended december 31 , 2020 , 2019 , and 2018. year ended december 31 , 2020 compared to the year ended december 31 , 2019 the following table summarizes the historical results of operations for the years ended december 31 , 2020 and 2019 ( amounts in thousands ) : 46 replace_table_token_14_th rental revenue and tenant expense reimbursement we adopted fasb topic 842 using the modified retrospective approach as of january 1 , 2019 and elected to apply the transition provisions of the standard at adoption . as such , the prior period amounts presented under asc 840 were not restated to conform with the 2020 and 2019 presentation . we adopted the practical expedient in topic 842 , which allowed us to avoid separating lease and non-lease rental income . consequently , all rental income earned pursuant to tenant leases in 2020 and 2019 is reflected as one category , “ rental revenue , ” in the 2020 and 2019 consolidated statements of operations . the following table reflects the components of 2020 and 2019 rental revenue : replace_table_token_15_th the preceding table of the components of rental revenue is not , and is not intended to be , a presentation in accordance with gaap . it is provided here based on our understanding that such information is frequently used by management , investors , securities analysts and other interested parties to evaluate our performance . the decrease in rental revenue was attributable to the write-off of straight-line receivables and uncollectible tenant receivables and lower tenant expense reimbursements , consistent with lower property operating expenses . 47 observatory revenue observatory revenues were lower driven by the closure of the observatory on march 16 , 2020 due to the covid-19 pandemic . the observatory reopened on july 20 , 2020 but new york tourism continues to be impacted by international , national , and local travel restrictions and quarantines . prior to the closure , observatory revenues increased during the first two months of 2020 by 13.2 % , after adjusting for the 102nd floor observation deck , to $ 14.4 million from $ 12.7 million in the first two months of 2019. lease termination fees higher termination fees were earned in the year ended december 31 , 2020 compared to the year ended december 31 , 2019. third-party management and other fees management fee income was consistent with prior year .
| additionally , we have entitled land at the stamford transportation center in stamford , connecticut , adjacent to one of our office properties , that will support the development of an approximately 0.4 million rentable square foot office building and garage , which we refer to herein as metro tower . as of december 31 , 2020 , our portfolio included four standalone retail properties located in manhattan and two standalone retail properties located in the city center of westport , connecticut , encompassing 0.2 million rentable square feet in the aggregate . the empire state building is our flagship property . the empire state building provides us with a diverse source of revenue through its office and retail leases , observatory operations , and broadcasting licenses and related leased space . our observatory operations are a separate reporting segment . our observatory operations are subject to regular patterns of tourist activity in manhattan . historically , prior to the outbreak of covid-19 , approximately 16.0 % to 18.0 % of our annual observatory revenue was realized in the first quarter , 26.0 % to 28.0 % was realized in the second quarter , 31.0 % to 33.0 % was realized in the third quarter , and 23.0 % to 25.0 % was realized in the fourth quarter . the components of the empire state building revenue are as follows ( dollars in thousands ) : replace_table_token_13_th we have been undertaking a comprehensive redevelopment and repositioning strategy of our manhattan office properties . this strategy is designed to improve the overall value and attractiveness of our properties and has contributed significantly to our tenant repositioning efforts , which seek to increase our occupancy , raise our rental rates , increase our rentable square feet , increase our aggregate rental revenue , lengthen our average lease term , increase our average lease size , and improve our tenant credit quality . these improvements include restored , renovated and upgraded or new lobbies , elevator modernization , renovated public areas and bathrooms , refurbished or new windows , upgrade and standardization of retail storefront and signage , façade restorations , modernization of building-wide systems , and enhanced tenant amenities . we 43 have also aggregated smaller spaces in order to offer larger blocks of office space , including multiple floors ,
| 13,792 |
32 united insurance holdings corp. definitions of non-gaap measures we believe that investors ' understanding of upc insurance 's performance is enhanced by our disclosure of the following non-gaap measures . our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited . combined ratio excluding the effects of current year catastrophe losses , prior year reserve development and ceding commission income earned ( underlying combined ratio ) is a non-gaap measure , which is computed by subtracting the effect of current year catastrophe losses , prior year development , and ceding commission income earned related to our quota share reinsurance agreement from the combined ratio . we believe that this ratio is useful to investors and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses , prior year development , and ceding commission income earned . current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude , and can have a significant impact on the combined ratio . prior year development is caused by unexpected loss development on historical reserves . ceding commission income compensates the company for expenses it incurs in generating the premium ceded under our quota share reinsurance agreement . we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance . the most directly comparable gaap measure is the combined ratio . the underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business . net loss and lae excluding the effects of current year catastrophe losses and prior year reserve development ( underlying loss and lae ) is a non-gaap measure which is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and lae . we use underlying loss and lae figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves . as discussed previously , these two items can have a significant impact on our loss trends in a given period . we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance . the most directly comparable gaap measure is net loss and lae . the underlying loss and lae measure should not be considered a substitute for net loss and lae and does not reflect the overall profitability of our business . operating expenses excluding the effects of ceding commission income earned ( underlying expense ) is a non-gaap measure which is computed by subtracting ceding commission income earned related to our quota share reinsurance agreement . ceding commission income compensates the company for expenses it incurs in generating the premium ceded under our quota share reinsurance agreement . we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance . the most directly comparable gaap measure is operating expenses . the underlying expense measure should not be considered a substitute for operating expenses and does not reflect the overall profitability of our business . 33 united insurance holdings corp. story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and related notes in part ii , item 8 in this form 10-k. investments the primary goals of our investment strategy are to preserve capital , maximize after-tax investment income , maintain liquidity and minimize risk . to accomplish our goals , we purchase debt securities in sectors that represent the most attractive relative value , and we maintain a moderate equity exposure . limiting equity exposure manages risks and helps to preserve capital for two reasons : first , bond market returns are less volatile than stock market returns , and second , should the bond issuer enter bankruptcy liquidation , bondholders generally have a higher priority than equityholders in a bankruptcy proceeding . we must comply with applicable state insurance regulations that prescribe the type , quality and concentrations of investments our insurance subsidiaries can make ; therefore , our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock , common stock and mortgage notes receivable . we do not invest in derivative securities . two outside asset management companies , which have authority and discretion to buy and sell securities for us , manage our investments subject to ( i ) the guidelines established by our board of directors and ( ii ) the direction of management . the investment committee of our board of directors reviews and approves our investment policy on a regular basis . our cash and investment portfolios totaled $ 1,298,780,000 at december 31 , 2019 compared to $ 1,135,956,000 at december 31 , 2018 . the following table summarizes our investments , by type : replace_table_token_12_th 37 united insurance holdings corp. we classify all of our investments as available-for-sale . our investments at december 31 , 2019 and 2018 consisted mainly of u.s. government and agency securities , states , municipalities and political subdivisions , mortgage-backed securities and securities of investment-grade corporate issuers . our equity holdings consisted mainly of securities issued by companies in the energy , consumer products , financial , technology and industrial sectors . most of the corporate bonds we hold reflected a similar diversification . at december 31 , 2019 , approximately 85.8 % of our fixed maturities were u.s. treasuries , or corporate bonds rated “ a ” or better , and 14.2 % were corporate bonds rated “ bbb ” or “ bb ” . reinsurance we follow industry practice of reinsuring a portion of our risks . story_separator_special_tag reinsurance involves transferring , or “ ceding ” , all or a portion of the risk exposure on policies we write to another insurer , known as a reinsurer . to the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements , we remain primarily liable for the entire insured loss under the policies we write . our reinsurance program is designed , utilizing our risk management methodology , to address our exposure to catastrophes . according to the insurance service office ( iso ) , a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $ 25,000,000 or more in u.s. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers ( iso catastrophes ) . the company follow the same definition when evaluating events as catastrophes . in addition to iso catastrophes , we also include as catastrophes those events ( non-iso catastrophes ) , which may include losses , that we believe are , or will be , material to our operations which we define as incidents that result in $ 1,000,000 or more in losses for multiple policyholders . during the second quarter of 2019 , we placed our reinsurance program for the 2019 hurricane season . we purchased catastrophe excess of loss reinsurance protection of $ 3,200,000,000 . the contracts reinsure for personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes , tropical storms , and tornadoes . the agreements were effective as of june 1 , 2019 , for a one-year term and incorporate the mandatory coverage required by and placed with the florida hurricane catastrophe fund ( fhcf ) . the fhcf covers florida risks only and we participate at 90 % . the state of florida may enact legislation altering the size and the terms and operations of the fhcf at their discretion . effective june 1 , 2019 , we extended our quota share reinsurance agreement that was set to expire on may 31 , 2019 , for a one-year term . this quota share reinsurance agreement has a cession rate of 22.5 % for all subject business and provides coverage for all catastrophe perils and attritional losses . we also included coverage for our subsidiary , fsic , under this renewal . effective january 1 , 2019 , we renewed the aggregate excess of loss agreement to provide coverage against accumulated losses from specified catastrophe events , for a term of 12 months . excluding our flood business , for which we cede 100 % of the risk of loss , reinsurance costs for 2019 were 41.7 % of gross premiums earned compared to 40.1 % of gross premiums earned for 2018. the increase in this ratio was driven by the changes to our quota share agreement as described above . we amortize our ceded unearned premiums over the annual agreement period , and we record that amortization in ceded premiums earned on our consolidated statements of comprehensive income ( loss ) . the table below summarizes the amounts of our ceded premiums written under the various types of agreements , as well as the amortization of ceded unearned premiums : replace_table_token_13_th 38 united insurance holdings corp. current year catastrophe losses disaggregated between name and numbered storms and all other catastrophe loss events are shown in the following table . replace_table_token_14_th ( 1 ) incurred loss and lae is equal to losses and lae paid plus the change in case and incurred but not reported reserves . shown net of losses ceded to reinsurers . incurred loss and lae and number of events includes the development on storms during the year in which it occurred . see note 9 in our notes to consolidated financial statements for additional information regarding our reinsurance program . unpaid losses and loss adjustments we generally use the term “ loss ( es ) ” to collectively refer to both loss and lae . we establish reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts we estimate we will be required to pay in the future , including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date . our policy is to establish these loss reserves after considering all information known to us at each reporting period . at any given point in time , our loss reserve represents our best estimate of the ultimate settlement and administration costs of our insured claims incurred and unpaid . unpaid losses and lae totaled $ 760,357,000 and $ 661,203,000 as of december 31 , 2019 and 2018 , respectively . the balance has increased year over year as a result of increased reserves for both weather-related and non weather-related activity during 2019 compared to 2018. in addition , during the year ended december 31 , 2019 , we increased our loss and lae reserves for hurricane irma as a result of development trends that indicated our ultimate gross loss estimate should be increased . since the process of estimating loss reserves requires significant judgment due to a number of variables , such as fluctuations in inflation , judicial decisions , legislative changes and changes in claims handling procedures , our ultimate liability will likely differ from these estimates . we revise our reserve for unpaid losses as additional information becomes available , and reflect adjustments , if any , in our earnings in the periods in which we determine the adjustments as necessary . see note 10 in our notes to unaudited consolidated financial statements for additional information regarding our losses and lae . 39 united insurance holdings corp. liquidity and capital resources we generate cash through premium collections , reinsurance recoveries , investment income , the sale or maturity of invested assets , the issuance of debt and the issuance of additional shares of our stock .
| ( 2 ) “ northeast ” is comprised of connecticut , massachusetts , new jersey , new york and rhode island ; “ gulf ” is comprised of hawaii , louisiana and texas ; and “ southeast ” is comprised of georgia , north carolina and south carolina . we expect our gross written premium growth to continue as we increase our policies in-force in the states in which we currently write policies and as we expand into other states in which we are currently licensed to write property and casualty insurance . 34 united insurance holdings corp. expenses expenses for the year ended december 31 , 2019 increased $ 129,544,000 , or 17.8 % , to $ 857,841,000 for the year ended december 31 , 2019 , from $ 728,297,000 for 2018 . the increase in expenses was primarily due to an increase in losses and lae combined with an increase in policy acquisition costs . the calculations of our combined loss ratios and underlying loss ratios are shown below . replace_table_token_9_th ( 1 ) underlying loss and lae is a non-gaap financial measure and is reconciled above to net loss and lae , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the “ definitions of non-gaap measures ” section , above . the calculations of the company 's expense ratios are shown below . replace_table_token_10_th loss and lae increased by $ 90,904,000 , or 22.2 % , to $ 499,493,000 for the year ended december 31 , 2019 , from $ 408,589,000 for the year ended december 31 , 2018. loss and lae expense as a percentage of net earned premiums increased 7.1 points to 66.4 % for the year ended december 31 , 2019 , compared to 59.3 % for the year ended december 31 , 2018. excluding catastrophe losses and reserve development , our gross underlying loss and lae ratio for the year ended december 31 , 2019 would have been 27.7 % , an increase of 1.9 points from 25.8 % during the year ended december 31 , 2018 . policy acquisition costs increased by $ 35,128,000 , or 17.3 % , to $ 238,268,000 for the year ended december 31 , 2019 , from $ 203,140,000 for
| 13,793 |
a full discussion of our significant accounting policies is contained in note b – summary of significant accounting policies , which is included in item 8 – “ financial statements and supplementary data ” of this report . we believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our financial results . these estimates require our most difficult , subjective or complex judgments because they relate to matters that are inherently uncertain . we have reviewed these critical accounting policies and estimates and related disclosures with our audit committee . impairment of long-lived assets we review long-lived assets , such as property and equipment , and purchased intangible assets subject to amortization , 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 an asset to estimated undiscounted future cash flows expected to be generated by the asset . if the carrying amount of an asset exceeds its estimated future cash flows , an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset . assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell , and are no longer depreciated . we impaired one property held for sale by $ 1.4 million based on estimated realizable value less costs to sell . goodwill and intangible assets that have indefinite useful lives are tested annually for impairment , and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired . an impairment loss is recognized to the extent that the carrying amount of the reporting unit exceeds its fair value . 21 our impairment calculations require management to make assumptions and to apply judgment in order to estimate fair values . if our actual results are not consistent with our estimates and assumptions , we may be exposed to impairments that could be material . we do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions we used to calculate impairment charges . to begin the review , we determine the cash flows from each unit and compare these to prior periods along with comparisons of gross margin and same store sales comparisons . for any of these units that we believe require further analysis as a result of the comparisons made , we prepare an estimated discounted future cash flows expected to be generated by the asset to determine the estimated fair value of the unit . this is compared to the carrying value of the unit and reviewed for reasonableness . if necessary , an impairment charge is recognized by the amount by which the carrying amount of any unit exceeds the fair value of the assets . for the year ended september 30 , 2016 , we impaired one unit in this manner in the amount of $ 2.1 million . there were no other units in which the estimated fair value was not substantially in excess of the carrying value . income taxes we estimate certain components of our provision for income taxes . these estimates include depreciation and amortization expense allowable for tax purposes , allowable tax credits for items such as taxes paid on employee tip income , effective rates for state and local income taxes , and the deductibility of certain other items , among others . we adjust our annual effective income tax rate as additional information on outcomes or events becomes available . legal and other contingencies as mentioned in item 3 – “ legal proceedings ” and in a more detailed discussion in note k to our consolidated financial statements , we are involved in various suits and claims in the normal course of business . we record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable . there is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated . in the opinion of management , there was not at least a reasonable possibility that we may have incurred a material loss , or a material loss in excess of a recorded accrual , with respect to loss contingencies for asserted legal and other claims . however , the outcome of legal proceedings and claims brought against the company is subject to significant uncertainty . therefore , although management considers the likelihood of such an outcome to be remote , if one or more of these legal matters were resolved against the company in a reporting period for amounts in excess of management 's expectations , the company 's consolidated financial statements for that reporting period could be materially adversely affected . story_separator_special_tag explanation of the $ 5.6 million contractual debt reduction item in fiscal 2014. interest expense decreased in 2015 due to the significant paydown and refinance of high-interest debt during the last two years . we are now able to finance property acquisition with bank debt which is at significantly lower rates than the debt we previously had . we added more debt in 2016 to acquire certain properties , which in turn increased our interest expense and also decreased rent expense . income taxes income tax expense decreased by $ 2.5 million from 2015 to 2016 and by $ 0.8 million from 2014 to 2015. our effective income tax rate was 20.4 % , 36.5 % and 35.0 % during fiscal 2016 , 2015 and 2014 , respectively . story_separator_special_tag the difference in our annual effective income tax rate was primarily due to the impact of tax credit carryforwards and the transfer of deferred tax liabilities related to sold subsidiaries , offset by state income taxes in 2016 ; and the impact of stock-based compensation and other permanent differences in 2015 . 26 non-gaap financial measures in addition to our financial information presented in accordance with gaap , management uses certain non-gaap financial measures , within the meaning of the sec regulation g , to clarify and enhance understanding of past performance and prospects for the future . generally , a non-gaap financial measure is a numerical measure of a company 's operating performance , financial position or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated and presented in accordance with gaap . we monitor non-gaap financial measures because it describes the operating performance of the company and helps management and investors gauge our ability to generate cash flow , excluding some non-recurring items that are included in the most directly comparable measures calculated and presented in accordance with gaap . relative to each of the non-gaap financial measures , we further set forth our rationale as follows : non-gaap operating income and non-gaap operating margin . we exclude from non-gaap operating income and non-gaap operating margin amortization of intangibles , gain on settlement of patron tax case , gains and losses from asset sales , impairment of assets , stock-based compensation charges , and litigation and other one-time legal settlements . we believe that excluding these items assists investors in evaluating period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our day-to-day business and operations . while we were in litigation in the patron tax case , we also included patron taxes as an exclusion , but after settlement of the case , we no longer exclude patron taxes from operating income . non-gaap net income and non-gaap net income per diluted share . we exclude from non-gaap net income and non-gaap net income per diluted share amortization of intangibles , gain on settlement of patron tax case , income tax expense , impairment charges , gain on acquisition/loss on disposition of controlling interest in subsidiary , gains and losses from asset sales , stock-based compensation , litigation and other one-time legal settlements , and gain on contractual debt reductions , and include the non-gaap provision for current and deferred income taxes , calculated as the tax effect at 35 % effective tax rate of the pre-tax non-gaap income before taxes , because we believe that excluding such measures helps management and investors better understand our operating activities . while we were in litigation in the patron tax case , we also included patron taxes as an exclusion , but after settlement of the case , we no longer exclude patron taxes from net income . adjusted ebitda . we exclude from adjusted ebitda depreciation expense , amortization of intangibles , income tax , interest expense , interest income , gains and losses from asset sales , litigation and other one-time legal settlements , gain on settlement of patron tax case , gain on acquisition/loss on disposition of controlling interest in subsidiary , gain on contractual debt reduction and impairment charges because we believe that adjusting for such items helps management and investors better understand operating activities . adjusted ebitda provides a core operational performance measurement that compares results without the need to adjust for federal , state and local taxes which have considerable variation between domestic jurisdictions . the results are , therefore , without consideration of financing alternatives of capital employed . we use adjusted ebitda as one guideline to assess our unleveraged performance return on our investments . adjusted ebitda is also the target benchmark for our acquisitions of nightclubs . we also use certain non-gaap cash flow measures such as free cash . see “ liquidity and capital resources ” section for further discussion . 27 the following tables present our non-gaap performance measures for the periods indicated ( in thousands , except per share amounts and percentages ) : replace_table_token_12_th * per share amounts and percentages may not foot due to rounding . 28 the adjustments to reconcile gaap net income to non-gaap net income exclude the impact of adjustments related to noncontrolling interests , which is immaterial . in the calculation of non-gaap diluted net income per share , we also take into consideration the adjustment to net income from assumed conversion of debentures ( see note b to the consolidated financial statements ) . during the current year , we have excluded pre-opening and acquisitions costs , which were previously included , and have included gain/loss on sale of controlling interest in subsidiary , which were previously excluded , in our adjustments for non-gaap financial performance measures since we believe that these are recurring cash operating expenses that are necessary to operate our business . we have appropriately included or excluded the same items from prior year comparable non-gaap financial performance measure to conform to the current year presentation . liquidity and capital resources we believe our ability to generate cash from operating activities is one of our fundamental financial strengths . refer to the heading “ cash flows from operating activities ” below . the near-term outlook for our business remains strong , and we expect to generate substantial cash flows from operations in fiscal 2017. as a result of our expected cash flows from operations , we have significant flexibility to meet our financial commitments . the company has not recently raised capital through the issuance of equity securities . instead , we use debt financing to lower our overall cost of capital and increase our return on stockholders ' equity . refer to the heading “ cash flows from financing activities ” below .
| the increase in salaries and wages from 2014 to 2015 was primarily driven by higher unit count . the decrease in salaries and wages from 2015 to 2016 was primarily due to closures of club or restaurant units , whether permanently or temporarily for remodel or reconcepting . the components of selling , general and administrative expenses are in the tables below ( dollars in thousands ) : replace_table_token_8_th the significant variances in selling , general and administrative expenses are as follows : the decrease in the percentage of rent expense to revenues is principally due to the sale/closure of certain clubs in 2014 , and the acquisition of the new york property in 2015 through 2016. legal and professional expenses increased by $ 1.2 million in 2015 compared to 2014 principally due to increased activity and settlement in the new york labor lawsuit . the decrease in insurance expense is principally due to a general liability insurance premium decrease in 2015 compared to 2014. we consider rent plus interest expense as our occupancy costs since most of our debt are for real property where our clubs and restaurants are located . as a percentage of revenues , rent has consistently dropped as we bought properties and interest expense has increased , but in total , occupancy costs have gone down . replace_table_token_9_th 24 depreciation and amortization slightly increased consistent with the higher long-lived asset base . the components of other charges , net are in the tables below ( dollars in thousands ) : replace_table_token_10_th the significant variances in other charges , net are as follows : see note p - impairment of assets of notes to consolidated financial statements for an explanation of the impairment of assets . settlement of lawsuits and other one-time costs in 2015 consists principally of settlement of suits relating to the new york based federal wage and hour class and collective action , as explained in note k - commitments and contingencies of notes to consolidated financial statements . see
| 13,794 |
programming on the hub includes content based on hasbro 's brands , discovery 's library of children 's educational programming , as well as programming developed by third parties . hasbro studios programming is distributed in the u.s. exclusively to the hub while programming internationally is distributed to leading children 's networks around the world . the company 's television initiatives support its strategy of growing its core brands well beyond traditional toys and games and providing entertainment experiences for consumers of all ages in any form or format . the company 's strategic blueprint also focuses on extending its brands further into digital media and gaming , including through the licensing of the company 's properties to a number of partners who develop and offer digital games based on those brands . an example of these digital gaming relationships is the company 's agreement with electronic arts inc. ( ea ) , which provides ea the exclusive worldwide rights , subject to existing limitations on the company 's rights and certain other exclusions , to create digital games for all platforms , such as mobile phones , gaming consoles and personal computers , based on a number of the company 's intellectual properties , including monopoly , scrabble , yahtzee , nerf , tonka and littlest pet shop . similarly , the company has an agreement with activision under which activision offers digital games based on the transformers brand . the company continues to seek and develop additional outlets for its brands in digital gaming , including casual , mobile and online gaming . in recent years the company has expanded its lifestyle licensing business , and this remains a key area of focus for future development and growth . under its lifestyle licensing programs , the company enters into relationships with a broad spectrum of apparel , food , bedding and other lifestyle products companies for the global marketing and distribution of licensed products based on the company 's brands . these relationships further broaden and amplify the consumer 's ability to experience the company 's brands . as the company seeks to grow its business in entertainment , licensing and digital gaming , the company will continue to evaluate strategic alliances and acquisitions which may complement its current product offerings , allow it entry into an area which is adjacent to or complementary to the toy and game business , or allow it to further develop awareness of its brands and expand the ability of consumers to experience its brands in different forms and formats . 27 during 2011 , the company established hasbro 's gaming center for excellence in rhode island to centralize games marketing and development while building on hasbro 's strategy of re-imagining , re-inventing and re-igniting core brands as well as inventing new brands . the company 's business is highly seasonal with a significant amount of revenues occurring in the second half of the year . in 2011 , 2010 and 2009 , the second half of the year accounted for 63 % , 65 % and 65 % of the company 's net revenues , respectively . the company sells its products both within the united states and in a number of international markets . in recent years , the company 's international net revenues have experienced growth as the company has sought to increase its international presence . one of the ways the company has driven international growth is by opportunistically opening offices in certain markets to develop a greater presence . since 2006 , the company has opened up operations in eight new markets around the world including china , brazil , russia , korea , romania , czech republic , peru and colombia . these represent emerging markets where the company believes that it can achieve higher revenue growth than it could achieve in more mature markets . net revenues of the company 's international segment represented 43 % , 39 % and 36 % of total net revenues in 2011 , 2010 and 2009 , respectively . the company 's business is separated into three principal business segments , u.s. and canada , international and entertainment and licensing . the u.s. and canada segment develops , markets and sells both toy and game products in the u.s. and canada . the international segment consists of the company 's european , asia pacific and latin and south american toy and game marketing and sales operations . the company 's entertainment and licensing segment includes the company 's lifestyle licensing , digital gaming , movie , television and online entertainment operations . in addition to these three primary segments , the company 's world-wide manufacturing and product sourcing operations are managed through its global operations segment . the company is committed to returning excess cash to its shareholders through share repurchases and dividends . as part of this initiative , from 2005 through 2011 , the company 's board of directors ( the board ) adopted six successive share repurchase authorizations with a cumulative authorized repurchase amount of $ 2,825,000. the sixth authorization was approved in may 2011 for $ 500,000. at december 25 , 2011 , the company had $ 227,269 remaining available under this authorization . during the three years ended 2011 , the company spent a total of $ 1,150,683 , to repurchase 29,395 shares in the open market . the company intends to , at its discretion , opportunistically repurchase shares in the future subject to market conditions , the company 's other potential uses of cash and the company 's levels of cash generation . in addition to the share repurchase program , the company also seeks to return excess cash through the payment of quarterly dividends . in february 2012 the company 's board increased the company 's quarterly dividend rate , effective for the dividend payment in may 2012 , to $ 0.36 per share , a 20 % increase from the prior quarterly dividend of $ 0.30 per share . story_separator_special_tag this was the sixth dividend increase since 2005. since then the company has increased its quarterly cash dividend 300 % , from $ 0.09 to $ 0.36 per share . 28 summary the components of the results of operations , stated as a percent of net revenues , are illustrated below for the three fiscal years ended december 25 , 2011. program production cost amortization for 2010 was previously included in cost of sales and has been reclassified to conform with current year presentation . replace_table_token_4_th story_separator_special_tag transformers , nerf , kre-o and super soaker products . sales of transformers and kre-o products benefited from the theatrical release of transformers : dark of the moon during 2011. increased sales in the boys ' toys category were slightly offset by decreased sales in the preschool , girls ' toys , and games and puzzles categories . decreased sales of playskool and tonka products in the preschool category were partially offset by sales of sesame street products . the decrease in net revenues in the girls ' toys category is primarily due to decreased sales of littlest pet shop products , which were partially offset by increased sales of furreal friends and baby alive products . net revenues in the games and puzzles category decreased slightly as a result of lower sales of board games , partially offset by increased sales of magic : the gathering products . international segment operating profit increased 29 % to $ 270,578 , or 14.5 % of net revenues , in 2011 from $ 209,704 , or 13.4 % of net revenues , in 2010. operating profit for the international segment in 2011 was positively impacted by approximately $ 4,400 due to the translation of foreign currencies to the u.s. dollar . the increase in operating profit was primarily driven by the increased net revenues described above . this was partially offset by higher royalty expense as a result of increased revenues from higher royalty-bearing products , particularly beyblade and movie-related transformers products . the increase in operating profit margin was largely due to the impact of the increased net revenues . international segment net revenues for the year ended december 26 , 2010 increased by 7 % to $ 1,559,927 from $ 1,459,476 in 2009. in 2010 , net revenues were negatively impacted by currency translation of approximately $ 27,600 as a result of a stronger u.s. dollar . excluding the unfavorable impact of foreign exchange , international segment net revenues increased 9 % in local currency in 2010. the increased net revenues in 2010 were driven by increased sales in all categories as well as growth in emerging markets , including brazil , russia and china . the increase in the boys ' toys category was primarily due to higher sales of nerf products as well as the reintroduction of beyblade products in 2010. increased sales of marvel and tonka products also contributed to the increased sales in the boys ' toys category . these increases were partially offset by decreases in the transformers and g.i . joe lines . the increase in net revenues in the girls ' toys category was primarily driven by increased sales of furreal friends products partially offset by lower sales of my 31 little pony and littlest pet shop products . preschool category net revenues increased primarily as the result of stronger sales of play-doh and playskool products offset by decreased sales of in the night garden products . net revenues in the games and puzzles category increased slightly as a result of increased revenues from magic : the gathering trading card games . international segment operating profit increased 29 % to $ 209,704 in 2010 from $ 162,159 in 2009. operating profit for the international segment in 2010 was negatively impacted by approximately $ 11,500 due to the translation of foreign currencies to the u.s. dollar . the increase in operating profit was primarily driven by the increased revenues described above . in addition , operating profit was positively impacted by decreased royalty expense and amortization . these were offset by increased selling , distribution and administration expenses . entertainment and licensing the entertainment and licensing segment 's net revenues for the year ended december 25 , 2011 increased 19 % to $ 162,233 from $ 136,488 for the year ended december 26 , 2010. the increase was primarily due to growth in television programming and lifestyle licensing revenues . the increased television programming revenues reflect a full year of u.s. and international program distribution in 2011 compared to a partial period in 2010 , as program distribution primarily commenced during the third quarter of 2010. higher lifestyle licensing revenues primarily related to transformers , as a result of licensing programs based on the motion picture release in 2011. entertainment and licensing segment operating profit decreased 1 % to $ 42,784 in 2011 from $ 43,234 in 2010. the impact of higher net revenues was offset by investments made by the company to grow its global licensing organization and increased program production cost amortization . the entertainment and licensing segment 's net revenues for the year ended december 26 , 2010 decreased 12 % to $ 136,488 from $ 155,013 for the year ended december 27 , 2009. the decrease was primarily due to decreases in both lifestyle and digital gaming licensing revenues , primarily relating to lower licensing revenues from transformers and , to a lesser extent , g.i . joe , products following the motion picture releases in 2009. entertainment and licensing segment operating profit decreased 34 % to $ 43,234 in 2010 from $ 65,572 in 2009. operating profit decreased as a result of the decreased revenues discussed above and program production amortization costs associated with our television shows . this was partially offset by lower selling , distribution and administration expenses . selling , distribution and administration expenses in 2009 included approximately $ 7,200 in transaction costs related to the company 's investment in the hub .
| 29 the following table presents net revenues and operating profit data for the company 's three principal segments for 2011 , 2010 and 2009. replace_table_token_5_th u.s. and canada u.s. and canada segment net revenues for the year ended december 25 , 2011 decreased 2 % to $ 2,253,458 from $ 2,299,547 in 2010. in 2011 , net revenues were positively impacted by currency translation of approximately $ 4,700. the decrease in net revenues in 2011 was due to decreased revenues in the girls ' toys and games and puzzles categories . the decrease in the girls ' category was primarily the result of decreased sales of littlest pet shop and furreal friends partially offset by increased sales of baby alive and my little pony . the decrease in the games and puzzles category was due to decreased sales of traditional board games and puzzles partially offset by increased sales of magic : the gathering products . decreases in the girls ' toys and games and puzzles categories were partially offset by increased sales in the boys ' toys and preschool categories . increases in boys ' toys sales were significantly impacted by the first full year of sales of beyblade products after its reintroduction in the second half of 2010. higher sales of transformers , which benefited from the theatrical release of transformers : dark of the moon , as well as sales of kre-o products , which were introduced during the second half of 2011 , also contributed to increased sales in the boys ' toys category . these increases were partially offset by decreased sales of nerf products , and to a lesser extent , star wars and tonka product lines . the preschool category benefited from the introduction of several new products under the company 's license with sesame workshop as well as increased sales of transformers and star wars products specifically designed for younger consumers . increased net revenues in the preschool category were partially offset by decreased sales of playskool , tonka , and play-doh products , which had stronger sales during 2010. u.s. and canada operating profit decreased to $ 278,356 , or 12.4 % of net revenues , in 2011 from $ 349,594 , or 15.2 % of net revenues in 2010. foreign currency translation did
| 13,795 |
during the year ended december 31 , 2015 , we acquired fee simple interests in 80 convenience store and gasoline station properties for an aggregate purchase price of $ 219.2 million . included in these acquisitions was our june 3 , 2015 , acquisition of fee simple interests in 77 convenience store and gasoline station properties from affiliates of pacific convenience and fuels llc and simultaneously leased the properties to apro , llc ( d/b/a united oil ) , a leading regional convenience store and gasoline station operator , under three separate cross-defaulted long-term triple-net unitary leases ( the united oil transaction ) . the united oil properties are located across california , colorado , nevada , oregon and washington state and operate under several well recognized brands including 7-eleven , 76 , circle k , conoco and my goods market . the total purchase price for the acquisition was $ 214.5 million , which was funded with proceeds from the credit agreement and restated prudential note purchase agreement . in addition , in 2015 , we acquired fee simple interests in three convenience store and gasoline station properties in separate transactions for an aggregate purchase price of $ 4.7 million . redevelopment strategy and activity we believe that a portion of our properties are located in geographic areas , which together with other factors , may make them well-suited for alternative single-tenant net lease retail uses , such as quick service restaurants , automotive parts and service stores , specialty retail stores and bank branch locations . we believe that such alternative types of properties can be leased or sold at higher values than their current use . for the year ended december 31 , 2016 , we spent $ 0.7 million ( of which $ 0.3 million was previously accrued for at december 31 , 2015 ) of construction-in-progress costs related to our redevelopment activities . for the year ended december 31 , 2016 , we completed one redevelopment project and $ 1.0 million of construction-in-progress was transferred to buildings and improvements on our consolidated balance sheet . as of december 31 , 2016 , we were actively redeveloping six of our former convenience store and gasoline station properties for alternative single-tenant net lease retail uses . in addition , to the six properties currently classified as redevelopment , we are in various stages of feasibility and planning for the recapture of select properties , from our net lease portfolio , that are suitable for redevelopment to alternative single-tenant net lease retail uses . as of december 31 , 2016 , we have signed leases on seven properties , that are currently part of our net lease portfolio , which will be recaptured and transferred to redevelopment when the appropriate entitlements , permits and approvals have been secured . asset impairment we perform an impairment analysis for the carrying amount of our properties in accordance with gaap when indicators of impairment exist . we reduced the carrying amount to fair value , and recorded in continuing and discontinued operations , impairment charges aggregating $ 12.8 million and $ 17.4 million for the years ended december 31 , 2016 and 2015 , respectively , where the carrying amount of the property exceeds the estimated undiscounted cash flows expected to be received during the assumed holding period which includes the estimated sales value expected to be received at disposition . the impairment charges were attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities , which increased the carrying value of certain properties in excess of their fair value , reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties , and reductions in estimated sales prices from third-party offers based on signed contracts , letters of intent or indicative bids for certain of our properties . the evaluation of and estimates of anticipated cash flows used to conduct our impairment analysis are highly subjective and actual results could vary significantly from our estimates . supplemental non-gaap measures we manage our business to enhance the value of our real estate portfolio and , as a reit , place particular emphasis on minimizing risk , to the extent feasible , and generating cash sufficient to make required distributions to shareholders of at least 90 % of our ordinary taxable income each year . in addition to measurements defined by gaap , we also focus on funds from operations ( ffo ) and adjusted funds from operations ( affo ) to measure our performance . ffo is generally considered to be an appropriate supplemental non-gaap measure of the performance of reits . ffo is defined by the national association of real estate investment trusts as net earnings before depreciation and amortization of real estate assets , gains or losses on dispositions of real estate , impairment charges and cumulative effect of accounting changes . our definition of affo is defined as ffo less revenue recognition adjustments ( net of allowances ) , acquisition costs , non-cash environmental accretion expense and non-cash changes in 27 index to financial statements environmental estimates and other unusual items . other reits may use definitions of ffo and or affo that are different from ours and , accordingly , may not be comparable . ffo and affo are not in accordance with , or a substitute for , measures prepared in accordance with gaap . in addition , ffo and affo are not based on any comprehensive set of accounting rules or principles . neither ffo nor affo represent cash generated from operating activities calculated in accordance with gaap and therefore these measures should not be considered an alternative for gaap net earnings or as a measure of liquidity . these measures should only be used to evaluate our performance in conjunction with corresponding gaap measures . story_separator_special_tag we believe that ffo and affo are helpful to investors in measuring our performance because both ffo and affo exclude various items included in gaap net earnings that do not relate to , or are not indicative of , our fundamental operating performance . ffo excludes various items such as depreciation and amortization of real estate assets , gains or losses on dispositions of real estate , and impairment charges . in our case , however , gaap net earnings and ffo typically include the impact of revenue recognition adjustments comprised of deferred rental revenue ( straight-line rental revenue ) , the net amortization of above-market and below-market leases , adjustments recorded for recognition of rental income recognized from direct financing leases on revenues from rental properties and the amortization of deferred lease incentives , as offset by the impact of related collection reserves . deferred rental revenue results primarily from fixed rental increases scheduled under certain leases with our tenants . in accordance with gaap , the aggregate minimum rent due over the current term of these leases is recognized on a straight-line basis rather than when payment is contractually due . the present value of the difference between the fair market rent and the contractual rent for in-place leases at the time properties are acquired is amortized into revenues from rental properties over the remaining lives of the in-place leases . income from direct financing leases is recognized over the lease terms using the effective interest method which produces a constant periodic rate of return on the net investments in the leased properties . the amortization of deferred lease incentives represents our funding commitment in certain leases , which deferred expense is recognized on a straight-line basis as a reduction of rental revenue . gaap net earnings and ffo also include non-cash environmental accretion expense and non-cash changes in environmental estimates , which do not impact our recurring cash flow . gaap net earnings and ffo from time to time may also include property acquisition costs or other unusual items . property acquisition costs are expensed , generally in the period when properties are acquired , and are not reflective of recurring operations . other unusual items are not reflective of recurring operations . we pay particular attention to affo , a supplemental non-gaap performance measure that we believe best represents our recurring financial performance . in our view , affo provides a more accurate depiction than ffo of our fundamental operating performance as affo removes non-cash revenue recognition adjustments related to : ( i ) scheduled rent increases from operating leases , net of related collection reserves ; ( ii ) the rental revenue earned from acquired in-place leases ; ( iii ) rent due from direct financing leases ; and ( iv ) the amortization of deferred lease incentives . our definition of affo also excludes non-cash , or non-recurring items such as : ( i ) environmental accretion expense and changes in environmental estimates ; ( ii ) costs expensed related to property acquisitions ; and ( iii ) other unusual items . by providing affo , we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance . further , we believe affo is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies . story_separator_special_tag compared to a gain of $ 0.3 million for the year ended december 31 , 2015. for the years ended december 31 , 2016 and 2015 , there were two and 14 property dispositions , respectively , recorded in discontinued operations . impairment charges recorded in discontinued operations during the years ended december 31 , 2016 and 2015 , of $ 5.9 million and $ 5.8 million , respectively , were attributable to reductions in our estimates of value for properties held for sale and the accumulation of asset retirement costs as a result of increases in estimated environmental liabilities which increased the carrying value of certain properties above their fair value . gains on disposition of real 29 index to financial statements estate and impairment charges vary from period to period and , accordingly , undue reliance should not be placed on the magnitude or the directions of change in reported gains and impairment charges for one period , as compared to prior periods . for the year ended december 31 , 2016 , ffo decreased by $ 4.9 million to $ 64.2 million , as compared to $ 69.1 million for the year ended december 31 , 2015 , and affo decreased by $ 7.2 million to $ 58.0 million , as compared to $ 65.2 million for the prior year . ffo and affo include the effect of $ 18.2 million received from the marketing estate in 2015 , which is included in other income on our consolidated statements of operations . in addition , the decrease in ffo for the year ended december 31 , 2016 , was due to the changes in net earnings but excludes a $ 4.6 million decrease in impairment charges , a $ 2.2 million increase in depreciation and amortization expense and a $ 3.6 million increase in gains on dispositions of real estate . the decrease in affo for the year ended december 31 , 2016 , also excludes a $ 0.1 million decrease in the allowance for deferred rent receivable , a $ 3.1 million increase in non-cash environmental expenses and credits , a $ 0.3 million decrease in acquisition costs and a $ 1.1 million decrease in revenue recognition adjustments which cause our reported revenues from rental properties to vary from the amount of rent payments contractually due or received by us during the periods presented ( which are included in net earnings and ffo but are excluded from affo ) .
| as a result , revenues from rental properties include revenue recognition adjustments comprised of non-cash adjustments recorded for deferred rental revenue due to the recognition of rental income on a straight-line basis over the current lease term , the net amortization of above-market and below-market leases , recognition of rental income under direct financing leases using the effective interest rate method which produces a constant periodic rate of return on the net investments in the leased properties and the amortization of deferred lease incentives . revenues from rental properties included in 28 index to financial statements continuing operations includes revenue recognition adjustments which increased rental revenue by $ 3.4 million for the year ended december 31 , 2016 , and $ 4.5 million for the year ended december 31 , 2015. property costs included in continuing operations , which are primarily comprised of rent expense , real estate and other state and local taxes , municipal charges , maintenance expense and reimbursable tenant expenses , were $ 22.7 million for the year ended december 31 , 2016 , as compared to $ 23.6 million for the year ended december 31 , 2015. the decrease in property costs for the year ended december 31 , 2016 , was principally due to a decrease in reimbursable tenant expenses and real estate taxes paid by us . impairment charges included in continuing operations were $ 6.9 million for the year ended december 31 , 2016 , as compared to $ 11.6 million for the year ended december 31 , 2015. impairment charges are recorded when the carrying value of a property is reduced to fair value . impairment charges in continuing operations for the years ended december 31 , 2016 and 2015 , were primarily attributable to the effect of adding asset retirement costs due to changes in estimates associated with our environmental liabilities , which increased the carrying value of certain properties in excess of their fair value , and reductions in estimated undiscounted cash flows expected to be received during the assumed holding period for certain of our properties . environmental expenses included in continuing operations for the year ended december 31 , 2016 , decreased by $ 3.6 million to $ 2.6 million , as compared to $ 6.2 million for the year
| 13,796 |
our research and development expenses also include ( i ) an allocable portion of our cash and stock-based compensation , employee benefits , and consulting costs related to personnel engaged in the design and development of product candidates and other scientific research projects , and ( ii ) an allocable portion of our facilities and overhead costs related to such personnel . general and administrative expenses . general and administrative expenses consist primarily of ( i ) an allocable portion of our cash and stock-based compensation , employee benefits and consulting costs related to personnel engaged in our administrative , finance , accounting , and executive functions , and ( ii ) an allocable portion of our facilities and overhead costs related to such personnel . general and administrative expenses also include travel , legal , auditing , investor relations and other costs primarily related to our status as a public company . interest expense . the components of interest expense include the amount of interest payable in cash at the stated interest rate , beneficial conversion features that arise from the terms of debt arrangements , and accretion of debt discounts and issuance costs ( “ ddic ” ) using the effective interest method . ddic arises from the issuance of debt instruments at a discount to the original principal balance , the fair value of warrants issued in connection with a debt instrument , and incremental and direct costs incurred to consummate the financing . interest and other income . interest and other income consist primarily of interest income earned on temporary cash investment , rental income related to subleases that were in effect until december 2018 , gain on termination of lease and sublease agreements , and gains on changes in the fair value of embedded derivatives . critical accounting policies and significant judgments and estimates overview our management 's discussion and analysis of financial condition and results of operations is based on our unaudited condensed consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these unaudited condensed 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 revenue and expenses during the reporting periods . these items are monitored and analyzed for changes in facts and circumstances , and material changes in these estimates could occur in the future . 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 . changes in estimates are reflected in reported results for the period in which they become known . actual results may differ from these estimates under different assumptions or conditions . with respect to our significant accounting policies that are described in note 1 to our consolidated financial statements included in item 8 of this annual report , we believe that the following accounting policies involve a greater degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . 19 research and development research and development costs are expensed as incurred . intangible assets related to in-licensing costs under license agreements with third parties are charged to expense unless we are able to determine that the licensing rights have an alternative future use in other research and development projects or otherwise . clinical trial accruals clinical trial costs are a component of research and development expenses . the company accrues and expenses clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with clinical research organizations and clinical trial sites . the company determines the estimates through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services . nonrefundable advance payments for goods and services that will be used or rendered in future research and development activities , are deferred and recognized as expense in the period that the related goods are delivered , or services are performed . stock-based compensation expense we measure the fair value of services received in exchange for all stock options granted based on the fair market value of the award as of the grant date . we compute the fair value of stock options with time-based vesting using the black-scholes-merton ( “ bsm ” ) option-pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award . for awards granted which contain a graded vesting schedule , and the only condition for vesting is a service condition , compensation cost is recognized on a straight-line basis over the requisite service period as if the award was , in substance , a single award . we recognize the impact of forfeitures in the period that the forfeiture occurs , rather than estimating the number of awards that are not expected to vest in accounting for stock-based compensation . we have granted stock options with vesting that is dependent on achieving certain market , performance and service conditions ( “ hybrid options ” ) . for purposes of recognizing compensation cost , we determine the requisite service period as the longest of the derived , implicit and explicit vesting periods for each of the market , performance and service conditions , respectively . compensation cost will be recognized beginning on such date that achievement of the performance condition is considered probable and continuing through the end of the requisite service period . story_separator_special_tag determination of the requisite service period of the hybrid options will be based on the date that the performance condition is considered probable . unrecognized compensation cost for the hybrid options , calculated using the bsm pricing model , will be recognized beginning on the date that the performance condition is considered probable using the grant date fair value . if the hybrid options do not ultimately become exerciseable as a result of failure to achieve the requisite service period , any previously recognized compensation cost will be reversed . leases we determine if an arrangement includes a lease as of the date we enter into an agreement . operating leases are included in right-of-use ( “ rou ” ) assets , and operating lease liabilities in our consolidated balance sheets . rou assets and operating lease liabilities are recognized based on the present value of the future lease payments as of the lease commencement date . we generally use the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments . our leases may include options to extend or terminate the lease ; the calculation of rou assets and operating lease liabilities gives effect to these options when we believe it is reasonably certain that the options will be exercised . lease expense is recognized on a straight-line basis over the lease term . we have elected not to apply the recognition requirements for short-term leases . for lease agreements with lease and non-lease components , we generally account for them separately . 20 story_separator_special_tag rights have separate economic value in alternative future research and development projects or otherwise . accordingly , all of the payments under our licensing agreements with xoma and activesite have been charged to expense in the period in which the cost is incurred . we did not incur any licensing costs for the year ended june 30 , 2020 as compared to $ 14.0 million incurred under our amended license agreement with xoma for the year ended june 30 , 2019. the expense incurred for the year ended june 30 , 2019 under the amended license agreement relates to rz358 and consists of ( i ) a cash payment to xoma of $ 5.5 million in february 2019 , and ( ii ) an obligation to pay $ 8.5 million to xoma in staggered amounts on a quarterly basis . in march 2020 , we entered into another amendment to the license agreement that extended the timing of the remaining payments but did not result in any additional expense . as of june 30 , 2020 , we had paid down the original $ 8.5 million obligation to $ 1.8 million . with respect to our activesite license agreement , the first milestone payment for $ 1.0 million would be due after completion of the preclinical work and submission of an ind to the fda for rz402 , which we are planning to complete by the end of the first quarter of calendar year 2021. general and administrative expenses . general and administrative ( “ g & a ” ) expenses decreased from $ 6.9 million for the year ended june 30 , 2019 to $ 6.1 million for the year ended june 30 , 2020 , a decrease of $ 0.8 million . for the year ended june 30 , 2020 , compensation and benefits for our administrative and executive workforce decreased by $ 0.5 million , professional fees decreased by $ 0.2 million , and facilities and other expenses decreased by $ 0.1 million . 22 compensation and benefits . compensation and benefits decreased from approximately $ 4.3 million for the year ended june 30 , 2019 to $ 3.8 million for the year ended june 30 , 2020 , a decrease of $ 0.5 million . this decrease consisted of reductions of $ 0.1 million in cash-based compensation and $ 0.4 million in stock-based compensation expense . the decrease in cash-based compensation was primarily attributable to our allocation to g & a expense of $ 0.4 million of compensation for r & d employees that temporarily performed financial and administrative functions during the year ended june 30 , 2019 , and a reduction in bonuses of $ 0.1 million for our g & a workforce for the year ended june 30 , 2020. these reductions in compensation costs total $ 0.5 million and were partially offset by higher costs incurred for the year ended june 30 , 2020 for ( i ) higher compensation and benefits costs due to the addition of two accounting and finance employees and merit increases in salaries totaling $ 0.2 million , ( ii ) severance costs of $ 0.1 million related to termination of an executive officer , and ( iii ) recruiting costs for new employees of $ 0.1 million . the $ 0.4 million decrease in stock-based compensation consisted of a decrease of $ 1.5 million as certain stock options were forfeited or became fully vested in our 2019 fiscal year , resulting in no further compensation expense after that date . this decrease was partially offset by new stock option grants with time-based vesting to our g & a workforce for 0.3 million shares that resulted in expense of $ 1.1 million for the year ended june 30 , 2020. professional fees . for the year ended june 30 , 2020 , our spending on professional fees included auditing and financial reporting consulting of $ 0.4 million , investor relations costs of $ 0.4 million , legal services of $ 0.3 million , and information technology consulting of $ 0.1 million .
| for the year ended june 30 , 2020 , we had an increase of $ 3.3 million in compensation and benefits for our r & d workforce , which was attributable to an increases in cash-based compensation and benefits of $ 2.3 million and stock-based compensation expense of $ 1.0 million . the increase of $ 2.3 million in cash-based compensation and benefits was attributable to ( i ) increased salaries and benefits cost of $ 1.7 million as we doubled our average r & d workforce from 8 employees for the year ended june 30 , 2019 to 16 employees for the year ended june 30 , 2020 , ( ii ) an increase in cash bonuses for our r & d workforce of $ 0.3 million , and ( iii ) our r & d employees did not perform administrative and financing-related functions in fiscal 2020 , whereas $ 0.4 million was allocated to g & a expenses for the year ended june 30 , 2019 , but is included in r & d expenses for the year ended june 30 , 2020. the total increases in cash-based compensation and benefits for our r & d workforce amounted to $ 2.4 million and was partially offset by $ 0.1 million billed to handok and genexine under the master services agreement discussed in note 10 to our consolidated financial statements included in item 8 of this annual report . the increase in stock-based compensation expense of $ 1.0 million was primarily due to stock option grants with time-based vesting to our r & d workforce and scientific advisory board members for an aggregate of 0.2 million shares for the year ended june 30 , 2020. clinical trial costs . for the year ended june 30 , 2020 , our clinical trial costs increased by $ 3.9 million . this increase consisted of costs related to the launch of the rize study of $ 3.2 million where we enrolled our first patient in february 2020 , and increased costs of $ 0.7 million primarily for higher contract research costs in our ab101 first-in-human phase 1 study for which we received top-line results in december 2019. as
| 13,797 |
there are many global economic , investment and political uncertainties that may impact our business and our investment portfolio , including central bank actions and potential trade disputes . our decision to de-risk our investments has reduced , although not eliminated , our exposure to such uncertainties . we expect to hold a majority of our investable assets in cash and short-term treasuries until the ongoing strategic review being conducted by the board is complete . segments we manage our business on the basis of one operating segment , property & casualty reinsurance , and we analyze our business based on the following categories : ● property ● casualty ● other property business covers automobile physical damage , personal lines ( including homeowners ' insurance ) and commercial lines exposures . property business includes both catastrophe as well as non-catastrophe coverage . we expect catastrophe business to make up a small proportion of our property business . casualty business covers general liability , motor liability , professional liability and workers ' compensation exposures . the company 's multi-line business predominantly relates to casualty reinsurance and as such all multi-line business is included within the casualty category . casualty business generally has losses reported and paid over a longer period of time than property business . other business covers accident and health , financial lines ( including mortgage insurance , surety and trade credit ) , marine , and to a lesser extent , other specialty business such as aviation , crop , cyber , energy and terrorism exposures . revenues we derive our revenues from two principal sources : ● premiums from reinsurance on property and casualty business assumed ; and ● income from investments . premiums written are recognized as revenues , net of of any applicable underlying reinsurance coverage , and are earned over the term of the related policy or contract . depending on the contract structure , the earnings period could be the same as the reinsurance contract , or based on the terms of the underlying insurance policies . income from our investments is primarily composed of income generated from our investment in silp and interest income from money market funds and notes receivable . our investment income also includes income ( or losses ) from our equity method investment as well as realized and unrealized gains from the investments made by greenlight re innovations . in addition , we may from time to time derive other income from gains on deposit accounted contracts , fees generated from advisory services and fees relating to overrides , profit commissions and the early termination of contracts . 51 link to expenses our expenses consist primarily of the following : ● underwriting losses and loss adjustment expenses ; ● acquisition costs ; ● general and administrative expenses ; ● interest expense ; and ● investment-related expenses . the extent of our loss and lae is a function of the amount and type of reinsurance contracts we write and of the loss experience of the underlying coverage . as described below , loss and loss adjustment expenses include an actuarially determined estimate of losses incurred , including losses incurred during the period and changes in estimates from prior periods . the period over which loss and lae reserves are paid depends on the nature of the coverage provided and generally extends over a period of multiple years . acquisition costs consist primarily of brokerage fees , ceding commissions , premium taxes , profit commissions , letters of credit and trust fees , and federal excise taxes . we amortize deferred acquisition costs relating to successfully bound reinsurance contracts over the related contract term . general and administrative expenses consist primarily of salaries and benefits and related costs , including costs associated with our incentive compensation plan , bonuses and stock compensation expenses . general and administrative expenses also include professional fees , travel and entertainment , information technology , rent and other general operating expenses . general and administrative expenses reported on our consolidated statements of operations include both underwriting expenses as well as corporate expenses . for stock option expenses , we calculate compensation cost using the black-scholes option pricing model and expense stock options over their vesting period , which varies and has historically ranged from zero to six years . for restricted stock awards and restricted stock units with only service conditions , we calculate compensation cost using the grant date fair value of each award and recognize the associated expense of the stock awards over their vesting periods , which typically range from one to five years . for restricted stock awards that include both service and performance conditions , the associated expense is recognized when the company determines that it is probable that the performance conditions will be achieved . interest expense consists of interest paid and accrued on senior convertible notes as well as the amortization of ( i ) issuance expenses and ( ii ) the note discount . investment-related expenses primarily consist of interest expense on borrowings , and management fees and performance compensation paid to the investment advisor . we net these expenses against investment income ( loss ) in our consolidated financial statements . critical accounting policies and estimates our consolidated financial statements contain certain amounts that are inherently subjective in nature and have required management to make assumptions and best estimates to determine reported values . if certain factors , including those described in “ part i. item ia . — risk factors ” , cause actual events or results to differ materially from our underlying assumptions or estimates , there could be a material adverse effect on our results of operations , financial condition or liquidity . we believe that the following accounting policies affect the more significant estimates used in the preparation of our consolidated financial statements . the descriptions below are summarized and have been simplified for clarity . a more detailed description of our significant accounting policies as well as recently issued accounting standards are included in note 2 to the consolidated financial statements . story_separator_special_tag premium revenues and risk transfer . our property and casualty reinsurance premiums are recorded as premiums written based upon contract terms and information received from ceding companies and their brokers . for excess of loss reinsurance contracts , premiums are typically stated as a percentage of the subject premiums written by the client , subject to a minimum and deposit premium . the minimum and deposit premium is typically based on an estimate of subject premiums expected to be written by the client during the contract term . the minimum and deposit premium is reported initially as premiums written and adjusted , if necessary , in subsequent periods once the actual subject premium is known . 52 link to certain contracts provide for reinstatement premiums in the event of a loss . reinstatement premiums are written and earned when a triggering loss event occurs . for each quota share or proportional property and casualty reinsurance contract we underwrite , our client estimates gross premiums written at inception of the contract . we generally account for such premiums using our best estimates and then adjust our estimates based on actual reports provided by our client and based on our expectations of industry developments . as the contract progresses , we monitor actual premiums received in conjunction with correspondence from the client in order to refine our estimate . variances from initial gross premiums written estimates are generally greater for quota share contracts than for excess of loss contracts . all premiums on quota share contracts are earned over the risk coverage period . unearned premiums represent the unexpired portion of reinsurance provided . at the inception of each of our reinsurance contracts , we receive premium estimates from the client , which , together with historical and industry data , are used to estimate what we believe will be the ultimate premium payable pursuant to each contract . we receive actual premiums written by each client as the client reports the actual results of the underlying insurance writings to us on a monthly or quarterly basis ( depending on the terms of the contract ) . we book the actual premiums written when we receive them from our client . each reporting period we estimate the amount of premiums that are written for stub periods that have not yet been reported to us by the client . for example , at year-end we may have to estimate december premiums ceded under certain contracts since the client may not be required to report the actual results to us until after we have issued our audited consolidated financial statements . typically , premium estimates are only used for unreported stub periods , which account for a small percentage of our total premiums written . we are able to confirm the accuracy and completeness of premiums reported by our clients by either reviewing the client 's statutory filings and or performing an audit of the client , in accordance with the terms of the contract . discrepancies between premiums ceded and reported under a contract are , in our experience , rare . to date , we have not had any material discrepancy in premiums reported by a client that required a formal dispute resolution process . assessing whether a reinsurance contract meets the conditions for risk transfer requires judgment . the determination of risk transfer is critical to reporting premiums written and is based , in part , on the use of actuarial and pricing models and assumptions . if we determine that a reinsurance contract does not transfer sufficient risk to merit reinsurance accounting treatment , the premium we receive is reported as a deposit liability . similarly , for ceded contracts that do not transfer sufficient risk to merit reinsurance accounting , the premium we pay is reported as a deposit asset . any gains or losses on deposit accounted contracts are calculated using the interest method and recorded in the consolidated statements of operations as other income or expense . investments . our investment in silp is carried at fair value , based on the most recent net asset value obtained from silp 's third party administrators . other investments include private and unlisted equity securities that do not have readily determinable fair values . the carrying values of these private equity securities are determined based on the original cost , reviewed for impairment and any subsequent changes in the valuation based on any recent observable transactions of those securities . for “ other investments ” any realized and unrealized gains or losses are determined on the basis of specific identification method ( by reference to cost or amortized cost , as appropriate ) and included in net investment income ( loss ) in the consolidated statements of operations . loss and loss adjustment expense reserves . the process of estimating our loss and lae reserves involves a considerable degree of judgment and our estimates as of any given date are inherently uncertain . estimating loss and lae reserves requires us to make assumptions regarding reporting and development patterns , frequency and severity trends , claims settlement practices , potential changes in legal environments , inflation , loss amplification , foreign exchange movements and other factors . these estimates and judgments are based on numerous considerations and are often revised as : ( i ) we receive changes in loss amounts reported by ceding companies and brokers ; ( ii ) we obtain additional information , experience or other data ; ( iii ) new or improved methodologies are developed ; or ( iv ) changes in the legal environment occur . our loss and lae reserves relating to short-tail property risks are typically reported to us and settled more promptly than those relating to our long-tail risks .
| the rulings impacted loss events that occurred between 2015 and early 2018. for the year ended december 31 , 2019 , the overall net financial impact associated with adverse loss development related to prior years was a loss of $ 30.1 million for the year ended december 31 , 2019 . catastrophe events during the year ended december 31 , 2019 , including hurricane dorian and typhoons faxai and hagibis , contributed $ 17.4 million to the underwriting loss for the year ended december 31 , 2019 . by comparison , the catastrophe events during 2018 , including hurricanes florence , michael , california wildfires and typhoon jebi , contributed $ 18.9 million to the underwriting loss for the year ended december 31 , 2018 . as a result of the underwriting loss , our overall composite ratio was 104.5 % for the year ended december 31 , 2019 , compared to 100.2 % during the year ended december 31 , 2018 . the higher composite ratio included 6.5 % loss ratio points relating to prior period loss development and 3.6 % loss ratio points relating to catastrophe losses during 2019 fiscal year . investment income and losses - our net investment related income for the year ended december 31 , 2019 was $ 52.3 million , including a return of 9.3 % on our investment portfolio , compared to an investment loss of $ 323.1 million , or a return of ( 30.3 ) % on our investments managed by dme advisors , during the year ended december 31 , 2018 . underwriting results we analyze our business based on three categories : “ property ” , “ casualty ” and “ other. ” gross premiums written details of gross premiums written are provided in the following table : replace_table_token_13_th as a result of our underwriting philosophy , our premiums written may vary significantly from one period to the next . additionally , the mix of premiums written between property , casualty and other business may vary from period
| 13,798 |
additional revenues generated by contract operations are primarily dependent on new construction activities under contract modifications with the u.s , government or agreements with other third party prime contractors . as a result , asus is subject to risks that are different than those of gswc . factors affecting the financial performance of our military utility privatization subsidiaries are described under forward-looking information and under risk factors and include delays in receiving payments from and the redetermination and equitable adjustment of prices under the contracts with the u.s. government ; fines , penalties or disallowance of costs by the u.s. government ; and termination of contracts and suspension or debarment for a period of time from contracting with the government due to violations of federal law and regulations in connection with military utility privatization activities . our financial performance is also dependent upon our ability to accurately estimate our costs in bidding on firm fixed-price construction contracts and the costs of seeking new contracts for the operation and maintenance and renewal and replacement of water and or wastewater services at military bases and for additional construction work at existing bases . asus is actively pursuing utility privatization contracts of other military bases to expand the contracted services segment . in september 2014 , asus received retroactive contract modifications from the u.s. government for price redeterminations and other matters related to the operations at fort bragg , fort jackson and andrews air force base . as a result , included in earnings for the year ended december 31 , 2014 was approximately $ 1.7 million in retroactive revenues for years prior to 2014 , or $ 0.03 per share , related to these contract modifications . story_separator_special_tag on this large project in 2010 , which was completed and closed-out during the fourth quarter of 2014. an overall decrease in construction activity reducing earnings by $ 0.03 per share due to significant work on several projects being substantially completed during 2013 , with less work performed during 2014. a decrease of $ 0.03 per share as compared to 2013 as a result of cumulative tax deductions taken in 2013 related to certain construction activities for years 2013 and prior . there was no similar cumulative amount deducted for 2014. diluted earnings from awr ( parent ) decreased $ 0.03 per share as compared to the same period in 2013 due primarily to a cumulative tax benefit recorded during the third quarter of 2013 for deductions related to an employee benefit program , with no similar cumulative benefit recorded in 2014. the following discussion and analysis for the years ended december 31 , 2014 , 2013 and 2012 provides information on awr 's consolidated operations and assets and , where necessary , includes specific references to awr 's individual segments and or other subsidiaries : gswc and asus and its subsidiaries . 26 consolidated results of operations — years ended december 31 , 2014 and 2013 ( amounts in thousands , except per share amounts ) : replace_table_token_10_th * not meaningful 27 operating revenues general registrant relies upon rate approvals by the cpuc to recover operating expenses and to provide for a return on invested and borrowed capital used to fund utility plant for gswc . asus files price redeterminations and requests for equitable adjustments with the u.s. government in order to recover operating expenses and provide profit margin for contracted services . if adequate rate relief and price redeterminations and adjustments are not granted in a timely manner , operating revenues and earnings can be negatively impacted . asus 's earnings have also been positively impacted by additional construction projects at each of the military utility privatization subsidiaries . water for the year ended december 31 , 2014 , revenues from water operations increased by $ 6.5 million to $ 326.7 million , compared to $ 320.1 million for the year ended december 31 , 2013 . during 2014 , the cpuc approved an increase in rates to specifically cover increases in supply costs experienced in certain rate-making areas . this $ 3.5 million increase in revenues for the year ended december 31 , 2014 is offset by a corresponding increase in supply cost , resulting in no impact to the water gross margin . there were also second-year rate increases approved by the cpuc effective january 1 , 2014 for certain rate-making areas as well as increases related to advice letter filings . these increases were partially offset by a decrease of approximately $ 580,000 in surcharges during the year ended december 31 , 2014 to recover previously incurred costs approved by the cpuc . the decrease in revenues from these surcharges is offset by a corresponding decrease in operating expenses ( primarily administrative and general ) resulting in no impact to pretax operating income . billed water consumption for the year ended december 31 , 2014 decreased by approximately 2.8 % as compared to the same period in 2013 . changes in consumption do not have a significant impact on revenues due to the cpuc-approved water revenue adjustment mechanism ( “ wram ” ) account in place in all three water regions . gswc records the difference between what it bills its water customers and that which is authorized by the cpuc in the wram accounts as regulatory assets or liabilities . electric for the year ended december 31 , 2014 , revenues from electric operations were $ 34.4 million compared to $ 38.4 million for 2013 . in november 2014 , the cpuc issued a final decision on bves 's general rate case which sets new rates for the years 2013 - 2016. the new rates were retroactive to january 1 , 2013. prior to the decision , electric revenues for 2013 and 2014 were recorded based on 2012 adopted levels . the new adopted revenues for years 2013 through 2016 are lower than revenues in the previous rate cycle resulting from a revised return on equity of 9.95 % , as well as lower depreciation and certain other operating expenses . story_separator_special_tag as a result of the decision , a $ 2.2 million cumulative reduction in revenues was recorded during the fourth quarter of 2014 , along with a cumulative reduction in depreciation expense . the impact of the retroactive effect of the new rates to bves 's 2014 net earnings was not significant . there was also a $ 936,000 decrease in surcharges to recover previously incurred costs during 2014 as compared to 2013 , with a corresponding $ 936,000 decrease in operating expenses resulting in no impact to pretax income . the remaining decrease in electric revenues was primarily due to lower electric usage , resulting in lower revenues and lower electric supply costs . billed electric usage for the year ended december 31 , 2014 decreased 5.4 % as compared to 2013 . the winter experienced in the big bear area during the first quarter of 2014 was too warm for snowmaking , resulting in less electric usage than in the prior year . due to the cpuc approved base revenue requirement adjustment mechanism , which adjusts certain revenues to adopted levels authorized by the cpuc , this change in usage did not have a significant impact on earnings . contracted services revenues from contracted services are composed of construction revenues and management fees for operating and maintaining the water and or wastewater systems at military bases . for the year ended december 31 , 2014 , revenues from contracted services decreased to $ 104.7 million as compared to $ 113.5 million for 2013 . the decrease was mainly due to lower construction activity at various military bases , including a reduction in initial capital upgrade work at fort bragg and the military bases in virginia . in addition , asus subsidiaries completed or are nearing completion of significant work on major capital projects at fort bliss and fort bragg , resulting in less revenue during the year ended december 31 , 2014 as compared to the same period in 2013. the decrease in construction activity was partially offset by the resolution of price redeterminations at fort bragg , fort jackson and andrews air force base resulting in increased management fee revenues during the third quarter of 2014 , including retroactive amounts related to prior years totaling $ 1.7 million . additionally , asus recorded $ 1.6 million of additional revenues during the fourth quarter of 2014 in conjunction with the close-out of a large construction project at fort bragg . onus began work on this large project in 2010 , which was completed and closed-out during the fourth quarter of 2014 . 28 asus subsidiaries continue to enter into u.s. government awarded contract modifications and agreements with third-party prime contractors for new construction projects at the military utility privatization subsidiaries . during the third quarter of 2014 , the u.s. government awarded asus $ 27.0 million in new construction projects , the majority of which are expected to be completed during the next twelve months . earnings and cash flows from modifications to the original 50-year contracts with the u.s. government and agreements with third-party prime contractors for additional construction projects may or may not continue in future periods . operating expenses : supply costs supply costs for the water segment consist of purchased water , power purchased for pumping , groundwater production assessments and water supply cost balancing accounts . supply costs for the electric segment consist of power purchased for resale , the cost of natural gas used by bves 's generating unit , renewable energy credits and the electric supply cost balancing account . water and electric gross margins are computed by taking total revenues , less total supply costs . registrant uses these gross margins and related percentages as important measures in evaluating its operating results . registrant believes these measures are useful internal benchmarks in evaluating the utility business performance within its water and electric segments . registrant reviews these measurements regularly and compares them to historical periods and to its operating budget . however , these measures , which are not presented in accordance with generally accepted accounting principles ( “ gaap ” ) , may not be comparable to similarly titled measures used by other entities and should not be considered as alternatives to operating income , which is determined in accordance with gaap . total supply costs comprise the largest segment of total operating expenses . supply costs accounted for 29.1 % and 27.6 % of total operating expenses for the years ended december 31 , 2014 and 2013 , respectively . the table below provides the amount of increases ( decreases ) , percent changes in supply costs , and gross margins during the years ended december 31 , 2014 and 2013 ( dollar amounts in thousands ) : replace_table_token_11_th ( 1 ) as reported on awr 's consolidated statements of income , except for supply cost balancing accounts . the sum of water and electric supply cost balancing accounts in the table above is shown on awr 's consolidated statements of income and totaled $ 6,346,000 and $ 214,000 for the years ended december 31 , 2014 and 2013 , respectively . revenues include surcharges , which increase both revenues and operating expenses by corresponding amounts , thus having no net earnings impact . 29 ( 2 ) water and electric gross margins do not include any depreciation and amortization , maintenance , administrative and general , property or other tax , or other operation expenses . two of the principal factors affecting water supply costs are the amount of water produced and the source of the water . generally , the variable cost of producing water from wells is less than the cost of water purchased from wholesale suppliers . under the modified cost balancing account ( “ mcba ” ) , gswc tracks adopted and actual expense levels for purchased water , purchased power and pump taxes , as established by the cpuc .
| a decrease in interest expense and other non-operating expenses ( net of interest income ) , increasing earnings by $ 0.01 per share due primarily to the refinance of certain long-term notes with notes at a lower interest rate as well as other debt maturing during the fourth quarter of 2013 and 2014. an increase in the effective income tax rate for the water segment during the year ended december 31 , 2014 as compared to 2013 , which decreased earnings by approximately $ 0.01 per share . the change in the tax rate is primarily due to changes between book and taxable income from items that are treated as flow-through adjustments in accordance with regulatory requirements as well as changes in permanent items . 25 for the year ended december 31 , 2014 , diluted earnings from the electric segment increased by $ 0.01 per share as compared to 2013 due primarily to an overall decrease in operating expenses and a lower electric effective income tax rate . the decrease in expenses in 2014 was partially offset by the recovery of legal and outside services costs in connection with the cpuc 's renewables portfolio standard approved by the cpuc in may 2013. as a result , in the second quarter of 2013 , gswc recorded an $ 834,000 reduction in legal and outside services costs , increasing earnings by $ 0.01 per share . there was no similar reduction in 2014. the final decision on bves 's general rate case approved by the cpuc in november 2014 did not have a significant impact on bves 's earnings for 2014. for the year ended december 31 , 2014 , diluted earnings from contracted services were $ 0.31 per share , compared to $ 0.30 per share for the same period in 2013. impacting the comparability of the two periods were the following items : an increase in management fees as a result of successful resolutions of various price redeterminations received during the third quarter of 2014 , increasing
| 13,799 |
exit costs ; which were partially offset by a benefit of $ 16 related to the elimination of the life insurance benefit for the u.s. salaried and non-bargaining hourly retirees of the company and its subsidiaries . restructuring and other charges in 2018 consisted primarily of a $ 96 charge for pension plan settlement accounting ; a $ 23 charge for pension curtailment ; a $ 43 loss on sale of a hungary forgings business ; a $ 18 charge for layoff costs ; a $ 12 charge for contract termination costs and asset impairments associated with the shutdown of a facility in acuna , mexico ; which were offset partially by a $ 28 postretirement curtailment benefit . see note e to the consolidated financial statements in part ii , item 8 . ( financial statements and supplementary data ) of this form 10-k. interest expense . interest expense was $ 381 in 2020 compared with $ 338 in 2019. the increase of $ 43 , or 13 % , was primarily due to premiums paid on the early redemption of debt of $ 59 which was offset by lower debt outstanding in 2020 driven by the early redemption of $ 1,000 , $ 889 and $ 151 of the principal amount of the 6.150 % notes , 5.400 % notes due in 2021 and 5.870 % notes due in 2022 , respectively , in april and may 2020 , which was offset by the issuance on april 24 , 2020 of the 6.875 % notes due 2025 in the aggregate principal amount of $ 1,200. interest expense was $ 338 in 2019 compared with $ 377 in 2018. the decrease of $ 39 , or 10 % , was primarily due to lower debt outstanding , driven by the repayment of the aggregate outstanding principal amount of the 1.63 % convertible notes of approximately $ 403 on october 15 , 2019 , as well as costs incurred of $ 19 in 2018 related to the premium paid on the early redemption of the company 's then outstanding 5.72 % senior notes due in 2019 that did not recur in 2019. on january 15 , 2021 , the company completed the early redemption of all of the remaining $ 361 aggregate principal amount of the 5.400 % notes due in april 2021 ( the `` 5.400 % notes '' ) as well as $ 5 in accrued interest . the redemption of these 5.400 % notes will save approximately $ 5 in interest expense , net in the first quarter of 2021 and $ 19 annually . other expense ( income ) , net . other expense ( income ) , net was $ 74 in 2020 compared with $ 31 in 2019. the increase in expense of $ 43 was primarily driven by the write-off of an indemnification receivable related to a spanish tax reserve reflecting alcoa corporation 's 49 % share and arconic corporation 's 33.66 % share of a spanish tax reserve of $ 53 and lower interest income of $ 19 , which were partially offset by lower deferred compensation expense of $ 14 and favorable foreign currency movements of $ 16. other expense ( income ) , net was $ 31 in 2019 compared with other expense ( income ) , net of $ ( 30 ) in 2018. the increase in other expense , net of $ 61 was primarily due to an increase in deferred compensation expense of $ 32 and the benefit recognized in 2018 from establishing a tax indemnification receivable reflecting alcoa corporation 's 49 % share of a spanish tax reserve of $ 29. income taxes . howmet 's effective tax rate was 23.4 % ( benefit on pre-tax income ) in 2020 compared with the u.s. federal statutory rate of 21 % . the effective rate differs from the u.s. federal statutory rate primarily as a result of a $ 64 benefit related to the release of an income tax reserve following a favorable spanish tax case decision , a $ 30 benefit related to the recognition of a previously uncertain u.s. tax position , and a $ 30 benefit for a u.s. tax law change related to the issuance of final regulations that provide for an exclusion of certain high-taxed foreign earnings from the calculation of global intangible low-taxed income ( `` gilti '' ) , partially offset by u.s. tax on foreign earnings , $ 8 of charges related to the remeasurement of deferred tax balances as a result of the arconic inc. separation transaction , the tax impact of $ 49 of nondeductible loss related to the reversal of indemnification receivables associated with the favorable spanish tax case decision , and the tax impact of other nondeductible expenses . howmet 's effective tax rate was 40.0 % ( provision on pre-tax income ) in 2019 compared with the u.s. federal statutory rate of 21 % . the effective rate differs from the u.s. federal statutory rate primarily as a result of foreign income taxed in higher rate 33 jurisdictions and subject to u.s. taxes including gilti , foreign losses with no tax benefit , and other nondeductible expenses , partially offset by a $ 24 benefit associated with the deduction of foreign taxes that were previously claimed as a u.s. foreign tax credit , and a $ 12 benefit for a foreign tax rate change . howmet 's effective tax rate was 27.8 % ( provision on pre-tax income ) in 2018 compared with the u.s. federal statutory rate of 21 % . story_separator_special_tag the effective tax rate differs from the u.s. federal statutory rate primarily as a result of a $ 60 charge to establish a tax reserve in spain , a $ 59 net charge resulting from the company 's finalized analysis of the u.s. tax cuts and jobs act of 2017 ( the `` 2017 act '' ) , and foreign income taxed in higher rate jurisdictions and subject to u.s. taxes including gilti , partially offset by a $ 74 benefit related to the reversal of a foreign recapture obligation , a $ 38 benefit to reverse a foreign tax reserve that was effectively settled , and a $ 10 benefit for the release of u.s. valuation allowances . howmet anticipates that the effective tax rate in 2021 will be between 26.5 % and 28.5 % . however , changes in the current economic environment , tax legislation or rate changes , currency fluctuations , ability to realize deferred tax assets , movements in stock price impacting tax benefits or deficiencies on stock-based payment awards , and the results of operations in certain taxing jurisdictions may cause this estimated rate to fluctuate . net income from continuing operations . net income from continuing operations was $ 211 , or $ 0.48 per diluted share , for 2020 compared to $ 126 , or $ 0.27 per diluted share , in 2019. the increase in results of $ 85 , or 67 % , was primarily due to the non-recurring 2019 impact of the $ 428 charge for impairment of the disks long-lived asset group included in restructuring and other charges , a decrease of $ 123 due to lower sg & a costs , favorable product pricing , and a net $ 10 related to the settlement of the spanish corporate income tax audit , partially offset by a decrease in volumes in the commercial aerospace and commercial transportation markets , the impact of covid-19 , and an increase in premiums paid on the early redemption of debt of $ 59. net income from continuing operations was $ 126 , or $ 0.27 per diluted share , for 2019 compared to $ 309 , or $ 0.63 per diluted share , for 2018. the decrease in results of $ 183 , or 59 % , was primarily due to higher restructuring charges primarily due to the non-recurring 2019 impact of the $ 428 charge for impairment of the disks long-lived asset group , higher sg & a costs related primarily to annual incentive compensation accruals and executive compensation costs , higher other expense , net due to an increase in deferred compensation expense , and the benefit recognized in 2018 from establishing a tax indemnification receivable reflecting alcoa corporation 's 49 % share of a spanish tax reserve of $ 29 that did not recur in 2019 , partially offset by volume growth , favorable product pricing , net cost savings , lower d & a due to the impact of divestitures as well as asset impairments related to the disks long-lived asset group , lower interest expense due to lower debt outstanding and costs incurred of $ 19 in 2018 related to the premium paid on the early redemption of debt that did not recur in 2019 , and lower income taxes primarily as a result of a benefit related to a u.s. tax election which caused the deemed liquidation of a foreign subsidiary 's assets into its u.s. tax parent . net income . net income was $ 261 for 2020 composed of $ 211 of income from continuing operations and $ 50 from discontinued operations , or $ 0.48 and $ 0.11 per diluted share , respectively . net income was $ 470 for 2019 composed of $ 126 of income from continuing operations and $ 344 from discontinued operations , or $ 0.27 and $ 0.76 per diluted share , respectively . net income was $ 642 for 2018 composed of $ 309 of income from continuing operations and $ 333 from discontinued operations , or $ 0.63 and $ 0.67 per diluted share , respectively . see details of discontinued operations in note c to the consolidated financial statements in part ii , item 8 . ( financial statements and supplementary data ) of this form 10-k. segment information the company 's operations consist of four worldwide reportable segments : engine products , fastening systems , engineered structures and forged wheels . segment performance under howmet 's management reporting system is evaluated based on a number of factors ; however , the primary measure of performance is segment operating profit . howmet 's definition of segment operating profit is operating income excluding special items . special items include restructuring and other charges and impairment of goodwill . segment operating profit may not be comparable to similarly titled measures of other companies . differences between segment totals and consolidated howmet are in corporate . in the second quarter of 2020 , the company realigned its operations consistent with how the co-chief executive officers assess operating performance and allocating capital in conjunction with the arconic inc. separation transaction ( see note c to the consolidated financial statements in part ii item 8 of this form 10-k ) . prior period financial information has been recast to conform to current year presentation . the company produces aerospace engine parts and components and aerospace fastening systems for boeing 737 max airplanes . in late december 2019 , boeing announced a temporary suspension of production of the 737 max airplanes . this decline in production had a negative impact on sales and segment operating profit in the engine products , fastening systems and engineered structures segments for the full year ended december 31 , 2020. while regulatory authorities in the united 34 states and certain other jurisdictions lifted grounding orders beginning in late 2020 , our sales could continue to be negatively affected from the residual impacts of the 737 max grounding . income from continuing operations before income taxes totaled $ 171 in 2020 , $ 210 in 2019 , and $ 428 in 2018.
| in 2020 , the company recorded charges of $ 41 related to plant fires compared to $ 26 in 2019. the downtime reduced production levels and affected productivity at the plants . cogs as a percentage of sales was 73.5 % in 2019 compared with 75.4 % in 2018. the decrease was primarily due to lower raw material costs ; net costs savings ; favorable product pricing ; and costs incurred in 2018 that did not recur in 2019 related to settlements of certain customer claims , partially offset by an unfavorable product mix and the impairment of energy business assets of $ 10. additionally , in 2019 , the company sustained a fire at a fasteners plant in france and recorded charges of $ 26 for higher operating costs , equipment and inventory damage , and repairs and cleanup costs . the company submitted an insurance claim and received partial settlement of $ 25 , which was in excess of its $ 10 insurance deductible . the insurance claim included $ 8 of margin not recognized from lost revenue due to the fire . selling , general administrative , and other expenses ( sg & a ) . sg & a expenses were $ 277 , or 5.3 % of sales , in 2020 compared with $ 400 , or 5.6 % of sales , in 2019. the decrease in sg & a of $ 123 , or 31 % , was primarily due to overhead cost reductions and lower net legal and other advisory costs related to grenfell tower of $ 20 , partially offset by higher costs associated with the arconic inc. separation transaction through june 30 , 2020 of $ 2. sg & a expenses were $ 400 , or 5.6 % of sales , in 2019 compared with $ 371 , or 5.5 % of sales , in 2018. the increase in sg & a of $ 29 , or 8 % , was primarily due to costs associated with the arconic inc. separation transaction of $ 5 and higher annual incentive compensation accruals and executive compensation costs ,
| 13,800 |
our workers ' compensation reserve for deductible and self-insured claims is established using estimates of the future cost of claims and related expenses that have been reported but not settled , as well as those that have been incurred but not reported . reserves are estimated for claims incurred in the current year , as well as claims incurred during prior years . management evaluates the adequacy of the workers ' compensation reserves in conjunction with an independent quarterly actuarial assessment . factors considered in establishing and adjusting these reserves include , among other things : changes in medical and time loss ( “ indemnity ” ) costs ; changes in mix between medical only and indemnity claims ; regulatory and legislative developments impacting benefits and settlement requirements ; type and location of work performed ; the impact of safety initiatives ; and positive or adverse development of claims , which considers the potential impact of covid-19 . page - 35 management 's discussion and analysis our workers ' compensation claims reserves are discounted to their estimated net present value using discount rates based on returns of “ risk-free ” u.s. treasury instruments with maturities comparable to the weighted average lives of our workers ' compensation claims . at december 27 , 2020 , the weighted average discount rate was 1.8 % . the claim payments are made over an estimated weighted average period of approximately 5.5 years . our workers ' compensation reserves include estimated expenses related to claims above our self-insured limits ( “ excess claims ” ) , and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance carriers . we discount this reserve and corresponding receivable to its estimated net present value using the discount rates based on average returns of “ risk-free ” u.s. treasury instruments available during the year in which the liability was incurred . at december 27 , 2020 , the weighted average rate was 1.3 % . the claim payments are made and the corresponding reimbursements from our insurance carriers are received over an estimated weighted average period of approximately 17 years . the discounted workers ' compensation reserve for excess claims was $ 54.0 million and $ 45.3 million as of december 27 , 2020 and december 29 , 2019 , respectively . the discounted receivables from insurance companies , net of valuation allowance , were $ 52.9 million and $ 44.6 million as of december 27 , 2020 and december 29 , 2019 , respectively . the following table provides an analysis of changes in our workers ' compensation claims reserves : replace_table_token_19_th ( 1 ) the discount is amortized over the estimated weighted average life . in addition , any changes to the estimated weighted average lives and corresponding discount rates for actual payments made are reflected in cost of services on the consolidated statement of operations and comprehensive income in the period when the changes in estimates are made . ( 2 ) changes to our excess claims are discounted to its estimated net present value using the risk-free rates associated with the actuarially determined weighted average lives of our excess claims . certain workers ' compensation insurance companies with which we formerly did business are in liquidation and have failed to pay a number of excess claims to date . we have recorded a valuation allowance against all of the insurance receivables from the insurance companies in liquidation . we continue to actively manage workers ' compensation cost through the safety of our associates with our safety programs and actively control costs with our network of service providers . these actions have had a positive impact creating favorable adjustments to workers ' compensation liabilities recorded in prior periods . continued favorable adjustments to our prior year workers ' compensation liabilities are dependent on our ability to continue to aggressively lower accident rates and costs of our claims . we expect diminishing favorable adjustments to our workers ' compensation liabilities as the opportunity for significant reduction to frequency and severity of accident rates diminishes . future outlook we are focused on cash management as a top priority . in response to the rapidly changing market conditions due to covid-19 , we have reduced operating costs and other cash outflows to preserve capital to fund working capital needs . our revolving credit facility provides for a revolving line of credit of up to $ 300.0 million with an option , subject to lender approval , to increase the amount to $ 450.0 million . on march 16 , 2020 , we extended the maturity of the revolving credit facility to march 16 , 2025. although we were in compliance with our covenants , we felt it was prudent to negotiate more favorable covenants given the level of economic uncertainty . on june 24 , 2020 , we further amended our revolving credit agreement , which included modifications to our financial covenants . as of december 27 , 2020 , we are in a strong financial position with cash and cash equivalents of $ 62.5 million , no debt outstanding and total liquidity of $ 160.9 million under the most restrictive covenants of our revolving credit facility . we expect approximately $ 16 million of capital expenditures in the first quarter of 2021 and $ 37 million to $ 41 million in fiscal 2021. these capital expenditures include build-out costs for our chicago support center of approximately $ 8 million in the first page - 36 management 's discussion and analysis quarter of 2021 and $ 10 million in fiscal 2021 , of which approximately $ 6 million and $ 7 million , respectively , will be reimbursed by our landlord . these reimbursements will be reflected in our operating cash flows . the cares act included employer payroll tax credits for wages paid to employees who were unable to work during the covid-19 outbreak . story_separator_special_tag under the act , we were allowed to delay payments for our portion of social security taxes ( 6.2 % of taxable wages ) incurred between march 27 , 2020 and december 31 , 2020 , for both our associates and permanent employees . we anticipate the deferred amount of $ 57.1 million will be paid by september 15 , 2021. our insurance carriers and certain state workers ' compensation programs require us to collateralize a portion of our workers ' compensation obligation , for which they become responsible should we become insolvent . the collateral typically takes the form of cash and cash-backed instruments , highly-rated investment grade securities , letters of credit , and surety bonds . we continue to have risk that these collateral requirements may be increased by our insurers due to our loss history and market dynamics , including from the impact of covid-19 . we have contractual commitments in the form of operating leases related to office space , vehicles and equipment . our leases have remaining terms of up to 16 years . see note 9 : commitments and contingencies , to our consolidated financial statements found in item 8 of this annual report on form 10-k , for details on our operating lease contractual commitments . we have purchase obligation agreements to purchase goods and services in the ordinary course of business that are enforceable , legally binding and specify all significant terms . see note 9 : commitments and contingencies , to our consolidated financial statements found in item 8 of this annual report on form 10-k , for details on our purchase obligations . we believe that cash provided from operations and our capital resources will be adequate to meet our cash requirements for the next 12 months . story_separator_special_tag style= '' color : # 000000 ; font-family : 'times new roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % '' > peoplescout has a smaller number of clients , and generally sends invoices on a consolidated basis for a client . invoice amounts are generally higher for peoplescout than for peoplemanagement on-site , with similar payment terms . when specific clients are identified as no longer sharing the same risk profile as their current pool , they are removed from the pool and evaluated separately . the credit loss rates applied to each aging category by pool are based on current collection efforts , historical collection trends , write-off experience , client credit risk , current economic data and forecasted information . the allowance for credit loss is reviewed monthly and represents our best estimate of the amount of expected credit losses . each month , past due or delinquent balances are identified based upon a review of aged receivables performed by collections and operations . past due balances are written off when it is probable the receivable will not be collected . changes in the allowance for credit losses are recorded in sg & a expense on the consolidated statements of operations and comprehensive income ( loss ) . business combinations we account for our business acquisitions using the acquisition method of accounting . the purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition . we determine the estimated fair values after review and consideration of relevant information including discounted cash flows , quoted market prices and estimates made by management . determining the fair value of an acquired company is judgmental in nature and involves the use of significant estimates and assumptions . the significant judgments include estimation of future cash flows , which is dependent on forecasts ; estimation of the long-term rate of growth ; estimation of the useful life over which cash flows will occur ; and determination of a weighted average cost of capital , which is risk-adjusted to reflect the specific risk profile of the business being purchased . intangible assets that arise from contractual/legal rights , or are capable of being separated , are measured and recorded at fair value and amortized over the estimated useful life . if practicable , assets acquired and liabilities assumed arising from contingencies are measured and recorded at fair value . if not practicable , such assets and liabilities are measured and recorded when it is probable that a gain or loss has occurred and the amount can be reasonably estimated . the residual balance of the purchase price , after fair value allocations to all identified assets and liabilities , represents goodwill . goodwill acquired in business combinations is assigned to the reporting unit ( s ) expected to benefit from the combination as of the acquisition date . acquisition-related costs are expensed as incurred . our acquisitions may include contingent consideration , which require us to recognize the fair value of the estimated liability at the time of the acquisition . subsequent changes in the estimate of the amount to be paid under the contingent consideration arrangement are recognized on the consolidated statements of operations and comprehensive income . cash payments for contingent or deferred consideration are classified within cash flows from investing activities for the purchase price fair value of the contingent consideration while amounts paid in excess are classified within cash flows from operating activities on the consolidated statements of cash flows . page - 38 management 's discussion and analysis goodwill and indefinite-lived intangible assets we evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis as of the first day of our fiscal second quarter , and whenever events or circumstances make it more likely than not that an impairment may have occurred . these events or circumstances could include a significant change in the business climate , legal factors , operating performance indicators , competition , client engagement , or sale or disposition of a significant portion of a reporting unit . we monitor the existence of potential impairment indicators throughout the fiscal year . goodwill we test for goodwill impairment at the reporting unit level .
| these estimates include claims that have been reported but not settled and claims that have been incurred but not reported . these reserves , which reflect potential liabilities to be paid in future periods based on estimated payment patterns , are discounted to estimated net present value using discount rates based on average returns on “ risk-free ” u.s. treasury instruments , which are evaluated on a quarterly basis . we evaluate the reserves regularly throughout the year and make adjustments accordingly . if the actual cost of such claims and related expenses exceed the amount estimated , additional reserves may be required . changes in reserve estimates are reflected in cost of services on the consolidated statements of operations and comprehensive income in the period when the changes in estimates are made . our workers ' compensation reserves include estimated expenses related to excess claims and a corresponding receivable for the insurance coverage on excess claims based on the contractual policy agreements we have with insurance companies . we discount the reserve and its corresponding receivable to their estimated net present values using the risk-free rates associated page - 37 management 's discussion and analysis with the actuarially determined weighted average lives of our excess claims . when appropriate , we record a valuation allowance against the insurance receivable to reflect amounts that may not be realized . there are two main factors that impact workers ' compensation cost : the number of claims and the cost per claim . the number of claims is driven by the volume of hours worked , the business mix which reflects the type of work performed , and the safety of the environment where the work is performed . the cost per claim is driven primarily by the severity of the injury , the state in which the injury occurs , related medical costs , and lost-time wage costs . a 5.0 % change in one or more of the above factors would result
| 13,801 |
costs and expenses increased $ 119,668 , or 17.0 % in 2014 , as compared to 2013 , primarily due to increases in our diversified industrial and energy segments principally as a result of acquisitions . cost of goods sold cost of goods sold in 2015 increased $ 81,838 , or 13.9 % , as compared to 2014 primarily due to the acquisitions of api and jps , both in the diversified industrial segment , partially offset by a decrease in the energy segment , due to lower revenues . cost of goods sold in 2014 increased $ 91,452 , or 18.4 % , as compared to 2013 primarily due to increases in our diversified industrial and energy segments principally as a result of the acquisitions of wolverine joining , pam and the assets of black hawk inc. , as well as additional costs due to core growth . selling , general and administrative expenses selling , general and administrative expenses ( `` sg & a '' ) in 2015 increased $ 41,844 , or 22.2 % , as compared to 2014 primarily due to an increase in the diversified industrial segment due to the acquisitions of api and jps , as well as an increase in the financial services segment . 21 sg & a expenses in 2014 decreased $ 13,766 , or 6.8 % , as compared to 2013 primarily due to a decrease in the corporate and other segment due to lower non-cash incentive unit expense recorded in 2014 , compared to 2013 , as well as a decrease in the diversified industrial segment . the diversified industrial decrease was due to a decrease from hnh 's core business primarily due to the recording of insurance reimbursements , as well as lower benefit costs and reduced business development expenses , which were partially offset by higher incremental expenses from the wolverine joining and pam acquisitions . these decreases were partially offset by an increase in our financial services segment due to higher personnel costs and an increase in our energy segment principally as a result of the acquisition of the assets of black hawk inc. , additional costs due to core growth , higher business development costs and certain non-recurring benefits that were recorded in the prior year period . goodwill impairment in connection with its annual goodwill impairment tests , the company recognized impairment charges of $ 19,571 and $ 41,450 in the fourth quarter of 2015 and 2014 , respectively , related to the goodwill associated with its energy segment . the impairment resulted from the adverse effects the decline in energy prices had on the oil services industry and the projected future results of operations of the energy segment . asset impairment charges the impairment charges in 2015 primarily relate to other-than-temporary impairments recorded on available-for-sale securities in our energy segment . all other ( income ) expenses , net all other income increased $ 16,947 in 2015 , compared to 2014 , due to higher investment gains and lower interest expense recorded in the 2015 period . all other expenses increased $ 684 in 2014 , compared to 2013 , primarily from primarily from higher interest expense . ( loss ) income of associated companies , net of taxes the ( loss ) income of associated companies , net of taxes in 2015 decreased by $ 31,552 , compared to 2014 , primarily due to net year-over-year decreases in fair value recorded for sli of $ 19,000 , for jps of $ 8,000 and other steel excel investments of $ 10,000 , partially offset by a lower loss of $ 6,000 recorded for mlnk in the 2015 period ( see note 5 - `` investments '' to the splp consolidated financial statements found elsewhere in this form 10-k for additional information ) . the income ( loss ) of associated companies , net of taxes in 2014 increased by $ 31,165 , compared to 2013 , primarily due to a higher reduction in the 2014 period in the fair value of mlnk of approximately $ 46,100 and a higher reduction in the 2014 period in the fair value of certain investments held by steel excel of approximately $ 5,200 , partially offset by higher increases in the fair value of jps of approximately $ 5,100 and sli of approximately $ 3,000 and the non-recurrence of a reduction in fair value recorded in the 2013 period of approximately $ 11,500 related to fox & hound ( see note 5 - `` investments '' to the splp consolidated financial statements found elsewhere in this form 10-k for additional information ) . income ( loss ) from investment held at fair value income ( loss ) from investments held at fair value for the years ended december 31 , 2015 , 2014 and 2013 includes income or loss that the company recognizes on its direct investment in investment in mlnk warrants and amounts that were previously recognized on api when its was classified as an available-for-sale security and accounted for under the fair value option . wfh llc ( formerly known as cosine ) acquired api in the second quarter of 2015 and it is currently a consolidated subsidiary . for additional information on cosine 's acquisition of api and these investments , see note 3 - `` acquisitions '' and see note 5 - `` investments '' to the splp consolidated financial statements found elsewhere in this form 10-k. income from discontinued operations income from discontinued operations for the year ended december 31 , 2015 represents the gain on sale of hnh 's former arlon business . for additional information on the arlon disposition , see note 4 - `` discontinued operations '' to the splp financial statements found elsewhere in this form 10-k. 22 segment results of operations the following is a summary of splp 's consolidated operating results by segment : replace_table_token_6_th diversified industrial segment our diversified industrial segment consists of the operations of hnh and wfh llc ( formerly cosine ) . story_separator_special_tag hnh is a diversified holding company that owns a variety of manufacturing operations encompassing joining materials , tubing , building materials , performance materials and cutting replacement products and services businesses . the performance materials operation is currently comprised solely of the operations of jps , which was acquired on july 2 , 2015 ( see note 3 - `` acquisitions '' to the splp consolidated financial statements found elsewhere in this form 10-k ) . the diversified industrial segment includes the operations of wfh llc ( formerly cosine ) beginning in the second quarter of 2015 , which , through its subsidiary api , is a manufacturer and distributor of foils , films and laminates used to enhance the visual appeal of products and packaging . in addition , the segment results include income or loss from splp 's equity method investment in sli . the following presents a summary of the diversified industrial segment operating results as reported in our consolidated financial statements : replace_table_token_7_th comparison of the years ended december 31 , 2015 and 2014 net sales in 2015 increased by $ 162,541 , or 27.1 % when compared to 2014 . the change in net sales reflects the addition of the api operations and jps , as well as a net increase from core growth at hnh of approximately $ 6,500 , which was partially offset by a reduction of approximately $ 17,100 in hnh 's net sales due to lower average silver prices . excluding the impact of its jps acquisition , hnh 's value added sales increased by approximately $ 6,500 on higher volume , primarily from the 23 building materials group . the average silver market price was approximately $ 15.70 per troy ounce in 2015 , as compared to $ 19.05 per troy ounce in 2014. gross profit in 2015 increased by $ 34,592 , or 21.2 % , when compared to 2014 , and , as a percentage of net sales , decreased to 26.0 % as compared to 27.2 % in 2014 . the change in gross profit reflects the addition of the api operations and jps , as well as a net increase from core growth at hnh of approximately $ 5,500 and the incremental lower manufacturing costs resulting from hnh 's itw acquisition , which was partially offset by a reduction of approximately $ 2,300 in gross profit due to lower average silver prices . higher sales volume from the building materials and kasco groups led to the increase in gross profit from hnh 's core business . gross profit for the year ended december 31 , 2015 also reflects $ 3,400 of nonrecurring expense associated with the amortization of the fair value adjustment to acquisition-date inventories associated with hnh 's jps acquisition . sg & a expenses increased by $ 35,715 , or 30.7 % , in 2015 , compared to 2014 . the higher sg & a expense in 2015 was driven by the addition of the api operations and jps , which contributed approximately $ 28,000 to the increase . the increase was also impacted by hnh which had higher personnel costs and higher business development expenses , primarily associated with its 2015 acquisitions , which were partially offset by lower stock-based compensation charges . asset impairment charges in 2015 represent a non-cash asset impairment charge related to certain unused , real property located in norristown , pennsylvania to reflect its current market value . asset impairment charges in 2014 represent a non-cash asset impairment charge of approximately $ 700 related to certain equipment owned by hnh 's joining materials group located in toronto , canada , which will either be sold or scrapped as part of hnh 's integration activities associated with the wolverine joining acquisition . in addition , hnh recorded an asset impairment charge of approximately $ 600 associated with certain unused , real property owned by one of hnh 's businesses located in atlanta , georgia in the fourth quarter of 2014. interest expense decreased by $ 2,306 , or 30.6 % , in 2015 , compared to 2014 , primarily due to lower borrowing levels and lower average interest rates at hnh in 2015. derivative activity income was $ 588 in 2015 and $ 1,307 in 2014 . the amounts in both periods were attributable to hnh 's commodity contracts . hnh utilizes commodity forward and futures contracts to mitigate the impact of price fluctuations on its precious metal and certain non-precious metal inventories . the factors that affect the gain or loss on these derivative instruments are changes in the price of the associated metals and the amount of ounces hedged . comparison of the years ended december 31 , 2014 and 2013 net sales in 2014 increased by $ 29,304 , or 5.1 % when compared to 2013. the change in net sales reflects approximately $ 26,700 in incremental sales associated with hnh 's historical acquisitions and a net increase from core growth of approximately $ 27,800 , which were partially offset by a reduction of approximately $ 25,200 in net sales due to lower average precious metal prices , principally due to silver . the acquisitions of wolverine joining and pam , net of sales volume transferred to or from the acquired business units as part of hnh 's integration activities , provided incremental net sales of approximately $ 16,700 and $ 10,000 , respectively , during the year ended december 31 , 2014. excluding the impact of these acquisitions , value added sales , defined as net sales less revenue from the direct purchase and resale of precious metals , increased by approximately $ 27,800 on higher volume , primarily from the building materials and joining materials groups , which were partially offset by lower sales volume from the tubing group .
| net cash provided by operating activities for the twelve months ended december 31 , 2013 was $ 94,952. net income from continuing operations of $ 38,374 was impacted by certain non-cash items and a decrease of $ 11,125 relating to changes in certain operating assets and liabilities . of this decrease , $ 26,379 was due to a decrease in loans held for sale , $ 8,672 was from an decrease in accounts receivable and $ 2,812 was from an decrease in inventories , partially offset by $ 25,107 from a decrease in accounts payable and accrued and other liabilities and $ 1,631 increase in prepaid and other assets . net cash provided by operating activities was also impacted by $ 9,699 in cash provided by operating activities of discontinued operations . cash flows from investing activities net cash provided by investing activities for the twelve months ended december 31 , 2015 was $ 64,539 . significant items included proceeds received from hnh 's sale of arlon of $ 155,517 , net proceeds from investments of $ 42,623 and proceeds from the sale of assets of $ 10,657 . the net proceeds from sales of investments were primarily due to cosine 's sale of nathan 's shares and net proceeds from investment sales by steel excel . in addition , cash flows from investing activities were impacted by purchases of property plant and equipment of $ 23,252 , acquisitions of $ 116,135 , primarily due to the api and jps acquisitions , and additional investments in associated companies , primarily mlnk , of $ 7,607 . net cash used in investing activities for the twelve months ended december 31 , 2014 was $ 63,058. significant items included cash paid for acquisitions made by hnh and steel excel , of $ 517 , investments in associated companies of $ 1,643 , which primarily relates to our investment in moduslink and steel excel 's investment in an associated company , a net increase in loans receivable of $ 25,805 , purchases of property plant and equipment of $ 28,769 and settlements of financial instruments of $
| 13,802 |
the allowance provides for probable and estimable losses inherent in our loan and lease portfolio . the allowance is increased or decreased through the provisioning process . there is no exact method of predicting specific losses or amounts that ultimately may be charged-off on particular segments of the loan and lease portfolio . the unfunded reserve is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit . the level of the unfunded reserve is adjusted by recording an expense or recovery in other noninterest expense . management 's evaluation of the adequacy of the reserve for credit losses is often the most critical of accounting estimates for a financial institution . our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires significant reliance on the accuracy of credit risk ratings on individual borrowers , the use of estimates and significant judgment as to the amount and timing of expected future cash flows on impaired loans , significant reliance on estimated loss rates on homogenous portfolios , and consideration of our quantitative and qualitative evaluation of economic factors and trends . while our methodology in establishing the reserve for credit losses attributes portions of the allowance and unfunded reserve to the commercial and consumer portfolio segments , the entire allowance and unfunded reserve is available to absorb credit losses inherent in the total loan and lease portfolio and total amount of unfunded credit commitments , respectively . the reserve for credit losses related to our commercial portfolio segment is generally most sensitive to the accuracy of credit risk ratings assigned to each borrower . commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an independent internal team of credit specialists . the reserve for credit losses related to our consumer portfolio segment is generally most sensitive to economic assumptions and delinquency trends . the reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses . relevant factors include , but are not limited to , concentrations of credit risk ( geographic , large borrower , and industry ) , economic trends and conditions , changes in underwriting standards , experience and depth of lending staff , trends in delinquencies , and the level of criticized and classified loans . see note 4 to the consolidated financial statements and the “ corporate risk profile – credit risk ” section in management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) for more information on the allowance and the unfunded reserve . fair value measurements fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs . for financial instruments that are traded actively and have quoted market prices or observable market inputs , there is minimal subjectivity involved in measuring fair value . however , when quoted market prices or observable market inputs are not fully available , significant management judgment may be necessary to estimate fair value . in developing our fair value measurements , we maximize the use of observable inputs and minimize the use of unobservable inputs . the fair value hierarchy defines level 1 valuations as those based on quoted prices , unadjusted , for identical instruments traded in active markets . level 2 valuations are those based on quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , or model-based valuation techniques for which all significant assumptions are observable in the market . level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market , or significant management judgment or estimation , some of which may be internally developed . 21 financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities , loans held for sale , mortgage servicing rights , investments related to deferred compensation arrangements , and derivative financial instruments . as of december 31 , 2018 and 2017 , $ 2.1 billion or 12 % and $ 2.3 billion or 13 % , respectively , of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third-party pricing service . these investments in debt securities and mortgage-backed securities were all classified in either levels 1 or 2 of the fair value hierarchy . financial liabilities that are recorded at fair value on a recurring basis are comprised of derivative financial instruments . as of december 31 , 2018 and 2017 , $ 9.7 million or less than 1 % of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis . as of december 31 , 2018 and 2017 , level 3 financial assets recorded at fair value on a recurring basis were $ 15.1 million and $ 11.8 million , respectively , or less than 1 % of our total assets , and were comprised of mortgage servicing rights and derivative financial instruments . as of december 31 , 2018 and 2017 , level 3 financial liabilities recorded at fair value on a recurring basis were $ 9.4 million and $ 9.5 million , respectively , or less than 1 % of our total liabilities , and were comprised of derivative financial instruments . story_separator_special_tag our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors , omissions , or defects . as a result , we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service such as : 1 ) our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities . we review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy . this documentation is periodically updated by our third-party pricing service . accordingly , transfers of securities within the fair value hierarchy are made if deemed necessary . 2 ) on a quarterly basis , management also selects a sample of securities priced by the company 's third-party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities . the information provided is comprised of market reference data , which may include reported trades ; bids , offers , or broker-dealer dealer quotes ; benchmark yields and spreads ; as well as other reference data as appropriate . periodically , based on these reviews , management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted . 3 ) on a quarterly basis , management reviews the pricing information received from our third-party pricing service . this review process includes a comparison to a second source . 4 ) our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices . periodically , we will challenge the quoted prices provided by our third-party pricing service . our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us . our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis . generally , we do not adjust the price from the third-party service provider . 5 ) on an annual basis , we obtain and review the third-party 's most recently issued service organization controls report . related to controls placed in operation and tests of operating effectiveness , to update our understanding of the third-party pricing service 's control environment . based on the composition of our investment securities portfolio , we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements . see note 21 to the consolidated financial statements for more information on our fair value measurements . income taxes we determine our liabilities for income taxes based on current tax regulations and interpretations in tax jurisdictions where our income is subject to taxation . currently , we file tax returns in seven federal , state and local domestic jurisdictions , and four foreign jurisdictions . in estimating income taxes payable or receivable , we assess the relative merits and risks of the appropriate tax treatment considering statutory , judicial , and regulatory guidance in the context of each tax position . accordingly , previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes . changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates , interpretations of tax law , the status of examinations being conducted by various taxing authorities , and newly enacted statutory , judicial and regulatory guidance that impact the relative merits and risks of each tax position . these changes , when they occur , may affect the provision for income taxes as well as current and deferred income taxes , and may be significant to our statements of income and condition . management 's determination of the realization of net deferred tax assets is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income , as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets . a valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized . as of december 31 , 2018 and 2017 , we carried a valuation allowance of $ 1.1 million and $ 1.0 million , respectively , related to our deferred tax assets established in connection with our low-income housing investments . 22 we are also required to record a liability , referred to as an unrecognized tax benefit ( `` utb '' ) , for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50 % likelihood of being accepted by the taxing authority . as of december 31 , 2018 and 2017 , our liabilities for utbs were $ 5.5 million and $ 5.3 million , respectively . in 2018 , the company recognized federal and state of hawaii investment tax credits from energy investments . the company uses the deferral method of accounting for its investment tax credit with the benefit recognized in the provision for income taxes . these credits reduced the company 's provision for income taxes by $ 5.0 million , 5.4 million , and 4.7 million in 2018 , 2017 and 2016 , respectively . public law no . 115-97 , known as the tax cuts and jobs act ( the `` tax act '' ) , which was enacted on december 22 , 2017 , reduced the u.s. federal corporate tax rate from 35 % to 21 % effective january 1 , 2018. also on december 22 , 2017 , the securities and exchange commission issued staff accounting bulletin no . 118 ( “ sab 118 ” ) , which provides guidance on accounting for tax effects of the tax act .
| yields on our loan portfolios increased primarily due to higher yields on floating rate loans . this was partially offset by an increase in rates offered on our deposit products . we recorded a $ 13.4 million provision for credit losses in 2018 compared to a $ 16.9 million provision recorded in 2017 . the provision recorded was based on our determination that the allowance for loan and lease losses should be $ 106.7 million as of december 31 , 2018. these items were partially offset by the following : investment securities gains ( losses ) , net totaled $ ( 3.9 ) million in 2018 compared to $ 10.4 million in 2017. the net losses in 2018 were due to fees paid to the counterparties of our prior visa class b share sale transactions combined with a $ 1.0 million payment related to a change in the visa class b share conversion ratio . the net gain in 2017 was primarily due the sale of 90,000 visa class b shares . 24 salaries and benefits expense was $ 213.2 million in 2018 , an increase of $ 9.5 million or 5 % compared to 2017 primarily due to $ 9.8 million increase in merit and minimum wage increases . medical , dental , and life insurance increased by $ 3.8 million primarily due to higher expenses related to our self-insured medical plans coupled with increased group medical insurance costs . these increases were partially offset by a $ 2.1 million decrease in incentive compensation . during the fourth quarter of 2017 , the company paid a $ 2.2 million bonus , inclusive of payroll taxes , partly due to anticipated future tax expense reductions resulting from the tax act . in addition , share-based compensation decreased by $ 2.1 million as a result of the company 's lower share price . commission expense also decreased by $ 2.1 million primarily due to a decrease in loan origination
| 13,803 |
as we grow our streaming segments , we continue to shift spending away from the domestic dvd segment to invest more in streaming content and marketing for our streaming services . story_separator_special_tag the domestic dvd segment , we derive revenues from our dvd-by-mail membership services . the price per plan for dvd-by-mail varies from $ 4.99 to $ 43.99 per month according to the plan chosen by the member . dvd-by-mail plans differ by the number of dvds that a member may have out at any given point . members electing access to high definition blu-ray discs in addition to standard definition dvds pay a surcharge ranging from $ 2 to $ 4 per month for our most popular plans . the $ 226.1 million decrease in our domestic dvd revenues was due to a 20 % decrease in the average number of paid memberships . the $ 132.1 million decrease in domestic dvd cost of revenues was primarily due to a $ 63.2 million decrease in content acquisition expenses and a $ 47.7 million decrease in content delivery expenses resulting from a 21 % decrease in the number of dvds mailed to paying members . the decrease in shipments was driven by a decline in the number of dvd memberships . other costs , primarily those associated with content processing and customer service center expenses , decreased $ 21.2 million primarily due to a decrease in hub operation expenses resulting from the decline in dvd shipments . our domestic dvd segment had a contribution margin of 48 % for the year ended december 31 , 2013 , and was relatively flat as compared to the year ended december 31 , 2012 . 21 2012 segment results domestic segments replace_table_token_11_th prior to july 2011 , in the u.s. , our streaming and dvds-by-mail operations were combined and members could receive both streaming content and dvds under a single “ hybrid ” plan . in july 2011 , we introduced dvd only plans and separated the combined plans , making it necessary for members who wish to receive both streaming services and dvds-by-mail to have two separate membership plans . as members were able to receive both streaming and dvds-by-mail under a single hybrid plan prior to the fourth quarter of 2011 , it is impracticable to allocate revenues and expenses to the domestic streaming and domestic dvd segments prior to the fourth quarter of 2011. the $ 200.0 million increase in our domestic revenues in 2012 as compared to 2011 was primarily due to the 15 % growth in the domestic average number of unique paying members driven by new streaming memberships . this increase was offset in part by an 8 % decline in domestic average monthly revenue per unique paying member , resulting from the decline in dvd memberships . the $ 217.9 million increase in domestic cost of revenues in 2012 as compared to 2011 was primarily due to a $ 397.7 million increase in content licensing expenses . this increase was primarily attributable to continued investments in existing and new streaming content . content delivery expenses decreased by $ 162.0 million primarily due to a 41 % decrease in the number of dvds mailed to paying members driven by a decline in the number of dvd memberships . other costs associated with content processing and customer service center expenses decreased by $ 13.9 million primarily due to a decrease in hub operation expenses resulting from the declines in dvd shipments , offset partially by increases in customer service center expenses to support our growth in domestic memberships . marketing expenses decreased $ 38.5 million in 2012 as compared to 2011 primarily due to a decrease in marketing program spending in television , radio and direct mail advertising partially offset by increases in online advertising . the domestic segment had a contribution margin of 27 % for the year ended december 31 , 2012 , and is relatively flat as compared to december 31 , 2011 . 22 international streaming segment replace_table_token_12_th the $ 204.7 million increase in our international revenues in 2012 as compared to 2011 was primarily due to the 260 % growth in the international average number of unique paying members driven by a full year of service offering in latin america as well as our launches in the u.k. and ireland and nordic regions . international streaming memberships account for 18 % of total streaming memberships at the end of 2012. international cost of revenues increased by $ 368.1 million in 2012 as compared to 2011 primarily due to a $ 347.5 million increase in content licensing costs resulting from the continued investments in streaming content available for viewing in canada and latin america and to support our launches in the u.k. and ireland and nordic regions . international marketing expenses increased $ 122.6 million in 2012 as compared to 2011 primarily due to increases in marketing program spending online and in television and radio advertising to support our launches in the u.k. and ireland and nordic regions . consolidated operating expenses technology and development technology and development expenses consist of payroll and related costs incurred in making improvements to our service offerings , including testing , maintaining and modifying our user interface , our recommendation , merchandising and content delivery technology , as well as our telecommunications systems and infrastructures . technology and development expenses also include costs associated with computer hardware and software . replace_table_token_13_th the $ 49.8 million increase in technology and development expenses was primarily the result of a $ 42.8 million increase in personnel-related costs . these increases are primarily due to increases in employee compensation as well as an 8 % growth in average headcount supporting continued improvements in our streaming service and international expansion . replace_table_token_14_th the $ 70.0 million increase in technology and development expenses was primarily the result of a $ 63.4 million increase in personnel-related costs , including a $ 12.7 million increase in stock-based compensation . story_separator_special_tag these increases are primarily due to a 35 % growth in average headcount supporting continued improvements in our streaming service and international expansion . 23 general and administrative general and administrative expenses consist of payroll and related expenses for corporate personnel , as well as professional fees and other general corporate expenses . general and administrative expenses also include the gain on disposal of dvds . replace_table_token_15_th general and administrative expenses increased $ 41.3 million primarily due to a $ 22.0 million increase in personnel related costs resulting from a 31 % increase in average headcount to support our growth . in addition , expenses related to the use of outside and professional services , taxes and insurance increased $ 8.9 million . the increase in expenses was further impacted by an $ 8.0 million decrease in the gain on the disposal of dvds . replace_table_token_16_th the $ 9.3 million decrease in general and administrative expenses was primarily attributable to a $ 9.0 million expense in 2011 related to the settlement of a legal claim related to our compliance with the video privacy protection act , a $ 5.8 million increase in the gain on sale of previously viewed dvds , and an $ 8.6 million decrease in miscellaneous expenses related to the use of outside and professional services , taxes , insurance costs and to costs associated with various legal claims against us . these decreases were partially offset by an increase in personnel-related costs of $ 14.1 million attributed to an 8 % increase in average headcount . interest expense interest expense consists primarily of the interest associated with outstanding long-term debt obligations , including the amortization of debt issuance costs , as well as interest on our lease financing obligations . replace_table_token_17_th interest expense for the year ended december 31 , 2013 consists primarily of $ 26.1 million of interest on our notes . the increase in interest expense for the year ended december 31 , 2013 as compared the year ended december 31 , 2012 is due to the higher aggregate principal of interest bearing notes outstanding , partially offset by the lower interest rate . replace_table_token_18_th interest expense was relatively flat as compared to the prior year . interest expense in 2012 consists primarily of $ 17.0 million of interest due on our 8.50 % notes . interest and other income ( expense ) interest and other income ( expense ) consists primarily of interest earned on cash , cash equivalents and short-term investments and foreign exchange gains and losses on foreign currency denominated balances . 24 year ended december 31 , change 2013 2012 2013 vs. 2012 ( in thousands , except percentages ) interest and other income ( expense ) $ ( 3,002 ) $ 474 ( 733 ) % as a percentage of revenues nm nm interest and other income ( expense ) decreased due to increased foreign exchange losses on foreign currency denominated balances . the foreign exchange losses were $ 8.4 million and $ 4.0 million for the years ended december 31 , 2013 and 2012 , respectively . year ended december 31 , change 2012 2011 2012 vs. 2011 ( in thousands , except percentages ) interest and other income ( expense ) $ 474 $ 3,479 ( 86 ) % as a percentage of revenues nm nm interest and other income ( expense ) decreased due to increased foreign exchange losses on foreign currency denominated balances . the foreign exchange loss was $ 4.0 million for the year ended december 31 , 2012 and were immaterial for the year ended december 31 , 2011. extinguishment of debt in connection with the redemption of the outstanding $ 200.0 million aggregate principal amount of the 8.50 % notes , we recognized a loss on extinguishment of debt of $ 25.1 million in the year ended december 31 , 2013 , which consisted of expenses associated with the redemption , including a $ 19.4 million premium payment pursuant to the make-whole provision in the indenture governing the 8.50 % notes . provision for income taxes replace_table_token_19_th in 2013 , the difference between our effective tax rate and the federal statutory rate of 35 % was $ 1.2 million primarily due to the federal and california research and development ( `` r & d '' ) credits partially offset by state income taxes and nondeductible expenses . the decrease in our effective tax rate for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 was primarily attributable to the retroactive reinstatement of the 2012 federal r & d credit in january 2013. on january 2 , 2013 , the american taxpayer relief act of 2012 ( h.r . 8 ) was signed into law which retroactively extended the federal r & d credit from january 1 , 2012 through december 31 , 2013. as a result , we recognized the retroactive benefit of the 2012 federal r & d credit of approximately $ 3.1 million as a discrete item in the first quarter of 2013 , the period in which the legislation was enacted . replace_table_token_20_th in 2012 , the difference between our effective tax rate and the federal statutory rate of 35 % was $ 2.7 million primarily due to state income taxes and nondeductible expenses partially offset by the california r & d credit . the increase in our effective tax rate for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 was primarily attributable to the expiration of the federal r & d credit on december 31 , 2011 . 25 liquidity and capital resources cash , cash equivalents and short-term investments were $ 1,200.4 million and $ 748.1 million at december 31 , 2013 and 2012 , respectively . in february 2013 , we issued $ 500.0 million aggregate principal amount of 5.375 % senior notes due 2021 ( the `` 5.375 % notes '' ) .
| we launched our streaming service in canada in september 2010 and have continuously expanded our services internationally with launches in latin america in september 2011 , the u.k. and ireland in january 2012 , finland , denmark , sweden and norway in october 2012 and most recently the netherlands in september 2013. we plan to continue to expand our services internationally and expect a substantial european expansion in 2014. the $ 424.8 million increase in our international revenues was primarily due to the 134 % growth in the average number of paid international memberships . international streaming memberships account for 25 % of total streaming memberships at the end of 2013. the $ 299.2 million increase in international cost of revenues was primarily due to a $ 272.0 million increase in content licensing expenses . this increase was primarily attributable to continued investments in existing and new streaming content including content to support the launch of our service in the nordics ( launched in the fourth quarter of 2012 ) and the netherlands ( launched in the third quarter of 2013 ) . other costs increased $ 27.2 million due to increases in our content delivery expenses , costs associated with our customer service call centers and payment processing fees , all driven by our growing member base . international marketing expenses for the year ended december 31 , 2013 increased $ 10.9 million as compared to the year ended december 31 , 2012 due to our expansion in the nordics and the netherlands offset partially by a decrease in spending in other territories . international contribution losses improved $ 114.8 million year over year , as a result of growing memberships and revenues faster than content and marketing spending . our international streaming segment does not benefit from the established member base that exists for the domestic segments . as a result of having to build a member base from zero ,
| 13,804 |
the loss establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses is not permitted . fair value may be determined using market prices , comparison to similar assets , market multiples , discounted cash flow analysis and other determinants . estimated cash flows may extend far into the future and , by their nature , are difficult to determine over an extended timeframe . factors that may materially affect the estimates include , among others , competitive forces , customer behaviors and attrition , changes in revenue growth trends , cost structures and technology , and changes in discount rates , terminal values , and specific industry or market sector conditions . to assist in assessing the impact of potential goodwill or other intangible assets impairment charges at december 31 , 2018 , the impact of a five percent impairment charge on these intangible assets would result in a reduction in pre-tax income of approximately $ 58.1 million . see note 8 to the consolidated financial statements for additional information regarding goodwill and other intangible assets . income taxes . we are subject to the income tax laws of the u.s. , its states and municipalities . the income tax laws of the jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities . in establishing a provision for income tax expense , we must make judgments and interpretations about the application of these inherently complex tax laws to our business activities , as well as the timing of when certain items may affect taxable income . our interpretations may be subject to review during examination by taxing authorities and disputes may arise over the respective tax positions . we attempt to resolve these disputes during the tax examination and audit process and ultimately through the court systems when applicable . we monitor relevant tax authorities and revise our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities on a quarterly basis . revisions of our estimate of accrued income taxes also may result from our own income tax planning and from the resolution of income tax controversies . such revisions in our estimates may be material to our operating results for any given quarter . the provision for income taxes is composed of current and deferred taxes . deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes . deferred tax assets are recognized if , in management 's judgment , their realizability is determined to be more likely than not . we perform regular reviews to ascertain the realizability of our deferred tax assets . these reviews include management 's estimates and assumptions regarding future taxable income , which also incorporate various tax planning strategies . in connection with these reviews , if we determine that a portion of the deferred tax asset is not realizable , a valuation allowance is established . as of december 31 , 2018 and 2017 , management determined it is more likely than not that valley will realize its net deferred tax assets , except for a valuation allowance of $ 733 thousand established at december 31 , 2018 . however , in the fourth quarter of 2017 we re-measured and reduced our deferred tax assets by $ 15.4 million for the estimated impact of the tax act , which decreased our federal income tax rate from 35 percent to 21 percent effective january 1 , 2018. during 2018 , we recognized a $ 2.3 million tax benefit related to the adjustment of the tax act provisional amounts in our final 2017 tax returns completed in the fourth quarter of 2018. during 2017 , we also reduced our state deferred tax assets by $ 4.5 million to reflect the effect of our organic and acquisition-based expansion primarily in florida on our existing state deferred tax assets . during 2018 and 2017 , the charge to our income tax expense related to the reduction of such deferred tax assets was immaterial . the $ 2.3 million and $ 19.9 million in total adjustments were reflected as credits and charges , respectively , to our income tax expense for 2018 and 2017 , respectively . historically , we maintained a reserve related to certain tax positions that management believes contain an element of uncertainty . an uncertain tax position is measured based on the largest amount of benefit that management believes is more likely than not to be realized . during the fourth quarter of 2018 , income tax expense included a net tax benefit of $ 3.3 million related replace_table_token_40_th to the elimination of our remaining reserve for unrecognized tax benefits caused by the expiration of the statute of limitations for certain tax positions . see notes 1 and 13 to the consolidated financial statements and the “ income taxes ” section in this md & a for an additional discussion on the accounting for income taxes . new authoritative accounting guidance . see note 1 of the consolidated financial statements for a description of recent accounting pronouncements including the dates of adoption and the anticipated effect on our results of operations and financial condition . executive summary company overview . at december 31 , 2018 , valley had consolidated total assets of $ 31.9 billion , total net loans of $ 24.9 billion , total deposits of $ 24.5 billion and total shareholders ' equity of $ 3.4 billion . our commercial bank operations after the acquisition of usameribancorp , inc ( see below ) include branch office locations in northern and central new jersey , the new york city boroughs of manhattan , brooklyn and queens , long island , florida and alabama . of our current 220 branch network , 56 percent , 17 percent , 20 percent and 7 percent of the branches story_separator_special_tag the loss establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses is not permitted . fair value may be determined using market prices , comparison to similar assets , market multiples , discounted cash flow analysis and other determinants . estimated cash flows may extend far into the future and , by their nature , are difficult to determine over an extended timeframe . factors that may materially affect the estimates include , among others , competitive forces , customer behaviors and attrition , changes in revenue growth trends , cost structures and technology , and changes in discount rates , terminal values , and specific industry or market sector conditions . to assist in assessing the impact of potential goodwill or other intangible assets impairment charges at december 31 , 2018 , the impact of a five percent impairment charge on these intangible assets would result in a reduction in pre-tax income of approximately $ 58.1 million . see note 8 to the consolidated financial statements for additional information regarding goodwill and other intangible assets . income taxes . we are subject to the income tax laws of the u.s. , its states and municipalities . the income tax laws of the jurisdictions in which we operate are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities . in establishing a provision for income tax expense , we must make judgments and interpretations about the application of these inherently complex tax laws to our business activities , as well as the timing of when certain items may affect taxable income . our interpretations may be subject to review during examination by taxing authorities and disputes may arise over the respective tax positions . we attempt to resolve these disputes during the tax examination and audit process and ultimately through the court systems when applicable . we monitor relevant tax authorities and revise our estimate of accrued income taxes due to changes in income tax laws and their interpretation by the courts and regulatory authorities on a quarterly basis . revisions of our estimate of accrued income taxes also may result from our own income tax planning and from the resolution of income tax controversies . such revisions in our estimates may be material to our operating results for any given quarter . the provision for income taxes is composed of current and deferred taxes . deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes . deferred tax assets are recognized if , in management 's judgment , their realizability is determined to be more likely than not . we perform regular reviews to ascertain the realizability of our deferred tax assets . these reviews include management 's estimates and assumptions regarding future taxable income , which also incorporate various tax planning strategies . in connection with these reviews , if we determine that a portion of the deferred tax asset is not realizable , a valuation allowance is established . as of december 31 , 2018 and 2017 , management determined it is more likely than not that valley will realize its net deferred tax assets , except for a valuation allowance of $ 733 thousand established at december 31 , 2018 . however , in the fourth quarter of 2017 we re-measured and reduced our deferred tax assets by $ 15.4 million for the estimated impact of the tax act , which decreased our federal income tax rate from 35 percent to 21 percent effective january 1 , 2018. during 2018 , we recognized a $ 2.3 million tax benefit related to the adjustment of the tax act provisional amounts in our final 2017 tax returns completed in the fourth quarter of 2018. during 2017 , we also reduced our state deferred tax assets by $ 4.5 million to reflect the effect of our organic and acquisition-based expansion primarily in florida on our existing state deferred tax assets . during 2018 and 2017 , the charge to our income tax expense related to the reduction of such deferred tax assets was immaterial . the $ 2.3 million and $ 19.9 million in total adjustments were reflected as credits and charges , respectively , to our income tax expense for 2018 and 2017 , respectively . historically , we maintained a reserve related to certain tax positions that management believes contain an element of uncertainty . an uncertain tax position is measured based on the largest amount of benefit that management believes is more likely than not to be realized . during the fourth quarter of 2018 , income tax expense included a net tax benefit of $ 3.3 million related replace_table_token_40_th to the elimination of our remaining reserve for unrecognized tax benefits caused by the expiration of the statute of limitations for certain tax positions . see notes 1 and 13 to the consolidated financial statements and the “ income taxes ” section in this md & a for an additional discussion on the accounting for income taxes . new authoritative accounting guidance . see note 1 of the consolidated financial statements for a description of recent accounting pronouncements including the dates of adoption and the anticipated effect on our results of operations and financial condition . executive summary company overview . at december 31 , 2018 , valley had consolidated total assets of $ 31.9 billion , total net loans of $ 24.9 billion , total deposits of $ 24.5 billion and total shareholders ' equity of $ 3.4 billion . our commercial bank operations after the acquisition of usameribancorp , inc ( see below ) include branch office locations in northern and central new jersey , the new york city boroughs of manhattan , brooklyn and queens , long island , florida and alabama . of our current 220 branch network , 56 percent , 17 percent , 20 percent and 7 percent of the branches
| total loans increased by $ 6.7 billion to $ 25.0 billion at december 31 , 2018 from december 31 , 2017 , net of residential mortgage loans sold during 2018. adjusted for $ 3.7 billion of loans acquired from usab on january 1 , 2018 , total loans grew by 13.4 percent in 2018 due to strong demand in most loan categories . for 2019 , we have established a goal to grow our overall loan portfolio in the range of 6 to 8 percent . however , there can be no assurance that we will achieve such levels given the potential for unforeseen changes in the market and other conditions . see further details on our loan activities under the “ loan portfolio ” section below . asset quality . our past due loans and non-accrual loans , discussed further below , exclude pci loans . under u.s. gaap , the pci loans ( acquired at a discount that is due , in part , to credit quality ) are accounted for on a pool basis and are not subject to delinquency classification in the same manner as loans originated by valley . at december 31 , 2018 , our pci loan portfolio totaled $ 4.2 billion , or 16.7 percent of our total loan portfolio , and includes all of the loans acquired from usab on january 1 , 2018. total non-pci loan portfolio delinquencies ( including loans past due 30 days or more and non-accrual loans ) as a percentage of total loans were 0.62 percent and 0.70 percent at december 31 , 2018 and 2017 , respectively . total accruing past due loans decreased to $ 67.7 million at december 31 , 2018 from $ 80.5 million at december 31 , 2017 mostly due to normal period-end fluctuations in early stage delinquencies and a few large matured performing commercial real estate and construction loans in the normal process of renewal reported at december 31 , 2017 . non-accrual loans totaled $ 88.4 million , or 0.35 percent of our
| 13,805 |
sales in other foreign countries , primarily in europe , increased 21 percent for 2010 compared to 2009. favorable currency rates accounted for two percent of the increase for the 2010 year compared to 2009. the remainder of the increase was primarily driven by higher volume largely related to market share gains . cost of sales : replace_table_token_9_th for 2011 , cost of sales increased 31 percent to $ 1,916.4 million compared to $ 1,460.9 million in 2010. the increase in cost of sales in 2011 resulted primarily from the effect of a 24 percent sales volume increase and a richer mix of products on purchased materials and services , and labor and benefits offset somewhat by continued product cost reduction efforts in 2011. for 2010 , cost of sales increased 25 percent to $ 1,460.9 million compared to $ 1,172.7 million in 2009. the increase in cost of sales in 2010 resulted primarily from the effect of a 21 percent sales volume increase and a richer mix of products on purchased materials and services , and labor and benefits offset somewhat by continued product cost reduction efforts in 2010 . 33 gross profit : the following table reflects our gross profit in dollars and as a percentage of sales for the 2011 , 2010 and 2009 year end periods : replace_table_token_10_th for 2011 , gross profit dollars increased 40 percent to $ 740.6 million compared to 2010. gross profit , as a percentage of sales , increased 130 basis points to 27.9 percent compared to 26.6 percent for 2010. the increase in gross profit dollars and the 130 basis points increase in the gross profit margin percentage in 2011 resulted primarily from continued product cost reduction efforts , production efficiencies on increased volumes , and higher selling prices , partially offset by increasing commodity costs and unfavorable product mix . for 2010 , gross profit dollars increased 35 percent to $ 530.2 million compared to 2009. gross profit , as a percentage of sales , improved 150 basis points to 26.6 percent compared to 25.1 percent for 2009. the increase in gross profit dollars and the 150 basis points increase in the gross profit margin percentage in 2010 resulted primarily from higher volume , continued product cost reduction efforts , higher selling prices and beneficial currency movements . these increases were partially offset by manufacturing realignment costs as well as higher sales promotion costs . operating expenses : the following table reflects our operating expenses in dollars and as a percentage of sales for the 2011 , 2010 and 2009 periods : replace_table_token_11_th operating expenses for 2011 increased 27 percent to $ 414.7 million compared to $ 326.3 million for 2010. operating expenses as a percentage of sales decreased 80 basis points to 15.6 percent compared to 16.4 percent in 2010. operating expenses in absolute dollars for 2011 increased primarily due to an increase in performance-based incentive compensation plan expenses over 2010 driven by the higher profitability for 2011 and the higher stock price , which reflects our pay for performance compensation philosophy . in addition , incremental investments made in global market expansion and new product development initiatives and acquisitions made in 2011 contributed to the increase in operating expenses in 2011. operating expenses as a percentage of sales decreased in 2011 compared to 2010 due to leverage achieved from the increased sales volume during the year . operating expenses for 2010 increased 33 percent to $ 326.3 million compared to $ 245.3 million for 2009. operating expenses as a percentage of sales increased 70 basis points to 16.4 percent compared to 15.7 percent in 2009. operating expenses in absolute dollars and as a percentage of sales for 2010 increased primarily due to an increase in performance-based incentive compensation plan expenses over 2009 driven by the higher profitability for 2010 and the higher stock price , which reflects our pay for performance compensation philosophy and incremental investments made in global market expansion and new product development initiatives . 34 income from financial services : the following table reflects our income from financial services for the 2011 , 2010 and 2009 periods : replace_table_token_12_th income from financial services increased 43 percent to $ 24.1 million in 2011 compared to $ 16.9 million in 2010. the increase was primarily due to increased profitability generated from the recently extended retail credit arrangements with ge , hsbc and sheffield and a 30 percent increase in the retail credit volume . income from financial services decreased one percent to $ 16.9 million in 2010 compared to $ 17.1 million in 2009. this decrease was due to lower wholesale financing income resulting from lower dealer inventories , which was somewhat offset by higher retail credit income . interest expense : interest expense increased to $ 4.0 million in 2011 compared to $ 2.7 million in 2010. this increase is due to higher interest rates on the long-term senior notes issued in may 2011. interest expense decreased to $ 2.7 million in 2010 compared to $ 4.1 million in 2009. this decrease was due to lower interest rates on our bank borrowings during the 2010 period and lower average borrowings outstanding in 2010 compared to 2009 . ( gain ) loss on securities available for sale : the net gain of $ 0.8 million in 2010 on securities available for sale resulted from a $ 1.6 million gain on the sale of our remaining investment in ktm during the 2010 third quarter offset by a related non-cash impairment charge of $ 0.8 million during the 2010 second quarter . in the first quarter 2009 , we recorded a non-cash impairment charge on securities held for sale of $ 9.0 million from the decline in the fair value of the ktm shares owned by us as of march 31 , 2009 , when it was determined that the decline in the fair value of the ktm shares owned by us was other than temporary . story_separator_special_tag other expense ( income ) , net : non-operating other expense ( income ) was $ 0.7 million of income , $ 0.3 million of expense , and $ 0.7 million of expense for 2011 , 2010 and 2009 , respectively . the changes primarily relate to fluctuations of the u.s. dollar and the resulting effects on currency hedging activities and foreign currency transactions and balance sheet positions . provision for income taxes : the income tax provision rate was similar for 2011 , 2010 and 2009 and reflected an effective rate of 34.3 , 32.7 , and 33.2 percent of pretax income , respectively . 35 reported net income : the following table reflects our reported net income for the 2011 , 2010 and 2009 periods : replace_table_token_13_th weighted average shares outstanding : the weighted average diluted shares outstanding for 2011 , 2010 and 2009 were 71.1 million , 68.8 million and 66.1 million shares , respectively . the increase in weighted average diluted shares outstanding for 2011 compared to 2010 is due to the issuance of shares under employee compensation plans , and the higher dilutive effect of stock options outstanding due to a higher stock price in 2011. the increase in the average diluted shares outstanding for 2010 compared to 2009 is due to no open market share repurchases under our stock repurchase program , the issuance of shares under employee compensation plans , and the higher dilutive effect of stock options outstanding due to a higher stock price in 2010. critical accounting policies the significant accounting policies that management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following : revenue recognition , sales promotions and incentives , dealer holdback programs , share-based employee compensation , product warranties and product liability . revenue recognition : revenues are recognized at the time of shipment to the dealer , distributor or other customers . historically , product returns , whether in the normal course of business or resulting from repurchases made under the floorplan financing program , have not been material . however , we have agreed to repurchase products repossessed by the finance companies up to certain limits . our financial exposure is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product . no material losses have been incurred under these agreements . we have not historically recorded any significant sales return allowances because it has not been required to repurchase a significant number of units . however , an adverse change in retail sales could cause this situation to change . polaris sponsors certain sales incentive programs and accrues liabilities for estimated sales promotion expenses and estimated holdback amounts that are recognized as reductions to sales when products are sold to the dealer or distributor customer . sales promotions and incentives : we provide for estimated sales promotion and incentive expenses , which are recognized as a reduction to sales , at the time of sale to the dealer or distributor . examples of sales promotion and incentive programs include dealer and consumer rebates , volume incentives , retail financing programs and sales associate incentives . sales promotion and incentive expenses are estimated based on current programs and historical rates for each product line . we record these amounts as a liability in the consolidated balance sheet until they are ultimately paid . at december 31 , 2011 and 2010 , accrued sales promotions and incentives were $ 81.2 million and $ 75.5 million , respectively , resulting primarily from an increase in the volume of units sold . actual results may differ from these estimates if market conditions dictate the need to enhance or reduce sales promotion and incentive programs or if the customer usage rate varies from historical trends . adjustments to sales promotions and incentives accruals are made from time to time as actual usage becomes known in order to properly estimate the amounts necessary to generate consumer demand based on market conditions as of the balance sheet date . historically , actual sales promotion and incentive expenses have been within our expectations and differences have not been material . 36 dealer holdback programs : dealer holdback represents a portion of the invoiced sales price that is expected to be subsequently returned to the dealer or distributor as a sales incentive upon the ultimate retail sale of the product . holdback amounts reduce the ultimate net price of the products purchased by our dealers or distributors and , therefore , reduce the amount of sales we recognize at the time of shipment . the portion of the invoiced sales price estimated as the holdback is recognized as dealer holdback liability on our balance sheet until paid or forfeited . the minimal holdback adjustments in the estimated holdback liability due to forfeitures are recognized in net sales . payments are made to dealers or distributors at various times during the year subject to previously established criteria . polaris recorded accrued liabilities of $ 76.5 million and $ 79.7 million for dealer holdback programs in the consolidated balance sheets as of december 31 , 2011 and 2010 , respectively . share-based employee compensation : we recognize in the financial statements the grant-date fair value of stock options and other equity-based compensation issued to employees . determining the appropriate fair-value model and calculating the fair value of share-based awards at the date of grant requires judgment . the company utilizes the black-scholes option pricing model to estimate the fair value of employee stock options . option pricing models , including the black-scholes model , also require the use of input assumptions , including expected volatility , expected life , expected dividend rate , and expected risk-free rate of return . the company utilizes historical volatility as it believes this is reflective of market conditions . the expected life of the awards is based on historical exercise patterns .
| north american dealer inventories of atvs continued to decline , decreasing eight percent from 2010. side-by-side north american dealer inventories for 2011 were up mid-teens percent to accommodate the continued strong retail demand . orv sales outside of north america increased 37 percent in 2011 compared to a year ago . given the growth in our orv business worldwide , we have widened our market share leadership in off-road vehicles in 2011 compared to 2010. orv sales of $ 1,376.4 million in 2010 , which includes both core atv and ranger side-by-side vehicles , increased 35 percent from 2009. this increase reflects continued market share gains for both atvs and 31 side-by-side vehicles driven by industry leading product offerings . north american dealer inventories of atvs continued to decline , decreasing 33 percent from 2009. our north american orv unit retail sales to consumers increased approximately 15 percent for 2010 compared to the 2009 with side-by-side vehicle retail sales increasing in the mid 30 percent range year over year and atv retail sales about flat with the prior year . given the growth in our orv business worldwide , we widened our market share leadership in off-road vehicles in both north america and europe in 2010 compared to 2009. snowmobile sales increased 48 percent to $ 280.1 million for 2011 compared to 2010. this increase is primarily due to significantly reduced snowmobile dealer inventory levels entering the 2011 2012 selling season compared to the prior year and the success of model year 2012 new product introductions resulting in increased orders from dealers . sales of snowmobiles to customers outside of north america , principally the scandinavian region and russia , also experienced sales growth in 2011 compared to a year ago . snowmobile sales increased five percent to $ 188.9 million for 2010 compared to 2009. this increase was primarily due to an increase in retail sales resulting from heavy amounts of
| 13,806 |
under the deferral method , drydocking costs incurred are deferred and charged to expense on a straight-line basis over the period to the next scheduled drydock , which we estimate to be a period of thirty to sixty months based on the vessel 's age as required by class . deferred drydock costs consist of the costs to drydock the vessel and other costs incurred in connection with the drydock which are necessary to maintain the vessel 's class certification . class certification is necessary in order for our cruise ships to be flagged in a specific country , obtain liability insurance and legally operate as passenger cruise ships . the activities associated with those drydocking costs can not be performed while the vessel is in service and , as such , are done during a drydock as a planned major maintenance activity . the significant deferred drydock costs consist of hauling and wharfage services provided by the drydock facility , hull inspection and related activities ( e.g. , scraping , pressure cleaning , bottom painting ) , maintenance to steering propulsion , thruster equipment and ballast tanks , port services such as tugs , pilotage and line handling , and freight associated with these items . we perform a detailed analysis of the various activities performed for each drydock and only defer those costs that are directly related to planned major maintenance activities necessary to maintain class . the costs deferred are related to activities not otherwise routinely periodically performed to maintain a vessel 's designed and intended operating capability . repairs and maintenance activities are charged to expense as incurred . we use judgment when estimating the period between drydocks , which can result in adjustments to the estimated amortization of drydock costs . if the vessel is disposed of before the next drydock , the remaining balance in deferred drydock is written-off to the gain or loss upon disposal of vessel in the period in which the sale takes place . we also use judgment when identifying costs incurred during a drydock which are necessary to maintain the vessel 's class certification as compared to those costs attributable to repairs and maintenance which are expensed as incurred . we believe we have made reasonable estimates for ship accounting purposes . however , should certain factors or circumstances cause us to revise our estimates of ship useful lives or projected residual values , depreciation expense could be materially higher or lower . if circumstances cause us to change our assumptions in making determinations as to whether ship improvements should be capitalized , the amounts we expense each year as repairs and maintenance costs could increase , partially offset by a decrease in depreciation expense . if we had reduced our estimated average ship useful life by one year , depreciation expense for 2018 would have increased by approximately $ 63.8 million . if our ships were estimated to have no residual value , depreciation expense for 2018 would have increased by approximately $ 243.0 million . business combinations on july 31 , 2018 , we acquired a 66.7 % equity stake in silversea cruises for $ 1.02 billion in cash and contingent consideration . refer to note 3 . business combination to our consolidated financial statements under item 8. financial statements and supplementary data for further information on the acquisition we account for business combinations in accordance with asc 805 , business combinations , by applying the acquisition method of accounting . the acquisition method of accounting requires that we record the assets acquired and liabilities assumed , and the noncontrolling interest , if any , at their respective fair values at the acquisition date . goodwill is recognized as the excess of the purchase price over the fair value of the net assets acquired . significant 39 estimates and assumptions are made by management to value such assets and liabilities based on third party valuations such as appraisals or internal valuations based on discounted cash flow analyses or other valuation techniques . although we believe that those estimates and assumptions are reasonable and appropriate , they are inherently uncertain and subject to change . if during the measurement period ( not to exceed one year ) , additional information is obtained about facts and circumstances that existed as of the acquisition date related to the fair value of the assets acquired and liabilities assumed , we may adjust our estimates to account for subsequent adjustments to the provisional amounts recognized at the acquisition date , resulting in an offsetting adjustment to the goodwill associated with the business acquired . uncertain tax positions and tax-related valuation allowances are initially established in connection with a business combination as of the acquisition date . we continue to collect information and reevaluate these estimates and assumptions quarterly . we will record any adjustments to our preliminary estimates to goodwill , provided that we are within the one-year measurement period . any contingent consideration is estimated at fair value at the acquisition date . liability-classified contingent consideration is remeasured each reporting period , with changes in fair value recognized in earnings until the contingent consideration is settled . valuation of goodwill , indefinite-lived intangible assets and long-lived assets we review goodwill and indefinite-lived intangible assets for impairment at the reporting unit level annually or , when events or circumstances dictate , more frequently . the impairment review for goodwill consists of a qualitative assessment of whether it is more-likely-than-not that a reporting unit 's fair value is less than its carrying amount , and if necessary , a two-step goodwill impairment test . factors to consider when performing the qualitative assessment include general economic conditions , limitations on accessing capital , changes in forecasted operating results , changes in fuel prices and fluctuations in foreign exchange rates . if the qualitative assessment demonstrates that it is more-likely-than-not that the estimated fair value of the reporting unit exceeds its carrying value , it is not necessary to perform the two-step goodwill impairment test . story_separator_special_tag we may elect to bypass the qualitative assessment and proceed directly to step one , for any reporting unit , in any period . on a periodic basis , we elect to bypass the qualitative assessment and proceed to step one to corroborate the results of recent years ' qualitative assessments . we can resume the qualitative assessment for any reporting unit in any subsequent period . when performing the two-step goodwill impairment test , the fair value of the reporting unit is determined and compared to the carrying value of the net assets allocated to the reporting unit . we estimate the fair value of our reporting units using a probability-weighted discounted cash flow model . the estimation of fair value utilizing discounted expected future cash flows includes numerous uncertainties which require our significant judgment when making assumptions of expected revenues , operating costs , marketing , selling and administrative expenses , interest rates , ship additions and retirements as well as assumptions regarding the cruise vacation industry 's competitive environment and general economic and business conditions , among other factors . the principal assumptions we use in the discounted cash flow model are projected operating results , weighted-average cost of capital , and terminal value . the discounted cash flow model uses the most current projected operating results for the upcoming fiscal year as a base . to that base , we add future years ' cash flows assuming multiple revenue and expense scenarios that reflect the impact of different global economic environments beyond the base year on the reporting unit . we discount the projected cash flows using rates specific to the reporting unit based on its weighted-average cost of capital . if the fair value of the reporting unit exceeds its carrying value , no further analysis or write-down of goodwill is required . if the fair value of the reporting unit is less than the carrying value of its net assets , the implied fair value of the reporting unit is allocated to all its underlying assets and liabilities , including both recognized and unrecognized tangible and intangible assets , based on their fair value . if necessary , goodwill is then written down to its implied fair value . the impairment review for indefinite-life intangible assets consists of a comparison of the fair value of the asset with its carrying amount . we estimate the fair value of these assets using a discounted cash flow model and various valuation methods depending on the nature of the intangible asset , such as the relief-from-royalty method for trademarks and trade names . if the carrying amount exceeds its fair value , an impairment loss is recognized in an amount equal to that excess . if the fair value exceeds its carrying amount , the indefinite-life intangible asset is not considered impaired . as of december 31 , 2018 , the carrying amount of indefinite-life intangible assets was $ 351.7 million , which primarily relates to the silversea cruises trade name acquired in the silversea cruises acquisition . other intangible assets assigned finite useful lives are amortized on a straight-line basis over their estimated useful lives . refer to note 6 , intangible 40 assets to our consolidated financial statements under item 8. financial statements and supplemental data for further information on indefinite-life intangible assets . we review our ships and other long-lived assets for impairment whenever events or changes in circumstances indicate , based on estimated undiscounted future cash flows , that the carrying amount of these assets may not be fully recoverable . we evaluate asset impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities . the lowest level for which we maintain identifiable cash flows that are independent of the cash flows of other assets and liabilities is at the ship level for our ships and , prior to the sale of the aircraft , at the aggregated asset group level for our aircraft . if estimated future cash flows are less than the carrying value of an asset , an impairment charge is recognized to the extent its carrying value exceeds fair value . we estimate fair value based on quoted market prices in active markets , if available . if active markets are not available , we base fair value on independent appraisals , sales price negotiations and projected future cash flows discounted at a rate estimated by management to be commensurate with the business risk . quoted market prices are often not available for individual reporting units and for indefinite-life intangible assets . accordingly , we estimate the fair value of a reporting unit and an indefinite-life intangible asset using an expected present value technique . royal caribbean international during the fourth quarter of 2018 , we performed a qualitative assessment of the royal caribbean international reporting unit . based on our qualitative assessment , we concluded that it was more-likely-than-not that the estimated fair value of the royal caribbean international reporting unit exceeded its carrying value and thus , we did not proceed to the two-step goodwill impairment test . no indicators of impairment exist primarily because the reporting unit 's fair value has consistently exceeded its carrying value by a significant margin and forecasts of operating results expected to be generated by the reporting unit appear sufficient to support its carrying value . as of december 31 , 2018 , the carrying amount of goodwill attributable to our royal caribbean reporting unit was $ 286.7 million . silversea cruises the goodwill for the silversea cruises reporting unit was recorded at fair value at july 31 , 2018 , the acquisition date . refer to note 3 . business combination to our consolidated financial statements under item 8. financial statements and supplemental data for further information on the silversea cruises acquisition . during the fourth quarter of 2018 , we performed a qualitative assessment of the silversea cruises reporting unit .
| the effect of changes in foreign currency exchange rates related to our cruise operating expenses , denominated in currencies other than the united states dollar , resulted in an increase in total operating expenses of $ 8.1 million for the year ended december 31 , 2018 compared to the same period in 2017 . on july 31 , 2018 , we acquired a 66.7 % equity stake in silversea cruises for $ 1.02 billion in cash and contingent consideration payable upon achievement of certain 2019-2020 performance metrics by silversea cruises . due to the three-month reporting lag , our consolidated results of operations for the year ended december 31 , 2018 only include results for august and september 2018 for silversea cruises . refer to note 1 . general and note 3 . business combination to our consolidated financial statements under item 8. financial statements and supplementary data for further information on the three-month reporting lag and the silversea cruises acquisition . other items for 2018 include : in march 2018 , we took delivery of symphony of the seas . to finance the purchase , we borrowed $ 1.2 billion under a previously committed unsecured term loan . refer to note 9 . debt to our consolidated financial statements under item 8. financial statements and supplementary data for further information . the ship entered service at the end of the first quarter of 2018. in march 2018 , we completed the purchase of azamara pursuit , which entered service during the third quarter of 2018. in april 2018 , tui cruises , our 50 % joint venture , took delivery of a new mein schiff 1 and also sold the original mein schiff 1 to an affiliate of tui ag . due to the sale of the original mein schiff 1 , we recognized a gain of $ 21.8 million for the year ended december 31 , 2018 related to our deferred gain from the 2009 sale of this ship to tui cruises . refer to note 8 . other assets to our consolidated financial statements under item 8. financial statements and supplementary data for further information . in october 2018 , we took delivery of celebrity edge . to finance
| 13,807 |
the timing of any recovery of crude oil prices is dependent on many variables , including the expected impact on supply of the relief of international sanctions on iran 's oil sector . the market corrections necessary to address the oversupply of crude oil are expected to occur over the next couple of years . although oil companies have reduced their near-term capital investments , most of their capital spending reductions have been in capital exploration budgets that largely affect production levels beyond 2018. however , we believe as long-term demand rises and production naturally declines , commodity prices will recover and our customers will begin to increase their investments in new sources of oil production . subsea technologies— in reaction to the decline in crude oil prices , many of our customers reduced their capital spending plans in 2015 or deferred new deepwater projects . these actions had an adverse effect on our 2015 subsea inbound orders when compared to the prior year . during 2015 , we reduced our workforce to maintain operating margin improvements and to align our operations with anticipated decreases in future year activity due to delayed subsea project inbound . given the lower industry expectations for 2016 , we have strategically aligned our focus on certain objectives to ensure our continued success during these difficult times in our industry . these objectives include ( i ) the continuing improvement of our execution , ( ii ) the strengthening of our relationships with our customers , ( iii ) the timely identification of further restructuring efforts to effectively reduce costs , ( iv ) the employment of critical supply chain management to reduce product costs , ( v ) the capitalization of our subsea service offerings as a continued growth platform , and ( vi ) the integration of our overall product and service offerings to increase the value stream to our customers . we remain focused on ways to reduce customer costs by offering cost-effective approaches to our customers ' project developments , including customer acceptance of new technologies and alternative business models to help achieve their cost-reduction goals and accelerate achievement of first oil . many customers , including our alliance customers , are actively exploring ways to utilize our standardized subsea production equipment as operators understand the cost and scheduling benefits that standardization brings to their projects . additionally , forsys subsea , our joint venture with technip , was designed to bring the proprietary technologies of fmc technologies and technip together to offer front-end engineering and design services aimed to identify opportunities through new technologies , services , and standardization of equipment to significantly reduce the cost of subsea field development . forsys subsea received two integrated feed studies during 2015 , and we expect expanded interest and market acceptance in 2016. in the long-term , we continue to believe deepwater development will remain a significant part of our customers ' portfolio . a critical part of our long-term strategy to maintain our subsea market leadership is to continue to invest in the technologies required to develop our customers ' fields and further expand our capabilities focused on increasing reservoir production over the life of the field . we believe the long-term commitment to deepwater was further exemplified during 2015 with chevron joining our high-pressure , high-temperature joint industry program which is aimed to solve the technical and economic deepwater challenges operators currently face . surface technologies— with the decline in crude oil prices , we expected a decline in rig counts and decreased north american land activity in 2015 to negatively affect all of our surface technologies businesses in north america . however , customer spending reductions , coupled with increased pricing pressure , had a greater impact in our surface technologies businesses than in past downturns . this market environment led us to take significant actions to reduce headcount in our north american businesses in 2015. during 2015 , we largely completed the reorganization within our surface technologies segment . this reorganization was directly aligned with our integration efforts over the last year to bring our north american surface wellhead and completion services businesses together to create our surface integrated services businesses to strengthen our market presence and bring increased value to our customers by providing an integrated offering . although we do not expect the north american market to recover in 2016 , we expect our actions to improve our position in the north american market and reduce costs in 2016. our international surface wellhead business delivered solid operational results in 2015 due to its strong backlog , however , pricing pressure also extended to the international markets in the latter half of 2015. this pricing pressure had a slight negative effect on our 2015 international surface wellhead inbound ; however we believe international activity levels to remain resilient in 2016. given the uncertainties regarding crude oil prices and its effect on customer spending , we believe the need for further business restructuring is likely in 2016 . 25 story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; font-size:10pt ; '' > other income ( expense ) , net , reflected a $ 33.4 million loss related to the remeasurement of an intercompany foreign currency transaction and other foreign currency losses primarily due to the strengthening of the u.s. dollar in 2014. further discussion of our derivative instruments is incorporated herein by reference from note 17 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. our provision for income taxes reflected an effective tax rate of 34.0 % and 29.8 % in 2014 and 2013 , respectively . excluding a retroactive benefit related to the american taxpayer relief act of 2012 recorded in the first quarter of 2013 , our effective tax rate was 30.7 % in 2013. the increase in our effective tax rate in 2014 from the adjusted rate in 2013 was primarily due to changes in norwegian tax law effective from 2014 and an unfavorable change in mix of earnings . story_separator_special_tag our effective tax rate can fluctuate depending on our country mix of earnings , since our foreign earnings are generally subject to lower tax rates than in the united states . in certain jurisdictions , primarily singapore and malaysia , our tax rate is significantly less than the relevant statutory rate due to tax holidays which are set to expire after 2018 and 2015 , respectively . the difference between the effective tax rate and the statutory u.s. federal income tax rate primarily related to differing foreign and state tax rates . 27 operating results of business segments years ended december 31 , 2015 , 2014 , and 2013 segment operating profit is defined as total segment revenue less segment operating expenses . the following items have been excluded in computing segment operating profit : corporate staff expense , net interest income ( expense ) associated with corporate debt facilities , income taxes , and other revenue and other expense , net . information about amounts included in corporate items and a reconciliation of segment operating results to consolidated income before income taxes , is incorporated herein by reference from note 20 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. we report our results of operations in u.s. dollars ; however , our earnings are generated in various currencies worldwide . for example , we generate a significant amount of revenue , and incur a significant amount of costs , in norwegian krone , brazilian real , singapore dollar , malaysian ringgit , british pound , angolan new kwanza and the euro . in order to provide worldwide consolidated results , the earnings of subsidiaries functioning in their local currencies are translated into u.s. dollars based upon the average exchange rate during the period . while the u.s. dollar results reported reflect the actual economics of the period reported upon , the variances from prior periods include the impact of translating earnings at different rates . subsea technologies replace_table_token_7_th 2015 compared with 2014 subsea technologies ' revenue decreased $ 757.4 million in 2015 compared to the prior year . revenue for 2015 included a $ 540.6 million unfavorable impact of foreign currency translation , primarily as a result of the brazilian real and norwegian krone . excluding the impact of foreign currency translation , subsea technologies ' revenue decreased by $ 216.8 million during 2015 compared to the prior year . we entered 2015 with a strong backlog ; however , during the latter part of 2014 and throughout 2015 , crude oil prices experienced a precipitous decline . the decline in crude oil price had an unfavorable effect on the subsea market which led to decreased order activity for subsea systems and services . additionally , the decrease in revenue was attributable to lower sales volumes in our schilling robotics and multi phase meters businesses as a result of lower market activity . subsea technologies ' operating profit totaled $ 630.2 million , or 14.0 % of revenue , in 2015 , compared to the prior-year 's operating profit as a percentage of revenue of 14.2 % . the margin decline was primarily driven by the following : subsea systems - 0.5 percentage point increase due to higher margin project backlog conversion in our western region and asia pacific subsea business , partially offset by restructuring and severance charges in 2015 ; and schilling robotics and multi phase meters - 0.8 percentage point decrease due to the decline in crude oil price and its related effect on market activity in 2015. subsea technologies ' operating profit in 2015 included a $ 77.5 million unfavorable impact of foreign currency translation and $ 49.7 million in impairment , restructuring and other severance charges . 28 2014 compared with 2013 subsea technologies ' revenue increased $ 539.5 million in 2014 compared to the prior year . revenue for 2014 included a $ 178.5 million unfavorable impact of foreign currency translation . excluding the impact of foreign currency translation , subsea technologies ' revenue increased by $ 718.0 million during 2014 compared to the prior year . we entered 2014 with a strong backlog . during the first half of 2014 , high crude oil prices led to solid oil and gas exploration and production activity when compared to the prior year ; however , a decline in oil prices that began in mid-2014 and which significantly further declined in the fourth quarter of 2014 unfavorably affected the subsea market . despite the late 2014 decline in crude oil prices , we had solid order activity during 2014 from high demand for subsea systems and services . the year-over-year increase in revenue was attributable to the conversion of backlog and solid order activity in 2014. subsea technologies ' operating profit totaled $ 748.2 million , or 14.2 % of revenue , in 2014 , compared to the prior-year 's operating profit as a percentage of revenue of 11.6 % . the margin improvement was primarily driven by our western region subsea business from higher margin project backlog conversion and higher volumes in subsea services , particularly in the gulf of mexico , partially offset by additional contract value in 2013 related to an angolan withholding tax adjustment . subsea technologies ' operating profit in 2014 included a $ 24.9 million unfavorable impact of foreign currency translation . surface technologies replace_table_token_8_th 2015 compared with 2014 surface technologies ' revenue decreased $ 643.1 million in 2015 compared to the prior year . the decrease in revenue was primarily driven by lower market activity in north america which decreased demand for our well service pumps and flowline products in our fluid control business and conventional wellheads in our surface integrated services business . foreign currency translation unfavorably impacted revenue by $ 74.3 million in 2015. surface technologies ' operating profit totaled $ 60.6 million , or 4.1 % of revenue , in 2015 , compared to the prior-year 's operating profit as a percentage of revenue of 18.4 % .
| additionally , the market downturn in north america led us to take excess and obsolescence inventory charges in our surface integrated services , fluid control and measurement solutions businesses in 2015. the decrease in gross profit as a percentage of sales was partially offset by higher margin project backlog conversion in our western region and asia pacific subsea business . selling , general and administrative ( “ sg & a ” ) expense decreased by $ 122.3 million year-over-year , driven by foreign currency translation , decreased sales commissions , and costs associated with terminating a representative agreement in our international surface wellhead business in the prior year . information regarding impairment and restructuring expenses recognized during 2015 is incorporated herein by reference from note 4 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. 26 during 2014 we recognized a net $ 84.3 million gain on the sale of our material handling products business . further information of the sale is incorporated herein by reference from note 5 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. other income ( expense ) , net , reflected foreign currency losses in 2015 primarily related to the devaluation of the angolan kwanza . in 2014 , other income ( expense ) , net reflected foreign currency losses primarily related to a $ 33.4 million loss related to the remeasurement of an intercompany foreign currency transaction and other foreign currency losses primarily due to the strengthening of the u.s. dollar . further discussion of our derivative instruments is incorporated herein by reference from note 17 to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. our provision for income taxes reflected an effective tax rate of 21.5 % and 34.0 % in 2015 and 2014 , respectively . the decrease in our effective tax rate in 2015 from 2014 was primarily due to a favorable change in mix of earnings , partially offset by an increase in the valuation allowance for certain intercompany interest costs and a settlement of an irs audit . our effective tax rate can fluctuate
| 13,808 |
under certain circumstances , we make follow-on investments in some of our portfolio companies . as of december 31 , 2018 , we had no outstanding commitments to our portfolio company investments . financing activities . from time to time , we use leverage to finance a portion of our investments . we then repay such debt from the sale of portfolio securities . under the 1940 act , we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities , subject to certain restrictions including an overall limitation on the amount of outstanding debt , or leverage , relative to equity of 1:1. because of the nature and size of our portfolio investments , we periodically borrow funds to make qualifying investments in order to maintain our qualification as a ric . during 2018 and 2017 , we borrowed such funds by accessing a margin account with a securities brokerage firm . we invest the proceeds of these margin loans in high-quality securities such as u.s. treasury securities until they are repaid . we refer to these high-quality investments as “ restricted assets ” because they are not generally available for investment in portfolio companies under the terms of borrowing . if , in the future , we can not borrow funds to make such qualifying investments at the end of any future quarter , we may not qualify as a ric and would become subject to corporate-level income tax on our net investment income and realized capital gains , if any . in addition , our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits . see “ federal income tax considerations . ” distributions . so long as we remain a bdc , we will continue to pay out net investment income and or realized capital gains , if any , on an annual basis as required under the 1940 act . 23 possible share repurchase . as a closed-end bdc , our shares of common stock are not redeemable at the option of stockholders , and our shares currently trade at a discount to their net asset value . our board has determined that it would be in the best interests of our stockholders to reduce or eliminate this market value discount . accordingly , we have been authorized to , and may from time to time , repurchase shares of our outstanding common stock ( including by means of tender offers or privately negotiated transactions ) in an effort to reduce or eliminate this market discount or to increase the net asset value of our shares . we are not required to undertake , and we have not previously undertaken , any such share repurchases , nor do we further anticipate taking any such action in 2019 . 2016 equity incentive plan on june 13 , 2016 , our shareholders approved the adoption of our 2016 equity incentive plan ( “ incentive plan ” ) . on january 10 , 2017 , the sec issued an order approving the incentive plan and certain awards intended to be made thereunder . the incentive plan is intended to promote the interests of the fund by encouraging officers , employees , and directors of the fund and its affiliates to acquire or increase their equity interest in the fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the fund , to encourage them to remain with and devote their best efforts to the business of the fund , thereby advancing the interests of the fund and its stockholders . the incentive plan is also intended to enhance the ability of the fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the fund . the incentive plan permits the award of restricted stock as well as common stock purchase options . the maximum number of shares of common stock that are subject to awards granted under the incentive plan is 2,434,728 shares . the term of the incentive plan will expire on june 13 , 2026. on march 17 , 2017 , we granted awards of restricted stock under the plan to certain of our directors and executive officers in the aggregate amount of 844,500 shares . the awards are each subject to a vesting requirement over a 3-year period unless the recipient thereof is terminated or removed from their position as a director or executive officer without “ cause ” , or as a result of constructive termination , as such terms are defined in the respective award agreements entered into by each of the recipients and the fund . we account for share-based compensation using the fair value method , as prescribed by asc 718 , compensation—stock compensation . accordingly , for restricted stock awards , we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service period , which is generally the vesting term . in connection with these awards , we recorded compensation expense of $ 0.4 million and $ 1.1 million respectively , for the years ended december 31 , 2018 and december 31 , 2017. critical accounting policies and estimates we follow the accounting and reporting guidance in fasb accounting standards codification topic 946 “ financial services – investment companies . ” our financial statements are based on the selection and application of significant accounting policies , which require management to make significant estimates and assumptions . we believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations . valuation of investments for most of our investments , market quotations are not available . story_separator_special_tag with respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value , our board has approved a multi-step valuation process each quarter , as described below : 1. each portfolio company or investment is reviewed by our investment professionals ; 2. with respect to investments with a fair value exceeding $ 2.5 million that have been held for more than one year , we engage independent valuation firms to assist our investment professionals . these independent valuation firms conduct independent valuations and make their own independent assessments ; 3. our management produces a report that summarized each of our portfolio investments and recommends a fair value of each such investment as of the date of the report ; 4. the audit committee of our board reviews and discusses the preliminary valuation of our portfolio investments as recommended by management in their report and any reports or recommendations of the independent valuation firms , and then approves and recommends the fair values of our investments so determined to our board for final approval ; and 5. the board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our management , the respective independent valuation firm , as applicable , and the audit committee . 24 during the first twelve months after an investment is made , we rely on the original investment amount to determine the fair value unless significant developments have occurred during this twelve month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . investments are valued utilizing a yield analysis , enterprise value ( “ ev ” ) analysis , net asset value analysis , liquidation analysis , discounted cash flow analysis , or a combination of methods , as appropriate . the yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities . under the ev analysis , the ev of a portfolio company is first determined and allocated over the portfolio company 's securities in order of their preference relative to one another ( i.e. , “ waterfall ” allocation ) . to determine the ev , we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies , transaction metrics from precedent m & a transactions and or a discounted cash flow analysis . the net asset value analysis is used to derive a value of an underlying investment ( such as real estate property ) by dividing a relevant earnings stream by an appropriate capitalization rate . for this purpose , we consider capitalization rates for similar enterprises as may be obtained from guideline public companies and or relevant transactions . the liquidation analysis is intended to approximate the net recovery value of an investment based on , among other things , assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company 's assets . the discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate . the measurement is based on the net present value indicated by current market expectations about those future amounts . in applying these methodologies , additional factors that we consider in fair value pricing our investments may include , as we deem relevant : security covenants , call protection provisions , and information rights ; the nature and realizable value of any collateral ; the portfolio company 's ability to make payments ; the principal markets in which the portfolio company does business ; publicly available financial ratios of peer companies ; the principal market ; and enterprise values , among other factors . also , any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired . the yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market interest rates and leverage levels . assuming the credit quality of the portfolio company remains stable , the fund will use the value determined by the yield analysis as the fair value for that security if less than the cost of the investment . we will record unrealized depreciation on investments when we determine that the fair value of a security is less than its cost basis , and will record unrealized appreciation when we determine that the fair value is greater than its cost basis . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 30.7 million and $ 25.9 million as of december 31 , 2018 and 2017 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2018 and december 31 , 2017 , one of our portfolio investments , mvc capital , inc. , was publicly listed on the nyse with 527,138 common shares and 496,208 common shares , respectively .
| the following table includes summarizes investment activity during the year ended december 31 , 2018 ( in thousands ) : investment activity new investments existing investments portfolio company cash non-cash follow-on dividend total mvc capital , inc. $ — $ — $ — $ 303 $ 303 $ — $ — $ — $ 303 $ 303 year ended december 31 , 2017 during the year ended december 31 , 2017 , we received full payment of our senior secured promissory note ( “ note ” ) issued by biogenic reagents , llc ( “ biogenic ” ) , in the amount of $ 2.4 million in cash , consisting of the original principal amount of the note , together with approximately $ 0.4 million in interest as accrued thereon . during the year ended december 31 , 2017 , we had investment activity of $ 0.3 million in three portfolio companies . we received $ 0.04 million in semi-annual interest and $ 13 thousand in pik 'd interest in respect of our biogenic note described above . during 2017 , we received 20,253 shares of mvc in the form of stock dividend payments . we received $ 12 thousand in pik 'd interest in respect to our loan to 5 th element tracking , llc ( “ 5 th element ” ) . the following table includes summarizes investment activity during the year ended december 31 , 2017 ( in thousands ) : investment activity new investments existing investments portfolio company cash non-cash follow-on pik/dividend total 5 th element tracking , llc $ — $ — $ — $ 12 $ 12 mvc capital , inc. — — — 265 265 $ — $ — $ — $ 277 $ 277 year ended december 31 , 2016 during the year ended december 31 , 2016 , we had investment activity of $ 2.4 million in three portfolio companies . we invested $ 2.0 million in a senior secured note issued by biogenic , bearing cash and pik interest at the combined rate of 16 % per annum . during 2016 , we received $ 0.04 million in semi-annual interest and $ 13 thousand in pik 'd interest in respect of this note . during 2016 , we received 22,863 shares of mvc in the form of stock dividend payments . we received $ 50 thousand in pik 'd interest in
| 13,809 |
given the dynamic nature of the events described above , we can not reasonably estimate the period of time that the ongoing covid-19 pandemic , the depressed commodity prices , the reduce demand for oil and the adverse macroeconomic will persist , the full extent of the impact they will have on our industry and our business , financial condition or cash flows , or the pace or extent of any subsequent recovery . acquisitions and divestitures update during the year ended december 31 , 2020 , we acquired , from unrelated third-party sellers , mineral interests representing 4,948 gross ( 417 net royalty ) acres for an aggregate of approximately $ 64.2 million . we funded these acquisitions with cash on hand and borrowings under the operating company 's revolving credit facility . we divested 370 net royalty acres for an aggregate of approximately $ 38.4 million , leaving our footprint of mineral and royalty interests at a total of 24,350 net royalty acres at december 31 , 2020. during the third and fourth quarters of 2020 , we divested our equity interest in a limited partnership for approximately $ 10.8 million . cash distribution update on february 19 , 2021 , the board of directors of our general partner declared a cash distribution for the three months ended december 31 , 2020 of $ 0.14 per common unit , maintaining our distribution for the fourth quarter of 2020 at 50 % of cash available for distribution . the distribution is payable on march 11 , 2021 to eligible common unitholders of record at the close of business on march 4 , 2021. with net debt dec reasing in the fourth quarter of 2020 from peak levels due to strong free cash flow generation , as well as an improved forward outlook for production , realized pricing and free cash flow yield , driven primarily by diamondback 's anticipated development plan and benefiting from our hedging arrangements rolling off in 2021 , we expect to increase our return on capital to common unitholders in future quarters . implementation of common unit repurchase program on november 6 , 2020 , the board of directors of our general partner approved an expansion of our return of capital program with the implementation of a common unit repurchase program to acquire up to $ 100.0 million of our outstanding common units . during the year ended december 31 , 2020 , we repurchased approximately $ 24.0 million of common units under our repurchase program . as of december 31 , 2020 , $ 76.0 million remains available for us to repurchase units under our common unit repurchase program . the common unit repurchase program is authorized to extend through december 31 , 2021 and we intend to purchase common units under the repurchase program opportunistically with funds from cash on hand , free cash flow from operations and potential liquidity events such as the sale of assets . this repurchase program may be suspended from time to time , modified , extended or discontinued by the board of directors of our general partner at any time . production and operational update our business has rebounded strongly from the unprecedent ed volatility experienced throughout 2020 as commodity prices increased and activity has returned to our acreage . there are currently 27 gross rigs operating on our mineral and royalty acreage , four of which are operated by diamondback . our production and free cash flow outlook is expected to be driven by diamondback 's continued focus on developing our acreage , as well as our exposure to other well-capitalized operators in the permian basin . we expect that the production impact from the recent winter storms in the permian basin will be in the range of four to five days of total net production lost during february 2021 for diamondback operated properties , with a slightly higher negative impact expected for third party operated properties . 33 table o f content the following table summarizes our gross well information : replace_table_token_5_th ( 1 ) average lateral length of 10,012 . ( 2 ) average lateral length of 9,395 . ( 3 ) the total 529 gross wells currently in the process of active development are those wells that have been spud and are expected to be turned to production within approximately the next six to eight months . ( 4 ) the total 538 line-of-sight wells are those that are not currently in the process of active development , but for which viper has reason to believe that they will be turned to production within approximately the next 15 to 18 months . the expected timing of these line-of-sight wells is based primarily on permitting by third party operators or diamondback 's current expected completion schedule . existing permits or active development of our royalty acreage does not ensure that those wells will be turned to production given the current depressed oil prices . 34 table o f content story_separator_special_tag style= '' text-align : justify ; text-indent:36pt '' > comparison of the years ended december 31 , 2019 and 2018 refer to “ item 7. management 's discussion and analysis of financial condition and results of operations ” of our annual report on form 10-k for the year ended december 31 , 2019 for a discussion of our 2019 results compared to 2018 , which discussion is incorporated herein by reference . non-gaap financial measures adjusted ebitda adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . we believe adjusted ebitda is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations 38 table o f content from period to period without regard to our financing methods or capital structure . in addition , management uses adjusted ebitda in evaluating cash flow that will be available to pay distributions to our common unitholders . story_separator_special_tag we define adjusted ebitda as net income ( loss ) plus interest expense , net , non-cash unit-based compensation expense , depletion expense , impairment expense , ( gain ) loss on revaluation of investment , non-cash ( gain ) loss on derivative instruments , ( gain ) loss on extinguishment of debt and provision for ( benefit from ) income taxes . adjusted ebitda is not a measure of net income ( loss ) as determined by gaap . we exclude the items listed above from net income ( loss ) in arriving at adjusted ebitda because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets , capital structures and the method by which the assets were acquired . certain items excluded from adjusted ebitda are significant components in understanding and assessing a company 's financial performance , such as a company 's cost of capital and tax structure , as well as the historic costs of depreciable assets , none of which are components of adjusted ebitda . adjusted ebitda should not be considered as an alternative to , or more meaningful than , net income ( loss ) , royalty income , cash flow from operating activities or any other measure of financial performance or liquidity presented as determined in accordance with gaap . our computations of adjusted ebitda may not be comparable to other similarly titled measures of other companies . the following table presents a reconciliation of adjusted ebitda and cash available for distribution , to net income ( loss ) , our most directly comparable gaap financial measure for the periods indicated : replace_table_token_11_th ( 1 ) does not take into account special income allocation consideration . 39 table o f content cash distributions the distribution for the fourth quarter of 2020 is payable on march 11 , 2021 to common unitholders of record at the close of business on march 4 , 2021. based on the common units and operating company units held by diamondback on february 22 , 2021 , the distribution payable to diamondback for the fourth quarter of 2020 on march 11 , 2021 will be approximately $ 12.8 million . see note 7— unitholders ' equity and distributions for further discussion of our distributions . liquidity and capital resources overview our primary sources of liquidity have been cash flows from operations , proceeds from sales of non-core assets and investments , equity and debt offerings and borrowings under our credit agreement . our primary uses of cash have been distributions to our unitholders , repayments of debt , capital expenditures for the acquisition of our mineral interests and royalty interests in oil and natural gas properties , and repurchases of our common units . we intend to finance future expenditures through a combination of cash on hand , borrowings under our credit agreement and , subject to market conditions and other factors , proceeds from one or more capital market transactions , which may include debt or equity offerings . our ability to generate cash is subject to several factors , some of which are beyond our control , including commodity prices and general economic , financial , competitive , legislative , regulatory and other factors , including extreme weather conditions , such as , for example , the recent severe winter storms in the permian basin that have impacted production volumes on our mineral and royalty acreage . continued prolonged volatility in the capital , financial and or credit markets due to the covid-19 pandemic , the depressed commodity markets and or adverse macroeconomic conditions , may limit our access to , or increase our cost of , capital or make capital unavailable on terms acceptable to us or at all . cash flows the following table presents our cash flows for the period indicated : replace_table_token_12_th operating activities our operating cash flow is sensitive to many variables , the most significant of which are the volatility of prices for oil and natural gas and the volume of oil and natural gas sold by our producers . prices for these commodities are determined primarily by prevailing market conditions . regional and worldwide economic activity , extreme weather conditions and other substantially variable factors influence market conditions for these products . these factors are beyond our control and are difficult to predict . the decrease in net cash provided by operating activities during the year ended december 31 , 2020 , was primarily due to a decrease in royalty income as discussed in “ — results of operations ” above , and an increase in cash paid for derivative contract settlements . this decrease was partially offset by changes in our working capital accounts , most notably in our accounts receivable . investing activities net cash used in investing activities during the year ended december 31 , 2020 , was primarily related to acquisitions of oil and natural gas interests , partially offset by proceeds from the sale of oil and natural gas assets and investments . net cash used in investing activities during the year ended december 31 , 2019 , was primarily related to acquisitions of oil and natural gas interests . 40 table o f content financing activities net cash used in financing activities during the year ended december 31 , 2020 , was primarily related to distributions of $ 108.0 million to our unitholders , $ 24.0 million of common units repurchased as part of our unit repurchase program , repurchases of the notes totaling $ 19.7 million , net of discounts during the second quarter of 2020 , and net payments for borrowings under the operating company 's revolving credit facility of $ 12.5 million .
| the following table presents the impact of pricing and production changes on our royalty income for the years ended december 31 , 2020 and 2019 : replace_table_token_8_th replace_table_token_9_th ( 1 ) production volumes are presented in mbbls for oil and natural gas liquids and mmcf for natural gas . production and ad valorem taxes the following table presents the production and ad valorem taxes for the years ended december 31 , 2020 and 2019 : replace_table_token_10_th product ion taxes as a percentage of royalty income for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 remained relatively flat . ad valorem taxes as a percentage of royalty income for the same period in 2020 compared to 2019 increased due to an increase in the valuation of oil and natural gas interests period over period , primarily due to acquisitions and drilling activity , while royalty income declined due to lower prices . 37 table o f content depletion the $ 22.3 million , or 29 % , increase in depletion expense for the year ended december 31 , 2020 compared to the same period in 2019 was due primarily to an increase in the depletion rate to $ 10.34 for the year ended december 31 , 2020 compared to $ 9.95 for the year ended december 31 , 2019 , which largely resulted from higher production levels and an increase in net book value on new reserves added to the depletion base . impairment the partnership recorded an impairment expense of $ 69.2 million as a result of the decline in commodity prices for the year ended december 31 , 2020. there was no impairment recorded for the year ended december 31 , 2019. net interest expense net interest expense for the years ended december 31 , 2020 and 2019 was $ 33.0 million and $ 21.1 million , respectively . the increase of $ 11.9 million was due to increased borrowings during 2020 compared to 2019 , as a result of issuing the notes during the fourth quarter of 2019. this increase was partially offset by repayments of borrowings under the operating company 's revolving credit facility and the
| 13,810 |
we have not seen a significant change in the growth rate of our gross written premiums since the beginning of the pandemic . however , adverse events such as health-related concerns about working in our offices , the inability to travel , potential impact on our business partners and customers , and other matters affecting the general work and business environment could harm our business and impact the implementation of our business strategy . the macroeconomic effects of the pandemic may persist for an indefinite period , even after the pandemic has subsided and we can not anticipate all the ways in which the pandemic could adversely impact our business in the future . components of our results of operations gross written premiums gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs , reinsurance costs or other deductions . the volume of our gross written premiums in any given period is generally influenced by : ● volume of new business submissions in existing products or partnerships ; ● binding of new business submissions in existing products or partnerships into policies ; ● entrance into new partnerships or the offering of new types of insurance products ; ● renewal rates of existing policies ; and ● average size and premium rate of bound policies . our gross written premiums are also impacted when we assume unearned in-force premiums due to new partnerships or other business reasons . in periods where we assume a large volume of unearned premiums , our gross 56 written premiums may increase significantly compared to prior periods and the increase may not be indicative of future trends . ceded written premiums ceded written premiums are the amount of gross written premiums ceded to reinsurers . we enter into reinsurance contracts to limit our exposure to potential losses and to provide additional capacity for growth . we cede premiums primarily through excess of loss ( “ xol ” ) agreements and quota share agreements . ceded written premiums are earned pro-rata over the period of risk covered . the volume of our ceded written premiums is impacted by the amount of our gross written premiums and our decisions to increase or decrease limits or retention levels in our xol agreements and co-participation levels in our quota share agreements . our ceded written premiums can be impacted significantly in certain periods due to changes in quota share agreements . in periods where we modify a quota share agreement , ceded written premiums may increase or decrease significantly compared to prior periods and these fluctuations may not be indicative of future trends . in addition , our xol costs as a percentage of gross earned premiums vary over the life of xol contracts due to changes of premium in force during the contract period . net earned premiums net earned premiums represent the earned portion of our gross written premiums , less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements . our insurance policies generally have a term of one year and premiums are earned pro rata over the term of the policy . commission and other income commission and other income consist of commissions earned on policies written on behalf of third-party insurance companies and where we have no exposure to the insured risk and certain fees earned in conjunction with underwriting policies . commission and other income are earned on the effective date of the underlying policy . losses and loss adjustment expenses losses and loss adjustment expenses represent the costs incurred for losses , net of any losses ceded to reinsurers . these expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying coverage . certain policies we write subject us to attritional losses such as building fires . in addition , most of the policies we write subject us to catastrophe losses . catastrophe losses are certain losses resulting from events involving multiple claims and policyholders , including earthquakes , hurricanes , floods , convective storms , terrorist acts or other aggregating events . our losses and loss adjustment expenses are generally affected by : the occurrence , frequency and severity of catastrophe events in the areas where we underwrite polices relating to these perils ; the occurrence , frequency and severity of non-catastrophe attritional losses ; the mix of business written by us ; the reinsurance agreements we have in place at the time of a loss ; the geographic location and characteristics of the policies we underwrite ; changes in the legal or regulatory environment related to the business we write ; trends in legal defense costs ; and 57 inflation in housing and construction costs . losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . losses and loss adjustment expenses may be paid out over multiple years . acquisition expenses acquisition expenses are principally comprised of the commissions we pay retail agents , program administrators and wholesale brokers , net of ceding commissions we receive on business ceded under certain reinsurance contracts . in addition , acquisition expenses include premium- related taxes and other fees . acquisition expenses related to each policy we write are deferred and expensed pro-rata over the term of the policy . other underwriting expenses other underwriting expenses represent the general and administrative expenses of our insurance operations including employee salaries and benefits , software and technology costs , office rent , stock-based compensation , licenses and fees , and professional services fees such as legal , accounting , and actuarial services . story_separator_special_tag interest expense interest expense consists primarily of interest expense on our surplus notes through september 2018 and our floating rate notes after september 2018. in addition , we incurred interest expense related to prepayment penalties on the payoff of our surplus notes in september 2018 and related to the redemption premium paid on our floating rate notes in may 2019 . net investment income we earn investment income on our portfolio of invested assets . our invested assets are primarily comprised of fixed maturity securities , and may also include cash and cash equivalents , and equity securities . the principal factors that influence net investment income are the size of our investment portfolio , the yield on that portfolio and investment management expenses . as measured by amortized cost , which excludes changes in fair value caused by changes in interest rates , the size of our investment portfolio is mainly a function of our invested equity capital along with premium we receive from our insureds , less payments on policyholder claims and other operating expenses . net realized and unrealized gains and losses on investments net realized and unrealized gains and losses on investments are a function of the difference between the amount received by us on the sale of a security and the security 's cost-basis , mark-to-market adjustments , and credit losses recognized in earnings . income tax expense currently our income tax expense consists mainly of federal income taxes imposed on our operations . our effective tax rates are dependent upon the components of pretax earnings and the related tax effects . 58 key financial and operating metrics we discuss certain key financial and operating metrics , described below , which provide useful information about our business and the operational factors underlying our financial performance . underwriting revenue is a non-gaap financial measure defined as total revenue , excluding net investment income and net realized and unrealized gains and losses on investments . see “ reconciliation of non-gaap financial measures ” for a reconciliation of total revenue calculated in accordance with gaap to underwriting revenue . underwriting income is a non-gaap financial measure defined as income before income taxes excluding net investment income , net realized and unrealized gains and losses on investments and interest expense . see “ reconciliation of non-gaap financial measures ” for a reconciliation of income before income taxes calculated in accordance with gaap to underwriting income . adjusted net income is a non-gaap financial measure defined as net income excluding the impact of certain items that may not be indicative of underlying business trends , operating results , or future outlook , net of tax impact . we calculate the tax impact only on adjustments which would be included in calculating our income tax expense using the estimated tax rate at which the company received a deduction for these adjustments . see “ reconciliation of non-gaap financial measures ” for a reconciliation of net income calculated in accordance with gaap to adjusted net income . return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders ' equity during the period . adjusted return on equity is a non-gaap financial measure defined as adjusted net income expressed on an annualized basis as a percentage of average beginning and ending stockholders ' equity during the period . see “ reconciliation of non-gaap financial measures ” for a reconciliation of return on equity calculated using unadjusted gaap numbers to adjusted return on equity . loss ratio , expressed as a percentage , is the ratio of losses and loss adjustment expenses , to net earned premiums . expense ratio , expressed as a percentage , is the ratio of acquisition and other underwriting expenses , net of commission and other income to net earned premiums . combined ratio is defined as the sum of the loss ratio and the expense ratio . a combined ratio under 100 % generally indicates an underwriting profit . a combined ratio over 100 % generally indicates an underwriting loss . adjusted combined ratio is a non-gaap financial measure defined as the sum of the loss ratio and the expense ratio calculated excluding the impact of certain items that may not be indicative of underlying business trends , operating results , or future outlook . see “ reconciliation of non-gaap financial measures ” for a reconciliation of combined ratio calculated using unadjusted gaap numbers to adjusted combined ratio . diluted adjusted earnings per share is a non-gaap financial measure defined as adjusted net income divided by the weighted-average common shares outstanding for the period , reflecting the dilution which could occur if equity-based awards are converted into common share equivalents as calculated using the treasury stock method . see “ reconciliation of non-gaap financial measures ” for a reconciliation of diluted earnings per share calculated in accordance with gaap to diluted adjusted earnings per share . catastrophe loss ratio is a non-gaap financial measure defined as the ratio of catastrophe losses to net earned premiums . see “ reconciliation of non-gaap financial measures ” for a reconciliation of loss ratio calculated using unadjusted gaap numbers to catastrophe loss ratio . 59 adjusted combined ratio excluding catastrophe losses is a non-gaap financial measure defined as adjusted combined ratio excluding the impact of catastrophe losses . see “ reconciliation of non-gaap financial measures ” for a reconciliation of combined ratio calculated using unadjusted gaap numbers to adjusted combined ratio excluding catastrophe losses . tangible stockholders ' equity is a non-gaap financial measure defined as stockholders ' equity less intangible assets . see “ reconciliation of non-gaap financial measures ” for a reconciliation of stockholders ' equity calculated in accordance with gaap to tangible stockholders ' equity .
| in addition , during the fourth quarter of 2020 , we purchased the renewal rights of certain hawaii hurricane policies from another insurance company . we expect our hawaii hurricane written premiums to increase related to this purchase . however , there is no guarantee that policyholders will renew their policies with us and the ultimate impact to our future written premiums is uncertain . ceded written premiums ceded written premiums increased $ 46.8 million , or 43.2 % , to $ 155.1 million for the year ended december 31 , 2020 from $ 108.3 million for the year ended december 31 , 2019. the increase was primarily due to increased excess of loss reinsurance ( “ xol ” ) expense commensurate with growth in exposure . in addition , catastrophe losses occurring in the third and fourth quarters of 2020 caused us to fully utilize portions of our xol coverage . as a result , we incurred charges of $ 7.0 million during the fourth quarter of 2020 related to the acceleration of xol expenses and the purchase and utilization of a backup xol layer . premiums ceded under quota share arrangements also increased due to the growth in written premium lines subject to quota share arrangements . ceded written premiums as a percentage of gross written premiums slightly increased to 43.8 % for the year ended december 31 , 2020 from 43.0 % for the year ended december 31 , 2019. this increase was primarily due to increased xol expense offset by changes in our quota share agreements in our specialty 62 homeowners and commercial all risk lines as we entered into new ceding arrangements on these lines which increased the percentage of premiums we retained . net written premiums net written premiums increased $ 55.6 million , or 38.7 % , to $ 199.3 million for the year ended december 31 , 2020 from $ 143.6 million for the year ended december 31 , 2019. the increase was primarily due to higher gross written premiums , primarily in our commercial earthquake , commercial all risk , and specialty homeowners lines ,
| 13,811 |
this commitment is reflected in ncr 's code of conduct , which is available on the corporate governance page of our website . significant themes and events as more fully discussed in later sections of this md & a , the following were significant themes and events for 2020. revenue decreased 10 % from the prior year due to covid-19 and shift to recurring revenue ; ◦ software and services revenue represented 72 % of total consolidated revenue ◦ recurring revenue increased 5 % from the prior year and comprised 54 % of total consolidated revenue completed several transactions that reduced leverage ; and ◦ redeemed notes due in 2022 and 2023 for $ 1.3 billion and completed new bond offering for 8-yr and 10-yr notes for $ 1.1 billion , which extended the weighted average debt maturity and reduced interest expense ◦ completed the redemption of approximately 132,000 shares of the series a convertible preferred stock announced proposed transaction with cardtronics plc . strategic initiatives and trends in order to provide long-term value to all of our stakeholders , we set complementary business goals and financial strategies . our business goal is to be a software and services-led company , and to be the leading technology provider of choice that runs stores , banks and restaurants around the world through our ncr-as-a-service solutions that help banks , stores and restaurants run better , so they have more time to create customer experiences that drive lasting success . our financial strategy is to transition our revenue mix so that 80 percent of our total revenue is comprised of software and services revenue , 60 percent of our total revenue is comprised of recurring revenue , and our adjusted ebitda margin rate increases to 20 percent . execution of our goals and strategy is driven by the following key pillars : ( i ) focus on our customers ; ( ii ) take care of our employees ; ( iii ) bring high-quality , innovative products to market ; and ( iv ) leverage our brand . cybersecurity risk management similar to most companies , ncr and its customers are subject to more frequent and increasingly sophisticated cybersecurity attacks . the company maintains cybersecurity risk management policies and procedures including disclosure controls , which it regularly evaluates for updates , for handling and responding to cybersecurity events . these policies and procedures include internal notifications and engagements and , as necessary , cooperation with law enforcement . personnel involved in handling and responding to cybersecurity events periodically undertake tabletop exercises to simulate an event . our internal notification procedures include notifying the applicable company attorneys , which , depending on the level of severity assigned to the event , may include direct notice to , among others , the company 's general counsel , ethics & compliance officer , and chief privacy officer . company attorneys support efforts to evaluate the materiality of any incidents , determine whether notice to third parties such as customers or vendors is required , determine whether any prohibition on insider trading is appropriate , and assess whether disclosure to stockholders or governmental filings , including with the sec , are required . our internal notification procedures also include notifying various ncr information technology services managers , subject matter experts in the company 's software department and company leadership , depending on the level of severity assigned to the event . 30 for further information on potential risks and uncertainties see item 1a `` risk factors . '' impacts from the covid-19 pandemic the impact of covid-19 , including several emerging variants of covid-19 , has grown throughout the world . governmental authorities have implemented numerous measures attempting to contain and mitigate the effects of covid-19 , including travel bans and restrictions , quarantines , shelter in place orders and shutdowns . we continue to actively monitor the global outbreak and spread of covid-19 and take steps to mitigate the potential risks to us posed by its spread and related circumstances and impacts . we continue to assess and update our business continuity plan in the context of this pandemic . we have taken precautions to help keep our workforce healthy and safe , including establishing a coronavirus task force in january 2020 , thermal screening procedures at our manufacturing plants and call centers and remote working arrangements for the vast majority of our back-office employees . we expect the pandemic to create headwinds to our customers and our business until covid-19 is contained , consumer confidence improves and the economic conditions rebound . although it is difficult to project with certainty how deep and how long the covid-19 pandemic will last , we do expect it will negatively impact our business into 2021. with respect to our banking segment , we worked with local governments to make sure that these businesses are designated as essential critical infrastructure businesses . although we experienced installation delays and lower hardware revenue , we have not experienced any significant impact to our recurring revenue streams . we believe our atm break-fix services , which represented the largest percentage of banking segment revenue , has remained strong , although there can be no assurance that such operations will not be impacted in the future with higher costs or labor availability . with respect to our retail segment , the food , drug and mass merchandising market , which includes grocery stores , drug stores and big box retailers , and which represented the majority of our retail segment revenue , is currently designated as an essential critical infrastructure business in many jurisdictions . we realigned our resources to support our customers as they have responded to changing consumer demand , particularly with regard to self-checkout and contactless checkout . however , customers in our department and specialty retail market and in our small and medium business market , have encountered significant adverse impacts in connection with covid-19 as a result of temporary closures of physical stores and reduced consumer spending . story_separator_special_tag with respect to our hospitality segment , the quick service restaurants , which are large chains and represent the majority of the hospitality segment revenue , have remained busy with respect to drive-through and pick up services being in demand as many in-restaurant dining options have been limited by social distancing and governmental orders . however , this market has been negatively impacted from lower new stores and less remodeling activity . table service restaurants , which are sit-down restaurants with more than 50 locations , have experienced negative impacts as a result of governmental and public actions . although many of these businesses have experienced an increase in online and takeout ordering , this market will continue to be negatively impacted until consumer confidence improves once covid-19 is contained . customers in our small and medium business market have experienced significant working capital and adverse cash flow impacts as a result of the covid-19 pandemic , which , similar to table service restaurants , is expected to continue until covid-19 is contained and the economy begins to rebound . in order to build a stronger liquidity position , we took steps to improve working capital and addressed certain business impacts with spending cuts . we took several steps to build our cash reserve to improve our financial liquidity and flexibility and provide a cushion to help weather the impacts of the pandemic . these steps included suspending our share repurchase programs , limiting our mergers and acquisition activity , reducing salaries for members of our leadership team and certain salaried employees , reducing our planned capital expenditures , eliminating most contractors , curtailing travel , and freezing merit increases and hiring . late in the third quarter , we released some of the temporary measures , mainly related to the temporary salary reductions which were replaced with permanent measures focused on organizational improvements , operational changes and strategic product actions . however , the degree to which covid-19 affects our financial results and operations will depend on future developments , which are highly uncertain and can not be predicted with certainty , including , but not limited to , the duration and spread of the outbreak , its severity , the actions to contain the virus or treat its impact , including but not limited to , the success and distribution of existing and additional vaccinations , and how quickly and to what extent normal economic and operating conditions can resume . while it is difficult to project how disruptive and protracted the pandemic will be , we do expect it will negatively impact our business into 2021. we expect all of our segment results to be negatively impacted by the covid-19 pandemic . we expect our hardware revenues to be most impacted while our recurring revenue stream is expected to be more resilient . we continue to 31 evaluate the long-term impact that covid-19 may have on our business model , which may result in additional cash and non-cash charges in 2021. results of operations key strategic financial metrics the following tables show our key strategic financial metrics for the years ended december 31 , the relative percentage that those amounts represent to total revenue , and the change in those amounts year-over-year . software and services revenue as a percentage of total revenue replace_table_token_4_th recurring revenue as a percentage of total revenue replace_table_token_5_th ( 1 ) recurring revenue includes all revenue streams from contracts where there is a predictable revenue pattern that will occur at regular intervals with a relatively high degree of certainty . this includes hardware and software maintenance revenue , cloud revenue , payment processing revenue , and certain professional services arrangements as well as term-based software license arrangements that include customer termination rights . net income ( loss ) from continuing operation and adjusted ebitda ( 2 ) as a percentage of total revenue replace_table_token_6_th n/m = not meaningful ( 1 ) ncr 's management uses the non-gaap measure adjusted ebitda because it provides useful information to investors as an indicator of strength and performance of the company 's ongoing business operations , including funding discretionary spending such as capital expenditures , strategic acquisitions , and other investments . ncr determines adjusted ebitda based on gaap net income ( loss ) from continuing operations attributable to ncr plus interest expense , net ; plus income tax expense ( benefit ) ; plus depreciation and amortization ; plus other income ( expense ) ; plus pension mark-to-market adjustments , pension settlements , pension curtailments and pension special termination benefits and other special items , including amortization of acquisition-related intangibles , restructuring charges , among others . refer to the table below for the reconciliations of net income ( loss ) from continuing operations ( gaap ) to adjusted ebitda ( non-gaap ) . 32 replace_table_token_7_th story_separator_special_tag of 6.375 % senior unsecured notes due in 2023. the loss included the write-off of deferred financing fees of $ 5 million and a cash redemption premium of $ 15 million . interest expense replace_table_token_15_th interest expense was $ 218 million in 2020 compared to $ 197 million in 2019 and $ 168 million in 2018. interest expense in all years was primarily related to the company 's senior unsecured notes and borrowings under the company 's senior secured credit facility . early in 2020 , the company took steps to build our cash position by fully drawing the revolving credit facility and issuing $ 400 million senior unsecured notes as a precautionary measure given the uncertainty of the covid-19 pandemic .
| gross margin replace_table_token_10_th ( 1 ) the percentage of revenue is calculated for each line item divided by the related component of revenue . for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 gross margin as a percentage of revenue was 24.6 % in 2020 compared to 27.8 % in 2019 . gross margin for the year ended december 31 , 2020 included $ 150 million related to transformation and restructuring costs and $ 22 million related to amortization of acquisition-related intangible assets . gross margin for the year ended december 31 , 2019 included $ 21 million related to transformation and restructuring costs and $ 24 million related to amortization of acquisition-related intangible assets . excluding these items , gross margin as a percentage of revenue decreased from 28.4 % to 27.3 % due to lower revenue impacted by the covid-19 pandemic as well as from the shift to recurring revenue with lower software license revenue . for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 gross margin as a percentage of revenue was 27.8 % in 2019 compared to 26.2 % in 2018. gross margin for the year ended december 31 , 2019 included $ 21 million related to transformation and restructuring costs and $ 24 million related to amortization of acquisition-related intangible assets . gross margin for the year ended december 31 , 2018 included $ 102 million related to transformation and restructuring costs and $ 23 million related to amortization of acquisition-related intangible assets . excluding these items , gross margin as a percentage of revenue increased from 28.1 % to 28.4 % due to growth in the banking and retail segments primarily driven by improved hardware profitability partially offset by declines in the hospitality segment . selling , general and administrative expenses 34 replace_table_token_11_th for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 selling , general , and administrative expenses were $ 1,051 million in 2020 flat with 2019 .
| 13,812 |
· our income opportunity strategy , with its focus on current income and lower volatility , had net asset inflows of over $ 700 million and finished the year with $ 2.8 billion in assets under management . 22 · westwood international advisors inc. , manager of our global equity and emerging markets equity strategies , grew assets under management to $ 2.5 billion as of december 31 , 2013 from $ 888 million as of december 31 , 2012. this increase included over $ 500 million of inflows to our newly launched ireland-domiciled ucits fund . · total revenue was a record $ 91.8 million , a 18 % increase over 2012 · in october 2013 , the board approved a 10 % increase in our quarterly dividend to $ 0.44 per share , or an annual rate of $ 1.76 , resulting in a dividend yield of 2.8 % at the year-end stock price of $ 61.91 . · our financial position remains strong with liquid cash and investments of $ 75.4 million as of december 31 , 2013 . revenues we derive revenues from investment advisory fees , trust fees , and other revenues . our advisory fees are generated by westwood management and westwood international , which manage client accounts under investment advisory and subadvisory agreements . advisory fees are calculated base d on a percentage of assets under management and are paid in accordance with the terms of the agreements . westwood management 's and westwood international 's advisory fees are paid quarterly in advance based on assets under management on the last day of the preceding quarter , quarterly in arrears based on assets under management on the last day of the previous quarter , or are based on a daily or monthly analysis of assets under management for the stated period . westwood management and westwood international recognize revenues as services are rendered . a limited number of our clients have agreed to contractual performance-based fees , which generate additional revenues if we outperform a specified index over a specific period of time . we record revenue for performance-based fees at the end of the measurement periods . since most of our advance paying clients ' billing periods coincide with the calendar quarter to which payment relates , revenue related to those clients is fully recognized within the quarter . consequently , no significant amount of deferred revenue is contained in our consolidated financial statements . our trust fees are generated by westwood trust pursuant to trust or custodial agreements . trust fees are separately negotiated with each client and are generally based on a percentage of assets under management . westwood trust also provides trust services to a small number of clients on a fixed fee basis . most trust fees are paid quarterly in advance and are recognized as services are rendered . since bi lling periods for the majority of westwood trust 's advance paying clients coincide with the calendar quarter to which payment relates , revenue is fully recognized within the quarter and consequently no significant amount of deferred revenue is contained in our consolidated financial statements . our other revenues generally consist of interest and investment income . although we invest most of our cash in u.s. treasury securities , we also invest in equity and fixed income instruments and money market funds , including the westwood funds and common trust funds sponsored by westwood trust . assets under management assets under management increased $ 4.7 billion , or 34 % , to $ 18.9 billion at december 31 , 2013 compared to $ 14.2 billion at december 31 , 2012. quarterly average assets under management increased $ 2.6 billion , or 19 % , to $ 16.3 billion for 2013 compared with $ 13.7 billion for 2012. assets under management increased $ 1.1 billion , or 8 % , to $ 14.2 billion at december 31 , 2012 compared to $ 13.1 billion at december 31 , 2011. quarterly average assets under management increased $ 786 million , or 6 % , to $ 13.7 billion for 2012 compared with $ 12.9 billion for 2011. the following table sets forth our assets under management as of december 31 , 2013 , 2012 and 2011 : replace_table_token_6_th 23 our assets under management disclosure reflects management 's view of our three types of accounts : institutional , private wealth and mutual funds . · institutional includes separate accounts of corporate pension and profit sharing plans , public employee retirement funds , taft hartley plans , endowments , foundations and individuals ; subadvisory relationships where westwood provides investment management services for funds offered by other financial institutions ; and managed account relationships with brokerage firms and other registered investment advisors that offer westwood products to their customers . · private wealth includes assets for which westwood trust provides trust and custodial services and participation in common trust funds that it sponsors to institutions and high net worth individuals pursuant to trust or agency agreements . investment subadvisory services are provided for the common trust funds by westwood management , westwood international and external , unaffiliated subadvisors . for certain assets in this category , westwood trust currently provides limited custody services for a minimal or no fee , but views these assets as potentially converting to fee-generating managed assets in the future . as an example , some assets in this category consist of low-basis stock currently being held in custody for clients , but we believe there is potential for these assets to convert to fee-generating managed assets during an inter-generational transfer of wealth at some future date . also included are assets acquired in the mccarthy transaction , described in note 6 of the financial statements included in this report , representing institutional and high net worth clients for which westwood provides investment management and advisory services . · mutual funds include the westwood funds , a family of mutual funds for which westwood management serves as advisor . story_separator_special_tag roll-forward of assets under management replace_table_token_7_th the increase in assets under management for the year ended december 31 , 2013 was primarily due to new inflows of $ 4.3 billion and market appreciation of $ 3.3 billion , partially offset by outflows of $ 2.8 billion . inflows were primarily driven by inflows into institutional accounts in our emerging markets strategies managed by westwood international ; inflows into the westwood income opportunity mutual fund and inflows from certain clients in our master limited partnership infrastructure renewal ( “ mlp ” ) strat egy . outflows were primarily related to withdrawals and rebalancing by certain clients in our largecap value strategy . replace_table_token_8_th 24 the increase in assets under management for the year ended december 31 , 2012 was primarily due to new inflows of $ 2.1 billion and market appreciation of $ 1.7 billion , partially offset by outflows of $ 2.7 billion . inflows were driven primarily by inflows into institutional separate accounts , subadvisory mandates , the westwood funds and private wealth accounts . outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflow s from private wealth accounts . replace_table_token_9_th the increase in assets under management for the year ended december 31 , 2011 was primarily due to new inflows of $ 2.4 billion , partially offset by outflows of $ 1.8 billion and market depreciation of $ 63 million . inflows were driven primarily by inflows into institutional separate accounts , subadvisory mandates and the westwood funds . outflows were primarily related to outflows and some account closings by institutional separate account clients and subadvisory mandates and outflows from the westwood funds . story_separator_special_tag style= '' margin-bottom:0pt ; margin-top:12pt ; margin-left:0 % ; margin-right:0 % ; text-indent:9.06 % ; font-size:10pt ; ; '' > general and administrative . general and administrative expenses generally consist of costs associated with the lease of office space , insurance , amortization of intangible asset s , office supplies , custody expense , investor relations , charitable contributions and other miscellaneous expenses . general and administrative expenses increased by 17 % to $ 5.3 million in 2013 compared with $ 4.5 million in 2012 primarily due to increased rent expense for our new toronto office , increased subscriptions and research expense , increased investor relations expense , increased custody expenses and an increase in non-income taxes . provision for income taxes . provision for income taxes increased by 31 % to $ 10.4 million in 2013 compared with $ 7.9 million in 2012. the effective tax rate decreased to 36.7 % from 39.6 % in 2012 primarily due to reduced operating losses from westwood international , which are taxed at a lower canadian tax rate . year ended december 31 , 2012 compared to year ended december 31 , 2011 total revenue . in 2012 our total revenues increased by 12 % to $ 77.5 million compared with $ 68.9 million in 2011. asset-based advisory fees increased by 7 % to $ 57.9 million in 2012 from $ 54.2 million in 2011 due to higher average assets under management primarily reflect ing market appreciation of assets . we earned a performance-based advisory fee of $ 1.3 million in 2012 compared $ 1.0 million in 2011. trust fees increased by 11 % to $ 15.0 million in 2012 from $ 13.5 million in 2011 due to higher average assets under management primarily reflecting market appreciation of assets . other revenues , which generally consist of interest and investment income , increased by $ 3.1 million to $ 3.3 million in 2012 compared with $ 219,000 in 2011 primarily due to a $ 2.2 million increase in net realized gains , a $ 635,000 increase in unrealized gains and a $ 293,000 increase in dividend income , partially offset by a $ 34,000 decrease in interest income . the increase in realized gains was primarily due to the $ 1.9 million gain on sale of 200,000 shares of teton advisors , inc. 26 employee compensation and benefits . employee compensation and benefits , which generally consist of salaries , incentive compensation , equity-based compensation expense and benefits , increased by 25 % to $ 43.7 million compared w ith $ 35.1 million in 2011. this increase was primarily due to increases of $ 6.2 million in incentive compensation due to amortization of long-term incentive awards for westwood international employees , $ 2.3 million in salary expense primarily due to additional hires at westwood management and westwood trust , salaries related to westwood international and $ 632,000 in performance-based restricted stock expense due to shares granted in february 2012. we had 96 full-time employees as of december 31 , 2012 compared to 80 at december 31 , 2011. sales and marketing . sales and marketing costs consist of expenses associated with our marketing efforts , including travel and entertainment , direct marketing , and advertising costs . sales and marketing costs increased by 14 % to $ 1.1 million in 2012 compared with $ 1.0 million in 2011 primarily due to increased direct marketing and travel expenses . westwood mutual funds . westwood mutual funds expenses generally consist of costs associated with our marketing , distribution , adm inistration and acquisition efforts related to the westwood funds . westwood mutual funds expenses increased 46 % to $ 1.2 million in 2012 compared with $ 790,000 in 2011 primarily due to an increase of $ 219,000 in shareholder servicing fees due to higher fund assets and an increase of $ 104,000 in subadvisor fees . information technology . information technology expenses are generally costs associated with proprietary investment research tools , computing hardware , software licenses , maintenance and support , te lecommunications and other related costs .
| other revenues , which generally consist of interest and investment income , decreased by $ 2.5 million to $ 0.9 million in 2013 compared with $ 3.3 million in 2012 primarily due to a $ 1.9 million decrease in net realized gains and a $ 670,000 decrease in unrealized gains on investments . the decrease in realized gains was primarily due to the $ 1.9 million gain on sale of 200,000 shares of teton advisors , inc. recorded in 2012. employee compensation and benefits . employee compensation and benefits , which generally consist of salaries , incentive compensation , equity-based compensation and benefits , increased by 9 % to $ 47.8 million compared with $ 43.7 million in 2012. this increase was primarily due to net increases of $ 1.6 million in salary expense primarily relating to additional hires at westwood management , westwood trust and westwood international ; $ 0.9 million in incentive compensation including amortization of long-term incentive awards for westwood international employees ; and $ 0.8 million in performance-based restricted stock expense and $ 0.3 million in service-based restricted stock due to shares granted in 2013. we had 106 full-time employees as of december 31 , 2013 compared to 96 at december 31 , 2012. sales and marketing . sales and marketing costs consist of expenses associated with our marketing efforts , including travel and entertainment , direct marketing , and advertising costs . sales and marketing costs increased by 11 % to $ 1.3 million in 2013 compared with $ 1.1 million in 2012 primarily due to increased direct marketing and travel expenses . westwood mutual funds . westwood mutual funds expenses generally consist of costs associated with our marketing , distribution , administrati on and acquisition efforts related to the westwood funds . westwood mutual funds expenses increased 87 % to $ 2.2 million in 2013 compared with $ 1.2 million in 2012 primarily due to an increase of $ 0.6 million in shareholder servicing fees on higher fund assets and an increase of $ 140,000 in subadvisor fees . information technology . information technology expenses are generally costs associated with proprietary investment research tools , computing hardware , software licenses , maintenance and support , telecom munications
| 13,813 |
cost of sales cost of sales includes third-party acquisition costs , third-party warehousing and product distribution charges . selling , general and administrative expenses selling , general and administrative expenses include personnel costs , costs for outside professional services and other allocated expenses . personnel costs consist of salaries , bonuses , benefits , travel and stock‑based compensation . outside professional services consist of legal , accounting and audit services , commercial evaluation and strategy services , sales , marketing and other consulting services . we expect to incur additional selling , general and administrative costs as a result of our initial and on-going commercial activities in support of keveyis and macrilen . research and development expenses our research and development expenses consist primarily of costs incurred in connection with the development of our product candidates , including : · personnel‑related costs , such as salaries , bonuses , benefits , travel and other related expenses , including stock‑based compensation ; · expenses incurred under our agreements with cros , clinical sites , contract laboratories , medical institutions and consultants that plan and conduct our preclinical studies and clinical trials , including , in the case of consultants , stock‑based compensation ; · costs associated with regulatory filings ; · upfront and milestone payments under in‑license or acquisition agreements with third parties ; · costs of acquiring preclinical study and clinical trial materials , and costs associated with formulation and process development ; and · depreciation , maintenance and other facility‑related expenses . we expense all research and development costs as incurred . clinical development expenses for our product candidates are a significant component of our current research and development expenses as we progress our product candidates into and through clinical trials . product candidates in later stage clinical development generally have higher 78 research and development costs than those in earlier stages of development , primarily due to increased size and duration of the clinical trials . we recognize costs for each grant project , preclinical study or clinical trial that we conduct based on our evaluation of the progress to completion , including the use of information and data provided to us by our external research and development vendors and clinical sites . we expect our research and development expenses to increase in absolute dollars in the future as we continue to in‑license or acquire product candidates and as we advance our existing and any future product candidates into and through clinical trials and pursue regulatory approval of our product candidates . the process of conducting the necessary clinical research to obtain regulatory approval of a product candidate is costly and time consuming . the probability that any of our product candidates receives regulatory approval and eventually is able to generate revenue depends on a variety of factors , including the quality of our product candidates , early clinical data , investment in our clinical program , competition , manufacturing capability and commercial viability . as a result of these uncertainties , we are unable to determine the duration and completion costs of our research and development projects or if , when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates , if approved . we may never succeed in achieving regulatory approval for any of our product candidates . we do not allocate personnel‑related research and development costs , including stock‑based compensation or other indirect costs , to specific programs , as they are deployed across multiple projects under development . interest expense interest expense represents interest paid to our lenders throughout 2017 , amortization of our debt discount , and issuance costs associated with loan and security agreements . amortization of intangible asset amortization of intangible asset relates to the amortization of our product rights to keveyis , which we acquired in december of 2016. this intangible asset is being amortized over an eight-year period using the straight-line method . other income ( expense ) , net other income ( expense ) , net , consists of unrealized ( loss ) /gain on the remeasurement of the fair value of warrant liability , interest expense recognized on our long-term debt , the loss on the early extinguishment of our pre-existing long-term debt , interest income generated from our cash and cash equivalents , foreign exchange gains and losses and gains and losses on investments . our consolidated financial statements are reported in u.s. dollars , which is also our functional currency . transactions in foreign currencies are remeasured into our functional currency at the rate of exchange prevailing at the date of the transaction . any monetary assets and liabilities arising from these transactions are remeasured into our functional currency at exchange rates prevailing at the balance sheet date or on settlement . resulting gains and losses are recorded in foreign currency loss in other income ( expense ) in our consolidated statements of operations . critical accounting policies and significant judgments and estimates this operating and financial review of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ u.s. gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag while our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report on form 10-k , we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our financial statements . 79 revenue recognition revenues from sales of keveyis are recognized when we satisfy a performance obligation by transferring control of keveyis to the customer . transfer of control occurs upon receipt of keveyis by the customer . we expense incremental costs related to the set-up of the contract with the customer when incurred , as these costs did not meet the criteria for capitalization . warrant liability the fair values of certain outstanding warrants were measured using the black-scholes option-pricing model . inputs used to determine estimated fair value of the warrant liabilities include the estimated fair value of the underlying stock at the valuation date , the estimated term of the warrants , risk-free interest rates , expected dividends and the expected volatility of the underlying stock . the significant unobservable inputs used in the fair value measurement of the warrant liabilities were the fair value of the underlying stock at the valuation date and the estimated term of the warrants . generally , increases ( decreases ) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement . intangible assets certain intangible assets were acquired as part of an asset purchase , and have been capitalized at their acquisition date at fair value . acquired definite life intangible assets are amortized using the straight-line method over their respective estimated useful lives or another appropriate method . the company evaluates the potential impairment of intangible assets if events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate . in connection with the asset purchase and supply agreement we entered into with taro pharmaceuticals north america , inc. , we paid taro an upfront payment in two installments of $ 1 million in december 2016 and $ 7.5 million in march 2017. we have concluded that the supply price payable by us exceeds fair value and , therefore , have used a discounted cash flow method with a probability assumption to value the payments in excess of fair value at $ 29.3 million , for which we have recorded an intangible asset and corresponding liability . this liability will be amortized as we purchase inventory over the term of the agreement . in addition , we incurred transaction costs of $ 2.4 million resulting in the recording of an intangible asset of $ 40.2 million . this intangible asset is being amortized over an eight-year period using the straight-line method . purchased identifiable intangible assets with indefinite lives , such as in‑process research and development , are evaluated for impairment annually in accordance with our policy and whenever events or changes in circumstances indicate that it is more likely than not that the fair value of these assets has been reduced . to test these assets for impairment , we compare the fair value of the asset to its carrying value . the method we use to estimate the fair value measurements of indefinite‑lived intangible assets is based on the income approach . for the impairment analysis for the year ended december 31 , 2017 , significant unobservable inputs used in the income approach valuation method include discount rates , royalty rates and probabilities of product candidate advancement from one clinical trial phase to the next . the probabilities of product candidate advancement we used were based on standalone statistical analysis on a phase‑by‑phase basis . as of december 31 , 2017 , there were material events that led to the impairment of our intangible assets . we recorded a $ 20.7 million impairment for our veldoreotide in-process research and development ( “ ipr & d ” ) for the year ended december 31 , 2017. goodwill we test goodwill for impairment on an annual basis or whenever events occur that may indicate possible impairment . this analysis requires us to make a series of critical assumptions to ( 1 ) evaluate whether any impairment exists and ( 2 ) measure the amount of impairment . 80 because we have one operating segment , when testing for a potential impairment of goodwill , we are required to estimate the fair value of our business as a whole and determine the carrying value . if the estimated fair value is less than the carrying value of our business , then we are required to estimate the fair value of all identifiable assets and liabilities in a manner similar to a purchase price allocation for an acquired business . only after this process is completed can the goodwill impairment be determined , if any . we did not record a charge for impairment for the years ended december 31 , 2017 , 2016 and 2015. as of december 31 , 2017 , there were no events or changes in circumstances indicating possible impairment . stock‑based compensation we account for stock based compensation awards in accordance with fasb asc topic 718 , compensation—stock compensation ( “ asc 718 ” ) . asc 718 requires all stock based payments including grants of stock options and restricted stock and modifications to existing stock options , to be recognized in the consolidated statements of operations based on their fair values . our stock based awards are subject to either service based or performance based vesting conditions . vesting of certain awards could also be accelerated upon achievement of defined market based vesting conditions . certain awards also contain a combination of service and market conditions or performance and market conditions . we account for employee stock based awards at grant date fair value .
| stock-based compensation expense increased by $ 0.5 million during 2017 due to the granting of new awards to newly hired employees during 2017. amortization of intangible asset amortization of intangible asset was $ 5.0 million for the year ended december 31 , 2017 as we began amortizing the keveyis product rights acquired in december 2016. we recorded no amortization of intangible asset for the year ended december 31 , 2016. impairment of intangible asset impairment of intangible assets was $ 20.7 million and $ 15.8 million for the years ended december 31 , 2017 and 2016 , respectively . the increase was due to a $ 20.7 million impairment charge recorded in the third quarter of 2017 related to our veldoreotide in-process research and development offset by impairment charges recorded in 2016. other income ( expense ) , net replace_table_token_9_th total other income ( expense ) , net , increased by $ 37.3 million for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016. the increase was primarily due to a $ 30.9 million change in the fair value of our warrant liability , primarily resulting from an increase in our stock price , $ 4.3 million in interest expense and $ 3.5 million of expense relating to the loss on the early extinguishment of debt . 84 income tax ( expense ) benefit we recorded income tax expense of $ 1.8 million for the year ended december 31 , 2017 as a result of recording full valuation allowances against our deferred tax asset and deferred tax liability . we recorded income tax benefit of $ 2.6 million for the year ended december 31 , 2016 primarily due to impairment of the value of intellectual property held by our biopancreate subsidiary and certain permanent deductions at strongbridge u.s. inc. comparison of the years ended december 31 , 2016 and 2015 the following table sets forth our results of operations for the years ended december 31 , 2016 and 2015. replace_table_token_10_th
| 13,814 |
the first step is to determine if the carrying value of the reporting unit with goodwill is less than the related fair value of the reporting unit . we consider three main approaches to value ( cost , market and income ) the fair value of the reporting unit and market based multiples of earning and sales methods obtained from a grouping of comparable publicly trading companies . we believe this methodology of valuation is consistent with how market participants would value reporting units . the discount rate and market based multiples used are specifically developed for the unit tested regarding the level of risk and end markets served . even though we do use other observable inputs ( level 2 inputs ) the calculation of fair value for goodwill would be most consistent with level 3 inputs . if the carrying value of the reporting unit including goodwill is less than fair value of the reporting unit , the goodwill is not considered impaired . if the carrying value is greater than fair value then the potential for impairment of goodwill exists . the potential impairment is determined by allocating the fair value of the reporting unit among the assets and liabilities based on a purchase price allocation methodology as if the reporting unit was acquired in a business combination . the fair value of the goodwill is implied from this allocation and compared to the carrying value with an impairment loss recognized if the carrying value is greater than the implied fair value . we base our fair value estimates , in large part , on management business plans and projected financial information which are subject to a high degree of management judgment and complexity . actual results may differ from projections , and the differences may be material . 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 . valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized . provision has not been made for income taxes on unremitted earnings of foreign subsidiaries as these earnings are deemed to be permanently reinvested . we recognize income tax positions that meet the more likely than not threshold and accrue interest and potential penalties related to unrecognized income tax positions which are recorded as a component of the provision ( benefit ) for income taxes . the calculation of tax assets , liabilities , and expenses under gaap is largely dependent on management judgment of the current and future deductibility and utilization of taxable expenses and benefits using a more likely than not threshold . specifically , the realization of deferred tax assets and the certainty of tax positions taken are largely dependent upon management weighting the current positive and negative evidence for recording tax benefits and expenses . additionally , many of our positions are based on future estimates of 26 taxable income and deductibility of tax positions . particularly , our assertion of permanent reinvestment of foreign undistributed earnings is largely based on management 's future estimates of domestic and foreign cash flows and current strategic foreign investment plans . in the event that the actual outcome from future tax consequences differs from management estimates and assumptions or management plans and positions are amended , the resulting change to the provision for income taxes could have a material impact on the consolidated results of operations and financial position . ( see notes 1 and 11 of the notes to consolidated financial statements ) . we did not record a u.s. deferred tax liability for the excess of the book basis over the tax basis of our investments in foreign subsidiaries to the extent the foreign earnings meet the indefinite reversal criteria . as of the year ended december 31 , 2017 , we consider the unremitted foreign earnings of our foreign subsidiaries to be reinvested indefinitely . we base this assertion on two factors . first , our intention to invest in foreign countries that are strategically important to our autocam precision components group and our customers . with the acquisitions completed in 2015 and 2014 , we have expanded our domestic and international base of operations adding subsidiaries in mexico and china , which will require more foreign investment . second , we have sufficient access to funds in the u.s. through projected free cash flows and the availability of our credit facilities to fund currently anticipated domestic operational and investment needs . impairment of long-lived assets long-lived tangible and intangible assets subject to amortization are tested for recoverability when changes in circumstances indicate the carrying value of these assets may not be recoverable . a test for recoverability is also performed when management has committed to a plan to dispose of a reporting unit or asset group . assets to be held and used are tested for recoverability when indications of impairment are evident . recoverability of a long-lived tangible or intangible asset is evaluated by comparing its carrying value to the future estimated undiscounted cash flows expected to be generated by the asset or asset group . if the asset is not recoverable , the asset is considered impaired and adjusted to fair value which is then depreciated or amortized over its remaining useful life . assets to be disposed of are recorded at the lesser of carrying value or fair value less costs of disposal . story_separator_special_tag in assessing potential impairment for long-lived assets , we consider forecasted financial performance based , in large part , on management business plans and projected financial information which are subject to a high degree of management judgment and complexity . future adverse changes in market conditions or adverse operating results of the underlying assets could result in having to record additional impairment charges not previously recognized . critical accounting standards not yet adopted revenue recognition . in may 2014 , the financial accounting standards board ( the fasb ) issued a new standard that provides a single , comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements . under the new guidance , revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services . the standard also requires disclosure of the nature , amount , timing and uncertainty of revenue and cash flows arising from contracts with customers . factors affecting implementation include , but are not limited to , identifying all the contracts that exist and whether incidental obligations or marketing incentives included in some of those contracts are performance obligations . additionally , we evaluated the transfer of control of certain consignment and tooling contracts which may impact the timing of revenue recognition under the new standard . the standard is effective for us beginning january 1 , 2018 , with full retrospective or modified retrospective adoption permitted . we will adopt the standard utilizing the modified retrospective transition method . under this transition method , we will recognize the cumulative effect of initially applying the new standard as an adjustment to the opening balance of retained earnings as of january 1 , 2018 , and will apply the new standard beginning with the most current period presented to contracts that are not completed at the date of initial application . we expect the adoption adjustment to be less than $ 0.1 million , which represents the net profit on certain contracts that were accounted for on a consignment basis prior to the new guidance but do not meet the consignment criteria under the new standard . we expect to utilize certain practical expedients allowed by the new standard . we intend to utilize the portfolio approach practical expedient to evaluate sales-related discounts on a portfolio basis to contracts with similar characteristics . we expect that the effect on our financial statements of applying the portfolio approach would not differ materially from applying the new standard to individual contracts . while our ability to adopt the standard using the modified retrospective method depends on system readiness and completing our analysis of information necessary to present required footnote disclosures in the consolidated financial statements , the implementation project remains on schedule . we have completed a diagnostic accounting assessment , including an analysis of a representative sample of contracts , to identify areas that will be most significantly impacted by implementation of the new standard . we have also completed training to educate contract managers of the technical aspects of the new standard . we have documented our assessments related to the standard as well as system and procedural changes . based on our analysis , we do not expect the new standard to have a significant impact on our financial condition , results of operations or cash flows . 27 leases . in february 2016 , the fasb issued asu 2016-02 , leases . asu 2016-02 creates topic 842 , leases , in the asc and supersedes asc 840 , leases . entities that hold numerous equipment and real estate leases , in particular those with numerous operating leases , will be most affected by the new guidance . the lease accounting standard is effective for nn beginning january 1 , 2019 , with modified retrospective adoption required and early adoption permitted . the amendments in asu 2016-02 are expected to impact balance sheets at many companies by adding lease-related assets and liabilities . this may affect compliance with contractual agreements and loan covenants . we have performed inquiries within segment locations and compiled information on operating and capital leases . we are currently evaluating the impacts of the lease accounting standard on our financial position , results of operations , and related disclosures . upon adoption , we expect to recognize a right-of-use asset and a lease liability for nearly all of our leases that are currently classified as operating leases and are therefore not recorded on the balance sheet . note 14 in the notes to consolidated financial statements presents future minimum lease payments under leases that are currently accounted for as off-balance sheet operating leases . we are in the process of gathering information that will enable us to estimate the amounts of those assets and liabilities . results of operations factors that may influence results of operations the following paragraphs describe factors that have influenced results of operations for 2017 that management believes are important to provide an understanding of the business and results of operations . discontinued operations on august 17 , 2017 , we completed the sale of our pbc business to tsubaki for a base purchase price of $ 375.0 million in cash , subject to certain adjustments . after working capital and other closing adjustments , the final cash purchase price was approximately $ 388.5 million . the pbc business included all our facilities that were engaged in the production of precision steel balls , steel rollers , and metal retainers and automotive specialty products used primarily in the bearing industry . the pbc business represented all of the pbc reportable segment disclosed in our historical financial statements . the sale of the pbc business furthers management 's long-term strategy to build a diversified industrial business with a comprehensive geographic footprint in attractive high-growth market segments .
| days inventory outstanding increased slightly by approximately four days due to normal inventory building activity as we prepare to fulfill customer orders . the increases in cash , income tax receivable , accounts receivable , and inventory were partially offset by the carrying value of current and noncurrent assets of discontinued operations as of december 31 , 2016 , which were sold in the sale of the pbc business and are therefore no longer a component of total assets as of december 31 , 2017. accordingly , current assets decreased by $ 106.7 million and noncurrent assets decreased by $ 103.9 million 37 compared to december 31 , 2016 , due to the sale of the pbc business . also offsetting the increase in cash was a $ 16.6 million decrease in intangible assets due to normal amortization . foreign exchange translation impacted total assets in comparing changes in account balances from december 31 , 2016 , to december 31 , 2017 , by increasing total assets by $ 8.6 million , of which $ 3.4 million related to current assets . from december 31 , 2016 to december 31 , 2017 , total liabilities decreased by $ 60.0 million . total liabilities decreased by the carrying value of current and noncurrent liabilities of discontinued operations as of december 31 , 2016 , which were assumed by the acquirer in the sale of the pbc business and are therefore no longer a component of total liabilities as of december 31 , 2017. accordingly , current liabilities decreased by $ 45.2 million and noncurrent liabilities decreased by $ 12.6 million compared to december 31 , 2016 , due to the sale of the pbc business . the decrease related to discontinued operations was partially offset by increases in debt and accounts payable . total debt increased by $ 9.6 million as a result of the redemption of our senior notes with the proceeds of a new $ 300.0 million incremental term loan
| 13,815 |
since the inception of the program in 2013 , the company has purchased approximately 40 million shares through the end of 2018. the company also obtained authorization from the company 's board of directors to purchase an additional 40 million shares of the company 's common stock . 28 story_separator_special_tag style= '' vertical-align : top '' > ( 4 ) average sales volumes from the north sea were 55,568 boe/d , 58,177 boe/d , and 66,872 boe/d for 2018 , 2017 , and 2016 , respectively . sales volumes may vary from production volumes as a result of the timing of liftings in the beryl field . nm — not meaningful 32 pricing the following table presents pricing information by region : replace_table_token_14_th nm — not meaningful crude oil prices a substantial portion of our crude oil production is sold at prevailing market prices , which fluctuate in response to many factors that are outside of the company 's control . average realized crude oil prices for 2018 were up 27 percent compared to 2017 , a direct result of the rising benchmark oil prices over the past year . crude oil prices realized in 2018 averaged $ 65.30 per barrel . continued volatility in the commodity price environment reinforces the importance of our asset portfolio . while the market price received for natural gas varies among geographic areas , crude oil tends to trade within a global market . price movements for all types and grades of crude oil generally move in the same direction . natural gas prices natural gas , which currently has a limited global transportation system , is subject to price variances based on local supply and demand conditions . our primary markets include north america , egypt , and the u.k. an overview of the market conditions in our primary gas-producing regions follows : north america has a common market ; most of our gas is sold on a monthly or daily basis at either monthly or daily market prices . our u.s. regions averaged $ 2.12 per mcf in 2018 , down from $ 2.56 per mcf in 2017 . in egypt , our gas is sold to egyptian general petroleum corporation ( egpc ) , primarily under an industry pricing formula indexed to dated brent crude oil with a minimum gas price of $ 1.50 per mmbtu and a maximum gas price of $ 2.65 per mmbtu , plus an upward adjustment for liquids content . overall , the region averaged $ 2.84 per mcf in 2018 , up 1 percent from the prior year . 33 natural gas from the north sea beryl field is processed through the sage gas plant . the gas is sold to a third party at the st. fergus entry point of the national grid on a national balancing point index price basis . the region averaged $ 7.33 per mcf in 2018 , a 32 percent increase from an average of $ 5.54 per mcf in 2017 . ngl prices apache 's ngl production is sold under contracts with prices at market indices based on local supply and demand conditions , less the costs for transportation and fractionation , or on a weighted-average sales price received by the purchaser . crude oil revenues 2018 vs. 2017 crude oil revenues for 2018 totaled $ 5.8 billion , a $ 1.2 billion increase from the 2017 total of $ 4.6 billion , primarily a result of 27 percent higher average realized prices . average daily production in 2018 was 245.4 mb/d , with prices averaging $ 65.30 per barrel . crude oil accounted for 80 percent of apache 's 2018 oil and gas production revenues and 53 percent of its worldwide production . worldwide crude oil production increase d 1.1 mb/d compared to 2017 , primarily the result of the drilling program in the permian region offset by the canada divestitures and natural decline . 2017 vs. 2016 crude oil revenues for 2017 totaled $ 4.6 billion , a $ 426 million increase from the 2016 total of $ 4.2 billion . an 11 percent decrease in average daily production reduced 2017 revenues by $ 559 million compared to 2016 , while 24 percent higher average realized prices increased revenues by $ 985 million . average daily production in 2017 was 244.3 mb/d , with prices averaging $ 51.46 per barrel . crude oil accounted for 78 percent of apache 's 2017 oil and gas production revenues and 53 percent of its worldwide production . worldwide crude oil production decrease d 31.0 mb/d compared to 2016 , primarily the result of the canada divestitures and natural decline . natural gas revenues 2018 vs. 2017 natural gas revenues for 2018 totaled $ 919 million , a $ 40 million decrease from the 2017 total of $ 959 million . a 1 percent increase in average production increased 2018 revenues by $ 7 million compared to 2017 , while 5 percent lower average realized prices decreased revenues by $ 47 million . average daily production in 2018 was 966 mmcf/d , with prices averaging $ 2.61 per mcf . natural gas accounted for 12 percent of apache 's 2018 oil and gas production revenues and 34 percent of its worldwide production . worldwide gas production increase d 8.0 mmcf/d compared to 2017 , primarily the result of the alpine high development partially offset by the canada divestitures and natural decline . 2017 vs. 2016 natural gas revenues for 2017 totaled $ 959 million , an $ 8 million decrease from the 2016 total of $ 967 million . a 13 percent decrease in average production reduced 2017 revenues by $ 148 million compared to 2016 , while 14 percent higher average realized prices increased revenues by $ 140 million . average daily production in 2017 was 958 mmcf/d , with prices averaging $ 2.74 per mcf . natural gas accounted for 16 percent of apache 's 2017 oil and gas production revenues and 35 percent of its worldwide production . story_separator_special_tag worldwide gas production decrease d 145.0 mmcf/d compared to 2016 , primarily the result of the canada divestitures , maintenance activities in the north sea , and natural decline . ngl revenues 2018 vs. 2017 ngl revenues for 2018 totaled $ 583 million , a $ 253 million increase from 2017 . an 11 percent increase in average production increased 2018 revenues by $ 59 million compared to 2017 , while 59 percent higher average realized prices increased revenues by $ 194 million . average daily production in 2018 was 59.6 mb/d , with prices averaging $ 26.87 per barrel . ngls accounted for nearly 8 percent of apache 's 2018 oil and gas production revenues and 13 percent of its worldwide production . 2017 vs. 2016 ngl revenues for 2017 totaled $ 330 million , a $ 102 million increase from 2016 . a 15 percent decrease in average production reduced 2017 revenues by $ 58 million compared to 2016 , while 70 percent higher average realized prices increased revenues by $ 160 million . average daily production in 2017 was 53.5 mb/d , with prices averaging $ 16.90 per barrel . ngls accounted for nearly 6 percent of apache 's 2017 oil and gas production revenues and 12 percent of its worldwide production . 34 altus revenues apache is the largest single owner of the voting common stock of altm , and has an approximate 79 percent interest in altus . altus generates revenue primarily by providing fee-based natural gas gathering , compression , processing , and transportation services . altus owns , develops , and operates a midstream energy asset network in the permian basin of west texas , anchored by midstream service contracts to service apache 's production from its alpine high resource play , which commenced production in may 2017. the amount and pace of upstream development activity by apache of its alpine high play will impact altus 's aggregate gathering and processing volumes over time . additionally , other producers are also developing oil and gas plays in surrounding areas that are expected to provide attractive opportunities to enter into third-party processing and gathering agreements . during 2018 and 2017 , midstream services revenues totaling $ 77 million and $ 15 million , respectively , were generated through fee-based contractual arrangements with apache and eliminated upon consolidation . altus did not generate any services revenues in 2016. operating expenses the table below presents a comparison of the company 's expenses on an absolute dollar basis . the company 's discussion may reference expenses on a boe basis , on an absolute dollar basis or both , depending on context . all operating expenses include costs attributable to a noncontrolling interest in egypt and altm . operating expenses for all periods exclude discontinued operations in australia . replace_table_token_15_th lease operating expenses ( loe ) loe includes several key components , such as direct operating costs , repair and maintenance , and workover costs . direct operating costs generally trend with commodity prices and are impacted by the type of commodity produced and the location of properties ( i.e. , offshore , onshore , remote locations , etc. ) . fluctuations in commodity prices impact operating cost elements both directly and indirectly . they directly impact costs such as power , fuel , and chemicals , which are commodity price based . commodity prices also affect industry activity and demand , thus indirectly impacting the cost of items such as rig rates , labor , boats , helicopters , materials , and supplies . oil , which contributed more than half of apache 's 2018 production , is inherently more expensive to produce than natural gas . repair and maintenance costs are typically higher on offshore properties . during 2018 , loe increased $ 55 million , or 4 percent , on an absolute dollar basis compared to 2017 . on a per-unit basis , loe increased $ 0.19 , or 2 percent compared to 2017 , from $ 8.28 per boe to $ 8.47 per boe . the increase in both absolute dollar basis and per-unit basis is primarily a result of rising costs commensurate with higher commodity prices realized during 2018. during 2017 , loe decreased $ 110 million , or 7 percent , on an absolute dollar basis compared to 2016 . on a per-unit basis , loe increased $ 0.43 , or 5 percent , compared to 2016 . the per-barrel increase during 2017 is primarily the result of declines in production combined with generally rising costs commensurate with higher commodity prices realized during 2017 . 35 gathering , transmission , and processing gathering , transmission , and processing ( gtp ) expenses include upstream transmission costs paid to a third-party carrier and to altus , as well as costs associated with gas processing . gtp expenses also include midstream operating costs incurred by altus . the following table presents a summary of these expenses : replace_table_token_16_th 2018 vs. 2017 gtp costs increased $ 153 million from 2017 . upstream transmission and processing costs increased from $ 1.16 per boe in 2017 to $ 2.16 per boe in 2018. the increase is primarily the result of the reclassification of certain transportation charges from revenues to gtp expense as a result of the adoption of new revenue recognition accounting rules effective january 1 , 2018 , as well as the ramp-up of midstream operations at alpine high , partially offset by apache 's exit from canada . 2017 vs. 2016 gtp costs decreased $ 5 million from 2016 . the decrease was directly related to the canadian divestitures that closed in august 2017. taxes other than income taxes other than income primarily consist of severance taxes on properties onshore and in state waters off the coast of the u.s. and ad valorem taxes on properties in the u.s. severance taxes are generally based on a percentage of oil and gas production revenues . we are also subject to a variety of other taxes , including u.s. franchise taxes .
| additionally , altus midstream lp and or its subsidiaries have equity ownership in third-party pipeline projects and hold options to purchase equity ownerships in other pipeline projects in the region . international the egypt region averaged 12 rigs and drilled or participated in drilling 115 gross wells . during 2018 , egypt 's gross production and net equivalent production averaged 336 mboe/d and 149 mboe/d , respectively . egypt 's gross production increased 1 percent from 2017 , while net equivalent production decreased 8 percent from 2017 , primarily the result of the impact of higher brent oil prices on cost recovery volumes as a function of the company 's production sharing contracts . the region contributed $ 2.7 billion of revenues during the year . the north sea region averaged 3 rigs during 2018 , drilling 10 gross wells . during the year , the region averaged production of 56 mboe/d and contributed $ 1.3 billion of revenues . production declined 3 percent from 2017 , primarily the result of natural decline offset by a development well coming online at the callater field and initial production at garten during the fourth quarter of 2018. for a more detailed discussion related to apache 's various geographic regions , please refer to the “ geographic area overviews ” section set forth in part i , item 1 and 2 of this form 10-k. acquisition and divestiture activity over apache 's 60-year history , the company has repeatedly demonstrated its ability to capitalize quickly and decisively on changes in its industry and economic conditions . a key component of this strategy is to continuously review and optimize apache 's portfolio of assets in response to these changes . most recently , apache has completed a series of divestitures designed to monetize nonstrategic assets and enhance apache 's portfolio in order to allocate resources to more impactful exploration and development opportunities . these divestments comprised primarily capital intensive projects and assets that were not accretive to earnings in the near-term , and included all of apache 's operations in canada and australia . these divestments include : u.s. and north sea divestitures during 2018 , in addition to
| 13,816 |
section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * 32.2 certification by the chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * * filed herewith signatures in accordance with section 13 or 15 ( d ) of the exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized on july 10 , 2020. all state properties holdings , inc. . by : / s/ joseph c , passalaqua joseph c. passalaqua chief executive officer ( principal executive officer ) by : / s/ joseph c , passalaqua joseph c. passalaqua chief financial officer ( principal financial officer ) 27 story_separator_special_tag forward looking statements this section and other parts of this form 10-k annual report includes `` forward-looking statements '' , that involves risks and uncertainties . all statements other than statements of historical facts , included in this form 10-k that address activities , events , or developments that we expect or anticipate will or may occur in the future , including such things as future capital expenditures ( including the amount and nature thereof ) , business strategy and measures to implement strategy , competitive strength , goals , expansion and growth of our business and operations , plans , references to future success , reference to intentions as to future matters , and other such matters are forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as `` may , '' `` will , '' `` should , '' `` expects , '' `` plans , '' `` anticipates , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential , '' or `` continue , '' or the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these statements are based upon certain assumptions and analyses made by us in light of our experience and our perception of historical trends , current conditions and expected future developments as well as other factors that we believe are appropriate in the circumstances . however , whether actual results and developments will conform to our expectations and predictions is subject to a number of risks , uncertainties , and other factors , many of which are beyond our control . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . moreover , we do not assume responsibility for the accuracy and completeness of such forward-looking statements . we are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results . overview all state properties holdings , inc. ( the `` company '' , `` we '' , or `` us '' ) was incorporated under the laws of the state of nevada on april 24 , 2008. all state properties holdings , inc. is to serve as a vehicle to effect a merger , exchange of capital stock , asset acquisition , or other business combination with a domestic or foreign private business . the company not commenced planned principal operations . the company has a june 30 year end . as of june 30 , 2019 , the issued and outstanding shares of common stock totaled 2,964,181,540. certain statements contained below are forward-looking statements ( rather than historical facts ) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . we are considered a start-up corporation . our auditors have issued a going concern opinion in the financial statements for the year ended june 30 , 2019. story_separator_special_tag roman ; margin:0 ; color : # 000000 ; background-color : # ffffff '' > stock based compensation we account for share-based compensation at fair value . stock based compensation cost for stock options granted to employees , board members and service providers is determined at the grant date using an option pricing model . the value of the award that is ultimately expected to vest is recognized as expensed on a straight-line basis over the requisite service period . story_separator_special_tag section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * 32.2 certification by the chief financial officer pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 * * filed herewith signatures in accordance with section 13 or 15 ( d ) of the exchange act , the registrant caused this report to be signed on its behalf by the undersigned , thereunto duly authorized on july 10 , 2020. all state properties holdings , inc. . by : / s/ joseph c , passalaqua joseph c. passalaqua chief executive officer ( principal executive officer ) by : / s/ joseph c , passalaqua joseph c. passalaqua chief financial officer ( principal financial officer ) 27 story_separator_special_tag forward looking statements this section and other parts of this form 10-k annual report includes `` forward-looking statements '' , that involves risks and uncertainties . all statements other than statements of historical facts , included in this form 10-k that address activities , events , or developments that we expect or anticipate will or may occur in the future , including such things as future capital expenditures ( including the amount and nature thereof ) , business strategy and measures to implement strategy , competitive strength , goals , expansion and growth of our business and operations , plans , references to future success , reference to intentions as to future matters , and other such matters are forward-looking statements . in some cases , you can identify forward-looking statements by terminology such as `` may , '' `` will , '' `` should , '' `` expects , '' `` plans , '' `` anticipates , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential , '' or `` continue , '' or the negative of such terms or other comparable terminology . these statements are only predictions . actual events or results may differ materially . these statements are based upon certain assumptions and analyses made by us in light of our experience and our perception of historical trends , current conditions and expected future developments as well as other factors that we believe are appropriate in the circumstances . however , whether actual results and developments will conform to our expectations and predictions is subject to a number of risks , uncertainties , and other factors , many of which are beyond our control . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance , or achievements . moreover , we do not assume responsibility for the accuracy and completeness of such forward-looking statements . we are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results . overview all state properties holdings , inc. ( the `` company '' , `` we '' , or `` us '' ) was incorporated under the laws of the state of nevada on april 24 , 2008. all state properties holdings , inc. is to serve as a vehicle to effect a merger , exchange of capital stock , asset acquisition , or other business combination with a domestic or foreign private business . the company not commenced planned principal operations . the company has a june 30 year end . as of june 30 , 2019 , the issued and outstanding shares of common stock totaled 2,964,181,540. certain statements contained below are forward-looking statements ( rather than historical facts ) that are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements . we are considered a start-up corporation . our auditors have issued a going concern opinion in the financial statements for the year ended june 30 , 2019. story_separator_special_tag roman ; margin:0 ; color : # 000000 ; background-color : # ffffff '' > stock based compensation we account for share-based compensation at fair value . stock based compensation cost for stock options granted to employees , board members and service providers is determined at the grant date using an option pricing model . the value of the award that is ultimately expected to vest is recognized as expensed on a straight-line basis over the requisite service period .
| $ 6,000 on june 30 , 2018 to $ 3,500 on june 30 , 2019 and an increase in due to related parties from $ 53,842 on june 30,2018 to $ 70,061 on june 30 , 2019. cashflows from operating activities during the year ended june 30 , 2019 and june 30 , 2018 , the company did not used any cash for operating activities . cashflows from financing activities during the years ended june 30 , 2019 and june 30 , 2018 , the company did not receive any cash from financing activities . subsequent developments none going concern we have not attained profitable operations and are dependent upon the continued financial support from our shareholders , the ability to raise equity or debt financing , and the attainment of profitable operations from our future business . these factors raise substantial doubt regarding our ability to continue as a going concern . off balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations as a `` smaller reporting company '' as defined by item 10 of regulation s-k , we are not required to provide this information . 10 critical accounting policies we have one main products , namely the concealed weapons detection system . in all cases revenue is considered earned when the product is shipped to the customer , installed ( if necessary ) and accepted by the customer as a completed sale . each product has an unconditional 30-day warranty , during which time the product can be returned for a complete refund . customers can purchase extended warranties , which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty . warranties can
| 13,817 |
( iii ) the introduction of new products , including our high-power lasers with higher output power levels , quasi-continuous wave ( `` qcw '' ) lasers , laser systems , high-power pulsed lasers and optical heads and other accessories and ( iv ) the development of new applications for our products . our annual revenue growth rates have varied . net sales increased by 12 % , 17 % and 19 % in 2016 , 2015 and 2014 , respectively . our business depends substantially upon capital expenditures by our customers , particularly by manufacturers using our products for materials processing , which includes general manufacturing , automotive , aerospace , heavy industry , consumer , semiconductor and electronics . approximately 93 % of our revenues in 2016 were from customers using our products for materials processing . although applications within materials processing are broad , the capital equipment market in general is cyclical and historically has experienced sudden and severe downturns . for the foreseeable future , our operations will continue to depend upon capital expenditures by customers for materials processing and will be subject to the broader fluctuations of capital equipment spending . our net sales have historically fluctuated from quarter to quarter . the increase or decrease in sales from a prior quarter can be affected by the timing of orders received from customers , the shipment , installation and acceptance of products at our customers ' facilities , the mix of oem orders and one-time orders for products with large purchase prices , economic and political conditions in a certain country or region and seasonal factors such as the purchasing patterns and levels of activity throughout the year in the regions where we operate . historically , our net sales have been higher in the second half of the year than in the first half of the year . furthermore , net sales can be affected by the time taken to qualify our products for use in new 34 applications in the end markets that we serve . the adoption of our products by a new customer or qualification in a new application can lead to an increase in net sales for a period , which may then slow until we penetrate new markets or obtain new customers . gross margin . our total gross margin in any period can be significantly affected by total net sales in any period , by product mix , that is , the percentage of our revenue in the period that is attributable to higher or lower-power products and the mix of sales between laser and amplifier sources and complete systems , by sales mix between oem customers who purchase devices from us in high unit volumes and other customers , by mix of sales in different geographies and by other factors , some of which are not under our control . our product mix affects our margins because the selling price per watt is generally higher for mid-power devices and certain specialty products than for high-power devices and certain pulsed lasers sold in large volumes . the overall cost of high-power lasers may be partially offset by improved absorption of fixed overhead costs associated with sales of larger volumes of higher-power products because they use a greater number of optical components and drive economies of scale in manufacturing . also , the profit margins on systems can be lower than margins for our laser and amplifier sources , depending on the configuration , volume and competitive forces , among other factors . the mix of sales between oem customers and other customers can affect gross margin because we provide sales price discounts on products based on the number of units ordered . as the number of oem customers increase and the number of units ordered increases , the average sales price per unit will be reduced . we expect that the impact of reduced sales price per unit will be offset by the manufacturing efficiency provided by high unit volume orders , but the timing and extent of achieving these efficiencies may not always match the mix of sales in any given time period or be realized at all . we invested $ 127.0 million , $ 70.1 million and $ 88.6 million in capital expenditures in 2016 , 2015 and 2014 , respectively . most of this investment relates to expansion of our manufacturing capacity and , to a lesser extent , research and development and sales-related facilities . a high proportion of our costs is fixed so costs are generally difficult or may take time to adjust in response to changes in demand . in addition , our fixed costs increase as we expand our capacity . if we expand capacity faster than is required by sales growth , gross margins could be negatively affected . gross margins generally decline if production volumes are lower as a result of a decrease in sales or a reduction in inventory because the absorption of fixed manufacturing costs will be reduced . gross margins generally improve when the opposite occurs . if both sales and inventory decrease in the same period , the decline in gross margin may be greater if we can not reduce fixed costs or choose not to reduce fixed costs to match the decrease in the level of production . if we experience a decline in sales that reduces absorption of our fixed costs , or if we have production issues , our gross margins will be negatively affected . we also regularly review our inventory for items that are slow-moving , have been rendered obsolete or are determined to be excess . any provision for such slow-moving , obsolete or excess inventory affects our gross margins . for example , we recorded provisions for slow-moving , obsolete or excess inventory totaling $ 22.8 million , $ 15.4 million and $ 11.3 million in 2016 , 2015 and 2014 , respectively . sales and marketing expense . story_separator_special_tag we expect to continue to expand our worldwide direct sales organization , build and expand applications centers , hire additional sales and marketing personnel at our existing and new geographic locations as well as to support sales of new product lines , increase the number of units for demonstration purposes and otherwise increase expenditures on sales and marketing activities in order to support the growth in our net sales . as such , we expect that our sales and marketing expenses will increase in the aggregate . research and development expense . we plan to continue to invest in research and development to improve our existing components and products and develop new components , products , systems and applications technology . the amount of research and development expense we incur may vary from period to period . in general , if net sales continue to increase we expect research and development expense to increase in the aggregate . general and administrative expense . we expect our general and administrative expenses to increase as we continue to invest in systems and resources in management , finance , legal , information technology , human resources and administration to support our worldwide operations . legal expenses vary from quarter to quarter based primarily upon the level of litigation and transaction activities . major customers . while we have historically depended on a few customers for a large percentage of our annual net sales , the composition of this group can change from year to year . net sales derived from our five largest customers as a percentage of our annual net sales were 22 % , 25 % and 23 % in 2016 , 2015 and 2014 . in 2016 , none of our customers accounted for more than 10 % of our net sales and in 2015 and 2014 , sales to our largest customer accounted for 13 % , and 11 % of our net sales , 35 respectively . we seek to add new customers and to expand our relationships with existing customers . we anticipate that the composition of our significant customers will continue to change . we generally do not enter into agreements with our customers obligating them to purchase our fiber lasers or amplifiers . if any of our significant customers were to substantially reduce their purchases from us , our results would be adversely affected . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( `` gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty . on an ongoing basis we re-evaluate our judgments and estimates including those related to inventories , warranty obligations , contingent liabilities , income taxes and the fair value of certain debt and equity instruments including stock-based compensation . we base our estimates and judgments on our historical experience and on other assumptions that we believe are reasonable under the circumstances , the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from those estimates , which may materially affect our operating results and financial position . the accounting policies described below are those which , in our opinion , involve the most significant application of judgment , or involve complex estimation , and which could , if different judgments or estimates were made , materially affect our reported results of operations and financial position . revenue recognition . we recognize revenue in accordance with financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) 605. revenue from orders with multiple deliverables is divided into separate units of accounting when certain criteria are met . these separate units generally consist of equipment and installation . the consideration for the arrangement is then allocated to the separate units of accounting based on their relative selling prices . the selling price of equipment is based on vendor-specific objective evidence and the selling price of installation is based on third-party evidence . applicable revenue recognition criteria are then applied separately for each separate unit of accounting . revenue for laser and amplifier sources generally is recognized upon the transfer of ownership which is typically at the time of shipment . installation revenue is recognized upon completion of the installation service which typically occurs within 30 to 90 days of delivery . for laser systems that have customer specific processing requirements , revenue is recognized at the latter of customer acceptance date or shipment date if the customer acceptance is made prior to shipment . returns and customer credits are infrequent and are recorded as a reduction to revenue . rights of return generally are not included in sales arrangements . accounts receivable and allowance for doubtful accounts . accounts receivable include $ 24.0 million and $ 24.3 million of bank acceptance drafts issued in china at december 31 , 2016 and 2015 , respectively . bank acceptance drafts are bank guarantees of payment on specified dates . the maturity of these bank acceptance drafts is less than 90 days . we maintain an allowance for doubtful accounts to provide for the estimated amount of accounts receivable that will not be collected . the allowance is based upon an assessment of customer creditworthiness , historical payment experience and the age of outstanding receivables . inventory . inventory is stated at the lower of cost ( first-in , first-out method ) or market value . inventory includes parts and components that may be specialized in nature and subject to rapid obsolescence . we maintain a reserve for excess or obsolete inventory items .
| while the number of units shipped of medium-power lasers increased , this increase was offset by declines in average selling prices . low-power laser sales decreased due to lower sales for medical applications . pulsed laser sales increased due to higher demand for ablation and cleaning and stripping applications . marking and engraving applications , which is the largest application for pulsed lasers , was relatively flat . within the pulsed laser category , increased sales of high-power pulsed lasers and green pulsed lasers were partially offset by decreased sales of pulsed lasers with lower average power . qcw laser sales decreased due to lower demand for fine cutting from consumer electronics applications partially offset by increased sales for welding and drilling applications . materials processing sales also increased as a result of higher sales and service related sales which are included in above . sales for other applications increased due to higher sales for telecom applications . the increase in telecom sales was driven by sales from menara , which we acquired in the second quarter of 2016 , and an increase in amplifier sales used for last mile fiber access to the home applications . sales of telecom products are included in other revenue . these sales increases were partially offset by a decrease in medical application sales . cost of sales and gross margin . cost of sales increased by $ 44.5 million , or 10.9 % , to $ 453.9 million in 2016 from $ 409.4 million in 2015 . our gross margin increased to 54.9 % in 2016 from 54.6 % in 2015 . gross margin increased due to decreases in the cost of internally manufactured components and increased manufacturing efficiency which have offset decreases in average selling prices . gross margin also benefited from product mix including increased sales of cw high-power lasers with output power of more than 6 kilowatt , high-power pulsed lasers and higher power qcw lasers . these benefits were partially offset by a decrease in absorption of manufacturing costs , increased provision
| 13,818 |
we file federal and state returns and our foreign subsidiaries each file returns in their respective jurisdictions , as applicable . deferred taxes are provided on a liability method , whereby deferred tax assets are recognized as deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences . temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some or all of the deferred tax assets will not be realized . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . we must assess the likelihood that we will be able to recover our deferred tax assets . deferred tax assets are reduced by a valuation allowance , if , based upon the weight of available evidence , it is more likely than not that we will not realize some portion or all of the deferred tax assets . we consider all available positive and negative evidence when assessing whether it is more likely than not that deferred tax assets are recoverable . we consider evidence such as our past operating results , the existence of cumulative losses in previous periods and our forecast of future taxable income . we believe this to be a critical accounting policy because should there be a change in our ability to recover our deferred tax assets , our tax provision would increase in the period in which we determine that the recovery is not likely , which could have a material impact on our results of operations . we have not provided for united states , federal income and foreign withholding taxes on the undistributed earnings of our foreign subsidiaries because we intend to reinvest such earnings indefinitely . should we decide to remit this income to the u.s. in a future period , our provision for income taxes may increase materially in the period that our intent changes . we accrue a tax reserve for additional income taxes and interest , which may become payable in future years as a result of audit adjustments by tax authorities . the reserve is based upon management 's assessment of all relevant information and is periodically reviewed and adjusted as circumstances warrant . as of december 31 , 2012 , our income tax reserves were approximately $ 4.8 million and relate to the potential income tax audit adjustments , primarily in the areas of income allocation , foreign depreciation allowances and state taxes . we recognize current period interest expense and the reversal of previously recognized interest expense that has been determined to not be assessable due to the expiration of the related audit period or other compelling factors on the income tax liability for unrecognized tax benefits as interest expense , and penalties and penalty reversals related to the income taxes payable as other expense in our consolidated statements of operations . 26 share-based compensation . we grant restricted stock and options to purchase our common stock to our employees ( including officers ) and non-employee directors under our 2002 stock award and incentive plan ( the “ plan ” ) , which incorporated the shares remaining under our third amended and restated 1995 stock option plan . the benefits provided under the plan are share-based payments . related to the stock option grants , we estimate the value of share-based awards on the date of grant using the black-scholes option-pricing model . the determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price , as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , actual and projected employee stock option exercise behaviors , cancellations , terminations , risk-free interest rates and expected dividends . related to the restricted stock award grants , we determine the value of each award based on the market value of the underlying common stock at the date of each grant and expense each award over the stipulated service period . recent developments during the second quarter of 2012 , we amended the settlement agreement pursuant to which our joint venture with thq was terminated as of december 31 , 2009. in accordance with the original settlement agreement , we received and recorded as income $ 6.0 million in each of june 2010 and 2011. although the amended settlement agreement called for the payment of an additional $ 1.0 million on october 30 , 2012 ( which we received ) and $ 0.4 million each in ten consecutive monthly payments beginning february 28 , 2013 , on december 19 , 2012 , thq filed voluntary petitions under chapter 11 of the u.s. bankruptcy court , and on january 24 , 2013 the us bankruptcy court approved the sale of most of thq 's assets to multiple buyers . given that the final payment received from thq ( in october 2012 ) was within 90 days of their filing for bankruptcy , we have not recognized this payment as revenue and have reserved the amount received pending the final settlement of thq 's assets in accordance with bankruptcy law . acquisitions on september 14 , 2012 , we acquired all of the stock of jkid , ltd. , a united kingdom corporation , for an initial cash consideration of $ 1.1 million and deferred cash payments of $ 5.5 million payable in five semi-annual payments of $ 1.1 million each . story_separator_special_tag in addition , we agreed to pay an earn-out of up to an aggregate amount of $ 4.4. million in cash over the two year period of 2015 through 2016 , based upon the achievement of certain financial performance criteria , which has been accrued and recorded as goodwill as of december 31 , 2012. we have not finalized our purchase price allocation for jkid . jkid is the developer of augmented reality technology that enhances the play patterns of toys and consumer products . on july 26 , 2012 , we acquired all of the stock of maui , inc. , an ohio corporation , kessler services , inc. , a nevada corporation , and a.s. design limited , a hong kong corporation ( collectively , `` maui '' ) . the total initial consideration of $ 37.6 million consisted of $ 36.2 million in cash and the assumption of liabilities in the amount of $ 1.4 million . in addition , we agreed to pay an earn-out of up to an aggregate amount of $ 18.0 million in cash over the three calendar years following the acquisition based upon the achievement of certain financial performance criteria , which has been accrued and recorded as goodwill as of december 31 , 2012. on october 14 , 2011 , we acquired all of the stock of moose mountain toymakers limited , a hong kong company , and a related new jersey company , moose mountain marketing , inc. ( collectively , “ moose mountain ” ) . the total initial consideration of $ 31.5 million consisted of $ 16.0 million in cash and the assumption of liabilities in the amount of $ 15.5 million , and resulted in goodwill of $ 13.5 million . in addition , we agreed to pay an earn-out of up to an aggregate amount of $ 5.3 million in cash over the three calendar years following the acquisition based upon the achievement of certain financial performance criteria . the fair value of the expected earn-out was included in goodwill and assumed liabilities as of december 31 , 2011. moose mountain is a leading designer and producer of foot to floor ride-ons , inflatable environments , wagons , pinball machines and tents and was included in our results of operations from the date of acquisition . 27 story_separator_special_tag text-indent : 15pt ; margin-right : 0pt ; text-align : left '' > selling , general and administrative expenses selling , general and administrative expenses were $ 211.2 million in 2012 and $ 192.7 million in 2011 , constituting 31.7 % and 28.4 % of net sales , respectively . the overall increase of $ 18.5 million was primarily due to the incremental overhead of our recent acquisitions , moose mountain ( $ 7.3 million ) and maui ( $ 2.5 million ) . additionally , increases in other direct selling expenses ( $ 1 . 9 million ) , product development ( $ 1.2 million ) , travel expenses ( $ 1.2 million ) , legal and financial advising fees related to the unsolicited indication of interest to acquire our company ( $ 1.0 million ) and legal expenses ( $ 0.6 million ) contributed to the increase to selling , general and administrative expenses year over year . advertising and tradeshow expenses increased as a result of new product line launches in 2012 , such as monsuno® , and the introduction of our dreamplay® technology ( $ 7.7 million ) . this was offset in part by decreases in amortization expense related to intangible assets other than goodwill ( $ 1.3 million ) , bad debt recovery ( $ 0.6 million ) , currency exchange gains ( $ 1.0 million ) and restricted stock compensation ( $ 0.5 million ) . 29 reorganization charges we incurred reorganization charges in 2009 to consolidate and stream-line our existing business functions . this was necessary given the decreased volume of consolidated sales in 2009 from 2008 and the added general and administrative expenses from the three acquisitions made at the end of 2008. restructuring charges relate to the termination of lease obligations , one-time severance termination benefits , fixed asset write-offs and other contract terminations and are accounted for in accordance with “ exit and disposal cost obligations ” , asc 420-10. we establish a liability for a cost associated with an exit or disposal activity when a liability is incurred , rather than at the date we commit to an exit plan . the components of the reorganization charges are as follows ( in thousands ) : replace_table_token_9_th profit from video game joint venture we recognized $ 6.0 million in 2011 and $ 3.0 million in 2012 in income related to our video game joint venture . pursuant to a settlement agreement and mutual release dated december 22 , 2009 , the joint venture was terminated on december 31 , 2009 and we received and recorded as income as received fixed payments from thq of $ 6.0 million in 2011 and $ 3.0 million in 2012. although an amended settlement agreement called for the payment of an additional $ 1.0 million october 30 , 2012 ( which we received ) and $ 0.4 million each in ten consecutive monthly payments beginning february 28 , 2013 , on december 19 , 2012 , thq filed voluntary petitions under chapter 11 of the u.s. bankruptcy court , and on january 24 , 2013 the us bankruptcy court approved the sale of most of thq 's assets to multiple buyers . given that the final payment received from thq ( in october 2012 ) was within 90 days of their filing for bankruptcy , we have not recognized this payment as revenue and have reserved the amount received pending the final settlement of thq 's assets in accordance with bankruptcy law . interest income interest income in 2012 was $ 0 .
| cost of sales of our traditional toys and electronics segment was $ 249.9 million , or 68.7 % of related net sales , in 2012 , compared to $ 248.0 million , or 71.1 % of related net sales , in 2011 , representing an increase of $ 1.9 million , or 0.8 % . this percentage cost of sales decrease was primarily due to charges in 2011 of $ 12.8 million related to the write-down of license advances and minimum guarantees that are not expected to be earned through sales of that licensed product , whereas 2012 charges related to the write-down of licenses was approximately $ 3.7 million . excluding these charges , cost of sales was $ 235.2 million in 2011 and $ 246.2 million in 2012 , representing an increase of $ 11.0 million , or 4.7 % , this increase primarily consisted of an increase in product costs of $ 7.5 million , which is in line with the higher volume of sales . excluding the license impairment charges , royalty expense for our traditional toys and electronics segment increased by $ 3.7 million , which is in line with the higher volume of sales . our depreciation of molds and tools was comparable year over year . role play , novelties and seasonal products . cost of sales of our role play , novelties and seasonal products segment was $ 219.0 million in 2012 , or 72.2 % of related net sales , compared to $ 235.8 million in 2011 , or 71.7 % of related net sales , representing a decrease of $ 16.8 million , or 7.1 % . this percentage cost of sales increase was partially due to charges of $ 5.3 million and $ 3.6 million in 2011 and 2012 , respectively , related to the write-down of license advances and minimum guarantees that are not expected to be earned out through sales of that licensed product . excluding these charges , cost of sales was $ 215.4 million in 2012 and $ 230.5 million in 2011 , representing a decrease of $ 15.1 million , or 6.6 % . this decrease which primarily consisted of a decrease in product costs of $ 12.5 million , which is in line with the lower volume of sales .
| 13,819 |
in response to the covid-19 pandemic and related extraordinary market conditions , nasdaq provided temporary relief from the continued listing requirements , as a result , the company 's deadline to regain compliance was extended to august 15 , 2020. because the company did not regain compliance with the bid price rule by the com pliance date , we provided written notice to nasdaq of our intention to cure the deficiency during an additional 180 calendar day compliance period by effecting a reverse stock split , if necessary . on february 4 , 2021 , biolase received formal notification via letter from nasdaq confirming that the company had regained compliance with the minimum bid price rule , and that the matter is now closed . on march 31 , 2020 , biolase received a deficiency letter from nasdaq notifying biolase that , based on biolase 's stockholders ' equity of $ 377,000 as of december 31 , 2019 , as reported in the 2019 form 10-k , biolase was no longer in compliance with the minimum stockholders ' equity requirement for continued listing on the nasdaq capital market under nasdaq listing rule 5550 ( b ) ( 1 ) , which requires listed companies to maintain stockholders ' equity of at least $ 2.5 million . biolase has responded to nasdaq with a specific plan to achieve and sustain compliance with the foregoing listing requirement . if the company 's plan to regain compliance is accepted , nasdaq may grant an extension of up to 180 calendar days from the date of the letter for the company to evidence compliance . on june 4 , 2020 , nasdaq granted the company 's request for an extension of time to regain compliance to august 31 , 2020. in july 2020 , the company consummated a registered rights offering ( the “ rights offering ” ) for gross proceeds of $ 18.0 million , and on august 14 , 2020 , the company received notification from nasdaq that it had regained compliance with this requirement . resignation of president and chief executive officer , and director on february 22 , 2021 , todd norbe resigned as president and chief executive officer of biolase , inc. ( the “ company ” ) , and resigned as a member of the board . appointment of president and chief executive officer effective february 23 , 2021 , the board appointed john r. beaver president and chief executive officer of the company . mr. beaver was most recently the company 's executive vice president , chief operating officer and chief financial officer . he joined biolase in 2017 as senior vice president and chief financial officer . he assumed roles of varying responsibilities over the past few years , including interim chief executive officer of biolase from april 2017 until the hiring of mr. norbe . critical accounting policies the preparation of consolidated financial statements and related disclosures in conformity with generally accepted accounting principles in the united states ( “ gaap ” ) requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes . the following is a summary of those accounting policies that we believe are necessary to understand and evaluate our reported financial results . 38 revenue recognition . revenue for sales of products and services is derived from contracts with customers . the products and services promised in customer contracts include delivery of laser systems , imaging systems , and consumables as well as certain ancillary serv ices such as product training and support for extended warranties . contracts with each customer generally state the terms of the sale , including the description , quantity and price of each product or service . payment terms are stated in the contract and va ry according to the arrangement . because the customer typically agrees to a stated rate and price in the contract that does not vary over the life of the contract , our contracts do not contain variable consideration . we establish a provision for estimated warranty expense . for further information on warranty , see the discussion under “ warranty cost ” below . at contract inception , we assess the products and services promised in our contracts with customers . we then identify performance obligations to transfer distinct products or services to the customers . in order to identify performance obligations , we consider all of the products or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices . revenue from products and services transferred to customers at a single point in time accounted for 81 % , 81 % and 86 % of net revenue for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . the majority of the revenue recognized at a point in time is for the sale of laser systems , imaging systems , and consumables . revenue from these contracts is recognized when the customer is able to direct the use of and obtain substantially all of the benefits from the product which generally coincides with title transfer during the shipping process . revenue from services transferred to customers over time accounted for 19 % , 19 % , and 14 % of net revenue for the years ended december 31 , 2020 , 2019 , and 2018 , respectively . the majority of our revenue that is recognized over time relates to training and extended warranties . the transaction price for a contract is allocated to each distinct performance obligation and recognized as revenue when , or as , each performance obligation is satisfied . for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in a contract . story_separator_special_tag the primary method used to estimate standalone selling price is the observable price when the good or service is sold separately in similar circumstances and to similar customers . revenue is recorded for extended warranties over time as the customer benefits from the warranty coverage . this revenue will be recognized equally throughout the contract period as the customer receives benefits from our promise to provide such services . revenue is recorded for product training as the customer attends a training program or upon the expiration of the obligation . we also have contracts that include both the product sales and product training as performance obligations . in those cases , we record revenue for product sales at the point in time when the product has been shipped . the customer obtains control of the product when it is shipped , as all shipments are made fob shipping point , and after the customer selects its shipping method and pays all shipping costs and insurance . we have concluded that control is transferred to the customer upon shipment . we perform our obligations under a contract with a customer by transferring products and or services in exchange for consideration from the customer . we invoice our customers as soon as control of an asset is transferred and a receivable due to us is established . we recognize a contract liability when a customer prepays for goods and or services and we have not transferred control of the goods and or services . accounts receivable are stated at estimated net realizable value . the allowance for doubtful accounts is based on an analysis of customer accounts and our historical experience with accounts receivable write-offs . accounting for stock-based payments . stock-based compensation expense is estimated at the grant date of the award , is based on the fair value of the award and is recognized ratably over the requisite service period of the award . for restricted stock units we estimate the fair value of the award based on the number of awards and the fair value of our common stock on the grant date and apply an estimated forfeiture rate . for stock options , we estimate the fair value of the option award using the black-scholes option pricing model . this option-pricing model requires us to make several assumptions regarding the key variables used to calculate the fair value of its stock options . the risk-free interest rate used is based on the u.s. treasury yield curve in effect for the expected lives of the options at their grant dates . since july 1 , 2005 , we have used a dividend yield of zero , as we do not intend to pay cash dividends on our common stock in the foreseeable future . the most critical assumptions used in calculating the fair value of stock options are the expected life of the option and the expected volatility of our common stock . the expected life is calculated in accordance with the simplified method , whereby for service-based awards , the expected life is calculated as a midpoint between the vesting date and expiration date . we use the simplified method , as there is not a sufficient history of share option exercises . we believe the historic volatility of our common stock is a reliable indicator of future volatility , and accordingly , a stock volatility factor based on the historical volatility of our common stock over a lookback period of the expected life is used in approximating the estimated volatility of new stock options . compensation expense is recognized using the straight-line method for all service-based employee awards and graded amortization for all performance-based awards . compensation expense is recognized only for those options expected to vest , with forfeitures estimated at the date of grant based on historical experience and future expectations . forfeitures are estimated at the time of the grant and revised in subsequent periods as actual forfeitures differ from those estimates . during the year ended december 31 , 2020 , we applied a forfeiture rate of 10.87 % and 49.43 % to awards granted to executives and employees , respectively , 39 valuation of inventory . inventory is valued at the lower of cost or net realizable value , with cost determined using the first-in , first-out method . we periodically evaluate the carrying va lue of inventory and maintain an allowance for excess and obsolete inventory to adjust the carrying value as necessary to the lower of cost or net realizable value . we evaluate quantities on hand , physical condition , and technical functionality , as these c haracteristics may be impacted by anticipated customer demand for current products and new product introductions . unfavorable changes in estimates of excess and obsolete inventory would result in an increase in cost of revenue and a decrease in gross profi t. valuation of long-lived assets . property , plant , and equipment and certain intangibles with finite lives are amortized over their estimated useful lives . useful lives are based on our estimate of the period that the assets will generate revenue or otherwise productively support our business goals . we monitor events and changes in circumstances that could indicate that the carrying balances of long-lived assets may exceed the undiscounted expected future cash flows from those assets . if such a condition were to exist , we would determine if an impairment loss should be recognized by comparing the carrying amount of the assets to their fair value . valuation of goodwill and other intangible assets . goodwill and other intangible assets with indefinite lives are not subject to amortization but are evaluated for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired . we conducted our annual impairment analysis of our goodwill as of june 30 , 2019 and concluded there had been no impairment in goodwill .
| cost of revenue decreased by $ 6.9 million , or approximately 29 % , to $ 16.6 million , or 73 % of net revenue for the year ended december 31 , 2020 , compared to cost of revenue of $ 23.5 million , or 62 % of net revenue , for the same period in 2019. the decrease in cost of revenue for the year ended december 31 , 2020 as compared to the same period in 2019 is primarily due to the decline is sales for the year ended december 31 , 2020. gross profit . gross profit as a percentage of revenue typically fluctuates with product and regional mix , selling prices , product costs and revenue levels . gross profit for the year ended december 31 , 2020 was $ 6.2 million , or 27 % of net revenue , a decrease of $ 8.1 million , or 57 % , as compared with gross profit of $ 14.3 million , or 38 % of net revenue , for the same period in 2019. the decrease in gross profit is commensurate with the decline in sales , while the decrease in gross profit percentage was primarily due to unfavorable dilution of fixed expenses and inventory write-offs . operating expenses . operating expenses for the year ended december 31 , 2020 were $ 24.7 million , or 109 % of net revenue , a decrease of $ 5.2 million , or 17 % , as compared with $ 29.9 million , or 79 % of net revenue , for the same period in 2019. see the following expense categories for further explanations . sales and marketing expense . sales and marketing expense for the year ended december 31 , 2020 decreased by $ 3.2 million , or 22 % , to $ 11.2 million , or 49 % of net revenue , as compared with $ 14.4 million , or 38 % of net revenue , during the year ended december 31 , 2019. the decrease for the year ended december 31 , 2020 was primarily a result of decreases in payroll and consulting-related expense of $ 0.9 million primarily due to lower sales commissions from lower revenue $ 0.5 million and
| 13,820 |
the downstream operations will extend their profitable growth in 2013 through continued innovative solutions to meet a wide-range of customer needs , as well as expansion of aluminum lithium capabilities in lafayette , in to meet the growing demand in the aerospace market and the opening of a forged wheels facility in suzhou , china that will serve the commercial transportation market . results of operations story_separator_special_tag new roman '' > research and development expenses r & d expenses were $ 197 in 2012 compared with $ 184 in 2011 and $ 174 in 2010. the increase in 2012 as compared to 2011 was primarily caused by additional spending related to inert anode technology for the primary metals segment . the increase in 2011 as compared to 2010 was mainly driven by incremental increases across various expenses necessary to support r & d activities . provision for depreciation , depletion , and amortization the provision for dd & a was $ 1,460 in 2012 compared with $ 1,479 in 2011. the decrease of $ 19 , or 1 % , was principally the result of the cessation of dd & a due to the decision at the end of 2011 to permanently shut down and demolish the smelter in tennessee ( see restructuring and other charges below ) and the absence of dd & a on various in-use assets that reached the end of their estimated useful life in 2011 , partially offset by an increase related to assets placed into service associated with a new hydroelectric power facility in brazil and higher dd & a due to the capitalization of new haul roads and the write-off of old haul roads no longer in use for mining sites in australia . the provision for dd & a was $ 1,479 in 2011 compared with $ 1,450 in 2010. the increase of $ 29 , or 2 % , was mostly due to a portion of the assets placed into service in mid-2011 related to a new hydroelectric power facility in brazil , along with a number of small increases at various locations . restructuring and other charges restructuring and other charges for each year in the three-year period ended december 31 , 2012 were comprised of the following : replace_table_token_11_th layoff costs were recorded based on approved detailed action plans submitted by the operating locations that specified positions to be eliminated , benefits to be paid under existing severance plans , union contracts or statutory requirements , and the expected timetable for completion of the plans . 2012 actions in 2012 , alcoa recorded restructuring and other charges of $ 87 ( $ 73 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 47 ( $ 29 after-tax and noncontrolling interests ) for the layoff of approximately 800 employees ( 390 in the engineered products and solutions segment , 250 in the primary metals segment , 85 in the alumina segment , and 75 in corporate ) , including $ 10 ( $ 7 after-tax ) for the layoff of an additional 170 employees related to the previously reported smelter curtailments in spain ( see 2011 actions below ) ; $ 30 ( $ 30 after-tax ) in asset impairments and $ 6 ( $ 6 after-tax ) for lease and contract termination costs due to a decision to exit the lithographic sheet business in bohai , china ; $ 11 ( $ 11 after-tax ) in costs to idle the portovesme smelter ( see 2011 actions below ) ; $ 10 ( $ 8 after-tax ) in other asset impairments ; a net charge of $ 4 ( $ 4 after-tax and noncontrolling interests ) for other miscellaneous items ; and $ 21 ( $ 15 after-tax and noncontrolling interests ) for the reversal of a number of layoff reserves related to prior periods , including $ 10 ( $ 7 after-tax ) related to the smelters in spain . the reversal related to the smelters in spain is due to lower than expected costs based on agreements with employee representatives and the government , as well as a reduction of 55 in the number of layoffs due to the anticipation of the restart of a portion of the previously curtailed capacity based on an agreement with the spanish government that will provide interruptibility rights ( i.e . compensation for power interruptions when grids are overloaded ) to the smelters during 2013. a portion of this reversal relates to layoff costs recorded at the end of 2011 ( see 2011 actions below ) and a portion of this reversal relates to layoff costs recorded during 2012 ( see above ) . 55 as of december 31 , 2012 , approximately 270 of the 800 employees were separated . the remaining separations for the 2012 restructuring programs are expected to be completed by the end of 2013. in 2012 , cash payments of $ 16 were made against layoff reserves related to the 2012 restructuring programs . 2011 actions in 2011 , alcoa recorded restructuring and other charges of $ 281 ( $ 181 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 127 ( $ 82 after-tax ) in asset impairments and $ 36 ( $ 23 after-tax ) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at two u.s. locations ( see below ) ; $ 93 ( $ 68 after-tax and noncontrolling interests ) for the layoff of approximately 1,600 employees ( 820 in the primary metals segment , 470 in the global rolled products segment , 160 in the alumina segment , 20 in the engineered products and solutions segment , and 130 in corporate ) , including the effects of planned smelter curtailments ( see below ) ; $ 23 ( $ 12 after-tax and noncontrolling interests ) for other asset impairments , including the write-off of the carrying value of an idled structure in australia that processed spent pot lining and adjustments to the fair value of the one remaining foil location while story_separator_special_tag it was classified as held for sale due to foreign currency movements ; $ 20 ( $ 8 after-tax and noncontrolling interests ) for a litigation matter related to the former st. croix location ; a net charge of $ 5 ( $ 4 after-tax ) for other small items ; and $ 23 ( $ 16 after-tax ) for the reversal of previously recorded layoff reserves due to normal attrition and changes in facts and circumstances , including a change in plans for alcoa 's aluminum powder facility in rockdale , tx . in late 2011 , management approved the permanent shutdown and demolition of certain facilities at two u.s. locations , each of which was previously temporarily idled for various reasons . the identified facilities are the smelter located in alcoa , tn ( capacity of 215 kmt-per-year ) and two potlines ( capacity of 76 kmt-per-year ) at the smelter located in rockdale , tx ( remaining capacity of 191 kmt-per-year composed of four potlines ) . demolition and remediation activities related to these actions began in 2012 and are expected to be completed in 2015 for the tennessee smelter and in 2013 for the two potlines at the rockdale smelter . this decision was made after a comprehensive strategic analysis was performed to determine the best course of action for each facility . factors leading to this decision were in general focused on achieving sustained competitiveness and included , among others : lack of an economically viable , long-term power solution ; changed market fundamentals ; cost competitiveness ; required future capital investment ; and restart costs . the asset impairments of $ 127 represent the write off of the remaining book value of properties , plants , and equipment related to these facilities . additionally , remaining inventories , mostly operating supplies , were written down to their net realizable value resulting in a charge of $ 6 ( $ 4 after-tax ) , which was recorded in cost of goods sold on the accompanying statement of consolidated operations . the other exit costs of $ 36 represent $ 18 ( $ 11 after-tax ) in environmental remediation and $ 17 ( $ 11 after-tax ) in asset retirement obligations , both triggered by the decision to permanently shut down and demolish these structures , and $ 1 ( $ 1 after-tax ) in other related costs . also , at the end of 2011 , management approved a partial or full curtailment of three european smelters as follows : portovesme , italy ( 150 kmt-per-year ) ; avilés , spain ( 46 kmt out of 93 kmt-per-year ) ; and la coruña , spain ( 44 kmt out of 87 kmt-per-year ) . these curtailments were completed by the end of 2012. the curtailment of the portovesme smelter may lead to the permanent closure of the facility , which would result in future charges , while the curtailments at the two smelters in spain are planned to be temporary . these actions were the result of uncompetitive energy positions , combined with rising material costs and falling aluminum prices ( mid-2011 to late 2011 ) . as a result of these decisions , alcoa recorded costs of $ 33 ( $ 31 after-tax ) for the layoff of approximately 650 employees . as alcoa engaged in discussions with the respective employee representatives and governments , additional charges were recognized in 2012 ( see 2012 actions above ) . as of december 31 , 2012 , approximately 895 of the 1,475 employees were separated . the total number of employees associated with the 2011 restructuring programs was updated to reflect changes in plans ( agreement related to the smelters in spain see 2012 actions above ) , better than expected operating performance at certain locations , and natural attrition . the remaining separations for the 2011 restructuring programs are expected to be completed by the end of 2013. in 2012 and 2011 , cash payments of $ 23 and $ 24 , respectively , were made against layoff reserves related to the 2011 restructuring programs . 2010 actions in 2010 , alcoa recorded restructuring and other charges of $ 207 ( $ 130 after-tax and noncontrolling interests ) , which were comprised of the following components : $ 127 ( $ 80 after-tax and noncontrolling interests ) in 56 asset impairments and $ 46 ( $ 29 after-tax and noncontrolling interests ) in other exit costs related to the permanent shutdown and planned demolition of certain idled structures at five u.s. locations ( see below ) ; $ 43 ( $ 29 after-tax and noncontrolling interests ) for the layoff of approximately 875 employees ( 625 in the engineered products and solutions segment ; 75 in the primary metals segment ; 60 in the alumina segment ; 25 in the global rolled products segment ; and 90 in corporate ) ; $ 22 ( $ 14 after-tax ) in net charges ( including $ 12 ( $ 8 after-tax ) for asset impairments ) related to divested and to be divested businesses ( automotive castings , global foil , transportation products europe , and packaging and consumer ) for , among other items , the settlement of a contract with a former customer , foreign currency movements , working capital adjustments , and a tax indemnification ; $ 2 ( $ 2 after-tax and noncontrolling interests ) for various other exit costs ; and $ 33 ( $ 24 after-tax and noncontrolling interests ) for the reversal of prior periods ' layoff reserves , including a portion of those related to the portovesme smelter in italy due to the execution of a new power agreement .
| net income attributable to alcoa for 2012 was $ 191 , or $ 0.18 per share , compared with $ 611 , or $ 0.55 per share , in 2011 , and $ 254 , or $ 0.24 per share , in 2010. in 2011 , net income of $ 611 included a loss from discontinued operations of $ 3 , and , in 2010 , net income of $ 254 included a loss from discontinued operations of $ 8. in 2011 , alcoa restarted the following previously curtailed production capacity in the u.s. : massena east , ny ( 125 kmt-per-year ) ; wenatchee , wa ( 43 kmt-per-year ) ; and ferndale , wa ( intalco : 47 kmt-per-year ( 11 kmt more than previously planned ) ) . these restarts occurred to help meet anticipated growth in aluminum demand and to meet obligations outlined in power agreements with energy providers . as a result of these restarts , aluminum production increased by approximately 150 kmt during 2011 and by 215 kmt in 2012 . 53 in late 2011 , management approved the permanent shutdown and demolition of the smelter located in tennessee ( 215 kmt-per-year ) and two potlines ( capacity of 76 kmt-per-year ) at the smelter located in rockdale , tx ( remaining capacity of 191 kmt-per-year composed of four potlines ) . this decision was made after a comprehensive strategic analysis was performed to determine the best course of action for each facility . factors leading to this decision were in general focused on achieving sustained competitiveness and included , among others : lack of an economically viable , long-term power solution ; changed market fundamentals ; cost competitiveness ; required future capital investment ; and restart costs . also , at the end of 2011 , management approved a partial or full curtailment of three european smelters as follows : portovesme , italy ( 150 kmt-per-year ) ; avilés , spain ( 46 kmt out of 93 kmt-per-year ) ; and la coruña , spain ( 44 kmt out of 87 kmt-per-year ) . these curtailments were completed by the end of 2012. the curtailment of the portovesme smelter may lead to the permanent closure of the facility , while the curtailments at the two smelters in spain are planned to be temporary . these actions were the result of uncompetitive energy positions , combined with rising material costs and falling aluminum prices ( mid-2011 to late 2011 ) . in december 2012 , the spanish government issued a ministerial order that modified the interruptibility regime previously in place in the spanish power market . the interruptibility regime allows certain industrial customers who are
| 13,821 |
depreciation and amortization increased $ 30 million for 2019 compared to 2018 due to $ 78 million related to new and repowered wind-powered generating facilities and other plant placed in-service , partially offset by lower iowa revenue sharing accruals of $ 46 million . depreciation and amortization increased $ 109 million for 2018 compared to 2017 primarily due to $ 67 million related to wind-powered generating facilities and other plant placed in-service and higher iowa revenue sharing accruals of $ 44 million . property and other taxes increased $ 6 million for 2018 compared to 2017 due to higher wind turbine property taxes and other real estate taxes . other income and ( expense ) midamerican energy - interest expense increased $ 54 million for 2019 compared to 2018 primarily due to the issuance of first mortgage bonds totaling $ 1.5 billion in january 2019 and $ 850 million in october 2019 , partially offset by the redemption of $ 500 million of first mortgage bonds in february 2019. interest expense increased $ 13 million for 2018 compared to 2017 primarily due to the issuance of $ 700 million of first mortgage bonds in february 2018 and $ 150 million of variable rate , tax-exempt bonds in december 2017 , partially offset by the redemption of $ 350 million of senior notes in march 2018. allowance for borrowed and equity funds increased $ 32 million for 2019 compared to 2018 and $ 17 million for 2018 compared to 2017 primarily due to higher construction work-in-progress balances related to new and repowering wind-powered generation projects . other , net increased $ 20 million for 2019 compared to 2018 primarily due to higher returns on corporate-owned life insurance policies and higher interest income due to a favorable cash position . other , net decreased $ 7 million for 2018 compared to 2017 primarily due to lower returns on corporate-owned life insurance policies . midamerican funding - in addition to the fluctuations discussed above for midamerican energy , midamerican funding 's other , net for 2017 reflects a pre-tax charge of $ 29 million from the early redemption of a portion of midamerican funding 's 6.927 % senior bonds due 2029. income tax benefit midamerican energy - midamerican energy 's income tax benefit increased $ 116 million for 2019 compared to 2018 , and the effective tax rate was ( 88 ) % for 2019 and ( 60 ) % for 2018 . the change in the effective tax rate was substantially due to an increase of $ 70 million in ptcs and the effects of ratemaking . midamerican energy 's income tax benefit increased $ 72 million for 2018 compared to 2017 , and the effective tax rate was ( 60 ) % for 2018 and ( 43 ) % for 2017 . the change in the effective tax rate was substantially due to the reduction in the united states federal corporate income tax rate from 35 % to 21 % , effective january 1 , 2018 , an increase of $ 21 million in ptcs and the effects of ratemaking . 245 federal renewable electricity ptcs are earned as energy from qualifying wind-powered generating facilities is produced and sold based on a prescribed per-kilowatt rate pursuant to the applicable federal income tax law and are eligible for the credits for 10 years from the date the qualifying generating facilities are placed in service . beginning in late 2014 , some of midamerican energy 's wind-powered generating facilities surpassed the 10-year eligibility period for earning the credits . most of those facilities have since been repowered , and under internal revenue service rules , qualifying repowered facilities are eligible for the credits , or a portion thereof , for 10 years from the date they are returned to service . refer to `` capital expenditures '' in liquidity and capital resources for additional information about repowering and new wind-powered generation placed in-service . a credit per kilowatt hour of $ 0.025 for 2019 and $ 0.024 for 2018 and 2017 was applied to the annual production of eligible facilities , which resulted in $ 378 million , $ 308 million and $ 287 million , respectively , in ptcs . midamerican funding - midamerican funding 's income tax benefit increased $ 115 million for 2019 compared to 2018 , and the effective tax rate was ( 93 ) % for 2019 and ( 64 ) % for 2018 . midamerican funding 's income tax benefit increased $ 60 million for 2018 compared to 2017 , and the effective tax rate was ( 64 ) % for 2018 and ( 54 ) % for 2017 . the change in effective tax rates was due principally to the factors discussed for midamerican energy . additionally , 2017 reflects an income tax benefit from a charge of $ 29 million for the early redemption of a portion of midamerican funding 's 6.927 % senior bonds due 2029. liquidity and capital resources as of december 31 , 2019 , midamerican energy 's and midamerican funding 's total net liquidity were as follows ( in millions ) : replace_table_token_162_th operating activities midamerican energy 's net cash flows from operating activities were $ 1,490 million , $ 1,508 million and $ 1,396 million for 2019 , 2018 and 2017 , respectively . midamerican funding 's net cash flows from operating activities were $ 1,475 million , $ 1,516 million and $ 1,380 million for 2019 , 2018 and 2017 , respectively . cash flows from operating activities decreased for 2019 compared to 2018 primarily due to lower income tax receipts and higher interest payments , partially offset by lower payments to vendors and lower payments for the settlement of asset retirement obligations . cash flows from operating activities increased for 2018 compared to 2017 primarily due to higher cash margins for midamerican energy 's regulated electric and natural gas businesses , higher income tax receipts and higher energy efficiency cost recovery cash inflows . story_separator_special_tag the timing of midamerican energy 's income tax cash flows from period to period can be significantly affected by the estimated federal income tax payment methods and assumptions for each payment date . 246 investing activities midamerican energy 's net cash flows from investing activities were $ ( 2,801 ) million , $ ( 2,310 ) million and $ ( 1,776 ) million for 2019 , 2018 and 2017 , respectively . midamerican funding 's net cash flows from investing activities were $ ( 2,801 ) million , $ ( 2,310 ) million and $ ( 1,779 ) million for 2019 , 2018 and 2017 , respectively . net cash flows from investing activities consist almost entirely of capital expenditures . refer to `` future uses of cash '' for further discussion of capital expenditures . purchases and proceeds related to marketable securities primarily consist of activity within the quad cities generating station nuclear decommissioning trust , and other investment proceeds relates primarily to company-owned life insurance policies . in 2018 , proceeds from sales of other investments includes $ 15 million for the transfer of corporate aircraft to bhe . financing activities midamerican energy 's net cash flows from financing activities were $ 1.585 billion , $ 576 million and $ 636 million for 2019 , 2018 and 2017 , respectively . midamerican funding 's net cash flows from financing activities were $ 1.6 billion , $ 569 million and $ 654 million for 2019 , 2018 and 2017 , respectively . in january 2019 , midamerican energy issued $ 600 million of its 3.65 % first mortgage bonds due april 2029 and $ 900 million of its 4.25 % first mortgage bonds due july 2049 , and in october 2019 , issued an additional $ 250 million of its 3.65 % first mortgage bonds due april 2029 and $ 600 million of its 3.15 % first mortgage bonds due april 2050. in february 2019 , midamerican energy redeemed $ 500 million of its 2.40 % first mortgage bonds due in march 2019 at a redemption price of 100 % of the principal amount plus accrued interest . in february 2018 , midamerican energy issued $ 700 million of its 3.65 % first mortgage bonds due august 2048 and , in march 2018 , repaid $ 350 million of its 5.30 % senior notes due march 2018. in december 2017 , the iowa finance authority issued $ 150 million of its variable-rate , tax-exempt solid waste facilities revenue bonds due december 2047 , the restricted proceeds of which were loaned to midamerican energy for the purpose of constructing solid waste facilities . in february 2017 , midamerican energy issued $ 375 million of its 3.10 % first mortgage bonds due may 2027 and $ 475 million of its 3.95 % first mortgage bonds due august 2047. in february 2017 , midamerican energy redeemed in full through optional redemption its $ 250 million of 5.95 % senior notes due july 2017. net ( repayments of ) proceeds from short-term debt relate to midamerican energy 's use of short-term borrowings through its commercial paper program . in december 2017 , midamerican funding redeemed through a tender offer a portion of its 6.927 % senior bonds . midamerican funding received $ 15 million and $ 133 million in 2019 and 2017 , respectively , and made payments totaling $ 8 million in 2018 through its note payable with bhe . debt authorizations and related matters midamerican energy has authority from the ferc to issue through july 31 , 2020 , commercial paper and bank notes aggregating $ 1.3 billion at interest rates not to exceed the applicable london interbank offered rate ( `` libor '' ) plus a spread of 400 basis points . midamerican energy has a $ 900 million unsecured credit facility expiring in june 2022. the credit facility , which supports midamerican energy 's commercial paper program and its variable-rate tax-exempt bond obligations and provides for the issuance of letters of credit , has a variable interest rate based on the eurodollar rate or a base rate , at midamerican energy 's option , plus a spread that varies based on midamerican energy 's credit ratings for senior unsecured long-term debt securities . midamerican energy has a $ 400 million unsecured credit facility , which expires in august 2020 and has a variable interest rate based on the eurodollar rate or a base rate , at midamerican energy 's option , plus a spread . additionally , midamerican energy has a $ 5 million unsecured credit facility for general corporate purposes . midamerican energy currently has an effective automatic registration statement with the sec to issue an indeterminate amount of long-term debt securities through june 26 , 2021. additionally , midamerican energy has authorization from the ferc to issue , through june 30 , 2021 , long-term debt securities up to an aggregate of $ 850 million at interest rates not to exceed the applicable united states treasury rate plus a spread of 175 basis points and preferred stock up to an aggregate of $ 500 million and from the icc to issue long-term debt securities up to an aggregate of $ 850 million through august 20 , 2022 , and preferred stock up to an aggregate of $ 500 million through november 1 , 2020. midamerican funding or one of its subsidiaries , including midamerican energy , may from time to time seek to acquire its outstanding debt securities through cash purchases in the open market , privately negotiated transactions or otherwise . any debt securities repurchased by midamerican funding or one of its subsidiaries may be reissued or resold by midamerican funding or one of its subsidiaries from time to time and will depend on prevailing market conditions , the issuing company 's liquidity requirements , contractual restrictions and other factors . the amounts involved may be material .
| midamerican energy 's net income for 2018 was $ 682 million , an increase of $ 77 million , or 13 % , compared to 2017 primarily due to higher electric utility margin of $ 122 million , a higher income tax benefit of $ 72 million , primarily due to a $ 21 million increase in ptcs , a lower federal tax rate and a 2017 charge of $ 7 million from the tax cuts and jobs act enacted on december 22 , 2017 ( the `` 2017 tax reform '' ) , and higher allowance for borrowed and equity funds of $ 17 million , partially offset by higher depreciation and amortization of $ 109 million due to wind-powered generation and other plant placed in-service and $ 44 million of higher iowa revenue sharing , higher operations and maintenance expense of $ 12 million and higher interest expense of $ 13 million . electric utility margin increased due to higher recoveries through bill riders of $ 127 million ( substantially offset in cost of fuel and energy , operations and maintenance expense and income tax benefit ) , higher retail customer volumes of 5.6 % , largely due to industrial growth and the favorable impact of weather and higher wholesale revenue , partially offset by lower average retail rates of $ 126 million , predominantly from the impact of a lower federal tax rate due to 2017 tax reform , and higher generation and purchased power costs . midamerican funding - midamerican funding 's net income for 2019 was $ 781 million , an increase of $ 112 million , or 17 % , compared to 2018 . the increase was primarily due to the changes in midamerican energy 's earnings discussed above . midamerican funding 's net income for 2018 was $ 669 million , an increase of $ 95 million , or 17 % , compared to 2017 . in addition to the midamerican energy impacts , midamerican funding 's net income for 2017 reflects after-tax charges of $ 17 million related to the tender offer of a portion of its 6.927 % senior bonds due 2029. non-gaap financial measure management utilizes various key financial measures that are prepared in accordance with gaap , as well as non-gaap financial measures such as , electric utility margin and natural gas utility margin , to help evaluate results of operations . electric utility margin is calculated as regulated electric operating revenue less cost of fuel and energy , which are captions presented on the statements of operations . natural gas utility margin is calculated as regulated natural gas operating revenue less regulated cost of
| 13,822 |
with respect to fuel costs , the price of brent crude oil per barrel , which jet fuel prices tend to follow , was on average approximately 23 % higher in 2017 as compared to 2016 . the average daily spot price for brent crude oil during 2017 was $ 54 per barrel as compared to an average daily spot price of $ 44 per barrel during 2016 . on a daily basis , brent crude oil prices fluctuated during 2017 between a high of $ 67 per barrel to a low of $ 44 per barrel , and closed the year on december 31 , 2017 at $ 67 per barrel . brent crude oil prices were higher in 2017 due principally to reductions of global inventories driven by strong demand and continued production restraint . jet fuel prices during 2017 were also impacted by hurricane disruptions and increased refinery costs . see part i , item 1a . risk factors – “ downturns in economic conditions could adversely affect our business , ” “ our business is very dependent on the price and availability of aircraft fuel . continued periods of high volatility in fuel costs , increased fuel prices or significant disruptions in the supply of aircraft fuel could have a significant negative impact on our operating results and liquidity ” and “ our business has been and will continue to be affected by many changing economic and other conditions beyond our control , including global events that affect travel behavior , and our results of operations could be volatile and fluctuate due to seasonality. ” 46 aag 's 2017 results the selected financial data presented below is derived from aag 's audited consolidated financial statements included in part ii , item 8a of this report and should be read in conjunction with those financial statements and the related notes thereto . replace_table_token_12_th ( 1 ) see part ii , item 6. selected consolidated financial data – “ reconciliation of gaap to non-gaap financial measures ” and note 2 to aag 's consolidated financial statements in part ii , item 8a for details on the components of special items . pre-tax income and net income pre-tax income and net income were $ 3.1 billion and $ 1.9 billion in 2017 , respectively . this compares to 2016 pre-tax income and net income of $ 4.3 billion and $ 2.7 billion , respectively . excluding the effects of pre-tax special items , we recognized pre-tax income of $ 3.8 billion in 2017 as compared to $ 5.1 billion in 2016 . the year-over-year declines in our pre-tax income on both a gaap basis and excluding pre-tax special items were principally driven by higher fuel costs and wage rates . fuel costs increase d driven by a 21.4 % increase in the average price per gallon of fuel . wage rates were higher primarily due to mid-contract pay increases for pilots and flight attendants effective in the second quarter of 2017 , as well as increases for maintenance and fleet service work groups , which became effective in the third quarter of 2016. these increase s were offset in part by higher revenues . revenue in 2017 , we reported total operating revenues of $ 42.2 billion , an increase of $ 2.0 billion , or 5.0 % , as compared to 2016 . mainline and regional passenger revenues were $ 36.1 billion , an increase of $ 1.6 billion , or 4.5 % , as compared to 2016 . the increase in mainline and regional passenger revenues was due to a 3.2 % year-over-year increase in consolidated yields driven by strong demand . domestic consolidated yields increased 3.5 % and international yields rose 3.2 % , due principally to improved performance in latin america . additionally , other revenues increased $ 373 million primarily due to higher revenues associated with our loyalty program . our mainline and regional total revenue per available seat mile ( trasm ) was 15.27 cents in 2017 , a 3.9 % increase as compared to 14.70 cents in 2016 . fuel our mainline and regional fuel expense totaled $ 7.5 billion in 2017 , which was $ 1.3 billion , or 21.5 % , higher as compared to 2016 . this increase was driven by a 21.4 % increase in the average price per gallon of fuel to $ 1.73 in 2017 from $ 1.42 in 2016 . 47 as of december 31 , 2017 , we did not have any fuel hedging contracts outstanding to hedge our fuel consumption . as such , and assuming we do not enter into any future transactions to hedge our fuel consumption , we will continue to be fully exposed to fluctuations in fuel prices . our current policy is not to enter into transactions to hedge our fuel consumption , although we review that policy from time to time based on market conditions and other factors . other costs we remain committed to actively managing our cost structure , which we believe is necessary in an industry whose economic prospects are heavily dependent upon two variables we can not control : the health of the economy and the price of fuel . our 2017 mainline casm was 12.96 cents , an increase of 8.6 % , from 11.94 cents in 2016 . the increase was primarily driven by higher fuel costs and higher wage rates due to the mid-contract pay increases described above . our 2017 mainline casm excluding special items and fuel was 10.16 cents , an increase of 6.4 % , from 9.54 cents in 2016 , which was also driven by higher wage rates as described above . for a reconciliation of mainline casm excluding special items and fuel , see part ii , item 6. selected consolidated financial data – “ reconciliation of gaap to non-gaap financial measures. story_separator_special_tag ” income taxes as of december 31 , 2017 , we had approximately $ 10.0 billion of federal nols and $ 3.4 billion of state nols , substantially all of which we expect to be available in 2018 to reduce future federal and state taxable income . while we currently do not pay federal cash income taxes , we believe the december 2017 enactment of the 2017 tax act represents a significant benefit for us and our stockholders . commencing in 2018 , our effective tax rate has been reduced from approximately 38 % to approximately 24 % , which will significantly reduce our federal tax liability when we do become a cash tax payer . in addition , we presently expect to receive cash tax refunds of approximately $ 170 million in both 2019 and 2020 due to the repeal of the corporate alternative minimum tax ( amt ) . liquidity as of december 31 , 2017 , we had approximately $ 7.6 billion in total available liquidity , consisting of $ 5.1 billion in unrestricted cash and short-term investments and $ 2.5 billion in undrawn revolving credit facilities . we also had restricted cash and short-term investments of $ 318 million . as described above , in connection with our strategic objective “ ensure long-term financial strength , ” we completed several transactions during 2017 to ensure our long-term competitiveness . during 2017 , we : repriced $ 4.9 billion of our term loans at lower rates and extended and increased our revolving credit facilities . continued to take advantage of historically low interest rates to finance new aircraft deliveries under our fleet renewal program . we issued an aggregate principal amount of $ 2.0 billion in enhanced equipment trust certificate ( eetc ) equipment notes at an average fixed interest rate of 3.74 % , as well as $ 1.0 billion in other equipment notes , which primarily bear interest at variable rates based on libor plus a margin , averaging 3.08 % at december 31 , 2017. raised approximately $ 853 million in net proceeds from aircraft sale-leaseback transactions . see note 5 to aag 's consolidated financial statements in part ii , item 8a and note 3 to american 's consolidated financial statements in part ii , item 8b for additional information on our debt obligations . 48 aag 's results of operations operating statistics the table below sets forth selected operating data for the years ended december 31 , 2017 , 2016 and 2015 . replace_table_token_13_th ( a ) revenue passenger mile ( rpm ) – a basic measure of sales volume . one rpm represents one passenger flown one mile . ( b ) available seat mile ( asm ) – a basic measure of production . one asm represents one seat flown one mile . ( c ) passenger load factor – the percentage of available seats that are filled with revenue passengers . ( d ) yield – a measure of airline revenue derived by dividing passenger revenue by rpms . ( e ) passenger revenue per available seat mile ( prasm ) – passenger revenues divided by asms . ( f ) operating cost per available seat mile ( casm ) – operating expenses divided by asms . ( g ) total revenue per available seat mile ( trasm ) – total revenues divided by total mainline and regional asms . ( h ) regional full-time equivalent employees only include our wholly-owned regional airline subsidiaries , envoy , piedmont and psa . 49 results of operations – 2017 compared to 2016 pre-tax income and net income were $ 3.1 billion and $ 1.9 billion in 2017 , respectively . this compares to 2016 pre-tax income and net income of $ 4.3 billion and $ 2.7 billion , respectively . excluding the effects of pre-tax net special items , pre-tax income was $ 3.8 billion and $ 5.1 billion in 2017 and 2016 , respectively . for reconciliation of pre-tax income excluding special items to their comparable measures on a gaap basis , see part ii , item 6. selected consolidated financial data – “ reconciliation of gaap to non-gaap financial measures . ” the year-over-year declines in our pre-tax income on both a gaap basis and excluding pre-tax special items were principally driven by higher fuel costs and wage rates . operating revenues replace_table_token_14_th this table presents our total passenger revenues and the year-over-year change in certain operating statistics : replace_table_token_15_th total passenger revenues increase d $ 1.6 billion , or 4.5 % , in 2017 from 2016 primarily due to a 3.2 % year-over-year increase in consolidated passenger yields driven by strong demand . domestic consolidated yields increased 3.5 % and international yields rose 3.2 % , due principally to improved performance in latin america . cargo revenue increase d $ 100 million , or 14.3 % , in 2017 from 2016 primarily driven by an increase in freight volume . other revenue primarily includes revenue associated with our loyalty program , baggage fees , ticketing change fees , airport clubs and inflight services . other revenue increase d $ 373 million , or 7.6 % , in 2017 from 2016 primarily driven by higher revenues associated with our loyalty program . in 2017 and 2016 , loyalty program revenue was $ 2.4 billion and $ 2.1 billion , respectively . of this , $ 2.2 billion and $ 1.9 billion related to the marketing component of mileage sales and other marketing related payments , respectively . total operating revenues in 2017 increase d $ 2.0 billion , or 5.0 % , from 2016 driven principally by a 4.5 % increase in total passenger revenues as described above . our trasm was 15.27 cents in 2017 , a 3.9 % increase as compared to 14.70 cents in 2016 . 50 mainline operating expenses replace_table_token_16_th mainline operating expenses increase d $ 2.8 billion , or 9.5 % , in 2017 from 2016 . the increase in operating expenses was primarily driven by higher fuel costs and wage rates .
| liquidity and capital resources liquidity as of december 31 , 2017 , aag had approximately $ 7.6 billion in total available liquidity and $ 318 million in restricted cash and short-term investments . additional detail of our available liquidity is provided in the table below ( in millions ) : replace_table_token_38_th 65 share repurchase programs since july 2014 , our board of directors has approved six share repurchase programs aggregating $ 11.0 billion of authority . as of december 31 , 2017 , $ 450 million remained unused under a repurchase program that expires on december 31 , 2018. share repurchases under our repurchase programs may be made through a variety of methods , which may include open market purchases , privately negotiated transactions , block trades or accelerated share repurchase transactions . any such repurchases will be made from time to time subject to market and economic conditions , applicable legal requirements and other relevant factors . we are not obligated to repurchase any specific number of shares and our repurchase of common stock may be limited , suspended or discontinued at any time at our discretion . during the year ended december 31 , 2017 , we repurchased 33.9 million shares of aag common stock for $ 1.6 billion at a weighted average cost per share of $ 45.68 . since the inception of our share repurchase programs in july 2014 through december 31 , 2017 , we have repurchased 262.3 million shares of aag common stock for $ 10.6 billion at a weighted average cost per share of $ 40.22 . cash dividends our board of directors declared the following cash dividends during 2017 : replace_table_token_39_th in january 2018 , we announced that our board of directors declared a $ 0.10 per share dividend for stockholders of record on february 6 , 2018 , and payable on february 20 , 2018. any future dividends that may be declared and paid from time to time will be subject to market and economic conditions ,
| 13,823 |
in april 2018 , we acquired , through a subsidiary of heico electronic , all of the assets and business of the emergency locator transmitter beacon product line ( `` elt product line '' ) of instrumar limited . the elt product line designs and manufactures emergency locator transmitter beacons for the commercial aviation and defense markets , that upon activation , transmit a distress signal to alert search and rescue operations of the aircraft 's location . the purchase price of this acquisition was paid using cash provided by operating activities . in february 2018 , we acquired , through a subsidiary of heico electronic , 85 % of the assets and business of sensor technology engineering , inc. ( `` sensor technology '' ) . sensor technology designs and manufactures sophisticated nuclear radiation detectors for law enforcement , homeland security and military applications . the remaining 15 % continues to be owned by certain members of sensor technology 's management team . in november 2017 , we acquired , through a subsidiary of heico electronic , all of the stock of interface displays & controls , inc. ( `` idc '' ) . idc designs and manufactures electronic products for aviation , marine , military fighting vehicles , and embedded computing markets . the purchase price of this acquisition was paid using cash provided by operating activities . in september 2017 , we acquired , through heico electronic , all of the outstanding stock of aeroantenna technology , inc. ( `` aat '' ) . aat designs and produces high performance active antenna systems for commercial aircraft , precision guided munitions , other defense applications and commercial uses . in june 2017 , we acquired , through a subsidiary of the heico flight support corp. , all of the ownership interests of carbon by design ( `` cbd '' ) . cbd is a manufacturer of composite components for uavs , rockets , spacecraft and other specialized applications . the purchase price of cbd was paid using cash provided by operating activities . in april 2017 , we acquired , through a subsidiary of heico flight support corp. , 80.1 % of the equity interests of llp enterprises , llc , which owns all of the outstanding equity interests of the operating units of air cost control ( `` a2c '' ) . a2c is a leading aviation electrical interconnect product distributor of items such as connectors , wire , cable , protection and fastening systems , in addition to distributing a wide range of electromechanical parts . the remaining 19.9 % interest continues to be owned by certain members of a2c 's management team . in january 2016 , we acquired , through heico electronic , all of the limited liability company interests of robertson fuel systems , llc ( `` robertson '' ) . robertson designs and produces mission-extending , crashworthy and ballistically self-sealing auxiliary fuel systems for military rotorcraft . in december 2015 , we acquired , through a subsidiary of heico electronic , certain assets of a company that designs and manufactures underwater locator beacons used to locate 34 index aircraft cockpit voice recorders , flight data recorders , marine ship voyage recorders and other devices which have been submerged under water . the purchase price of this acquisition was paid using cash provided by operating activities . unless otherwise noted , the purchase price of each of the above referenced acquisitions was paid in cash , principally using proceeds from our revolving credit facility . the aggregate amount paid in cash for acquisitions was $ 59.8 million , $ 418.3 million and $ 263.8 million in fiscal 2018 , 2017 and 2016 , respectively . critical accounting policies we believe that the following are our most critical accounting policies , which require management to make judgments about matters that are inherently uncertain . assumptions utilized to determine fair value in connection with business combinations , contingent consideration arrangements and in goodwill and intangible assets impairment tests are highly judgmental . if there is a material change in such assumptions or if there is a material change in the conditions or circumstances influencing fair value , we could be required to recognize a material impairment charge . see item 1a. , risk factors , for a list of factors which may cause our actual results to differ materially from anticipated results . revenue recognition revenue from the sale of products and the rendering of services is recognized when title and risk of loss passes to the customer , which is generally at the time of shipment . revenue from certain fixed price contracts for which costs can be dependably estimated is recognized on the percentage-of-completion method , measured by the percentage of costs incurred to date to estimated total costs for each contract . this method is used because management considers costs incurred to be the best available measure of progress on these contracts . revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the period of revision . revisions in cost estimates may be caused by factors such as the price or availability of raw materials and component parts or variations in the amount of labor required and or the materials necessary to meet customer specifications and requirements . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . the percentage of our net sales recognized under the percentage-of-completion method was approximately 2 % , 3 % and 3 % in fiscal 2018 , 2017 and 2016 , respectively . changes in estimates pertaining to percentage-of-completion contracts did not have a material or significant effect on net income or net income per share in fiscal 2018 , 2017 and 2016. for fixed price contracts in which costs can not be dependably estimated , revenue is recognized on the completed-contract method . a contract is considered complete when all significant costs have been incurred or the item has been accepted by the customer . story_separator_special_tag progress billings and customer advances received on fixed price contracts accounted for under the completed-contract method are classified as a reduction to contract costs that are included in 35 index inventories , if any , and any remaining amount is included in accrued expenses and other current liabilities . effective as of the beginning of the first quarter of fiscal 2019 , we will adopt accounting standards update ( `` asu '' ) 2014-09 , “ revenue from contracts with customers , ” which will impact the timing of revenue recognition for two types of our customer contracts . see “ new accounting pronouncements , ” which follows within this item 7 , for additional information . valuation of accounts receivable the valuation of accounts receivable requires that we set up an allowance for estimated uncollectible accounts and record a corresponding charge to bad debt expense . we estimate uncollectible receivables based on such factors as our prior experience , our appraisal of a customer 's ability to pay , age of receivables outstanding and economic conditions within and outside of the aviation , defense , space , medical , telecommunications and electronics industries . actual bad debt expense could differ from estimates made . valuation of inventory inventory is stated at the lower of cost or net realizable value , with cost being determined on the first-in , first-out or the average cost basis . losses , if any , are recognized fully in the period when identified . we periodically evaluate the carrying value of inventory , giving consideration to factors such as its physical condition , sales patterns and expected future demand in order to estimate the amount necessary to write down any slow moving , obsolete or damaged inventory . these estimates could vary significantly from actual amounts based upon future economic conditions , customer inventory levels , or competitive factors that were not foreseen or did not exist when the estimated write-downs were made . in accordance with industry practice , all inventories are classified as a current asset including portions with long production cycles , some of which may not be realized within one year . business combinations we allocate the purchase price of acquired entities to the underlying tangible and identifiable intangible assets acquired and liabilities and any noncontrolling interests assumed based on their estimated fair values , with any excess recorded as goodwill . determining the fair value of assets acquired and liabilities and noncontrolling interests assumed requires management 's judgment and often involves the use of significant estimates and assumptions , including assumptions with respect to future cash inflows and outflows , discount rates , asset lives and market multiples , among other items . we determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors . 36 index as part of the agreement to acquire certain subsidiaries , we may be obligated to pay contingent consideration should the acquired entity meet certain earnings objectives subsequent to the date of acquisition . as of the acquisition date , contingent consideration is recorded at fair value as determined through the use of a probability-based scenario analysis approach . under this method , a set of discrete potential future subsidiary earnings is determined using internal estimates based on various revenue growth rate assumptions for each scenario . a probability of likelihood is then assigned to each discrete potential future earnings estimate and the resultant contingent consideration is calculated and discounted using a weighted average discount rate reflecting the credit risk of heico . subsequent to the acquisition date , the fair value of such contingent consideration is measured each reporting period and any changes are recorded to selling , general and administrative ( `` sg & a '' ) expenses within our consolidated statements of operations . changes in either the revenue growth rates , related earnings or the discount rate could result in a material change to the amount of contingent consideration accrued . as of october 31 , 2018 , 2017 and 2016 , $ 20.9 million , $ 27.6 million and $ 18.9 million of contingent consideration was accrued within our consolidated balance sheets , respectively . during fiscal 2018 , 2017 and 2016 , such fair value measurement adjustments resulted in net ( decreases ) increases to sg & a expenses of ( $ 1.4 ) million , $ 1.1 million and $ 3.1 million , respectively . for further information regarding our contingent consideration arrangements , see note 7 , fair value measurements , of the notes to consolidated financial statements . valuation of goodwill and other intangible assets we test goodwill for impairment annually as of october 31 , or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be fully recoverable . in evaluating the recoverability of goodwill , we compare the fair value of each of our reporting units to its carrying value to determine potential impairment . if the carrying value of a reporting unit exceeds its fair value , the implied fair value of that reporting unit 's goodwill is to be calculated and an impairment loss is recognized in the amount by which the carrying value of the reporting unit 's goodwill exceeds its implied fair value , if any . the fair values of our reporting units were determined using a weighted average of a market approach and an income approach . under the market approach , fair values are estimated using published market multiples for comparable companies . we calculate fair values under the income approach by taking estimated future cash flows that are based on internal projections and other assumptions deemed reasonable by management and discounting them using an estimated weighted average cost of capital . based on the annual goodwill impairment test as of october 31 , 2018 , 2017 and 2016 , we determined there was no impairment of our goodwill . the fair value of each of our reporting units as of october 31 , 2018 significantly exceeded its carrying value .
| sales price changes were not a significant contributing factor to the etg and fsg net sales growth in fiscal 2018. our net sales in fiscal 2018 and 2017 by market consisted of approximately 53 % in both periods from the commercial aviation industry , 35 % and 34 % from the defense and space industries , respectively , and 12 % and 13 % , respectively , from other industrial markets including electronics , medical and telecommunications . gross profit and operating expenses our consolidated gross profit margin increased to 38.9 % in fiscal 2018 as compared to 37.7 % in fiscal 2017 , principally reflecting an increase of 1.8 % and .4 % in the etg 's and fsg 's gross profit margin , respectively . the increase in the etg 's gross profit margin is principally attributable to increased net sales and a more favorable product mix for certain of our defense products partially offset by a less favorable product mix for certain of our space products . the increase in the fsg 's gross profit margin is principally attributable to the previously mentioned increase in net sales within our aftermarket replacement parts product line . total new product research and development ( `` r & d '' ) expenses included within our consolidated cost of sales increased to $ 57.5 million in fiscal 2018 compared to $ 46.5 million in fiscal 2017. our consolidated sg & a expenses were $ 314.5 million and $ 268.1 million in fiscal 2018 and 2017 , respectively . our consolidated sg & a expenses as a percentage of net sales were 17.7 % in fiscal 2018 compared to 17.6 % in fiscal 2017. the increase in consolidated sg & a expenses principally reflects $ 26.1 million attributable to the fiscal 2017 and fiscal 2018 acquisitions and $ 11.3 million of higher performance-based compensation expense . 39 index operating income our consolidated operating income increased by 23 % to a record $ 376.2 million in fiscal 2018 , up from $ 306.7 million in fiscal 2017. the increase in consolidated operating income principally reflects a $ 47.1 million increase ( a 30 % increase ) to a record $ 204.5 million in operating income of the etg as well as a $ 27.3 million increase ( a
| 13,824 |
results of operations prior to the separation on february 28 , 2014 , our historical financial statements and segment information were prepared on a stand-alone basis and were derived from our former parent 's consolidated financial statements and accounting records . accordingly , our results from january 1 , 2014 to february 28 , 2014 are presented herein on a consolidated basis and reflect our results of operations , financial position and cash flows of our business operated as part of our former parent prior to the separation , in conformity with u.s. generally accepted accounting principles ( “ gaap ” or “ u.s . gaap ” ) . the consolidated financial statements may not necessarily reflect our results of operations , financial position and cash flows in the future , or what our results of operations , financial position and cash flows would have been had knowles been a stand-alone company during all the periods presented . results of operations for the year ended december 31 , 2016 compared with the years ended december 31 , 2015 and december 31 , 2014 in addition to the gaap financial measures included herein , we have presented certain non-gaap financial measures . we use non-gaap measures as supplements to our gaap results of operations in evaluating certain aspects of our business and our executive management team focuses on non-gaap items as key measures of our performance for business planning purposes . these measures assist us in comparing our performance between various reporting periods on a consistent basis , as these measures remove from operating results the impact of items that , in our opinion , do not reflect our core operating performance . we believe that our presentation of non-gaap financial measures is useful because it provides investors and securities analysts with the same information that we use internally for purposes of assessing our core operating performance . the company does not consider these non-gaap financial measures to be a substitute for the information provided by gaap financial results . for a reconciliation of these non-gaap financial measures to the most directly comparable gaap financial measures , see the reconciliation included herein . 27 replace_table_token_6_th ( 1 ) on july 1 , 2015 , the company issued 3.2 million shares to former holders of audience shares and for the conversion of vested in-the-money audience stock options . the company also converted unvested in-the-money audience stock options and restricted stock units for an aggregate of 461,371 shares of its common stock . on february 28 , 2014 , our former parent 's stockholders of record as of the close of business on february 19 , 2014 received one share of knowles common stock for every two shares of our former parent 's common stock held as of the record date . see note 19. earnings per share to our consolidated financial statements under item 8 , `` financial statements and supplementary data `` for information regarding earnings per share . revenues 2016 versus 2015 revenues for the year ended december 31 , 2016 were $ 859.3 million , compared with $ 849.6 million for the year ended december 31 , 2015 , an increase of $ 9.7 million or 1.1 % . this was due to an increase in mce revenues of $ 18.1 million , partially offset by a decrease of $ 8.4 million in sc revenues . mce revenues increased due to increased shipments of mems microphones , driven by market growth , share gains and multiple microphone adoption at key chinese oems , partially offset by lower average selling prices and unfavorable product mix impacts . sc revenues decreased due to lower pricing , partially offset by increased volume for timing device and acoustic products . foreign currency translation negatively impacted consolidated revenues by a negligible amount . 2015 versus 2014 revenues for the year ended december 31 , 2015 were $ 849.6 million , compared with $ 915.0 million for the year ended december 31 , 2014 , a decrease of $ 65.4 million or 7.1 % . this was due to a decrease in mce revenues of $ 36.1 million and a decrease in sc revenues of $ 29.3 million . mce revenues decreased due to lower average selling prices and a decrease in shipments to an oem customer as a result of its decreased share of the handset market . partially offsetting these decreases was an increase in mce revenues due to increased shipments of mems microphones , driven by market share gains at one key oem customer and multiple microphone adoption , as well as revenues of $ 19.0 million associated with our acquired audience operations . sc revenues decreased due to lower pricing and a reduction in timing device shipments in connection with the reduction in china long-term evolution ( `` lte '' ) infrastructure build-outs , partially offset by increased demand for new acoustic product introductions and broad-based demand among our capacitor products . foreign currency translation negatively impacted consolidated revenues by a negligible amount . 28 cost of goods sold 2016 versus 2015 cost of goods sold ( `` cogs '' ) for the year ended december 31 , 2016 were $ 529.2 million , compared with $ 534.6 million for the year ended december 31 , 2015 , decreased $ 5.4 million or 1.0 % . this decrease was primarily due to favorable impacts from productivity initiatives , lower production transfer costs and other charges , a lower cost product mix , favorable foreign currency exchange rate changes and cost savings from our production transfer activities , partially offset by increased shipments of mems microphones and lower fixed overhead absorption in the first half of 2016 . 2015 versus 2014 cost of goods sold for the year ended december 31 , 2015 were $ 534.6 million , compared with $ 551.8 million for the year ended december 31 , 2014 , a decrease of $ 17.2 million or 3.1 % . story_separator_special_tag the decrease was primarily driven by inventory charges in 2014 that did not recur , related to the mems microphone that was placed on hold . in addition , we had favorable impacts from foreign currency translations and benefits from productivity initiatives . these improvements were partially offset by unfavorable fixed overhead absorption expenses and the $ 12.6 million of cost of goods sold associated with our acquired audience operations . restructuring charges we undertake restructuring programs from time to time to better align our operations with current market conditions . such activities include facility consolidations , headcount reductions and other measures to further optimize operations . it is likely that we will have restructuring charges in the future as we continue to consolidate our manufacturing footprint . details regarding restructuring programs undertaken during the reporting period are as follows : 2016 during the year ended december 31 , 2016 , we recorded restructuring charges of $ 11.8 million , comprised primarily of restructuring actions associated with the integration of audience . other charges relate to actions associated with lowering operating expenses and the continued expenses for the transfer of our capacitor business into lower-cost asian manufacturing facilities . total restructuring charges of $ 1.5 million were classified as cogs and $ 10.3 million were classified as operating expenses . 2015 during the year ended december 31 , 2015 , we recorded restructuring charges of $ 14.3 million , comprised primarily of $ 9.5 million of restructuring expenses associated with the integration of audience . the remaining charges relate to the transfer of our hearing health business into lower-cost asian manufacturing facilities . total restructuring charges of $ 2.7 million were classified as cogs and $ 11.6 million were classified as operating expenses . 2014 during the year ended december 31 , 2014 , we recorded restructuring charges of $ 7.6 million related to programs to transfer our hearing health business and certain of our capacitor businesses into new and existing lower-cost asian manufacturing facilities , as well as to reduce headcount in the mce business . gross profit and non-gaap gross profit 2016 versus 2015 gross profit for the year ended december 31 , 2016 was $ 328.6 million , compared with $ 312.3 million for the year ended december 31 , 2015 , an increase of $ 16.3 million or 5.2 % . gross profit margin ( gross profit as a percentage of revenues ) for the year ended december 31 , 2016 was 38.2 % , compared with 36.8 % for the year ended december 31 , 2015 . the gross profit and margin increases were primarily due to higher microphone shipments and other product shipments , favorable impacts from productivity initiatives , lower production transfer costs and other charges , foreign currency exchange rate changes and cost savings from our production transfer activities , partially offset by lower average selling prices , lower fixed overhead absorption in the first half of 2016 and unfavorable product mix . 29 non-gaap gross profit for the year ended december 31 , 2016 was $ 335.0 million , compared with $ 337.5 million for the year ended december 31 , 2015 , a decrease of $ 2.5 million or 0.7 % . non-gaap gross profit margin ( non-gaap gross profit as a percentage of revenues ) for the year ended december 31 , 2016 was 39.0 % , as compared with 39.7 % for the year ended december 31 , 2015 . the non-gaap gross profit and margin decreases were primarily due to lower average selling prices , lower fixed overhead absorption in the first half of 2016 , unfavorable product mix , partially offset by higher microphone and other product shipments , favorable impacts from productivity initiatives , foreign currency exchange rate changes and cost savings from our production transfer activities . 2015 versus 2014 gross profit for the year ended december 31 , 2015 was $ 312.3 million , compared with $ 355.5 million for the year ended december 31 , 2014 , a decrease of $ 43.2 million or 12.2 % . gross profit margin for the year ended december 31 , 2015 was 36.8 % , compared with 38.9 % for the year ended december 31 , 2014 . this decrease was driven by lower average selling prices , lower fixed overhead absorption and unfavorable product mix , partially offset by lower inventory charges , favorable impacts from foreign currency translations and benefits from productivity initiatives . in addition , the company had benefits from an increase in shipping volume , which includes $ 6.3 million associated with our acquired audience operations . non-gaap gross profit for the year ended december 31 , 2015 was $ 337.5 million , compared with $ 377.3 million for the year ended december 31 , 2014 , a decrease of $ 39.8 million or 10.5 % . non-gaap gross profit margin for the year ended december 31 , 2015 was 39.7 % , as compared with 41.2 % for the year ended december 31 , 2014 . the decrease in gross profit was primarily due to lower average selling prices , lower fixed overhead absorption and unfavorable product mix , partially offset by lower inventory charges in the current year , favorable impacts from foreign currency translations and benefits from productivity initiatives . in addition , the company had benefits from an increase in shipping volume , which includes the $ 6.3 million associated with our acquired audience operations . research and development expenses 2016 versus 2015 research and development expenses for the years ended december 31 , 2016 and 2015 were $ 100.5 million and $ 92.8 million , respectively . research and development expenses as a percentage of revenues for the years ended december 31 , 2016 and 2015 were 11.7 % and 10.9 % , respectively . the increase in research and development expenses and as a percentage of revenues was primarily driven by our acquired audience research and development operations and an increase in new product development spending , partially offset by cost reduction initiatives .
| we capitalize external legal costs incurred in the defense of our patents when we believe that a significant , discernible increase in value will result from the defense and a successful outcome of the legal action is probable . when we capitalize patent defense costs we amortize the costs over the remaining estimated useful life of the patent , which is typically seven to ten years . during the years ended december 31 , 2015 and 2014 , we paid $ 1.0 million and $ 16.0 million , respectively , in gross legal costs related to the defense of our patents . capitalized patent defense costs decreased in 2015 due primarily to lower legal expenses incurred . the 2014 expenses were associated with intellectual property litigation which has been settled . we did not pay any such costs in 2016. sales of business , acquisitions and investments . we received net proceeds of $ 40.6 million from the sale of our mce speaker and receiver product line during the year ended december 31 , 2016. we paid $ 35.1 million , net of cash acquired during the year ended december 31 , 2015 to acquire audience . we also received proceeds of $ 4.0 million during the year ended december 31 , 2015 from the sale of investments , which were part of the acquisition of audience . we paid $ 8.0 million during the year ended december 31 , 2014 , to acquire a non-controlling interest in a mems timing device company and subsequently received proceeds of $ 2.0 million and $ 14.5 million during the years ended december 31 , 2016 and december 31 , 2014 , respectively from the sale of our non-controlling interest in the same mems timing device company . financing activities cash used in financing activities during the year ended december 31 , 2016 primarily related to $ 166.5 million in principal payments on our term loan , a $ 44.5
| 13,825 |
the company 's operations include a number of large fixed or semi-fixed cost components , which include salaries , indirect labor and benefits , facility costs , lease expense , and depreciation and amortization . it is not possible to vary these costs easily in the short-term as volumes fluctuate . accordingly , increases or decreases in sales volume can have a large effect on the usage and productivity of these cost components , resulting in a large impact on the company 's profitability . overall summary of financial results for the year ended december 31 , 2011 the company 's financial results for the year ended december 31 , 2011 reflected the continued recovery of global economic conditions and , more specifically , the improvement in both the capital and unit-driven segments of the semiconductor industry that began during the second half of 2009. from a low point of $ 59.0 million in the first quarter of 2009 , quarterly sales of the company 's products and services rose steadily on a sequential basis , reaching $ 209.2 million in the second quarter of 2011 , before declining over the latter half of 2011 due to a slowdown in semiconductor industry capital spending and sluggish production rates . total net sales for the year ended december 31 , 2011 were $ 749.3 million , up $ 60.8 million , or 9 % , from sales of $ 688.4 million for the year ended december 31 , 2010. sales growth in 2011 reflected generally positive trends in the company 's core semiconductor markets , for both the company 's unit-driven and capital-driven products lines . two of the company 's three operating segments experienced net sales increases , while the other operating segment 's net sales were flat . the sales increase in 2011 included favorable foreign currency translation effects of $ 34.6 million related to the year-over-year strengthening of most international currencies versus the u.s. dollar , most notably the japanese yen , korean won , singaporean dollar , euro and taiwanese dollar . excluding these factors , net sales rose approximately 4 % in 2011 when compared to 2010 . 37 the year-over-year sales increase , along with a slight improvement in sales mix , accounted for higher gross profits in 2011. these factors were offset by reduced levels of factory utilization , underlying a gross margin rate for 2011 of 43.5 % compared to 45.1 % a year ago . operating costs , consisting of selling , general and administrative ( sg & a ) and engineering , research and development ( er & d ) costs , fell nominally for the year ended december 31 , 2011 when compared to the year-ago period . as a result of the factors noted above , net income attributable to the company for 2011 was $ 123.8 million , or $ 0.91 per diluted share , compared to net income attributable to the company of $ 84.4 million , or $ 0.63 per diluted share , in 2010. during 2011 , the company 's operating activities provided cash flow of $ 157.3 million . cash and cash equivalents were $ 273.6 million at december 31 , 2011 compared with $ 134.0 million at december 31 , 2010. the company had no outstanding short-term bank borrowings or long-term debt at december 31 , 2011. critical accounting policies management 's discussion and analysis of financial condition and results of operations are based upon the company 's consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires the company to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . at each balance sheet date , management evaluates its estimates , including , but not limited to , those related to accounts receivable , sales return obligations , inventories , long-lived assets , income taxes and shared-based compensation . the company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances . if management made different judgments or utilized different estimates , this could result in material differences in the amount and timing of the company 's results of operations for any period . in addition , actual results could be different from the company 's current estimates , possibly resulting in increased future charges to earnings . the critical accounting policies affected most significantly by estimates , assumptions and judgments used in the preparation of the company 's consolidated financial statements are discussed below . accounts receivable-related valuation accounts the company maintains allowances for doubtful accounts and for sales returns and allowances . significant management judgments and estimates must be made and used in connection with establishing these valuation accounts . the company provides an allowance for doubtful accounts for all individual receivables judged to be unlikely for collection . in addition , for all other accounts receivable , the company records an allowance for doubtful accounts based on a combination of factors . specifically , management considers the age of receivable balances , historical bad debt write-off experience and current economic circumstances . the company 's allowance for doubtful accounts was $ 1.0 million and $ 1.1 million at december 31 , 2011 and 2010 , respectively . an allowance for sales returns and allowances is established based on historical and current trends in both sales and product returns . at december 31 , 2011 and 2010 , the company 's reserve for sales returns and allowances was $ 0.7 million and $ 1.0 million , respectively . inventory valuation the company uses certain estimates and judgments to properly value its inventory . in general , the company 's inventories are recorded at the lower of cost or market . the company evaluates its ending inventories for obsolescence and excess quantities each quarter . story_separator_special_tag this evaluation includes analyses of inventory levels , historical write-off trends , expected product lives , and historical and projected sales levels by 38 product . inventories that are considered obsolete are written off or a full allowance is recorded . in addition , allowances are established for inventory quantities in excess of forecasted demand . inventory allowances were $ 5.7 million and $ 6.4 million at december 31 , 2011 and 2010 , respectively . the company 's inventories include materials and products subject to technological obsolescence , which are sold in highly competitive industries . if future demand or market conditions are less favorable than current conditions or the company 's projected outlook for sales , additional inventory write-downs or allowances may be required and would be reflected in cost of sales in the period the revision is made . impairment of long-lived assets as of december 31 , 2011 , the company had $ 130.6 million of net property , plant and equipment and $ 56.5 million of net intangible assets . the company routinely considers whether indicators of impairment of the value of its long-lived assets , particularly its manufacturing equipment , and its intangible assets , are present . a long-lived asset ( asset group ) shall be tested for recoverability whenever events or changes in circumstances ( triggering events ) indicate that its carrying amount may not be recoverable . the following are examples of such events or changes in circumstances : a. a significant decrease in the market price of a long-lived asset ( asset group ) b. a significant adverse change in the extent or manner in which a long-lived asset ( asset group ) is being used or in its physical condition c. a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset ( asset group ) , including an adverse action or assessment by a regulator d. an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset ( asset group ) e. a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset ( asset group ) f. a current expectation that , more likely than not , a long-lived asset ( asset group ) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . if such indicators are present , it is determined whether the sum of the estimated undiscounted cash flows attributable to the asset group in question is less than its carrying value . if less , an impairment loss is recognized based on the excess of the carrying amount of the asset group over its respective fair value . fair value is determined by discounting estimated future cash flows , appraisals or other methods deemed appropriate . if the asset groups determined to be impaired are to be held and used , the company recognizes an impairment charge to the extent the fair value attributable to the asset group is less than the assets ' carrying value . the fair value of the assets then becomes the assets ' new carrying value , which is depreciated or amortized over the remaining estimated useful life of the assets . the company 's long-lived assets are grouped with other assets and liabilities at the lowest level ( asset groups ) for which the identifiable cash flows are largely independent of the cash flows of other assets and liabilities . the company has four significant asset groups , identified by assessing the company 's identifiable cash flows and the interdependence of such cash flows : contamination control solutions ( ccs ) , microenvironments ( me ) , poco graphite ( poco ) and entegris specialty coatings ( esc ) . as described above , the evaluation of the recoverability of long-lived assets requires the company to make significant estimates and assumptions . these estimates and assumptions primarily include , but are not limited to , the identification of the asset group at the lowest level of independent cash flows , the primary asset of the group and long-range forecasts of revenue and costs , reflecting management 's assessment of general economic and industry conditions , operating income , depreciation and amortization and working capital requirements . 39 due to the inherent uncertainty involved in making these estimates , actual results could differ from those estimates . in addition , changes in the underlying assumptions would have a significant impact on the conclusion that an asset group 's carrying value is recoverable , or the determination of any impairment charge if it was determined that the asset values were indeed impaired . based on improved economic conditions within the semiconductor industry and the absence of any other triggering events , the company has not been required to perform impairment testing for any of its asset groups since the first quarter of 2009. the company will continue to monitor circumstances and events to determine whether asset impairment testing is warranted . it is possible that in the future the company may no longer be able to conclude that there is no impairment of its long-lived assets , nor can the company provide assurance that material impairment charges of long-lived assets will not occur in future periods . income taxes in the preparation of the company 's consolidated financial statements , management is required to make significant estimates , assumptions and judgments in its determination of income taxes in each of the jurisdictions in which the company operates . this process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included in the company 's consolidated balance sheets . the company has significant amounts of deferred tax assets .
| net sales to customers in north america , asia , europe , and japan increased 10 % , 5 % , 12 % , and 12 % , respectively , from 2010 to 2011. a portion of the asia , europe , and japan increases related to favorable foreign currency translation effects . net of favorable currency translation effects , sales increased 0 % , 7 % , and 2 % for asia , europe , and japan , respectively . demand drivers for the company 's business primarily consist of semiconductor fab utilization and production ( unit-driven ) as well as capital spending for new or upgraded semiconductor fabrication equipment and facilities ( capital-driven ) . the company analyzes sales of its products by these two key drivers . both unit-driven and capital-driven sales in 2011 increased as compared with 2010. sales of unit-driven products represented 63 % of sales and sales of capital-driven products represented 37 % of total sales in 2011. this compares to a unit-driven to capital-driven ratio of 63:37 for 2010. sales of unit-driven products increased 9 % in 2011. unit-driven products generally have average lives of less than 18 months or need to be replaced based on usage levels . these products include liquid filters used in the photolithography , cmp and wet etch and clean processes , specialized graphite components , and wafer shippers used to ship raw wafers , particularly at wafer sizes of 200mm and below . year-over-year sales of capital-driven products increased 8 % in 2011. capital-driven products include wafer process carriers , gas microcontamination control systems used in the deployment of advanced photolithography processes , fluid handling systems , including dispense pumps used in the photolithography process , and integrated liquid flow controllers used in various processes around the fab . the company believes the sales increases noted above are primarily volume driven . based on the information available , the company believes it improved or maintained market share for its products and that the effect of selling price erosion was nominal . additionally , given that no single customer accounts for more than 10 % of the company 's annual revenue , the increase in sales has not been driven by any one particular customer or group of customers , but rather by the semiconductor and other high-technology
| 13,826 |
additionally , we have supported our research and development activities with general and administrative support , as well as by raising capital , conducting business planning and protecting our intellectual property . we have not generated any revenue from product sales to date and do not expect to do so until such time as we obtain regulatory approval and commercialize one or more of our product candidates . we can not be certain of the timing or success of approval of our product candidates . we have financed our operations primarily through private equity placements , an issuance of convertible debentures , payments received under license and collaboration agreements , government grants and scientific research and experimental development , or sr & ed , tax credits as well as our ipo in 2017. from inception through december 31 , 2017 , we received approximately $ 200.0 million , net of share issue costs , from private equity placements , the issuance of convertible debt , which subsequently converted into equity securities , and our ipo . payments received from our license and collaboration agreements include upfront fees and milestone payments as well as research support and reimbursement payments through our strategic partnerships and government grants . although it is difficult to predict our funding requirements , based upon our current operating plan , we anticipate that our existing cash and cash equivalents and short-term investments as of december 31 , 2017 , combined with the collaboration payments we anticipate receiving , will enable us to fund the clinical and preclinical development of our lead product candidates for at least the next twelve months . through december 31 , 2017 , we had an accumulated deficit of $ 108.7 million . we reported a net loss of $ 10.4 million for the year ended december 31 , 2017. we expect that over the next several years we will increase our research and development expenditures in connection with the ongoing development of our product candidates and other clinical , preclinical and regulatory activities . strategic partnerships and collaborations our unique combination of proprietary protein engineering capabilities and resulting therapeutic platform technologies was initially recognized by merck and lilly , with whom we established strategic partnerships focused on our azymetric and efect therapeutic platforms . we subsequently entered into broader strategic partnerships with celgene and gsk and a collaboration and cross-licensing agreement with daiichi sankyo . following the completion of the initial agreements with merck , lilly and gsk , the relationships were subsequently expanded to include either additional licenses or therapeutic platforms . most recently , we executed a licensing and collaboration agreement with janssen to develop and commercialize next generation bispecific antibody therapeutics . these relationships provide our strategic partners with access to components of our proprietary azymetric and efect therapeutic platforms for their development of a defined number of protein therapeutics , for which we will not have ownership . these strategic partnerships have provided us with non-dilutive funding as well as access to proprietary therapeutic assets , which increase our ability to rapidly advance our product candidates while maintaining worldwide commercial rights to our wholly-owned therapeutic pipeline . our strategic partnerships include the following : 99 research and license agreement with merck in august 2011 , we entered into a research and license agreement with merck , which was amended and restated in december 2014 , to develop and commercialize three bispecific antibodies generated through the use of the azymetric and efect platforms . under the terms of the agreement , we granted merck a worldwide , royalty-bearing antibody sequence pair exclusive license to research , develop and commercialize certain licensed products . we are eligible to receive up to $ 190.75 million , including an upfront payment ( $ 1.25 million received in 2011 ) , research milestone payments totaling $ 3.5 million ( $ 2.0 million and $ 1.5 million received in 2012 and 2013 , respectively ) , payments for completion of ind-enabling studies of up to $ 6.0 million , development milestone payments of up to $ 66.0 million and commercial milestone payments of up to $ 114.0 million . in addition , we are eligible to receive tiered royalties in the low to mid-single digits on product sales , with the royalty term being , on a product-by-product and country-by-country basis , either ( i ) for as long as there is zymeworks patent coverage on products , or ( ii ) for five years , beginning from the first commercial sale , whichever period is longer . if there is no zymeworks patent coverage on products , royalty rates will be reduced . under the agreement , we are sharing certain research and development responsibilities with merck to generate bispecific antibodies with the azymetric and efect platforms . merck provides funding for a portion of our internal and external research costs in support of the collaboration . after the conclusion of the research program , merck will be solely responsible for the further research , development , manufacturing and commercialization of the products . licensing and collaboration agreement with lilly in december 2013 , we entered into a licensing and collaboration agreement with lilly to research , develop and commercialize one bispecific antibody , with an option for a second antibody , generated through the use of the azymetric platform . under the terms of the agreement , we granted lilly a worldwide , royalty-bearing antibody target pair-specific exclusive license to research , develop and commercialize certain licensed products . we are eligible to receive up to $ 103.0 million , including an upfront payment ( $ 1.0 million received in 2013 ) and per product potential milestone payments , comprised of research milestone payments totaling $ 1.0 million ( $ 1.0 million received in 2015 ) , ind submission milestone payments of $ 2.0 million , development milestone payments of $ 8.0 million and commercial milestone payments of $ 40 million . story_separator_special_tag in addition , we are eligible to receive tiered royalties in the low to mid-single digits on product sales , with the royalty term being , on a product-by-product and country-by-country basis , either ( i ) for as long as there is zymeworks platform patent coverage on products , or ( ii ) for 10 years , beginning from the first commercial sale , whichever period is longer . if there is no zymeworks patent coverage on products , royalty rates may be potentially reduced . in 2017 , lilly nominated a bispecific candidate from this agreement for preclinical development . under the agreement , we are sharing certain research and development responsibilities with lilly to generate bispecific antibodies with the azymetric platform . lilly provides funding for a portion of our internal and external research costs in support of the collaboration . after the conclusion of the research program , lilly will be solely responsible for the further research , development , manufacturing , and commercialization of the products . second licensing and collaboration agreement with lilly in october 2014 , we entered into a second licensing and collaboration agreement with lilly to research , develop and commercialize three bispecific antibodies generated through the use of the azymetric platform . this agreement did not alter or amend the initial agreement entered in 2013. under the terms of the agreement , we granted lilly a worldwide , royalty-bearing antibody target-pair exclusive ( for two bispecific antibodies ) and an antibody sequence pair-specific ( for one bispecific antibody ) license to research , develop and commercialize certain licensed products . in 2017 , lilly nominated a bispecific candidate from this agreement for preclinical development and discontinued the development of two other bispecific antibodies due to strategic portfolio realignment in those particular disease areas . we have updated our projections and are currently eligible to receive up to $ 125.0 million , comprised of research milestone payments of up to $ 2.0 million ( $ 2.0 million earned in 2016 ) , ind submission milestone payments of up to $ 8.0 million , development milestone payments of up to $ 20.0 million and commercial milestone payments of up to $ 95.0 million . in addition , we are eligible to receive tiered royalties in the low to mid-single digits on product sales , with the royalty term being , on a product-by-product and country-by-country basis , either ( i ) for as long as there is zymeworks platform patent coverage on products , or ( ii ) for 10 years , beginning from the first commercial sale , whichever period is longer . if there is no zymeworks patent coverage on products , royalty rates may be potentially reduced . in conjunction with this collaboration agreement , lilly purchased approximately $ 24.0 million of our common shares . 100 under the agreement , we are sharing certain research and development responsibilities with lilly to generate bispecific antibodies with the azymetric platform . we are responsible for our internal and external research costs in support of this collaboration . after the conclusion of the research program , lilly will be solely responsible for the further research , development , manufacturing and commercialization of the products . licensing and collaboration agreement with celgene in december 2014 , we entered into a collaboration agreement with celgene to research , develop and commercialize up to eight bispecific antibodies generated through the use of the azymetric platform . under the terms of the agreement , we granted celgene a right to exercise options to worldwide , royalty-bearing , antibody sequence pair-specific exclusive licenses to research , develop and commercialize certain licensed products . we received an upfront payment of $ 8.0 million , which was accounted for as upfront collaboration consideration received in 2014. celgene has the right to exercise options on up to eight programs and if celgene opts in on a program , we are eligible to receive up to $ 164.0 million per product candidate ( up to $ 1.3 billion for all eight programs ) , comprised of a commercial license option payment of $ 7.5 million , development milestone payments of up to $ 101.5 million and commercial milestone payments of up to $ 55.0 million . no development or commercial milestone payments or royalties have been received to date . in addition , we are eligible to receive tiered royalties in the low to mid-single digits on product sales , with the royalty term being , on a product-by-product and country-by-country basis , either ( i ) for as long as there is zymeworks platform patent coverage on products , or ( ii ) for 10 years , beginning from the first commercial sale , whichever period is longer . celgene also has the right , prior to the first dosing of a patient in a phase 3 clinical trial for a product , to buy down the royalty to a flat low-single digit rate with a payment of $ 10.0 million per percentage point . in addition to this collaboration agreement , the parties also entered into an equity subscription agreement under which celgene paid $ 8.6 million for common shares . under the agreement , we are collaborating with celgene to generate and develop a number of bispecific antibodies during the research program , the term of which expires in april 2018 but can be extended by celgene by 24 months if celgene makes an additional payment . after the conclusion of the research program , celgene will be solely responsible for the further research , development , manufacturing and commercialization of the products . licensing and collaboration agreement with gsk in december 2015 , we entered into a collaboration and license agreement with gsk to research , develop and commercialize up to 10 new fc-engineered monoclonal and bispecific antibodies generated through the use of the efect and azymetric platforms .
| pursuant to the credit agreement , we were able to borrow up to an aggregate of $ 15.0 million , consisting of tranche a and tranche b term loans for $ 7.5 million each , with the tranche a term amount of $ 7.5 million being made available to us immediately upon the close of the transaction . following the completion of our ipo , we exercised our option of repayment under the terms of the credit agreement and paid $ 7.8 million , which consisted of the outstanding tranche a principal balance ( $ 7.5 million ) and an early repayment premium ( $ 0.3 million ) , as well as legal fees ( $ 0.01 million ) . we closed our ipo on may 3 , 2017 , pursuant to which we sold 4,894,467 common shares ( including the sale of 394,467 common shares to the underwriters upon their partial exercise of their over-allotment option to purchase additional shares on may 31 , 2017 ) . we received net proceeds of approximately $ 54.2 million , after underwriting discounts , commissions and offering expenses . in addition , our operations have been funded through upfront fees , milestone payments , research support payments from our strategic partners , government grants and sr & ed credits . as of december 31 , 2017 , we had $ 87.8 million in cash and cash equivalents and short-term investments . in addition to our existing cash and cash equivalents , we expect to continue to receive additional reimbursements from our existing and future research collaborations for research and development services rendered and additional milestone payments . however , our ability to receive future milestone payments is dependent upon the ability of zymeworks and its collaborators to successfully complete specified research and development activities and therefore is uncertain at this time . cash flows the following table represents a summary of our cash flows for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_12_th operating activities during the year ended december 31 , 2017 , cash from operating activities was $ 0.2 million , which consisted of a net loss of $ 10.4 million as a result of $ 51.8 million in revenue offsetting our research and development , general and administrative and other expenses .
| 13,827 |
we believe that our currently available funds , cash generated from operations as well as existing sources of and access to financing will be sufficient to fund our anticipated operating , capital requirements and debt service requirement . we expect to build cash in the future as we continue to generate significant cash flow from royalty , license and milestone revenue and captisol material sales primarily driven by continued increases in promacta , kyprolis and evomela sales , recent product approvals and regulatory developments , as well as revenue from anticipated new licenses and milestones . in addition , we anticipate that our liquidity needs can be met through other sources , including sales of marketable securities , borrowings through commercial paper and or syndicated credit facilities and access to other domestic and foreign debt markets and equity markets . investments we invest our excess cash principally in u.s. government debt securities , investment-grade corporate debt securities and certificates of deposit . we have established guidelines relative to diversification and maturities of our investments in order to provide both safety and liquidity . these guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates . additionally , we own certain securities which are classified as short-term investments that we received as a result of a milestone and an upfront license payment as well as 6.3 million shares in viking . borrowings and other liabilities 2019 convertible senior notes we have convertible debt outstanding as of december 31 , 2017 related to our 2019 convertible senior notes . in august 2014 , we issued $ 245.0 million aggregate principal amount of convertible senior unsecured notes . the notes are convertible into common stock upon satisfaction of certain conditions . interest of 0.75 % per year is payable semi-annually on august 15th and february 15th through the maturity of the notes in august 2019. upon the occurrence of certain circumstances , holders of the 2019 convertible senior notes may redeem all or a portion of their notes , which may require the use of a substantial amount of cash . at december 31 , 2017 , we had a working capital deficit of $ 1.8 million , which includes the 2019 convertible senior notes that are currently redeemable as of december 31 , 2016 but excludes another $ 18.9 million that is classified as mezzanine equity . as noted in note 6 , the debt may change from current to non-current period over period , primarily as a result of changes in the company 's stock price . management believes that it is remote that holders of the notes would choose to convert their notes early because the fair value of the security that a noteholder can currently realize in an active market is greater than the conversion value the noteholder would realize upon early conversion . in the unlikely event that all the debt was converted , we have 3 business days following a 50 trading day observation period from the convert date to pay the principal in cash . we have positive operating income and positive cash flow from operations for the three years ended december 31 , 2017 and , accordingly , while there can be no 38 assurance , we believe we have the ability to raise additional capital through our active s-3 , by liquidating assets , or via alternative financing arrangements such as convertible or high yield debt . repurchases of common stock during the year ended december 31 , 2017 , we repurchased 14,000 common shares at a weighted average price of $ 140.43 per share , pursuant to the repurchase plan , or approximately $ 2.0 million of common shares . contingent liabilities crystal in connection with the acquisition of crystal in october 2017 , we may be required to pay up to an additional $ 10.5 million in purchase consideration upon achievement of certain commercial and development milestones to the crystal shareholders . see footnote 7 , balance sheet account details . cydex in connection with the acquisition of cydex in january 2011 , we issued a series of cvrs and also assumed certain contingent liabilities . we may be required to make additional payments upon achievement of certain clinical and regulatory milestones to the cydex shareholders and former license holders . see footnote 7 , balance sheet account details . metabasis in connection with the acquisition of metabasis in january 2010 , we entered into four cvr agreements with metabasis shareholders . the cvrs entitle the holders to cash payments as frequently as every six months as proceeds are received by us upon the sale or licensing of any of the metabasis drug development programs and upon the achievement of specified milestones . see footnote 7 , balance sheet account details . leases and off-balance sheet arrangements we lease our office facilities under operating lease arrangements with varying terms through april 2023. the agreements provide for increases in annual rents based on changes in the consumer price index or fixed percentage increases of 3.0 % . we had no off-balance sheet arrangements at december 31 , 2017 , 2016 and 2015. contractual obligations as of december 31 , 2017 , future minimum payments due under our contractual obligations are as follows ( in thousands ) : replace_table_token_22_th ( 1 ) purchase obligations represent our commitments under our supply agreement with hovione for captisol purchases . ( 2 ) contingent liabilities to former shareholders and license holders are subjective and affected by changes in inputs to the valuation model including management 's assumptions regarding revenue volatility , probability of commercialization of products , estimates of timing and probability of achievement of certain revenue thresholds and developmental and regulatory milestones and affect amounts owed to former license holders and cvr holders . as of december 31 , 2017 , only those liabilities for revenue sharing payments and milestones achieved as a result of 2017 activities are included in the table above . story_separator_special_tag ( 3 ) we lease an office and research facility , which we have fully vacated under operating lease arrangements expiring on june 2019. we sublet these facilities through the end of our lease . as of december 31 , 2017 , we expect to receive aggregate future minimum lease payments totaling $ 1.0 million ( non-discounted ) over the duration of the sublease agreement as follows and not included in the table above : less than a year $ 0.6 million and two to three years $ 0.4 million . 39 cash flow summary replace_table_token_23_th in 2017 , we generated cash from operations and from issuance of common stock under employee stock plans . during the same period we used cash for investing activities , including net purchases of short-term investments , payments made to acquire crystal , payments to cvr holders and capital expenditures . we also used cash to pay taxes related to net share settlement of equity awards and to repurchase shares of our common stock . in 2016 , we generated cash from operations and from issuance of common stock under employee stock plans . during the same period we used cash for investing activities , including net purchases of short-term investments , payments made to acquire omt , commercial license rights from cormatrix , viking common stock and shares of an equity method investee , payments to cvr holders and capital expenditures . we also used cash to pay taxes related to net share settlement of equity awards and to repurchase shares of our common stock . in 2015 , we generated cash from operations and from issuance of common stock under employee stock plans . during the same period we used cash for investing activities , including net purchases of short-term investments , payments made to acquire commercial license rights from selexis and viking common stock , payments to cvr holders and capital expenditures . we also used cash to repurchase share of our common stock . critical accounting policies certain of our policies require the application of management judgment in making estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosures made in the accompanying notes . those estimates and assumptions are based on historical experience and various other factors deemed to be applicable and reasonable under the circumstances . the use of judgment in determining such estimates and assumptions is by nature , subject to a degree of uncertainty . accordingly , actual results could differ materially from the estimates made . our critical accounting policies are as follows : revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or service has been provided , title has transferred or access has been given , the price is fixed or determinable , there are no remaining customer acceptance requirements , and collectability of the resulting receivable is reasonably assured . royalties on sales of products commercialized by our partners are recognized in the quarter reported by the respective partner . generally , we receive royalty reports from our licensees approximately one quarter in arrears due to the fact that our agreements require partners to report product sales between 30 - 60 days after the end of the quarter . the company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured . under this accounting policy , the royalty revenues reported are not based upon estimates and such royalty revenues are typically reported to the company by its partners in the same period in which payment is received . revenue from material sales of captisol is recognized upon transfer of title , which normally passes upon shipment to the customer , provided all other revenue recognition criteria have been met . all product returns are subject to the company 's credit and exchange policy , approval by the company and a 20 % restocking fee . to date , product returns by customers have not been material to net material sales in any related period . the company records revenue net of product returns , if any , and sales tax collected and remitted to government authorities during the period . many of the company 's revenue arrangements for captisol involve a license agreement with the supply of manufactured captisol product . licenses may be granted to pharmaceutical companies for the use of captisol product in the development of pharmaceutical compounds . the supply of the captisol product may be for all phases of clinical trials and 40 through commercial availability of the host drug or may be limited to certain phases of the clinical trial process . the company evaluates the deliverables in these agreements to determine whether they have stand-alone value to our customers and therefore meet the criteria to be accounted for as separate units of accounting or they should be combined with other deliverables and accounted for as a single unit of accounting . management believes that the company 's licenses have stand-alone value at the outset of an arrangement because the customer obtains the right to use captisol in its formulations without any additional input by the company . other nonrefundable , upfront license fees are recognized as revenue upon delivery of the license , if the license is determined to have standalone value that is not dependent on any future performance by the company under the applicable collaboration agreement . nonrefundable contingent event-based payments are recognized as revenue when the contingent event is met , which is usually the earlier of when payments are received or collections are assured , provided that it does not require future performance by the company . sales-based contingent payments from partners are accounted for similarly to royalties , with revenue recognized upon achievement of the sales targets assuming all other revenue recognition criteria are met . the company occasionally has sub-license obligations related to arrangements for which it receives license fees , milestones and royalties .
| the following table represents royalty revenue by program ( in thousands ) : replace_table_token_17_th 35 the following table represents material sales by clinical and commercial use ( in thousands ) : replace_table_token_18_th operating costs and expenses replace_table_token_19_th total operating costs and expenses for 2017 increased $ 7.9 million or 12 % compared with 2016. cost of sales decreased year over year in 2017 and 2016 primarily due to lower material sales as a result of timing of customer purchases . amortization of intangibles increased year over year in 2017 and 2016 due primarily to the acquisition of crystal and omt in october 2017 and january 2016 , respectively . research and development expenses and general and administrative expenses increased year over year in 2017 and 2016 due primarily to increased business development activities , timing of internal development costs and increased stock-based compensation expense and headcount related expenses associated with crystal and omt . we do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high degree of uncertainty . uncertainties include our inability to predict the outcome of research and clinical studies , regulatory requirements placed upon us by regulatory authorities such as the fda and ema , our inability to predict the decisions of our partners , our ability to fund research and development programs , competition from other entities of which we may become aware in future periods , predictions of market potential for products that may be derived from our work , and our ability to recruit and retain personnel or third-party contractors with the necessary knowledge and skills to perform certain research . refer to “ item 1a . risk factors ” for additional discussion of the uncertainties surrounding our research and development initiatives . other ( expense ) income replace_table_token_20_th the year over year decrease in interest expense , net in 2017 is due to an increase in interest income offset by an increase in interest expense related to the 2019 convertible senior notes . the year over year
| 13,828 |
sbi adopted fresh-start reporting as of a convenience date of august 30 , 2009. the term predecessor refers only to sbi prior to effective date and the term successor refers to the company for the periods subsequent to the effective date . cost reduction initiatives spectrum brands continually seeks to improve its operational efficiency , match its manufacturing capacity and product costs to market demand and better utilize its manufacturing resources . spectrum brands has undertaken various initiatives to reduce manufacturing and operating costs . 89 fiscal 2009. in connection with spectrum brands ' announcement of a plan to reduce headcount and to exit certain facilities in the united states , the company implemented a number of cost reduction initiatives ( the global cost reduction initiatives ) . these initiatives also included consultation , legal and accounting fees related to the evaluation of its capital structure . fiscal 2008. in connection with spectrum brands ' decision to exit its zinc carbon and alkaline battery manufacturing and distribution facility in ninghai , china , it undertook cost reduction initiatives ( the ningbo exit plan ) . these initiatives included fixed cost savings by integrating production equipment into the remaining production facilities and headcount reductions . fiscal 2007. in connection with spectrum brands ' changing to product-focused management reporting , it undertook a number of cost reduction measures ( the global realignment initiatives ) which included a headcount reduction of approximately 200 employees . insurance segment through fgl , we are a provider of annuity and life insurance products to the middle and upper-middle income markets in the united states . based in baltimore , maryland , fgl operates in the united states through its subsidiaries fidelity & guaranty life insurance company ( fgl insurance ) and fidelity & guaranty life insurance company of new york ( fgl ny insurance ) . fgl 's principal products are deferred annuities ( including fixed indexed annuity ( fia ) contracts , immediate annuities , and life insurance products , which are sold through a network of approximately 300 independent marketing organizations ( imos ) representing approximately 25,000 independent agents and managing general agents . as of september 30 , 2011 , fgl had over 745,000 policyholders nationwide and distributes its products throughout the united states of america . fgl 's most important imos are referred to as power partners. fgl 's power partners are currently comprised of 19 annuity imos and 9 life insurance imos . from april 6 , 2011 through september 30 , 2011 , these power partners accounted for approximately 70 % of fgl 's sales volume . fgl believes that their relationships with these imos are strong . the average tenure of the top ten power partners is approximately 12.5 years . under accounting principles generally accepted in the united states of america ( us gaap ) , premium collections for fias and fixed rate annuities and immediate annuities without life contingency are reported as deposit liabilities ( i.e. , contractholder funds ) instead of as revenues . similarly , cash payments to policyholders are reported as decreases in the liability for contractholder funds and not as expenses . sources of revenues for products accounted for as deposit liabilities are net investment income , surrender and other charges deducted from contractholder funds , and net realized gains ( losses ) on investments . components of expenses for products accounted for as deposit liabilities are interest sensitive and index product benefits ( primarily interest credited to account balances ) , amortization of intangibles including value of business acquired ( voba ) and deferred policy acquisition costs ( dac ) , other operating costs and expenses and income taxes . earnings from products accounted for as deposit liabilities are primarily generated from the excess of net investment income earned over the interest credited or the cost of providing index credits to the policyholder , known as the net investment spread . with respect to fias , the cost of providing index credits includes the expenses incurred to fund the annual index credits and where applicable , minimum guaranteed interest credited . proceeds received upon expiration or early termination of call options purchased to fund annual index credits are recorded as part of the change in fair value of derivatives , and are largely offset by an expense for index credits earned on annuity contractholder fund balances . fgl 's profitability depends in large part upon the amount of assets under management , the ability to manage operating expenses , the costs of acquiring new business ( principally commissions to agents and bonuses credited to policyholders ) and the investment spreads earned on contractholder fund balances . managing investment spreads involves the ability to manage investment portfolios to maximize returns and minimize risks such as interest rate changes and defaults or impairment of investments and the ability to manage interest rates credited to policyholders and costs of the options and futures purchased to fund the annual index credits on the fias . 90 story_separator_special_tag margin-left : 6 % '' > electric shaving and grooming product net sales during fiscal 2011 increased $ 17 million , or 7 % , compared to fiscal 2010 primarily due to increased sales within north america , europe and latin america of $ 6 million , $ 4 million and $ 3 million , respectively , coupled with favorable foreign exchange translation of $ 4 million . north american sales increases were driven by distribution and customer gains and increased online sales . latin american sales increases were driven by distribution gains . story_separator_special_tag electric personal care product net sales increased $ 32 million , or 15 % , during fiscal 2011 compared to fiscal 2010. the increase of $ 32 million during fiscal 2011 was attributable to increases in north america , europe and latin america of $ 12 million , $ 14 million and $ 2 million , respectively , coupled with favorable foreign exchange impacts of $ 4 million . the increases in north american and european sales were a result of successful product launches , distribution and customer gains and increased online sales while increases in latin american sales were driven by distribution gains . net sales of portable lighting products increased $ 4 million , or 4 % , in fiscal 2011 compared to fiscal 2010 as a result of increases in north america of $ 7 million as well as favorable foreign exchange translation of $ 1 million , offset by a decrease in latin american sales of $ 4 million . the increased sales in north america were primarily attributable to distribution gains , including successful launches with multiple online retailers , as well as a successful new product line launch at a major customer , whereas the sales decrease in latin america was driven by competitive pressures in the region . insurance insurance revenues consist of the following components within fiscal 2011 following the fgl acquisition on april 6 , 2011 ( in millions ) : replace_table_token_11_th premiums of $ 39 million reflect insurance premiums for traditional life insurance products which are recognized as revenue when due from the policyholder . fgl has ceded the majority of its traditional life business to unaffiliated third party reinsurers . the remaining traditional life business is primarily related to traditional life contracts that contain return of premium riders , which have not been reinsured to third party reinsurers . investment income of $ 377 million ( before deducting investment management fees of $ 7 million ) , less $ 284 million of interest credited and option costs on annuity deposits , resulted in an investment spread of $ 93 million , or 1.32 % ( annualized ) , during the period . changes in investment spread primarily result from the yield earned on fgl 's investment portfolio as well as the aggregate interest credited and option costs on fgl 's fia products which can be impacted by the costs of options purchased to fund the annual index credits on fia contracts . average invested assets ( on an amortized cost basis ) for the period from april 6 , 2011 to september 30 , 2011 were $ 16.2 billion and the average yield earned on average invested assets was 4.78 % ( annualized ) for the period compared to interest credited and option costs of 3.46 % ( annualized ) . fgl 's net investment spread for the period is summarized as follows ( annualized ) : for the period april 6 , 2011 to september 30 , 2011 average yield on invested assets 4.78 % interest credited and option cost 3.46 % net investment spread 1.32 % 94 net investment losses , including impairment losses , recognized in operations fluctuate from period to period based upon changes in the interest rate and economic environment and the timing of the sale of investments or the recognition of other-than-temporary impairments . for the period from april 6 , 2011 to september 30 , 2011 , fixed maturity available-for-sale securities and equity securities had net investment gains of $ 24 million related to security sales offset by other-than-temporary impairments of $ 18 million during the period . the other-than-temporary impairments were primarily related to securities fgl intended to sell as of september 30 , 2011. net investment gains for the period were offset by net realized and unrealized losses of $ 171 million on derivative instruments purchased to hedge the annual index credits for fia contracts . the components of the realized and unrealized losses on derivative instruments are as follows ( in millions ) : replace_table_token_12_th realized and unrealized gains and losses on derivative instruments primarily result from the performance of the indices upon which the call options and futures contracts are based and the aggregate cost of options purchased . a substantial portion of the call options and futures contracts are based upon the standard and poors ( s & p ) 500 index with the remainder based upon other equity and bond market indices . thus the fair value of the derivatives will fluctuate from period to period based upon changes in the s & p 500 index . accordingly , the change in the unrealized loss on derivatives was primarily driven by the 15 % decrease in the s & p 500 index during the period from april 6 , 2011 to september 30 , 2011. the average index credits to policyholders during the period is as follows : replace_table_token_13_th the average return to contractholders from index credits during the period was 3.61 % . actual amounts credited to contractholder fund balances may be less than the index appreciation due to contractual features in the fia contracts ( caps , participation rates and asset fees ) which allow us to manage the cost of the options purchased to fund the annual index credits . the level of realized and unrealized gains and losses on derivative instruments is also influenced by the aggregate costs of options purchased . the aggregate cost of options is primarily influenced by the amount of fia contracts in force . the aggregate cost of options is also influenced by the amount of contractholder funds allocated to the various indices and market volatility which affects option pricing . the cost of options purchased during the period from april 6 , 2011 to september 30 , 2011 was $ 68 million . insurance and investment products fees and other for the period were $ 49 million and consist primarily of cost of insurance and surrender
| 91 presented below is a table that summarizes our results of operations and compares the amount of the change between the years ended september 30 , 2011 and 2010 ( the 2011 change ) and between the years ended september 30 , 2010 and 2009 ( the 2010 change ) ( in millions ) : replace_table_token_9_th 92 fiscal year ended september 30 , 2011 compared to fiscal year ended september 30 , 2010 revenues consumer products and other net sales increased $ 620 million , or 24 % , to $ 3,187 million in fiscal 2011 from $ 2,567 million in fiscal 2010. consolidated net sales by product line for fiscal 2011 and 2010 are as follows ( in millions ) : replace_table_token_10_th global consumer battery net sales decreased $ 4 million , or less than 1 % , during fiscal 2011 compared to fiscal 2010 , primarily driven by decreased sales in latin america of $ 37 million which were partially offset by increased sales in north america and europe of $ 17 million and $ 5 million , respectively , as well as favorable foreign exchange impacts of $ 11 million . net sales decreases in latin america were primarily driven by competitive pressures in brazil . north american net sales increased as a result of strong holiday sales during the first fiscal quarter , distribution gains throughout the year and incremental sales due to severe weather patterns during fiscal 2011. the sales increases in europe were primarily attributable to successful promotion of spectrum brands ' varta value sub-brands as well as customer gains . small appliances net sales increased $ 547 million principally reflecting the full year inclusion of russell hobbs in fiscal 2011 whereas fiscal 2010 included russell hobbs only from the june 16 , 2010 date of the sb/rh merger through september 30 , 2010. also contributing to the increase was a $ 15 million , or 8 % , increase in small appliances net sales during the fourth quarter of fiscal 2011 compared to the same quarter of fiscal 2010 ( the first full quarter following the acquisition of russell hobbs ) . the increase was driven by higher north american revenues in beverage , cooking and food preparation appliances , distribution gains and promotional increases at existing retailers , partially offset by reduced sales in europe due to a strategic decision to exit low-margin , local secondary brands in france and germany . foreign exchange positively impacted the small appliances product net sales by $ 5 million . pet product sales during fiscal 2011 increased $ 13 million , or 2 % , compared to fiscal 2010. the
| 13,829 |
since 2014 , kampgrounds of america ( koa ) has measured an increase of more than 7 million new camper households and in 2018 koa projected a 45 % rise in the frequency of camping trips among all camping families ; largely driven by millennials , with 6 in 10 camping families having tried a new camping destination in 2017. younger consumers are also redefining cultural views on vacation and opting instead for 50 to 100 mile getaways within driving distance to home or school . given the importance younger consumers and millennial households place on family , quality experiences , technology and time , we are well-positioned to provide the innovative product offerings which deliver the lifestyle experiences that complement millennial expectations . in addition to younger age demographics , there are opportunities to expand sales to a more ethnically diverse and global customer base through lifestyle , lifestage and data-driven marketing . we intend to expand upon our recent marketing initiatives that focus on diversity , women , families , millennials and the rv lifestyle across social , digital , web , mobile and content marketing . in addition to providing best-in-class marketing and research assets to our independent and four european company-owned dealers , we are committed to providing our end consumers with technology tools and rv lifestyle resources through our joint venture , togo group . economic or industry-wide factors affecting our rv business include the costs of commodities , the impact of actual or threatened tariffs on commodity costs , and the labor used in the manufacture of our products . material and labor costs are the primary factors determining our cost of products sold , and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to offset those cost increases through a combination of product decontenting , material sourcing strategies , efficiency improvements or raising the selling prices for our products by corresponding amounts . historically , we have generally been able to offset net cost increases over time . we have not experienced any significant unusual supply constraints from our north american chassis suppliers recently . the north american recreational vehicle industry has , from time to time , experienced shortages of chassis for various reasons , including component shortages , production delays and work stoppages at the chassis manufacturers . these shortages have had a negative impact on our sales and earnings in the past . we believe that the current supply of chassis used in our north american motorized rv production is generally adequate , in the aggregate , for current production levels , and that available inventory would compensate for short-term changes in supply schedules if they occur . industry outlook europe the company monitors retail trends in the european rv market as reported by the european caravan federation ( ecf ) , whose industry data is reported to the public quarterly and typically issued on a one-to-two-month lag . additionally , on a monthly basis the company receives original equipment manufacturer ( oem ) specific reports from most of the individual member countries that make up the ecf ( oem reporting countries ) . as these reports are coming directly from the ecf member countries , timing and content vary , but typically the reports are issued on a one-to-two-month lag as well . while most countries provide oem-specific information , the united kingdom , which makes up 21.4 % and 10.7 % of the caravan and motorcaravan ( including campervans ) european market for the six months ended june 30 , 2019 , respectively , does not provide oem-specific information . industry wholesale shipment data for the european rv market is not available . the company reports its european reportable segment sales based on the following product categories : motorcaravan similar to the class a and class c motorized products in the north american market campervan similar to the class b motorized products in the north american market , but also includes urban campers caravan similar to the travel trailer and other towable units in the north american market . fifth wheel units are not sold in the european market due to their generally larger size and weight other includes sales of used recreational vehicle units , parts and camping accessories , repair services , rental sales and other 25 we believe our independent dealer inventory levels of ehg products in europe , while elevated in certain locations , are generally appropriate for seasonal consumer demand in europe and are progressing towards normalized levels . seasonal consumer demand in europe typically aligns with the seasonal patterns experienced in the north american market . thor 's european rv backlog as of july 31 , 2019 was $ 852,675. industry retail statistics europe key retail statistics for the european rv industry , as reported by the ecf for the periods indicated , are as follows : replace_table_token_8_th ( 1 ) industry retail registration statistics have been compiled from individual countries reporting of retail sales , and include the following countries : germany , france , sweden , netherlands , norway , italy , spain and others , collectively the oem reporting countries. the non-oem reporting countries are primarily the united kingdom and others . total european unit registrations are reported quarterly by ecf . ( 2 ) the ecf reports motorcaravans and campervans together . note : data from the ecf is subject to adjustment , is continuously updated , and is often impacted by delays in reporting by various countries ( the non-oem reporting countries either do not report oem-specific data to ehg or do not have it available for the entire time period covered ) . story_separator_special_tag company retail statistics europe ( 1 ) replace_table_token_9_th ( 1 ) company retail registration statistics have been compiled from individual countries reporting of retail sales , and include the following countries : germany , france , sweden , netherlands , norway , italy , spain and others , collectively the oem reporting countries. note : for comparison purposes , the totals reflected above include the pre-acquisition results of ehg for january 2019 ( and for the six months ended june 30 , 2018 ) . in addition , data from the ecf is subject to adjustments , is continuously updated , and is often impacted by delays in reporting by various countries . european outlook the european outlook for future growth in retail sales depends upon various economic conditions in the respective countries . end-customer demand for rv vehicles depends strongly on consumer confidence . factors such as the rate of unemployment , private consumption and investments , growth in disposable income of consumers , changes in interest rates , the health of the housing market and changes in tax rates influence retail sales . assuming continued stability or improvement in consumer confidence , low interest rates with modest rate increases and the absence of negative economic factors , we would expect to see continued long-term growth in the european rv industry . several social trends support the positive long-term outlook for europe . first , there is the growing group of active seniors ( age 55-75 ) who have the time , health and wealth , combined with the desire , to explore various countries and cultures . secondly , there is the new , but growing , group of younger customers ( age 35-45 ) who are discovering rvs as a way to support their lifestyle in search of independence and individuality , as well as using the rv as multi-purpose vehicles to escape urban life and explore outdoor activities and nature . our european operations address the european market with a full line-up of leisure vehicles including travel trailers , urban campers , campervans and small-to-large motorhomes . the product offering is not limited to vehicles only , but also includes accessories and services including rental vehicles . 26 in addition to its product offerings , ehg addresses its consumers through a sophisticated brand management approach , based on customer segmentation according to target group , core values and emotions . with the assistance of data-based and digital marketing , ehg intends to expand its customer reach , in particular in new and younger consumer segments . economic or industry-wide factors affecting our european rv business include the costs of commodities and the labor used in the manufacture of our products . material and labor costs are the primary factors determining our cost of products sold and any future increases in raw material or labor costs would impact our profit margins negatively if we were unable to offset those cost increases through a combination of product decontenting , material sourcing strategies , efficiency improvements or raising the selling prices for our products by corresponding amounts . we believe the outlook for future growth of the european economy and private consumption in general is positive , with differences for each country , but could be negatively impacted by increasing global trade barriers and related tax tariffs , as well as by european political decisions like brexit , or the introduction of new emission standards . in our european market , ehg has not experienced any significant , unusual supply constraints from chassis suppliers recently . the european recreational vehicle industry has , from time to time , experienced shortages of chassis for various reasons , including introduction of new regulatory standards , component shortages and production delays at the chassis manufacturers . we believe that the current supply of chassis used in the european motorized rv production is generally adequate for current production levels . however , uncertainties related to changing emission standards may impact the future availability of chassis used in our production of certain european motorized rvs . 27 fiscal 2019 vs. fiscal 2018 replace_table_token_10_th 28 replace_table_token_11_th consolidated consolidated net sales for fiscal 2019 decreased $ 464,151 , or 5.6 % , compared to fiscal 2018. following its february 1 , 2019 acquisition date , ehg accounted for net sales of $ 1,486,978. these additional net sales during the period were offset by a decrease in net sales from north america ( including other and intercompany eliminations ) of $ 1,951,129 , or 23.4 % , compared to fiscal 2018. consolidated gross profit for fiscal 2019 decreased $ 191,572 , or 16.4 % , compared to fiscal 2018. ehg 's gross profit for the period of $ 150,039 , which includes the negative impact of $ 61,418 related to the step-up in purchase accounting for certain acquired inventory that was subsequently sold during the period , was offset by the decrease of $ 341,611 , or 29.3 % , in total north american gross profit ( including other , net ) compared to the prior-year period . consolidated gross profit was 12.4 % of consolidated net sales for fiscal 2019 and 14.0 % for fiscal 2018 , with the change partially impacted by the addition of ehg 's gross profit percentage of 10.1 % . selling , general and administrative expenses for fiscal 2019 increased $ 58,600 , or 12.3 % , compared to fiscal 2018 , including the addition of ehg 's total of $ 134,051 for the period . amortization of intangible assets expense for fiscal 2019 increased $ 20,520 compared to fiscal 2018 , primarily due to ehg 's total amortization expense of $ 25,594 , partially offset by lower north american dealer network amortization as compared to the prior-year period . acquisition-related costs totaled $ 114,866 for fiscal 2019. income before income taxes for fiscal 2019 was $ 184,666 , as compared to $ 633,029 for fiscal 2018 , a decrease of $ 448,363 , or 70.8 % .
| significant events fiscal 2019 erwin hymer group acquisition on february 1 , 2019 , the company and the shareholders of erwin hymer group se ( ehg or erwin hymer group ) closed on a transaction in which the company acquired ehg . ehg is headquartered in bad waldsee , germany , and is one of the largest rv manufacturers in europe , by revenue . the company acquired ehg in order to expand its operations into the growing european market with a long-standing european industry leader . at the closing , the company paid cash consideration of approximately 1.53 billion euro ( approximately $ 1.76 billion at the exchange rate as of february 1 , 2019 ) and issued 2,256,492 shares of the company 's common stock to the sellers valued at $ 144.2 million . the cash consideration was funded through a combination of available cash on hand of approximately $ 95 million and debt financing consisting of two credit facility agreements , a seven-year , $ 2.1 billion term loan , with an approximate $ 1.4 billion u.s. dollar-denominated tranche and an approximate 0.6 billion euro tranche ( approximately $ 0.7 billion at the exchange rate at february 1 , 2019 ) , and $ 100 million utilized at closing from a five-year , $ 750.0 million asset-based credit facility ( abl ) , each as more fully described in note 12 to the consolidated financial statements . the obligations of the company under each facility are secured by liens on substantially all of the assets of the company , and both agreements contain certain customary representations , warranties and covenants of the company . certain costs related to this acquisition incurred during the fiscal year ended july 31 , 2019 , including the foreign currency forward contract loss and certain bank fees , ticking fees , legal , advisory and other costs , as discussed in note 2 to the consolidated financial statements , are included in acquisition-related costs in the consolidated statements of income and comprehensive income .
| 13,830 |
we can not presently estimate what , if any , changes to the valuation of our deferred tax assets may be deemed appropriate in the future . if we incur future losses , it may be necessary to record additional valuation allowance related to the deferred tax assets recognized as of december 31 , 2012 . 18 accounting for income taxes we account for income taxes using the asset and liability method specified by asc topic 740 , “ income taxes ” , as modified by asc topic 740-10-05. deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be realized . the effect of changes in net deferred tax assets and liabilities is recognized on our consolidated balance sheets and consolidated statements of income in the period in which the change is recognized . valuation allowances are provided to the extent that it is more likely than not that some portion , or all , of deferred tax assets will not be realized . in determining whether a tax asset is realizable , we consider among other things , estimates of future earnings based on information currently available , current and anticipated customers , contracts and new product introductions , as well as recent operating results during 2012 , 2011 and 2010 , and certain tax planning strategies . if we fail to achieve the future results anticipated in the calculation and valuation of net deferred tax assets , we may be required to adjust our valuation allowance related to our deferred tax assets in the future . fiscal year 2011 compared with fiscal year 2010 sales , net sales in 2011 decreased $ 1.9 million ( 7.1 % ) to approximately $ 24.1 million compared with approximately $ 26.0 million for the prior year . sales of p-25 digital products in 2011 decreased approximately $ 1.2 million ( 7.3 % ) to approximately $ 15.4 million , compared with approximately $ 16.6 million for 2010. the decrease in total sales and p-25 digital sales compared with the prior year was attributed primarily to federal government agencies . these agencies , including our longstanding legacy customers , faced budget and funding constraints during the year . the enactment of a federal budget was delayed until april 2011. once enacted , the budget did not provide adequate funding for many land mobile radio requirements . consequently , agencies had to scale-down or defer fulfilling their requirements . cost of products and gross margins cost of products as a percentage of sales for 2011 was 58.0 % compared with 56.4 % in 2010. product mix , manufacturing volume and pricing are the primary factors that impact product costs and the resulting gross margins . for 2011 , our cost of products and gross margins reflected reduced sales and higher material and labor costs for the early production of new products . these factors abated during the second half of the year . production runs later in the year benefited from refinements in our manufacturing processes , yielding lower material costs and improved labor efficiencies . also , sales increased in the second half of the year compared with the first half resulting in increased manufacturing volumes , and better utilization and absorption of our base of manufacturing support expenses . selling , general and administrative expenses for 2011 , sg & a expenses decreased approximately $ 1.2 million ( 9.8 % ) to approximately $ 10.8 million or 44.8 % of sales compared with approximately $ 12.0 million or 46.0 % of sales for the prior year . engineering and product development expenses for 2011 decreased approximately $ 464,000 ( 9.5 % ) compared with the prior year . the decrease was the result of expense reductions that commenced in the second quarter and continued for the remainder of the year , as some product development initiatives were completed . the expense reductions were partially offset by amortization of additional capitalized software that commenced during the fourth quarter 2010 when we released our new trunking digital radio and continued in 2011. marketing and selling expenses for 2011 decreased by approximately $ 616,000 ( 14.5 % ) compared with the prior year . these decreases related primarily to expense and commission reductions implemented during the second quarter 2011 and maintained for the remainder of the year . general and administrative expenses for 2011 decreased by approximately $ 90,000 ( 3.2 % ) compared with the prior year . these expense reductions were primarily the result of reductions in headquarters and public company expenses , including non-cash share-based employee compensation expenses . 19 operating ( loss ) we reported an operating loss of $ 653,000 for 2011 , compared with an operating loss of $ 628,000 in 2010. the operating loss for 2011 was primarily due to sluggish sales and increases in cost of products during the first half of the year . these factors were partially offset by operating expense reductions implemented during the second quarter 2011 and maintained for the remainder of the year . interest expense , net for 2011 , net interest expense totaled $ 106,000 , compared with $ 29,000 for the prior year . the expense increase was due to borrowings under our revolving credit facility . we incur interest expense on outstanding borrowings under our revolving credit facility and earn interest income on our cash balances . we had no borrowings outstanding under the credit facility as of december 31 , 2011 , compared with $ 2.0 million outstanding as of year end 2010. the interest rate on our revolving credit facility as of december 31 , 2011 was 3.75 % per annum . story_separator_special_tag income tax ( benefit ) expense we recorded an income tax benefit of $ 273,000 for 2011 compared with income tax expense of $ 7,000 for 2010. our income tax expense is largely non-cash as a result of the deferred tax asset related primarily to federal and state net operating loss carryforwards . as of december 31 , 2011 , we had deferred tax assets of approximately $ 8.2 million , which was materially unchanged from the previous year . these assets are primarily composed of nols . these nols totaled approximately $ 10.7 million for federal and approximately $ 18.8 million for state purposes as of december 31 , 2011 , with expirations starting in 2017 through 2030. during 2011 , we utilized approximately $ 4.2 million of our nols . in order to fully utilize the net deferred tax assets , we need to generate sufficient taxable income in future years to utilize our nols prior to their expiration . consistent with asc topic 740 , “ income taxes ” , we evaluated the available evidence and the likelihood of realizing the benefit of our net deferred tax assets december 31 , 2011 , and from our evaluation we concluded that based on the weight of available evidence , we were more likely than not to not realize a portion of the benefit of our state deferred tax assets recorded at december 31 , 2011. accordingly , we established a valuation allowance totaling approximately $ 250,000 for the portion of benefit of state deferred tax assets that more likely than not will not be realized . changing prices changing prices for the years ended december 31 , 2012 , 2011 and 2010 did not have a material impact on our operations . the extent of competitive pricing pressure in the future and its impact is uncertain . liquidity and capital resources for the year ended december 31 , 2012 , net cash provided by operating activities totaled approximately $ 4.6 million compared with net cash used in operating activities totaling approximately $ 142,000 last year . the increase in cash provided by operating activities was primarily related to net income , depreciation and amortization , deferred tax assets and accounts receivable . these items were partially offset by increases in inventories . for the year ended december 31 , 2012 , we realized net income of approximately $ 2.1 million compared with a net loss totaling approximately $ 493,000 last year . depreciation and amortization totaled approximately $ 1.4 million for 2012 , which was materially unchanged from last year . deferred tax assets for 2012 decreased by approximately $ 763,000 due to non-cash tax expense on our pretax income . during the same period last year deferred tax assets increased approximately $ 368,000. accounts receivable as of december 31 , 2012 decreased by approximately $ 2.1 million as a result of collections . for the prior year accounts receivable increased by approximately $ 255,000. accounts payable for the year decreased approximately $ 624,000 due to payments to suppliers . last year accounts payable decreased by approximately $ 1.0 million primarily due to payments to suppliers . accrued compensation as of december 31 , 2012 increased by approximately $ 678,000 reflecting incentive compensation related to improved sales and operating results . for the same period last year , accrued compensation increased approximately $ 12,000. net inventories increased during the year ended december 31 , 2012 by approximately $ 1.3 million in anticipation of sales growth . 20 cash used in investing activities for 2012 totaled approximately $ 739,000 compared with approximately $ 215,000 last year . cash used in investing activities for 2012 was primarily to fund the purchase of engineering and manufacturing equipment and the development of software . we anticipate that future capital expenditures will be funded through our existing cash balance and operating cash flow . cash provided by financing activities for the 2012 totaled approximately $ 23,000 , representing proceeds from the issuance of common stock . for the same period last year cash used in financing activities totaled approximately $ 2.0 million , which represented the repayment of borrowings under our revolving credit facility . we have a secured revolving credit facility with silicon valley bank ( “ svb ” ) , which was most recently amended in december 2012 , with a maximum borrowing availability of $ 5.0 million ( subject to the borrowing base ) and a maturity date of december 31 , 2014. the loan and security agreement , as amended , governing this revolving credit facility contains customary borrowing terms and conditions , including the accuracy of representations and warranties , compliance with financial maintenance and restrictive covenants and the absence of events of default . the terms of the loan and security agreement include the following : ● financial maintenance covenants , required to be maintained at all times and tested on the last day of each month , of : ( 1 ) a ratio of “ quick assets to current liabilities ” minus “ deferred revenue ” ( all as defined in the loan and security agreement ) of at least 1.00:1.00 and ( 2 ) “ tangible net worth ” ( as defined in the loan and security agreement ) of at least $ 25.77 million , increasing by ( a ) 50 % of quarterly net profits and ( b ) 75 % of net proceeds derived from issuances of equity and issuances of subordinated debt . ● borrowings under the revolving credit facility bear interest at the prime rate , as in effect from time to time , plus 50 basis points , provided if our “ adjusted quick ratio ” is greater than or equal to 1.25 to 1.00 , then the interest rate is the prime rate . ● the maximum that we may borrow at any given time is based on among other things , eligible accounts receivable , inventory , and cash .
| net income for 2012 was $ 2.1 million ( $ 0.15 per basic and diluted share ) , compared with a net loss of approximately $ 493,000 ( $ 0.04 per basic and diluted share ) for the prior year . as of december 31 , 2012 , working capital totaled approximately $ 23.6 million , of which $ 8.6 million was comprised of cash and trade receivables . this compares with working capital totaling approximately $ 19.5 million at year end 2011 , which included $ 6.8 million of cash and trade receivables . also , as of december 31 , 2012 there were no borrowings outstanding under our revolving credit facility . we experience seasonality in our quarterly results in part due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations . we also experience seasonality in our quarterly results in part due to our concentration of sales to federal and state agencies that participate in fire-suppression efforts , which are typically the greatest during the summer season when forest fire activity is heightened . in some years , these factors may cause an increase in sales for the second and third quarters compared with the first and fourth quarters of the same fiscal year . such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition . 16 results of operations as an aid to understanding our operating results , the following table shows items from our consolidated statements of operations expressed as a percentage of sales : replace_table_token_6_th fiscal year 2012 compared with fiscal year 2011 sales , net sales in 2012 increased $ 3.5 million ( 14.4 % ) to approximately $ 27.6 million compared with approximately $ 24.1 million for the prior year . sales of p-25 digital products in 2012 reached a record level , totaling approximately $ 17.9 million ( 65.0 % of total sales ) , compared with approximately $ 15.4 million for 2011 , an increase of $ 2.5 million ( 16.5 % ) . the increase in total sales and p-25 digital sales
| 13,831 |
currently , we operate three main business segments : ( i ) tenet-jove is engaged in manufacturing and selling of luobuma and related products , also known in chinese as “ luobuma ” , including therapeutic clothing and textile products made from luobuma ; ( ii ) zhisheng group is engaged in the business of planting , processing and distributing of green agricultural produce as well as providing domestic and international logistic services for agricultural products ( “ agricultural products ” ) ; and , ( iii ) ankang longevity manufactures traditional chinese medicinal herbal products as well as other retail pharmaceutical products . these different business activities and products can potentially be integrated and benefit from one and other . factors affecting financial performance we believe that the following factors will affect our financial performance : increasing demand for our products - the increasing demand for our chinese medicinal herbal products and our agricultural products , will have a positive impact on our financial position . we plan to develop new products and expand our distribution network as well as to grow our business through possible mergers and acquisitions of similar or synergetic businesses , all aimed at increasing awareness of our brand , developing customer loyalty , meeting customer demands in various markets and providing solid foundations for our continuous growth . as of the date of this report however , we do not have any agreements , undertakings or understandings to acquire any such entities and there can be no guarantee that we ever will . expansion of our sources of supply , production capacity and sales network - to meet the increasing demand for our products , we need to expand our sources of supply and production capacity . we plan to make capital improvements in our existing production facilities , which would improve both their efficiency and capacity . in the short-run , we intend to increase our investment in our reliable supply network , personnel training , information technology applications and logistic system upgrades . we also participate in two non-equity investment opportunities through a vie , both of which we expect to provide us with new networks and platforms . 33 maintaining effective control of our costs and expenses - successful cost control depends upon our ability to obtain and maintain adequate material supplies as required by our operations at competitive prices . we will focus on improving our long-term cost control strategies including establishing long-term alliances with certain suppliers to ensure adequate supply is maintained . we will carry forward the economies of scale and advantages from our nationwide distribution network and diversified offerings . moreover , we will step up our efforts in higher value added products of luobuma by using an exclusive and patented technology , to optimize quality management , procurement processes and cost control , and give full play to the strong production capacity and trustworthy sales teams to maximize our profit and bring better long-term return for our shareholders . economic and political risks our operations are conducted primarily in the prc . accordingly , our business , financial conditions and results may be influenced by the political , economic and legal environment in the prc , and by the general state of the prc economy . our operations in the prc are subject to special considerations and significant risks not typically associated with companies in north america and western europe . these include risks with , among others , the political , economic and legal environment and foreign currency exchange . our company 's results may be adversely affected by changes in the political and social conditions in the prc , and by changes in governmental policies with respect to laws and regulations , anti-inflationary measures , currency conversions , remittances abroad , and rates and methods of taxation , among other things . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( “ u.s . gaap ” ) requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period . critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change , and that have a material impact on financial condition or operating performance . while we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances , actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies used in the preparation of our consolidated financial statements require significant judgments and estimates . for additional information relating to these and other accounting policies , see note 2 to our consolidated financial statements included elsewhere in this report . consolidation of variable interest entities in accordance with accounting standards regarding consolidation of vies , vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability . all vies and their subsidiaries with which the company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the vie . the primary beneficiary is required to consolidate the vie for financial reporting purposes . use of estimates the preparation of the consolidated financial statements in conformity with u.s. gaap 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 consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period . story_separator_special_tag significant estimates required to be made by management include , but are not limited to , useful lives of property , plant , and equipment , and intangible assets , the recoverability of long-lived assets and the valuation of accounts receivable , accrued expenses and taxes payable and inventory reserves . actual results could differ from those estimates . 34 accounts receivable accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts , as necessary . the company reviews the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances . in evaluating the collectability of individual receivable balances , the company considers many factors , including the age of the balance , the customers ' historical payment history , their current credit-worthiness and current economic trends . accounts are written off against the allowance after efforts at collection prove unsuccessful . inventories inventories , which are stated at the lower of cost or current market value , consist of raw materials , work-in-progress , and finished goods related to the company 's products . cost is determined using the first in first out ( “ fifo ” ) method . market is the lower of replacement cost or net realizable value . agricultural products that the company farms are recorded at cost , which includes direct costs such as seed selection , fertilizer , labor cost and contract fees that are spent in growing agricultural products on the leased farmland , and indirect costs which include amortization of prepayments of farmland leases and farmland development cost . all the costs are accumulated until the time of harvest and then allocated to the harvested crops costs when they are sold . the company periodically evaluates its inventory and records an inventory reserve for certain inventories that may not be saleable . revenue recognition the company recognizes revenue from sales of luobuma products , chinese medicinal herbal products and agricultural products , as well as providing logistic service and other processing services to external customers . the company recognizes revenue when all of the following have occurred : ( i ) there is persuasive evidence of an arrangement with a customer , ( ii ) delivery has occurred or services have been rendered , ( iii ) the sales price is fixed or determinable , and ( iv ) the company 's collection of such fees is reasonably assured . these criteria , as related to the company 's revenue , are considered to have been met as follows : sales of products : the company recognizes revenue from the sale of products when the goods are delivered and title to the goods passes to the customer provided that there are no uncertainties regarding customer acceptance ; persuasive evidence of the an arrangement exists ; the sales price is fixed or determinable ; and collectability is deemed probable . revenue from the rendering of services : revenue from international freight forwarding , domestic air and overland freight forwarding services is recognized upon the performance of services as stipulated in the underlying contract or when commodities are being released from the customer 's warehouse ; the service price is fixed or determinable ; and collectability is deemed probable . fair value of financial instruments the company follows the provisions of asc 820 , “ fair value measurements and disclosures. ” asc 820 clarifies the definition of fair value , prescribes methods for measuring fair value , and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows : level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities . 35 level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets ; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions ( less active markets ) ; or model-derived valuations in which significant inputs are observable or can be derived principally from , or corroborated by , observable market data . level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities . the carrying value of financial instruments included in current assets and liabilities approximate their fair values because of the short-term nature of these instruments . results of operations for the years ended june 30 , 2017 and 2016 story_separator_special_tag serif ; margin : 0 ; text-align : justify '' > gross profit from luobuma product sales decreased by $ 479,188 and gross profit contribution percentage decreased by 20.03 % for the year ended june 30 , 2017 as compared to the same period of 2016. the decrease in gross profit was primarily due to selling a portion of slow-moving products at cost , which resulted in percentage of decrease in gross profit higher than the percentage of decrease in sales . meanwhile , the company relocated online marketing platform and retail stores during the year ended june 30 , 2017. gross profit from sales of chinese medicinal herbal products increased by $ 83,809 or 2.81 % for the year ended june 30 , 2017 as compared to the same period of 2016. the increase was mainly because the company changed its strategy to sell products with higher profit margins since the quarter ended march 31 , 2017. gross profit from sales of other agricultural products increased by $ 51,134 for the year ended june 30 , 2017 as compared to the same period of 2016. the increase was mainly due to the increased gross margin of yew tree products .
| the average translation rates for the years ended june 30 , 2017 and 2016 were at 1 rmb to $ 0.1468 usd and at 1 rmb to $ 0.1555 usd , respectively , which represented a decrease of 5.60 % . for the years ended june 30 , 2017 and 2016 , revenue from sales of other agricultural products was $ 16,722,108 and $ 16,787,837 , respectively , representing a decrease of $ 65,729 or 0.39 % . the decrease was mainly due to the depreciation of rmb against usd as mentioned above . revenue from sales of other agricultural products increased to rmb 113,917,802 from rmb 107,961,055 , an increase of 5.52 % , mainly due to the increase in unit price of yew trees . unit price of yew trees with different heights from 50 to 120 centimeters , increased by approximately 8.6 % to 17.7 % in november 2016. in addition , in the second quarter of 2017 , we developed a new business line of storage , which contributed a small amount of revenue in the year ended june 30 , 2017 compared to the corresponding period of 2016. cost of revenue the following table sets forth the breakdown of the company 's cost of revenue for the years ended june 30 , 2017 and 2016 , respectively : replace_table_token_6_th 37 for the years ended june 30 , 2017 and 2016 , cost of revenue from sales of our luobuma products was $ 1,695,938 and $ 1,974,182 , respectively , representing a decrease of $ 278,244 or 14.09 % . the decrease of cost of revenue was mainly due to decreased sales price and decreased sales volume of our luobuma products . during the three months ended september 30 , 2016 , the company focused on selling a portion of slow-moving products at cost , which resulted in the percentage of the decrease in cost of revenue was lower than the decrease in sales during this period . for the years ended june 30 , 2017 and 2016 , cost of revenue
| 13,832 |
it is difficult to predict the progression , the duration and all of the effects of covid-19 , when business restrictions and shelter-at-home guidelines may be eased or lifted on a global basis , and how consumer demand , inventory and logistical effects and costs may evolve over time , or the impact on our future sales and results of operations . the full extent of the impact of covid-19 on our business and our operational and financial performance is currently uncertain and will depend on many factors outside our control . for additional information , see `` liquidity and capital resources `` below and item 1a `` risk factors , `` including under the caption `` the full effect of the covid-19 pandemic is still uncertain and can not be predicted , and it could adversely affect the company 's business , results of operations and financial condition. `` summary of financial results our total sales for fiscal year 2021 increased 76 % in comparison to fiscal year 2020 , due to stronger sales across all regions and most of our product categories from increased remote work and learning trends , accelerated adoption of video communications , and greater gaming viewership , creation , and participation from home , as a result of covid-19 . our consolidated statements of operations for fiscal year 2021 include the results of operations for current year acquisitions from their respective dates of acquisition . sales for fiscal year 2021 increased 72 % , 84 % and 75 % in the americas , emea and asia pacific , respectively , in comparison to fiscal year 2020. gross margin increased by 680 basis points to 44.5 % during fiscal year 2021 , compared to fiscal year 2020. our gross margin benefited from higher sales volume , restrained promotional spending , and favorable product mix , which more than offset higher logistics costs to meet strong demand . operating expenses for fiscal year 2021 were $ 1,187.6 million , or 22.6 % of sales , compared to $ 845.9 million , or 28.4 % of sales , for fiscal year 2020. the increase in operating expenses was primarily driven by $ 185.6 million higher personnel-related costs due to additional headcount across departments to support business growth and from business acquisitions , $ 135.1 million higher third-party costs to support our long-term growth opportunities and branding development , and a $ 30 million contribution into a charitable donor advised fund to support our social giving strategies . these increases were partially offset by a $ 17.5 million decrease in the change in fair value of contingent consideration due to the streamlabs earn-out recorded in fiscal year 2020 and settled in fiscal year 2021. included in the income tax provision of $ 200.9 million in fiscal year 2021 was $ 152.6 million of tax expense from switzerland that reflects the post enactment of traf in the canton of vaud . traf was enacted in the fourth quarter of fiscal year 2020 and took effect as of january 1 , 2020. the income tax benefit of $ 125.4 million in fiscal year 2020 was impacted by a tax benefit of $ 153.2 million related to the measurement of deferred tax assets and liabilities , net of assessment of uncertain tax positions in switzerland as a result of the enactment of traf . net income for fiscal year 2021 wa s $ 947.3 million , compared to $ 449.7 million for fiscal year 2020. trends in our business our products participate in five large multi-category market opportunities , including creativity & productivity , gaming , video collaboration , music and smart home . the following discussion represents key trends specific to our market opportunities . trends specific to our five market opportunities creativity & productivity : new pc shipments have continued to be strong recently due to work-from-home and learn-from-home trends . we believe that innovative pc peripherals , such as our mice and keyboards , can renew the pc usage experience and help improve the productivity and engagement of remote work , and learning , thus providing growth opportunities . hybrid work culture will also greatly expand the number of new workspaces to which we can attach our pc peripherals . increasing adoption of various cloud-based applications has led to multiple unique consumer use cases , which we are addressing with our innovative product portfolio and a deep logitech international s.a. | fiscal 2021 form 10-k | 42 understanding of our customer base . the increasing popularity of streaming and broadcasting , as well as the rising work-from-home trend , provides additional growth opportunities for our webcam products as well as other products in our portfolio . smaller mobile computing devices , such as tablets , have created new markets and usage models for peripherals and accessories . we offer a number of products to enhance the use of mobile devices , including a combo backlit keyboard case with trackpad for the ipad . hybrid and remote learning environments have also created demand and growth opportunities in the education market for tablet keyboards and accessories . gaming : the pc gaming and console gaming platforms continue to show strong structural growth opportunities as online gaming , multi-platform experiences , and esports gain greater popularity and gaming content becomes increasingly more demanding and social , particularly as other recreational activities have been curtailed or restricted during shelter-at-home mandates . we believe gaming will increasingly become one of the largest participant and spectator sports in the world . the new console refresh cycle during the holiday season of 2020 could drive subsequent growth opportunities over the coming years for our astro family of headsets and controllers . we believe logitech is well positioned to benefit from the overall gaming market growth . our acquisition of streamlabs provides a solid platform to deliver recurring services and subscriptions to gamers . story_separator_special_tag video collaboration : the near and long-term structural growth opportunities in the video collaboration market ( vc ) have never been more relevant than in today 's environment , as commercial and consumer adoption of video has seen explosive growth since the start of the covid-19 pandemic . video meetings continue to be on the rise , and companies increasingly want lower-cost , cloud-based solutions that can provide their employees with the ability to work from anywhere . we are continuing our efforts to create and sell innovative products to accommodate the increasing demand from home offices and small-size meeting rooms , such as huddle rooms , to medium and large-sized meeting rooms . we are also experiencing significant demand for our enterprise-grade vc webcams and headsets . we will continue to invest in select business-specific products ( both hardware and software ) , targeted product marketing and sales channel development . music : consumers are optimizing their audio experiences on their tablets and smartphones with a variety of music peripherals including wireless mobile speakers and in-ear and other headphones . however , the mobile speaker market has matured and the integration of personal voice assistants has increased competition in the speaker category . in addition , the retail footprint in fiscal year 2021 decreased significantly due to the covid-19 pandemic . these factors have led to a decline in our mobile speakers category sales in the past three years . in the wireless headphone industry , the largest growth in recent years has been in true wireless headphones while traditional wireless headphones have declined significantly . continued growth in the wireless headphone market is expected for the next several years as consumers increasingly adopt wireless headphones over wired headphones . in addition , blue microphones has experienced strong demand as musicians , performers and streamers increasingly look to entertain and engage with their fans on various online platforms like youtube , twitch , and facebook . smart home : our harmony universal remote and circle security family of products declined substantially in fiscal year 2021. in general , our harmony and circle products are under pressure as the way people consume content is changing and as retail stores have been closed or subject to restrictions . the smart home market opportunity is broad , and we will continue to explore other innovative experiences to drive growth in the smart home category . business seasonality and product introductions we have historically experienced higher sales in our third fiscal quarter ending december 31 , compared to other fiscal quarters in our fiscal year , primarily due to the increased consumer demand for our products during the year-end holiday buying season and year-end spending by enterprises . due to the fluctuation in the number of cases from the covid-19 pandemic across the world and related local restrictions , and shelter-at-home requirements , as applicable , we experienced an even higher demand and consumption of most of our products in the third fiscal quarter of 2021. additionally , new product introductions and business acquisitions can significantly impact sales , product costs and operating expenses . product introductions can also impact our sales to distribution channels as these channels are filled with new product inventory following a product introduction , and often channel inventory of an earlier model product declines as the next related major product launch approaches . sales can also be affected when consumers and distributors anticipate a product introduction or changes in business circumstances . however , neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of our future pattern of product introductions , future sales or financial performance . furthermore , cash flow is correspondingly lower as we typically build inventories in advance for the third quarter and we pay an annual dividend following our annual general meeting , which is typically in september . logitech international s.a. | fiscal 2021 form 10-k | 43 swiss federal tax reform as we described above , the canton of vaud in switzerland enacted traf on march 10 , 2020 that took effect as of january 1 , 2020. our cash tax payments have increased in switzerland beginning with fiscal year 2020 tax filing as a result of our transition out of our longstanding tax ruling from the canton of vaud . critical accounting estimates the preparation of financial statements and related disclosures in conformity with u.s. gaap requires us to make judgments , estimates , and assumptions that affect reported amounts of assets , liabilities , sales and expenses , and the disclosure of contingent assets and liabilities . we consider an accounting estimate critical if it : ( i ) requires management to make judgments and estimates about matters that are inherently uncertain ; and ( ii ) is important to an understanding of our financial condition and operating results . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances . although these estimates are based on management 's best knowledge of current events and actions that may impact us in the future , actual results could differ from those estimates . management has discussed the development , selection and disclosure of these critical accounting estimates with the audit committee of the board of directors . we believe the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations and reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . accruals for customer programs and product returns we record accruals for cooperative marketing , customer incentive , pricing programs ( customer programs ) and product returns . the estimated cost of these programs is usually recorded as a reduction of revenue . significant management judgments and estimates must be used to determine the cost of these programs in any accounting period .
| sales by region the following table presents the change in sales by region for fiscal year 2021 compared with fiscal year 2020 : replace_table_token_4_th the increase in sales globally in fiscal year 2021 compared with fiscal year 2020 was driven by growth in sales across a majority of our product categories , partially offset by a decline in sales of mobile speakers and smart home . sales by product categories sales by product categories for fiscal years 2021 and 2020 were as follows ( dollars in thousands ) : replace_table_token_5_th ( 1 ) gaming includes streaming services revenue generated by streamlabs . ( 2 ) other category includes products which we currently intend to phase out , or have already phased out , because they are no longer strategic to our business . sales by product categories : creativity & productivity market : pointing devices our pointing devices category comprises pc- and mac-related mice including trackballs touchpads and presentation tools . during fiscal year 2021 , pointing devices sales increased 25 % , compared to fiscal year 2020. the increase was primarily driven by higher sales of cordless and trackball mice , as a result of remote working and learning trends , partially offset by a decline in sales of our presentation tools , as most conferences , events , and other large-scale presentations remained prohibited . logitech international s.a. | fiscal 2021 form 10-k | 47 keyboards & combos our keyboards & combos category comprises pc keyboards , keyboard/mice combo products , and living room keyboards . during fiscal year 2021 , keyboards & combos sales increased 37 % , compared to fiscal year 2020. the increase was primarily driven by an increase in sales of our cordless and corded pc keyboards and wireless keyboard/mice combos , partially offset by a decline in sales of our living room keyboard products . pc webcams our pc webcams category comprises pc-based webcams targeted primarily at consumers , including streaming cameras . during fiscal year 2021 , pc webcams sales increased 240 % , compared to fiscal year 2020. the increase was seen across all product sub-categories , primarily driven by an increase in sales of
| 13,833 |
under the terms of the agreement , eusa has granted us exclusive rights to sylvant in greater china and to qarziba in mainland china . under the agreement , we have agreed to fund and undertake all clinical development and regulatory submissions in the territories , and plan to launch and commercialize both products once approved . eusa received a $ 40 million upfront payment and will be eligible to receive payments upon the achievement of regulatory and commercial milestones up to a total of $ 160 million . eusa will also be eligible to receive tiered royalties on future product sales . 106 on january 2 , 2020 , following approval by our shareholders and satisfaction of other closing conditions , we announced the closing of our global strategic oncology collaboration with amgen for the commercialization and development in china of amgen 's xgeva , kyprolis , and blincyto , and the joint global development of 20 oncology assets in amgen 's pipeline , with beigene responsible for development and commercialization in china . in connection with the collaboration , amgen purchased a 20.5 % stake in beigene for approximately $ 2.8 billion in cash at $ 174.85 per american depositary share ( `` ads '' ) . on december 27 , 2019 , we announced that our anti-pd-1 antibody tislelizumab received approval from the china national medical products administration ( `` nmpa '' ) as a treatment for patients with chl who have received at least two prior therapies . the new drug application ( `` nda '' ) was previously granted priority review by the nmpa . on december 22 , 2019 , we announced that the nmpa accepted a supplemental new drug application ( snda ) for revlimid ( lenalidomide ) , in combination with rituximab , for the treatment of patients with relapsed or refractory indolent lymphoma ( follicular lymphoma or marginal zone lymphoma ) . on november 14 , 2019 , we announced that brukinsa received accelerated approval from the united states food and drug administration ( fda ) as a treatment for mcl in adult patients who have received at least one prior therapy . coronavirus disease 2019 ( covid-19 ) we expect that the worldwide health crisis of the coronavirus disease ( covid-19 ) will have a negative impact on our operations in china , including clinical trial recruitment and participation , regulatory interactions and inspections , and commercial revenue , particularly in the first quarter of 2020 and possibly longer depending on the scope and duration of the disruption . we continue to execute on our clinical development , regulatory and commercialization goals in china and are working to minimize delays and disruptions . components of operating results revenue we began generating product revenue in september 2017 through our in-license agreement with bms to distribute the approved cancer therapies abraxane , revlimid and vidaza in china . following fda approval on november 14 , 2019 , we launched our first internally developed drug , brukinsa , in the united states . revenues from product sales are recognized when there is a transfer of control from the company to the customer . the company determines transfer of control based on when the product is delivered , and title passes to the customer . revenues from product sales are recognized net of variable consideration resulting from rebates , chargebacks , trade discounts and allowances , sales returns allowances and other incentives . provisions for estimated reductions to revenue are provided for in the same period the related sales are recorded and are based on contractual terms , historical experience and trend analysis . we expect revenue from product sales to increase in 2020 as we launch our internally developed drugs , brukinsa and tislelizumab , and launch additional in-licensed products from our collaborations with amgen and eusa and continue to expand our efforts to promote our existing commercial products . in january 2020 , we were notified that our tender offer for abraxane was one of the winning tenders in china 's centralized procurement process , with a reduction from the current pricing , which is expected to take effect in the second quarter of 2020. once abraxane is included in the centralized procurement process , we anticipate that demand will increase significantly , although at a significantly lower price than we have been charging during 2019 and into 2020 , which could have a material impact on our commercialization efforts and results of operations . to date , we have also recorded revenue from our 2017 collaboration and license agreement with bms for tislelizumab , which was terminated in june 2019. under this agreement , we received an upfront payment related to the license fee , which was recognized upon the delivery of the license right . additionally , the portion of the upfront payment related to the reimbursement of undelivered research and development services was deferred and recognized over the performance period of the collaboration arrangement . we recognized the remainder of the deferred research and development services revenue balance upon termination of the collaboration agreement . we also received research and development reimbursement revenue for the basket study trials that bms opted into through the termination of the collaboration agreement . pursuant to the terms of the termination agreement , we received a one-time payment of $ 150 million in june 2019. the entire payment was recognized in the period the termination occurred , as we had no further performance obligations under the collaboration . we also recognized revenue for upfront license fees and milestone payments from a prior collaboration agreement with merck kgaa , darmstadt germany during the years ended december 31 , 2017 and 2018 , respectively . expenses 107 cost of sales cost of sales includes the acquisition costs of our commercial products that have been sold during the period . to date , cost of sales has consisted of the cost of products purchased from bms and distributed in the people 's republic of china ( `` prc '' or `` china '' ) . story_separator_special_tag costs to manufacture inventory in preparation for commercial launch of a product incurred prior to regulatory approval are expensed to research and development expense as incurred . cost of sales for newly launched products will not be recorded until the initial pre-launch inventory is depleted and additional inventory is manufactured . research and development expenses research and development expenses consist of the costs associated with our research and development activities , conducting preclinical studies and clinical trials and activities related to regulatory filings . our research and development expenses consist of : expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , and consultants that conduct and support our clinical trials and preclinical studies ; costs of comparator drugs in certain of our clinical trials ; manufacturing costs related to pre-commercial activities ; costs associated with preclinical activities and development activities ; costs associated with regulatory operations ; employee‑related expenses , including salaries , benefits , travel and share‑based compensation expense for research and development personnel ; in-process research and development costs expensed as part of collaboration agreements entered into ; and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies used in research and development activities . our current research and development activities mainly relate to the clinical advancement of our internally-developed drug candidates : zanubrutinib , an investigational small molecule inhibitor of btk ; tislelizumab , an investigational humanized monoclonal antibody against pd‑1 ; pamiparib , an investigational small molecule inhibitor of parp1 and parp2 ; lifirafenib , a novel small molecule inhibitor of both the monomer and dimer forms of braf ; bgb-a333 , an investigational humanized monoclonal antibody against pd-l1 ; bgb-a425 , an investigational humanized monoclonal antibody against tim-3 ; bgb-a1217 , an investigational humanized monoclonal antibody against tigit ; and bgb-11417 , an investigational small molecular inhibitor of bcl-2 . research and development activities also include costs associated with in-licensed drug candidates , including : sitravatinib , an investigational , spectrum-selective kinase inhibitor in clinical development by mirati therapeutics , inc. ( `` mirati '' ) ; zw25 and zw49 , two bispecific antibody-based product candidates targeting her2 , under development by zymeworks inc. ; and ba3071 , an investigational cab-ctla-4 antibody , under development by bioatla llc . we expense research and development costs when we incur them . we record costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information our vendors provide to us . we expense the manufacturing costs of our internally- 108 developed products that are used in clinical trials as they are incurred , as research and development expense . we do not allocate employee‑related costs , depreciation , rental and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and , as such , are separately classified as unallocated research and development expenses . at this time , it is difficult to estimate or know for certain , the nature , timing and estimated costs of the efforts that will be necessary to complete the development of our internally-discovered drugs and drug candidates . we are also unable to predict when , if ever , material net cash inflows will commence from sales of our drugs and drug candidates . this is due to the numerous risks and uncertainties associated with developing such drugs and drug candidates , including the uncertainty of : successful enrollment in and completion of clinical trials ; establishing an appropriate safety profile ; establishing commercial manufacturing capabilities or making arrangements with third‑party manufacturers ; receipt of marketing approvals from applicable regulatory authorities ; successfully launching and commercializing our drugs and drug candidates , if and when approved , whether as monotherapies or in combination with our internally discovered drug candidates or third‑party products ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our drugs and drug candidates ; continued acceptable safety profiles of the products following approval ; competition from competing products ; and retention of key personnel . a change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs , timing and viability associated with the development of that drug candidate . research and development activities are central to our business model . we expect research and development costs to increase significantly for the foreseeable future as our development programs progress , as we continue to support the clinical trials of our drugs and drug candidates as treatments for various cancers and as we move these drugs and drug candidates into additional clinical trials , including potential pivotal trials . there are numerous factors associated with the successful commercialization of any of our drugs and drug candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control may impact our clinical development and commercial programs and plans . selling , general and administrative expenses selling , general and administrative expenses consist primarily of product promotion costs , distribution costs , salaries and related benefit costs , including share-based compensation for selling , general and administrative personnel . other selling , general and administrative expenses include professional fees for legal , consulting , auditing and tax services as well as other direct and allocated expenses for rent and maintenance of facilities , travel costs , insurance and other supplies used in selling , general and administrative activities .
| collaboration revenue was $ 67.3 million for the year ended december 31 , 2018 , and was comprised of $ 56.8 million for the reimbursement of research and development costs for the clinical trials that bms had opted into , $ 9.1 million related to the recognition of deferred revenue for upfront fees allocated to undelivered research and development services to bms and $ 1.5 million research and development services for achieving a milestone under the collaboration agreement with merck kgaa , darmstadt germany . cost of sales cost of sales increased to $ 71.2 million for the year ended december 31 , 2019 from $ 28.7 million for the year ended december 31 , 2018 , primarily due to increased volume of sales compared to the prior year . cost of sales for the year ended december 31 , 2019 consisted entirely of the cost of products purchased from bms and distributed in the prc . research and development expense research and development expense increased by $ 248.3 million , or 36.6 % , to $ 927.3 million for the year ended december 31 , 2019 , from $ 679.0 million for the year ended december 31 , 2018 . the following table summarizes external clinical , external non-clinical and internal research and development expense for the year ended december 31 , 2019 and 2018 : replace_table_token_11_th 111 the increase in external research and development expense was primarily attributable to the advancement of our clinical and preclinical drug candidates , and included the following : increases of approximately $ 51.8 million and $ 64.9 million , respectively , for zanubrutinib and tislelizumab . the expense increases were primarily due to the expansion of clinical trials , including trials that were initiated in late 2018 or early 2019 , including phase 3 studies in patients with r/r cll and treatment-naïve patients with mcl for zanubrutinib and treatment-naïve patients with gastric cancer and esophageal cancer for tislelizumab . in addition , the continuation of enrollment in ongoing pivotal trials for both drug candidates contributed to the period over period increase in
| 13,834 |
as a result , certain costs that would normally be expensed under accounting principles generally accepted in the united states are permitted to be capitalized or deferred on the balance sheet because it is probable they can be recovered through rates . discontinuing the application of this method of accounting for regulatory assets and liabilities could significantly increase our operating expenses as fewer costs would likely be capitalized or deferred on the balance sheet , which could reduce our net income . further , regulation may impact the period in which revenues or expenses are recognized . the amounts to be recovered or recognized are based upon historical experience and our understanding of the regulations . the impact of regulation on our regulated operations may be affected by decisions of the regulatory authorities or the issuance of new regulations . revenue recognition sales of natural gas to our natural gas distribution customers are billed on a monthly basis ; however , the billing cycle periods for certain classes of customers do not necessarily coincide with accounting periods used for financial reporting purposes . we follow the revenue accrual method of accounting for natural gas distribution segment revenues whereby revenues applicable to gas delivered to customers , but not yet billed under the cycle billing method , are estimated and accrued and the related costs are charged to expense . on occasion , we are permitted to implement new rates that have not been formally approved by our regulatory authorities , which are subject to refund . we recognize this revenue and establish a reserve for amounts that could be refunded based on our experience for the jurisdiction in which the rates were implemented . rates established by regulatory authorities are adjusted for increases and decreases in our purchased gas costs through purchased gas cost adjustment mechanisms . purchased gas cost adjustment mechanisms provide gas utility companies a method of recovering purchased gas costs on an ongoing basis without filing a rate case to address all of the utility company 's non-gas costs . these mechanisms are commonly utilized when regulatory authorities recognize a particular type of cost , such as purchased gas costs , that ( i ) is subject to significant price fluctuations compared to the utility company 's other costs , ( ii ) represents a large component of the utility company 's cost of service and ( iii ) is generally outside the control of the gas utility company . there is no gross profit generated through purchased gas cost adjustments , but they provide a dollar-for-dollar offset to increases or decreases in utility gas costs . although substantially all natural gas distribution sales to our customers fluctuate with the cost of gas that we purchase , our gross profit is generally not affected by fluctuations in the cost of gas as a result of the purchased gas cost adjustment mechanism . the effects of these purchased gas cost adjustment mechanisms are recorded as deferred gas costs on our balance sheet . operating revenues for our regulated transmission and storage and nonregulated segments are recognized in the period in which actual volumes are transported and storage services are provided . operating revenues for our nonregulated segment and the associated carrying value of natural gas inventory ( inclusive of storage costs ) are recognized when we sell the gas and physically deliver it to our 35 customers . operating revenues include realized gains and losses arising from the settlement of financial instruments used in our natural gas marketing activities and unrealized gains and losses arising from changes in the fair value of natural gas inventory designated as a hedged item in a fair value hedge and the associated financial instruments . allowance for doubtful accounts accounts receivable arise from natural gas sales to residential , commercial , industrial , municipal and other customers . for the majority of our receivables , we establish an allowance for doubtful accounts based on our collections experience . on certain other receivables where we are aware of a specific customer 's inability or reluctance to pay , we record an allowance for doubtful accounts against amounts due to reduce the net receivable balance to the amount we reasonably expect to collect . however , if circumstances change , our estimate of the recoverability of accounts receivable could be affected . circumstances which could affect our estimates include , but are not limited to , customer credit issues , the level of natural gas prices , customer deposits and general economic conditions . accounts are written off once they are deemed to be uncollectible . financial instruments and hedging activities we currently use financial instruments to mitigate commodity price risk . additionally , we periodically use financial instruments to manage interest rate risk . the objectives and strategies for using financial instruments have been tailored to meet the needs of our regulated and nonregulated businesses . we record all of our financial instruments on the balance sheet at fair value as required by accounting principles generally accepted in the united states , with changes in fair value ultimately recorded in the income statement . the timing of when changes in fair value of our financial instruments are recorded in the income statement depends on whether the financial instrument has been designated and qualifies as a part of a hedging relationship or if regulatory rulings require a different accounting treatment . changes in fair value for financial instruments that do not meet one of these criteria are recognized in the income statement as they occur . financial instruments associated with commodity price risk in our natural gas distribution segment , our customers are exposed to the effect of volatile natural gas prices . we manage this exposure through a combination of physical storage , fixed-price forward contracts and financial instruments , primarily over-the-counter swap and option contracts , in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season . story_separator_special_tag the costs associated with and the gains and losses arising from the use of financial instruments to mitigate commodity price risk in this segment are included in our purchased gas cost adjustment mechanisms in accordance with regulatory requirements . therefore , changes in the fair value of these financial instruments are initially recorded as a component of deferred gas costs and recognized in the consolidated statement of income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue in accordance with accounting principles generally accepted in the united states . accordingly , there is no earnings impact to our natural gas distribution segment as a result of the use of financial instruments . our nonregulated segment aggregates and purchases gas supply , arranges transportation and or storage logistics and ultimately delivers gas to our customers at competitive prices . we also perform asset optimization activities in which we seek to maximize the economic value associated with storage and transportation capacity we own or control in both our natural gas distribution and nonregulated businesses . as a result of these activities , our nonregulated operations are exposed to risks associated with changes in the market price of natural gas . we manage our exposure to the risk of natural gas price changes through a combination of physical storage and financial instruments , including futures , over-the-counter and exchange-traded options and swap contracts with counterparties . in our nonregulated segment , we have designated the natural gas inventory held by this operating segment as the hedged item in a fair-value hedge . this inventory is marked to market at the end of each month based on the gas daily index , with changes in fair value recognized as unrealized gains or losses in revenue in the period of change . the financial instruments associated with this natural gas inventory have been designated as fair-value hedges and are marked to market each month based upon the nymex price with changes in fair value recognized as unrealized gains or losses in revenue in the period of change . changes in the spreads 36 between the forward natural gas prices used to value the financial instruments designated against our physical inventory ( nymex ) and the market ( spot ) prices used to value our physical storage ( gas daily ) result in unrealized margins until the underlying physical gas is withdrawn and the related financial instruments are settled . the difference in the spot price used to value our physical inventory and the forward price used to value the related financial instruments can result in volatility in our reported income as a component of unrealized margins . we have elected to exclude this spot/forward differential for purposes of assessing the effectiveness of these fair-value hedges . once the gas is withdrawn and the financial instruments are settled , the previously unrealized margins associated with these net positions are realized . over time , we expect gains and losses on the sale of storage gas inventory to be offset by gains and losses on the fair-value hedges , resulting in the realization of the economic gross profit margin we anticipated at the time we structured the original transaction . we have elected to treat fixed-price forward contracts used in our nonregulated segment to deliver gas as normal purchases and normal sales . as such , these deliveries are recorded on an accrual basis in accordance with our revenue recognition policy . financial instruments used to mitigate the commodity price risk associated with these contracts have been designated as cash flow hedges of anticipated purchases and sales at indexed prices . accordingly , unrealized gains and losses on open financial instruments are recorded as a component of accumulated other comprehensive income and are recognized in earnings as a component of revenue when the hedged volumes are sold . hedge ineffectiveness , to the extent incurred , is reported as a component of revenue . we also use storage swaps and futures to capture additional storage arbitrage opportunities in our nonregulated segment that arise after the execution of the original fair value hedge associated with our physical natural gas inventory , basis swaps to insulate and protect the economic value of our fixed price and storage books and various over-the-counter and exchange-traded options . these financial instruments have not been designated as hedges . financial instruments associated with interest rate risk we periodically manage interest rate risk , typically when we issue new or refinance existing long-term debt with treasury lock agreements to fix the treasury yield component of the interest cost associated with anticipated financings . we designate these treasury lock agreements as cash flow hedges at the time the agreements are executed . accordingly , unrealized gains and losses associated with the treasury lock agreements are recorded as a component of accumulated other comprehensive income ( loss ) . the realized gain or loss recognized upon settlement of each treasury lock agreement is initially recorded as a component of accumulated other comprehensive income ( loss ) and is recognized as a component of interest expense over the life of the related financing arrangement . hedge ineffectiveness , to the extent incurred , is reported as a component of interest expense . impairment assessments we perform impairment assessments of our goodwill , intangible assets subject to amortization and long-lived assets . as of september 30 , 2011 , we had no indefinite-lived intangible assets . we annually evaluate our goodwill balances for impairment during our second fiscal quarter or as impairment indicators arise . we use a present value technique based on discounted cash flows to estimate the fair value of our reporting units . we have determined our reporting units to be each of our natural gas distribution divisions and wholly-owned subsidiaries and goodwill is allocated to the reporting units responsible for the acquisition that gave rise to the goodwill .
| in the current year , net income includes the net positive impact of several one-time items totaling $ 3.2 million , or $ 0.03 per diluted share related to the following pre-tax amounts : $ 27.8 million favorable impact related to the cash gain recorded in association with the unwinding of two treasury locks in conjunction with the cancellation of a planned debt offering in november 2011 . $ 30.3 million unfavorable impact related to the non-cash impairment of certain assets in our nonregulated business . $ 5.0 million favorable impact related to the administrative settlement of various income tax positions . net income during fiscal 2010 increased eight percent over fiscal 2009. net income from our regulated operations increased six percent during fiscal 2010. the increase primarily reflects colder than normal weather in most of our service areas during fiscal 2010 as well as the net favorable impact of various ratemaking activities in our natural gas distribution segment . net income in our nonregulated operations increased $ 5.3 million during fiscal 2010 primarily due to the impact of unrealized margins . non-cash , net unrealized losses totaled $ 4.3 million which reduced earnings per share by $ 0.05 per diluted share in fiscal 2010 compared to fiscal 2009 , when net unrealized losses totaled $ 21.6 million , which reduced earnings per share by $ 0.23 per diluted share . see the following discussion regarding the results of operations for each of our business operating segments . natural gas distribution segment the primary factors that impact the results of our natural gas distribution operations are our ability to earn our authorized rates of return , the cost of natural gas , competitive factors in the energy industry and economic conditions in our service areas . our ability to earn our authorized rates is based primarily on our ability to improve the rate design in our various ratemaking jurisdictions by reducing or eliminating regulatory lag and ,
| 13,835 |
under the license agreement , we have granted tianma non-exclusive license rights under various patents owned or controlled by us to manufacture and sell oled display products . the license agreement calls for license fees and running royalties on tianma 's sales of licensed products . additionally , we suppl y phosphorescent oled materials to tianma for use in its licensed products . in 2017 , we entered into long-term , multi-year agreements with boe technology group co. , ltd. ( boe ) . under these agreements , we have granted boe non-exclusive license rights under various patents owned or controlled by us to manufacture and sell oled display products . we also supply phosphorescent oled materials to boe for use in its licensed products . in 2018 , we entered into long-term , multi-year oled patent license and material purchase agreements with visionox technology , inc. ( visionox ) . under the license agreement , we have granted visionox non-exclusive license rights under various patents owned or controlled by us to manufacture and sell oled display products . the license agreement calls for license fees and running royalties on visionox 's sales of licensed products . additionally , we supply phosphorescent oled materials to visionox for use in its licensed products . in 2019 , we entered into an evaluation and commercial supply relationship with wuhan china star optoelectronics semiconductor display technology co. , ltd. ( csot ) . in 2020 , we entered into long-term , multi-year agreements with csot . under these agreements , we have granted csot non-exclusive license rights under various patents owned or controlled by us to manufacture and sell oled display products . we also supply phosphorescent oled materials to csot for use in licensed products . in 2016 , we acquired adesis , inc. ( adesis ) with operations in new castle , delaware . adesis is a contract research organization ( cro ) that provides support services to the oled , pharma , biotech , catalysis and other industries . as of december 31 , 2020 , adesis employed a team of 100 research scientists , chemists , engineers and laboratory technicians . prior to our acquisition of adesis in 2016 , we utilized more than 50 % of adesis ' technology service and production output . we continue to utilize a significant portion of its technology research capacity for the benefit of our oled technology development , and adesis uses the remaining capacity to operate as a cro in the above-mentioned industries by providing contract research services for non-oled applications to those third-party customers . contract research services revenue is earned by providing chemical materials synthesis research , development and commercialization for non-oled applications on a contractual basis for those third-party customers . in june 2020 , a wholly-owned subsidiary , ovjp corporation ( ovjp corp ) , was formed as a delaware corporation . based out of california , ovjp corp was founded to advance the commercialization of our proprietary organic vapor jet printing ( ovjp ) technology . as a direct printing technique , ovjp technology has the potential to offer high deposition rates for large-area oleds . in addition , ovjp technology reduces oled material waste associated with use of a shadow mask ( i.e. , the waste of material that deposits on the shadow mask itself when fabricating an oled ) . by comparison to inkjet printing , an ovjp process does not use liquid solvents and therefore the oled materials utilized are not limited by their viscosity or solvent solubility . ovjp also avoids generation of solvent wastes and eliminates the additional step of removing residual solvent from the oled device . we believe the successful implementation of the ovjp technology has the potential to increase the addressable market for large-size oled panels while also serving another potential growth market for our proprietary pholed materials and technologies . we also generate technology development and support revenue earned from development and technology evaluation agreements and commercialization assistance fees , along with , to a minimal extent , government contracts . relating to our government contracts , we may receive reimbursements by government entities for all or a portion of the research and development costs we incur . revenues are recognized as services are performed , proportionally as research and development costs are incurred , or as defined milestones are achieved . we anticipate fluctuations in our annual and quarterly results of operations due to uncertainty regarding , among other factors : the timing , cost and volume of sales of our oled materials ; the timing of our receipt of license fees and royalties , as well as fees for future technology development and evaluation ; the timing and magnitude of expenditures we may incur in connection with our ongoing research and development and patent-related activities ; and the timing and financial consequences of our formation of new business relationships and alliances . 33 further , we continue to monitor the impact of covid-19 on our business . our global operations , and the global nature of our customer base and their respective customers , expose us to risks associated with public health crises , such as pandemics and epidemics . the ongoing covid-19 pandemic had a substantial impact on our operations and financial results during the year ended december 31 , 2020. we expect that as the pandemic continues to evolve , it can potentially have a further adverse impact on the results of our operations due to uncertainties involving the continued disruption of the global economy , uncertainties associated with consumer demand for finished oled goods , and the potential resulting impact on our customers and their demand for our phosphorescent emitters . at this time , the crisis has not had a significant impact on our ability to fulfill shipments of commercial materials as required by our customers . story_separator_special_tag however , the sustainability of maintaining our testing and manufacturing operations at levels needed to meet fluctuating customer demand is uncertain and is dependent upon the rapidly evolving situations being encountered by our logistics and supply chain partners . in an effort to protect the health and safety of our employees , we have taken proactive measures to adopt social distancing policies at all of our locations , employing nurses to check everyone entering our buildings , working from home , reducing the number of people in our sites at any one time , and suspending employee travel . while the ultimate health and economic impact of the covid-19 pandemic is highly uncertain , we expect that our business operations and results of operations , including our revenues , net income and cash flows , will continue to be adversely impacted for at least the first half of 2021 , including as a result of : temporary closure of electronics and other retail stores through which our customers sell the products for which they use our technology and materials ; consumer confidence and consumer spending habits , including spending for the products that our customers sell and negative trends in consumer purchasing patterns due to consumers ' disposable income , credit availability and debt levels ; possible disruption to the supply chain caused by distribution and other logistical issues , which may impact suppliers of our raw materials as well as our ability to ship our materials to customers on a timely basis ; decreased productivity due to travel ban , work-from-home policies or shelter-in-place orders ; a slowdown in the u.s. economy , and uncertain global economic outlook or a credit crisis ; and uncertain trade restrictions amongst jurisdictions seeking to manage their respective exposure to risks , including the covid-19 pandemic . we are focused on navigating these recent challenges presented by covid-19 through preserving our liquidity and managing our cash flow . we continue to actively monitor the covid-19 situation and may take further actions altering our business operations that we determine are in the best interests of our employees , customers , partners , suppliers , and stakeholders , or as required by federal , state , or local authorities . it is not clear what the potential effects any such alterations or modifications may have on our business , including the effects on our customers , employees , and on our financial results for the 2021 fiscal year . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires us to make estimates and judgments that affect our reported assets and liabilities , revenues and expenses , and other financial information . actual results may differ significantly from our estimates under other assumptions and conditions . we believe that our accounting policies related to revenue recognition and deferred revenue and income taxes , as described below , are our “ critical accounting policies ” as contemplated by the sec . these policies , which have been reviewed with our audit committee , are discussed in greater detail below . revenue recognition and deferred revenue material sales relate to the sale of our oled materials for incorporation into our customers ' commercial oled products or for their oled development and evaluation activities . revenue associated with material sales is generally recognized at the time title passes , which is typically at the time of shipment or at the time of delivery , depending upon the contractual agreement between the parties . revenue may be recognized after control of the material passes in the event the transaction price includes variable consideration . for example , a customer may be provided an extended opportunity to stock materials prior to use in mass production and given a general right of return not conditioned on breaches of warranties associated with the specific product . in such 34 circumstances , revenue will be recognized at the earlier of the expiration of the customer 's general right of return or once it becomes unlikely that the customer will exercise its right of return . the rights and benefits to our oled technologies are conveyed to the customer through technology license agreements and material supply agreements . we believe that the licenses and materials sold under these combined agreements are not distinct from each other for financial reporting purposes and as such , are accounted for as a single performance obligation . accordingly , total contract consideration , including material , license and royalty fees , is estimated and recognized over the contract term based on material units sold at the estimated per unit fee over the life of the contract . various estimates are relied upon to recognize revenue . we estimate total material units to be purchased by our customers over the contract term based on historical trends , industry estimates and our forecast process . our management uses the expected value method to estimate the material per unit fee . additionally , our management estimates the total sales-based royalties based on the estimated net sales revenue of our customers over the contract term . accounting for income taxes we are subject to income taxes in both the u.s. and foreign jurisdictions . significant judgments and estimates are required in evaluating our tax positions for future realization and determining our provision for income taxes . our income tax expense , deferred tax assets and liabilities , and reserves for unrecognized tax benefits reflect management 's best assessment of estimated future taxes to be paid . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of our deferred tax assets will not be realized .
| revenue from royalty and license fees was $ 185.1 million for the year ended december 31 , 2020 as compared to $ 150.0 million for the year ended december 31 , 2019 , an increase of 23 % , as our customer 's sales of royalty bearing oled licensed products strengthened in the latter half of 2020. contract research services revenue was $ 14.1 million for the year ended december 31 , 2020 as compared to $ 11.7 million for the year ended december 31 , 2019 , an increase of 20 % . revenue from contract research services consists of revenue earned by our subsidiary , adesis , which provides support services to the pharma , biotech , catalysis and other industries on a contractual basis for those third-party customers . 36 cost of sales cost of sales for the year ended december 31 , 2020 increased by $ 10.1 million as compared to the year ended december 31 , 2019 , primarily due to an increase in manufacturing costs partially offset by a decrease relating to the lower amount of material sales . the increase in manufacturing costs was primarily due to higher costs incurred during the quarter ended december 31 , 2020 , associated with increased levels of product development required to meet our customer 's requests as they launched the next wave of new product introductions into the oled market . we believe this is a temporary condition and manufacturing costs will return to previous trend-levels as the current product introductions are brought to market and begin to mature . also included in the cost of sales for the years ended december 31 , 2020 and 2019 was an increase in inventory reserve of $ 1.1 million and $ 5.9 million , respectively , due to excess inventory levels in certain products . as a result of the increase in revenue from royalty and license fees partially offset by a decrease in material sales and an increase in manufacturing costs , gross margin for the year ended december 31 , 2020 increased by $ 13.6 million as
| 13,836 |
historically , the costs of our primary raw materials have been stable and readily available from multiple suppliers , and we have been generally successful with passing along raw material cost increases to our customers . therefore , increases in the cost of key raw materials of our products have not generally affected our gross margins . we can not provide any assurance that we may be able to pass along such cost increases to our customers in the future , and if we are unable to do so , our results of operations may be adversely affected . operating expenses . our marketing , general and administrative and engineering expenses are primarily comprised of compensation and related costs for sales , marketing , pre-sales engineering and administrative personnel , as well as other sales related expenses and other costs related to research and development , insurance , professional fees , the global integrated business information system , provisions for bad debts and warranty . key drivers affecting our results of operations . our results of operations and financial condition are affected by numerous factors , including those described above under item 1a , “ risk factors ” and elsewhere in this annual report and those described below : timing of greenfield projects . our results of operations in recent years have been impacted by the various construction phases of large greenfield projects . on very large projects , we are typically designated as the heat tracing provider of choice by the project owner . we then engage with multiple contractors to address incorporating various heat tracing solutions throughout the overall project . our largest greenfield projects may generate revenue for several quarters . in the early stages of a greenfield project , our revenues are typically realized from the provision of engineering services . in the middle stages , or the material requirements phase , we typically experience the greatest demand for our heat tracing cable , at which point our revenues tend to accelerate . revenues tend to decrease gradually in the final stages of a project and are generally derived from installation services and demand for electrical panels and other miscellaneous electronic components used in the final installation of heat tracing cable , which we frequently outsource from third-party manufacturers . therefore , we typically provide a mix of products and services during each phase of a greenfield project , and our margins fluctuate accordingly . cyclicality of end-users ' markets . demand for our products and services depends in large part upon the level of capital and maintenance expenditures of our customers and end users , in particular those in the energy , chemical 26 processing and power generation industries , and firms that design and construct facilities for these industries . these customers ' expenditures historically have been cyclical in nature and vulnerable to economic downturns . greenfield projects , and in particular large greenfield projects ( i.e . , new facility construction projects generating in excess of $ 5 million in annual sales ) , have been a substantial source of revenue growth in recent years , and greenfield revenues tend to be more cyclical than mro/ue revenues . in recent years we have noted particular cyclicality in capital spending for new facilities in asia , eastern europe and the middle east . revenues derived from europe , including the middle east , accounted for 21 % and 25 % of our total revenues during fiscal 2013 and fiscal 2012 , respectively , and revenues derived from the asia region accounted for 15 % and 11 % of our total revenues during fiscal 2013 and fiscal 2012 , respectively . a sustained decrease in capital and maintenance spending or in new facility construction by our customers could have a material adverse effect on the demand for our products and services and our business , financial condition and results of operations . impact of product mix . typically , both greenfield and mro/ue customers require our products as well as our engineering and construction services . the level of service and construction needs will affect the profit margin for each type of revenue . we tend to experience lower margins from our design optimization , engineering , installation and maintenance services than we do from sales of our heating cable , tubing bundle and control system products . we also tend to experience lower margins from our outsourced products , such as electrical switch gears and transformers , than we do from our manufactured products . accordingly , our results of operations are impacted by our mix of products and services . we estimate that greenfield and mro/ue have each made the following contribution as a percentage of revenue in the periods listed : replace_table_token_5_th we believe that our analysis of greenfield and mro/ue is an important measurement to explain the trends in our business to investors . greenfield revenue is an indicator of both our ability to successfully compete for new contracts as well as the economic health of the industries we serve . furthermore , greenfield revenue is an indicator of potential mro/ue revenue in future years . for mro/ue orders , the sale of our manufactured products typically represents a higher proportion of the overall revenues associated with such order than the provision of our services . greenfield projects , on the other hand , require a higher level of our services than mro/ue orders , and often require us to purchase materials from third party vendors . therefore , we typically realize higher margins from mro/ue revenues than greenfield revenues . large and growing installed base . customers typically use the incumbent heat tracing provider for mro/ue projects to avoid complications and compatibility problems associated with switching providers . therefore , with the significant greenfield activity we have experienced in recent years , our installed base has continued to grow , and we expect that such installed base will continue to generate ongoing high margin mro/ue revenues . for fiscal 2013 , mro/ue sales comprised approximately 58 % of our consolidated revenues . story_separator_special_tag seasonality of mro/ue revenues . revenues realized from mro/ue orders tend to be less cyclical than greenfield projects and more consistent quarter over quarter , although mro/ue revenues are impacted by seasonal factors . mro/ue revenues are typically highest during the second and third fiscal quarters , as most of our customers perform preventative maintenance prior to the winter season . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > $ 23.3 million in fiscal 2012 , a decrease of $ 8.2 million . in fiscal 2013 and fiscal 2012 , we made redemptions on our senior notes totaling $ 21.0 million and $ 70.9 million , respectively . the decrease in our senior secured notes outstanding resulted in an approximate decrease of $ 3.6 million of interest expense during fiscal 2013. in connection with the senior note redemptions , we accelerated the amortization of our deferred debt issuance costs in the amounts of $ 0.9 million and $ 3.1 million in fiscal 2013 and fiscal 2012 , respectively . in fiscal 2013 , we refinanced our prior revolving credit facility and incurred $ 1.4 million in 29 acceleration of deferred debt issuance costs . in fiscal 2012 , we experienced a $ 3.8 million loss on retirement of debt related to early redemption premium payments on the senior notes . miscellaneous expense . miscellaneous expense was $ 0.3 million in fiscal 2013 , compared to $ 1.7 million in fiscal 2012 , a decrease in expense of $ 1.4 million due mostly to decreased losses on foreign exchange transactions in fiscal 2013. miscellaneous expense consisted primarily of losses on foreign exchange transactions and our use of foreign currency forward contracts which were $ 0.4 million and $ 1.6 million in fiscal 2013 and 2012 , respectively . income taxes . we reported an income tax expense of $ 14.6 million in fiscal 2013 , compared to $ 7.5 million in fiscal 2012 , an increase of $ 7.1 million due to an increase of $ 22.1 million of taxable income in fiscal 2013. the effective tax rates were 35.1 % in fiscal 2013 and 38.3 % in fiscal 2012 , respectively . we have subsidiaries in multiple foreign locations and the statutory income tax rate in many of our foreign subsidiaries is lower than the u.s. federal rate of 35 % . to the extent that we expect to repatriate dividends from these subsidiaries , we are required to accrue the estimated incremental u.s. tax in anticipation of the foreign dividends being repatriated . the accrual for these estimated taxes results in an effective tax rate which is nearly the same as the u.s. federal statutory rate plus state and other miscellaneous taxes . in fiscal 2012 , our effective tax rate was higher due to the permanent tax effect of items related to our ipo such as the accelerated vesting of stock options . some of the accelerated stock options had been granted to employees in foreign jurisdictions in which there is no tax deduction for stock compensation expense . see also note 16 , “ income taxes ” to our consolidated financial statements . net income . net income was $ 27.0 million in fiscal 2013 as compared to $ 12.0 million in fiscal 2012 , an increase of $ 15.0 million . in connection with our ipo , during fiscal 2012 we incurred $ 13.5 million of expenses related to the termination of our management services agreement and the acceleration of stock compensation expenses . expenses related to our debt redemptions and refinancing of our prior revolving credit facility and the decrease in interest expense on our senior secured notes resulted in a decrease in interest expenses of $ 8.2 million in fiscal 2013. these decreases in expenses were partially offset by an increase of $ 7.1 million in income taxes as a result of a $ 22.1 million increase in pre-tax income in fiscal 2013. year ended march 31 , 2012 ( successor ) compared to the year ended march 31 , 2011 ( predecessor/successor ) ( non-gaap ) we have prepared our consolidated and combined financial statements as if thermon group holdings , inc. ( `` successor '' ) had been in existence throughout all relevant periods . the historical financial and other data prior to the chs transactions , which occurred on april 30 , 2010 and which established a new basis of accounting , have been prepared using the historical results of operations and assets and liabilities of thermon holdings , llc and its subsidiaries ( `` predecessor '' ) . our historical financial data prior to april 30 , 2010 may not necessarily be indicative of our future performance . for comparability to the periods discussed herein , please refer to note 1 to the table set forth in item 6 , “ selected financial data. ” revenues . revenues for fiscal 2012 were $ 272.3 million , compared to $ 241.0 million for fiscal 2011 , an increase of $ 31.3 million , or 13.0 % . during fiscal 2012 , we experienced growth in both greenfield and mro/ue sales . in fiscal 2011 , we experienced higher than usual greenfield sales at approximately 45 % of total revenue . in fiscal 2012 , greenfield sales contributed approximately 39 % to total revenue , whereas mro/ue sales contributed approximately 61 % , which is more in line with our expected product mix based on historical results . during fiscal 2012 , we continued to experience sales growth from oil and gas production and refining , especially as it relates to activity in arctic climates . also in fiscal 2012 , we experienced approximately $ 5.0 million in unanticipated sales due to freeze protection initiatives on existing electrical power plants located in the southern united states . these projects were in response to power disruptions due to an unusually-cold weather during the previous winter . revenues increased in all geographies in which we operate during fiscal 2012 .
| interest expense for fiscal 2012 included $ 3.1 million of accelerated amortized loan costs due to certain partial redemptions of our senior secured notes and $ 1.0 million of amortized loan costs . during fiscal 2013 , we accelerated amortized loan 28 costs of $ 2.3 million associated with the refinancing of our prior revolving credit facility and a partial redemption of our senior secured notes , in addition to $ 1.0 million of scheduled amortized loan costs . ( 4 ) we paid fees to both the predecessor and successor owners related to the successful completion of the chs transactions . as related party transactions , they were reported separately from other chs transactions expenses included in miscellaneous expense . ( 5 ) miscellaneous expense for fiscal 2011 of $ 14.1 million , which includes “ success fees to owners related to the chs transactions , ” consisted primarily of $ 15.0 million of non-recurring expenses related to the chs transactions , partially offset by $ 0.6 million of income related to the reversal of our compliance reserve . year ended march 31 , 2013 compared to the year ended march 31 , 2012 revenues . revenues for fiscal 2013 were $ 284.0 million , compared to $ 272.3 million for fiscal 2012 , an increase of $ 11.7 million , or 4 % . during fiscal 2013 , we experienced growth in both greenfield and mro/ue sales . in fiscal 2013 , we experienced higher than usual greenfield sales at approximately 42 % of total revenue . in fiscal 2012 , greenfield sales contributed approximately 39 % to total revenue , whereas mro/ue sales contributed approximately 61 % , which is more in line with our expected product mix based on historical results . in fiscal 2013 , we experienced growth of $ 16.3 million and $ 12.3 million in our canada and asia regions , respectively . we continued to see strong demand from customers in the canadian oil sands region , as well as continued growth in our mro/ue business as we grow our installed base . in asia , our growth was driven by several large greenfield
| 13,837 |
in october 2015 , the company announced a planned exit from the personal lending business . the company has dedicated financing facilities in place for its chrysler capital business . the company periodically sells consumer retail installment contracts through flow agreements and , when market conditions are favorable , it accesses the abs market through securitizations of consumer retail installment contracts . the company also periodically enters into bulk sales of consumer vehicle leases with a third party . the company typically retains servicing of loans and leases sold or securitized , and may also retain some residual risk in sales of leases . the company has also entered into an agreement with the buyer of its leases whereby the company will periodically sell charged-off loans . economic and business environment unemployment rates continue to be at record low levels of 3.9 % as reported by the bureau of labor statistics for december 31 , 2018 . the federal reserve raised its federal funds rate by 25 basis points in december 2018. despite this stability , consumer debt levels continued to rise , specifically auto debt . as consumers assume higher debt levels , the company may experience an increase in delinquencies and credit losses . additionally , the company is exposed to geographic customer concentration risk , which could have an adverse effect on the company 's business , financial position , results of operations or cash flow . the following table shows the percentage of unpaid principal balance on the company 's retail installment contracts by state concentration . total unpaid principal balance of retail installment contracts held for investment was $ 28,463,236 and $ 26,036,361 at december 31 , 2018 , and 2017 , respectively . replace_table_token_6_th how the company assesses its business performance 43 net income , and the associated return on assets and equity , are the primary metrics by which the company judges the performance of its business . accordingly , the company closely monitors the primary drivers of net income : net financing income — the company tracks the spread between the interest and finance charge income earned on assets and the interest expense incurred on liabilities , and continually monitors the components of its yield and cost of funds . the company 's effective interest rate on borrowing is driven by various items including , but not limited to , credit quality of the collateral assigned , used/unused portion of facilities , and reference rate for the credit spread . these drivers , as well as external rate trends , including the swap curve spot and forward rates are monitored . net credit losses — the company performs net credit loss analysis at the vintage level for individually acquired retail installment contracts , loans and leases , and at the pool level for purchased portfolios , enabling it to pinpoint drivers of any unusual or unexpected trends . the company also monitors its recovery rates as well as industry-wide rates . additionally , because delinquencies are an early indicator of future net credit losses , the company analyzes delinquency trends , adjusting for seasonality , to determine if the company 's loans are performing in line with original estimations . the net credit loss analysis does not include considerations of the company 's estimated allowance for credit losses . other income ( losses ) — the company 's flow agreements entered into in connection with the chrysler agreement have resulted in a large portfolio of assets serviced for others . these assets provide a steady stream of servicing income and may provide a gain or loss on sale . the company monitors the size of the portfolio and average servicing fee rate and gain . additionally , due to the classification of the company 's personal lending portfolio as held for sale upon the decision to exit the personal lending line of business , adjustments to record this portfolio at the lower of cost or market are included in investment gains ( losses ) , net , which is a component of other income ( losses ) . operating expenses — the company assesses its operational efficiency using the cost-to-managed assets ratio . the company performs extensive analysis to determine whether observed fluctuations in operating expense levels indicate a trend or are the nonrecurring impact of large projects . the operating expense analysis also includes a loan- and portfolio-level review of origination and servicing costs to assist the company in assessing profitability by pool and vintage . because volume and portfolio size determine the magnitude of the impact of each of the above factors on the company 's earnings , the company also closely monitors origination and sales volume along with apr and discounts ( including subvention and net of dealer participation ) . 44 corrections to previously reported amounts as mentioned in note 1 - “ description of business , basis of presentation , and significant accounting policies and practices ” in the accompanying consolidated financial statements , the company identified and corrected two immaterial errors . the company included the impact of these errors on the material accounts and disclosures presented in note 1 - “ description of business , basis of presentation , and significant accounting policies and practices ” in the accompanying consolidated financial statements . the impact of these errors on other material items included within management 's discussion and analysis section are as follows : delinquency ratios replace_table_token_7_th other ratios replace_table_token_8_th recent developments and other factors affecting the company 's results of operations personal lending the company 's other significant personal lending relationship is with bluestem . the company continues to perform in accordance with the terms and operative provisions of the agreements under which it is obligated to purchase personal revolving loans originated by bluestem for a term ending in 2020 , or 2022 if extended at bluestem 's option . this revolving loan portfolios is carried as held for sale in the company 's consolidated financial statements . story_separator_special_tag accordingly , the company has recorded $ 367 million during 2018 in lower-of-cost-or market adjustments on this portfolio , and there may be further such adjustments required in future periods ' financial statements . the company is currently evaluating alternatives for the sale of the bluestem portfolio , which had a carrying value of $ 1.1 billion at december 31 , 2018 . dividends in 2018 , shusa announced that the frbb did not object to the planned capital actions described in shusa 's annual capital plan that was submitted as part of capital planning process . included in shusa 's capital actions were proposed dividend payments for the company 's stockholders . as a result , we made dividend payments in 2018 and in the first quarter of 2019. refer to note 17 - “ shareholders ' equity ” in the accompanying consolidated financial statements . in february 2019 , the frbb announced that shusa , and certain other firms , would receive a one-year extension of the requirement to submit its 2019 capital plan until april 2020. the frbb also announced that for the period beginning july 1 , 2019 through june 30 , 2020 , shusa would be allowed to make capital distributions up to an amount that would have allowed shusa to remain well-capitalized under the minimum capital requirements for ccar 2018. shusa and the company are evaluating their planned capital actions , including any proposed dividend payments for the company 's stockholders , for the period of july 1 , 2019 through june 30 , 2020 and intend to submit those planned capital actions to the frbb soon . share repurchases and treasury stock in july 2018 , the board approved purchases by the company up to $ 200 million , excluding commissions , of its outstanding common stock through june 2019 . 45 during the year ended december 31 , 2018 , the company purchased 9,473,955 shares of its common stock under its share repurchase program at a cost of approximately $ 182 million , excluding commissions . as of december 31 , 2018 , the company was authorized to purchase additional shares of common stock having a cost of approximately $ 18 million , all of which was purchased in january 2019 , at a weighted average price of $ 18.40 per share . reportable segment the company has one reportable segment : consumer finance . this segment includes the company 's vehicle financial products and services , including retail installment contracts , vehicle leases , and dealer loans , as well as financial products and services related to marine and recreational vehicles . it also includes the company 's personal loan and point-of-sale financing operations . 46 volume the company 's originations of individually acquired loans and leases , including revolving loans , average apr , and discount during the year ended december 31 , 2018 , 2017 , and 2016 have been as follows : replace_table_token_9_th ( a ) unpaid principal balance excluded from the weighted average fico score is $ 1.9 billion , $ 1.5 billion and $ 2.1 billion for the years ended 2018 , 2017 , and 2016 , respectively , as the borrowers on these loans did not have fico scores at origination . of these amounts $ 76 million , $ 164 million , and $ 364 million , respectively , were commercial loans . ( b ) effective as of three months ended december 31 , 2017 , the company revised its approach to define origination volumes for personal loans to include new originations , gross of paydowns and charge-offs , related to customers who took additional advances on existing accounts ( including capitalized late fees , interest and other charges ) , and newly opened accounts . in the prior periods , the company reported net balance increases on personal loans as origination volume . included in the total origination volume is $ 304 million , $ 264 million , and $ 304 million for the years ended 2018 , 2017 , and 2016 , respectively , related to newly opened accounts . ( c ) unpaid principal balance excluded from the weighted average fico score is $ 143 million , $ 318 million , and $ 451 million for the years ended 2018 , 2017 , and 2016 , respectively , as the borrowers on these loans did not have fico scores at origination . of these amounts $ 76 million , $ 102 million , and $ 86 million , respectively , were commercial loans . ( d ) total originations excludes finance receivables ( upb ) of $ 74,086 purchased from a third party lender during the year ended december 31 , 2018 . total originations increased $ 6.8 billion , or 31 % , from the year ended december 31 , 2017 to the year ended december 31 , 2018 . the increase was primarily attributable to our new initiatives , starting in the second half of 2017 , to improve our pricing as well as dealer and customer experience , which we believe increased our competitive position in the market . the company continues to focus on optimizing the loan quality of its portfolio with an appropriate balance of volume and risk . chrysler capital volume and penetration rates are influenced by strategies implemented by fca , including product mix and incentives . sbna originations program beginning in 2018 , the company agreed to provide sbna with origination support services in connection with the processing , underwriting and purchase of retail loans , primarily from chrysler dealers . in addition , the company agreed to perform the servicing for any loans originated on sbna 's behalf . during the year ended december 31 , 2018 , the company facilitated the purchase of $ 1.9 billion of retail installment contacts .
| interest expense replace_table_token_17_th interest expense on notes payable increased $ 207 million , or 22 % , from 2017 to 2018 , primarily due to ( a ) increased cost of funds resulting from higher market rates and wider spreads ; and ( b ) an increase in average outstanding debt balance increased from $ 31.4 billion in 2017 to $ 32.6 billion , or 3.8 % , in 2018 . 52 interest income on derivatives increased $ 43 million , or 1,346 % , from 2017 to 2018 , primarily due to favorable mark-to-market impact driven largely by four raises of the federal reserve 's benchmark rate in 2018. provision for credit losses replace_table_token_18_th provision for credit losses on the company 's individually acquired retail installment contracts decreased $ 147 million , or 6 % , from 2017 to 2018 , primarily due to ( a ) decrease of 4 % in net charge offs in 2018 as compared to 2017 ; and ( b ) better recovery performance in 2018. the decrease was partially offset by increase in portfolio from $ 26.0 billion at december 31 , 2017 to $ 28.4 billion at december 31 , 2018. provision for credit losses on personal loans was recorded during fiscal 2017 due to the reclassification of personal loans from held for sale to held for investment effective as of the end on the third quarter of 2016. profit sharing replace_table_token_19_th profit sharing consists of revenue sharing related to the chrysler agreement and profit sharing on personal loans originated pursuant to the company 's agreements with bluestem . profit sharing expense increased in 2018 compared to 2017 , primarily because of increase in bluestem profit sharing expense . other income replace_table_token_20_th investment losses , net : investment losses , net for the years ended december 31 , 2018 and 2017 , were as follows : replace_table_token_21_th 53 gain ( loss ) on sale of loans and leases changed from a $ 18 million gain
| 13,838 |
outdoor equipment operating expenses increased by $ 7,371 in 2014 from the prior year due primarily to $ 8,475 of impairment charges recognized during 2014 on jetboil intangible assets , which was partially offset by a $ 1,600 cash recovery from the jetboil indemnity claim . see further discussion of the valuation of the jetboil intangible assets at note 17 to our accompanying consolidated financial statements included elsewhere herein . in the watercraft segment , operating expenses decreased $ 2,427 during 2014 from fiscal 2013 due primarily to lower restructuring costs related to our decision to exit unprofitable international markets and lower infrastructure costs resulting from those efforts . operating expenses for the diving business decreased by $ 1,494 , or 4 % , year over year due primarily to cost containment efforts in light of lower sales volumes . operating results the company 's operating profit was $ 16,691 in 2014 compared to an operating profit of $ 25,591 in fiscal 2013. marine electronics operating profit decreased by $ 1,450 during 2014 to $ 30,722 from $ 32,172 in the prior year . the operating loss for outdoor equipment was $ 3,726 during 2014 compared to operating profit of $ 2,180 in the prior year due primarily to $ 6,875 of impairment charges on certain jetboil intangible assets incurred during 2014 , net of indemnity escrow recoveries during 2014 related to the acquisition , which were all recognized in the third quarter of 2014. excluding the effect of these charges , operating profit for this segment would have been $ 969 higher in 2014 than in fiscal 2013. despite a slight decline in net sales year over year , operating results for the watercraft business increased by $ 2,326 to a profit of $ 210 in fiscal 2014. operating profit for the diving business declined $ 2,098 from fiscal 2013 to $ 3,596 in fiscal 2014. other income and expenses interest expense of $ 788 during 2014 decreased from the prior year by $ 497 , due largely to lower interest rates and lower principal balances . interest income was approximately $ 100 in both 2014 and 2013. net other income of $ 1,434 in fiscal 2014 increased from fiscal 2013 by $ 1,171. other income during 2014 included currency gains of $ 427 and market gains and dividends of $ 965 on deferred compensation plan assets . in 2013 , this line item included $ 929 of currency losses which were more than offset by market gains and dividends of $ 1,265 on the deferred compensation plan assets . the dividends and market gains and losses on deferred compensation plan assets recognized in the accompanying consolidated statement of operations in other ( income ) expense , net are offset as deferred compensation expense in our operating expenses . pretax income and income taxes the company realized pretax income of $ 17,422 in fiscal 2014 compared to $ 24,660 in fiscal 2013. the company recorded income tax expense of $ 8,299 in 2014 , which equated to an effective tax rate of 47.6 % , compared to $ 5,333 in 2013 , which equated to an effective tax rate of 21.6 % . the 2013 tax expense reflects the net reduction of the company 's deferred tax asset valuation allowance . see further discussion of the deferred tax asset valuation allowance in note 6 to the consolidated financial statements found elsewhere in this report . net income the company recognized net income of $ 9,123 , or $ 0.90 per diluted common share in fiscal 2014 compared to $ 19,327 in fiscal 2013 , or $ 1.95 per diluted common share , based on the factors discussed above . financial condition , liquidity and capital resources the company 's cash flows from operating , investing and financing activities , as reflected in the accompanying consolidated statements of cash flows , are summarized in the following table : replace_table_token_8_th 25 operating activities the following table sets forth the company 's working capital position at the end of each of the years shown : replace_table_token_9_th cash flows provided by operations totaled $ 18,056 , $ 33,218 and $ 30,003 in fiscal 2015 , 2014 and 2013 , respectively . the decrease in operating cash flow over the prior year was driven largely by net changes in operating assets . additionally , the change in cash flows provided by operations year over year was significantly impacted by the nature of non-recurring expenses in each year . current year net income was impacted by the effect of $ 7,300 of cash charges related to litigation expense . in the prior year , net income was impacted by $ 8,475 of non-recurring , non-cash impairment expense recognized on certain jetboil intangible assets . depreciation and amortization charges were $ 11,824 , $ 10,863 and $ 10,070 in fiscal 2015 , 2014 and 2013 , respectively . investing activities cash flows used for investing activities were $ 10,394 , $ 11,887 and $ 31,753 in fiscal 2015 , 2014 and 2013 , respectively . the purchase of jetboil in fiscal 2013 used cash of $ 15,420. expenditures for property , plant and equipment were $ 10,409 , $ 13,263 and $ 16,333 in fiscal 2015 , 2014 and 2013 , respectively . in general , the company 's ongoing capital expenditures are primarily related to tooling for new products and facilities and information systems improvements . financing activities the following table sets forth the company 's debt and capital structure at the end of the past two fiscal years : replace_table_token_10_th 26 cash flows used for financing activities totaled $ 3,989 in fiscal 2015 compared to $ 3,498 in 2014 and $ 1,041 in 2013. dividend payments were $ 2,966 , $ 2,955 and $ 0 in 2015 , 2014 and 2013 , respectively . payments on long-term debt were $ 360 , $ 542 and $ 528 in fiscal 2015 , 2014 and 2013 , respectively . story_separator_special_tag the company had current maturities of its long-term debt of $ 368 and $ 360 as of october 2 , 2015 and october 3 , 2014 , respectively , and no outstanding borrowings on its revolving credit facilities as of the end of either fiscal year . the company had outstanding borrowings on long-term debt ( net of current maturities ) of $ 7,062 and $ 7,431 as of october 2 , 2015 and october 3 , 2014 , respectively . the company 's term loans have a maturity date of september 29 , 2029. each term loan requires monthly payments of principal and interest . interest on the aggregate outstanding amount of the term loans is based on the prime rate plus an applicable margin . the interest rate in effect on the term loans was 5.25 % at october 2 , 2015 and october 3 , 2014. the term loans are guaranteed in part under the united states department of agriculture rural development program and are secured with a first priority lien on land , buildings , machinery and equipment of the company 's domestic subsidiaries and a second lien on working capital and certain patents and trademarks of the company and its subsidiaries . any proceeds from the sale of secured property are first applied against the related term loans and then against the revolvers ( as defined below ) . the aggregate term loan borrowings are subject to a pre-payment penalty . the penalty is currently 4 % of the pre-payment amount , and the penalty will decrease by 1 % annually on the anniversary date of the effective date of the loan agreement . on september 16 , 2013 , the company and certain of its subsidiaries entered into a new credit facility with pnc bank national association and certain other lenders which terminated the amended revolving credit and security agreement with pnc bank national association and the other lenders named therein , dated as of november 16 , 2010. the new credit facility consists of a revolving credit agreement dated september 16 , 2013 among the company , certain of the company 's subsidiaries , pnc bank , national association , as lender and as administrative agent and the other lenders named therein ( the “ revolving credit agreement ” or “ revolver ” ) . the revolver has a 60 month term and provides for borrowing of up to an aggregate principal amount not to exceed $ 90,000 with an accordion feature that gives the company the option to increase the maximum seasonal financing availability subject to the conditions of the revolving credit agreement and subject to the approval of the lenders . the revolver imposes a seasonal borrowing limit such that borrowings under the facility may not exceed $ 60,000 from the period june 30 th through october 31 st of each year under the agreement . the interest rate on the revolver is based on libor plus an applicable margin . the applicable margin resets each quarter and ranges from 1.25 % to 2.00 % and is dependent on the company 's leverage ratio for the trailing twelve month period . the interest rate on the revolver at october 2 , 2015 and october 3 , 2014 was approximately 1.4 % . the revolver is secured with a first priority lien on working capital assets and certain patents and trademarks of the company and its subsidiaries and a second priority lien on land , buildings , machinery and equipment of the company 's domestic subsidiaries . the revolving credit agreement limits asset or stock acquisitions to no more than $ 20,000 in the event that the company 's consolidated leverage ratio is greater than 2.5 times . no limits are imposed if the company 's consolidated leverage ratio is less than 2.5 times and the remaining borrowing availability under the revolver is greater than $ 10,000 at the time of the acquisition . the revolving credit agreement limits the amount of restricted payments ( primarily dividends and repurchases of common stock ) made during each fiscal year . the company may declare , and pay , dividends in accordance with historical practices , but in no event may the aggregate amount of all dividends or repurchases of common stock exceed $ 10,000 in any fiscal year . the revolving credit agreement includes maximum leverage ratio and minimum interest coverage ratio limitations . concurrent with the execution of the revolving credit agreement described above , johnson outdoors canada inc. repaid and terminated its amended revolving credit and security agreement with pnc bank canada branch dated as of november 16 , 2010. as of october 2 , 2015 , the company held approximately $ 55,492 of cash and cash equivalents in bank accounts in foreign jurisdictions . 27 contractual obligations and off balance sheet arrangements the company has contractual obligations and commitments to make future payments under its existing credit facilities , including interest , operating leases and open purchase orders . the following schedule details these significant contractual obligations at october 2 , 2015. replace_table_token_11_th the company utilizes letters of credit primarily as security for the payment of future claims under its workers ' compensation insurance . letters of credit outstanding at october 2 , 2015 were $ 684 compared to $ 691 on october 3 , 2014 and were included in the company 's total loan availability . the company had no unsecured revolving credit facilities at its foreign subsidiaries as of october 2 , 2015 or october 3 , 2014. the company has no other off-balance sheet arrangements . the company anticipates making contributions to its defined benefit pension plans of $ 476 through september 30 , 2016. market risk management foreign exchange risk the company has significant foreign operations , for which the functional currencies are denominated primarily in euros , swiss francs , hong kong dollars , japanese yen and canadian dollars . as the values of the currencies of the foreign countries in which the company has operations increase or decrease relative to the u.s.
| net sales for the marine electronics business increased by $ 12,957 , or 5 % during 2015. the increase from fiscal 2014 was driven primarily by exceptional new product performance in the minn kota product line , particularly with regard to the new ulterra automatic stow and deploy trolling motor . outdoor equipment net sales increased $ 130 , less than 1 % , in 2015 over their levels in 2014. a significant increase in sales of jetboil products was nearly offset by declines in sales of tents year over year . the watercraft business experienced a decrease in net sales of $ 531 , or 1 % , due primarily to the decision to exit certain unprofitable international markets . net sales for the diving business declined $ 7,434 , or 9 % , year over year , due primarily to a 9 % unfavorable impact of foreign currency exchange . cost of sales cost of sales was $ 258,756 , or 60.1 % of net sales , on a consolidated basis for the year ended october 2 , 2015 compared to $ 256,797 or 60.4 % of net sales , in the prior year . costs of raw materials and components increased only slightly over the prior year while modest increases in labor rates were nearly offset by process improvements in each of the business segments . gross profit gross profit of $ 171,733 was 39.9 % of net sales on a consolidated basis for the year ended october 2 , 2015 compared to $ 168,613 or 39.6 % of net sales in the prior year . gross profit in the marine electronics business increased by $ 7,076 from the prior year due primarily to the 5 % increase in net sales . outdoor equipment gross profit increased by $ 379 from 2014 due primarily to a favorable sales mix with the increase in sales of jetboil products . 22 gross profit in the watercraft segment was $ 738 higher than 2014 levels due primarily to a more favorable sales mix occurring during 2015 as a result of the segment 's de-emphasis on selling low-margin products and selling in low-margin markets . the 9 % decrease
| 13,839 |
specifically , the company experienced lower sales in its process businesses that have exposure to oil and gas markets and in its engineered materials , interconnects and packaging businesses that have exposure to metals markets . contributions from the acquisitions completed in 2016 and the acquisitions of surface vision in july 2015 and global tubes in may 2015 , as well as the company 's operational excellence initiatives had a positive impact on 2016 results . the full year impact of the 2016 acquisitions and continued focus on and implementation of operational excellence initiatives , including the 2016 realignment actions ( described further throughout the results of operations for the fourth quarter and year ended december 31 , 2016 ) , are expected to have a positive impact on the company 's 2017 results . in the second half of 2016 , the company noted stabilization in the markets mentioned above compared to 2015 ; however , the company still expects the challenging global economic environment to continue to impact its markets and geographies into the first half of 2017. net sales for 2016 were $ 3,840.1 million , a decrease of $ 134.2 million or 3.4 % , compared with net sales of $ 3,974.3 million in 2015. electronic instruments group ( eig ) net sales were $ 2,360.3 million in 2016 , a decrease of 2.4 % , compared with $ 2,417.2 million in 2015. electromechanical group ( emg ) net sales were $ 1,479.8 million in 2016 , a decrease of 5.0 % , compared with $ 1,557.1 million in 2015. the decrease in net sales for 2016 was due to a 7 % organic sales decline and an unfavorable 1 % effect of foreign currency translation , partially offset by a 4 % increase from acquisitions . total international sales for 2016 were $ 2,010.7 million or 52.4 % of net sales , a decrease of $ 44.0 million or 2.1 % , compared with international sales of $ 2,054.7 million or 51.7 % of net sales in 2015. the $ 44.0 million decrease in international sales was primarily driven by a weak global economy , as well as the foreign currency translation headwind noted above . both reportable segments of the company maintain strong international sales presences in europe and asia . export shipments from the united states , which are included in total international sales , were $ 1,036.0 million in 2016 , a decrease of $ 54.7 million or 5.0 % , compared with $ 1,090.7 million in 2015. export shipments decreased primarily due to a weak global economy , as well as the competitive impacts of a strong u.s. dollar . orders for 2016 were $ 3,848.8 million , a decrease of $ 75.9 million or 1.9 % , compared with $ 3,924.7 million in 2015. the decrease in orders for 2016 was due to a 5 % organic order decline resulting from a weak global economy noted above , partially offset by a 3 % increase from acquisitions . as a result , the company 's backlog of unfilled orders at december 31 , 2016 was $ 1,156.5 million , an increase of $ 8.7 million or 0.8 % , compared with $ 1,147.8 million at december 31 , 2015. the company recorded 2016 realignment costs totaling $ 25.6 million in the fourth quarter of 2016 ( the 2016 realignment costs ) . the 2016 realignment costs primarily related to $ 19.3 million in severance costs for a reduction in workforce and $ 6.2 million of asset write-downs in response to the impact of a weak global economy on certain of the company 's businesses , as well as the effects of a continued strong u.s. dollar . the company recorded 2015 realignment costs totaling $ 36.6 million , with $ 15.9 million recorded in the first quarter of 2015 and $ 20.7 million recorded in the fourth quarter of 2015 ( the 2015 realignment costs ) . the 2015 realignment costs primarily related to reductions in workforce in response to the impact of a weak global economy on certain of the company 's businesses , as well as the effects of a continued strong u.s. dollar . see note 18 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . 25 the 2016 and 2015 realignment costs were reported in the consolidated statement of income as follows ( in millions ) : replace_table_token_11_th the 2016 and 2015 realignment costs were reported in segment operating income as follows ( in millions ) : replace_table_token_12_th the 2016 and 2015 realignment costs negatively impacted segment operating margins as follows ( in basis points ) : replace_table_token_13_th the expected annualized cash savings from the 2016 realignment costs is expected to be approximately $ 35 million , with approximately $ 15 million expected to be realized in 2017. segment operating income for 2016 was $ 855.6 million , a decrease of $ 101.9 million or 10.6 % , compared with segment operating income of $ 957.5 million in 2015. segment operating income , as a percentage of net sales , decreased to 22.3 % in 2016 , compared with 24.1 % in 2015. the decrease in segment operating income and segment operating margins for 2016 resulted primarily from the decrease in net sales noted above and a $ 29.7 million increase in depreciation and amortization expense , which included a $ 13.9 million non-cash impairment charge related to certain of the company 's trade names ( $ 9.2 million impacted eig and $ 4.7 million impacted emg ) . the 2016 impairment charge negatively impacted segment operating margins by approximately 40 basis points . segment operating income and segment operating margins for 2016 and 2015 include the impact of the realignment costs detailed in the tables above . story_separator_special_tag cost of sales for 2016 was $ 2,575.2 million or 67.1 % of net sales , a decrease of $ 42.8 million or 1.6 % , compared with $ 2,618.0 million or 65.9 % of net sales for 2015. the cost of sales decrease was primarily due to the net sales decrease noted above , partially offset by a $ 29.7 million increase in depreciation and amortization expense , which included a $ 13.9 million impairment charge noted above . cost of sales for 2016 and 2015 include the impact of the realignment costs detailed in the tables above . 26 selling , general and administrative ( sg & a ) expenses for 2016 were $ 463.0 million , an increase of $ 14.4 million or 3.2 % , compared with $ 448.6 million in 2015. as a percentage of net sales , sg & a expenses were 12.1 % for 2016 , compared with 11.3 % in 2015. selling expenses for 2016 were $ 410.6 million , an increase of $ 11.1 million or 2.8 % , compared with $ 399.5 million in 2015. the selling expenses increase was due primarily to business acquisitions . selling expenses , as a percentage of net sales , increased to 10.7 % for 2016 , compared with 10.1 % in 2015. corporate administrative expenses for 2016 were $ 52.4 million , an increase of $ 3.3 million or 6.7 % , compared with $ 49.1 million in 2015. as a percentage of net sales , corporate administrative expenses were 1.4 % for 2016 , compared with 1.2 % in 2015. for 2016 and 2015 , corporate administrative expenses include $ 1.6 million and $ 0.8 million , respectively , of realignment costs noted above . consolidated operating income was $ 801.9 million or 20.9 % of net sales for 2016 , a decrease of $ 105.8 million or 11.7 % , compared with $ 907.7 million or 22.8 % of net sales in 2015. interest expense was $ 94.3 million for 2016 , an increase of $ 2.5 million or 2.7 % , compared with $ 91.8 million in 2015. the increase was primarily due to higher average borrowings to fund acquisitions and share repurchases . the effective tax rate for 2016 was 26.1 % , compared with 26.7 % in 2015. the effective tax rates for 2016 and 2015 reflect the impact of foreign earnings , which are taxed at lower rates . the 2016 effective tax rate reflects tax benefits related to international and state tax planning initiatives and the release of uncertain tax position liabilities relating to certain statute expirations . the 2015 effective tax rate reflects the first quarter of 2015 release of uncertain tax position liabilities related to the conclusion of an advance thin capitalization agreement in the european union , the second quarter of 2015 effective settlement of the u.s. research and development tax credit from the completion of an internal revenue service examination for 2010 and 2011 , and the third quarter of 2015 $ 7.5 million of tax benefits related to the closure of an international subsidiary . see note 8 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k for further details . net income for 2016 was $ 512.2 million , a decrease of $ 78.7 million or 13.3 % , compared with $ 590.9 million in 2015. the 2016 realignment costs and the 2016 impairment charge reduced 2016 net income by $ 17.0 million and $ 8.6 million , respectively . the 2015 realignment costs reduced 2015 net income by $ 24.7 million . diluted earnings per share for 2016 were $ 2.19 , a decrease of $ 0.26 or 10.6 % , compared with $ 2.45 per diluted share in 2015. the 2016 realignment costs and the 2016 impairment charge had the effect of reducing 2016 diluted earnings per share by $ 0.07 and $ 0.04 , respectively . the 2015 realignment costs had the effect of reducing 2015 diluted earnings per share by $ 0.10. segment results eig 's net sales totaled $ 2,360.3 million for 2016 , a decrease of $ 56.9 million or 2.4 % , compared with $ 2,417.2 million in 2015. the net sales decrease was due to a 7 % organic sales decline , driven largely by the company 's process businesses that have exposure to oil and gas markets , partially offset by a 5 % increase from the 2016 acquisitions of nu instruments , brookfield and esp/surgex and 2015 acquisition of surface vision . eig 's operating income was $ 577.7 million for 2016 , a decrease of $ 61.7 million or 9.6 % , compared with $ 639.4 million in 2015. eig 's operating margins were 24.5 % of net sales for 2016 , compared with 26.5 % of net sales in 2015. the decrease in eig segment operating income and segment operating margins for 2016 resulted primarily from the decrease in net sales noted above and a $ 20.5 million increase in depreciation and amortization expense , which included a $ 9.2 million impairment charge . the 2016 impairment charge negatively 27 impacted eig segment operating margins by approximately 40 basis points . eig segment operating income and segment operating margins for 2016 and 2015 include the impact of the realignment costs detailed in the tables above . emg 's net sales totaled $ 1,479.8 million for 2016 , a decrease of $ 77.3 million or 5.0 % , compared with $ 1,557.1 million in 2015. the net sales decrease was due to a 6 % organic sales decline , driven largely by weakness in the company 's engineered materials , interconnects and packaging businesses , and an unfavorable 1 % effect of foreign currency translation , partially offset by a 2 % increase from the 2016 acquisition of laserage and 2015 acquisition of global tubes .
| emg 's operating income was $ 318.1 million for 2015 , a decrease of $ 16.9 million or 5.0 % , compared with $ 335.0 million in 2014. emg 's decrease in operating income was primarily due to the lower sales noted above and the 2015 realignment costs , partially offset by the benefits of the group 's operational excellence initiatives . emg 's operating margins were 20.4 % of net sales for 2015 , compared with 20.9 % of net sales in 2014. emg 's decrease in operating margins resulted primarily from the impact of the 2015 realignment costs noted above , partially offset by the benefits of the group 's operational excellence initiatives . results of operations for the fourth quarter of 2015 compared with the fourth quarter of 2014 net sales for the fourth quarter of 2015 were $ 988.0 million , a decrease of $ 36.1 million or 3.5 % , compared with net sales of $ 1,024.1 million for the fourth quarter of 2014. the decrease in net sales for the fourth quarter of 2015 was due to a 4 % organic sales decline and an unfavorable 3 % effect of foreign currency translation , partially offset by a 3 % increase from acquisitions . segment operating income for the fourth quarter of 2015 was $ 221.8 million , a decrease of $ 18.1 million or 7.5 % , compared with segment operating income of $ 239.9 million for the fourth quarter of 2014. the decrease in segment operating income was primarily due to the lower sales noted above and included $ 20.0 million of fourth quarter of 2015 realignment costs , partially offset by the acquisitions noted above , as well as the benefits of the group 's operational excellence initiatives . segment operating income for the fourth quarter of 2014 included $ 5.2 million in zygo integration costs , comprised of $ 1.3 million in severance charges and $ 4.0 million in other charges , related to the zygo acquisition . segment operating income , as a percentage of net sales , decreased to 22.5 % for the fourth quarter of 2015 , compared with 23.4 % for the fourth quarter of 2014. in the fourth quarter of 2015 , the benefits of the group 's operational excellence initiatives , partially offset the approximate
| 13,840 |
restructuring activities and associated costs during 2019 are anticipated to deliver annual run-rate savings of approximately $ 31.6 million with payback periods ranging from one to three years among the plans . see note 6 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . acquisition-related costs acquisition-related costs were $ 29.7 million for 2019 compared with $ 0.7 million for 2018 . the increase was primarily due to expenses incurred in connection with the caraustar acquisition and the tholu acquisition . see note 2 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . impairment charges there were no goodwill impairment charges for 2019 and 2018. non-cash asset impairment charges were $ 7.8 million for 2019 compared with $ 8.3 million for 2018 . in 2019 , these charges were primarily related to plant closures . see note 9 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . gain on disposal of properties , plants and equipment , net the gain on disposal of properties , plants , and equipment , net was $ 13.9 million and $ 5.6 million for 2019 and 2018 , respectively . see note 4 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . gain on disposal of businesses , net the gain on disposal of business , net was $ 3.7 million for 2019 and $ 0.8 million for 2018 . see note 2 of the notes to consolidated financial statements included in item 8 of this form 10-k for additional information . financial measures operating profit was $ 399.1 million for 2019 compared with $ 370.5 million for 2018 . net income was $ 194.2 million for 2019 compared with $ 229.5 million for 2018 . adjusted ebitda was $ 658.9 million for 2019 compared with $ 503.2 million for 2018 . the $ 155.7 million increase in adjusted ebitda was primarily due to the contribution from the acquired caraustar operations , partially offset by lower volumes in certain regions and a negative impact from foreign currency translation . 28 trends we anticipate demand softness in the industrial manufacturing businesses , particularly in north america and western europe , to continue in 2020. additionally , raw material prices for steel , resin , old corrugated containers , recycled coated and uncoated paperboard are expected to remain relatively stable in 2020. story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > gains on timberland sales ; and gains on the disposal of development , surplus and hbu properties ( “ special use property ” ) . in order to maximize the value of our timber properties , we continue to review our current portfolio and explore the development of certain of these properties . this process has led us to characterize our property as follows : surplus property , meaning land that can not be efficiently or effectively managed by us , whether due to parcel size , lack of productivity , location , access limitations or for other reasons . hbu property , meaning land that in its current state has a higher market value for uses other than growing and selling timber . development property , meaning hbu land that , with additional investment , may have a significantly higher market value than its hbu market value . core timberland , meaning land that is best suited for growing and selling timber . we report the sale of timberland property in `` timberland gains , '' the sale of hbu and surplus property in “ gain on disposal of properties , plants and equipment , net ” and the sale of timber and development property under “ net sales ” and “ cost of products sold '' in our consolidated statements of income . all hbu and development property , together with surplus property , is used to productively grow and sell timber until the property is sold . 30 whether timberland has a higher value for uses other than growing and selling timber is a determination based upon several variables , such as proximity to population centers , anticipated population growth in the area , the topography of the land , aesthetic considerations , including access to lakes or rivers , the condition of the surrounding land , availability of utilities , markets for timber and economic considerations both nationally and locally . given these considerations , the characterization of land is not a static process , but requires an ongoing review and re-characterization as circumstances change . as of october 31 , 2019 , we estimated that there were 18,800 acres in the united states of special use property , which we expect will be available for sale in the next four to six years . net sales decreased to $ 26.9 million for 2019 compared with $ 27.5 million for 2018 . operating profit increased to $ 9.9 million for 2019 from $ 9.6 million for 2018 . adjusted ebitda was $ 12.1 million and $ 11.9 million for 2019 and 2018 , respectively . depreciation , depletion and amortization expense was $ 4.3 million and $ 4.6 million for 2019 and 2018 , respectively . other income statement changes interest expense , net interest expense , net was $ 112.5 million and $ 51.0 million for 2019 and 2018 , respectively . the increase was primarily due to the incremental debt incurred in connection with the caraustar acquisition . debt extinguishment charges debt extinguishment charges were $ 22.0 million in 2019. there were no debt extinguishment charges in 2018. the increase in debt extinguishment charges was due to the debt extinguishment related to the financing of the caraustar acquisition . other expense , net other expense , net was $ 2.6 million and $ 18.4 million for 2019 and 2018 , respectively . story_separator_special_tag the decrease was primarily due to a reduction in pension costs , largely driven by a one-time $ 65.0 million contribution we made to our u.s. defined benefit plan in 2018 , as well as reduced foreign currency transaction losses . 31 u.s. and non-u.s. income before income tax expense see the following tables for details of the u.s. and non-u.s. income before income taxes and u.s. and non-u.s. income before income taxes after eliminating the impact of non-cash asset impairment charges , non-cash pension settlement charges , restructuring charges , and ( gains ) losses on sales of businesses . replace_table_token_7_th * income before income tax expense = i.b.i.t . income tax expense we had operations in over 40 countries during 2019. operations outside the united states are subject to additional risks that may not exist , or be as significant , within the united states . because of our global operations in numerous countries we are required to address different and complex tax systems and issues which are constantly changing . 32 preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities ; and revenues and expenses as of the balance sheet date . the numerous tax jurisdictions in which we operate , along with the variety and complexity of the various tax laws , creates a level of uncertainty , and requires judgment when addressing the impact of complex tax issues . our effective tax rate and the amount of tax expense are dependent upon various factors , including the following : the tax laws of the jurisdictions in which income is earned ; the ability to realize deferred tax assets at certain international subsidiaries ; negotiation and dispute resolution with taxing authorities in the u.s. and international jurisdictions ; and changes in tax laws . the provision for income taxes is computed using the asset and liability method . under this method , deferred tax assets and liabilities are recognized currently based on the anticipated future tax consequences of changes in the temporary differences between the book and tax bases of assets and liabilities . this method includes an estimate of the future realization of tax benefits associated with tax losses . deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those assets are expected to be realized or settled . income tax expense for 2019 was $ 70.7 million on $ 262.0 million of pretax income and for 2018 was $ 73.3 million on $ 299.8 million of pretax income . in 2019 , the mix of income and losses among various jurisdictions resulted in $ 7.6 million less tax on $ 37.8 million less of pretax income . additionally , the year-over-year increase in our reserve for unrecognized tax benefits due to releases for audit settlements and expirations in the statute of limitations , offset by increases of the reserve due to changes in the measurement of uncertain tax positions , was $ 3.3 million lower than the 2018 increase in the reserve . further , the 2019 tax related to unremitted foreign earnings was $ 0.7 million lower than the amount recorded in 2018. these decreases between the 2019 and 2018 tax amounts were offset by year-over-year increases of $ 0.8 million in withholding tax expense and $ 3.6 million for other miscellaneous tax expense items , along with , most significantly , a $ 18.7 million increase in the 2019 tax expense related to the one-time net provisional tax benefit recognized in 2018 related to the tax reform act . during 2019 , there was a $ 17.8 million net increase in valuation allowances . this increase was a result of a $ 5.6 million increase to valuation allowances related to net operating losses and other deferred tax assets , an increase of $ 0.7 million in new valuation allowances , as well as an increase of $ 13.2 million recorded from the caraustar acquisition . these increases were partially offset by a $ 1.7 million decrease in valuation allowances due to currency translation and pension adjustments . the sec staff issued staff accounting bulletin no . 118 ( “ sab 118 ” ) to address the application of gaap in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax reform act . sab 118 also provides for a measurement period that should not extend beyond one year from the tax reform act enactment date . during the first quarter of 2019 , we revised our calculation for the transition tax liability by $ 2.3 million . the provisional calculations related to the tax reform act are now complete . we analyze potential income tax liabilities related to uncertain tax positions in the united states and international jurisdictions . the analysis of potential income tax liabilities results in estimates of income tax liabilities recognized for uncertain tax positions following the guidance of asc 740 , “ income taxes. ” the estimation of potential tax liabilities related to uncertain tax positions involves significant judgment in evaluating the impact of uncertainties in the application of asc 740 and complex tax laws . we periodically analyze both potential income tax liabilities and existing liabilities for uncertain tax positions resulting in both new reserves and adjustments to existing reserves in light of changing facts and circumstances . this includes the release of existing liabilities for uncertain tax positions based on the expiration of statutes of limitation . during 2019 and 2018 , recognition of uncertain tax positions increased primarily due to increases in unrecognized tax benefits related to prior years and the current year , offset by decreases related to lapses in statute of limitations and audit settlements . the ultimate resolution of potential income tax liabilities may result in a payment that is materially different from our current estimates .
| paper packaging & services key factors influencing profitability in the paper packaging & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily old corrugated containers ; energy and transportation costs ; benefits from executing the greif business system restructuring charges ; and acquisition of businesses and facilities . net sales were $ 1,780.0 million for 2019 compared with $ 898.5 million for 2018 . the $ 881.5 million increase was primarily due to $ 936.3 million of contribution from the acquired caraustar operations , partially offset by lower published containerboard prices and decreased volumes . gross profit was $ 425.4 million for 2019 compared with $ 222.5 million for 2018 . the increase in gross profit was due primarily to $ 211.6 million of contribution from the acquired caraustar operations , partially offset by the same factors that impacted net sales . gross profit margin was 23.9 percent and 24.8 percent for 2019 and 2018 , respectively . 29 operating profit was $ 184.3 million for 2019 compared with $ 158.3 million for 2018 . adjusted ebitda was $ 348.3 million for 2019 compared with $ 192.3 million for 2018 . the increase was due primarily to $ 163.9 million of contribution from the acquired caraustar operations , partially offset by the same factors that impacted net sales . depreciation , depletion and amortization expense was $ 119.3 million and $ 34.2 million for 2019 and 2018 , respectively . flexible products & services key factors influencing profitability in the flexible products & services segment are : selling prices , product mix , customer demand and sales volumes ; raw material costs , primarily resin ; energy and transportation costs ; benefits from executing the greif business system ; restructuring charges ; divestiture of businesses and facilities ; and impact of foreign currency translation . net sales were $ 297.5 million for 2019 compared with $ 324.2 million for 2018 . the $ 26.7 million decrease was primarily due to the impact of foreign
| 13,841 |
recent developments on january 23 , 2020 , we announced the completion of the principle design work for a pcr screening test for new coronavirus , covid-19 , intended to address potential need for detection of the virus . an outbreak of respiratory illness caused by the pneumonia-like covid-19 has spread rapidly over past few months , after first being discovered in the chinese city of wuhan on december 31 , 2019. china confirmed human-to-human transmission of the virus and the united states announced the first infection in this country , detected in a traveler returning from wuhan . our covid-19 test features the company 's patented coprimer technology , and was designed using our proprietary software system , following the guidelines published by the world health organization and centers for disease control . on february 20 , 2020 , we announced that our logix smart covid-19 test technical file had been submitted for registration with the european community , and that it was expected to be available late february as an in vitro diagnostic ( “ ivd ” ) for markets that accept a ce marking as valid regulatory approval . subsequently , on february 24 , 2020 , we announced that our test obtained regulatory clearance to be sold as an in vitro diagnostic for the diagnosis of sars-cov-2 ( covid-19 ) in markets that accept ce-marking as valid regulatory approval , and became available for purchase from the company 's utah-based iso-13485:2016 certified facility . the declaration of conformity for the logix smart covid-19 test confirms that it meets the essential requirements of the european community 's in-vitro diagnostic medical device directive ( ivdd 98/79/ec ) , permitting export and sales of the product as an ivd to commence immediately in the european community . we shipped samples of the research use only version of our test to distributors in italy and germany , which allows future customers to confirm the quality and sensitivity of the product prior to the ivd being available , and for us to accelerate the sales efforts of its diagnostic . many other global markets also accept a ce marking as valid regulatory approval following routine local product registration , which allows sales of our covid-19 ivd into these areas . agreement with synbiotics the company has entered into a joint venture agreement to manufacture diagnostics tests for seven infectious diseases with synbiotics limited , a pharmaceutical manufacturing company in india . the company and synbiotics shall be equal partners in the joint venture . the agreement provides for the manufacture of the tests named above and the joint sales and marketing of those tests in india . the company will license its technology to the joint venture on a royalty-free basis . the profits from the partnership shall be divided as follows : replace_table_token_4_th 12 synbiotics will be reimbursed by the joint venture for some expenses , such as approximately $ 96,000 in rent for the manufacturing plant and office space . if the joint venture needs additional funding , it will be achieved through loans obtained by the joint venture , or if loans are not available on commercially reasonable terms , from capital contributions . there is no term to the joint venture agreement but it can be dissolved by mutual agreement or by one party upon a material breach by the other party . in december 2019 , we announced that cosara diagnostics pvt ltd ( “ cosara , ” or the “ jv ” ) , our joint venture for manufacturing , obtained regulatory clearance for five tests to be manufactured and sold as in vitro diagnostics ( “ ivds ” ) from their facility in ranoli india . the tests for mycobacterium tuberculosis , malaria , hepatitis b , hepatitis c and human papillomavirus ( hpv ) met the requirements of the central drug standard control organization ( “ cdsco ” ) medical device rules ( mdr ) 2017 , file no . 29/misc./3/2017-dc ( 292 ) , to be manufactured and sold as ivds . cdsco approval was granted following the completion of the cosara manufacturing facility and a comprehensive inspection of the location , presentation of the technology , quality system , procedures , product validation data and performance evaluation by an independent nabl & cap accredited laboratory . the licenses and regulatory clearance allow cosara for the first time to manufacture and sell the tests for the detection of the respective pathogens and microorganisms . cosara distributors have begun taking pre-orders for the five ivds . the jv has the exclusive manufacturing rights in india for the complete menu of our infectious disease molecular diagnostics kits , designed by us using our patented coprimer technology platform . additional tests such as our covid-19 test have been submitted to the cdsco for approval and others such as consist a drug-resistant tuberculosis , hiv and more , including a multiplexed panel specifically for blood-bank screening will be submitted in 2020. since the tests will be conducted in india on indian citizens , no fda approval or inspection will be required . india is the country with the highest burden of tuberculosis . according to the world health organization ( who ) tuberculosis statistics for india for 2015 give an estimated incidence figure of 2.2 million cases of tuberculosis for india out of a global incidence of 9.6 million . the tuberculosis incidence for india is the number of new cases of active tuberculosis disease in india during a certain time period ( usually a year ) . intellectual property protection because much of our future success and value depends on our proprietary technology , our patent and intellectual property strategy is of critical importance . four of our initial u.s. patents related to our technology have been granted by the u.s. patent and trademark office , or pto , including the patent for our coprimer technology , which we consider our most important patent . story_separator_special_tag one of our patents has been issued in great britain , but is still pending in the united states . as of march 15 , 2020 , we had three additional patents pending in the u.s. and foreign counterpart applications . two of our issued patents expire in 2034 , one in 2036 and one in 2038. we have identified additional applications of the technology , which represent potential patents that further define specific applications of the processes that are covered by the original patents . we intend to continue building our intellectual property portfolio as development continues and resources are available . we have copyrighted our development software that can be used by any lab or developer to develop diagnostic tests based on our technology . we have allowed one customer access to our development software and intend to sell customized reagents through that customer to labs serviced by that customer throughout the world . to date we have not sold any products through that customer . major customers we had no major customers in 2019 , but one customer in the first quarter of 2020 comprised approximately 20 % of our sales to date and payment was received in advance of shipment of the tests . competition the molecular diagnostics industry is extremely competitive . there are many firms that provide some or all of the products we provide and provide many diagnostic tests that we have yet to develop . many of these competitors are larger than us and have significantly greater financial resources . because we are not established , many of our competitors have a competitive advantage in the diagnostic testing industry because they also have other lines of business in the pharmaceutical industry from which they derive revenues and for which they are well known and respected in the medical profession . we will need to overcome the disadvantage of being a start up with no history of success and no respect of the medical and testing professionals . in the diagnostic testing industry , we compete with such companies as roche , biomerieux , siemans , qiagen , and cephied and with such pharmaceutical companies as abbott laboratories , becton , dickinson and johnson and johnson . 13 many of these competitors already have an established customer base with industry standard technology , which we must overcome to be successful . employees we currently employ 23 full-time personnel at our executive offices and lab facilities in salt lake city , utah , and two employees outside of utah . we have engaged independent contractors in the us and india to promote the use of our products and develop outlets for products and employ the services of an independent sales representatives in our mosquito vector sales efforts . government regulation we will be regulated by the u.s. federal drug administration and our products must be approved by the fda before we will be allowed to sell our tests in the united states . because our lab is iso certified we are allowed to apply for ce-marking , which will allow us to sell in most countries in europe , south america and asia . we currently have ce marks issued for our covid-19 test , tuberculosis test , our zika virus test , and a triplex test that tests for zika , dengue , and chikungunya simultaneously . our joint venture in india is regulated by the cdsco and has approved the manufacture and sale of five diagnostic tests and has approved the manufacture and sale of covid-19 tests on as a research use only test pending approval for full manufacture and sale . properties our executive offices are located at 2401 s. foothill drive , salt lake city , utah 84109. we occupy the space at the executive offices under a month to month lease . the lease covers approximately 10,273 square feet of lab and office space leased at a rate of $ 14,831 per month . we have no other properties . legal proceedings from time to time , we may become involved in litigation relating to claims arising out of our operations in the normal course of business . there is one lawsuit pending in the state of florida alleging liable , which we believe is groundless and has no relevance to our products or services and which will be vigorously defended . to the best of our knowledge , no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties or businesses are subject , which would reasonably be likely to have a material adverse effect on the company . we have received inquiries relative to the sudden rise in the price of our stock from finra and nasdaq , to which we have responded . story_separator_special_tag $ 194,117 related to our india joint venture and a loss on extinguishment of debt of $ 78,241 , which occurred when a loan was converted to preferred stock . the increase in loss was partially offset by a decrease in interest expense of $ 106,751and an increase in interest income of $ 16,848. net loss we had net loss of $ 6,271,723 for the year ended december 31 , 2018 compared to a net loss of $ 6,195,557 for the year ended december 31 , 2019. the decrease in net loss for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was $ 76,166. our total operating expenses decreased by $ 152,052 and our total other expenses increased by $ 147,909 as explained in more detail above . 15 liquidity and capital resources liquidity is the ability of a company to generate funds to support its current and future operations , satisfy its obligations , and otherwise operate on an ongoing basis . significant factors in the management of liquidity are funds generated by operations , levels of accounts receivable and accounts payable and capital expenditures .
| our general and administrative expenses decreased $ 73,513 from $ 3,570,786 for the year ended december 31 , 2018 to $ 3,497,273 for the year ended december 31 , 2019. the decrease was primarily the result of a decrease of $ 975,417 in consulting fees and a decrease of $ 46,249 in attorney fees . these decreases were partially offset by an increase of $ 529,602 in other professional services , an increase in salaries and related benefits of $ 116,419 and an increase of $ 121,443 in option and warrant expense reflecting the issuance of options to our employees and others . in addition , insurance costs increased $ 77,757 and travel expenses increased $ 64,873. our sales and marketing expenses for the year ended december 31 , 2019 were $ 1,061,676 compared to sales and marketing expenses of $ 1,165,631 for the year ended december 31 , 2018. the decrease of $ 103,955 was due primarily to incurring a marketing expense of $ 497,208 related to acquisition of a distributor network in 2018 that was not repeated in 2019. other sales and marketing costs generally increased . we experience an increase of $ 192,786 in salaries and related benefits , an increase of $ 118,026 in travel and convention related expenses and an increase of $ 90,573 in consulting expenses , all of which were incurred as we increased our sales efforts . our research and development expenses increased by $ 10,279 from $ 1,361,154 for the year ended december 31 , 2018 to $ 1,371,433 for the year ended december 31 , 2019. the increase was primarily due to an increase of $ 163,319 in salaries and related benefits as we increased research and development activities . the increase was partially offset by a decrease of $ 76,795 in consulting fees for research services , a decrease of $ 72,528 in other professional services and a decrease of $ 22,528
| 13,842 |
competitive forces influencing semiconductor device manufacturers , such as price-cutting and shorter product life cycles , place pressure on manufacturers to rapidly achieve production efficiency . device manufacturers are using our integrated and automated systems throughout the fabrication to ensure that manufacturing processes scale rapidly , are accurate and can be repeated on a consistent basis . reduced number of customers . our market is characterized by an ongoing oligopolistic trend which drives customer concentration . the largest customer accounted for 17.6 % of our total revenue in the fiscal year 2001 , and the largest customer accounted for 27.8 % and 30.0 % of our total revenue in the fiscal year 2012 and 2011 , respectively . critical accounting policies the preparation of our financial statements conforms to accounting principles generally accepted in the united states of america , which requires management to make estimates and judgments in applying our accounting policies that have an important impact on our reported amounts of assets , liabilities , revenue , expenses and related disclosures at the date of our financial statements . on an on-going basis , management evaluates its estimates including those related to bad debts , inventory valuations , warranty obligations , impairment and income taxes . management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from management 's estimates . we believe that the application of the following accounting policies requires significant judgments and estimates on the part of management . for a summary of all of our accounting policies , including those discussed below , see note 1 to the consolidated financial statements . revenue recognition - we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the seller 's price is fixed or determinable , and collectability is reasonably assured . we derive revenue from the sale of process control metrology and inspection systems ( “ product revenue ” ) as well as spare part sales , billable services , service contracts , and upgrades ( together “ service revenue ” ) . upgrades are a group of parts and or software that change the existing configuration of a product and are included in service revenue . they are distinguished from product revenue , which consists of complete , automated process control metrology systems ( the “ system ( s ) ” ) . nanometrics ' systems consist of hardware and software components that function together to deliver the essential functionality of the system . arrangements for sales of systems often include defined customer-specified acceptance criteria . for product sales to existing customers , revenue recognition occurs when title and risk of loss transfer to the customer , which usually occurs upon shipment from the company 's manufacturing location , if it can be reliably demonstrated that the product has successfully met the defined customer specified acceptance criteria and all other recognition criteria has been met . for initial sales where the company has not previously met the defined customer specified acceptance criteria , product revenues are recognized upon the earlier of receipt of written customer acceptance or expiration of the contractual acceptance period . in japan , where contractual terms with the customer specify risk of loss and title transfers upon customer acceptance , revenue is recognized upon receipt of written customer acceptance , provided that all other recognition criteria has been met . we warrant our products against defects in manufacturing . upon recognition of product revenue , a liability is recorded for anticipated warranty costs . on occasion , customers request a warranty period longer than our standard warranty . in those 25 instances where extended warranty services are separately quoted to the customer , the associated revenue is deferred and recognized as service revenue ratably over the term of the contract . the portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue . as part of customer services , we also sell software that is considered to be an upgrade to a customer 's existing systems . these standalone software upgrades are not essential to the tangible product 's functionality and are accounted for under software revenue recognition rules which require vendor specific objective evidence ( `` vsoe '' ) of fair value to allocate revenue in a multiple element arrangement . revenue from upgrades is recognized when the upgrades are delivered to the customer , provided that all other recognition criteria have been met . revenue related to spare parts is recognized upon shipment . revenue related to billable services is recognized as the services are performed . service contracts may be purchased by the customer during or after the warranty period and revenue is recognized ratably over the service contract period . frequently , we deliver products and various services in a single transaction . our deliverables consist of tools , installation , upgrades , billable services , spare parts , and service contracts . our typical multi-element arrangements include a sale of one or multiple tools that include installation and standard warranty . other arrangements may consist of a sale of tools bundled with service elements or delivery of different types of services . tools , upgrades , and spare parts are generally delivered to customers within a period of up to six months from order date . installation is usually performed soon after delivery of the tool . the portion of revenue associated with installation is deferred based on estimated fair value and that revenue is recognized upon completion of the installation . billable services are billed on a time and materials basis and performed as requested by customers . story_separator_special_tag under service contract arrangements , services are provided as needed over the fixed arrangement term and such terms can be up to 12 months . we do not generally grant customers a general right of return or refund and may impose a penalty on orders canceled prior to the scheduled shipment date . on january 2 , 2011 , we adopted the new accounting guidance for arrangements with software elements and or multiple deliverables . the amended guidance for multiple deliverable arrangements did not change the units of accounting for our revenue transactions , and most products and services qualify as separate units of accounting . the new guidance established a hierarchy of evidence to determine the standalone selling price of a deliverable based on vendor specific objective evidence ( `` vsoe '' ) , third party evidence ( `` tpe '' ) , or best estimated selling price ( `` besp '' ) . we regularly evaluate our revenue arrangements to identify deliverables and to determine whether these deliverables are separable into multiple units of accounting . in accordance with the new guidance , we allocate the arrangement consideration among the deliverables based on relative best estimated selling price . we have established vsoe for some of our products and services when a substantial majority of selling prices falls within a narrow range when sold separately . for deliverables with no established vsoe , we use best estimated selling price to determine standalone selling price for such deliverable . we do not use tpe to determine standalone selling price since this information is not widely available in the market as our products contain a significant element of proprietary technology and the solutions offered differ substantially from our competitors . we have established a process for developing estimated selling prices , which incorporates historical selling prices , the effect of market conditions , gross margin objectives , pricing practices , as well as entity-specific factors . we monitor and evaluate estimated selling price on a regular basis to ensure that changes in circumstances are accounted for in a timely manner . the adoption of the new accounting standards did not have a significant impact on our consolidated financial statements . when certain elements in multiple-element arrangements are not delivered or accepted at the end of a reporting period , the relative selling prices of undelivered elements are deferred until these elements are delivered and or accepted . if deliverables can not be accounted for as separate units of accounting , the entire arrangement is accounted for as a single unit of accounting and revenue is deferred until all elements are delivered and all revenue recognition requirements are met . allowance for doubtful accounts – we maintain allowances for estimated losses resulting from the inability of our customers to make their required payments . credit limits are established through a process of reviewing the financial history and stability of our customers . where appropriate and available , we obtain credit rating reports and financial statements of customers when determining or modifying their credit limits . we regularly evaluate the collectability of our trade receivable balances based on a combination of factors such as the length of time the receivables are past due , customary payment practices in the respective geographies and our historical collection experience with customers . we believe that our allowance for doubtful accounts adequately reflects our risk associated with our receivables . if however , the financial conditions of customers were to deteriorate , resulting in their inability to make payments , we would assess the necessity of recording additional allowances . this would result in additional general and administrative expenses being recorded for the period in which such determination was made . 26 inventories – inventories are stated at the lower of cost or market . we are exposed to a number of economic and industry-specific factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage , or saleable only for amounts that are less than their carrying amounts . these factors include , but are not limited to , technological changes in our market , our ability to meet changing customer requirements , competitive pressures in products and prices , and the availability of key components from our suppliers . we have established inventory reserves when conditions exist that suggest that our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products and market conditions . once a reserve has been established , it is maintained until the part to which it relates is sold or is otherwise disposed of . therefore , a sale of reserved inventory has a higher gross profit margin . we regularly evaluate our ability to realize the value of our inventory based on a combination of factors including the following : historical usage rates , forecasted sales of usage , product end-of-life dates , estimated current and future market values and new product introductions . inventory includes evaluation tools placed at customer sites . for demonstration inventory , we also consider the age of the inventory and potential cost to refurbish the inventory prior to sale . demonstration inventory is amortized over its useful life and the amortization expense is included in total inventory write down on our statements of cash flows . when recorded , our reserves are intended to reduce the carrying value of our inventory to its net realizable value . if actual demand for our products deteriorates , or market conditions are less favorable than those that we project , additional reserves may be required , which would adversely affect gross margin and net income . product warranties – we sell the majority of our products with a standard twelve ( 12 ) -month repair or replacement warranty from the date of acceptance or shipment date . we provide an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold .
| service revenue increased by $ 1.8 million in 2011 principally due to increased demand for services provided under customer contracts . gross margin . our gross margin breakdown which does not include amortization of intangible assets was as follows : replace_table_token_11_th the gross margin on product revenue decreased to 47.2 % in 2012 from 54.5 % in 2011. the decrease is primarily due to lower margins in the first half of 2012 on the newly introduced atlas ii ® and lower overall revenue volumes in the second half of 2012 which resulted in increased fixed costs as a percentage of revenue . the gross margin on service revenue in 2012 was 47.4 % compared to 48.1 % . the decline is primarily due to decline in the mix of upgrades which have higher gross margins within service revenue . the gross margin on product revenue decreased from 57.0 % in 2010 to 54.5 % in 2011. the decrease is due to the approximately equal impact of higher warranty costs and higher installation costs driven by a change in product mix , and to a lesser extent due to lower factory absorption in the fourth quarter of 2011. the gross margin on service revenue improved in 2011 from 42.3 % to 48.1 % , principally due to reduction in field service labor costs and refinement of our allocation of warranty and installation costs between product and services . operating expenses . our operating expenses were comprised of the following categories ( in thousands , except percentages ) : 30 replace_table_token_12_th replace_table_token_13_th research and development . research and development costs increased by $ 6.3 million or 27.0 % in fiscal year 2012 compared to 2011. the increase is primarily related to increased investment in new platforms and product upgrade programs , to improve both capability , and cost of ownership . this increase consisted primarily of a $ 2.8 million increase in development projects and related activities , a $ 1.4 million increase due to salary , and
| 13,843 |
purchases of investments totaled $ 45.8 million in 2020 , compared to $ 83.7 million in 2019. proceeds from maturities of investments totaled $ 35.9 million in 2020 and $ 59.3 million in 2019. we expect 2021 capital expenditures for machinery and equipment to be consistent with total average capital expenditure amounts expended during each of the past two years . in addition , we expect to commence an expansion of one of our facilities in 2021 that is expected to cost $ 23.0 million over a 15-month period . we paid cash dividends totaling $ 12.1 million and $ 10.8 million during 2020 and 2019 , respectively . we expect to fund future dividend payments with cash flows from operations . treasury stock totaling $ 18.8 million was purchased during 2020. no treasury stock was purchased in 2019. our current contractual obligations are normal due to our line of business and mainly consist of purchase orders for raw materials . these obligations will be funded through funds generated through operations and require no additional funding . we have initiated plans to expand one of our facilities . the expansion will require funds in an amount estimated at $ 23.0 million . we believe this expansion is required to support our anticipated increases in capacity in the coming years . we believe our cash , cash equivalents , short-term investments and long-term investments , cash flows from operations and available borrowings of up to $ 75.0 million under our credit facility will be sufficient to fund our cash requirements for at least the foreseeable future . we believe our strong financial position would allow us to access equity or debt financing should that be necessary . 28 the table below summarizes debt , lease and other contractual obligations outstanding at december 31 , 2020 : replace_table_token_3_th covid-19 impact the covid-19 pandemic has resulted in travel and other restrictions to reduce the spread of the disease , including governmental orders across the globe , which , among other things , direct individuals to shelter at their places of residence , direct businesses and governmental agencies to cease non-essential operations at physical locations , prohibit certain non-essential gatherings , maintain social distancing , and order cessation of non-essential travel . as a result of these developments , we have implemented work-from-home policies for certain of our employees . in addition , many of our customers implemented and are continuing similar measures in their facilities , which have delayed , and may continue to delay , the timing of some orders and deliveries . the effects of shelter-in-place and social distancing orders , government-imposed quarantines , and work-from-home policies may further negatively impact productivity , disrupt our business , and delay our development timelines beyond the delays we have already experienced and disclosed , the magnitude of which will depend , in part , on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course . such restrictions and limitations may also further negatively impact our access to regulatory authorities ( which are affected , among other things , by applicable travel restrictions and may be delayed in responding to inquiries , reviewing filings , and conducting inspections ) ; our ability to perform regularly scheduled quality checks and maintenance ; and our ability to obtain services from third-party specialty vendors and other providers or to access their expertise as fully and timely as needed . the covid-19 pandemic may also result in the loss of some of our key personnel , either temporarily or permanently . in addition , our sales and marketing efforts have been negatively impacted and may be further negatively impacted by postponement or cancellation of face-to-face meetings and restrictions on access by non-essential personnel to hospitals or clinics to the extent such measures slow down adoption or further commercialization of our marketed products . the demand for our products may also be adversely impacted by the restrictions and limitations adopted in response to the covid-19 pandemic , particularly to the extent they affect the patients ' ability or willingness to undergo elective surgeries . as a result , some of our inventory may become obsolete and may need to be written off , impacting our operating results . these and similar , and perhaps more severe , disruptions in our operations may materially adversely impact our business , operating results , and financial condition . the global covid-19 pandemic continues to rapidly evolve . the ultimate impact of this pandemic is highly uncertain and subject to change . we do not yet know the full extent of potential delays or impacts on our business , healthcare systems , or the global economy as a whole . these effects could have a material impact on our operations . 29 off-balance sheet arrangements we have no off-balance sheet financing arrangements . impact of inflation we experience the effects of inflation primarily in the prices we pay for labor , materials and services . over the last three years , we have experienced the effects of moderate inflation in these costs . at times , we have been able to offset a portion of these increased costs by increasing the sales prices of our products . however , competitive pressures have not allowed for full recovery of these cost increases . new accounting pronouncements in june 2016 , the fasb issued asu no . 2016-13 , financial instruments—credit losses ( topic 326 ) : measurement of credit losses on financial instruments , which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments , including trade receivables . story_separator_special_tag the asu introduced a new credit loss methodology , current expected credit losses ( cecl ) , which requires earlier recognition of credit losses , while also providing additional transparency about credit risk . since its original issuance in 2016 , the fasb has issued several updates to the original asu . the cecl methodology utilizes a lifetime “ expected credit loss ” measurement objective for the recognition of credit losses for loans , held-to-maturity securities and trade and other receivables at the time the financial asset is originated or acquired . the expected credit losses are adjusted each period for changes in expected lifetime credit losses . the methodology replaces the multiple existing impairment methods in prior gaap , which generally require that a loss be incurred before it is recognized . on january 1 , 2020 , we adopted the guidance prospectively with a cumulative adjustment to retained earnings . atrion has not restated comparative information for 2019 and , therefore , the comparative information for 2019 is reported under the old model and is not comparable to the information presented for 2020. at adoption , we recognized an incremental allowance for credit losses on our allowance for credit losses related to our held-to-maturity debt securities of approximately $ 42,000 and our trade accounts receivable of approximately $ 4,000. additionally , we recorded an approximately $ 36,000 decrease in retained earnings associated with the increased estimated credit losses on our trade accounts receivable and investments . the impact on our operating results for 2020 from our adoption of this pronouncement was not material . from time to time new accounting pronouncements applicable to us are issued by the fasb , or other standards setting bodies , which we will adopt as of the specified effective date . unless otherwise discussed , we believe the impact of recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption . significant accounting policies the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . in the preparation of these financial statements , we make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . we believe the following discussion addresses our most significant accounting policies and estimates , which are those that are most important to the portrayal of our financial condition and results and require management 's most difficult , subjective and complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . actual results could differ significantly from those estimates under different assumptions and conditions . 30 from time to time we accrue legal costs associated with certain litigation . in making determinations of likely outcomes of litigation matters , we consider the evaluation of legal counsel knowledgeable about each matter , case law and other case-specific issues . we believe these accruals are adequate to cover the legal fees and expenses associated with litigating these matters . however , the time and cost required to litigate these matters as well as the outcomes of the proceedings may vary significantly from what we have projected . we maintain an allowance for doubtful accounts to reflect estimated losses resulting from the failure of customers to make required payments . on an ongoing basis , the collectability of accounts receivable is assessed based upon historical collection trends , current economic factors and the assessment of the collectability of specific accounts . we evaluate the collectability of specific accounts and determine when to grant credit to our customers using a combination of factors , including the age of the outstanding balances , evaluation of customers ' current and past financial condition , recent payment history , current economic environment , and discussions with our personnel and with the customers directly . accounts are written off when we determine the receivable will not be collected . if circumstances change , our estimates of the collectability of amounts could be changed by a material amount . we are required to estimate our provision for income taxes and uncertain tax positions in each of the jurisdictions in which we operate . this process involves estimating our actual current tax exposure , including assessing the risks associated with tax audits , together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within the balance sheet . we assess the likelihood that our deferred tax assets will be recovered from future taxable income and , to the extent we believe that recovery is more likely than not , do not establish a valuation allowance . in the event that actual results differ from these estimates , the provision for income taxes could be materially impacted . we assess the impairment of our long-lived identifiable assets , excluding goodwill which is tested for impairment as explained below , whenever events or changes in circumstances indicate that the carrying value may not be recoverable . this review is based upon projections of anticipated future cash flows . although we believe that our estimates of future cash flows are reasonable , different assumptions regarding such cash flows or changes in our business plan could materially affect our evaluations . no such changes are anticipated at this time .
| r & d expenses consist primarily of salaries and other related expenses of our r & d personnel as well as costs associated with regulatory matters . in 2020 , selling expenses decreased $ 1,293,000 compared with 2019 primarily as a result of travel restrictions and cancelled events and outside services related to the covid-19 pandemic . selling expenses consist primarily of salaries , commissions and other related expenses for sales and marketing personnel , marketing , advertising and promotional expenses . general and administrative , or g & a , expenses increased $ 1,022,000 in 2020 as compared to 2019 primarily as a result of increased salaries and higher computer hardware and software costs . g & a expenses consist primarily of salaries and other related expenses of administrative , executive and financial personnel and outside professional fees . our operating income for 2020 was $ 35.7 million compared with $ 40.5 million in 2019. operating income was 24 percent of revenues in 2020 and 26 percent of revenues in 2019. a decrease in 2020 gross profit primarily attributed to a decrease in sales and increased manufacturing overhead costs adversely affected operating income for 2020 as compared to the previous year . interest and dividend income for 2020 was $ 1.4 million compared with $ 2.5 million in 2019. the decline in interest and dividend income was largely due to lower interest rates in the 2020 period as compared to the 2019 period . other investment income was $ 1.4 million in 2020 compared to $ 0.2 million in 2019. the improvement from 2019 to 2020 was primarily related to unrealized gains on equity investments as a result of an increase in the market value on the investments . 27 income tax expense in 2020 totaled $ 6.35 million compared with $ 6.4 million in 2019. the effective tax rates were 16.5 percent in 2020 and 14.8 percent in 2019. the higher effective tax rate in 2020 was primarily related to decreased
| 13,844 |
thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers . in recent years , we have been successful at keeping over 98 % of our land subject to grazing leases . 9 story_separator_special_tag style= '' font-size : 10pt ; font-family : times new roman , times , serif '' > oil and gas royalty revenue in 2014 was $ 29,346,103 compared to $ 24,496,851 in 2013 , an increase of 19.8 % . oil royalty revenue was $ 22,766,264 and gas royalty revenue was $ 6,579,839 in 2014. crude oil production from trust royalty wells increased 19.8 % in 2014 from 2013. the average prices per royalty barrel of crude oil for 2014 and 2013 were $ 87.28 and $ 91.56 , respectively . total gas production increased 28.6 % , and the average price of gas increased by 11.9 % in 2014 compared to 2013. grazing lease income in 2014 was $ 500,292 compared to $ 494,210 in 2013. interest revenue ( including interest on investments ) was $ 154,814 in 2014 compared to $ 496,243 in 2013 , a decrease of 68.8 % . interest on notes receivable amounted to $ 140,291 in 2014 compared to $ 484,238 in 2013. at year end 2014 , notes receivable from land sales were $ 923,115 compared to $ 3,887,906 at year end 2013. interest on investments amounted to $ 14,523 in 2014 and $ 12,005 in 2013 , respectively . total principal cash payments on notes receivable were $ 2,964,791 in 2014 including $ 1,764,928 of prepaid principal . 11 easements and sundry income revenue in 2014 was $ 21,517,232 compared to $ 12,220,187 in 2013. this increase resulted primarily from an increase in the amount of pipeline easement income to $ 9,185,050 for 2014 , an increase of $ 6,024,520 , or 190.6 % , from the $ 3,160,530 received in 2013. sundry income , seismic easement income , and , to a lesser extent , sundry lease rental income also increased in 2014 compared to 2013 due to an increase in drilling and exploration activity on land owned by the trust . these increases were partially offset by a decrease in pole line easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,692,256 in 2014 compared to $ 1,420,635 in 2013. oil and gas production taxes were $ 1,540,735 in 2014 compared to $ 1,259,287 in 2013. ad valorem taxes were $ 97,054 in 2014 compared to $ 99,984 in 2013. all other expenses were $ 2,092,943 in 2014 compared to $ 2,557,866 in 2013. this decrease resulted primarily from decreases in salaries and related employee benefits expense and legal and professional fees expense . liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , easements and sundry income , and land sales . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . tabular disclosure of contractual obligations the trust executed a ten year extension to its office lease in 2015. the new expiration date of the lease is march 31 , 2025. as of december 31 , 2015 , the trust 's known contractual obligations were as follows : replace_table_token_4_th 12 effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . any required allowance for losses is recorded in the period of determination . at december 31 , 2015 and 2014 , there were no significant delinquencies and , as such , no allowances for losses have been recorded . valuation of real estate acquired through foreclosure - the value of real estate acquired through foreclosure is established at the lower of cost or fair value less disposition costs at the date of foreclosure . cost is considered to be the aggregate of the outstanding principal and story_separator_special_tag thus , in addition to being subject to fluctuations in response to the market prices for oil and gas , our oil and gas royalty revenues are also subject to decisions made by the owners and operators of the oil wells to which our royalty interests relate as to investments in and production from those wells . we monitor production reports by the oil and gas companies to assure that we are being paid the appropriate royalties . we review conditions in the agricultural industry in the areas in which our lands are located and seek to keep as much of our lands as possible under lease to local ranchers . in recent years , we have been successful at keeping over 98 % of our land subject to grazing leases . 9 story_separator_special_tag style= '' font-size : 10pt ; font-family : times new roman , times , serif '' > oil and gas royalty revenue in 2014 was $ 29,346,103 compared to $ 24,496,851 in 2013 , an increase of 19.8 % . oil royalty revenue was $ 22,766,264 and gas royalty revenue was $ 6,579,839 in 2014. crude oil production from trust royalty wells increased 19.8 % in 2014 from 2013. the average prices per royalty barrel of crude oil for 2014 and 2013 were $ 87.28 and $ 91.56 , respectively . total gas production increased 28.6 % , and the average price of gas increased by 11.9 % in 2014 compared to 2013. grazing lease income in 2014 was $ 500,292 compared to $ 494,210 in 2013. interest revenue ( including interest on investments ) was $ 154,814 in 2014 compared to $ 496,243 in 2013 , a decrease of 68.8 % . interest on notes receivable amounted to $ 140,291 in 2014 compared to $ 484,238 in 2013. at year end 2014 , notes receivable from land sales were $ 923,115 compared to $ 3,887,906 at year end 2013. interest on investments amounted to $ 14,523 in 2014 and $ 12,005 in 2013 , respectively . total principal cash payments on notes receivable were $ 2,964,791 in 2014 including $ 1,764,928 of prepaid principal . 11 easements and sundry income revenue in 2014 was $ 21,517,232 compared to $ 12,220,187 in 2013. this increase resulted primarily from an increase in the amount of pipeline easement income to $ 9,185,050 for 2014 , an increase of $ 6,024,520 , or 190.6 % , from the $ 3,160,530 received in 2013. sundry income , seismic easement income , and , to a lesser extent , sundry lease rental income also increased in 2014 compared to 2013 due to an increase in drilling and exploration activity on land owned by the trust . these increases were partially offset by a decrease in pole line easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,692,256 in 2014 compared to $ 1,420,635 in 2013. oil and gas production taxes were $ 1,540,735 in 2014 compared to $ 1,259,287 in 2013. ad valorem taxes were $ 97,054 in 2014 compared to $ 99,984 in 2013. all other expenses were $ 2,092,943 in 2014 compared to $ 2,557,866 in 2013. this decrease resulted primarily from decreases in salaries and related employee benefits expense and legal and professional fees expense . liquidity the trust 's principal sources of liquidity are its revenues from oil and gas royalties , easements and sundry income , and land sales . in the past , these sources have generated more than adequate amounts of cash to meet the trust 's needs and , in the opinion of management , should continue to do so in the foreseeable future . off-balance sheet arrangements the trust has not engaged in any off-balance sheet arrangements . tabular disclosure of contractual obligations the trust executed a ten year extension to its office lease in 2015. the new expiration date of the lease is march 31 , 2025. as of december 31 , 2015 , the trust 's known contractual obligations were as follows : replace_table_token_4_th 12 effects of inflation we do not believe that inflation has had a material impact on our operating results . we can not assure you , however , that future increases in our costs will not occur or that any such increases that may occur will not adversely affect our results of operations . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements . it is our opinion that we fully disclose our significant accounting policies in the notes to the financial statements . consistent with our disclosure policies , we include the following discussion related to what we believe to be our most critical accounting policies that require our most difficult , subjective or complex judgment . valuation of notes receivable - management of the trust monitors delinquencies to assess the propriety of the carrying value of its notes receivable . at the point in time that notes receivable become delinquent , management reviews the operations information of the debtor and the estimated fair value of the collateral held as security to determine whether an allowance for losses is required . any required allowance for losses is recorded in the period of determination . at december 31 , 2015 and 2014 , there were no significant delinquencies and , as such , no allowances for losses have been recorded . valuation of real estate acquired through foreclosure - the value of real estate acquired through foreclosure is established at the lower of cost or fair value less disposition costs at the date of foreclosure . cost is considered to be the aggregate of the outstanding principal and
| oil royalty revenue was $ 18,607,031 and gas royalty revenue was $ 6,253,174 in 2015. crude oil production subject to the trust 's royalty interest increased 47.2 % in 2015 from 2014. this increase in production was offset by a 44.5 % decrease in the average price per royalty barrel of crude oil during 2015 compared to 2014. total gas production increased 39.4 % , and the average price of gas decreased by 31.9 % in 2015 compared to 2014. grazing lease income in 2015 was $ 483,989 compared to $ 500,292 in 2014 , a decrease of 3.3 % . this decrease is caused by the reduction in acres available to lease due to land sale activity . interest revenue ( including interest on investments ) was $ 68,306 in 2015 compared to $ 154,814 in 2014 , a decrease of 55.9 % . interest on notes receivable amounted to $ 40,866 in 2015 compared to $ 140,291 in 2014. this decrease is primarily due to principal prepayments received on notes due to the trust . at year end 2015 , notes receivable from land sales were $ 139,114 compared to $ 923,115 at year end 2014. interest on investments amounted to $ 27,440 in 2015 and $ 14,523 in 2014 , respectively . total principal cash payments on notes receivable were $ 784,001 in 2015 including $ 713,062 of prepaid principal . 10 easements and sundry income in 2015 was $ 31,413,158 compared to $ 21,517,232 in 2014 due to a continued increase in drilling and exploration activity on land owned by the trust . this increase resulted primarily from an increase in the amount of pipeline easement income to $ 18,182,259 for 2015 , an increase of $ 8,997,209 , or 98.0 % , from the $ 9,185,050 received in 2014. this increase was partially offset by decreases in sundry lease rental income and seismic easement income . easements and sundry income is unpredictable and may vary significantly from period to period . taxes , other than income taxes , were $ 1,476,576 in 2015 compared to $ 1,692,256 in 2014. oil and gas production taxes were $ 1,324,909 in 2015 compared to $ 1,540,735 in 2014. ad valorem taxes were $ 94,219 in 2015 compared to $ 97,054 in 2014. all other expenses were $ 2,682,695 in 2015 compared to $ 2,092,943
| 13,845 |
the effect of the $ 5.3 million increase in average savings deposits was more than offset by a 1 basis point decline in average rate paid which caused a $ 6,000 decrease in interest expense in 2016 compared to the prior year . the average balance of certificates of deposit was $ 8.8 million lower in 2016 than in the prior year . the average balance decrease plus the effect of a 6 basis point decline in the average rate paid caused interest expense on certificates of deposit to fall $ 108,000 in 2016 compared to 2015. a $ 6.1 million increase in the average balance of federal home loan bank advances and a 25 basis point increase in the average rate paid caused interest expense to increase $ 88,000 in 2016 compared to the prior year . the growth experienced in non-interest bearing demand deposits and savings deposits was primarily due to depositors choosing the liquidity afforded by this type of deposit as compared to certificates of deposit or nonbank investments . choiceone 's net interest income spread was 3.66 % for 2016 and 3.71 % for 2015. the continuation of low general market interest rates in both 2015 and 2016 caused the reduction in rates for both assets and liabilities . page | 24 provision and allowance for loan losses table 3 – provision and allowance for loan losses replace_table_token_23_th the provision for loan losses was $ 485,000 in 2017 compared to $ 0 in 2016. the increase to provision during the year was partly due to net charge-offs occurring in 2017 in contrast to net recoveries experienced in 2016. the increase was also caused by loan growth during 2017. the allowance for loan losses as a percentage of total loans decreased slightly from 1.16 % as of the end of 2016 to 1.15 % as of the end of 2017. the coverage ratio of the allowance for loan losses to nonperforming loans increased from 84 % as of december 31 , 2016 to 108 % as of december 31 , 2017. choiceone had $ 302,000 of specific allowance allocations for problem loans as of the end of 2017 , compared to $ 403,000 as of the prior year end . specific allowance amounts have been allocated where the fair values of loans were considered to be less than their carrying values . choiceone obtains valuations on collateral dependent loans when the loan is considered by management to be impaired and uses the valuation amounts in the determination of fair value . management believes the specific reserves allocated to certain problem loans at the end of 2017 and 2016 were reasonable based on the circumstances surrounding each particular borrower . page | 25 the following schedule presents an allocation of the allowance for loan losses to the various loan categories as of the years ended december 31 : replace_table_token_24_th the increase in the allowance allocation to commercial and industrial loans and commercial real estate loans was due to growth in these categories and an increase in the inherent risk . the decline in the allocation to residential real estate loans was caused by lower historical charge-off levels . changes in historical charge-off levels and environmental factors affected all loan categories . management maintains the allowance at a level that it believes adequately provides for losses inherent in the loan portfolio . such losses are estimated by a variety of factors , including specific examination of certain borrowing relationships and consideration of historical losses incurred on certain types of credits . current economic conditions and collateral values affect loss estimates . management focuses on early identification of problem credits through ongoing reviews by management and the independent loan review function . based on the current state of the economy and a recent review of the loan portfolio , management believes that the allowance for loan losses as of december 31 , 2017 was adequate . as charge-offs , changes in the level of nonperforming loans , and changes within the composition of the loan portfolio occur , the provision and allowance for loan losses will be reviewed by the bank 's management and adjusted as necessary . noninterest income total noninterest income decreased $ 70,000 in 2017 compared to 2016. customer service charges increased $ 79,000 in 2017 due to higher overdraft and debit card fees . gains on loan sales declined $ 483,000 in 2017 compared to 2016 as mortgage sales volume was lower in 2017 than in 2016. this was primarily due to higher interest rates and a relatively low inventory of homes available for sale in choiceone 's primary markets . the large decline in gain on sales of securities was caused by choiceone 's decision in the fourth quarter of 2017 to sell securities to support the funding of loan growth and decrease the bank 's dependence on wholesale borrowings due to increases in interest rates . as a result , choiceone sold approximately $ 35 million in securities and recorded a fourth quarter loss of $ 457,000 on the sale . management believes this decision will be accretive to income in 2018 and recognizing the losses during 2017 resulted in beneficial tax treatment . a gain of $ 908,000 was recognized upon the sale of a portion of choiceone 's investment book of business during the fourth quarter of 2017. this sale was the primary reason for the decrease in insurance and investment commissions from 2016 to 2017. the increase in other noninterest income from 2016 to 2017 was primarily due to a $ 61,000 improvement in income from choiceone 's investment in a title insurance agency . total noninterest income increased $ 179,000 in 2016 compared to 2015. customer service charges decreased $ 27,000 in 2016 compared to the prior year due to a slight decline in service charges on checking accounts . story_separator_special_tag a decrease in insurance and investment commissions of $ 51,000 in 2016 compared to 2015 was caused by lower commission income from sales of reit investments during 2016 compared to 2015. gains on sales of loans increased $ 332,000 in 2016 compared to 2015 as longer-term mortgage rates declined causing a positive impact on mortgage volume . net gains on sales of securities increased $ 51,000 as opportunities to harvest gains on the securities portfolio increased in the low interest rate environment that existed during most of 2016. net losses on sales of other assets were $ 80,000 lower in 2016 than in the prior year as write-downs of values of other real estate properties and losses on sales of properties were lower in 2016 than in 2015. earnings on life insurance policies were $ 295,000 lower in 2016 than 2015 as the result of a death benefit received on a former employee 's life insurance policy in 2015. noninterest expense total noninterest expense increased $ 362,000 in 2017 compared to 2016. salaries and benefits increased $ 267,000 in 2017 compared to the prior year due to higher costs related to salaries , stock-based compensation , and health insurance . occupancy and equipment expense grew $ 308,000 in 2017 compared to the prior year primarily as a result of costs related to remodeling expenses to choiceone 's headquarters in sparta , michigan which was completed in 2017. expense was also affected by a full year 's cost of two new atm locations that were added during 2016. professional fees increased $ 231,000 in 2017 compared to 2016 due in part to higher legal fees related to the sale of the investment book of business and costs associated with the search , purchase , and branch application process on two additional branches that are scheduled to be opened in 2018. intangible amortization expense was $ 0 in 2017 as the related intangible assets were fully amortized by the end of 2016. the decrease in other noninterest expense in 2017 compared to the prior year was caused in part by lower recruiting expense and by lower fdic insurance expense due to a reduced fdic assessment rate after the deposit insurance fund reached a 1.15 % reserve threshold on june 30 , 2016. page | 26 total noninterest expense increased $ 696,000 in 2016 compared to 2015. salaries and benefits increased $ 709,000 in 2016 compared to the prior year due to higher costs related to salaries , stock-based compensation , commissions , and health insurance . occupancy and equipment expense grew $ 192,000 in 2016 compared to the prior year primarily as a result of costs related to the lease of the loan production office than began in early 2016 and the lease of two new atm locations that were added during 2016. data processing expense decreased $ 47,000 as expenses related to internet banking were lower in 2016 than in the prior year . intangible amortization expense decreased by $ 69,000 in 2016 compared to 2015 as intangible assets were fully amortized by the end of 2016. fdic insurance expense decreased in the last two quarters of 2016 due to a reduced fdic assessment rate after the deposit insurance fund reached a 1.15 % reserve threshold on june 30 , 2016. income taxes in the fourth quarter of 2017 , choiceone adjusted its net deferred tax asset for the impact of the lower corporate income tax rate which will be effective beginning in 2018. this adjustment caused the recognition of $ 206,000 of income tax expense , increasing tax expense in the fourth quarter of 2017 compared to the same time period in 2016. the reduction of the corporate income tax rate will have a positive effect on net income in future periods . overall , income taxes increased $ 225,000 in 2017 compared to 2016. the effective tax rate was 28 % in 2017 , compared to 26 % in 2016 and 25 % in 2015. income taxes increased $ 217,000 in 2016 compared to 2015. the increase in income taxes during 2017 compared to 2016 was primarily due to the adjustment of the deferred tax asset . the increase in tax expense in 2016 was caused by higher income before taxes . financial condition summary total assets were $ 646.5 million as of december 31 , 2017 , which represented an increase of $ 39.2 million or 6.5 % from the end of 2016. securities available for sale decreased $ 18.8 million during 2017 due to the sale of securities in the fourth quarter of 2017. net loans increased $ 29.5 million in 2017 , with most of the increase occurring in commercial real estate and commercial and industrial loans . the increase of $ 300,000 in the allowance for loan losses resulted from provision for loan losses in 2017 required as a result of loan growth and higher net charge-offs in the current year compared to 2016. total deposits increased $ 27.5 million in 2017 due to growth in checking deposits , savings deposits , and certificates of deposit . securities the bank 's securities available for sale balances as of december 31 were as follows : replace_table_token_25_th the securities available for sale portfolio decreased $ 18.8 million from december 31 , 2016 to december 31 , 2017. the decline in the securities balance was caused by the sale of $ 35 million of securities in the fourth quarter of 2017. approximately $ 15.2 million in various securities were called or matured in 2017 , which was partially offset by securities purchases . principal payments for municipal and mortgage-backed securities totaling $ 2.4 million were received during 2017. the bank 's investment committee continues to monitor the portfolio and purchases securities as it considers prudent . also , certain securities are sold under agreements to repurchase and management plans to continue this practice as a low-cost source of funding .
| the effect of $ 34.6 million of growth in average earning assets in 2016 compared to 2015 was partially offset by an 8 basis point decrease in the rate earned on average assets . net loan charge-offs continued to be low in 2016 , which allowed for no provision expense for loan losses in 2016 compared to $ 100,000 in 2015. choiceone had $ 83,000 in net loan recoveries in 2016 , compared to net loan charge-offs of $ 79,000 in 2015. growth in noninterest income of $ 179,000 in 2016 compared to 2015 was mainly caused by higher gains on sales of loans . the increase of $ 696,000 in noninterest expense in 2016 compared to the prior year was primarily due to higher salaries and benefits . dividends cash dividends of $ 2,317,000 or $ 0.67 per common share were declared in 2017 , compared to $ 2,231,000 or $ 0.64 per common share in 2016 and $ 2,170,000 or $ 0.63 per common share in 2015. the dividend yield on choiceone 's common stock was 2.86 % as of year-end 2017 , compared to 2.86 % in 2016 and 2.77 % in 2015. the cash dividend payout as a percentage of net income was 38 % in 2017 , compared to 37 % in 2016 and 38 % in 2015. in addition , a 5 % stock dividend was paid on may 31 , 2017 , which caused $ 3,779,000 to be transferred from retained earnings to paid-in capital . page | 21 table 1 – average balances and tax-equivalent interest rates replace_table_token_21_th ( 1 ) interest on nontaxable securities and loans has been adjusted to a fully tax-equivalent basis to facilitate comparison to the taxable interest-earning assets . the adjustment uses an incremental tax rate of 34 % for the years presented . ( 2 ) interest on loans included net origination fees charged on loans of approximately $ 1,003,000 , $ 1,054,000 , and $ 957,000 in 2017 , 2016 ,
| 13,846 |
the company offers various sales incentives to customers and consumers . incentives offered off-invoice include prompt pay allowances , will call allowances , spoilage allowances , and temporary price reductions . these incentives are recognized as reductions of revenue at the time title passes . coupons are used as an incentive for consumers to purchase various products . the coupons reduce revenues at the time they are offered , based on estimated redemption rates . promotional contracts are performed by customers to promote the company 's products to consumers . these incentives reduce revenues at the time of performance through direct payments and accrued promotional funds . accrued promotional funds are unpaid liabilities for promotional contracts in process or completed at the end of a quarter or fiscal year . promotional contractual accruals are based on agreements with customers for defined performance . the liability relating to these agreements is based on a review of the outstanding contracts on which performance has taken place but which the promotional payments relating to such contracts remain unpaid as of the end of the fiscal year . the level of customer performance and the historical spend rate versus contracted rates are significant estimates used to determine these liabilities . inventory valuation : the company values inventories at the lower of cost or net realizable value . for pork inventories , when the carcasses are disassembled and transferred from primal processing to various manufacturing departments , the primal values , as adjusted by the company for product specifications and further processing , become the basis for calculating inventory values . turkey raw materials are represented by the deboned meat quantities . the company values these raw materials using a concept referred to as the “ meat cost pool. ” the meat cost pool is determined by combining the cost to grow turkeys with processing costs , less any net sales revenue from by-products created from the processing and not used in producing company products . the company has developed a series of ratios using historical data and current market conditions ( which themselves involve estimates and judgment determinations by the company ) to allocate the meat cost pool to each meat component . substantially all inventoriable expenses , meat , packaging , and supplies are valued by the average cost method . goodwill and other indefinite-lived intangibles : estimating the fair value of the company 's goodwill reporting units and intangible assets requires significant judgement . accordingly , the company obtains the assistance of third-party valuation specialists who utilize available historical information along with future expectations to value the assets . determining the useful life of an intangible asset also requires judgement . certain acquired brands are expected to have indefinite lives based on their history and the company 's plans to continue to support and build the brands . other acquired assets such as customer relationships , are expected to have determinable useful lives . indefinite-lived intangible assets are originally recorded at their estimated fair values at the date of acquisition and the residual of the purchase price is recorded to goodwill . goodwill and other indefinite-lived intangible assets are allocated to reporting units that will receive the related sales and income . goodwill and indefinite-lived intangible assets are tested annually for impairment , or more frequently if impairment indicators arise . in conducting the annual impairment test for goodwill , the company has the option to first assess qualitative factors to determine whether it is more likely than not ( > 50 % likelihood ) the fair value of any reporting unit is less than its carrying amount . if the company elects to perform a qualitative assessment and determines an impairment is more likely than not , the company is required to perform a quantitative impairment test . otherwise , no further analysis is required . alternatively , the company may elect not to perform the qualitative assessment and proceed directly to the quantitative impairment test . prior to the fourth quarter of fiscal 2017 , if the carrying value of a reporting unit exceeded its fair value , the company completed the second step of the test to determine the amount of goodwill impairment loss , if any , to be recognized . in the second step , the company estimated an implied fair value of the reporting unit 's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill ( including any unrecognized intangible assets ) . the impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill . in the fourth quarter of fiscal 2017 , the company adopted accounting standards update ( asu ) 2017-04 , simplifying the test for goodwill impairment . as a result , the company recognizes an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit if the carrying value of a reporting unit exceeds its fair value . in conducting a qualitative assessment , the company analyzes actual and projected growth trends for net sales , gross margin , and segment profit for each reporting unit , as well as historical performance versus plan and the results of prior quantitative tests performed . additionally , the company assesses critical areas that may impact its business , including macroeconomic conditions and the related impact , market-related exposures , any plans to market for sale all or a portion of their business , competitive changes , new or discontinued product lines , changes in key personnel , or any potential risks to their projected financial results . if performed , the quantitative goodwill impairment test is performed at the reporting unit level . first , the fair value of each reporting unit is compared to its corresponding carrying value , including goodwill . story_separator_special_tag the fair value of each reporting unit is estimated using discounted cash flow valuations ( level 3 ) , which incorporate assumptions regarding future growth rates , 15 terminal values , and discount rates . the estimates and assumptions used consider historical performance and are consistent with the assumptions used in determining future profit plans for each reporting unit , which are approved by the company 's board of directors . if the quantitative assessment results in the carrying value exceeding the fair value of any reporting unit , then the results from the quantitative analysis will be relied upon to determine both the existence and amount of goodwill impairment . an impairment loss will be recognized for the amount by which the reporting unit 's carrying amount exceeds its fair value , not to exceed the carrying amount of goodwill in that reporting unit . during the fourth quarter of fiscal 2018 , the company completed its annual goodwill impairment tests and elected to perform a qualitative assessment . as a result of the qualitative testing during fiscal 2018 and 2016 and quantitative testing during fiscal 2017 , no material goodwill impairment charges were recorded . an immaterial impairment charge was recorded in the second quarter of fiscal 2016 for the company 's diamond crystal brands ( dcb ) business based on the agreed-upon sales price for the business . in conducting the annual impairment test for its indefinite-lived intangible assets , the company first performs a qualitative assessment to determine whether it is more likely than not ( > 50 % likelihood ) that an indefinite-lived intangible asset is impaired . if the company concludes this is the case , then a quantitative test for impairment must be performed . otherwise , the company does not need to perform a quantitative test . in conducting the initial qualitative assessment , the company analyzes growth rates for historical and projected net sales and the results of prior quantitative tests performed . additionally , the company assesses critical areas that may impact its intangible assets or the applicable royalty rates to determine if there are factors that could indicate impairment of the asset . if performed , the quantitative impairment test compares the fair value to the carrying value of the indefinite-lived intangible asset . the fair value of indefinite-lived intangible assets is primarily determined on the basis of estimated discounted value , using the relief from royalty method ( level 3 ) . this method incorporates assumptions regarding future sales projections and discount rates . if the carrying value exceeds fair value , the indefinite-lived intangible asset is considered impaired and an impairment charge is recorded . even if not required , the company periodically elects to perform the quantitative test in order to confirm the qualitative assessment . during the 2017 annual impairment review , the company completed a quantitative assessment of indefinite-lived intangible assets . as a result of the review , no material impairment charges were recorded ; however , four trademarks were determined to have fair values exceeding their carrying values by less than a 10 percent margin . due to the lack of excess value of these assets , the company elected to test these assets using a quantitative analysis during fiscal 2018. for all other indefinite-lived intangible assets , the company tested the assets using a qualitative analysis . during the qualitative review , it was determined that further assessment in the form of a quantitative test was necessary for two additional indefinite-lived intangible assets . in total , the company performed a quantitative test for six trademarks in fiscal 2018 , one of which was determined to be impaired . during the fourth quarter of fiscal 2018 , a $ 17.3 million intangible asset impairment charge was recorded for the cytosport trademark . as a result of the 2018 quantitative test , one trademark was determined to have fair value exceeding its carrying value by approximately a 10 percent margin . see additional discussion regarding the company 's goodwill and intangible assets in note d. during fiscal years 2018 , 2017 , and 2016 , there were no other material remeasurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition . employee benefit plans : the company incurs expenses relating to employee benefits , such as noncontributory defined benefit pension plans and post-retirement health care benefits . in accounting for these employment costs , management must make a variety of assumptions and estimates including mortality rates , discount rates , overall compensation increases , expected return on plan assets , and health care cost trend rates . the company considers historical data as well as current facts and circumstances when determining these estimates . the company uses third-party specialists to assist management in the determination of these estimates and the calculation of certain employee benefit expenses and the outstanding obligation . income taxes : the company records income taxes in accordance with the liability method of accounting . deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax law . changes in enacted tax rates are reflected in the tax provision as they occur . due to passage of the tax act , the tax provision at the end of fiscal 2018 was provisional . the company will continue to refine such amounts within the measurement period allowed , which will be completed no later than the first quarter of fiscal 2019. the company computes its provision for income taxes based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it operates . significant judgment is required in evaluating the company 's tax positions and determining its annual tax provision . while the company considers all of its tax positions fully supportable , the company is occasionally challenged by various tax authorities regarding the amount of taxes due .
| segment profit was impacted by the divestiture of farmer john , which was partially offset by the addition of fontanini and strong value-added product growth . jennie-o turkey store : results for the jots segment compared to the prior year are as follows : replace_table_token_38_th net sales , volume , and segment profit were lower than last year as the segment continued to be impacted by higher industry supply and corresponding lower commodity meat prices . pricing pressure from competing proteins and higher expenses also contributed to the lower results for the full year . segment profit for the fourth quarter was lower than last year as continued softness in the commodity and whole turkey markets and a more competitive industry environment pressured value-added margins . international & other : results for the international & other segment compared to the prior year are as follows : replace_table_token_39_th volume and sales for the fourth quarter were driven by improved export sales of skippy ® peanut butter products and spam ® luncheon meat and also reflect the september 2017 acquisition of the ceratti ® brand . for the fiscal year , improved market conditions resulted in an overall increase in export sales . in china , the skippy ® peanut butter business continued to grow in both retail and foodservice channels and the company 's meat business experienced more favorable markets throughout fiscal 2017. segment profit results for both the fourth quarter and fiscal year primarily reflect better margins for the china business and improved exports of branded items . unallocated income and expense : the company does not allocate investment income , interest expense , and interest income to its segments when measuring performance . the company also retains various other income and unallocated expenses at 26 corporate . equity in earnings of affiliates is included in segment operating profit ; however , earnings attributable to the company 's noncontrolling interests are excluded . these items are included in the segment table for the purpose of reconciling segment results to earnings before income taxes . replace_table_token_40_th net interest and investment expense was lower
| 13,847 |
other significant expenses include travel and marketing costs and professional fees . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . interest and other , net . interest and other , net primarily includes interest expense ( including premium and discount amortization ) , interest income , change in the fair value of the debt conversion option , debt refinancing costs , and net write-offs upon debt conversion ( option and unamortized premium or discount ) . interest expense . interest expense ( including premium and discount amortization ) results from outstanding debt balances and debt premiums and discounts . interest income . interest income is attributed to interest earned on deposits in investments that consist of money market funds . 29 change in fair value of debt conversion option . change in fair value of debt conversion option represents the period to period change in fair value of the debt conversion option associated with outstanding convertible debt . net write-offs upon debt conversion . net write-offs upon debt conversion are the result of the conversion of convertible debt , and include the write-off of the related debt conversion option and any unamortized debt premium or discount . other . other consists of miscellaneous non-operating expenses , including state taxes . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2014 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 159.2 million , which will expire at various dates through fiscal 2033. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , allowance for doubtful accounts , excess and obsolete inventory , the debt conversion option , and stock-based compensation are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . revenue recognition . we sell the majority of our products via direct shipment to hospitals or office-based labs . we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . we record estimated sales returns , discounts and rebates as a reduction of net sales . costs related to products delivered are recognized in the period the revenue is recognized . cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . allowance for doubtful accounts . we maintain an allowance for doubtful accounts . this allowance is an estimate and is regularly evaluated for adequacy by taking into consideration factors such as past experience , credit quality of the customer base , age of the receivable balances , both individually and in the aggregate , and current economic conditions that may affect a customer 's ability to pay . provisions for the allowance for doubtful accounts attributed to bad debt are recorded in general and administrative expenses . excess and obsolete inventory . we have inventories that are principally comprised of capitalized direct labor and manufacturing overhead , raw materials and components , and finished goods . due to the technological nature of our products , there is a risk of obsolescence for changes in our technology and the market , which is impacted by technological developments and events . story_separator_special_tag accordingly , we write down our inventories as we become aware of any situation where the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions . the evaluation includes analysis of inventory levels , expected product lives , product at risk of expiration , sales levels by product and projections of future sales demand . 30 debt conversion option . the fair value of the debt conversion option is related to the loan and security agreement with partners for growth ( `` pfg '' ) and has been included as a component of debt conversion option and other assets on our balance sheet . the monte carlo option pricing model was used to determine the value of the debt conversion option and includes various inputs including historical volatility , stock price simulations , and the assessed behavior of us and pfg based on those simulations . in fiscal 2014 , pfg converted all of the remaining loans ( see note 3 to the consolidated financial statements for additional information ) . stock-based compensation . we have stock-based compensation plans , which includes stock options , nonvested share awards , and an employee stock purchase plan . we determine the fair value of our option awards using option-pricing models . we determine the fair value of nonvested share awards with market conditions using the monte carlo simulation . fair value of nonvested share awards that vest based upon performance or time conditions is determined by the closing market price of our stock on the date of grant , as determined by management and the board of directors . stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest . management 's key assumptions are developed with input from independent third-party valuation advisors . legal proceedings . in accordance with fasb guidance , we record a liability in our consolidated financial statements related to legal proceedings when a loss is known or considered probable and the amount can be reasonably estimated . if the reasonable estimate of a known or probable loss is a range , and no amount within the range is a better estimate than any other , the minimum amount of the range is accrued . if a loss is possible , but not known or probable , and can be reasonably estimated , the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements . in most cases , significant judgment is required to estimate the amount and timing of a loss to be recorded . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > selling , general , and administrative expenses increased by $ 20.4 million , or 30.7 % , from $ 66.4 million for the year ended june 30 , 2012 to $ 86.7 million for the year ended june 30 , 2013. our selling , general and administrative expenses for the year ended june 30 , 2013 increased due to increased variable compensation , expansion in our sales and marketing organizations , increased medical education programs , and the medical device excise tax , which became effective january 1 , 2013 and resulted in an expense of $ 1.0 million for the year ended june 30 , 2013. selling , general , and administrative expenses for the years ended june 30 , 2013 and 2012 include $ 6.2 million and $ 4.4 million , respectively , for stock-based compensation . research and development expenses . research and development expenses increased by $ 3.8 million , or 33.8 % , from $ 11.4 million for the year ended june 30 , 2012 , to $ 15.2 million for the year ended june 30 , 2013. research and development expenses relate to the development of new products , enhancement of existing products and pad and cad clinical trials . the increase in clinical expenses was related to the advancement of the orbit ii coronary trial and related expansion of the clinical organization . research and development expenses for the years ended june 30 , 2013 and 2012 include $ 0.8 million and $ 0.5 million , respectively , for stock-based compensation . interest and other , net . interest and other , net was $ ( 1.6 ) million and $ ( 2.3 ) million for the years ended june 30 , 2013 and 2012 , respectively . the decrease was primarily due to the change in fair value of the debt conversion option which was associated with the previously outstanding convertible debt and changes in its fair value were primarily driven by the change in the market value of our common stock . slightly offsetting this was an increase in net write-offs upon conversion which were the result of the conversion of convertible debt and includes the write-off of the debt conversion option and any unamortized debt premium or discount . net loss . net loss for the year ended june 30 , 2013 was $ ( 24.0 ) million , compared to $ ( 16.8 ) million for the year ended june 30 , 2012. our net loss increased as a result of increased operating expenses , partially offset by higher gross profit . 33 non-gaap financial information to supplement our consolidated financial statements prepared in accordance with gaap , our management uses a non-gaap financial measure referred to as “ adjusted ebitda. ” the following table sets forth , for the periods indicated , a reconciliation of adjusted ebitda to the most comparable u.s. gaap measure expressed as dollar amounts ( in thousands ) : replace_table_token_6_th the decrease in adjusted ebitda of $ 7.2 million , or 51.3 % , is primarily the result of the $ 11.1 million , or 49.4 % , increase in the loss from operations . the loss from operations was significantly impacted by increases in operating expenses , slightly offset by an increase in gross profit . adjusted ebitda was also impacted by an increase in stock-based compensation and increase in depreciation and amortization . stock-based compensation increased $ 3.5
| cost of goods sold increased by $ 6.6 million , or 27.3 % , from $ 24.4 million for the year ended june 30 , 2013 to $ 31.0 million for the year ended june 30 , 2014 . these amounts represent the cost of materials , labor and overhead for single-use catheters , guidewires , control units , and other ancillary products . the increase was due to an increase in the quantities of products sold , partially offset by lower indirect costs per unit from higher production volumes and manufacturing efficiencies . the increase in gross margin from 76.5 % during the year ended june 30 , 2013 , to 77.3 % for the year ended june 30 , 2014 , was primarily due to lower indirect costs per unit , partially offset by lower average selling prices of pad systems . cost of goods sold for the years ended june 30 , 2014 and 2013 includes $ 0.7 million and $ 0.4 million , respectively , for stock-based compensation . we expect that gross margin in fiscal 2015 will improve slightly compared to fiscal 2014 as cost improvements will be made throughout the year . quarterly fluctuations could occur based on production volumes , timing of new product introductions , sales mix , pricing changes , or other unanticipated circumstances . selling , general and administrative expenses . selling , general , and administrative expenses increased by $ 31.3 million , or 36.1 % , from $ 86.7 million for the year ended june 30 , 2013 to $ 118.0 million for the year ended june 30 , 2014 . our selling , general and administrative expenses for the year ended june 30 , 2014 have increased due to our commercial cad system launch , the expansion of our sales and marketing organization , increased variable compensation , increased promotion and medical education programs , higher stock-based compensation , increased costs related to health care policy initiatives and higher medical device excise taxes . selling , general , and administrative expenses for the years ended june 30 , 2014 and 2013 include $ 9.2 million and $ 6.2 million , respectively , for stock-based compensation . we expect our selling ,
| 13,848 |
each of these factors is known at the time tuition revenues are calculated and is not subject to estimation . if the company adds additional fees related to educational services , the fees are assessed separately for proper revenue recognition treatment . revenue from the sale of educational products , approximately 6 % of the company 's revenues , is generally recognized when shipped and collectibility is reasonably assured . accounts and notes receivable . the company routinely makes estimates of the collectibility of its accounts and notes receivable . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its students to make required payments . the company estimates the amount of the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends . actual collection experience has not varied significantly from estimates , due primarily to credit policies , and a lack of concentration of accounts receivable . if the financial condition of students were to deteriorate , resulting in an impairment of their ability to make required payments for tuition , additional allowances may be required . goodwill and other intangible assets . during each of the years presented , the company acquired various businesses accounted for using the purchase method of accounting . a portion of the purchase price for these businesses was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of acquisition . any excess purchase price was allocated to goodwill . this goodwill and other indefinite-lived intangibles are evaluated at least annually for impairment . goodwill is potentially impaired when the carrying amount of a reporting unit 's goodwill exceeds its implied fair value , as determined under a two-step approach . the first step is to determine the estimated fair value of each reporting unit with goodwill . the reporting units of the company for purposes of the impairment test are those operating components for which discrete financial information is available and for which operating results are regularly reviewed by segment management . components are combined when determining reporting units if they have similar economic characteristics . in general , each higher education institution is a reporting unit for purposes of the impairment tests . the company estimates the fair value of each reporting unit by estimating the present value of the reporting unit 's future cash flows . if the recorded net assets of the reporting unit are less than the reporting unit 's estimated fair value , then no impairment is indicated . alternatively , if the recorded net assets of the reporting unit exceed its estimated fair value , then goodwill is potentially impaired and a second step is performed . in the second step , the implied fair value of the goodwill is determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit 18 from the estimated fair value of the reporting unit . if the recorded amount of goodwill exceeds this implied fair value , an impairment charge is recorded for the excess . other intangible assets include acquired student rosters , accreditation , tradenames , non-competition agreements and curriculum . the assumptions used to calculate the initial fair value of these identified intangible assets included estimates of future operating results and cash flows , as well as discount rates and weighted average costs of capital for each acquisition . accreditations and tradenames have indefinite lives . useful lives which range from 1 to 7 years are assigned to all other intangible assets based upon estimated matriculation rates and other factors . if the company used different assumptions and estimates in the calculation of the initial fair value of identified intangible assets and the estimation of the related useful lives , the amounts allocated to these assets , as well as the related amortization expense , could have been significantly different than the amounts recorded . in assessing the recoverability of the company 's goodwill and other intangible assets , the company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets . if these estimates or their related assumptions change in the future , the company may be required to record impairment charges for these assets not previously recorded . income taxes . the company earns a significant portion of its income from subsidiaries located in countries outside of the united states . at december 31 , 2004 , undistributed earnings of foreign subsidiaries totaled approximately $ 611.8 million . deferred tax liabilities have not been recognized for these undistributed earnings because it is management 's intention to reinvest such undistributed earnings outside of the united states . apb opinion no . 23 , accounting for income taxes special areas , requires that a company evaluate its circumstances to determine whether or not there is sufficient evidence to support the assertion that it has or will reinvest undistributed foreign earnings indefinitely . the company 's assertion that earnings from its foreign operations will be permanently reinvested is supported by projected working capital and long-term capital needs in each subsidiary location in which the earnings are generated . additionally , the company believes that it has the ability to permanently reinvest foreign earnings based on a review of projected cash flows from domestic operations , projected working capital and liquidity for both short-term and long-term domestic needs , and the expected availability of debt or equity markets to provide funds for those domestic needs . if circumstances change and it becomes apparent that some or all of the undistributed earnings of the company 's foreign subsidiaries will be remitted to the united states in the foreseeable future , the company will be required to recognize deferred tax liabilities on those amounts . story_separator_special_tag as of december 31 , 2004 , if all undistributed earnings had been remitted to the united states , the amount of incremental u.s. federal income tax liabilities , net of foreign tax credits , would have been approximately $ 171.2 million , of which $ 83.4 million is related to discontinued operations . the company records a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized . the company also has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of valuation allowance needed . if the company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . likewise , should the company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the valuation allowance would increase income in the period such determination was made . impact of recently issued accounting standards . in december 2004 , the financial accounting standards board ( fasb ) issued statement of financial accounting standards no . 123 ( revised 2004 ) ( fasb 123r ) , share-based payment . fasb 123r requires all share-based payments to employees , including grants of employee stock options , to be recognized in the income statement based on their fair values . as permitted by statement 123 , the company currently accounts for share-based payments to employees using opinion 25 , which generally recognizes no compensation expense for employee stock options . the adoption of the fair value method under fasb 123r could have a significant impact on the results of operations , however it will have no impact on the balance sheet . fasb 123r also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a cash flow from financing activities rather than a cash flow from operating activities . this requirement will reduce net cash flow from operations and increase net cash flow from financing activities in the periods after adoption . the effective date is the first interim reporting period beginning after june 15 , 2005. the company is currently evaluating pricing models and the transition provisions of this standard and will begin expensing stock options in the third quarter of 2005 . 19 story_separator_special_tag .0001pt ; '' > the effects of foreign currency exchange rates in each of those countries . for 2004 , the effects of currency translations increased revenues by $ 2.5 million , primarily due to the strengthening of the chilean peso against the u.s. dollar , partially offset by the weaker mexican peso relative to the u.s. dollar . a full year 's operations at unab/aiep , acquired may 2003 , and the acquisitions of upc , ulacit , and the hispanoamericana campus of uvm in 2004 , increased revenues by $ 55.5 million . latin america revenue represented 56 % of total revenues for 2004 , and 53 % of total revenues for 2003. europe revenue for 2004 increased by $ 25.8 million , or 20 % , to $ 152.4 million compared to 2003. enrollment increases of 3.1 % in schools owned in both years added revenues of $ 2.5 million over 2003. for schools owned in both years , the company increased local currency tuition by a weighted average of 6.0 % , which served to increase revenues by $ 7.2 million . each institution in the segment offers tuitions at various prices based upon degree program . for 2004 , the effects of product mix resulted in a $ 7.4 million reduction in revenue primarily due to lower-priced post-graduate enrollment growth in spain exceeding undergraduate enrollment growth . the segment operates in several countries and is subject to the effects of foreign currency exchange rates in each of those countries . for 2004 , the effects of currency translations increased revenues by $ 12.4 million , due to the strengthening of the euro and swiss franc against the u.s. dollar . the acquisitions of iede , ifg and ece increased revenues by $ 11.1 million . europe revenue represented 24 % of total revenues for 2004 , and 27 % of total revenue for 2003. laureate online education revenue increased by $ 39.3 million , or 41 % , to $ 135.1 million for 2004 compared to 2003. enrollment increases of 23 % , excluding laureate online education , b.v. , added revenues of $ 18.3 million , and the laureate online education b.v. acquisition added revenues of $ 7.5 million . tuition increases accounted for $ 3.8 million of additional revenues , and other factors , primarily a favorable change in degree program mix , added $ 9.7 million . laureate online education revenue represented 21 % of total revenues for 2004 , and 20 % of total revenues for 2003. direct costs . total direct costs of revenues increased $ 134.5 million , or 34 % , to $ 529.7 million for 2004 from $ 395.2 million for 2003. direct costs decreased to 82 % of total revenues in 2004 from 84 % in 2003 primarily due to increased enrollments providing improved leverage of the fixed cost base . latin america direct costs increased by $ 83.1 million to $ 275.0 million , or 76 % of latin america revenue for 2004 year , compared to $ 191.9 million or 77 % of latin america revenue for 2003. an increase of $ 35.4 million in expenses reflected higher enrollments and corresponding expanded operating activities compared to 2003. acquisitions increased expenses by $ 47.0 million .
| the second quarter is also strong as most schools have classes in session , although the company 's largest school , located in mexico , is in session for only part of that quarter . the first and third quarters are weaker quarters because the majority of the company 's schools have summer breaks for some portion of one of these two quarters . due to this seasonality , revenues and profits in any quarter are not necessarily indicative of results in subsequent quarters . the following chart shows the enrollment cycles for each higher education institution . in the chart , shaded areas represent periods when classes are generally in session and revenues are recognized . areas that are not shaded represent summer breaks during which revenues are not typically recognized . the large circles indicate the primary enrollment start dates of the company 's schools , and the small circles represent secondary enrollment start dates ( smaller intake cycles ) . notes : ( 1 ) mexico region includes mexico , costa rica and panama ( 2 ) south american region includes chile , ecuador and peru 20 student attrition management defines attrition as those students that leave the higher education institution prior to graduation . attrition may be due to academic , financial or other personal reasons . management closely monitors attrition levels at its higher education institutions . to address the key reasons for student attrition , management has implemented programs , such as assistance with financing , remedial educational programs , mentoring and counseling . in general , attrition at the company 's schools has been stable as a percentage of total revenue over the past five years . historically , attrition rates have not changed materially from year to year . average length of stay management actively monitors the average length of stay of students . the average length of stay is defined as the average time necessary to complete a given course of study , adjusted for attrition . management believes that the company 's 3 to 4 year average length of stay and low attrition levels contribute to
| 13,849 |
34 profitability our profitability depends in large part upon our : amount of aum ; spreads we earn that result from the difference between what we earn and what we credit to policyholders ; ability to generate fee revenues by providing administrative and investment management services ; ability to price our insurance products at a level that enables us to earn a margin over the cost of providing benefits and the related expenses ; ability to manage our investment portfolio to maximize investment returns and minimize risks such as interest rate changes or defaults or impairments of invested assets ; ability to effectively hedge fluctuations in foreign currency to u.s. dollar exchange rates on certain transactions and ability to manage our operating expenses . critical accounting policies and estimates the increasing complexity of the business environment and applicable authoritative accounting guidance requires us to closely monitor our accounting policies . our significant accounting policies are described in item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 1 , nature of operations and significant accounting policies . '' we have identified critical accounting policies that are complex and require significant judgment and estimates about matters that are inherently uncertain . a summary of our critical accounting policies is intended to enhance the reader 's ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates and changes in guidance . the identification , selection and disclosure of critical accounting estimates and policies have been discussed with the audit committee of the board of directors . valuation and impairment of fixed income investments fixed maturities . fixed maturities include bonds , asset-backed securities ( `` abs '' ) , redeemable preferred stock and certain non-redeemable preferred securities . we classify our fixed maturities as either available-for-sale or trading and , accordingly , carry them at fair value in the consolidated statements of financial position . the fair values of our public fixed maturities are primarily based on market prices from independent pricing services . we have regular interactions with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information . in addition , 23 % of our invested asset portfolio is invested in fixed maturities that are private placement assets , where there are no readily available market quotes to determine the fair market value . the majority of these assets are valued using a spread pricing matrix that utilizes observable market inputs . securities are grouped into pricing categories that vary by asset class , sector , rating and average life . each pricing category is assigned a risk spread based on studies of observable public market data or market clearing data from the investment professionals assigned to specific security classes . the expected cash flows of the security are then discounted back at the current treasury curve plus the appropriate risk spread . certain market events that could impact the valuation of securities include issuer credit ratings , business climate , management changes , litigation and government actions among others . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 15 , fair value measurements '' for further discussion . if we are unable to price a fixed maturity security from third party pricing vendors we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information to the extent available . less than 1 % of our fixed maturities were valued using internal models . a rate increase of 100 basis points would produce a total value of approximately $ 46.5 billion , as compared to the recorded amount of $ 48.8 billion related to our fixed maturity , available-for-sale financial assets with interest rate risk held by us as of december 31 , 2013. for additional information see item 7a . `` quantitative and qualitative disclosures about market risk interest rate risk '' . the $ 1,382.9 million decrease in net unrealized gains for the year ended december 31 , 2013 , can primarily be attributed to an approximate 79 basis points increase in interest rates . fixed maturities classified as available-for-sale are subject to impairment reviews . when evaluating fixed maturities for impairment , we consider relevant facts and circumstances in evaluating whether a credit or interest-related impairment is other than temporary . relevant facts and circumstances considered include : ( 1 ) the extent and length of time the fair value has been below cost ; ( 2 ) the reasons for the decline in value ; ( 3 ) the financial position and access to capital of the issuer , including the current and future impact of any specific events ; ( 4 ) for structured securities , the adequacy of the expected cash flows and ( 5 ) our intent to sell a security or whether it is more likely than not we will be required to sell the security before recovery of its amortized cost which , in some cases , may extend to maturity . when it is determined that the decline in value is other than temporary the carrying value of the security is reduced to its fair value , and a corresponding impairment loss is reported primarily in net income , with noncredit impairment losses for certain fixed maturities we do not intend to sell reported in other comprehensive income . 35 there are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other than temporary . story_separator_special_tag these risks and uncertainties include : ( 1 ) the risk that our assessment of an issuer 's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer ; ( 2 ) the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated ; ( 3 ) the risk that our investment professionals are making decisions based on fraudulent or misstated information in the financial statements provided by issuers and ( 4 ) the risk that new information obtained by us or changes in other facts and circumstances lead us to change our intent to hold the security until it recovers in value . any of these situations could result in a charge to net income in a future period . at december 31 , 2013 , we had $ 11,569.2 million in available-for-sale fixed maturities with gross unrealized losses totaling $ 806.6 million . included in the gross unrealized losses are losses attributable to both movements in market interest rates as well as movement in credit spreads . net income would be reduced by approximately $ 806.6 million , on a pre-tax basis , if all the securities in an unrealized loss position were deemed to be other than temporarily impaired and our intent was to sell all such securities . mortgage loans . mortgage loans consist primarily of commercial mortgage loans . at december 31 , 2013 , the carrying value of our commercial mortgage loans was $ 10,299.0 million . commercial mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts , computed using the interest method and net of valuation allowances . commercial mortgage loans are considered impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to contractual terms of the loan agreement . when we determine that a loan is impaired , a valuation allowance is created for the difference between the carrying amount of the mortgage loan and the estimated value less cost to sell . estimated value is based on either the present value of the expected future cash flows discounted at the loan 's effective interest rate , the loan 's observable market price or the fair value of the collateral . the determination of the calculation and the adequacy of the mortgage loan valuation allowance and mortgage impairments are subjective . our periodic evaluation and assessment of the adequacy of the mortgage loan valuation allowance and the need for mortgage impairments is based on known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of the underlying collateral , composition of the loan portfolio , current economic conditions , loss experience and other relevant factors . the calculation for determining mortgage impairment amounts requires estimating the amounts and timing of future cash flows expected to be received on specific loans , estimating the value of the collateral and gauging changes in the economic environment in general . the total valuation allowance can be expected to increase when economic conditions worsen and decrease when economic conditions improve . for more detailed information concerning mortgage loan valuation allowances and impairments , see `` investments u.s. investment operations mortgage loans , '' and item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 5 , investments mortgage loan valuation allowance . '' we have a large experienced commercial real estate staff centrally located in des moines , which includes commercial mortgage underwriters , loan closers , loan servicers , engineers , appraisers , credit analysts , research staff , legal staff , information technology personnel and portfolio managers . experienced commercial real estate senior management adheres to a disciplined process in reviewing all transactions for approval on a consistent basis . the typical commercial mortgage loan for us averages in the mid 49 % percent loan-to-value range at origination with a net operating income coverage ratio of 2.8 times the annual debt service and is internally rated a+ on a bond equivalent basis . based on the most recent analysis , our commercial mortgage loan portfolio , excluding mortgage loans held in our principal global investors segment , has an overall loan-to-value ratio of 50 % with a 2.5 times debt service coverage . the large equity cushion and strong debt service coverage in our commercial mortgage investments will help insulate us from stress during times of weak commercial real estate fundamentals . derivatives we primarily use derivatives to hedge or reduce exposure to market risks . the fair values of exchange-traded derivatives are determined through quoted market prices . the fair value of derivative instruments cleared through centralized clearinghouses are determined through market prices published by the clearinghouses . the fair values of non-cleared over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes . on an absolute fair value basis , 91 % of our over-the-counter derivative assets and liabilities are valued using pricing valuation models , 7 % are valued using broker quotes , and the remaining 2 % are valued using clearinghouse prices . see item 8 . `` financial statements and supplementary data , notes to consolidated financial statements , note 15 , fair value measurements '' for further discussion . the fair values of our derivative instruments can be impacted by changes in interest rates , foreign exchange rates , credit spreads , equity indices , and volatility , as well as other contributing factors . we also issue certain annuity contracts and other insurance contracts that include embedded derivatives that have been bifurcated from the host contract . they are valued using a combination of historical data and actuarial judgment . see item 8 .
| origin asset management llp . on october 3 , 2011 , we finalized the purchase of a 74 % interest in origin asset management llp ( `` origin '' ) , a global equity specialist based in london . the initial payment was $ 63.6 million . origin had $ 2.6 billion in aum in global and international equities at the time of the acquisition and is consolidated within the principal global investors segment . hsbc afore , s.a. de c.v. on august 8 , 2011 , we finalized the purchase of our 100 % interest in hsbc afore , s.a. de c.v. ( `` hsbc afore '' ) , a mexican pension business , from hsbc bank for $ 206.1 million . in addition , we have established a distribution arrangement with hsbc bank for the distribution of principal afore 's products through hsbc bank 's extensive network in mexico . hsbc afore was merged into our principal afore pension company , which is consolidated within the principal international segment . finisterre capital llp and finisterre holdings limited . on july 1 , 2011 , we finalized the purchase of a 51 % interest in finisterre capital llp and finisterre holdings limited , ( together `` finisterre capital '' ) , an emerging markets debt investor based in london . the total payment was $ 84.6 million . there are no additional contingent payment obligations . finisterre capital had $ 1.7 billion in aum at the time of acquisition and is accounted for on the equity method within the principal global investors segment . other actuarial assumption updates . we periodically review and update actuarial assumptions that are inputs to the models for dac and other actuarial balances and make improvements as necessary . during third quarter 2013 , our review and update did not result in a material impact to net income . during the third quarter 2012 , improvements were made resulting in an unlocking of dac and other actuarial balances that decreased total company net income by $ 85.2 million for the year ended december 31 , 2012 .
| 13,850 |
there is risk associated with the unauthorized access of this information with a malicious intent to corrupt data , cause operational disruptions , or compromise information . management believes it has taken reasonable security measures to protect these systems from cyber attacks and other types of incidents ; however , there can be no guarantee that an incident will not occur . in the event of a cyber incident , the company will execute its security incident response plan to assist with responding to the incident . the company maintains cyber-insurance coverage to mitigate financial expense that may result from a cyber incident . more than 98 % of the company 's revenues are derived from the sale and delivery of natural gas to roanoke gas customers . the scc authorizes the rates and fees the company charges its customers for these services . these rates are designed to provide the company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather . normal weather refers to the average number of heating degree days ( an industry measure by which the average daily temperature falls below 65 degrees fahrenheit ) over the most recent 30-year period . as the company 's business is seasonal in nature , volatility in winter weather and the commodity price of natural gas , can impact the effectiveness of the company 's rates in recovering its costs and providing a reasonable return for its shareholders . in order to mitigate the effect of weather variations , the company has certain approved rate mechanisms in place that help provide stability in earnings , adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment . these mechanisms include a purchased gas adjustment factor ( `` pga '' ) , weather normalization adjustment factor ( `` wna '' ) , inventory carrying cost revenue ( `` icc '' ) and a steps to advance virginia energy ( `` save '' ) adjustment rider . the company 's approved billing rates include a component designed to allow for the recovery of the cost of natural gas used by its customers . the cost of natural gas is considered a pass-through cost and is independent of the non-gas rates 15 of the company . this rate component , referred to as the pga clause , allows the company to pass along to its customers increases and decreases in natural gas costs incurred by its regulated operations . on a quarterly basis , or more frequently if necessary , the company files a pga rate adjustment request with the scc to adjust the gas cost component of its rates up or down depending on projected price and activity . once administrative approval is received , the company adjusts the gas cost component of its rates to reflect the approved amount . as actual costs will differ from the projections used in establishing the pga rate , the company will either over-recover or under-recover its actual gas costs during the period . the difference between actual costs incurred and costs recovered through the application of the pga is recorded as a regulatory asset or liability . at the end of the annual deferral period , the balance is amortized over an ensuing 12-month period as amounts are reflected in customer billings . the wna reduces the volatility in earnings due to the variability in temperatures during the heating season . the wna is based on the most recent 30-year temperature average and provides the company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when the weather is colder than normal . the wna allows the company to recover from its customers the lost margin ( excluding gas costs ) from the impact of weather that is warmer than normal and correspondingly requires the company to refund the excess margin earned for weather that is colder than normal . the wna year runs from april through march . any billings or refunds related to the wna are completed following the end of the wna year . for the fiscal year ended september 30 , 2018 , the company recorded approximately $ 45,000 in additional revenue from the wna for weather that was less than 1 % warmer than normal . for the fiscal years ended september 30 , 2017 and 2016 , the company recorded $ 1,839,000 and $ 1,318,000 in additional revenue from the wna for weather that was approximately 18 % and 13 % warmer than normal for the respective years . as normal weather is based on the most recent 30-year temperature average , the heating degree days used to determine normal will change annually as a new year is added to the 30-year period and the oldest year is removed . as a result of adding recent warmer than normal winters and dropping off colder than normal years from the beginning of the 30-year period , the number of heating degree days that defines normal has declined from 3,998 in fiscal 2013 to 3,944 in fiscal 2018. the company 's rates are designed on 4,000 heating degree days from its last non-gas rate filing ; however , the wna model is recovering on the current normal of 3,944 heating degree days , or about 1 % less than for what the rates were designed to recover . the 30-year normal will be reset in base rates when the company implements new non-gas rates associated with its recently filed rate application with the scc . the company also has an approved rate structure in place that mitigates the impact of financing costs of its natural gas inventory . under this rate structure , roanoke gas recognizes revenue for the financing costs , or “ carrying costs ” , of its investment in natural gas inventory . story_separator_special_tag the icc factor applied to average inventory is based on the company 's weighted-average cost of capital including interest rates on short-term and long-term debt and the company 's authorized return on equity . during times of rising gas costs and rising inventory levels , the company recognizes icc revenues to offset higher financing costs associated with higher inventory balances . conversely , during times of decreasing gas costs and declining inventory balances , the company recognizes less carrying cost revenue as financing costs are lower . in addition , icc revenues are impacted by changes in the weighted-average cost of capital . although , the average balance of storage gas at september 30 , 2018 was higher than last year due to higher injection prices earlier in the year , icc revenues declined by $ 35,000 due to an overall 8 % reduction in the icc factor related to the lower federal income tax rate more than offsetting a higher equity allocation . the combination of lower average storage balances and a reduction in the icc factor resulted in a nearly $ 63,000 decline in icc revenues for fiscal 2017 from fiscal 2016. based on current storage balances and natural gas futures , the average dollar balance of gas in storage should remain stable and , with a more consistent icc factor , should result in less volatility in icc revenues . generally , as investment in natural gas inventory increases so does the level of borrowing under the company 's line-of-credit . however , as the carrying cost factor used in determining icc revenues is based on the company 's weighted-average cost of capital , icc revenues do not directly correspond with incremental financing costs generally provided by the line-of-credit . therefore , when inventory cost balances decline due to a reduction in commodity prices , net income will decline as carrying cost revenues decrease by a greater amount than the line-of-credit costs decrease . the inverse occurs when inventory costs increase . the company 's non-gas rates are designed to allow for the recovery of non-gas related expenses and provide a reasonable return to shareholders . these rates are determined based on the filing of a formal rate application with the scc . generally , investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas rates currently in place . the investment in replacing and upgrading existing infrastructure is generally not recoverable until a formal rate application is filed to include the additional investment , and new non-gas rates are approved . the save plan and rider provides the company with the ability to recover costs 16 related to these save qualified investments on a prospective basis rather than on a historical basis . the save plan provides a mechanism to recover the related depreciation and expenses and provide a return on rate base of the additional capital investments related to improving the company 's infrastructure until such time a formal rate application is filed to incorporate this investment in the company 's non-gas rates . save plan revenues have grown each year corresponding to the level of save qualifying capital investment . the company recognized approximately $ 4,469,000 , $ 3,813,000 , $ 2,538,000 in save plan revenues for years ended september 30 , 2018 , 2017 and 2016 , respectively . the current save revenues have been incorporarted as part of the non-gas base rates in the company 's current general rate case application , which go into effect in january 2019. additional information regarding the save rider is provided under the regulatory affairs section . the economic environment has a direct correlation with business and industrial production , customer growth and natural gas utilization . currently , the local economy appears to show growth and should continue to improve absent a major economic setback on a local , regional or national level . story_separator_special_tag general taxes increased $ 91,940 , or 5 % , primarily due to higher property taxes associated with increases in utility property offset by lower payroll taxes . depreciation - depreciation expense increased by $ 699,607 , or 11 % , corresponding to 10 % increase in utility plant investment . 18 equity in earnings of unconsolidated affiliate - the equity in earnings of the mvp investment increased by $ 516,885 due to the allowance for funds used during construction ( `` afudc '' ) related to the increasing investment in the project . the investment in mountain valley pipeline and the related afudc earnings are discussed further under the equity investment in mountain valley pipeline section below . other ( income ) expense - other ( income ) expense moved from $ 132,446 in net expense to $ 122,330 in net income primarily due to the implementation of a revenue sharing incentive mechanism related to the gas supply asset management agreement , lower pipeline assessments and charitable commitments and higher interest earnings . see the regulatory and tax reform section below for more information on revenue sharing . interest expense - total interest expense increased by $ 544,311 , or 28 % , due to a 20 % increase in the average total debt outstanding during the year . most of the net increase in borrowing is attributable to the investment in mountain valley pipeline . roanoke gas funded its capital expenditures for 2018 through the $ 15 million equity infusion from resources . the average interest rate increased during the current year from 3.56 % to 3.80 % . the increase in the average interest rate is due to the issuance of the $ 8,000,000 unsecured notes on october 2 , 2017 at a rate of 3.58 % which replaced a portion of the lower-ate balance under the line-of-credit combined with the rising interest rate on the company 's variable-rate debt . income taxes - income tax expense decreased by $ 910,254 , or 24 % , even though pre-tax earnings increased . the effective tax rate was 28.4 % for fiscal 2018 compared to 37.9 % for fiscal 2017 .
| 17 replace_table_token_8_th regulated natural gas margins from utility operations ( total utility revenues less utility cost of gas ) were nearly unchanged from fiscal 2017 , as higher save plan revenues and increased volume deliveries were offset by the excess revenue reserve adjustment to refund customers for the effects of the lower federal income tax rate . total save plan revenues increased by $ 656,000 as the company continues to invest in qualified infrastructure projects . since january 2014 , the company has invested nearly $ 40,000,000 in such projects . volumetric margin increased by nearly $ 2,316,000 due to greater natural gas deliveries resulting from much colder weather and growth in both customers and non-weather related customer usage . much of the margin related to increased sales was offset by a much lower wna adjustment . weather during fiscal 2018 was nearly normal while the weather last year was 18 % warmer than normal resulting in a reduction in the wna adjustment of $ 1,795,000. the remaining net increase in wna adjusted margin is related to increased economic activity in the region combined with customer growth . icc revenues declined by $ 35,000 due to a lower icc factor . the changes in the components of the gas utility margin are summarized below : replace_table_token_9_th operations and maintenance expense - operations and maintenance expenses decrease d by $ 751,151 , or 6 % , from last year due to reductions in compensation , contracted services and benefit costs , partially offset by higher bad debt expense . total operation and maintenance compensation declined by $ 127,000 in large part due to the reduction in employees related to the outsourcing of the customer service function , net of additions in other areas . contracted services also declined as the higher costs related to outsourcing the customer service function were offset by declines in meter reading costs , due to the implementation of an automated meter reading system in fiscal 2017 , and the insourcing of the utility line locating function . employee benefit costs declined by $ 705,000 primarily as a result of decreases in the actuarially determined expenses of both the pension and other post-retirement benefit plans as reflected in note 8. strong asset performance
| 13,851 |
the net unrealized gain on our fixed maturity securities was $ 6.3 billion at december 31 , 2014 compared to $ 4.1 billion at december 31 , 2013 , with the increase due primarily to a decline in u.s. treasury rates during 2014. the earned book yield on our investment portfolio was 5.48 percent for 2014 compared to a yield of 5.57 percent for 2013. we believe our capital and financial positions are strong . at december 31 , 2014 , the rbc ratio for our traditional u.s. insurance subsidiaries , calculated on a weighted average basis using the naic company action level formula , was in excess of 400 percent and generally consistent with the prior year . during 2014 , we repurchased 8.7 million shares of unum group common stock at a cost of approximately $ 301 million under our share repurchase program . cash equivalents and marketable securities held at unum group and our other intermediate holding companies , which are a significant source of liquidity for us , were approximately $ 575 million at december 31 , 2014 . 2014 long-term care reserve increase policy reserves for our long-term care block of business are determined using the gross premium valuation method and , prior to the fourth quarter of 2014 , were valued based on assumptions established as of december 31 , 2011 , the date of the initial loss recognition . gross premium valuation assumptions do not change after the date of loss recognition unless reserves are again determined to be deficient . we undertake a review of policy reserve adequacy annually during the fourth quarter of each year , or more frequently if appropriate , using best estimate assumptions as of the date of the review . included in our fourth quarter of 2014 review was an analysis of our reserve assumptions , including those for the discount rate , mortality and morbidity rates , persistency , and premium rate increases . our analysis of reserve discount rate assumptions considered the continued historic low interest rate environment , future market expectations , and our view of future portfolio yields . the assumptions we established in 2011 were set at a level that we estimated would be sustainable in a low interest rate environment for three to five years , with improvements in market yields beginning after the third year . since that time , however , interest rates have continued to hover near historic lows , and credit spreads have tightened . our assumption update for mortality incorporates the last three years of company-specific experience and emerging trends as well as industry data , where available and appropriate , and reflects improvements in life expectancies beyond what was initially anticipated in 2011. our morbidity assumptions were updated to reflect trends from our own emerging company experience in claim incidence and terminations , as well as trends based on available and appropriate industry data and studies . our premium rate increase assumptions were updated to reflect progress-to-date and our on-going rate increase strategy . based on our analysis , as of december 31 , 2014 we lowered the discount rate assumption to reflect the low interest rate environment and our revised expectation of future investment portfolio yield rates . our revised assumptions anticipate the low interest rate environment persisting for the next three to five years , with a return to more historical averages over the following five year period . we updated our mortality assumptions to reflect emerging experience due to an increase in life expectancies which increases the ultimate number of people who will utilize long-term care benefits and also lengthens the amount of time a claimant may receive long-term care benefits . we changed our morbidity assumptions to reflect emerging industry experience as well as our own company experience , and we updated our projection of future premium rate increase approvals . using our revised best estimate assumptions , as of december 31 , 2014 we determined that our policy and claim reserves should be increased $ 698.2 million to reflect our current estimate of future benefit obligations . this charge decreased our 2014 net income $ 453.8 million . we do not expect these reserve charges to have a material impact on future cash flows available from our subsidiaries or on our capital management plans . 2014 and 2013 retirement benefit changes in 2014 , we amended our u.s. qualified defined benefit pension plan to allow a limited-time offer of benefit payouts to eligible former employees with a vested right to a pension benefit . the offer provided eligible former employees , regardless of age , with an option to elect to receive a lump-sum settlement of his or her entire accrued pension benefit in december 2014 or to elect receipt of monthly pension benefits commencing in january 2015. we recognized a settlement loss of $ 64.4 million before tax , or $ 41.9 million after tax , during the fourth quarter of 2014. this non-operating retirement-related loss represented the applicable portion of the unrecognized actuarial loss which had previously been included in accumulated other comprehensive income and which pertained to the settled benefit obligation . 33 in 2013 , we adopted plan amendments which froze participation and benefit accruals in our defined benefit pension plans in the u.s. and u.k. , effective december 31 , 2013 for the u.s. plans and june 30 , 2014 for the u.k. plan . as a result of these plan amendments we recognized a net before-tax curtailment gain of $ 3.0 million during 2013. because the amendments eliminated all future service accruals subsequent to the effective dates of the amendments , we were also required to remeasure the benefit obligations of our pension plans , which decreased our net pension liability approximately $ 330 million during 2013 , with a corresponding increase in other comprehensive income , less applicable income tax of approximately $ 115 million . story_separator_special_tag concurrent with our amendments to our defined benefit pension plans , we adopted amendments to increase the benefits under our defined contribution plans commensurate with the effective dates of the pension plan amendments . 2013 unclaimed death benefits reserve increase beginning in 2011 , a number of state regulators began requiring insurers to cross-check specified insurance policies with the social security administration 's death master file to identify potential matches . if a potential match was identified , insurers were requested to determine if benefits were due , locate beneficiaries , and make payments where appropriate . we initiated this process where requested , and in 2012 we began implementing this process in all states on a forward-looking basis . we believe adopting this process , which reflects an evolving regulatory and industry practice , is in the best interest of our customers . therefore , in addition to implementing this on a forward-looking basis , in 2013 we began an initiative to search for potential claims from previous years . during the fourth quarter of 2013 , we completed our assessment of benefits which we estimate will be paid under this initiative , and as such , established additional reserves for payment of these benefits . claim reserves were increased $ 49.1 million for unum us group life , $ 26.3 million for unum us voluntary life , and $ 20.1 million for colonial life voluntary life , for a total reserve increase of $ 95.5 million . these reserve adjustments decreased 2013 net income $ 62.1 million . although the legal and regulatory environment continues to evolve , we believe our decision to adopt this claims practice and establish additional reserves is in the best interests of our customers . 2013 group life waiver of premium benefit reserve reduction within our unum us segment , we offer group life insurance coverage which consists primarily of renewable term life insurance and includes a provision for waiver of premium , if disabled . the group life waiver of premium benefit ( group life waiver ) provides for continuation of life insurance coverage when an insured , or the employer on behalf of the insured , is no longer paying premium because the employee is not actively at work due to a disability . the group life waiver claim reserve is the present value of future anticipated death benefits reflecting the probability of death while remaining disabled . claim reserves are calculated using assumptions based on past experience adjusted for current trends and any other factors that would modify past experience and are subject to revision as current claim experience emerges and alters our view of future expectations . the two fundamental assumptions in the development of the group life waiver reserve are mortality and recovery . our emerging experience and that which continues to emerge within the industry indicate an increase in life expectancies , which decreases the ultimate anticipated death benefits to be paid under the group life waiver benefit . emerging experience also reflects an improvement in claim recovery rates , which also lessens the likelihood of payment of a death benefit while the insured is disabled . during the fourth quarter of 2013 , we completed a review of our assumptions and modified our mortality and claim recovery assumptions for our unum us group life waiver reserves and , as a result , reduced the applicable claim reserves by $ 85.0 million and increased 2013 net income $ 55.2 million . consolidated company outlook for 2015 we believe our disciplined approach to providing financial protection products at the workplace puts us in a position of strength as we seek to capitalize on the growing and largely unfilled need for our products and services . we believe the need for our products and services remains strong , and we intend to continue protecting our solid margins and returns through our pricing and risk actions . we continue to invest in our infrastructure and our employees , with a focus on quality and simplification of processes and offerings . our strategy is centered on maintaining a strong customer focus while providing an innovative product portfolio of financial protection choices to deepen employee coverages , broaden employer relationships , and open new markets . the low interest rate environment continues to be a challenge and may put pressure on our profitability and reserve levels for some products , but we continue to analyze and employ strategies that we believe will help us navigate this environment . we 34 believe that consistent operating results , combined with the implementation of strategic initiatives and the effective deployment of capital , will allow us to meet our long-term financial objectives . further discussion is included in `` reconciliation of non-gaap financial measures , '' `` consolidated operating results , '' `` segment results , '' `` investments , '' and `` liquidity and capital resources '' contained in this item 7 and in the `` notes to consolidated financial statements '' contained herein in item 8. reconciliation of non-gaap financial measures we analyze our performance using non-gaap financial measures . a non-gaap financial measure is a numerical measure of a company 's performance , financial position , or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with gaap . the non-gaap financial measures of `` operating revenue , '' `` before-tax operating income '' or `` before-tax operating loss , '' and `` after-tax operating income '' differ from total revenue , income before income tax , and net income as presented in our consolidated operating results and in income statements prepared in accordance with gaap due to the exclusion of net realized investment gains and losses , non-operating retirement-related gains or losses , and certain other items as specified in the reconciliations below .
| as a result , we view foreign currency translation as a financial reporting item and not a reflection of operations or profitability in the u.k. premium income for 2014 increased relative to the prior year , with premium growth in each of our principal operating business segments due to increased sales , premium rate increases , and favorable persistency in most of our product lines . while we are pleased with the improvement we saw throughout 2014 , our premium growth rates remain below our long-term expectations for each of our principal operating business segments . for 2013 , we reported premium growth in our unum us and colonial life segments relative to 2012 , but premium income in total declined for 2013 , as we believe growth in many of our product lines was unfavorably impacted during 2013 by the weak pace of economic growth , low levels of employment growth , the competitive environment , and the distraction caused by political instability and the implementation of healthcare reform . also unfavorably impacting year over year comparisons for 2013 relative to 2012 were the reinsurance agreements we entered into during 2013 to cede a portion of certain product lines in unum us individual disability and in unum uk group life . premium income continues to decline year over year , as expected , in our closed block segment . 50 net investment income declined in 2014 relative to 2013 due primarily to a decrease in yield on invested assets and lower miscellaneous income , which includes income from bond call premiums , mortgage fees and payoffs , and partnership investments , partially offset by an increase in the level of invested assets . net investment income was lower in 2013 relative to 2012 due primarily to a decline in the yield on invested assets , partially offset by a higher level of invested assets . we recognized net realized investment gains of $ 16.1 million , $ 6.8 million , and $ 56.2 million in 2014 , 2013 , and 2012 , respectively . the net realized investment gain for 2014 includes a $ 13.1 million hedge gain associated with the early retirement of a portion of the outstanding debt
| 13,852 |
response to covid-19 as the circumstances with the covid-19 pandemic began to unfold , the company rapidly mobilized over 80 % of non-branch team members to work-from-home , went to drive-thru only at our branches with lobby access by appointment , and actively worked with borrowers to defer loan payments to allow operations to return to some level of normalcy . with the continued uncertainty around the covid-19 pandemic , we continue to take the necessary measures to protect the health and wellbeing of our employees and customers as well as working with our borrowers who continue to be impacted by the covid-19 pandemic . we continue to believe that we are well positioned to weather the economic storm created by the covid-19 pandemic and have built the balance sheet around a philosophy of prudent risk taking . small business administration paycheck protection program the company was successful in getting sba ppp funds out to our community under the care act , which was designed to protect jobs and provide economic relief to small businesses that were negatively impacted by the covid-19 pandemic . through december 31 , 2020 , the bank had funded approximately $ 185 million in ppp loans , which provided essential funds to over 1,500 businesses and nonprofits and protected more than 20,000 jobs in our community . as of december 31 , 2020 , the bank had submitted 413 applications to the sba for forgiveness totaling $ 63,251,000 and received proceeds of approximately $ 47,987,000 on 345 of those applications . the bank is participating in the second round of ppp funding approved by congress and signed into law by the president of the united states of america on december 27 , 2020. the bank expects the approval for forgiveness on ppp loans to pick up in the first half of 2021. this will result in the recognition of unamortized deferred fee income , net of deferred cost , associated with the ppp loans to occur at a higher rate in the first half of 2021 when compared to the second half of 2020 . 34 supporting customers through payment deferrals in response to the covid-19 pandemic , we began deferring payments for up to six months for impacted customers under the cares act , as amended by the caa , which permits financial institutions to suspend requirements under gaap for loan modifications to borrowers affected by covid-19 that would otherwise be characterized as tdrs and suspend any determination related thereto if ( i ) the loan modification is made between march 1 , 2020 and the earlier of january 1 , 2022 or 60 days after the end of the covid-19 emergency declaration and ( ii ) the applicable loan was not more than 30 days past due as of december 31 , 2019. in addition , federal bank regulatory authorities have issued guidance to encourage financial institutions to make loan modifications for borrowers affected by covid-19 and have assured financial institutions that they will neither receive supervisory criticism for such prudent loan modifications , nor be required by examiners to automatically categorize covid-19-related loan modifications as tdrs . as of december 31 , 2020 , the company had approximately $ 38.0 million in loans still under their modified terms . the company 's modification program primarily included payment deferrals and interest only modifications . below is a breakdown of the loan portfolio showing the percentage of loans deferred in each category at the dates indicated ( dollars in thousands ) : replace_table_token_1_th ( 1 ) the table excludes ppp loans of $ 136,674 as the inclusion of these loans dilutes the impact of the deferral program . ( 2 ) the sba provided a financial reprieve to small business as a result of the covid-19 pandemic . the sba automatically paid the principal , interest , and fees on current sba 7 ( a ) loans for a period of six months . these loans have been excluded from the september 30 , 2020 metrics ; however , as of december 31 , 2020 , six loans with a total outstanding balance of $ 3,407,000 went into a deferred payment status and were included in the deferred loan amount above . below is a breakdown of the loan portfolio showing the percentage of loans in deferral within select industry categories at the dates indicated ( dollars in thousands ) : replace_table_token_2_th ( 1 ) the sba provided a financial reprieve to small business as a result of the covid-19 pandemic . the sba automatically paid the principal , interest , and fees on current sba 7 ( a ) loans for a period of six months . these loans have been excluded from the september 30 , 2020 metrics ; however , as of december 31 , 2020 , six loans with a total outstanding balance of $ 3,407,000 went into a deferred payment status and were included in the deferred loan amount and number above . ( 2 ) loans within this group include business such as grocery , convenience stores , drug stores , consumer durables , apparel , and personal services . 35 liquidity risk management over the past eight years , the company has worked to fund the balance sheet with core deposits and reserve wholesale funding capacity for short periods of rapid loan growth or for crises such as the current economic environment . during the three month period ended march 31 , 2020 , the company took aggressive measures to bolster its liquidity to ensure it could meet customer demands in the event customers made significant deposit withdrawals and fully drew on lines of credit . story_separator_special_tag the company increased liquid assets by $ 20,155,000 , or 30.12 % from $ 66,904,000 at december 31 , 2019 to $ 87,059,000 at march 31 , 2020 which was partially accomplished by raising an additional $ 3,733,000 in internet listing service time deposits , $ 15,000,000 in fhlb advances and $ 6,136,000 in brokered time deposits , which were at zero at december 31 , 2019. from march 31 , 2020 through december 31 , 2020 , the company did not experience excessive demand for deposit withdrawals or advances under lines of credit ; however , the company did experience significant growth in low cost relationship deposits ( i.e . noninterest bearing , now , money market and savings ) . this growth in low cost relationship deposits was the result of the company converting a significant portion of non-customer ppp loan applicants into customers and the migration of customer funds from time deposits into money market deposits during the periods . during this period , the company acquired $ 45,120,000 in funds through the federal reserve 's paycheck protection program liquidity facility ( “ ppplf ” ) to support the origination of ppp loans . as of december 31 , 2020 , the ppplf totaled $ 41,529,000. as a result of the growth in low cost relationship deposits , the company prepaid its remaining $ 31,000,000 in fhlb advances during the three month period ended december 31 , 2020. as of december 31 , 2020 , the company had on balance sheet liquid assets of $ 84,295,000 , which the company believes are sufficient to cover its current liquidity needs . however , if the need were to arise the company could access liquidity of approximately $ 95,145,000 in the ppplf through march 31 , 2021 , it could pledge additional collateral to the fhlb in order to increase its available borrowing capacity up to 25 % of assets , it could access the two federal funds lines of credit with correspondent banks totaling $ 15,000,000 , and it could add additional funding through raising internet listing service and brokered time deposits . there were no borrowings with the fhlb or against the lines of credit at december 31 , 2020. capital risk management the bank remains in a strong , well-capitalized position with a common equity tier 1 capital ratio of 13.35 % , a tier 1 risk-based capital ratio of 13.35 % , a total risk-based capital ratio of 14.20 % and a leverage ratio of 9.28 % as of december 31 , 2020. the most significant risk to capital as a result of the covid-19 pandemic is the risk of default within our loan portfolio and the potential loan losses as a result of those defaults . the company has taken several steps to mitigate this risk to our capital by building a diversified loan portfolio over the years to be capable of sustaining through a crisis , working with our customers during this time to defer loan payments for up to six months to allow time for economic stabilization and participating in the sba ppp loan program to help provide much needed funds to our borrowers and the community . while there will be pressure on capital levels as a result of the covid-19 pandemic , the company believes the actions we are taking will protect our capital levels and allow the company to support all stakeholders through this difficult time . while the long-term economic impacts from the covid-19 pandemic are unknown at this time , we believe that our culture of disciplined and conservative risk taking across the balance sheet has the company well positioned to not only carry through the current crisis but to be a pillar of support for our employees , our customers , and our communities . 36 story_separator_special_tag replace_table_token_5_th provision for loan losses the amount of the loan loss provision is determined by an evaluation of the level of loans outstanding , the level of nonperforming loans , historical loan loss experience , delinquency trends , underlying collateral values , the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions . the level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , and present economic , political and regulatory conditions . portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the company 's control , including the performance of the company 's loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . the company recorded a provision for loan losses of $ 950,000 for the year ended december 31 , 2020 , as a result of growth in the loan portfolio and an increase in the qualitative factors due to the anticipated economic impact of covid-19 . the increase in the qualitative factors due to covid-19 were a result of deterioration in local economic factors such as the higher levels of unemployment and the increased credit risk due to loan payment deferrals under the cares act . the company believes the current level of allowance for loan loss reserves are adequate to cover incurred losses . however , the full economic impact of the covid-19 pandemic remains unknown and the company will continue to monitor the loan portfolio for indicators that would warrant additional provisions for loan losses through 2021 and beyond .
| the recognition of the fees , net of deferred costs , will be accelerated as loans are forgiven by the sba . as of december 31 , 2020 , the bank had recognized through interest income $ 2,762,000 in sba fee income , net of deferred costs as a result of normal amortization and the receipt of $ 47,987,000 in funds from loans forgiven by the sba . · the yield on average earning assets contracted by 63 basis points to 4.12 % for the year-ended december 31 , 2020 vs. 4.75 % for the year-ended december 31 , 2019 , primarily because of the 150 basis points federal reserve rate cut in march 2020 and the significant level of ppp loans originated by the bank during 2020 . 37 interest expense on interest-bearing liabilities decreased by $ 897,000 compared to the same period in 2019 as a result of the following : · the cost of interest bearing liabilities dropped by 42 basis points to 1.05 % for the year-ended december 31 , 2020 compared to 1.48 % for the year-ended december 31 , 2019 , as a result of the company 's continued efforts to build low cost relationship deposits and its disciplined approach to deposit pricing . low cost relationship deposits grew by $ 86,372,000 , or 49.42 % , from december 31 , 2019 , while higher cost time deposits decreased by $ 32,275,000 , or 23.52 % , from december 31 , 2019. the following table illustrates average balances of total interest-earning assets and total interest-bearing liabilities for the periods indicated , showing the average distribution of assets , liabilities , shareholders ' equity and related income , expense and corresponding weighted-average yields and rates ( dollars in thousands ) . the average balances used in these tables and other statistical data were calculated using daily average balances . we have no tax exempt assets for the periods presented . average balance sheets , income and expense , yields and rates replace_table_token_4_th 38 interest income and interest expense are affected
| 13,853 |
in 2015 , 2014 and 2013 , 82 % , 86 % and 88 % of our revenue , respectively , was derived from sales of products and associated maintenance and support , while the remaining 18 % , 14 % and 12 % , respectively , was derived from the sale of professional services . in 2015 , 2014 and 2013 , 62 % , 62 % and 58 % of our total revenue , respectively , was derived from sales of content subscriptions , managed services , cloud-based subscriptions and maintenance and support , which we refer to as recurring revenue . we generally bill customers and collect payment for both our products and services up front . we offer our products through a variety of delivery models to meet the needs of our diverse customer base , including : licensed software , including both term and perpetual licenses , and the simultaneous sale of maintenance and support . with the purchase of software licenses , we also offer content subscriptions that provide our customers with real-time access to the latest vulnerabilities and exploits , which are critical for customers in today 's rapidly evolving it environment and threat landscape . cloud-based subscriptions , where our software capabilities are provided to our customers through cloud access and on a saas basis . managed services , where we operate our software and provide our capabilities on behalf of our customers . licensed software our nexpose , metasploit and appspider products are offered through perpetual or term software licenses , with a substantial majority of our customers selecting a perpetual license . substantially all customers who purchase software licenses also purchase an agreement for maintenance and support , which generally represents approximately 15 % of the software list price per year and provides our customers with telephone and web-based support and ongoing bug fixes and repairs during the term of the maintenance and support agreement . importantly , generally all customers also purchase vulnerability and exploit content subscriptions at the time of their software purchase , which generally represents approximately 20 % of the software list price per year . these 55 content subscriptions are critical to keeping our customers ' security programs current by providing them with real-time access to the latest vulnerabilities and exploits over time , and differentiate our threat exposure management offerings from typical vulnerability assessment tools . our maintenance and support and content subscription agreements are typically for one to three-year terms . cloud-based subscriptions our insightuba , appspider and logentries products are offered on a cloud-based subscription basis , generally with one to three-year terms . our recently announced insightidr product will also be offered on a cloud-based subscription basis . managed services our nexpose , appspider , analytic response and insightuba products are offered on a managed service basis , generally pursuant to one to three-year agreements . professional services we offer different forms of professional services across all of our offerings , including deployment and training services related to our nexpose , metasploit , appspider and insightuba software products , our recently announced insightidr product , incident response services and security advisory services . customers can purchase our professional services together with our product offerings or on a stand-alone basis pursuant to fixed fee or time-and-materials agreements . key factors affecting our performance our historical financial performance has been , and we expect our financial performance in the future to be , primarily driven by the following factors : market adoption . we believe our future success will depend in large part on the growth in the market for cyber security data and analytics . to date , the majority of enterprise spend on cyber security has been on threat prevention-centric products , such as network , endpoint and web security that are designed to stop threats from penetrating organizations ' networks . although organizations have not historically had a specific portion of their it and security budgets allocated for security data and analytics products beyond traditional block and protect and compliance-oriented spending categories , we believe that organizations are shifting their cyber security spending to a risk-based approach as they recognize that it is not possible to completely prevent attacks , and that they should instead focus more on managing risk and mitigating breaches as they occur . further , gartner , inc. estimates that by 2020 , 60 % of enterprise information security budgets will be allocated for rapid detection and response approaches up from less than 20 % in 2015. we believe that we are well positioned to capitalize on this expected shift . the degree to which prospective customers recognize the need for security data and analytics solutions that enable organizations to implement an active , analytics driven approach to cyber security , and subsequently allocate budget dollars for our products and professional services , will drive our ability to acquire new customers and increase sales to existing customers , which , in turn , will affect our future financial performance . add new customers . we believe that our ability to add new customers is a key indicator of our increasing market adoption and future revenue potential . our customer count grew by 37 % from 2014 to 2015 and from 2013 to 2014. in 2015 , 55 % of our sales orders , excluding renewals , were with new customers . we are intensely focused on continuing to grow our customer base . we have continuously enhanced our technology platform and product offerings with a focus on pioneering active , analytics-driven solutions to cyber security , and we have expanded both our domestic and international sales force to drive new customer acquisition . however , our ability to continue to grow our customer base is dependent upon our ability to compete within the increasingly competitive markets in which we participate . 56 maintain strong renewal rates . an important component of our revenue growth strategy is to have our existing customers renew their agreements with us and purchase additional products from us . story_separator_special_tag to assess our performance against this objective , we monitor the renewal rates of our existing customers . we calculate our renewal rate by dividing the dollar value of renewed customer agreements , including upsells and cross-sells of additional products , but excluding professional services , on a monthly basis in a trailing 12-month period by the dollar value of the corresponding expiring customer agreements , and then determining the average for the applicable period . we also calculate an expiring revenue renewal rate that does not take into account any upsells or cross-sells . as a result of this methodology , we would not expect our expiring revenue renewal rate to exceed 100 % . we believe that we have strong renewal rates . our renewal rate was 126 % in 2015 and 111 % in 2014 and our expiring revenue renewal rate was 88 % in 2015 and 85 % in 2014. our goal is to maintain , and work to increase , our renewal rates over time . however , our renewal rates may decline or fluctuate as a result of a number of factors , including customers ' satisfaction or dissatisfaction with our products and professional services , pricing , economic conditions or overall reductions in our customers ' spending levels . increase sales to existing customers . we believe that our current customer base provides us with a significant opportunity to drive incremental sales . we focus on generating more revenue from the products and services that they already purchase from us as they grow and deploy our solutions across other areas of their organizations . we are also focused on cross-selling other products and services in our portfolio to our existing customers . in most cases , customers initially engage with us within a single solution category , threat exposure management , incident detection and response or security advisory services , based on their immediate it security needs and the maturity of their security program . once we are in a customer 's it environment , we are able to gain insight into the robustness of its security programs and vulnerabilities , which allows us to educate the customer about how our other products and professional services can enhance its cyber security posture . in 2015 , 45 % of our new sales orders , excluding renewals , were from existing customers . our ability to increase sales to existing customers will depend on a number of factors , including customers ' satisfaction or dissatisfaction with our products and professional services , pricing , economic conditions or overall reductions in our customers ' spending levels . invest in growth . we will continue to focus on long-term revenue growth . we believe that our market opportunity is large and we will continue to invest significantly in sales and marketing to grow our customer base , both domestically and internationally . we also expect to continue to invest in research and development to further enhance our insight platform and continue to develop cyber security solutions as evidenced by our recent announcement of insightidr , a new incident detection and response offering that enables security professionals to more quickly detect and investigate security incidents . key metrics we monitor the following key metrics to help us measure and evaluate the effectiveness of our operations : replace_table_token_6_th total revenue and growth . we are focused on driving continued revenue growth through increased sales of our products and professional services to new and existing customers . 57 operating cash flow . we monitor our operating cash flow as a measure of our overall business performance , which enables us to analyze our financial performance without the effects of certain non-cash items such as stock-based compensation expenses and depreciation and amortization . additionally , operating cash flow takes into account the increase in deferred revenue as a result of increases in sales of products and services , which reflects the receipt of cash payment for products before they are recognized into revenue . our operating cash flow is significantly impacted by changes in deferred revenue , timing of commission and bonus payments and collections of accounts receivable . deferred revenue . we believe that deferred revenue is an important metric as it provides visibility into the revenue to be recognized in future periods . our deferred revenue consists of amounts that have been invoiced to customers but that have not yet been recognized as revenue . our deferred revenue balance consists of the portion of products , maintenance and support and professional services revenue that will be recognized ratably over the applicable maintenance and support contract period . revenue from professional services that are sold on a stand-alone basis is recognized as those services are rendered . number of customers . we believe that the size of our customer base is an indicator of our global market penetration and that our net customer additions are an indicator of the growth of our business . we define a customer as any entity that has 1 ) an active rapid7 contract or a contract that expired within 90 days or less of the applicable measurement date , 2 ) purchased rapid7 professional services within the 12 months preceding the applicable measurement date or 3 ) an active subscription to our logentries product with a contract value equal to or greater than $ 2,400 per year . non-gaap financial results to supplement our consolidated financial statements , which are prepared and presented in accordance with generally accepted accounting principles in the united states , or gaap , we provide investors with certain non-gaap financial measures , including non-gaap gross profit , non-gaap operating loss and non-gaap net loss , which we collectively refer to as non-gaap financial measures . these non-gaap financial measures exclude all or a combination of the following ( as reflected in the following reconciliation tables ) : stock-based compensation expense , amortization of acquired intangible assets , acquisition related expenses and impairment of long-lived assets .
| our increase in total cost of revenue also included a $ 1.8 million increase in allocated overhead , a $ 1.1 million increase in hardware and aws cloud computing costs , a $ 0.5 million increase in travel and entertainment expenses and a $ 0.3 million increase in amortization expense . the same factors were the primary contributors to the increases in products , maintenance and support and professional services cost of revenue . total gross margin percentage decreased due to our revenue mix . 65 operating expenses research and development expense replace_table_token_18_th research and development expense increased by $ 13.2 million in 2015 compared to 2014 primarily due to a $ 10.9 million increase in personnel costs resulting from an increase in headcount from 114 as of december 31 , 2014 to 205 as of december 31 , 2015 to support our product innovation . included in the increase in personnel cost was a $ 4.5 million increase in stock-based compensation expense and $ 3.1 million of additional cost attributable to the logentries and nto acquisitions . our increase in research and development expense also included a $ 1.3 million increase in allocated overhead primarily due to it related costs to support our growing headcount , a $ 0.5 million charge for the write off of capitalized product development costs due to changes in future product development plans , a $ 0.3 million increase in travel and entertainment expense and a $ 0.2 million increase in professional fees . sales and marketing expense replace_table_token_19_th sales and marketing expense increased by $ 18.4 million in 2015 compared to 2014 primarily due to a $ 13.4 million increase in personnel costs , resulting from an increase in headcount from 227 as of december 31 , 2014 to 314 as of december 31 , 2015 to drive additional sales of our products and services and higher commissions expense as a result of increased customer orders .
| 13,854 |
we are currently expanding our grand parkway gathering system , and the expansion is expected to be in service by the end of 2018. on december 30 , 2016 , the partnership entered into a contribution agreement with dcp midstream , llc and dcp midstream operating , lp . on january 1 , 2017 , dcp midstream , llc contributed to us : ( i ) its ownership interests in all of its subsidiaries owning operating assets , and ( ii ) $ 424 million of cash . in consideration of the partnership 's receipt of the contributions , ( i ) the partnership issued 28,552,480 common units to dcp midstream , llc and 2,550,644 general partner units to dcp midstream gp , lp , the general partner , in a private placement and ( ii ) the operating partnership assumed $ 3,150 million of dcp midstream , llc 's debt . 58 as part of our ongoing effort to create efficiencies , reduce costs and transform our business , dcp midstream , llc , announced an approximate 10 percent headcount reduction in april 2016 , which involved the elimination of certain operational and corporate positions . this has not impacted the operation of our assets . on april 28 , 2016 , the unitholders of the partnership approved the dcp midstream partners , lp 2016 long-term incentive plan ( the “ 2016 ltip ” ) , which replaced the 2005 long-term incentive plan that expired pursuant to its terms at the end of 2015 ( the “ 2005 ltip ” ) . any outstanding awards under the 2005 plan will remain outstanding and settle according to the terms of such grant . the 2016 ltip authorizes up to 900,000 common units to be available for issuance under awards to employees , officers , and non-employee directors of the general partner and its affiliates . awards under the 2016 ltip may include unit options , phantom units , restricted units , distribution equivalent rights , unit bonuses , common unit awards , and performance awards . the 2016 ltip will expire on the earlier of the date it is terminated by the board of directors of the general partner or the date that all common units available under the plan have been paid or issued . we believe the 2016 ltip is an important tool to attract and retain qualified individuals who are essential to the future success of the partnership . we announced a quarterly distribution of $ 0.78 per unit for the fourth quarter of 2016 . this distribution remains unchanged from the previous quarter and the fourth quarter of 2015 . general trends and outlook during 2017 , our strategic objectives will continue to focus on maintaining stable distributable cash flows from our existing assets and executing on opportunities to sustain our long-term distributable cash flows in light of the significant changes to our business resulting from the transaction . we believe the key elements to stable distributable cash flows are the diversity of our asset portfolio , our fee-based business which represents a significant portion of our estimated margins , plus our hedged commodity position , the objective of which is to protect against downside risk in our distributable cash flows . we incur capital expenditures for our consolidated entities and our unconsolidated affiliates . our 2017 plan includes maintenance capital expenditures of between $ 100 million and $ 145 million , and approved expansion capital expenditures between $ 325 million and $ 375 million , for the year ending december 31 , 2017. expansion capital expenditures include the construction of the mewbourn 3 plant and construction of grand parkway phase 2 in our dj basin system , and the capacity expansion of the sand hills pipeline , which is shown as an investment in unconsolidated affiliates in our consolidated statements of cash flows . we anticipate our business to continue to be affected by the following key trends . our expectations are based on assumptions made by us and information currently available to us . to the extent our underlying assumptions about or interpretations of available information prove to be incorrect , our actual results may vary materially from our expected results . commodity price environment - our business is impacted by commodity prices . if commodity prices weaken for a sustained period , our natural gas throughput and ngl volumes may be impacted , particularly as producers are curtailing or redirecting drilling . drilling activity levels vary by geographic area ; we have observed decreases in drilling activity in certain regions , and increases in drilling activity in others . the midstream natural gas industry is cyclical , with the operating results of companies in the industry significantly affected by drilling activity , which may be impacted by prevailing commodity prices . commodity prices have been lower compared to historical periods and experienced significant volatility during recent years , as illustrated in item 1a . risk factors - “ our cash flow is affected by natural gas , ngl and condensate prices. ” despite recent short-term weakness , our long-term view is that commodity prices will be at levels that we believe will support continued growth in natural gas , condensate and ngl production . natural gas gathering and processing margins - except for our fee-based contracts , which may be impacted by throughput volumes , our natural gas gathering and processing profitability is dependent upon commodity prices , natural gas supply , and demand for natural gas , ngls and condensate . commodity prices , which are impacted by the balance between supply and demand , have historically been volatile . throughput volumes could decline should commodity prices and drilling levels continue to experience weakness . our long-term view is that as industry conditions improve , commodity prices should support continued natural gas production in the united states . during 2016 , petrochemical demand remained stable for ngls as ngls were a competitive feedstock when compared to crude oil derived feedstocks . story_separator_special_tag we anticipate demand for ngls by the petrochemical industry will continue in 2017 as chemical plants convert facilities from an oil-based feedstock to a ngl-based feedstock and as export facilities are brought into service . although there can be , and has been , near-term volatility in ngl prices , longer term we believe there will be sufficient demand in ngls to balance supply . ngl logistics - the volumes of ngls transported on our pipelines , fractionated in our fractionation facilities and stored in our storage facility are dependent on the level of production of ngls from processing plants connected to our assets . when natural gas prices are high relative to ngl prices , it is less profitable to process natural gas because of the higher value of natural gas compared to the value of ngls and because of the increased cost of separating the ngls from the natural gas . as a 59 result , we have experienced periods in the past , in which higher natural gas or lower ngl prices reduce the volume of ngls extracted at plants connected to our ngl pipelines , fractionation and storage facilities and , in turn , lower the ngl throughput on our assets . wholesale propane supply and demand - due to our multiple propane supply sources , propane supply contractual arrangements , significant storage capabilities , and multiple terminal locations for wholesale propane delivery , we are generally able to provide our propane distribution customers with reliable supplies of propane during peak demand periods of tight supply , usually in the winter months when their customers consume the most propane for heating . factors that may significantly affect our results transfers of net assets between entities under common control that represent a change in reporting entity are accounted for as if the transfer occurred at the beginning of the period , and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method . accordingly , our consolidated financial statements have been adjusted to include the historical results of our lucerne 1 plant for all periods presented , similar to the pooling method . the financial statements of our predecessor have been prepared from the separate records maintained by dcp midstream , llc and may not necessarily be indicative of the conditions that would have existed or the results of operations if our predecessor had been operated as an unaffiliated entity . natural gas services segment our results of operations for our natural gas services segment are impacted by ( 1 ) the prices of and relationship between commodities such as ngls , crude oil and natural gas , ( 2 ) increases and decreases in the volume and quality of natural gas that we gather and transport through our systems , which we refer to as throughput , ( 3 ) the associated btu content of our system throughput and our related processing volumes , ( 4 ) the operating efficiency and reliability of our processing facilities , ( 5 ) potential limitations on throughput volumes arising from downstream and infrastructure capacity constraints , ( 6 ) the terms of our processing contract arrangements with producers , and ( 7 ) increases and decreases in the volume , price and basis differentials of natural gas associated with our natural gas storage and pipeline assets , as well as our underlying derivatives associated with these assets . this is not a complete list of factors that may impact our results of operations but , rather , are those we believe are most likely to impact those results . throughput and operating efficiency generally are driven by wellhead production , plant recoveries , operating availability of our facilities , physical integrity and our competitive position on a regional basis , and more broadly by demand for natural gas , ngls and condensate . historical and current trends in the price changes of commodities may not be indicative of future trends . throughput and prices are also driven by demand and take-away capacity for residue natural gas and ngls . our processing contract arrangements can have a significant impact on our profitability and cash flow . our actual contract terms are based upon a variety of factors , including the commodity pricing environment at the time the contract is executed , natural gas quality , geographic location , customer requirements and competition from other midstream service providers . our gathering and processing contract mix and , accordingly , our exposure to natural gas , ngl and condensate prices , may change as a result of producer preferences , impacting our expansion in regions where certain types of contracts are more common as well as other market factors . our natural gas services segment operating results are impacted by market conditions causing variability in natural gas , crude oil and ngl prices . the midstream natural gas industry is cyclical , with the operating results of companies in the industry significantly affected by drilling activity , which may be impacted by prevailing commodity prices . the number of active oil and gas drilling rigs in the united states has decreased , from 698 on december 31 , 2015 to 563 on december 31 , 2016 ( source : ihs ) . although the prevailing price of residue natural gas has less short-term significance to our operating results than the price of ngls , in the long-term , the growth and sustainability of our business depends on commodity prices being at levels sufficient to provide incentives and capital for producers to explore and produce natural gas . the prices of ngls , crude oil and natural gas can be extremely volatile for periods of time , and may not always have a close relationship . due to our hedging program , changes in the relationship of the price of ngls and crude oil may cause our commodity price exposure to vary , which we have attempted to capture in our commodity price sensitivities in “ quantitative and qualitative disclosures about market risk.
| year ended december 31 , 2016 vs. year ended december 31 , 2015 total operating revenues — total operating revenues decreased $ 401 million in 2016 compared to 2015 primarily as a result of the following : $ 349 million decrease for our natural gas services segment primarily due to decreased commodity prices , lower gas and ngl sales volumes primarily related to our eagle ford and east texas systems which impact both sales and purchases , lower prices and volumes at our natural gas storage and pipeline assets , unfavorable commodity derivative activity and the disposition of our northern louisiana system , partially offset by growth in our dj basin system ; and $ 54 million decrease for our wholesale propane logistics segment primarily due to lower propane volumes and prices . total purchases — total purchases decreased $ 300 million in 2016 compared to 2015 primarily as a result of the following : purchases of natural gas and ngls decreased $ 265 million in 2016 compared to 2015 as a result of decreased commodity prices and lower gas and ngl sales volumes , primarily related to our eagle ford and east texas systems , and decreased volumes at our natural gas storage and pipeline assets , which impact both sales and purchases ; and purchases of propane decreased in 2016 compared to 2015 primarily due to decreased volumes as discussed below under the heading `` propane sales volumes '' and lower propane prices which impact both sales and purchases . operating and maintenance expense — operating and maintenance expense decreased in 2016 compared to 2015 primarily as a result of improved operating efficiencies , other cost savings initiatives , and the disposition of our northern louisiana system . goodwill impairment — goodwill impairment expense in 2015 represents impairment of our collbran , michigan and southeast texas reporting units . earnings from unconsolidated affiliates — earnings from unconsolidated affiliates increased in 2016 compared to 2015 primarily as a result of the completion of the keathley canyon project at discovery in february 2015 in our natural gas services segment and increased volumes on our sand hills , southern hills and front range pipelines in our ngl logistics segment . income tax benefit ( expense ) — income tax benefit decreased in 2016 compared to 2015 primarily due to a decrease in the texas margin tax rate in 2015. gain on sale of assets — a gain on the sale of our northern louisiana system was recognized in the third
| 13,855 |
as used in this form 10-k , unless the context suggests otherwise , we , us , our , the company or vectoiq refer to vectoiq acquisition corp. overview we are a newly organized company incorporated as a delaware corporation on january 23 , 2018 and formed for the purpose of effecting a merger , capital stock exchange , asset acquisition , stock purchase , recapitalization reorganization or similar business combination with one or more businesses ( the initial business combination ) . we intend to effectuate our initial business combination using cash from the proceeds of our initial public offering ( the public offering ) and the sale of private placement units that occurred simultaneously with the consummation of the public offering . the issuance of additional shares of our stock in a business combination : · may significantly dilute the equity interest of investors in the public offering ; · may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock ; · could cause a change in control if a substantial number of shares of our common stock is issued , which may affect , among other things , our ability to use our net operating loss carry forwards , if any , and could result in the resignation or removal of our present officers and directors ; · may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us ; and · may adversely affect prevailing market prices for our common stock and or warrants . as indicated in the accompanying financial statements , at december 31 , 2018 , we had $ 1,168,600 in cash , $ 47,979 of cash held in trust account , and investments held in trust account of $ 235,243,004. we expect to continue to incur significant costs in the pursuit of our acquisition plans . we can not assure you that our plans to complete our initial business combination will be successful . 40 story_separator_special_tag liquidation , the company will cease incurring these monthly fees . as of december 31 , 2018 , the company accrued $ 75,000 for office space and general administrative services . controls and procedures we are not currently required to maintain an effective system of internal controls as defined by section 404 of the sarbanes-oxley act . we will be required to comply with the internal control requirements of the sarbanes-oxley act for the fiscal year ending december 31 , 2019. we have not completed an assessment of internal controls . we expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and , if necessary , to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls . a target business may not be in compliance with the provisions of the sarbanes-oxley act regarding the adequacy of internal controls . many small and mid-sized target businesses we may consider for our initial business combination may have internal controls that need improvement in areas such as : · staffing for financial , accounting and external reporting areas , including segregation of duties ; · reconciliation of accounts ; · proper recording of expenses and liabilities in the period to which they relate ; · evidence of internal review and approval of accounting transactions ; · documentation of processes , assumptions and conclusions underlying significant estimates ; and · documentation of accounting policies and procedures . because it will take time , management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business , we may incur significant expense in meeting our public reporting responsibilities , particularly in the areas of designing , enhancing , or remediating internal and disclosure controls . doing so effectively also may take longer than we expect , thus increasing our exposure to financial fraud or erroneous financing reporting . related party transactions in february 2018 , our founders purchased an aggregate of 5,750,000 founder shares for an aggregate purchase price of $ 25,000 , or approximately $ 0.004 per share . in march 2018 , our sponsor transferred 15,000 founder shares to each of our initial director nominees . in may 2018 , cowen investments forfeited 287,500 founder shares . additionally , in may 2018 , our sponsor purchased 254,829 founder shares for an aggregate purchase price of $ 1,108 , or approximately $ 0.004 per share , and our anchor investor purchased 32,671 founder shares for an aggregate purchase price of $ 142 , or approximately $ 0.004 per share . the number of founder shares issued was determined based on the expectation that such founder shares would represent 20 % of the outstanding shares upon completion of the initial public offering ( excluding the private shares ) . prior to the initial investment of $ 25,000 by our founders , the company had no assets , tangible or intangible . the purchase price of the founder shares was determined by dividing the amount of cash contributed to the company by the number of founder shares issued . story_separator_special_tag if we increase or decrease the size of the offering pursuant to rule 462 ( b ) under the securities act , we will effect a stock dividend or share contribution back to capital or other appropriate mechanism , as applicable , immediately prior to the consummation of the offering in such amount as to maintain the representation by the founder shares of 20 % of our issued and outstanding shares of common stock ( excluding the private shares ) upon the consummation of the initial public offering . up to 750,000 founder shares will be subject to forfeiture , depending on the extent to which the underwriter 's over-allotment option is exercised . we are obligated , commencing on the date of the initial public offering , to pay our sponsor a monthly fee of an aggregate of $ 10,000 for office space and general and administrative services . additionally , we have issued two promissory notes , one to our sponsor and a second to cowen investments , both dated as of march 1 , 2018. each of the individual notes is in the aggregate principal amount of $ 100,000. the notes both contain a drawdown feature such that at any time prior to the consummation of the initial public offering we may draw up to an aggregate of $ 100,000 on each of the notes for general working capital expenses . these loans are non-interest bearing and were repaid with the proceeds from the initial public offering . 42 our sponsor , officers and directors , or any of their respective affiliates , will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations . our audit committee will review on a quarterly basis all payments that were made to our sponsor , officers , directors or our or any of their affiliates and will determine which expenses and the amount of expenses that will be reimbursed . there is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf . we do not believe we will need to raise additional funds following the initial public offering in order to meet the expenditures required for operating our business . however , in order to finance transaction costs in connection with an intended initial business combination , our founders , officers , directors or their affiliates may , but are not obligated to , loan us funds as may be required . in the event that the initial business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts , but no proceeds from our trust account would be used for such repayment . such loans would be evidenced by promissory notes . up to $ 1,500,000 of such loans may be convertible into additional units of the post-business combination entity at a price of $ 10.00 per unit at the option of the lender . the units would be identical to the private units . the terms of such loans by our officers and directors , if any , have not been determined and no written agreements exist with respect to such loans . our founders and anchor investor purchased an aggregate of 890,000 private units ( including 90,000 private units in connection with the exercise of the over-allotment option ) , at $ 10.00 per unit in a private placement . among the private units , 525,909 units were purchased by our sponsor and or its designees , 67,424 units were purchased by our anchor investor and or its designees , and 296,667 units were purchased by cowen investments and or its designees . all of the proceeds we received from the purchase of the private placement units were placed in the trust account . the forward purchase investor has entered into a contingent forward purchase agreement with us as described below . pursuant to the contingent forward purchase agreement , we may elect ( subject to the forward purchase investor 's right to be excused from any specific business combination as described below ) to have the forward purchase investor purchase up to 2,500,000 shares of our common stock , plus one of our redeemable warrants for each forward purchase share , at a price of $ 10.00 per forward purchase share , for total gross proceeds of up to $ 25,000,000. while we may elect to have the forward purchase investor purchase no securities under the contingent forward purchase agreement , if we request that the forward purchase investor purchase securities and the forward purchase investor defaults on such purchase or the forward purchase investor exercises its right of refusal as described herein , the forward purchase investor will forfeit up to all of its ownership interest in our sponsor related to founder shares , and our sponsor will have the right to redeem the forward purchase investor 's remaining ownership interest in our sponsor at the original purchase price . any funds from the sale of the forward purchase securities may be used as part of the consideration to the sellers in the initial business combination , for expenses in connection with the initial business combination or for the combined company 's working capital needs . this commitment is independent of the percentage of stockholders electing to redeem their public shares and could provide us with a minimum funding level for the initial business combination .
| prior to the completion of our initial business combination , we will have available to us the approximately $ 1,168,600 of proceeds held outside the trust account . we will use these funds to identify and evaluate target businesses , perform business due diligence on prospective target businesses , travel to and from the offices , plants or similar locations of prospective target businesses or their representatives or owners , review corporate documents and material agreements of prospective target businesses , and structure , negotiate and complete a business combination . in order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination , our sponsor or an affiliate of our sponsor or certain of our officers and directors may , but are not obligated to , loan us funds as may be required . if we complete our initial business combination , we would repay such loaned amounts . in the event that our initial business combination does not close , we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment . up to $ 1,500,000 of such loans may be convertible into warrants , at a price of $ 10.00 per warrant at the option of the lender . the warrants would be identical to the private placement warrants , including as to exercise price , exercisability and exercise period . the terms of such loans by our officers and directors , if any , have not been determined and no written agreements exist with respect to such loans . we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account . we
| 13,856 |
the total size of the hyref fund is rmb 460 million ( $ 75 million ) . the hyref fund was formed for the purpose of investing in xi'an zhonghong new energy technology co. , ltd. , a 90 % owned subsidiary of xi'an tch , for the construction of two coke dry quenching ( “ cdq ” ) waste heat power generation ( “ whpg ” ) stations with jiangsu tianyu energy and chemical group co. , ltd. ( “ tianyu ” ) and one cdq whpg station with boxing county chengli gas supply co. , ltd. ( “ chengli ” ) . erdos tch – joint venture on april 14 , 2009 , the company formed erdos tch as a joint venture ( the “ jv ” ) with erdos metallurgy co. , ltd. ( “ erdos ” ) to recycle waste heat from erdos ' metal refining plants to generate power and steam to be sold back to erdos . the jv has a term of 20 years with a total investment for the project estimated at $ 79 million ( rmb 500 million ) and an initial investment of $ 17.55 million ( rmb 120 million ) . erdos contributed 7 % of the total investment for the project , and xi'an tch contributed 93 % . according to xi'an tch and erdos ' agreement on profit distribution , xi'an tch and erdos will receive 80 % and 20 % , respectively , of the profit from the jv until xi'an tch receives the complete return of its investment . xi'an tch and erdos will then receive 60 % and 40 % , respectively , of the profit from the jv . on june 15 , 2013 , xi'an tch and erdos entered into a share transfer agreement , pursuant to which erdos transferred and sold its 7 % ownership interest in the jv to xi'an tch for $ 1.29 million ( rmb 8 million ) , plus certain accumulated profits as described below . xi'an tch paid the $ 1.29 million in july 2013 and , as a result , became the sole shareholder of the jv . in addition , xi'an tch is required to pay erdos accumulated profits from inception up to june 30 , 2013 in accordance with the supplementary agreement entered on august 6 , 2013. in august 2013 , xi'an tch paid 20 % of the accumulated profit ( calculated under prc gaap ) of $ 226,000 to erdos . the jv currently has two power generation systems in phase i with a total of 18mw power capacity , and three power generation systems in phase ii with a total of 27mw power capacity . shanxi datong coal group power generation projects in february 2011 , xi'an tch entered into an agreement with shanxi datong coal group steel co. , ltd ( “ shanxi datong ” ) to recycle gas and steam from groups of blast-furnaces and converters at shanxi datong 's metal refining plants to generate power and pursuant to which xi'an tch agreed to install two 3mw bprt systems , and one 15mw wgpg system with a total of 21mw power capacity for an estimated total investment of $ 28.6 million ( rmb 180 million ) . in june 2013 , the two 3mw bprt power generation systems were completed . the lease term is 30 years , during which time shanxi datong will pay a service fee to xi'an tch . the service fee is based on an average of 8,000 electricity-generating hours per year and $ 0.05 ( rmb 0.33 ) per kilowatt hour ( “ kwh ” ) for the first five years from the completion of each power generation station . for each of the leases , at the 6th , 11th and 21st year anniversary of the date of the lease , the rates will change to rmb 0.3 kwh , 0.27 kwh and 0.25 kwh , respectively . in may 2012 , shanxi datong and tianjin construction materials group ( holding ) co. , ltd. were restructured and renamed as datong coal mine tianjian iron & steel co. , ltd. ( the “ datong ” ) . on june 10 , 2013 , xi'an tch and datong entered into a supplemental agreement relating to the minimum service fee . the minimum service fee per month for the first five years is $ 0.19 million ( rmb 1.2 million ) , $ 0.18 million ( rmb 1.1 million ) for the second five years , $ 0.16 million ( rmb 1.0 million ) for the following 10 years and $ 0.15 million ( rmb 0.9 million ) for the last 10 years . after 30 years , the units will be transferred to datong at no additional charge . on may 26 , 2015 , the 15mw wgpg system was completed . due to the change of its strategic plan , datong notified xi'an tch that it would not be able to fulfill its obligations under the cooperative agreement and requested to repurchase the two 3mw blast furnace power recovery turbine ( the “ bprt ” ) systems and one 15mw wgpg system ( the “ systems ” ) from xi'an tch and terminate the cooperative agreement . on may 29 , 2015 , xi'an tch entered into a repurchase agreement for the recycling economy project with datong . under the repurchase agreement , datong was to repurchase the systems from xi'an tch and pay outstanding energy saving service fees of rmb 1.2 million ( $ 193,548 ) to xi'an tch within five working days from the execution of the repurchase agreement . the systems were to be transferred to datong for a total price of rmb 250 million ( $ 40.32 million ) with rmb 100 million for two bprt systems and rmb 150 million for one wgpg system . as of june 30 , 2015 , xi'an tch had received the payment in full and the systems were transferred . the outstanding balance of net investment receivable ( the remaining principal amount ) at date of transfer was $ 13.37 million . story_separator_special_tag the company recorded $ 2.98 million gain from two brpt systems as non-operating income and $ 3.02 million gain from the wgpg system as gross profit from the sales of system which was the difference between the repurchase amount and the net investment receivable . 38 shenqiu yuneng biomass power generation projects on may 25 , 2011 , xi'an tch entered into a letter of intent ( “ loi ” ) with shenqiu yuneng thermal power co. , ltd. ( “ shenqiu ” ) to reconstruct and transform a thermal power generation system owned by shenqiu into a 75t/h bmpg system for $ 3.57 million ( rmb 22.5 million ) . the project commenced in june 2011 and was completed in the third quarter of 2011. on september 28 , 2011 , xi'an tch entered into a biomass power generation asset transfer agreement with shenqiu ( the “ shenqiu transfer agreement ” ) . pursuant to the shenqiu transfer agreement , shenqiu sold xi'an tch a set of 12 mw bmpg systems ( after xi'an tch converted the system for bmpg purposes ) . as consideration for the bmpg systems , xi'an tch agreed to pay shenqiu $ 10.94 million ( rmb 70 million ) in cash in three installments within six months upon the transfer of ownership of the systems . by the end of 2012 , all of the consideration was paid . on september 28 , 2011 , xi'an tch and shenqiu also entered into a biomass power generation project lease agreement ( the “ 2011 shenqiu lease ” ) . under the 2011 shenqiu lease , xi'an tch agreed to lease a set of 12mw bmpg systems to shenqiu at a monthly rental rate of $ 286,000 ( rmb 1.8 million ) for 11 years . upon expiration of the 2011 shenqiu lease , ownership of this system will be transferred from xi'an tch to shenqiu at no additional cost . in connection with the 2011 shenqiu lease , shenqiu paid one month 's rent as a security deposit to xi'an tch , in addition to providing personal guarantees . on october 8 , 2012 , xi'an tch entered into an loi for technical reformation of shenqiu project phase ii with shenqiu for technical reformation to enlarge the capacity of the shenqiu project phase i ( the “ shenqiu phase ii project ” ) . the technical reformation involved the construction of another 12mw bmpg system . after the reformation , the generation capacity of the power plant increased to 24mw . the project commenced on october 25 , 2012 and was completed during the first quarter of 2013. the total cost of the project was $ 11.1 million ( rmb 68 million ) . on march 30 , 2013 , xi'an tch and shenqiu entered into a bmpg project lease agreement ( the “ 2013 shenqiu lease ” ) . under the 2013 shenqiu lease , xi'an tch agreed to lease the second set of 12mw bmpg systems to shenqiu for $ 239,000 ( rmb 1.5 million ) per month for 9.5 years . when the 2013 shenqiu lease expires , ownership of this system will be transferred from xi'an tch to shenqiu at no additional cost . pucheng biomass power generation projects on september 11 , 2013 , xi'an tch entered into a bmpg asset transfer agreement ( the “ pucheng transfer agreement ” ) with pucheng xin heng yuan biomass power generation corporation ( “ pucheng ” ) , a limited liability company incorporated in china . the pucheng transfer agreement provided for the sale by pucheng to xi'an tch of a set of 12mw bmpg systems with completion of system transformation for a purchase price of rmb 100 million ( $ 16.48 million ) in the form of 8,766,547 shares of common stock of the company at the price of $ 1.87 per share . also on september 11 , 2013 , xi'an tch also entered into a bmpg project lease agreement with pucheng ( the “ pucheng lease ” ) . under the pucheng lease , xi'an tch leases this same set of 12mw bmpg system to pucheng , and combine this lease with the lease for the 12mw bmpg station of pucheng phase i project , under a single lease to pucheng for rmb 3.8 million ( $ 0.63 million ) per month ( the “ pucheng phase ii project ” ) . the term for the combined lease is from september 2013 to june 2025. the lease agreement for the 12mw station from pucheng phase i project terminated upon the effective date of the pucheng lease . the ownership of two 12 mw bmpg systems will be transferred to pucheng at no additional charge when the pucheng lease expires . jitie power generation projects in may 2013 , xi'an tch signed a contract with sinosteel jilin ferroalloys co. , ltd. ( “ jitie ” ) to build furnace gas whpg systems for electricity generation from recycled heat and steam from groups of ferroalloy furnaces and electric furnaces ( the “ jitie project ” ) . according to the contract , xi'an tch will install a 7.5 mw and a 3 mw turbine power generation system with a total of 10.5 mw power capacity for an estimated total investment of $ 9.71 million ( rmb 60 million ) . the lease term is 24 years . during the term of this lease , jitie will pay service fees to xi'an tch based on the actual generating capacity with a minimum service fee per month of $ 300,000 ( rmb 1.8 million ) and xi'an tch was responsible for the systems operation and owned the power generation systems . in december 2013 , the jitie project was completed and began operations . 39 on june 18 , 2015 , xi'an tch entered into a whpg system repurchase agreement with jitie .
| the decrease in blended gross margin in the year ended december 31 , 2015 was primarily due to the repurchase of the datong wgpg system by shanxi datong coal group steel co. the datong wgpg system was repurchased at the completion date and had a profit margin of approximately 12.3 % and its sale caused the company 's blended gross margin to decrease . 46 interest income on sales-type leases . interest income on sales-type leases for the year ended december 31 , 2015 was $ 23.00 million , a $ 3.46 million decrease from $ 26.46 million for the comparable period of 2014. during the year ended december 31 , 2015 , interest income was derived from the following 13 sales-type leases : i. two bmpg systems to pucheng phase i and ii ( 15 and 11.9 years , respectively ) ; ii . one bmpg system to shenqiu phase i ( 11 years ) ; iii . one bmpg system to shenqiu phase ii ( 9.5 years ) ; iv . five power and steam generating systems to erdos ( 20 years ) ; v. one whpg system to jitie ( 24 years ) ; vi . two bprt systems to shanxi datong ( 30 years ) ; and vii . one wgpg system to yida ( 15 years ) . the company transferred the ownership of two bprt systems to datong and one whpg system to jitie during the 2 nd quarter of 2015. in addition , one more datong wgpg system was completed on may 26 , 2015 and was also transferred to datong along with the two bprt systems during the 2 nd quarter of 2015. in comparison , during the comparable period of 2014 , interest income was derived from 16 systems : one trt system to zhangzhi , one chpg systems to jing yang shengwei , two systems for the erdos phase i project , three systems for the erdos phase ii project , two bmpg systems to pucheng , two bmpg systems to shenqiu , one
| 13,857 |
in september 2019 , the holder of $ 1.0 million outstanding principal and interest of our unsecured notes began exchanging the outstanding principal and interest from those notes for our common stock per the terms of a forbearance and exchange agreement dated march 7 , 2019. during september 2019 , a total of $ 0.5 million of principal and accrued interest on these notes was exchanged for an aggregate 372,888 shares of our common stock . subsequently , the holder exchanged the remaining approximately $ 1.5 million of accrued interest and principal for an aggregate 1,475,258 shares of our common stock between october 1 , 2019 and december 5 , 2019 and such notes are no longer outstanding . on december 11 , 2019 , we received approval from the new jersey economic development authority 's technology business tax certificate transfer program to sell approximately $ 3.6 million of our unused new jersey net operating losses , or nols , and research and development tax credits , or r & d credits . we anticipate proceeds from the sale of these new jersey nols and r & d credits in the first calendar quarter of calendar year 2020. we received $ 3.4 million of proceeds from the sale of the new jersey nols and r & d credits during fiscal 2019. as described in their audit report included elsewhere in this annual report on form 10-k , our auditors have included an explanatory paragraph that states that we have incurred recurring losses and negative cash flows from operations and have a stockholders ' deficit at september 30 , 2019 of $ 16.1 million , $ 6.7 million of senior secured notes that mature on december 22 , 2019 , $ 3.6 million unsecured notes that are due on demand , and $ 1.0 million of unsecured notes that are due on demand , but are subject to a forbearance agreement through march 7 , 2020. we will need to raise substantial additional capital to fund our planned future operations , commence clinical trials , receive approval for and commercialize ons-5010 , or to develop other product candidates . we plan to finance our future operations with a combination of proceeds from potential licensing and or marketing arrangements with pharmaceutical companies , the issuance of equity securities , and the issuance of additional debt , potential collaborations and revenues from potential future product sales , if any . there are no assurances that we will be successful in obtaining an adequate level of financing for the development and commercialization of ons-5010 or any other current or future product candidates . if we are unable to secure adequate additional funding , our business , operating results , financial condition and cash flows may be materially and adversely affected . these matters raise substantial doubt about our ability to continue as a going concern . our consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . our current cash resources of $ 8.0 million as of september 30 , 2019 and anticipated proceeds from the sale of new jersey nols and r & d credits are expected to fund our operations into march 2020 , excluding any repayment of debt . to provide additional working capital , we continue to engage in active discussions with global and regional pharmaceutical companies for licensing and or co-development rights to ons-5010 . if we are not successful in raising additional capital or entering into one or more licensing and or co-development rights agreements , we may be required to , among other things , modify our clinical trial plans for ons-5010 in additional indications , make reductions in our workforce , discontinue our development programs , liquidate all or a portion of our assets , and or seek protection under the provisions of the u.s. bankruptcy code . we do not have any products approved for sale and we have only generated revenue from our collaboration agreements . we have incurred operating losses and negative operating cash flows since inception and there is no assurance that we will ever achieve profitable operations , and if achieved , that profitable operations will be sustained . our net loss for the year ended september 30 , 2019 was $ 34.5 million . we also had a net loss of $ 30.1 million for the year ended september 30 , 2018. in addition , development activities , clinical and preclinical testing and commercialization of our product candidates will require significant additional financing . 59 collaboration and license agreements from time to time , we enter into collaboration and license agreements for the research and development , manufacture and or commercialization of our products and or product candidates . these agreements generally provide for non-refundable upfront license fees , development and commercial performance milestone payments , cost sharing , royalty payments and or profit sharing . mttr , llc – ons 5010 in february 2018 , we entered into a strategic partnership agreement with mttr , llc , or mttr , to advise on regulatory , clinical and commercial strategy and assist in obtaining approval of ons-5010 , our bevacizumab therapeutic product candidate for ophthalmic indications . under the terms of the agreement , we paid mttr a $ 58,333 monthly consulting fee through december 2018. beginning january 2019 , the monthly fee increased to $ 105,208 per month , and then , after launch of ons-5010 in the united states , will increase to $ 170,833 per month ( the amount of which is reduced by 50 % in the event net sales of ons-5010 are below a certain threshold million per year ) . we also agreed to pay mttr a tiered percentage of the net profits of ons-5010 ranging in the low- to mid-teens , with the ability to credit monthly fees paid to mttr . story_separator_special_tag in march 2018 , we amended the mttr agreement and agreed to pay a one-time fee of $ 268,553 to mttr by september 2020 if certain regulatory milestones are achieved earlier than anticipated . in june 2019 , we entered into a further amendment of our strategic partnership agreement with mttr pursuant to which we increased the aggregate monthly payments to mttr under the existing agreement from $ 105,208 to $ 170,724 through december 2019 by adding an additional monthly retainer of $ 115,516 , and an offset of $ 50,000 to the existing monthly retainer while the additional monthly retainer is in effect . mttr earned an aggregate $ 1,744,933 and $ 602,629 during the years ended september 30 , 2019 and 2018 , respectively , which includes monthly consulting fees and expense reimbursement . unless earlier terminated , the mttr agreement expires , on a country-by-country basis , upon the later of expiration of any regulatory exclusivity in such country and , in certain major market countries , ten years after launch of ons-5010 in such major market country , and in all other countries in the territory , ten years after launch of ons-5010 in any country in the territory . either party may terminate the mttr agreement upon the uncured material breach of the agreement by the other party or upon a bankruptcy or insolvency of the other party . additionally , we are permitted to terminate the mttr agreement in the event of certain specified development or commercial failures of ons-5010 and may terminate either the entire mttr agreement or with respect to certain consultants in the event that certain consultants are not able to perform their obligations under the mttr agreement , and a suitable replacement consultant is not found . additionally , in the event of a change of control of our company or sale of our rights to ons-5010 , mttr will be entitled to additional consideration equal to its profit sharing percentage multiplied by the value of the applicable transaction that relates to ons-5010 ( subject to certain adjustments ) . in november 2018 we appointed terry dagnon as our chief operating officer and jeff evanson as our chief commercial officer . although each is an executive officer of our company , they are providing services to us pursuant to our strategic partnership agreement with mttr , are compensated by mttr , and each has an ownership interest in mttr . see also item 13 “ certain relationships and related transactions , and director independence—mttr llc - ons 5010 strategic partnership agreement. ” selexis sa in october 2011 , we entered into a research license agreement with selexis whereby we acquired a non-exclusive license to conduct research internally or in collaboration with third parties to develop recombinant proteins from cell lines created in mammalian cells using the selexis expression technology , or the selexis technology . the research license expired on october 9 , 2018 and accordingly , we are no longer using the selexis technology in our research . selexis also granted us a non-transferrable option to obtain a perpetual , non-exclusive , worldwide commercial license under the selexis technology to manufacture , or have manufactured , a recombinant protein produced by a cell line developed using the selexis technology for clinical testing and commercial sale . we exercised this option in april 2013 and entered into three commercial license agreements with selexis for our ons-3010 , ons-1045 ( which covers ons-5010 ) and ons-1050 product candidates . we paid an upfront licensing fee to selexis for each commercial license and also agreed to pay a fixed milestone payment for each licensed product . in addition , we are required to pay a single-digit royalty on a final product-by-final product and country-by-country basis , based on worldwide net sales of such final products by us or any of our affiliates or sub-licensees during the royalty term . at any time during the term , we have the right to terminate our royalty payment obligation by providing written notice to selexis and paying selexis a royalty termination fee . the initiation of our phase 3 clinical program for ons-5010 triggered a chf 65,000 ( approximately $ 0.1 million ) a milestone payment under the commercial license agreement , which we paid in november 2019 . 60 components of our results of operations collaboration revenue to date , we have derived revenue only from activities pursuant to our emerging market collaboration and licensing agreements related to our inactive biosimilar development program . we have not generated any revenue from commercial product sales . for the foreseeable future , we expect all of our revenue , if any , will be generated from our collaboration and licensing agreements . if any of our product candidates currently under development are approved for commercial sale , we may generate revenue from product sales , or alternatively , we may choose to select a collaborator to commercialize our product candidates . eac h of our collaboration and licensing agreements was considered to be a multiple-element arrangement for accounting purposes . we determined that there were two deliverables ; specifically , the license to our product candidate and the related research and development services that we were obligated to provide . we concluded that these deliverables should be accounted for as a single unit of accounting and revenue was being recognized on a straight-line basis through the estimated period of completion of our obligations under the agreement . as of september 30 , 2019 , all future development will be completed by our partners without any further assistance by us . as a result , we recognized all remaining deferred revenue under our collaboration agreements as of september 30 , 2019. research and development expenses research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred .
| the increase in ipca , liomont , and huahai revenue was offset by a $ 1.3 million decrease from the biolexis collaboration revenue due to the full recognition of related milestones in the second quarter of fiscal 2019. research and development expenses the following table summarizes our research and development expenses by functional area for the years ended september 30 , 2019 and 2018 : replace_table_token_3_th research and development expenses for the year ended september 30 , 2019 increased by $ 5.3 million compared to the year ended september 30 , 2018. the increase was primarily due to increased ons-5010 development costs of $ 4.6 million as we progressed into phase 3 clinical trials near the end of fiscal year 2018. in addition , 2018 reflects a $ 3.2 million favorable settlement of a contract related to our inactive biosimilar product candidates . the increase was offset by a $ 1.3 million decrease in compensation and related benefits and a $ 1.3 million decrease in other research and development expenses due to reduction in headcount and closure of our manufacturing and laboratory facilities resulting from our decision to outsource the commercial manufacturing and remaining development for the ons-5010 program . 64 general and administrative expenses the following table summarizes our general and administrative expenses by type for the years ended september 30 , 2019 and 2018 : replace_table_token_4_th general and administrative expenses for the year ended september 30 , 2019 decreased by $ 4.9 million compared to the year ended september 30 , 2018. the decrease was primarily due to a $ 4.2 million lease termination charge incurred during the fourth quarter of fiscal 2018 , reduction in compensation and related benefits of $ 1.2 million and stock-based compensation expense of $ 0.7 million , resulting from staff reductions connected with the closure of our manufacturing facility and laboratory facilities . these decreases were offset by an increase in professional fees of $ 0.9 million and $ 0.5 million increase in lease termination obligation accretion costs . impairment of property and equipment we recognized a loss on impairment of property and equipment of $ 11.3 million for the year ended september 30 , 2019. the impairment was recognized due to the substantial completion of our efforts to outsource the commercial manufacturing and remaining development for the ons-5010
| 13,858 |
our research and development accruals are estimated based on the level of services performed , progress of the studies , including the phase or completion of events or tasks , and contracted costs . the estimated costs of research and development provided , but not yet invoiced , are included in accrued and other current liabilities on the balance sheet . if the actual timing of the performance of services or the level of effort varies from the original estimates , we adjust the accrual accordingly . payments made to cros and cmos under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered . nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses and other current assets on our balance sheet . the capitalized amounts are recognized as expense as the goods are delivered or the related services are performed . we expect our research and development expenses to increase substantially , as we advance sts101 through clinical development , manufacturing and regulatory approval , and as we prepare for commercialization of sts101 , if approved . predicting the timing or the cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors , including factors outside of our control . for example , if the fda or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate , if we experience significant delays in enrollment in any of our clinical trials or if we experience delays in manufacturing with any of our cmos , we could be required to expend significant additional financial resources and time on the completion of clinical development . furthermore , we are unable to predict when or if sts101 will receive regulatory approval with any certainty . general and administrative expenses general and administrative expenses consist principally of payroll and personnel expenses , including salaries , benefits and stock-based compensation expenses , professional fees for legal , consulting , accounting and tax services , directors and officers insurance , allocated overhead , including rent , debt service , equipment , depreciation , information technology costs , and utilities , and other general operating expenses not otherwise classified as research and development expenses . 86 we anticipate that our general and administrative expenses will increase as a result of increased personnel costs , including salaries , benefits and stock-based compensation expenses , expanded infrastructure and higher consulting , legal and accounting services associated with maintaining compliance with stock exchange listing and securities and exchange commission , or sec , requirements , investor relations costs and director and officer insurance premiums associated with being a public company . interest income interest income consists primarily of interest earned on our cash , cash equivalents and marketable securities . interest expense interest expense consists primarily of interest related to our long-term debt , convertible note , and accretion of debt discount and debt issuance costs . other income ( expense ) , net other income ( expense ) , net primarily consists of changes in the fair value of convertible preferred stock tranche liability and the obligation to issue additional shares of common stock . results of operations comparison of the years ended december 31 , 2019 and 2018 replace_table_token_3_th research and development expenses research and development expenses increased by $ 17.8 million , or 276 % , from the year ended december 31 , 2018 to the year ended december 31 , 2019. the increase in research and development expenses was primarily due to an increase of $ 15.9 million in fees paid to cros and cmos as a result of increased clinical and non-clinical trial activities , an increase of $ 1.0 million in payroll and personnel expenses , including salaries , benefits and stock-based compensation expenses , due to increases in headcount partially offset with payroll tax credit , an increase of $ 0.8 million in allocated overhead , including depreciation and travel expenses and an increase of $ 0.1 million of other research and development related expenses . general and administrative expenses general and administrative expenses increased by $ 3.6 million , or 333 % , from the year ended december 31 , 2018 to the year ended december 31 , 2019. the increase in general and administrative expenses was primarily due to an increase of $ 1.1 million of payroll and personnel expenses , including salaries , benefits and stock-based compensation expenses , due to increases in headcount , and an increase of $ 2.5 million of professional fees for legal , consulting , accounting , tax and other services . 87 interest income interest income increased by $ 1.1 million from the year ended december 31 , 2018 to the year ended december 31 , 2019 , which was primarily due to an increase in interest income on our cash , cash equivalents and marketable securities balances , which increased as a result of the net proceeds from our series b convertible preferred stock in april 2019 and ipo in september 2019. interest expense interest expense increased by $ 0.4 million from the year ended december 31 , 2018 to the year ended december 31 , 2019 , which was primarily attributable to interest expense related to our long-term debt , including accretion of debt discount and debt issuance costs . other income ( expense ) , net other income ( expense ) , net decreased by $ 0.2 million from the year ended december 31 , 2018 to the year ended december 31 , 2019 , which was primarily due to a decrease in the fair value of the convertible preferred stock tranche liability of $ 0.3 million during the year ended december 31 , 2018 partially offset with change in fair value of snbl grant liability of $ 0.1 million . story_separator_special_tag comparison of the years ended december 31 , 2018 and 2017 replace_table_token_4_th research and development expenses research and development expenses increased by $ 2.2 million , or 53 % , from the year ended december 31 , 2017 to the year ended december 31 , 2018. the increase in research and development expenses was primarily due to an increase of $ 1.3 million in fees paid to cros and cmos , and an increase of $ 0.9 million in payroll and personnel expenses , including salaries , benefits and stock-based compensation expenses , due to increases in headcount . general and administrative expenses general and administrative expenses increased by $ 0.3 million , or 44 % , from the year ended december 31 , 2017 to the year ended december 31 , 2018. the increase in general and administrative expenses was primarily due to an increase of $ 0.1 million of payroll and personnel expenses , including salaries , benefits and stock-based compensation expenses , and an increase of $ 0.1 million of professional fees for legal , consulting , accounting , tax and other services . interest income interest income increased by less than $ 0.1 million from the year ended december 31 , 2017 to the year ended december 31 , 2018 , which was primarily attributable to interest income from cash and cash equivalents . 88 interest expense interest expense increased by $ 0.1 million from the year ended december 31 , 2017 to the year ended december 31 , 2018 , which was primarily attributable to interest expense related to our long-term debt , including accretion of debt discount and debt issuance costs . other income ( expense ) , net other income ( expense ) , net increased by $ 0.4 million from the year ended december 31 , 2017 to the year ended december 31 , 2018 , which was primarily due to a decrease in the fair value of the convertible preferred stock tranche liability of $ 0.3 million during the year ended december 31 , 2018. liquidity and capital resources ; plan of operations sources of liquidity prior to the completion of our ipo in september 2019 , we had funded our operations since our inception primarily through private placements of convertible preferred stock , a convertible promissory note , and long-term debt . we do not have any products approved for sale and have never generated any revenue . in august 2016 , we received $ 0.1 million under a convertible promissory note . we received gross cash proceeds of $ 6.0 million from the sale and issuance of series a convertible preferred stock during the year ended december 31 , 2016 , and gross cash proceeds of $ 6.0 million from the sale and issuance of series a convertible preferred stock during the year ended december 31 , 2018. in april 2019 , we received gross cash proceeds of $ 61.7 million from the sale and issuance of series b convertible preferred stock . we also entered into the credit facility described below with silicon valley bank . in september 2019 , we sold and issued 5,500,000 shares of common stock at $ 15.00 per share for gross proceeds of $ 82.5 million . in october 2019 , we sold and issued an additional 552,116 shares at $ 15.00 per share for gross proceeds of $ 8.3 million as a result of the partial exercise by the underwriters of their option to purchase additional shares . these gross proceeds are before underwriting discounts , commissions and offering costs . credit facility in october 2018 , we entered into the loan agreement with silicon valley bank . the loan agreement provides for loan advances of up to $ 10.0 million . we drew down the first advance of $ 5.0 million as of the effective date of the loan agreement . the remaining $ 5.0 million is available for draw down in $ 1.0 million increments . the loan agreement contains customary affirmative and negative covenants and events of default , including covenants and restrictions that among other things , restrict our ability to incur liens , incur additional indebtedness , make loans and investments , engage in mergers and acquisitions , engage in asset sales or sale and leaseback transactions , and declare dividends or redeem or repurchase capital stock . interest on the loan advances is payable monthly at a floating per annum rate equal to the greater of 1.5 % above the prime rate and 6.5 % . upon the occurrence of an event of default , interest will increase to 5.0 % above the rate that is otherwise applicable . principal on the outstanding loan advance is repayable commencing on december 1 , 2019 in 30 monthly payments through maturity . the maturity date of the loan advances is may 1 , 2022. future funding requirements we have incurred net losses since our inception . our net losses were $ 28.2 million , $ 7.3 million and $ 5.2 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . based on our current business plan , we believe that our existing cash , cash equivalents and marketable securities , will be sufficient to fund our planned operations for at least 12 months from the issuance of our financial statements as of and for the year ended december 31 , 2019. we do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize sts101 or enter into collaborative agreements with third parties , and we do not know when , or if , either will occur . we expect to continue to incur significant losses for the foreseeable future , and we expect the losses to increase as we continue the development of , and seek regulatory approvals for , sts101 and begin to commercialize sts101 , if approved .
| net cash used in operating activities was $ 7.0 million for the year ended december 31 , 2018. cash used in operating activities was primarily due to the use of funds in our operations to develop sts101 , which resulted in a net loss of $ 7.3 million , adjusted for changes in fair value of convertible preferred stock tranche liability of $ 0.3 million , an increase in prepaid expenses and other assets of $ 0.5 million , a decrease in accounts payable of $ 0.2 million , which amounts were partially offset by depreciation expense of $ 0.1 million , change in the fair value of the obligation to issue additional common stock by $ 0.1 million , stock-based compensation expense of $ 0.2 million , and an increase in accrued and other liabilities of $ 0.9 million . the decrease in accounts payable resulted from the timing of payments to our service providers . the increase in accrued and other liabilities was primarily due to an increase in accrued research and development and accrued compensation . net cash used in operating activities was $ 4.3 million for the year ended december 31 , 2017. cash used in operating activities was primarily due to the use of funds to develop sts101 , which resulted in a net loss of $ 5.2 million , adjusted for an increase in prepaid expenses and other assets of $ 0.3 million , which amounts were partially offset by a change in the fair value of the obligation to issue additional shares of common stock of $ 0.2 million , stock-based compensation expense of $ 0.1 million , an increase in accrued and other liabilities of $ 0.4 million , and an increase in accounts payable of $ 0.4 million . the increase in accrued and other liabilities was primarily due to an increase in accrued research and development and accrued compensation . the increase in accounts payable resulted from the timing of payments to our service providers . cash flows used in investing activities net cash used in investing activities was $ 95.9 million for the year ended december 31 , 2019 , which consisted of purchases of marketable securities of $ 99.9 million , which amounts were partially offset by proceeds from maturities of marketable securities of $ 4.5 million and purchases of property and equipment of $ 0.5 million . net cash used in investing activities was $ 0.4 million for the year ended december 31 , 2018 , which
| 13,859 |
the 2009 tax benefit was recorded at a rate lower than customary due to certain stock option charges which are a permanent , non-deductible , expense for income tax purposes and due to the recording of a full valuation allowance on our net deferred tax asset due to the uncertainly with respect to utilization in the future based on our trend of operating losses . the 2008 tax benefit was recorded at a rate lower than customary due to certain stock option charges which are a permanent , non-deductible , expense for income tax purposes . liquidity and capital resources cash and cash equivalents were $ 3.4 million at december 31 , 2010 , a decrease of $ 0.4 million from $ 3.8 million at december 31 , 2009 . 12 capital expenditures for 2010 were $ 1.8 million compared with $ 1.0 million in 2009 and $ 2.0 million in 2008. the spending in 2010 was primarily related to folding cartons equipment and system related investments . the spending in 2009 was primarily focused on equipment and system improvements . expenditures in 2008 were mainly for productivity and efficiency initiatives . we anticipate approximately $ 1.5 million in capital spending for 2011. the company has access to a $ 3.0 million secured line of credit with a commercial bank which expires june 9 , 2013. interest on the line of credit is based on libor plus 2.75 % , with an interest floor of 3.35 % . at december 31 , 2010 , $ 0.2 million was in use through a standby letter of credit and there was no balance drawn on the line . the company was in compliance with all applicable covenants at december 31 , 2010. the amount of the line of credit that was unused and available to the company at december 31 , 2010 was $ 2.8 million . the company repurchased 165,572 shares in 2010 and 25,000 shares in 2008. there were no shares repurchased in 2009. the company has authorization to repurchase 84,930 shares at december 31 , 2010. the closing price of the company 's stock at december 31 , 2010 was $ 5.00. at this price , the repurchase of 84,930 shares would require $ 425 thousand . we believe cash and cash equivalents , which totaled $ 3.4 million at december 31 , 2010 , in combination with cash expected to be generated from our 2011 operations , can meet our obligations , other working capital requirements and capital expenditure needs in 2011. contractual obligations replace_table_token_2_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 203,000 square feet of office and warehouse buildings adjacent to the company 's corporate printing and manufacturing property . beginning in november 2022 and ending in october 2027 , the company has an option to purchase the property for $ 1.8 million and terminate the lease . if the purchase option is not exercised , the company is obligated to make monthly payments of $ 15,000 through october 2052. off-balance sheet arrangements the only off-balance sheet arrangements we have are operating leases for equipment and two automobile leases . rental expense under these leases was $ 413 thousand in 2010 , $ 490 thousand in 2009 and $ 541 thousand in 2008. recently issued accounting standards in january 2010 , the fasb issued guidance as accounting standards updated ( “ asu ” ) no . 2010-06 , “ improving disclosures about fair value measurements , ” which amends asc 820. asu no . 2010-06 amends the asc to require disclosure of transfers into and out of level 1 and level 2 fair value measurements , and also requires more detailed disclosure about the activity within level 3 fair value measurements . the changes to the asc as a result of this update are effective for annual and interim reporting periods beginning after december 15 , 2009 ( january 1 , 2010 for the company ) , except for requirements related to level 3 disclosures , which are effective for annual and interim reporting periods beginning after december 15 , 2010 ( january 1 , 2011 for the company ) . this guidance requires new disclosures only , and has not impacted the company 's consolidated financial statements . critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . 13 revenue recognition revenue is recognized when title , ownership , and risk of loss pass to the customer , all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and generally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other story_separator_special_tag the 2009 tax benefit was recorded at a rate lower than customary due to certain stock option charges which are a permanent , non-deductible , expense for income tax purposes and due to the recording of a full valuation allowance on our net deferred tax asset due to the uncertainly with respect to utilization in the future based on our trend of operating losses . the 2008 tax benefit was recorded at a rate lower than customary due to certain stock option charges which are a permanent , non-deductible , expense for income tax purposes . liquidity and capital resources cash and cash equivalents were $ 3.4 million at december 31 , 2010 , a decrease of $ 0.4 million from $ 3.8 million at december 31 , 2009 . 12 capital expenditures for 2010 were $ 1.8 million compared with $ 1.0 million in 2009 and $ 2.0 million in 2008. the spending in 2010 was primarily related to folding cartons equipment and system related investments . the spending in 2009 was primarily focused on equipment and system improvements . expenditures in 2008 were mainly for productivity and efficiency initiatives . we anticipate approximately $ 1.5 million in capital spending for 2011. the company has access to a $ 3.0 million secured line of credit with a commercial bank which expires june 9 , 2013. interest on the line of credit is based on libor plus 2.75 % , with an interest floor of 3.35 % . at december 31 , 2010 , $ 0.2 million was in use through a standby letter of credit and there was no balance drawn on the line . the company was in compliance with all applicable covenants at december 31 , 2010. the amount of the line of credit that was unused and available to the company at december 31 , 2010 was $ 2.8 million . the company repurchased 165,572 shares in 2010 and 25,000 shares in 2008. there were no shares repurchased in 2009. the company has authorization to repurchase 84,930 shares at december 31 , 2010. the closing price of the company 's stock at december 31 , 2010 was $ 5.00. at this price , the repurchase of 84,930 shares would require $ 425 thousand . we believe cash and cash equivalents , which totaled $ 3.4 million at december 31 , 2010 , in combination with cash expected to be generated from our 2011 operations , can meet our obligations , other working capital requirements and capital expenditure needs in 2011. contractual obligations replace_table_token_2_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 203,000 square feet of office and warehouse buildings adjacent to the company 's corporate printing and manufacturing property . beginning in november 2022 and ending in october 2027 , the company has an option to purchase the property for $ 1.8 million and terminate the lease . if the purchase option is not exercised , the company is obligated to make monthly payments of $ 15,000 through october 2052. off-balance sheet arrangements the only off-balance sheet arrangements we have are operating leases for equipment and two automobile leases . rental expense under these leases was $ 413 thousand in 2010 , $ 490 thousand in 2009 and $ 541 thousand in 2008. recently issued accounting standards in january 2010 , the fasb issued guidance as accounting standards updated ( “ asu ” ) no . 2010-06 , “ improving disclosures about fair value measurements , ” which amends asc 820. asu no . 2010-06 amends the asc to require disclosure of transfers into and out of level 1 and level 2 fair value measurements , and also requires more detailed disclosure about the activity within level 3 fair value measurements . the changes to the asc as a result of this update are effective for annual and interim reporting periods beginning after december 15 , 2009 ( january 1 , 2010 for the company ) , except for requirements related to level 3 disclosures , which are effective for annual and interim reporting periods beginning after december 15 , 2010 ( january 1 , 2011 for the company ) . this guidance requires new disclosures only , and has not impacted the company 's consolidated financial statements . critical accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . 13 revenue recognition revenue is recognized when title , ownership , and risk of loss pass to the customer , all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and generally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other
| because we provide products such as personalized dinner and cocktail napkins , small boxes for sundries at events , and other celebration type items for both the retail and corporate markets , this product line is also heavily impacted by economic downturns . we can compete with much larger companies in the personalized print industry ; however we have developed a strong brand in krepe-kraft among event planners and wedding coordinators . our website , www.partybasics.com , has had some success as our retail outlet . we also provide our products to third-party web-stores . revenue 2010 compared with 2009 for fiscal 2010 , revenue was $ 48.7 million compared with $ 48.9 million in 2009 , a decrease of $ 0.2 million or 0.4 % . the custom folding cartons product line had sales of $ 35.7 million in 2010 , an increase of 2.5 % from 2009 , mainly due to increased business from several large existing customers and increased waste sales resulting from improved conditions in the recycled paperboard market , offset partially by decreased business from several large customers . the stock packaging product line had sales of $ 9.6 million in 2010 , up $ 0.6 million , or 7.0 % , from $ 9.0 million in 2009. the increase from the prior year was mainly due to improvement in general business conditions and increased waste sales resulting from improved conditions in the recycled paperboard market . the personalized print product line had sales of $ 2.9 million in 2010 , down $ 0.1 million , or 3.1 % , from $ 3.0 million in 2009. the decline from the prior year was mainly due to continued weakness in general business conditions . there were no specialty print and direct mail sales in 2010 due to the product line rationalization that took place at the end of the second quarter of 2009. specialty print and direct mail sales were $ 1.5 million in 2009 . 2009 compared with 2008 for fiscal 2009 , revenue was $ 48.9 million which was virtually unchanged from revenue in 2008. the custom
| 13,860 |
replace_table_token_1_th replace_table_token_2_th 30 our total cash resources as of december 31 , 2011 were $ 1.0 million , compared to $ 3.4 million as of december 31 , 2010. as of december 31 , 2011 , we had approximately $ 0.5 million in liabilities , and $ 0.8 million in net working capital . we incurred a net loss of $ 4.9 million and had negative cash flow from operating activities of $ 4.6 million for the year ended december 31 , 2011. since august 1 , 2005 ( inception ) through december 31 , 2011 , we have incurred an aggregate net loss of approximately $ 44.8 million , while negative cash flow from operating activities has amounted to $ 32.7 million . as we continue to develop our product candidates , we expect to continue to incur substantial and increasing losses , which will continue to generate negative net cash flows from operating activities as we expand our technology portfolio and engage in further research and development activities , particularly the conducting of pre-clinical studies and clinical trials . from inception through december 31 , 2011 , we have financed our operations through public and private sales of our equity and debt securities . as we have not generated any revenue from operations to date , and we do not expect to generate revenue for several years , if ever , we will need to raise substantial additional capital in order to continue to fund our research and development , including our long-term plans for clinical trials and new product development , as well as to fund our immediate general corporate activities . we may seek to raise additional funds through various potential sources , such as equity and debt financings , or through strategic collaborations and license agreements . we can give no assurances that we will be able to secure such additional sources of funds to support or operations , or if such funds are available to us , that such additional financing will be sufficient to meet our needs . on march 30 , 2012 , we entered into subscription agreements with certain purchasers under which we agreed to sell to such purchasers an aggregate of 3,350,000 shares of our common stock and warrants to purchase 2,512,500 million shares of our common stock in consideration for an aggregate purchase price of approximately $ 1.34 million . see “ —financing activities , ” below . we believe that the anticipated net proceeds from this offering , together with our existing cash resources , provides us with sufficient capital to fund our general corporate activities only to mid-fourth quarter of 2012. further , beyond our general corporate activities , we need substantial additional capital to fund our planned phase 2 clinical trial of cenderitide . we are in discussions with different strategic partners about potentially collaborating on the future development of cenderitide , including our planned phase 2 clinical trial , and the terms of any such collaboration may provide that any such partner would fund all or a portion of the expenses of such further development . however , we do not have any agreement or commitment from any collaboration partner , and there is no assurance we will be able to reach any such agreement . if we are unable to reach an agreement with a collaboration partner , we will be required to fund the entire costs of the planned phase 2 trial on our own , which we estimate may cost approximately $ 15 million to $ 20 million and take approximately 30 months to complete . there can be no assurance that we will be able to secure the capital needed to fund our general corporate activities or the planned phase 2 clinical trial , whether through a collaboration with a third party or by ourselves . until we can generate a sufficient amount of product revenue , if ever , we expect to finance future cash needs , including the cash needed to fund our planned phase 2 clinical trial of cenderitide , through public or private equity offerings , debt financings , or corporate collaboration and licensing arrangements . additional funds may not be available when we need them on terms that are acceptable to us , or at all . if adequate funds are not available , we may be required to delay , reduce the scope of , or eliminate one or more of our research or development programs or our commercialization efforts . in addition , we could be forced to discontinue product development and reduce or forego attractive business opportunities . to the extent that we raise additional funds by issuing equity securities , our stockholders may experience additional significant dilution , and debt financing , if available , may involve restrictive covenants . to the extent that we raise additional funds through collaboration and licensing arrangements , it may be necessary to relinquish some rights to our technologies or our product candidates , or grant licenses on terms that may not be favorable to us . we may seek to access the public or private capital markets whenever conditions are favorable , even if we do not have an immediate need for additional capital at that time . if we are not able to obtain financing when needed , we may be unable to carry out our business plan , including further clinical development of cenderitide . as a result , we may have to significantly limit our planned operations , which would materially harm our business , financial condition and results of operations . in such an event , we will be required to undertake a thorough review of our programs and the opportunities presented by such programs and allocate our resources in the manner most prudent . story_separator_special_tag further , our actual cash requirements may vary materially from those now planned because of a number of factors , including the changes in the focus and direction of our research and development programs , including the acquisition and pursuit of development of new product candidates ; competitive and technical advances ; costs of commercializing any of our product candidates ; and costs of filing , prosecuting , defending and enforcing any patent claims and any other intellectual property rights . if we are unable to raise additional funds when needed , we may not be able to market our products as planned or continue development and regulatory approval of our products , we could be required to delay , scale back or eliminate some or all our research and development programs and we may need to wind down our operations altogether . each of these alternatives would likely have a material adverse effect on our business . we will need additional capital to fund our operations through the fourth quarter of 2012. we have based our estimate on assumptions that may prove to be wrong . we may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate . the actual amount of funds we will need to operate is subject to many factors , some of which are beyond our control . these factors include the following : · the progress of our research activities ; · the number and scope of our research programs ; · the progress of our pre-clinical and clinical development activities ; · the progress of the development efforts of parties with whom we have entered into research and development agreements ; · our ability to maintain current research and development programs and to establish new research and development and licensing arrangements ; 31 · the cost involved in prosecuting and enforcing patent claims and other intellectual property rights ; and the cost and timing of regulatory approvals . financing activities march 2012 financing . on march 30 , 2012 , we entered into subscription agreements with certain purchasers pursuant to which we agreed to sell an aggregate of 3,350,000 shares of our common stock to such purchasers for a purchase price of $ 0.40 per share . in addition , for each share purchased , each purchaser will also receive three-fourths of a five-year warrant to purchase an additional share of common stock at an exercise price of $ 0.50 per share , resulting in the issuance of warrants to purchase an aggregate of 2,512,500 shares of our common stock . the total gross proceeds from the offering will be $ 1.34 million , before deducting anticipated selling commissions and expenses of approximately $ 0.2 million . the offer and sale of these securities was registered under our form s-3 shelf registration statement declared effective in march 2010. the closing of the offering is expected to occur on or around april 4 , 2012 , subject to customary closing conditions . in connection with the offering , we engaged roth capital partners , llc , or roth , to serve as placement agent . pursuant to the terms of the placement agent agreement , we agreed to pay roth a cash fee equal to seven percent of the gross proceeds received by us , or approximately $ 0.1 million , plus a non-accountable expense allowance of $ 35,000. richard b. brewer , our executive chairman , joshua a. kazam , our president and chief executive officer and a director , daron evans , our chief financial officer , and hsiao lieu , m.d. , our executive vp of clinical development , are participating in the offering on the same terms as the unaffiliated purchasers , and have collectively subscribed to purchase 275,000 shares of our common stock and warrants to purchase 206,250 shares of our common stock for an aggregate purchase price of $ 110,000. june 2011 financing . on june 20 , 2011 , we sold in a private placement offering a total of 5,000,000 units of our securities at an offering price of $ 0.50 per unit . each unit contained one share of common stock and 0.50 warrants to purchase one share of common stock at an exercise price of $ 0.60 per share . we may call the warrants for redemption upon 30 days ' notice if the volume weighted average price of the common stock for any 20 consecutive business days is equal to or greater than $ 1.50 per share . the total gross proceeds from the 2011 offering were $ 2.5 million , before deducting selling commissions and expenses , which were approximately $ 0.2 million . the closing of the private placement occurred on june 23 , 2011. pursuant to the purchase agreement , the company agreed to file a registration statement with the securities and exchange commission seeking to register the resale of the shares and warrant shares . the registration statement was filed on july 22 , 2011. in connection with the private placement offering , we engaged riverbank capital securities , inc. ( or “ riverbank ” ) to serve as placement agent , and ladenburg thalmann & co. inc. served as a sub-placement agent . pursuant to the terms of the engagement agreement , we paid the placement agents a cash fee of $ 175,000 and issued warrants to purchase 250,000 shares of common stock , valued at $ 99,100. peter m. kash , a director , and joshua a. kazam , our president and chief executive officer and a director , are each officers of riverbank . dr. kash was allocated a portion of the warrants issuable to the placement agents . in light of the relationship between dr. kash , mr. kazam and riverbank , the selection of riverbank as a placement agent and the terms of the engagement were reviewed and approved by a special committee of the our board consisting of disinterested directors with no affiliation to riverbank or its affiliates . april 2010 financing .
| based on our current development plans for cu-np , we anticipate that we will expend a minimal amount on external development costs until we have obtained significant additional capital . 29 our expenditures on current and future clinical development programs , particularly our cenderitide program , are expected to be substantial , particularly in relation to our available capital resources , and to increase . however , these planned expenditures are subject to many uncertainties , including the results of clinical trials and whether we develop any of our drug candidates with a partner or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates . the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors , including : · the number of trials and studies in a clinical program ; · the number of patients who participate in the trials ; · the number of sites included in the trials ; · the rates of patient recruitment and enrollment ; · the duration of patient treatment and follow-up ; · the costs of manufacturing our drug candidates ; and · the costs , requirements , timing of , and the ability to secure regulatory approvals . collaboration income . we realized collaboration income of approximately $ 1.4 million during the year ended december 31 , 2011 , all of which represents the funds paid to us by medtronic as reimbursement of expenses we incurred in connection with our phase 1 clinical trial of cenderitide in accordance with the terms of our february 2011 clinical trial funding agreement with medtronic . all amounts due under the agreement were paid as of
| 13,861 |
32 part iv item 15 : exhibits and financial statement schedules ( a ) ( 1 ) ( 2 ) financial statements . see the audited financial statements for the years ended march 31 , 2017 , and 2016 , contained in part ii , item 8 , which are incorporated herein by this reference . ( a ) ( 3 ) ( i ) exhibits . the following exhibits are filed as part of this annual report : exhibit number description 31 certification pursuant to section 302 of the sarbanes-oxley act provided by william c. lachmar , president , ceo , chief financial officer and director . 32 certification pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 proved by william c. lachmar , president , ceo , chief financial officer and director . exhibit number description 101.ins xbrl instance document 101.pre . xbrl taxonomy extension presentation linkbase 101.lab xbrl taxonomy extension label linkbase 101.def xbrl taxonomy extension definition linkbase 101.cal xbrl taxonomy extension calculation linkbase 101.sch xbrl taxonomy extension schema documents incorporated by reference where incorporated in this annual report prospectus dated january 7 , 2013 , and filed with the sec on january 8 , 2013 ( spin-off ) part i , item 1 8-k current report dated april 22 , 2013 , and filed with the sec on april 22 , 2013 ( spin-off payment date ) part i , item 1 annual report on form 10k for the fiscal year ended march 31 , 2015 3.1 articles of incorporation 3.2 bylaws 14 code of ethics part i , item 1 part iii , item 10 ( 1 ) summaries of all exhibits are modified in their entirety by reference to the actual exhibit . ( 2 ) these documents and related exhibits have previously been filed with the sec and are referenced for additional information . 33 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this annual report to be signed on its behalf by the undersigned , thereunto duly authorized . geo point resources , inc. date : august 21 , 2017 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director pursuant to the requirements of the securities exchange act of 1934 this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . geo point resources , inc. date : august 21 , 2017 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director date : august 21 , 2017 by : jeffrey r. brimhall jeffrey r. brimhall , secretary 34 story_separator_special_tag when used in this annual report , the words may , will , expect , anticipate , continue , estimate , project , intend , and similar expressions are intended to identify forward-looking statements regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , operating results , and financial position . persons reviewing this annual report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors . our future results and shareholder values may differ materially from those expressed in these forward-looking statements . many of the factors that will determine these results and values are beyond our ability to control or predict . we may be required to update these forward-looking statements from time to time as circumstances change ; however , we undertake no duty to do so . plan of operation we anticipate continuing our current business operations comprising the engineering and environmental divisions ' operations formerly conducted by geo point utah , and we believe with the resurgence on the u.s. economy and the real estate market in general , that our efforts during fiscal 2016 should result in modest increases in revenues , limited , however to projects where we will strictly on the professional management the rec services and the leasing of environmental equipment for rec services rather than a contracting company for these services . this change in the scope of our business operations has limited the future services available for bid by the company . mr. lachmar now reviews the scope of work for particular proposals that come within the company 's current business focus , and if a particular proposal is one that requires the physical efforts of mr. lachmar onsite , he will not bid on the project , but will refer the proposed project to another party for contracting , with the understanding that such party will lease the equipment of the company for any such project to the extent that the company has the equipment necessary to perform the required field work on the project . we also will continue to provide consulting and compliance services for new utility installation and general site erosion control for housing tracts and updating service station underground storage tanks and fuel dispensing systems to comply with continually changing california air resources board ( carb ) regulations . during fiscal 2017 , mr. lachmar became certified to manage , prepare and complete storm water runoff and erosion control plans under new applicable california land erosion and control regulations and to complete final inspections regarding these projects . other engineering services provided are for soil dewatering for underground structure installations and small demolition and construction work . these utility landing services comprise subsurface trench work where underground utilities are installed such as electrical , fiber optic , water and story_separator_special_tag 32 part iv item 15 : exhibits and financial statement schedules ( a ) ( 1 ) ( 2 ) financial statements . see the audited financial statements for the years ended march 31 , 2017 , and 2016 , contained in part ii , item 8 , which are incorporated herein by this reference . ( a ) ( 3 ) ( i ) exhibits . the following exhibits are filed as part of this annual report : exhibit number description 31 certification pursuant to section 302 of the sarbanes-oxley act provided by william c. lachmar , president , ceo , chief financial officer and director . 32 certification pursuant to 18 u.s.c . section 1350 , as adopted pursuant to section 906 of the sarbanes-oxley act of 2002 proved by william c. lachmar , president , ceo , chief financial officer and director . exhibit number description 101.ins xbrl instance document 101.pre . xbrl taxonomy extension presentation linkbase 101.lab xbrl taxonomy extension label linkbase 101.def xbrl taxonomy extension definition linkbase 101.cal xbrl taxonomy extension calculation linkbase 101.sch xbrl taxonomy extension schema documents incorporated by reference where incorporated in this annual report prospectus dated january 7 , 2013 , and filed with the sec on january 8 , 2013 ( spin-off ) part i , item 1 8-k current report dated april 22 , 2013 , and filed with the sec on april 22 , 2013 ( spin-off payment date ) part i , item 1 annual report on form 10k for the fiscal year ended march 31 , 2015 3.1 articles of incorporation 3.2 bylaws 14 code of ethics part i , item 1 part iii , item 10 ( 1 ) summaries of all exhibits are modified in their entirety by reference to the actual exhibit . ( 2 ) these documents and related exhibits have previously been filed with the sec and are referenced for additional information . 33 signatures pursuant to the requirements of section 13 or 15 ( d ) of the securities exchange act of 1934 , the registrant has duly caused this annual report to be signed on its behalf by the undersigned , thereunto duly authorized . geo point resources , inc. date : august 21 , 2017 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director pursuant to the requirements of the securities exchange act of 1934 this annual report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated . geo point resources , inc. date : august 21 , 2017 by : william c. lachmar william c. lachmar , president , ceo , chief financial officer , treasurer , controller and sole director date : august 21 , 2017 by : jeffrey r. brimhall jeffrey r. brimhall , secretary 34 story_separator_special_tag when used in this annual report , the words may , will , expect , anticipate , continue , estimate , project , intend , and similar expressions are intended to identify forward-looking statements regarding events , conditions , and financial trends that may affect our future plans of operations , business strategy , operating results , and financial position . persons reviewing this annual report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors . our future results and shareholder values may differ materially from those expressed in these forward-looking statements . many of the factors that will determine these results and values are beyond our ability to control or predict . we may be required to update these forward-looking statements from time to time as circumstances change ; however , we undertake no duty to do so . plan of operation we anticipate continuing our current business operations comprising the engineering and environmental divisions ' operations formerly conducted by geo point utah , and we believe with the resurgence on the u.s. economy and the real estate market in general , that our efforts during fiscal 2016 should result in modest increases in revenues , limited , however to projects where we will strictly on the professional management the rec services and the leasing of environmental equipment for rec services rather than a contracting company for these services . this change in the scope of our business operations has limited the future services available for bid by the company . mr. lachmar now reviews the scope of work for particular proposals that come within the company 's current business focus , and if a particular proposal is one that requires the physical efforts of mr. lachmar onsite , he will not bid on the project , but will refer the proposed project to another party for contracting , with the understanding that such party will lease the equipment of the company for any such project to the extent that the company has the equipment necessary to perform the required field work on the project . we also will continue to provide consulting and compliance services for new utility installation and general site erosion control for housing tracts and updating service station underground storage tanks and fuel dispensing systems to comply with continually changing california air resources board ( carb ) regulations . during fiscal 2017 , mr. lachmar became certified to manage , prepare and complete storm water runoff and erosion control plans under new applicable california land erosion and control regulations and to complete final inspections regarding these projects . other engineering services provided are for soil dewatering for underground structure installations and small demolition and construction work . these utility landing services comprise subsurface trench work where underground utilities are installed such as electrical , fiber optic , water and
| in addition , other income during the year ended march 31 , 2017 , of 29,378 was due to the reversal of accounts payable for which was no longer due . liquidity and capital resources current assets at march 31 , 2017 , included $ 39,299 in cash , a decrease of $ 68,067 from total current assets of $ 107,366 at march 31 , 2016. at march 31 , 2017 , we had a negative working capital of $ 484,495 , as compared to negative working capital of $ 288,688 at march 31 , 2016. capital resources during the fiscal year ended march 31 , 2017 , operating activities used cash of $ 267 , as compared to $ 23,720 in net cash used for the fiscal year ended march 31 , 2016. for the fiscal year ended march 31 , 2017 , the net cash used by operating activities was mainly driven by our net loss . during the fiscal year ended march 31 , 2016 , investing activities used cash of $ 78,400 , as compared to $ 178,980 in cash provided used the fiscal year ended march 31 , 2015. in 2017 , we purchased equipment for which we needed for various jobs . in 2016 , investing activities consisted $ 175,000 in loans to third parties . during the fiscal year ended march 31 , 2017 , financing activities provided cash of $ 85,600 , as compared to $ 48,600 in cash provided for the fiscal year ended march 31 , 2016. financing activities consisted of $ 45,600 and $ 48,600 in proceeds from our line of credit in fiscal 2017 and 2016 , respectively , the proceeds of which were used for operations . we intend to fund future operations for the next 12 months through cash flows generated from operations , current cash on hand and the proceeds from the line of credit . if these cash flows are not sufficient to fund operations , we 13 may be required to raise capital through either a debt or equity financing . these contributions are expected to satisfy amounts in accounts payable and potentially be used for
| 13,862 |
hurricane irma , in october 2017 , was one of the most powerful storms ever to hit the southern u.s. during hurricane irma , over 1.3 million customers in florida were without power . o ur restoration efforts involved coordination and communication with more than 12,000 line and fieldworkers and our team restored power to 99 percent of customers within eight days . customer satisfaction . higher j.d . power residential customer satisfaction scores in 2017 reflect progress in the company 's efforts to meet customers ' expectations . the work to improve customer satisfaction will continue , but all jurisdictions remain on track to make steady gains in the years ahead as duke energy continues to transform the customer experience through its customer connect program . constructive regulatory outcomes . one of our long-term strategic goals is to achieve modernized regulatory constructs in all of our jurisdictions within 10 years . modernized constructs provide a number of benefits , including improved earnings and cash flows through more timely recovery of investments , as well as stable pricing for customers . we filed several base rate cases during 2017 to recover a range of strategic investments , such as customer service technologies , coal ash costs in the carolinas , smart meters , natural gas and solar generation . we continue to pursue additional legislative and regulatory outcomes , both in washington and across our service territories , that make sense for our customers and investors . cost management and efficiencies . duke energy has a demonstrated track record of driving efficiencies and productivity , including merger integration and continuous improvement efforts . these efficiencies will help in duke energy 's objective to keep overall customer rates below the national average , while moderating customer bill increases over time . we are on track to exceed targeted piedmont merger cost synergies without significant disruptions to the business or culture , integrating the piedmont and midwest natural gas operations , and moving to a shared services model . we continue to leverage new technology and data analytics to drive additional efficiencies across the business . dividend growth . in 2017 , duke energy continued to grow the dividend payment to shareholders by approximately 4 percent . 2017 represented the 91st consecutive year duke energy paid a cash dividend on its common stock . duke energy objectives – 2018 and beyond duke energy will continue to deliver exceptional value to customers , be an integral part of the communities in which it does business , and provide attractive returns to investors . duke energy is committed to lead the way to cleaner , smarter energy solutions that customers value through a strategy focused on : transformation of the customer experience to meet changing customer expectations through enhanced convenience , control and choice in energy supply and usage . modernization of the electric grid , including smart meters , storm hardening , self-healing and targeted undergrounding to ensure the system is better prepared for severe weather and to improve the system 's reliability and flexibility , as well as to provide better information and services for customers . generation of cleaner energy through an increased amount of natural gas , renewables generation and the continued safe and reliable operation of nuclear plants . expansion of natural gas infrastructure , from midstream gas pipelines to local distribution systems . operational excellence through engagement with employees and being an industry leader in safety performance and efficient operations . stakeholder engagement to ensure the regulatory rules in the states in which duke energy operates benefit customers and allow duke energy to recover its significant investments in a timely manner while maintaining affordable rates . engagement with regulatory commissions to determine the regulatory treatment of the impact of the tax act . 40 part ii primary objectives toward the implementation of this strategy include : growth initiatives . growth in the electric utilities and infrastructure business is expected to be supported by the investment of significant capital in the electric transmission and distribution grid , and in cleaner , more efficient generation . duke energy expects to invest approximately $ 30 billion in electric utilities and infrastructure growth projects over the next five years ( 2018-2022 ) , continuing its efforts to generate cleaner energy . duke energy intends to work constructively with regulators to evaluate the current regulatory construct and seek modernized recovery solutions , such as riders , rate decoupling and multiyear rate plans , that benefit both customers and shareholders . investment projects at electric utilities and infrastructure currently underway that will support growth initiatives include : duke energy indiana 's $ 1.4 billion grid modernization plan , which is aimed at improving reliability , including fewer outages and quicker restoration . significant investments in combined-cycle natural gas plants , including completing the $ 1.5 billion citrus county plant in florida , the $ 600 million w.s . lee facility in south carolina and the $ 900 million investment in the western carolinas modernization project . these investments will allow duke energy to replace older , less efficient coal units . duke energy expects to continue to advance other cleaner energy sources within its regulated electric jurisdictions , including hydro , wind , solar and combined heat and power projects , increasing the flexibility of the system and allowing duke energy to continue lowering carbon emissions . ◦ in north carolina , hb 589 provides a timely cost recovery mechanism for any solar investments we are able to make through a competitive market process . ◦ in florida , as part of the comprehensive multi-year rate settlement , we committed to invest in approximately 700 mw of solar capacity over the next five years and will be authorized to recover the cost of that investment through a single issue base rate increase . we also advanced our strategic priority of energy grid investment , establishing a multiyear recovery method for $ 1 billion of grid investments . duke energy expects to invest around $ 7 billion growing its gas utilities and infrastructure business over the next five years . story_separator_special_tag growth in gas utilities and infrastructure will be focused on the following : with the acquisition of piedmont , duke energy now operates natural gas distribution businesses across five states . the continued integration of piedmont , as well as additional investments in the natural gas local distribution company ( ldc ) system , will help maintain system integrity and expand natural gas distribution to new customers . duke energy will continue to grow its midstream pipeline business , underpinned by investments in the atlantic coast pipeline , sabal trail and constitution pipeline projects . these highly contracted pipelines will bring much needed , low-cost natural gas supplies to the eastern u.s. , spurring economic growth and helping duke energy to grow its customer base in the southeast . for commercial renewables , duke energy will continue to pursue long-term contracted wind and solar projects that meet its return criteria . cost management . duke energy has a demonstrated track record of driving efficiencies and productivity into the business , leveraging its scale through competitive procurement initiatives , deploying digital transformation and continuing to identify sustainable cost savings as an essential element in response to a transforming industry . execute on coal ash management strategy . duke energy will continue the company 's compliance strategy with the north carolina coal ash management act of 2014 ( coal ash act ) and resource conservation and recovery act . duke energy will update ash management plans to comply with the appropriate regulations and expand excavation and other compliance work at additional sites once plans and permits are approved . results of operations non-gaap measures management evaluates financial performance in part based on non-gaap financial measures , including adjusted earnings and adjusted diluted eps . these items represent income from continuing operations attributable to duke energy , adjusted for the dollar and per share impact of special items . as discussed below , special items include certain charges and credits , which management believes are not indicative of duke energy 's ongoing performance . management believes the presentation of adjusted earnings and adjusted diluted eps provides useful information to investors , as it provides them with an additional relevant comparison of duke energy 's performance across periods . management uses these non-gaap financial measures for planning and forecasting , and for reporting financial results to the duke energy board of directors ( board of directors ) , employees , stockholders , analysts and investors . adjusted diluted eps is also used as a basis for employee incentive bonuses . the most directly comparable gaap measures for adjusted earnings and adjusted diluted eps are net income attributable to duke energy corporation ( gaap reported earnings ) and diluted eps attributable to duke energy corporation common stockholders ( gaap reported eps ) , respectively . special items included in the periods presented include the following , which management believes do not reflect ongoing costs : costs to achieve mergers represents charges that result from strategic acquisitions . cost savings initiatives represent severance charges related to company-wide initiatives , excluding merger integration , to standardize processes and systems , leverage technology and workforce optimization . 41 part ii regulatory settlements in 2017 represent charges related to the levy nuclear project in florida and the mayo zero liquid discharge and sutton combustion turbine projects in north carolina . the 2015 amount represents charges related to the igcc settlement . commercial renewables impairments represent other-than-temporary , asset and goodwill impairments . impacts of the tax act represent estimated amounts recognized related to the tax cuts and jobs act . ash basin settlement and penalties represent charges related to plea agreements and settlement agreements with regulators and other governmental entities . adjusted earnings also include the operating results of the nonregulated midwest generation business and duke energy retail sales ( collectively , the midwest generation disposal group ) and the international disposal group , which have been classified as discontinued operations . management believes inclusion of the operating results of the disposal groups within adjusted earnings and adjusted diluted eps results in a better reflection of duke energy 's financial performance during the period . duke energy 's adjusted earnings and adjusted diluted eps may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner . reconciliation of gaap reported amounts to adjusted amounts the following table presents a reconciliation of adjusted earnings and adjusted diluted eps to the most directly comparable gaap measures . replace_table_token_10_th ( a ) for 2016 , includes a loss on sale of the international disposal group . represents the gaap reported loss from discontinued operations , less the international disposal group operating results , which are included in adjusted earnings . ( b ) for 2015 , includes the impact of a litigation reserve related to the midwest generation disposal group . represents ( i ) gaap reported income from discontinued operations , less the international disposal group operating results and midwest generation disposal group operating results , which are included in adjusted earnings , and ( ii ) a state tax charge resulting from the completion of the sale of the midwest generation disposal group but not reported as discontinued operations . ( c ) the tax act reduced the corporate income tax rate from 35 percent to 21 percent , effective january 1 , 2018. as the tax change was enacted in 2017 , duke energy is required to remeasure its existing deferred tax assets and liabilities at the lower rate . for duke energy 's regulated operations , where the reduction in the net accumulated deferred income tax liability is expected to be returned to customers in future rates , the remeasurement has been deferred as a regulatory liability .
| replace_table_token_25_th year ended december 31 , 2017 , as compared to 2016 operating revenues . the variance was driven primarily by : a $ 69 million decrease in fuel revenues primarily due to lower electric fuel costs and a decrease in electric and natural gas sales volumes ; and a $ 16 million decrease in electric retail sales , net of fuel revenues , due to less favorable weather in the current year . 61 part ii partially offset by : a $ 38 million increase in rider revenues primarily due to growth in energy efficiency programs and a rate increase for the distribution capital investment rider , partially offset by a decrease in the percentage of income payment plan rider due to a rate decrease ; a $ 10 million increase in pjm interconnection , llc ( pjm ) transmission revenues ; a $ 9 million increase in other revenues related to ovec ; and a $ 6 million increase in non-native sales for resale . operating expenses . the variance was driven by : a $ 66 million decrease in fuel expense , primarily due to lower sales volumes and lower electric fuel costs . partially offset by : a $ 28 million increase in depreciation and amortization expense due to additional plant in service and a true-up related to smartgrid assets in the prior year ; a $ 20 million increase in property and other taxes due to higher property taxes ; and a $ 12 million increase in operations , maintenance and other expense primarily due to higher energy efficiency program costs and higher transmission and distribution operations costs ; partially offset by lower fossil/hydro operations costs due to timing of outage schedules . income tax expense . the variance was primarily due to the impact of the tax act . see the subsidiary registrants section above for additional information on the tax act and the impact on the effective tax rate . income from discontinued operations , net of tax . the variance was primarily driven by a prior year
| 13,863 |
generally accepted accounting principles ( “ gaap ” ) , management believes that adjusted operating measures , which exclude net realized investment gains or losses , net of the related dsic and dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on variable 45 annuity guaranteed benefits , net of hedges and the related dsic and dac amortization ; the market impact on indexed universal life ( “ iul ” ) benefits , net of hedges and the related dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on fixed index annuity benefits , net of hedges and the related dac amortization ; mean reversion related impacts ; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments ; gain or loss on disposal of a business that is not considered discontinued operations ; integration and restructuring charges ; income ( loss ) from discontinued operations ; and the impact of consolidating cies , best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis . management uses these non-gaap measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors . also , certain of these non-gaap measures are taken into consideration , to varying degrees , for purposes of business planning and analysis and for certain compensation-related matters . throughout our management 's discussion and analysis , these non-gaap measures are referred to as adjusted operating measures . these non-gaap measures should not be viewed as a substitute for u.s. gaap measures . effective first quarter of 2019 , management has excluded mean reversion related impacts from our adjusted operating measures . prior periods have been updated to reflect this change to be consistent with the current period presentation . the mean reversion related impact is defined as the impact on variable annuity and variable universal life ( “ vul ” ) products for the difference between assumed and updated separate account investment performance on dac , dsic , unearned revenue amortization , reinsurance accrual and additional insurance benefit reserves . the updated separate account investment performance includes actual investment performance in the current period and the impact of changes in financial market conditions on the assumptions for future investment performance . it is management 's priority to increase shareholder value over a multi-year horizon by achieving our on-average , over-time financial targets . our financial targets are : adjusted operating earnings per diluted share growth of 12 % to 15 % , and adjusted operating return on equity excluding accumulated other comprehensive income ( “ aoci ” ) of over 30 % . the following tables reconcile our gaap measures to adjusted operating measures : replace_table_token_2_th ( 1 ) pretax adjusted operating adjustments . ( 2 ) calculated using the statutory tax rate of 21 % . 46 the following table reconciles net income to adjusted operating earnings and the five-point average of quarter-end equity to adjusted operating equity : replace_table_token_3_th ( 1 ) adjustments reflect the sum of after-tax net realized investment gains/losses , net of dsic and dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on variable annuity guaranteed benefits , net of hedges and related dsic and dac amortization ; the market impact on iul benefits , net of hedges and the related dac amortization , unearned revenue amortization , and the reinsurance accrual ; the market impact on fixed index annuity benefits , net of hedges and the related dac amortization ; mean reversion related impacts ; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments ; gain or loss on disposal of a business that is not considered discontinued operations ; integration and restructuring charges ; income ( loss ) from discontinued operations ; and net income ( loss ) from consolidated investment entities . after-tax is calculated using the statutory tax rate of 21 % . ( 2 ) adjusted operating return on equity , excluding aoci is calculated using adjusted operating earnings in the numerator and ameriprise financial shareholders ' equity , excluding aoci and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator . after-tax is calculated using the statutory rate of 21 % . critical accounting estimates the accounting and reporting policies that we use affect our consolidated financial statements . certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and , in some cases , the application of these policies can be significantly affected by the estimates , judgments and assumptions made by management during the preparation of our consolidated financial statements . the accounting and reporting policies and estimates we have identified as fundamental to a full understanding of our consolidated results of operations and financial condition are described below . see note 2 to our consolidated financial statements for further information about our accounting policies . valuation of investments the most significant component of our investments is our available-for-sale securities , which we carry at fair value within our consolidated balance sheets . see note 15 to our consolidated financial statements for discussion of the fair value of our available-for-sale securities . financial markets are subject to significant movements in valuation and liquidity , which can impact our ability to liquidate and the selling price that can be realized for our securities and increases the use of judgment in determining the estimated fair value of certain investments . deferred acquisition costs see note 2 to our consolidated financial statements for discussion of our dac accounting policy . story_separator_special_tag non-traditional long-duration products for our non-traditional long-duration products ( including variable and fixed deferred annuity contracts , universal life ( “ ul ” ) and vul insurance products ) , our dac balance at any reporting date is based on projections that show management expects there to be estimated gross profits ( “ egps ” ) after that date to amortize the remaining balance . these projections are inherently uncertain because they require management to make assumptions about financial markets , mortality levels and contractholder and policyholder behavior over periods extending well into the future . projection periods used for our annuity products are typically 30 to 50 years and for our ul insurance products 50 years or longer . egps vary based on persistency rates ( assumptions at which contractholders and policyholders are expected to surrender , make withdrawals from and make deposits to their contracts ) , mortality levels , client asset value growth rates ( based on equity and bond market performance ) , variable annuity benefit utilization and interest margins ( the spread between earned rates on invested assets and rates credited to contractholder and policyholder accounts ) . changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time . when assumptions are changed , the percentage of egps used to amortize dac might also change . a change in the required amortization percentage is applied retrospectively ; an increase in amortization percentage 47 will result in a decrease in the dac balance and an increase in dac amortization expense , while a decrease in amortization percentage will result in an increase in the dac balance and a decrease in dac amortization expense . the effect on the dac balance that would result from the realization of unrealized gains ( losses ) on securities is recognized with an offset to accumulated other comprehensive income on the consolidated balance sheet . the client asset value growth rates are the rates at which variable annuity and vul insurance contract values invested in separate accounts are assumed to appreciate in the future . the rates used vary by equity and fixed income investments . the long-term client asset value growth rates are based on assumed gross annual returns of 9 % for equity funds and 6.9 % for fixed income funds . we typically use a five-year mean reversion process as a guideline in setting near-term equity fund growth rates based on a long-term view of financial market performance as well as recent actual performance . the suggested near-term equity fund growth rate is reviewed quarterly to ensure consistency with management 's assessment of anticipated equity market performance . a decrease of 100 basis points in separate account fund growth rate assumptions is likely to result in an increase in dac amortization and an increase in benefits and claims expense for variable annuity and vul insurance contracts . the following table presents the estimated impact to current period pretax income : replace_table_token_4_th ( 1 ) an increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same amount . an assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results . traditional long-duration products for our traditional long-duration products ( including traditional life and disability income ( “ di ” ) insurance products ) , our dac balance at any reporting date is based on projections that show management expects there to be adequate premiums after the date to amortize the remaining balance . these projections are inherently uncertain because they require management to make assumptions over periods extending well into the future . these assumptions include interest rates , persistency rates and mortality and morbidity rates and are not modified ( unlocked ) unless recoverability testing determines that reserves are inadequate . projection periods used for our traditional life insurance are up to 30 years . projection periods for our di products are up to 45 years . we may experience accelerated amortization of dac if policies terminate earlier than projected or a slower rate of amortization of dac if policies persist longer than projected . for traditional life and di insurance products , the assumptions provide for adverse deviations in experience and are revised only if management concludes experience will be so adverse that dac are not recoverable . if management concludes that dac are not recoverable , dac are reduced to the amount that is recoverable based on best estimate assumptions . future policy benefits and claims we establish reserves to cover the risks associated with non-traditional and traditional long-duration products . non-traditional long-duration products include variable annuity contracts , fixed annuity contracts and ul and vul policies . traditional long-duration products include term life , whole life , di and ltc insurance products . guarantees accounted for as insurance liabilities include gmdb , ggu , gmib and the life contingent benefits associated with gmwb . in addition , ul and vul policies with product features that result in profits followed by losses are accounted for as insurance liabilities . guarantees accounted for as embedded derivatives include gmab and the non-life contingent benefits associated with gmwb . in addition , the portion of indexed annuities and iul policies allocated to the indexed account is accounted for as an embedded derivative . the establishment of reserves is an estimation process using a variety of methods , assumptions and data elements . if actual experience is better than or equal to the results of the estimation process , then reserves should be adequate to provide for future benefits and expenses . if actual experience is worse than the results of the estimation process , additional reserves may be required . non-traditional long-duration products , including embedded derivatives ul and vul a portion of our ul and vul policies have product features that result in profits followed by losses from the insurance component of the contract .
| 70 the following table presents the results of operations of our advice & wealth management segment on an operating basis : replace_table_token_25_th our advice & wealth management segment pretax adjusted operating earnings , which exclude net realized investment gains or losses , increased $ 226 million , or 19 % , to $ 1.4 billion for the year ended december 31 , 2018 compared to $ 1.2 billion for the prior year reflecting wrap account net inflows , average equity market appreciation and higher earnings on brokerage cash , partially offset by higher general and administrative expense . pretax adjusted operating margin was 22.4 % for the year ended december 31 , 2018 compared to 20.7 % for the prior year . net revenues net revenues exclude net realized investment gains or losses . net revenues increased $ 573 million , or 10 % , to $ 6.2 billion for the year ended december 31 , 2018 compared to $ 5.6 billion for the prior year . adjusted operating net revenue per advisor increased to $ 624,000 for the year ended december 31 , 2018 , up 9 % , from $ 575,000 for the prior year . management and financial fees increased $ 385 million , or 12 % , to $ 3.5 billion for the year ended december 31 , 2018 compared to $ 3.2 billion for the prior year primarily due to growth in wrap account assets . average advisory wrap account assets increased $ 33.4 billion , or 15 % , compared to the prior year reflecting net inflows and average equity market appreciation . distribution fees increased $ 146 million , or 7 % , to $ 2.2 billion for the year ended december 31 , 2018 compared to $ 2.1 billion for the prior year reflecting higher earnings on brokerage cash due to an increase in short-term interest rates and the ipi acquisition , partially offset by a $ 30 million decrease related to our transition to share classes without 12b-1 fees in advisory accounts in the first quarter of 2017. net investment income increased $ 77 million , or 32 % , to $ 316 million for the year
| 13,864 |
the device consistently cuts the transverse carpal ligament , as well as commercial design and development , and we have begun pre-submission verification and validation testing ; engaged a design and contract manufacturing firm with experience in extrusions which has completed initial design work on the first product in the nextcath project and completed head-to-head testing of retention forces , comparing our working prototype to several competing products , which has validated our approach ; engaged a design and contract manufacturing firm to initiate the design and development of the disappear product in collaboration with our academic partners at tufts university and harvard medical school ; advanced the design and development of the nextflo device , including a redesign which dramatically simplifies the product , lowers the projected cost of goods and expands its application to routine inpatient infusion sets ; selected three initial applications for our caldus disposable tissue ablation platform technology – endovenous ablation of varicose veins , endoluminal ablation of fistula-in-ano and renal denervation for the treatment of hypertension ; in collaboration with our design , engineering and manufacturing partners we have completed proof of principle testing demonstrating we can deliver temperatures of > 90c to a balloon catheter for at least 20 minutes of ablation time and histologically confirmed tissue necrosis in a wide variety of tissues and organs in a pig model ; we are currently optimizing the design of the renal denervation balloon and catheter and enhancing the design of the infusion device to higher specifications including temperatures up to 140c and significantly higher flow rates ; we anticipate initiating animal testing for the initial three applications in the near future and verification and validation testing of the varicose vein and fistula-in-ano applications in early 2017 ; we remain actively engaged with our full-service regulatory consulting partner who is working closely with our contract design , engineering and manufacturing partners as our products advance towards regulatory submission , clearance , and commercialization ; 48 we are evaluating a number of product opportunities and intellectual property covering a spectrum of clinical conditions , which have been presented to us by clinician innovators and academic medical centers , for consideration of a partnership to develop and commercialize these products ; we are also exploring opportunities to partner with larger medical device companies to commercialize our lead products as they move towards regulatory clearance and commercialization ; and we continue to advance additional internal conceptual phase projects in clinical areas including delivery of tumescent local anesthesia , ecmo , sleep apnea and endotracheal intubation ; and will accelerate their development commensurate with available capital and other resources . 49 going concern the company has adopted the provisions of financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic 205-40 , presentation of financial statements - going concern ( asc 205-40 ) . asc 205-40 requires management to assess an entity 's ability to continue as a going concern within one year of the date of the financial statements are issued . in each reporting period ( including interim periods ) , an entity is required to assess conditions known and reasonably knowable as of the financial statement issuance date to determine whether it is probable an entity will not meet its financial obligations within one year from the financial statement issuance date . substantial doubt about an entity 's ability to continue as a going concern exists when conditions and events , considered in the aggregate , indicate it is probable the entity will be unable to meet its financial obligations as they become due within one year after the date the financial statements are issued . we are an early stage and emerging growth company and have not generated any revenues to date . as such , we are subject to all of the risks associated with early stage and emerging growth companies . since inception , the company has incurred losses and negative cash flows from operating activities . we do not expect to generate positive cash flows from operating activities in the near future . the company incurred net losses of $ 5,650,851 , and had net cash flows used in operating activities of $ 4,454,857 for the year ended december 31 , 2016. at december 31 , 2016 , the company had an accumulated deficit of $ 7,701,835 , negative working capital of $ 448,316 and cash of $ 585,680. the company does not expect to experience positive cash flows from operating activities in the near future , if at all . the company anticipates incurring operating losses for the next several years as it completes the development of its products and seeks requested regulatory clearances to market such products . these factors raise substantial doubt about the company 's ability to continue as a going concern within one year after the date the consolidated financial statements are issued . we estimate our current cash resources , including the approximately $ 1.2 million of net proceeds received in the january 2017 initial closing of the preferred stock private placement , absent any additional sources of cash , is sufficient to fund our operations through march 2017. accordingly , the company does not have sufficient cash resources to fund its anticipated operating losses for the next twelve months and the company must raise additional funds to support its operating and capital needs beyond march 2017. the company 's ability to fund its operations is dependent upon management 's plans , which include raising additional capital , obtaining regulatory clearance for its products currently under development , commercializing and generating revenues from products currently under development , and continuing to control expenses . the company has engaged financial advisory firms to assist with its financing efforts , including selling additional securities under the preferred stock private placement ( which will remain open through june 30 , 2017 ) . however , there is no assurance the company will be successful in these efforts , including the sale of the remaining authorized preferred stock units . story_separator_special_tag a failure to raise sufficient capital , generate sufficient product revenues , or control expenditures , among other factors , will adversely impact the company 's ability to meet its financial obligations as they become due and payable and to achieve its intended business objectives and therefore raises substantial doubt of the company 's ability to continue as a going concern within one year after the date the consolidated financial statements are issued . the company 's consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business . the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities should the company be unable to continue as a going concern . 50 recent developments in april 2016 , we consummated our ipo with the issuance of 1,060,000 common stock units , with each common stock unit consisting of one share of common stock and one warrant to purchase one share of common stock at an exercise price of $ 5.00 per share . the common stock units were sold at an offering price of $ 5.00 per unit , generating gross cash proceeds of $ 5.3 million and net cash proceeds of approximately $ 4.2 million , after deducting cash selling agent discounts and commissions and other ipo offering expenses . in connection with the consummation of the ipo , the common stock units were approved for listing on the nasdaq capital market , or nasdaq , under the symbol “ pavmu ” . the common stock and warrants comprising the common stock units began separate trading on july 27 , 2016 under the symbols “ pavm ” and “ pavmw ” , respectively , and the common stock unit and symbol pavmu ceased being quoted and traded on nasdaq . in november 2016 , we executed the tufts patent license agreement with the licensors . pursuant to the tufts patent license agreement , the licensors granted us the exclusive right and license to certain patents owned or controlled by the licensors in connection with the development and commercialization of antibiotic-eluting resorbable ear tubes based on a proprietary aqueous silk technology . upon execution of the tufts patent license agreement , we paid the licensors a $ 50,000 up-front non-refundable payment . the tufts patent license agreement also provides for payments by us to the licensors upon the achievement of certain product development and regulatory clearance milestones as well as royalty payments on net sales upon the commercialization of products developed utilizing the licensed patents . on december 17 , 2016 , we filed a 510 ( k ) premarket notification submission with the fda for our first product , the portio intraosseous infusion system . the company 's board of directors authorized the sale of up to 500,000 preferred stock units in the preferred stock private placement , with each preferred stock unit consisting of one series a convertible preferred share and one series a warrant to purchase one share of common stock at an initial exercise price of $ 8.00 per share . subsequently , in january 2017 , the company completed an initial closing of the preferred stock private placement of 251,334 preferred stock units at a price of $ 6.00 per unit , resulting in gross proceeds of $ 1.5 million and approximately $ 1.2 million of net proceeds , after deducting placement agent fees and offering costs . the preferred stock private placement will remain open through june 30 , 2017 for subsequent closings , if any , in which the remaining 248,666 authorized preferred stock units may be issued . 51 financial results of operations revenue to date , we have not generated any revenues from product sales . our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize our products . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for personnel , including travel expenses , for our employees in executive and research and development functions , facility-related costs , professional fees , accounting and legal services , consultants and expenses associated with obtaining and maintaining patents within our intellectual property portfolio . we anticipate our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and the potential commercialization of our products . we also anticipate increased expenses related to being a public company , including audit , legal , regulatory and tax-related services associated with maintaining compliance as a public company , director and officer insurance premiums and investor relations costs . additionally , prior to the potential regulatory approval of our first product , we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations , especially as it relates to sales and marketing . research and development expenses research and development expenses consist principally of internal and external costs incurred for the development of our products and include : consulting costs charged to us by various external contract research organizations we contract with to conduct preclinical studies and engineering studies ; salary and benefit costs associated with our chief medical officer ; costs associated with regulatory filings ; patent license fees ; cost of laboratory supplies and acquiring , developing and manufacturing preclinical prototypes ; product design engineering studies ; and rental expense for facilities maintained solely for research and development purposes . research and development costs are expensed as incurred . we incurred approximately $ 2.2 million in research and development costs from june 26 , 2014 ( inception ) through december 31 , 2016. we plan to increase our research and development expenses for the foreseeable future as we continue development of our products .
| the increase in outside professional services during the year ended december 31 , 2016 of $ 1,226,783 is principally comprised of higher consulting and professional fees of $ 293,457 ( which includes consulting fees incurred of $ 300,000 under the hcp /advisors consulting agreement and $ 115,000 related to the hcfp /strategy advisors and swartwood hesse agreements , all of which are affiliated with certain of our officers and directors — see “ contractual obligations ” below for further details on these agreements ) ; along with increased investor relations and marketing costs of $ 297,155 , increased accounting , legal , printing , and stockholder related costs of $ 491,333 associated with sec reporting and public company requirements , increased regulatory consulting costs of $ 136,059 , and higher legal fees and costs related to intellectual property matters of $ 8,779. during the year ended december 31 , 2015 the company incurred $ 60,000 of fees under the hcp /advisors consulting agreement , but did not incur any costs under the hcfp /strategy advisors and swartwood hesse agreements . additionally , during 2015 , the company had lower comparable costs for investor relations and compliance with sec reporting and public company requirements , as the company did not fully transition to a public reporting entity until our ipo in april 2016 . 54 additionally , we issued stock options which resulted in the recognition of stock-based compensation expense in the amount of $ 664,068 during the year ended december 31 , 2016. upon the completion of our ipo on april 28 , 2016 , board of director compensation commenced resulting in the recognition of $ 193,333 of fees to members of the company 's board of directors during the year ended december 31 , 2016. research and development expenses the following table summarizes our research and development expenses incurred during the year ended december 31 , 2016 and 2015 : replace_table_token_4_th in general , the increased research and development expenses incurred during the year ended december 31 , 2016 are due to the increased activities in support of advancing all of the company 's products toward fda submittals as compared with limited and early research and development efforts on just certain of the products during the year ended december 31 , 2015. research and development expenses incurred for the year ended december 31 , 2016 were $ 1,719,587 and for the year ended december 31 , 2015 were $ 489,327. the increase in
| 13,865 |
for 2014 , sg & a expenses totaled approximately $ 10.7 million , or 34.4 % of sales , compared with approximately $ 10.1 million , or 37.4 % of sales , for 2013. engineering and product development expenses for 2014 totaled approximately $ 3.7 million ( 11.9 % of sales ) compared with approximately $ 3.9 million ( 14.3 % of sales ) for 2013. the decrease was attributed primarily to a decline in the amortization of capitalized software , as one project was fully amortized . marketing and selling expenses for 2014 totaled approximately $ 3.9 million , or 12.5 % of sales , compared with $ 3.5 million , or 12.8 % of sales , for 2013. the increase related primarily to commissions and incentives , which directly correlate with the increase in sales . general and administrative expenses for 2014 totaled approximately $ 3.1 million , or 10.0 % of sales , compared with $ 2.8 million ( 10.4 % of sales ) for 2013. the increase was attributed primarily to headquarters and incentive compensation related expenses . 22 operating income operating income for 2014 increased 54.1 % to approximately $ 2.5 million ( 8.2 % of sales ) , compared with approximately $ 1.7 million ( 6.1 % of sales ) for 2013. the improvement in operating income for 2014 was primarily the result of increased total sales and sales of p-25 digital products . interest income/expense , net for 2014 we earned approximately $ 1,000 in interest income and incurred no interest expense for 2014 or 2013. interest expense may be incurred from time to time on outstanding borrowings under our revolving credit facility and earned interest income on our cash balances . the interest rate on such revolving credit facility as of december 31 , 2014 was 4.00 % per annum . this rate was variable based on the lender 's prime rate and our adjusted quick ratio . our revolving credit facility was not utilized during 2014 or 2013. income tax expense we recorded income tax expense for 2014 of approximately $ 900,000 , compared with $ 515,000 for 2013. our income tax expense and benefit are primarily non-cash . as of december 31 , 2014 , our net deferred tax assets totaled approximately $ 6.0 million , and were primarily composed of net operating loss carry forwards ( “ nols ” ) . as of december 31 , 2014 , these nols totaled $ 6.4 million for federal and $ 14.5 million for state purposes , with expirations starting in 2018 through 2030. changing prices changing prices for the years ended december 31 , 2015 and 2014 did not have a material impact on our operations . the extent of competitive pricing pressure in the future and its impact is uncertain . liquidity and capital resources for the year ended december 31 , 2015 , net cash used in operating activities totaled approximately $ 2.9 million , compared with approximately $ 4.0 million in net cash provided by operations in 2014. cash used in operating activities was primarily related to inventory , prepaid expenses and accounts receivable , partially offset by net income , depreciation and deferred tax assets . for year ended december 31 , 2015 , net income totaled approximately $ 1.0 million compared with approximately $ 1.6 million for the year ended december 31 , 2014. net inventories and prepaid expenses increased approximately $ 5.3 million in 2015 , particularly during the fourth quarter , primarily due to purchases related to fulfilling the tsa delivery orders , which are described in “ item 1. business ” of part i of this report , under the heading “ significant events of 2015. ” this compares with an increase of $ 547,000 in inventory and prepaid expenses for the prior year . accounts receivable increased approximately $ 856,000 during 2015 , compared with $ 387,000 for 2014. these amounts for both 2015 and 2014 reflect sales that were consummated later in the year that had not yet completed their collection cycle . depreciation and amortization for 2015 totaled approximately $ 914,000 , compared with approximately $ 1.2 million for 2014 , as certain capitalized software was fully amortized in 2015. accounts payable for 2015 increased approximately $ 882,000 , compared with $ 453,000 for 2014 , due to material purchases made in 2015. deferred tax assets for 2015 decreased by approximately $ 328,000 due to non-cash tax expense on our pretax income compared to a decrease of $ 875,000 for 2014. cash used in investing activities for the year ended december 31 , 2015 totaled approximately $ 3.9 million , of which $ 2.8 million was related to the investment in iteris common stock ( see note 1 ( summary of significant accounting policies ) to our consolidated financial statements included elsewhere in this report ) , and $ 1.1 million that was utilized for the purchase of manufacturing and engineering equipment . for 2014 , cash used in investing activities total approximately $ 697,000 , which was used primarily for engineering and manufacturing related equipment . we anticipate that future capital expenditures will be funded through our existing cash balance and operating cash flow . 23 cash provided by financing activities for the year ended december 31 , 2015 and 2014 totaled approximately $ 92,000 and $ 144,000 , respectively , representing proceeds from the issuance of common stock upon the exercise of stock options . we have a revolving credit facility with silicon valley bank ( “ svb ” ) , which was most recently amended in december 2015 , with borrowing availability of $ 2.0 million and a maturity date of december 28 , 2016. the loan and security agreement , as amended , governing this revolving credit facility contains customary borrowing terms and conditions , including the accuracy of representations and warranties , compliance with financial maintenance and restrictive covenants and the absence of events of default . story_separator_special_tag the terms of the loan and security agreement include the following : ● financial maintenance covenants , required to be maintained at all times and tested quarterly ( or , for the “ quick ratio ” covenant , monthly , if any obligations are outstanding ) , of : ( 1 ) a ratio of “ quick assets to current liabilities ” minus “ deferred revenue ” ( all as defined in the loan and security agreement ) of at least 1.25:1.00 and ( 2 ) “ maximum total leverage ” ( as defined in the loan and security agreement ) of no greater total indebtedness than 3 times adjusted ebitda . ● borrowings under the revolving credit facility bear interest at the svb prime rate , as in effect from time to time . ● our obligations are collaterized by substantially all of our assets , principally accounts receivable and inventory . ● we are permitted to pay cash dividends , the total of which may not exceed $ 3.5 million in the aggregate during any twelve month period so long as an event of default does not exist at the time of such dividend and would not exist after giving effect to such dividend . we were in compliance with all covenants under the loan and security agreement , as amended , as of december 31 , 2015 and as of the date of this report . as of december 31 , 2015 and as of the date of this report , there were no borrowings outstanding under the revolving credit facility . as of december 31 , 2015 and as of the date of this report , there was approximately $ 2.0 million of borrowing available under the revolving credit facility . our cash and cash equivalents balance at december 31 , 2015 was approximately $ 4.7 million . we believe these funds combined with anticipated cash generated from operations and borrowing availability under our revolving credit facility are sufficient to meet our working capital requirements for the foreseeable future . however , although we do not anticipate needing additional capital in the near term , financial and economic conditions could limit our access to credit and impair our ability to raise capital , if needed , on acceptable terms or at all . we also face other risks that could impact our business , liquidity and financial condition . for a description of these risks , see “ item 1a . risk factors ” in this report . off balance sheet arrangements we do not have any off balance sheet arrangements . recent accounting pronouncements in may 2014 , the fasb issued asu 2014-09 on revenue recognition , which provides for a single , principles-based model for revenue recognition and replaces the existing revenue recognition guidance . in august 2015 , the fasb issued asu 2015-14 , which delays the effective date of asu 2014-09 by one year . the guidance is effective for annual and interim periods beginning on or after december 15 , 2017 , and will replace most existing revenue recognition guidance under u.s. gaap when it becomes effective . it permits the use of either a retrospective or cumulative effect transition method and early adoption is not permitted . we are in the process of evaluating the effect this standard will have , if any , on our consolidated financial statements and related disclosures . in july 2015 , the fasb issued asu 2015-11 “ simplifying the measurement of inventory ” to simplify the guidance on the subsequent measurement of inventory , excluding inventory measured using last-in , first out or the retail inventory method . under the new standard , inventory should be at the lower of cost and net realizable value . 24 the new accounting guidance is effective for interim and annual periods beginning after december 15 , 2016 with early adoption permitted . we are in the process of evaluating the effect this standard will have , if any , on our consolidated financial statements and related disclosures . in november 2015 , the fasb released asu 2015-17 , which will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position . this is part of the fasb 's simplification initiative . for public business entities , the amendments in this update are effective for financial statements issued for annual periods after december 15 , 2016 , and interim periods within those annual periods . earlier application is permitted for all entities as of the beginning of an interim or annual reporting period . we early adopted this standard retrospectively , and reclassified approximately $ 3.7 million of our current deferral tax assets to noncurrent deferred tax assets , net as of december 31 , 2014. critical accounting policies and estimates our revenue recognition process and our more subjective accounting estimation processes affect our reported revenues and current assets and are , therefore , critical in assessing our financial and operating status . the processes for determining the allowance for collection of trade receivables , allowance for excess or obsolete inventory , allowance for product warranty , software development and income taxes involve certain assumptions that if incorrect could create an adverse impact on our operations and financial position . revenue sales revenue is recognized when the earnings process is complete and collection is reasonably assured . the earnings process is generally complete when the product is shipped by us or delivered to the customer , depending upon whether the title to the goods , as well as the risks and benefits of ownership are transferred to the customer at point of shipment or point of delivery . however , sales to the federal government are recognized when the products are delivered . for extended warranties , sales revenue associated with the warranty is deferred at the time of sale and later recognized on a straight-line basis over the extended warranty period .
| net income for 2015 totaled approximately $ 1.0 million ( $ 0.08 per basic and diluted share ) , compared with approximately $ 1.6 million ( $ 0.12 per basic and diluted share ) for 2014. as of december 31 , 2015 , working capital totaled approximately $ 23.9 million , of which $ 8.8 million was comprised of cash and trade receivables . this compares with working capital totaling approximately $ 25.1 million at year end 2014 , which included $ 14.6 million of cash and trade receivables . also , as of december 31 , 2015 and 2014 , there were no borrowings outstanding under our revolving credit facility . we experience seasonality in our quarterly results in part due to governmental customer spending patterns that are influenced by government fiscal year-end budgets and appropriations . we also experience seasonality in our quarterly results in part due to our concentration of sales to federal and state agencies that participate in wildland fire-suppression efforts , which are typically the greatest during the summer season when forest fire activity is heightened . in some years , these factors may cause an increase in sales for the second and third quarters compared with the first and fourth quarters of the same fiscal year . such increases in sales may cause quarterly variances in our cash flow from operations and overall financial condition . results of operations as an aid to understanding our operating results , the following table shows items from our consolidated statements of operations expressed as a percentage of sales : replace_table_token_4_th 19 fiscal year 2015 compared with fiscal year 2014 sales , net for 2015 , net sales totaled approximately $ 29.7 million , compared with approximately $ 31.0 million for 2014. sales of p25 digital products in 2015 totaled approximately $ 20.2 million ( 68.0 % of total sales ) compared with approximately $ 22.4 million ( 72.3 % of total sales ) for 2014. the comparative decline in both total sales and sales of digital products was primarily attributable to weaker demand over the last three quarters
| 13,866 |
5 fern park , fl transitional ( continuing operations ) transitional ( continuing operations ) teach-out closed 6 1 in november 2015 , the board of directors approved a plan to divest these schools and thus they are included in discontinued operations as of december 31 , 2016 and 2015 . 32 index 2 in november 2015 , the board of directors approved a plan to divest this school . in december 2015 , the board of directors approved a plan to cease operations at this school . the school was included in the transitional segment and included in continuing operations until it closed in the fourth quarter of 2016 ; it is included in discontinued operations as of december 31 , 2016 . 3 in november 2015 , the board of directors approved a plan to divest this school . in the fourth quarter of 2016 , the board of directors approved a plan to cease operations at this school , which closed in the fourth quarter of 2016 and is included in discontinued operations as of december 31 , 2016 . 4 in november 2015 , the board of directors approved a plan to divest these schools . in the fourth quarter of 2016 , the board of directors approved a plan to cease operations at these schools which are being taught-out and expected to be closed in 2017. these schools are included in the transitional segment and continuing operations as of december 31 , 2016 . 5 in november 2015 , the board of directors approved a plan to divest this school . in the third quarter of 2016 , the board of directors approved a plan to teach–out certain programs at this school . then , in the fourth quarter of 2016 , the board of directors approved a plan to teach-out the remainder of the programs at this school . the school is expected to be closed in 2017. this school 's operations are included in the transitional segment and continuing operations as of december 31 , 2016. however , as part of this plan , the board of directors approved the divestiture of the properties for this school and therefore the properties are included in held for sale as of december 31 , 2016 . 6 on february 27 , 2015 , our board of directors approved a plan to cease operations at this school , which was fully taught out and officially closed as of march 31 , 2016 and is included in the transitional segment and continuing operations as of december 31 , 2016. the plan to teach out this school was approved prior to the plan to exit the hops segment and as such does not meet the discontinued operations criteria . as of december 31 , 2016 , we had 11,235 students enrolled at 28 campuses , 7,295 students enrolled at campuses that are included in continuing operations . our campuses , a majority of which serve major metropolitan markets , are located throughout the united states . five of our campuses are destination schools , which attract students from across the united states and , in some cases , from abroad . our other campuses primarily attract students from their local communities and surrounding areas . all of our schools are either nationally or regionally accredited and are eligible to participate in federal financial aid programs . our revenues consist primarily of student tuition and fees derived from the programs we offer . our revenues are reduced by scholarships granted to our students . we recognize revenues from tuition and one-time fees , such as application fees , ratably over the length of a program , including internships or externships that take place prior to graduation . we also earn revenues from our bookstores , dormitories , cafeterias and contract training services . these non-tuition revenues are recognized upon delivery of goods or as services are performed and represent less than 10 % of our revenues . from both continuing and discontinued operations , our revenues are directly dependent on the average number of students enrolled in our schools and the courses in which they are enrolled . our average enrollment is impacted by the number of new students starting , re-entering , graduating and withdrawing from our schools . in addition , our diploma/certificate programs range from 22 to 136 weeks , our associate 's degree programs range from 48 to 156 weeks , and our bachelor 's degree programs range from 104 to 208 weeks , and students attend classes for different amounts of time per week depending on the school and program in which they are enrolled . because we start new students every month , our total student population changes monthly . the number of students enrolling or re-entering our programs each month is driven by the demand for our programs , the effectiveness of our marketing and advertising , the availability of financial aid and other sources of funding , the number of recent high school graduates , the job market and seasonality . our retention and graduation rates are influenced by the quality and commitment of our teachers and student services personnel , the effectiveness of our programs , the placement rate and success of our graduates and the availability of financial aid . although similar courses have comparable tuition rates , the tuition rates vary among our numerous programs . the majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses . the largest of these programs are title iv programs which represented approximately 79 % and 80 % of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students during 2016 and 2015 , respectively . the higher education act of 1965 , as amended ( the “ hea ” ) requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 rule . story_separator_special_tag we extend credit for tuition and fees to many of our students that attend our campuses . our credit risk is mitigated through the students ' participation in federally funded financial aid programs unless students withdraw prior to the receipt by us of title iv program funds for those students . under title iv programs , the government funds a certain portion of a student 's tuition , with the remainder , referred to as “ the gap , ” financed by the students themselves under private party loans , including credit extended by us . the gap amount has continued to increase over the last several years as we have raised tuition on average for the last several years by 2-3 % per year and restructured certain programs to reduce the amount of financial aid available to students , while funds received from title iv programs increased at lower rates . 33 index the additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity . however , we believe that these risks are somewhat mitigated due to the following : · our internal financing is provided to students only after all other funding resources have been exhausted ; thus , by the time this funding is available , students have completed approximately two-thirds of their curriculum and are more likely to graduate ; · funding for students who interrupt their education is typically covered by title iv funds as long as they have been properly packaged for financial aid ; and · creditworthy criteria to demonstrate a student 's ability to pay . the operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the school increases or decreases . we categorize our operating expenses as : · educational services and facilities . major components of educational services and facilities expenses include faculty compensation and benefits , expenses of books and tools , facility rent , maintenance , utilities , depreciation and amortization of property and equipment used in the provision of education services and other costs directly associated with teaching our programs excluding student services which is included in selling , general and administrative expenses . · selling , general and administrative . selling , general and administrative expenses include compensation and benefits of employees who are not directly associated with the provision of educational services ( such as executive management and school management , finance and central accounting , legal , human resources and business development ) , marketing and student enrollment expenses ( including compensation and benefits of personnel employed in sales and marketing and student admissions ) , costs to develop curriculum , costs of professional services , bad debt expense , rent for our corporate headquarters , depreciation and amortization of property and equipment that is not used in the provision of educational services and other costs that are incidental to our operations . selling , general and administrative expenses also includes the cost of all student services including financial aid and career services . all marketing and student enrollment expenses are recognized in the period incurred . discontinued operations 2016/2015 in november 2015 , the board of directors approved a plan for the company to divest the schools included in the healthcare and other professions business segment . in december 2015 , the board of directors approved a plan to cease operations of the school in this segment located in hartford , connecticut which closed in the fourth quarter of 2016 and is included in discontinued operations . in addition , in the fourth quarter of 2016 , the board of directors approved a plan to cease operations at our schools in henderson ( green valley ) , nevada , center city philadelphia , pennsylvania , northeast philadelphia , pennsylvania and west palm beach , florida . the henderson , nevada campus also closed in the fourth quarter of 2016 and is included in discontinued operations . divestiture of the company 's healthcare and other professions business segment marks a strategic shift in business strategy that will enable us to focus energy and resources predominantly on transportation and skilled trades segment . the results of operations of the 15 campuses included in healthcare and other professions business segment are reflected as discontinued operations in the consolidated financial statements . the center city philadelphia , pennsylvania , northeast philadelphia , pennsylvania and west palm beach , florida campuses , which were previously included in the healthcare and other professions segment are now included in the transitional segment and continuing operations . completion of the plan would result in the company 's operations focused solely on the transportation and skilled trades segment . the results of operations at these campuses for the three year periods ended december 31 , 2016 were as follows ( in thousands ) : replace_table_token_6_th amounts include impairments of goodwill and long-lived assets for these campuses of $ 17.5 million and $ 19.0 million for the year ended december 31 , 2016 and 2014 , respectively . 2014 in december 2014 , the company 's board of directors approved a plan to cease operations at five training sites in florida . the company performed a cost benefit analysis on several schools and concluded that the training sites contained a high fixed cost component and have had difficulty attracting enough students due to high competition to maintain a stable profit margin . accordingly , the company ceased operations at these campuses as of december 31 , 2014. this was a strategic shift to close all of the company 's training sites and all locations that do not accept title iv payments . the results of operations of these campuses are reflected as discontinued operations in the consolidated financial statements .
| our educational services and facilities expense decreased by $ 8.3 million , or 8.1 % , to $ 94.9 million for the year ended december 31 , 2015 from $ 103.3 million in the prior comparable period . the expense reductions were primarily due to a $ 4.8 million , or 11.2 % , decrease in facilities costs due to lower depreciation expense as a result of discontinued depreciation expense in connection with two campuses classified as assets held for sale at december 31 , 2014. prior long-lived asset impairment expenses and lower capital expenditures also contributed to the decrease . our instructional and books and tools expense decreased by $ 3.5 million , or 5.8 % , as a result of instructional savings which were a result of a reduction in the number of instructors and other related costs resulting from lower average student population . the decrease in books and tools expense is also attributable to lower student starts . 39 index our educational expenses contain a high fixed cost component and are not as scalable as some of our other expenses . as our student population decreases , we typically experience a reduction in average class size and , therefore , are not always able to align these expenses with the corresponding decrease in population . educational services and facilities expenses , as a percentage of revenue , decreased to 45.6 % for the year ended december 31 , 2015 from 47.4 % in the prior year comparable period . selling , general and administrative expense . our selling , general and administrative expense decreased by $ 11.2 million , or 9.6 % , to $ 105.4 million for the year ended december 31 , 2015 from $ 116.6 million for the year ended december 31 , 2014. administrative expense was lower by $ 7.0 million , or 11.0 % , after giving consideration to a $ 3.7 decrease in salaries and benefit expenses as a result of management restructuring designed to help align our cost structure . furthermore , sales expense decreased by $ 3.4 million , or
| 13,867 |
on february 23 , 2017 , cel-sci sold 400,000 registered shares of common stock and 400,000 series gg warrants to purchase 400,000 unregistered shares of common stock at a combined price of $ 2.50 per share . the series gg warrants have an exercise price of $ 3.00 per share are exercisable on or before august 23 , 2022. in addition , cel-sci issued 20,000 series hh warrants to purchase 20,000 shares of unregistered common stock to the placement agent . the series hh warrants have an exercise price $ 3.13 and are exercisable on or before february 16 , 2022. the net proceeds from this offering were approximately $ 0.8 million . as of september 30 , 2018 , 200,000 series gg warrants had been exercised . on march 14 , 2017 , cel-sci sold 600,000 registered shares of common stock and 600,000 series ii warrants to purchase 600,000 unregistered shares of common stock at combined offering price of $ 2.50 per share . the series ii warrants have an exercise price of $ 3.00 per share and are exercisable on or before september 14 , 2022. in addition , cel-sci issued 30,000 series jj warrants to purchase 30,000 shares of unregistered common stock to the placement agent . the series jj warrants have an exercise price $ 3.13 and are exercisable on or before march 8 , 2022. the net proceeds from this offering were approximately $ 1.3 million . as of september 30 , 2018 , 383,500 series ii warrants had been exercised . on april 30 , 2017 , cel-sci sold 527,960 registered shares of common stock and 395,970 series kk warrants to purchase 395,970 unregistered shares of common stock at combined offering price of $ 2.88 per share . the series kk warrants have an exercise price of $ 3.04 per share , are exercisable on november 3 , 2017 and expire on november 3 , 2022. in addition , cel-sci issued 26,398 series ll warrants to purchase 26,398 shares of unregistered common stock to the placement agent . the series ll warrants have an exercise price $ 3.59 , are exercisable on october 30 , 2017 and expire on april 30 , 2022. the net proceeds from this offering were approximately $ 1.4 million . as of september 30 , 2018 , 182,100 series kk warrants had been exercised . 31 on july 26 , 2017 , cel-sci sold 100,000 registered shares of common stock and 60,000 series oo warrants to purchase 60,000 unregistered shares of common stock at a combined price of $ 2.29 per share . the series oo warrants have an exercise price of $ 2.52 per share are exercisable on january 31 , 2018 and expire on july 31 , 2022. the net proceeds from this offering were approximately $ 222,000. as of september 30 , 2018 , none of the series oo warrants had been exercised . on august 22 , 2017 , cel-sci sold 1,750,000 registered shares of common stock and 1,750,000 series pp warrants to purchase 1,750,000 unregistered shares of common stock at combined offering price of $ 2.00 per share . the series pp warrants have an exercise price of $ 2.30 per share , are exercisable on february 28 , 2018 and expire on february 28 , 2023. in addition , cel-sci issued 87,500 series qq warrants to purchase 87,500 shares of unregistered common stock to the placement agent . the series qq warrants have an exercise price $ 2.50 , are exercisable on february 22 , 2018 and expire on august 22 , 2022. the net proceeds from this offering were approximately $ 3.2 million . as of september 30 , 2018 , 1,577,500 series pp warrants and 84,000 series qq warrants had been exercised . during the year ended september 30 , 2017 , the company issued two series of convertible notes to individual investors , series mm and series nn convertible notes ( the notes ) . the notes had an aggregate principal amount of $ 2.7 million , bore interest at 4 % and were originally due on december 22 , 2017. at the option of the note holders , the series mm notes could be converted into shares of the company 's common stock at a fixed conversion rate of $ 1.69 and the series nn notes could be converted into shares of the company 's common stock at a fixed conversion rate of $ 2.29. the purchasers of the convertible notes also received series mm and series nn warrants which allow the purchasers to acquire up to 893,491 and 539,300 shares of the company 's common stock , respectively . the series mm warrants are exercisable at a price of $ 1.86 per share and expire on june 22 , 2022. the series nn warrants are exercisable at a price of $ 2.52 per share and expire on july 24 , 2022. on october 30 , 2017 , the company extended the due dates of the notes from december 22 , 2017 to september 21 , 20l8 , and issued the note holders 583,057 of series rr warrants . the series rr warrants expire on october 30 , 2022 and are exercisable at a price of $ 1.65 per share . as of september 30 , 2018 , 27,687 series rr warrants had been exercised for total proceeds of approximately $ 46,000. on june 11 , 2018 , as an inducement to convert , the company issued the then outstanding note holders 187,562 series uu warrants the series uu warrants are exercisable at a fixed price of $ 2.80 per share , are exercisable on december 11 , 2018 and expire on june 11 , 2020 during the year ended september 30 , 2018 , note holders converted all outstanding notes in the principal amount of $ 2,294,300 , into 1,166,105 shares of common stock . story_separator_special_tag during the year ended september 30 , 2017 , note holders converted notes in the principal amount of $ 450,700 into 266,686 shares of common stock . the unamortized debt discount relating to the converted notes was charged to interest expense . on december 19 , 2017 the company sold 1,289,478 shares of its common stock at a price of $ 1.90 per share for total proceeds of approximately $ 2.45 million . the purchasers of the common stock also received series ss warrants which allow the purchasers to acquire up to 1,289,478 shares of the company 's common stock . the warrants are exercisable at a fixed price of $ 2.09 per share , and will expire on december 18 , 2022. as of september 30 , 2018 , 328,948 series ss warrants had been exercised for total proceeds of approximately $ 0.7 million . on february 5 , 2018 , the company sold 2,501,145 shares of its common stock at a price of $ 1.87 per share for total proceeds of approximately $ 4.7 million . the purchasers of the common stock also received series tt warrants which allow the purchasers to acquire up to 1,875,860 shares of the company 's common stock . the warrants are exercisable at a fixed price of $ 2.24 per share , were exercisable on august 6 , 2018 and expire on february 5 , 2023. as of september 30 , 2018 , 578,983 series tt warrants had been exercised for total proceeds of approximately $ 1.30 million . on july 2 , 2018 the company issued 3,900,000 registered shares of common stock at a purchase price of $ 1.30 per share in a registered direct offering . for each share of common stock purchased , the investors received an unregistered series vv warrant to purchase one share of common stock . the series vv warrants have an exercise price of $ 1.75 per share , will be exercisable on january 2 , 2019 and expire on january 2 , 2024. as part of this transaction , the company also issued 195,000 series ww warrants to the placement agent . these series ww warrants have an exercise price of $ 1.63 per share , will be exercisable on january 2 , 2019 and expire on july 2 , 2023 . 32 the following chart lists the warrants that were exercised and the proceeds received during the year ended september 30 , 2018. no warrants were exercised during the year ended september 30 , 2017. replace_table_token_3_th replace_table_token_4_th during the years ended september 30 , 2018 and 2017 , cel-sci entered into securities purchase agreements with ergomed plc , one of cel-sci 's clinical research organizations responsible for managing cel-sci 's phase 3 clinical trial , to facilitate a partial payment of the accounts payable balances due ergomed . under the agreements , cel-sci issued ergomed shares of common stock as a forbearance fee in exchange for ergomed 's agreement to provisionally forbear collection of the payables in an amount equal to the net proceeds from the resales of the shares issued to ergomed . upon issuance , cel-sci expenses the full value of the shares and subsequently offsets the expense as amounts are realized through the resale by ergomed and reduces accounts payable to ergomed . during the year ended september 30 , 2018 , cel-sci issued ergomed 2,260,000 shares valued at approximately $ 5.5 million . during the year ended september 30 , 2017 , cel-sci issued ergomed 480,000 shares valued at approximately $ 1.3 million . during the years ended september 30 , 2018 and 2017 , ergomed credited cel-sci approximately $ 3.2 million and $ 0.1 million for the resale of shares . as a result , cel-sci has recorded a net interest expense of $ 2.3 million and $ 1.2 million for the years ended september 30 , 2018 and 2017 , respectively . as of september 30 , 2018 , ergomed holds 918,900 shares and may resell the shares or return the shares to cel-sci for cancellation until december 31 , 2018. as of september 30 , 2017 , ergomed held 415,208 shares , all of which were resold during the year ended september 30 , 2018. during the year ended september 30 , 2018 , cel-sci 's cash increased by approximately $ 7.9 million . significant components of this increase include : net cash used in operating activities of approximately $ 13.4 million , which were offset by proceeds from the sale of common stock and warrants of approximately $ 12.0 million and proceeds from the exercise of warrants of approximately $ 9.4 million . primarily as a result of our losses incurred to date , our expected continued future losses , and limited cash balances , we have included an explanatory paragraph in our financial statements expressing substantial doubt about our ability to continue as a going concern . we have included such an explanatory paragraph on numerous occasions in the preceding years . 33 future capital requirements the company 's material capital commitments include funding operating losses , funding its research and development program , making required lease payments and repaying convertible notes . for information on employment contracts , see item 11 of this report . further , cel-sci has contingent obligations with vendors for work that will be completed in relation to the phase 3 trial . the timing of these obligations can not be determined at this time . cel-sci estimates it will incur additional expenses of approximately $ 8.4 million for the remainder of the phase 3 clinical trial . it should be noted that this estimate is based only on the information currently available in cel-sci 's contracts with the clinical research organizations responsible for managing the phase 3 clinical trial and does not include other related costs , e.g. , the manufacturing of the drug .
| 29 during the year ended september 30 , 2018 , general and administrative expenses increased by approximately $ 2.0 million compared to the year ended september 30 , 2017. a major component of the increase is an approximate $ 1.4 million increase in employee compensation costs , of which approximately $ 0.9 million relates to expense associated with achievement of the second of four milestones under cel-sci 's incentive stock bonus plan , and $ 0.5 million relates to an increase in costs associated with employee stock options . another major component of the increase is an approximate $ 0.8 million increase in public relations costs , of which approximately $ 0.3 million related to an increase in the value of non-employee stock compensation costs for consultants . other components of the increase include a net decrease in other general and administrative expenses of approximately $ 0.2 million . during the years ended september 30 , 2018 , cel-sci recorded a derivative loss of approximately $ 8.6 million as compared to a derivative gain of approximately $ 11.0 million recorded during the year ended september 30 , 2017. this variation was the result of the change in fair value of the derivative liabilities during the period which was caused by fluctuations in the share price of cel-sci 's common stock . net interest expense increased approximately $ 2.5 million during the year ended september 30 , 2018 compared to the year ended september 30 , 2017. the increase is primarily due to : 1 ) an increase of approximately $ 1.1 million in amortization of discounts on notes payable issued in june and july 2017 , restructured in october 2017 and fully converted in june 2018 , and accrued interest on those notes ; 2 ) the $ 0.3 million inducement loss recorded in june 2018 on the conversion of the notes payable ; and 3 ) the current period impact of the financing arrangement with ergomed ( as explained in note 13 to the financial statements which are part of this report ) which resulted in approximately $ 1.1 million more in net interest expense in 2018 over 2017. research and development expenses cel-sci 's research and development efforts involved multikine and leaps . the table below shows the research and development expenses associated with each project during the reporting periods . replace_table_token_2_th in january 2007 , cel-sci received a “ no objection ” letter from the
| 13,868 |
primarily as a result of lower sales in 2018 , a bad debt charge of $ 1,813 related to the tru bankruptcy , and the $ 933 deferred tax valuation charge discussed above , we ended fiscal 2018 with a net loss of $ 0.23 per share as compared to a net loss of $ 0.12 per share in fiscal 2017. in june 2018 , we successfully refinanced our credit facility through an amended credit facility and new term loan , which provided us with additional credit availability and lowered our quarterly principal payments as compared to our prior credit facility . while we believe we are well-positioned for growth in 2019 , growth may be adversely effected due to tariffs on goods imported into the united states from china , general trade tensions between the united states and china , and general economic uncertainty as we enter 2019. in early 2019 , we implemented cost reduction actions that we believe will right size our business as a result of the tariff disruption in the marketplace , and we expect to continue our efforts to control costs throughout 2019 while continuing to invest in product development and improving our overall product positioning . summary of critical accounting policies and estimates the following summary of our critical accounting policies is presented to assist in understanding our consolidated financial statements . the consolidated financial statements and notes are representations of our management , who are responsible for their integrity and objectivity . these accounting policies conform to accounting principles generally accepted in the united states of america and have been consistently applied in the preparation of the consolidated financial statements . 18 additional information about our accounting policies and estimates may be found in note 1 to our consolidated financial statements included in this report . we make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses . the accounting policies described below are those we consider critical in preparing our financial statements . some of these policies include significant estimates made by management using information available at the time the estimates were made . however , these estimates could change materially if different information or assumptions were used . revenue recognition we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what we expect to receive in exchange for the goods or services . our principal activity from which we generate revenue is product sales . revenue is measured based on consideration specified in a contract with a customer . the company recognizes revenue when it satisfies a performance obligation in a contract by transferring control over a product to a customer when product delivery occurs . a performance obligation is a promise in a contract to transfer a distinct product to the customer , which for the company is transfer of juvenile products to its customers . the transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation . a transaction price is the amount of consideration the company expects to receive under the arrangement . the company is required to estimate variable consideration ( if any ) and to factor that estimation into the determination of the transaction price . the company conducts its business with customers through valid purchase or sales orders each of which is considered a separate contract because individual orders are not interdependent on one another . product transaction prices on a purchase or sale order are discrete and stand-alone . purchase or sales orders may be issued under either a customer master service agreement or a reseller allowance agreement . purchase or sales orders , master service agreements , and reseller allowance agreements which are specific and unique to each customers , may include product price discounts , markdown allowances , return allowances , and or volume rebates which reduce the consideration due from customers . variable consideration is estimated using the most likely amount method , which is based on our historical experience as well as current information such as sales forecasts . contracts may also include cooperative advertising arrangements where the company allows a discount from invoiced product amounts in exchange for customer purchased advertising that features the company 's products . these allowances are generally based upon product purchases or specific advertising campaigns . such allowances are accrued when the related revenue is recognized . these cooperative advertising arrangements provide a distinct benefit and fair value and are accounted for as direct selling expenses . trade receivables trade receivables are carried at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts . the allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed uncollectible . the allowance for doubtful accounts reduces gross trade receivables to their estimated net realizable value . the company estimates doubtful accounts based on historical bad debts , factors related to specific customers ' ability to pay and current economic trends . the company writes off accounts receivable against the allowance when a balance is determined to be uncollectible . amounts are considered to be uncollectable based upon historical experience and management 's evaluation of outstanding accounts receivable . 19 inventory valuation inventory is comprised of finished goods and is stated at the lower of cost , inclusive of freight and duty , or market ( net realizable value ) using the first-in , first-out ( fifo ) method or net realizable value . our warehousing costs are charged to expense as incurred . we regularly review slow-moving and excess inventory and write-down inventories as appropriate . management uses estimates to record write-downs based on its review of inventory by product category including length of time on hand and estimates of future orders for each product . story_separator_special_tag changes in consumer preferences , as well as demand for products , customer buying patterns and inventory management could impact the inventory valuation . long-lived assets with finite lives we review long-lived assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable . an asset is considered to be impaired when its carrying amount exceeds both the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition and the assets ' fair value . long-lived assets include property and equipment and finite-lived intangible assets . the amount of impairment loss , if any , is charged by us to current operations . indefinite-lived intangible assets we account for indefinite-lived intangible assets in accordance with accounting guidance that requires indefinite-lived intangible assets be tested annually for impairment and more frequently if events or changes in circumstances indicate that the asset might be impaired . our annual impairment testing is conducted in the fourth quarter of every year . we test indefinite-lived intangible assets for impairment by comparing the asset 's fair value to its carrying amount . if the fair value is less than the carrying amount , the excess of the carrying amount over fair value is recognized as an impairment charge and the adjusted carrying amount becomes the assets ' new accounting basis . management also evaluates the remaining useful life of an intangible asset that is not being amortized each reporting period to determine whether events and circumstances continue to support an indefinite useful life . if an intangible asset that is not being amortized is subsequently determined to have a finite useful life , it is amortized prospectively over its estimated remaining useful life . income taxes income taxes are computed using the asset and liability method of accounting . under the asset and liability method , a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry forwards . the measurement of deferred income tax assets is adjusted by a valuation allowance , if necessary , to recognize future tax benefits only to the extent , based on available evidence ; it is more likely than not that such benefit will be realized . we recognize interest and penalties , if any , related to uncertain tax positions in interest expense . interest and penalties related to uncertain tax positions were accrued at december 29 , 2018. on a global basis , the open tax years subject to examination by major taxing jurisdictions in which we operate is between 2012 and 2018 . 20 story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001314772/000104746919000567/ # bg10501a_main_toc '' > for fiscal 2018 , net cash used in financing activities was approximately $ 1,999 , reflecting repayments on our credit facility and the proceeds from our new term loan . for fiscal 2017 , net cash provided by financing activities was approximately $ 1,321 , reflecting borrowings on our credit facility in part to fund working capital and investing activities . based primarily on the above factors , net cash increased for fiscal 2018 by $ 40 , resulting in a cash balance of approximately $ 721 at fiscal year end . the following table summarizes our significant contractual commitments at fiscal 2018 year end : replace_table_token_2_th estimated future interest payments on our revolving facility and term loan facility are based upon the interest rates in effect at december 29 , 2018. capital resources in addition to operating cash flow , we also rely on our existing asset-based revolving credit facility with bank of america , n.a . to meet our financing requirements , which is subject to changes in our inventory and account receivable levels . we regularly evaluate market conditions , our liquidity profile , and various financing alternatives for opportunities to enhance our capital structure . if we are unable to meet our current financial forecast , do not adequately control expenses , or adjust our operations accordingly , these circumstances could create a situation where we can not access our available lines of credit due to insufficient asset availability , and will be required to maintain compliance with certain financial covenants under our credit facility and term loan agreement . there is no assurance that we will maintain sufficient availability under our credit facility or meet all of our financial or other covenants in the future , or that our lenders will grant waivers if there are covenant violations . in addition , should we seek to raise additional funds through debt or equity financings , such sales may cause dilution to existing stockholders . if sufficient financing is not available or is not available on acceptable terms , our ability to address any unexpected changes in our operations could be limited . based on past performance and current expectations , we believe that our anticipated cash flow from operations and availability under our existing credit facility are sufficient to fund our working capital , capital expenditures and debt service requirements for at least the next 12 months . credit facilities we and our wholly owned subsidiary , summer infant ( usa ) , inc. , are parties to a second amended and restated loan and security agreement with bank of america , n.a. , as agent , that provides for a $ 60,000 asset-based credit facility ( the `` credit facility '' ) . total borrowing capacity under the credit facility is based on a borrowing base , which is defined as 85 % of eligible receivables plus 23 the lesser of ( i ) 70 % of the value of eligible inventory or ( ii ) 85 % of the net orderly liquidation value of eligible inventory , less applicable reserves . loans under the credit facility are scheduled to mature on june 28 , 2023 ( subject to customary early termination provisions ) .
| general and administrative expenses of $ 38,880 for fiscal 2018 were relatively flat compared to $ 38,878 for fiscal 2017 but increased as a percent of sales to 22.4 % for fiscal 2018 from 20.5 % for fiscal 2017. the increase in percent of net sales was primarily due to lower sales . fiscal 2018 included a net $ 1,813 charge for bad debts due to the liquidation of tru 's u.s. assets compared to a $ 1,560 charge in fiscal 2017 due to the tru bankruptcy filing in fiscal 2017. selling expenses decreased by 12.6 % to $ 12,430 for fiscal 2018 from $ 14,229 for fiscal 2017 and as a percent of sales to 7.1 % for fiscal 2018 from 7.5 % for fiscal 2017. the decrease in selling expense was primarily attributable to lower sales , customer mix , as well as lower freight out and consumer advertising costs . the decrease as a percent of sales was primarily attributable to customer mix , as well as lower freight out and consumer advertising costs . 21 depreciation and amortization was slightly down at $ 4,182 for fiscal 2018 from $ 4,197 in fiscal 2017. capital expenditures increased slightly in fiscal 2018 to $ 3,472 from $ 3,103 in fiscal 2017. net interest expense increased 50 % to $ 4,442 for fiscal 2018 from $ 2,968 in fiscal 2017. interest expense increased primarily as a result of the write off of $ 518 of previously unamortized prepaid finance fees associated with the repayment of existing debt from the proceeds of our june 2018 refinancing , higher average interest rates under our new credit facilities , and the impact of increases in market interest rates over the past year . for fiscal 2018 , we recorded a $ 564 tax benefit on $ 4,815 of pretax loss for the period . the tax provision for fiscal 2018 included a $ 933 charge due to the new tax act . the tax act allows for interest expense to be deductible for
| 13,869 |
these factors continue to impact consumer spending and may continue to cause levels of spending to remain depressed for the foreseeable future . additionally , these factors may cause pet owners to elect to defer expensive treatment options or to forgo treatment for their pets altogether . we believe that our ability to maintain or increase margins in 2014 will be dependent on organic revenue growth rates . we plan to continue our growth strategy of acquiring individual animal hospitals and maintain our strong emphasis on expense management . however , our ability to return to our historical margins will be dependent on increases in same-store revenue growth in our animal hospitals and successful integration of our acquired businesses . share repurchase program in april 2013 , our board of directors authorized a share repurchase program , authorizing us to repurchase up to $ 125.0 million of our common shares from time to time in open market purchases , pursuant to trading plans established in accordance with sec rules or through privately negotiated transactions . the extent and timing of our repurchases will depend upon market conditions , our cash requirements to fund the long-term growth investments in our business and other corporate considerations . the repurchases have been and will continue to be be funded by existing cash balances and by our revolving credit facility . the share repurchase program has no expiration date . the repurchase program may be suspended or discontinued at any time . refer to item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities in part ii of this report . financing transaction on january 25 , 2012 , we amended our amended and restated credit and guaranty agreement , dated as of august 16 , 2011. the amendment replenished the aggregate amount of uncommitted incremental facilities available under our senior credit facility to a maximum of $ 100 million , after giving effect to the funding of $ 50 million of new term loan commitments on january 24 , 2012 , which were drawn in connection with the additional investment made in avc , detailed below . 23 acquisitions our annual growth strategy includes the acquisition of independent animal hospitals . we also evaluate the acquisition of animal hospital chains , laboratories or related businesses if favorable opportunities are presented . in 2013 , we acquired 20 independent animal hospitals with annualized revenue of $ 60.4 million . the following table summarizes the changes in the number of facilities operated by our animal hospital and laboratory segments : replace_table_token_7_th 2011 brightheart acquisition on july 11 , 2011 , we acquired 100 % of the membership interests of brightheart for approximately $ 50 million in cash . brightheart operated nine animal hospitals , eight of which focused on the delivery of specialty and emergency medicine . the acquisition increased our level of market recognition in areas where we had an existing market presence . at the time of the acquisition , brightheart had annualized revenue of approximately $ 53.4 million . our consolidated financial statements reflect the operating results of brightheart since july 11 , 2011 . 2011 vetstreet acquisition on august 9 , 2011 , we acquired vetstreet , a provider of online communications , professional education and marketing solutions to the veterinary community . the acquisition of vetstreet expanded the breadth of our product offerings to the veterinary community . we acquired vetstreet for $ 146.4 million , net of cash acquired . at the time of the acquisition , vetstreet had annualized revenue of approximately $ 23.0 million . our consolidated financial statements reflect the operating results of vetstreet since august 9 , 2011 reported within our `` all other '' category in our segment disclosures . 2012 avc investment on january 31 , 2012 , we increased our investment in avc by approximately cdn $ 81 million ( approximately us $ 81 million ) becoming the sole non-veterinarian shareholder of avc . at the time of the additional investment , avc operated 44 animal hospitals in three canadian provinces , offering services ranging from primary care , to specialty referral services and 24-hour emergency care . this investment and additional investments in avc facilitates our continued expansion in the canadian market . at the time of the investment , avc had annualized revenue of approximately cdn $ 95 million ( approximately us $ 95 million ) . our consolidated financial statements reflect the operating results of avc since january 31 , 2012 . 24 2012 thinkpets acquisition on february 1 , 2012 , we acquired 100 % interest in thinkpets for $ 21 million , payable by delivery of 473,389 shares of vca common stock and $ 10.5 million in cash . subsequent to the acquisition , we merged the operations of thinkpets with vetstreet . our consolidated financial statements reflect the operating results of thinkpets since february 1 , 2012 reported within our `` all other '' category in our segment disclosures . critical accounting policies and estimates we believe that the application of the following accounting policies , which are important to our financial position and results of operations , require significant judgments and estimates on the part of management . for a summary of all of our accounting policies , including the accounting policies discussed below , see note 2 , summary of significant accounting policies , in our consolidated financial statements of this annual report on form 10-k. revenue generally , we recognize revenue when persuasive evidence of a sales arrangement exists , delivery of goods has occurred or services have been rendered , the sales price or fee is fixed or determinable and collectability is reasonably assured . for the animal hospital segment , revenue is recognized when services are performed or products are sold . for the laboratory segment , revenue is recognized when services are performed . for the other segments , revenue is recognized when services are provided or delivery of goods has occurred . story_separator_special_tag multiple element arrangements we sell our digital radiography imaging equipment bundled with other services in certain instances . these items are accounted for under the fasb 's revenue recognition - multiple-element arrangements guidance . under the guidance , sales arrangement consideration is allocated at the inception of the arrangement to all deliverables using the relative selling price method , whereby any discount in the arrangement is allocated proportionally to each deliverable on the basis of each deliverable 's selling price . the selling price for each deliverable is based on vendor-specific objective evidence ( “ vsoe ” ) if available , third-party evidence ( “ tpe ” ) if vsoe is not available , or estimated selling price ( “ esp ” ) if neither vsoe nor tpe is available . for elements where vsoe is available , vsoe of fair value is based on the price for those products and services when sold separately by us or the price established by management with the relevant authority . tpe of selling price is the price of our , or any of our competitor 's , largely interchangeable products or services in stand-alone sales to similarly situated customers . esp is generally calculated based upon multiple factors that vary depending upon the unique facts and circumstances related to each deliverable . key external and internal factors considered in developing the esps include prices charged by us for similar arrangements , historical pricing practices and the nature of the product . in addition , when developing esps , we may consider other factors as appropriate , including the pricing of competitive alternatives if they exist , and product-specific business objectives . we exercise significant judgment to evaluate the relevant facts and circumstances in calculating the esp of the deliverables in our arrangements . we recognize revenue when the services are provided or at the time of delivery or installation and customer acceptance . generally , at the time of delivery and installation of equipment the only undelivered item is the post-contract customer support ( `` pcs '' ) . this obligation is contractually defined in both terms of scope and period . for the pcs , we recognize the revenue for these services on a straight-line basis over the period of support and we expense the costs of these services as they are incurred . valuation of goodwill and other intangible assets goodwill we allocate a significant portion of the purchase price for our acquired businesses to goodwill . our goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to identifiable assets acquired and liabilities assumed . the total amount of our goodwill at december 31 , 2013 was $ 1.3 billion , consisting of $ 1.2 billion for our animal hospital reporting unit , $ 96.9 million for our laboratory reporting unit , $ 9.2 million for our vetstreet reporting unit and $ 8.2 million for our medical technology reporting unit . we test our goodwill for impairment annually , or sooner if circumstances indicate impairment may exist , in accordance with goodwill guidance . our annual impairment testing date is october 31 , which allows us time to accurately complete our 25 impairment testing process in order to incorporate the results in our annual financial statements and timely file those statements with the securities and exchange commission ( “ sec ” ) . the recognition and measurement of a goodwill impairment loss involves either a qualitative assessment of the fair value of each reporting unit or a more detailed two-step process . we have not presently elected to rely on a qualitative assessment , accordingly we measure our goodwill for impairment based upon the following two-step process : first we identify potential impairment by comparing the estimated fair value of our reporting units with the carrying value defined as the reporting unit 's net assets , including goodwill . if the estimated fair value of our reporting units is greater than our carrying value , there is no impairment and the second step is not needed . if we identify a potential impairment in the first step , we then measure the amount of impairment . the amount of the impairment is determined by allocating the estimated fair value of the reporting unit as determined in step one to the reporting unit 's net assets based on fair value as would be done in an acquisition . in this hypothetical purchase price allocation , the residual estimated fair value after allocation to the reporting units ' identifiable net assets is the implied current fair value of goodwill . if the implied current fair value of goodwill is less than the carrying amount of goodwill , goodwill is considered impaired and written down to the implied current fair value with a corresponding charge to earnings . however , if the implied current fair value of goodwill is greater than the carrying amount of goodwill , goodwill is not considered impaired and is not adjusted to the implied current fair value . determining the fair value of the net assets of our reporting units under this step requires significant estimates . our estimated fair values are calculated in accordance with generally accepted accounting principles related to fair value and utilize generally accepted valuation techniques consisting primarily of discounted cash flow techniques and market comparables , where applicable . these valuation methods involve the use of significant assumptions and estimates such as forecasted growth rates , valuation multiples , the weighted-average cost of capital , and risk premiums , which are based upon the best available market information and are consistent with our long-term strategic plans . negative changes in our projected cash flows related to variables such as revenue growth rates , margins , or the discount rate could result in a decrease in the estimated fair value of our reporting units and could ultimately result in a substantial goodwill impairment charge .
| see “ non-gaap financial measures ” below for information about these non-gaap financial measures , including our reasons for including the measures , material limitations with respect to the usefulness of the measures , and a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure . consolidated gross profit increased $ 34.4 million in 2013 , as compared to 2012 . non-gaap consolidated gross profit , excluding acquisition related amortization , increased $ 28.1 million in 2013 , as compared to 2012. the increase in consolidated gross profit included $ 8.8 million of gross profit related to the acquisitions consummated since the beginning of 2012. excluding the impact of acquisitions , the remainder of the increase was attributable to organic revenue growth and increased gross margins at our animal hospital , laboratory , and medical technology business segments . consolidated gross profit increased $ 36.5 million in 2012 , as compared to 2011 . non-gaap consolidated gross profit , excluding acquisition related amortization , increased $ 49.5 million in 2012 , as compared to 2011. the increase consolidated gross profit included $ 31.5 million of gross profit primarily from the acquisition of avc , vetstreet and thinkpets . excluding the impact of acquisitions , the remaining increase in gross profit is attributable to organic revenue growth at our laboratory and vetstreet segments , partially offset by a decrease in gross profit from our same-store animal hospitals . 30 segment results animal hospital segment revenue animal hospital revenue increased $ 86.6 million in 2013 , as compared to 2012 and $ 181.2 million in 2012 , as compared to 2011 . the components of the increases are summarized in the following table ( in thousands , except percentages and average price per order ) : replace_table_token_11_th ( 1 ) same-store revenue and orders were calculated using animal hospital operating results , adjusted to exclude the operating results for newly acquired animal hospitals that we did not own as of the beginning of the comparable period in the prior year . same-store revenue also includes revenue generated by customers referred from our relocated or combined animal hospitals , including those merged upon acquisition . ( 2 ) computed by dividing same-store revenue by same-store orders . ( 3 )
| 13,870 |
when a claim is reported to us , our claims department completes a case‑basis valuation and establishes a case reserve for the estimated amount of the probable ultimate losses and lae associated with that claim . our claims department updates their case‑basis valuations upon receipt of additional information and reduces case reserves as claims are paid . the case reserve is based primarily upon an evaluation of the following factors : the type of loss ; the severity of injury or damage ; our knowledge of the circumstances surrounding the claim ; the jurisdiction of the occurrence ; policy provisions related to the claim ; expenses intended to cover the ultimate cost of settling claims , including investigation and defense of lawsuits resulting from such claims , costs of outside adjusters and experts , and all other expenses which are identified to the case ; and any other information considered pertinent to estimating the indemnity and expense exposure presented by the claim . ibnr reserves are determined by subtracting case reserves and paid loss and lae from the estimated ultimate loss and lae . our actuarial department develops estimated ultimate loss and lae on a quarterly basis . our reserve review committee ( which includes our chief executive officer , president , chief financial officer , other members of executive management , and key actuarial , underwriting and claims personnel ) meets each quarter to review our actuaries ' estimated ultimate expected loss and lae . we use several generally accepted actuarial methods to develop estimated ultimate loss and lae estimates by line of business and accident year . this process relies on the basic assumption that past experience , adjusted for the effects of current developments and likely trends , is a reasonable basis for predicting future outcomes . these methods utilize various inputs , including : written and earned premiums ; paid and reported losses and lae ; expected initial loss and lae ratio , which is the ratio of incurred losses and lae to earned premiums ; and 31 expected claim reporting and payout patterns based on our own loss experience and supplemented with insurance industry data where applicable . the principal standard actuarial methods used by our actuaries for their comprehensive reviews include : loss ratio method—this method uses loss and lae ratios for prior accident years , adjusted for current trends , to determine an appropriate expected loss and lae ratio for a given accident year ; loss development methods—loss development methods assume that the losses and lae yet to emerge for an accident year are proportional to the paid or reported loss and lae amounts observed to‑date . the paid loss development method uses losses and lae paid to date , while the reported loss development method uses losses and lae reported to date ; bornheutter‑ferguson method—this method is a combination of the loss ratio and loss development methods , where the loss development factor is given more weight as an accident year matures ; and frequency/severity method—this method projects claim counts and average cost per claim on a paid or reported basis for high frequency , low severity products . our actuaries give different weights to each of these methods based upon the amount of historical experience data by line of business and by accident year , and based on judgment as to what method is believed to result in the most accurate estimate . the application of each method by line of business and by accident year may change in the future if it is determined that a different emphasis for each method would result in more accurate estimates . our actuaries also analyze several diagnostic measures by line of business and accident year , including but not limited to : reported and closed frequency and severity , claim reporting and claim closing patterns , paid and incurred loss ratio development , and ratios of paid loss and lae to incurred loss and lae . after the actuarial methods and diagnostic measures have been performed and analyzed , our actuaries use their judgment and expertise to select an estimated ultimate loss and lae by line of business and by accident year . our actuaries estimate an ibnr reserve for our unallocated lae not specifically identified to a particular claim , namely our internal claims department salaries and associated general overhead and administrative expenses associated with the adjustment and processing of claims . these estimates , which are referred to as unallocated loss adjustment expense ( `` ulae '' ) reserves , are based on internal cost studies and analyses reflecting the relationship of ulae paid to actual paid and incurred losses . we select factors that are applied to case reserves and ibnr reserve estimates in order to estimate the amount of ulae reserves applicable to estimated loss reserves at the balance sheet date . we allocate the applicable portion of our estimated loss and lae reserves to amounts recoverable from reinsurers under reinsurance contracts and report those amounts separately from our loss and lae reserves as an asset on our balance sheet . the estimation of ultimate liability for losses and lae is a complex , imprecise and inherently uncertain process , and therefore involves a considerable degree of judgment and expertise . our loss and lae reserves do not represent an exact measurement of liability , but are estimates based upon various factors , including but not limited to : actuarial projections of what we , at a given time , expect to be the cost of the ultimate settlement and administration of claims reflecting facts and circumstances then known ; estimates of future trends in claims severity and frequency ; assessment of asserted theories of liability ; and analysis of other factors , such as variables in claims handling procedures , economic factors , and judicial and legislative trends and actions . most or all of these factors are not directly or precisely quantifiable , particularly on a prospective basis , and are subject to a significant degree of variability over time . story_separator_special_tag in addition , the establishment of loss and lae reserves makes no provision for the broadening of coverage by legislative action or judicial interpretation or for the extraordinary future emergence of new types of losses not sufficiently represented in our historical experience or which can not yet be quantified . as a result , an integral component of our loss and lae reserving process is the use of informed subjective estimates and judgments about our ultimate exposure to losses and lae . accordingly , the ultimate liability may vary significantly from the current estimate . the effects of change in the estimated loss and lae reserves are included in the results of operations in the period in which the estimate is revised . our reserves consist entirely of reserves for property and liability losses , consistent with the coverages provided for in the insurance policies directly written or assumed by us under reinsurance contracts . occasionally , several years may elapse 32 between the occurrence of an insured loss , the reporting of the loss to us and our payment of the loss . the level of ibnr reserves in relation to total reserves depends upon the characteristics of the specific line of business , particularly related to the speed with which claims are reported and outstanding claims are paid . lines of business for which claims are reported slowly will have a higher percentage of ibnr reserves than lines of business that report and settle claims more quickly . the following table shows the ratio of ibnr reserves to total reserves net of reinsurance recoverables as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_8_th although we believe that our reserve estimates are reasonable , it is possible that our actual loss and lae experience may not conform to our assumptions and may , in fact , vary significantly from our assumptions . accordingly , the ultimate settlement of losses and the related lae may vary significantly from the estimates included in our financial statements . we continually review our estimates and adjust them as we believe appropriate as our experience develops or new information becomes known to us . such adjustments are included in current operations . our loss and lae reserves do not represent an exact measurement of liability , but are estimates . the most significant assumptions affecting our ibnr reserve estimates are the loss development factors applied to paid losses and case reserves to develop ibnr by line of business and accident year . although historical loss development provides us with an indication of future loss development , it typically varies from year to year . thus , for each accident year within each line of business we select one loss development factor out of a range of historical factors . we generated a sensitivity analysis of our net reserves which represents reasonably likely levels of variability in our selected loss development factors . we believe the most meaningful approach to the sensitivity analysis is to vary the loss development factors that drive the ultimate loss and lae estimates . we applied this approach on an accident year basis , reflecting the reasonably likely differences in variability by level of maturity of the underlying loss experience for each accident year . generally , the most recent accident years are characterized by more unreported losses and less information available for settling claims , and have more inherent uncertainty than the reserve estimates for more mature accident years . therefore , we used variability factors of plus or minus 10 % for the most recent accident year , 5 % for the preceding accident year , and 2.5 % for the second preceding accident year . there is minimal expected variability for accident years at four or more years ' maturity . 33 the following table displays ultimate net loss and lae and net loss and lae reserves by accident year for the year ended december 31 , 2017 . we applied the sensitivity factors to each accident year amount and have calculated the amount of potential net loss and lae reserve change and the impact on 2017 reported pre-tax income and on net income and shareholders ' equity at december 31 , 2017 . we believe it is not appropriate to sum the illustrated amounts as it is not reasonably likely that each accident year 's reserve estimate assumptions will vary simultaneously in the same direction to the full extent of the sensitivity factor . we also believe that such changes to our reserve balance would not have a material impact on our operating results , financial position , or liquidity . the net income and shareholders ' equity amounts include an income tax rate assumption of 21 % . the dollar amounts in the table are in thousands . replace_table_token_9_th investment valuation and impairment we carry debt and equity securities classified as available‑for‑sale at fair value , and unrealized gains and losses on such securities , net of any deferred taxes , are reported as a separate component of accumulated other comprehensive income . we do not have any securities classified as trading or held‑to‑maturity . we evaluate our available‑for‑sale investments regularly to determine whether there have been declines in value that are other‑than‑temporary . our outside investment managers assist us in this evaluation . when we determine that a security has experienced an other‑than‑temporary impairment , the impairment loss is recognized as a realized investment loss . we consider a number of factors in assessing whether an impairment is other‑than‑temporary , including ( 1 ) the amount and percentage that current fair value is below cost or amortized cost , ( 2 ) the length of time that the fair value has been below cost or amortized cost and ( 3 ) recent corporate developments or other factors that may impact an issuer 's near term prospects . in addition , for debt securities , we consider the credit quality ratings for the securities , with a special emphasis on securities downgraded to below investment grade .
| in 2016 , as a result of the merger of acic into wpic , the value of intangible assets recorded for insurance licenses on acic were written off resulting in a $ 400,000 loss . interest expense interest expense was $ 1.4 million and $ 647,000 for the years ended december 31 , 2017 and 2016 , respectively . interest expense increased due to the increase in outstanding debt throughout the year . we issued $ 30.0 million of subordinated notes in the third quarter of 2017 , with a current interest rate of 8.0 % per annum . we paid off all of the senior debt facility from the proceeds of the subordinated notes . interest expense includes the amortization of debt issuance costs relating to the new subordinated notes which is $ 66,000 per annum over the 15-year life of the notes . income tax expense ( benefit ) on december 22 , 2017 , the u.s. federal government enacted h.r.1 , “ an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal year 2018 ” ( the “ act ” ) . the act provides for significant changes to corporate taxation including the decrease of the corporate tax rate from 34 % to 21 % . we have completed an analysis of the impact of the act and have followed the additional guidance provided by the security and exchange commission 's staff accounting bulletin no . 118. we believe there are no material provisional balances as of december 31 , 2017 . we accounted for the impacts of the act by remeasuring our deferred tax assets and liabilities at the 21 % enacted tax rate . the approximate impact of the change in tax rate was a decrease in net deferred tax assets ( before valuation allowance ) of $ 5.6 million with a corresponding deferred income tax expense of $ 5.6 million . the valuation allowance also decreased by $ 5.7 million with a corresponding deferred income tax benefit of $ 5.7 million . accordingly , the net deferred income tax impact on the results of operations relating to the act was a $ 63,000 deferred tax
| 13,871 |
we also leverage the technology leadership of our equipment by optimizing our bonder platforms , and we deliver variants of our products to serve emerging high-growth markets . for example , we have developed extensions of our main ball bonding platforms to address opportunities in led assembly . the led backlights for flat-screen displays have been the main driver of the led market in the last few years where we have successfully competed in led assembly equipment . we expect the next wave of growth in the led market to be high brightness led for general lighting , and we believe we are well positioned for this trend . furthermore , we gain synergies by leveraging technologies between our unique platforms . our leading technology for wedge bonder equipment uses aluminum ribbon or heavier wire as opposed to fine gold and fine copper wire used in ball bonders . in addition , we are currently developing the next generation platform for our power semiconductor wedge bonder . we intend to initiate design of our next power module wedge bonder . in both cases , we are making a conscious effort to develop commonality of subsystems and design practices , in order to improve performance and design efficiencies . we believe this will benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups . furthermore , we continually research adjacent market segments where our technologies could be used . as an example , we are reviewing the use of wedge bonding in the fabrication of solar panels . many of these initiatives are in the early stages of development and may become business opportunities in the future . another example of our developing equipment for high-growth niche markets is our at premier . this machine utilizes a modified wire bonding process to mechanically place bumps on devices , while still in a wafer format , for variants of the flip chip assembly process . typical applications include complimentary metal-oxide semiconductor ( “ cmos ” ) image sensors , surface acoustical wave ( “ saw ” ) filters and high brightness leds . these applications are commonly used in most , if not all , smartphones available today in the market . our focus on technology leadership also extends to die bonding . our state of the art istack ps die bonder for advanced stacked die applications offers best-in-class throughput and accuracy . we bring the same technology focus to our expendable tools business , driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used . for all our equipment products , expendable tools are an integral part of their process capability . we believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products ' technological differentiation . 29 products and services we supply a range of bonding equipment and expendable tools . the following table reflects net revenue by business segment for fiscal 2011 , 2010 , and 2009 : replace_table_token_7_th equipment segment we manufacture and sell a line of ball bonders , heavy wire wedge bonders , stud bumpers , and die bonders that are sold to semiconductor device manufacturers , osats , other electronics manufacturers and automotive electronics suppliers . ball bonders are used to connect very fine wires , typically made of gold or copper , between the bond pads of the semiconductor device , or die , and the leads on its package . wedge bonders use either aluminum wire or ribbon to perform the same function in packages that can not use gold or copper wire because of either high electrical current requirements or other package reliability issues . stud bumpers mechanically apply bumps to die , typically while still in the wafer format , for some variants of the flip chip assembly process . die bonders are used to attach a die to the substrate or lead frame which will house the semiconductor device . we believe our equipment offers competitive advantages by providing customers with high productivity/throughput , superior package quality/process control , and as a result , a lower cost of ownership . 30 our principal equipment segment products include : business unit product name ( 1 ) typical served market ball bonders iconn ps advanced and ultra fine pitch applications using either gold or copper wire iconn ps procu high-end copper wire applications demanding advanced process capability and high productivity iconn ps procu la large area substrate and matrix applications for copper wire iconn ps la large area substrate and matrix applications connx ps cost performance , low pin count applications using either gold or copper wire connx ps led led applications connx ps vled vertical led applications connx ps la cost performance large area substrate and matrix applications at premier stud bumping applications ( high brightness led and image sensor ) wedge bonders 3600plus power hybrid and automotive modules using either heavy aluminum wire or powerribbon® 3700plus hybrid and automotive modules using thin aluminum wire 7200plus power semiconductors using either aluminum wire or ribbon 7200hd smaller power packages using either aluminum wire or ribbon 7600hd power semiconductors including smaller power packages using either aluminum wire or ribbon die bonder istack ps advanced stacked die and ball grid array applications ( 1 ) power series ( “ ps ” ) 31 ball bonders automatic ball bonders represent the largest portion of our semiconductor equipment business . our main product platform for ball bonding is the power series ( “ ps ” ) — a family of assembly equipment that is setting new standards for performance , productivity , upgradeability , and ease of use . our power series consists of our iconn ps high-performance ball bonders , and our connx ps cost-performance ball bonders , both of which can be configured for either gold or copper wire . story_separator_special_tag in addition , targeted specifically at the fast growing led market , the power series includes our connx ps led and our connx ps vled . targeted for large bondable area applications , the power series includes our iconn ps la and connx ps la . in november 2010 and january 2011 , we introduced the iconn ps procu and iconn ps procu la , respectively , which offer a significant new level of capability for customers transitioning from gold to copper wire bonding . our power series products have advanced industry performance standards . our ball bonders are capable of performing very fine pitch bonding , as well as creating the sophisticated wire loop shapes needed in the assembly of advanced semiconductor packages . our ball bonders can also be converted for use to copper applications through kits we sell separately , a capability that is increasingly important as bonding with copper continues to grow as an alternative to gold . our at premier machine utilizes a modified wire bonding process to mechanically place bumps on devices , while still in a wafer format , for variants of the flip chip assembly process . typical applications include cmos image sensors , saw filters and high brightness leds . these applications are commonly used in most , if not all , smartphones available today in the market . heavy wire wedge bonders we are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power module markets . wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips in power packages , power hybrids and automotive modules for products such as motor control modules or inverters for hybrid cars . in addition , we see some potential use for our wedge bonder products in select solar applications . our portfolio of wedge bonding products includes : · the 3600plus : high speed , high accuracy wire bonders designed for power modules , automotive packages and other heavy wire multi-chip module applications . · the 3700plus : wire bonders designed for hybrid and automotive modules using thin aluminum wire . · the 7200plus : dual head wedge bonder designed specifically for power semiconductor applications . · the 7200hd : wedge bonder designed for smaller power packages using either aluminum wire or ribbon . · the 7600hd : wedge bonder targeted for small power packages . while wedge bonding traditionally utilizes aluminum wire , all of our wedge bonders are also available modified to bond aluminum ribbon using our proprietary powerribbon ® process . aluminum ribbon offers device makers performance advantages over traditional round wire and is being increasingly used for high current packages and automotive applications . die bonders our die bonder , the istack ps , focuses on stacked die applications for both memory and subcontract assembly customers . istack ps is targeted at stacked die and high-end ball grid array ( bga ) applications . in these applications , we expect up to 40 % productivity increases compared to current generation machines . in addition , istack ps has demonstrated superior accuracy and process control . 32 other equipment products and services we also sell manual wire bonders , and we offer spare parts , equipment repair , training services , and upgrades for our equipment through our support services business unit . expendable tools segment we manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications . our principal expendable tools segment products include : · capillaries : expendable tools used in ball bonders . made of ceramic , a capillary guides the wire during the ball bonding process . its features help control the bonding process . we design and build capillaries suitable for a broad range of applications , including for use on our competitors ' equipment . in addition , our capillaries are used with both gold and copper wire . · bonding wedges : expendable tools used in wedge bonders . like capillaries , their specific features are tailored to specific applications . we design and build bonding wedges for use both in our own equipment and in our competitors ' equipment . · saw blades : expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die and to cut semiconductor devices that have been molded in a matrix configuration into individual units . critical accounting policies the preparation of consolidated financial statements requires us to make assumptions , estimates and judgments that affect the reported amounts of assets and liabilities , net revenue and expenses during the reporting periods , and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements . on an on-going basis , we evaluate estimates , including but not limited to , those related to accounts receivable , reserves for excess and obsolete inventory , carrying value and lives of fixed assets , goodwill and intangible assets , valuation allowances for deferred tax assets and deferred tax liabilities , repatriation of un-remitted foreign subsidiary earnings , equity-based compensation expense , restructuring , and warranties . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable . as a result , we make judgments regarding the carrying values of our assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies , which have been reviewed with the audit committee of our board of directors , affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition in accordance with accounting standards codification ( “ asc ” ) no .
| these risks and uncertainties include , without limitation , those described below and under the heading “ risk factors ” within this annual report on form 10-k for the fiscal year ended october 1 , 2011 and our other reports and registration statements filed from time to time with the securities and exchange commission . this discussion should be read in conjunction with the consolidated financial statements and notes included in this report , as well as our audited financial statements included in this annual report . we operate in a rapidly changing and competitive environment . new risks emerge from time to time and it is not possible for us to predict all risks that may affect us . future events and actual results , performance and achievements could differ materially from those set forth in , contemplated by or underlying the forward-looking statements , which speak only as of the date on which they were made . except as required by law , we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in , or additions to , the factors affecting such forward-looking statements . given those risks and uncertainties , investors should not place undue reliance on forward-looking statements as predictions of actual results . introduction kulicke and soffa industries , inc. ( the “ company ” or “ k & s ” ) designs , manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices , including integrated circuits ( “ ic ” ) , high and low powered discrete devices , light-emitting diodes ( “ leds ” ) , and power modules . we also service , maintain , repair and upgrade our equipment . our customers primarily consist of semiconductor device manufacturers , outsourced semiconductor assembly and test providers ( “ osats ” ) , other electronics manufacturers and automotive electronics suppliers . we operate two main business segments , equipment and expendable tools . our goal is to be the technology leader and the lowest cost supplier in each of our major product lines . accordingly , we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology . we also remain focused on our cost structure , through consolidating operations to asia , moving manufacturing and other operations to asia , moving
| 13,872 |
we completed r & d activities for this project during 2013 , including supplying the u.s. government agency that this test was developed for with approximately 10,000 prototype devices for clinical trials . dpp® tuberculosis – in 2011 , we were awarded a three-year , $ 2.9 million , small business innovative research ( sbir ) phase ii grant from the united states national institutes of health ( nih ) to continue our successful phase i grant work to develop a simple , rapid , accurate , and cost-effective serological test for active tuberculosis that can be utilized in resource-limited settings . during 2012 , several additional antigens were identified to enhance antibody detection by the dpp® test prototype designed in our phase i studies . antigen reagents have been finalized and test prototype evaluation using well-characterized clinical specimens is in progress . funding for the third and final year of this phase ii grant was confirmed with a reduction of approximately 1 % . chembio 's work to finalize dpp assay design using various fusion proteins has been completed and production of an evaluation lot is in progress ; these tests will be used for verification studies , internal and external evaluations at the selected collaborative sites ( see below ) , qc protocol validation , and accelerated stability study . the target sensitivity is 80 % and specificity is 95 % . study sites for external evaluations of dpp assay include bangladesh , brazil , china , haiti , peru , venezuela , and south africa . the grant is expected to be completed by early july 2014. in addition to the above-mentioned research and development work sponsored by governmental agencies and or their contractors for the influenza , febrile illnesses , and tuberculosis projects , we are discussing additional opportunities for sponsored research and development activity . we endeavor to select sponsored research projects where we believe there is an identifiable commercial opportunity and or where other benefits to the company are anticipated in connection with these projects . in general , we are considering certain new dpp® product opportunities , either as oem development projects and or as chembio-branded products . these products are being identified based upon our assessment of opportunities in the market and upon whether they can be addressed with our proprietary technology , along with our development and manufacturing capabilities and experience . we are also identifying and assessing additional technologies that we believe can enhance or expand our current product portfolio , and thereby provide additional revenue streams , although there is no assurance that we will be able to obtain or utilize any of them profitably . regulatory activities ce mark for fda-approved hiv tests – the company 's sure check® hiv 1/2 assay has received ce mark approval from european regulators and is therefore now cleared for commercialization within the european union ( eu ) for rapid , point-of-care detection of hiv . chembio is currently working with commercialization partners in europe . we expect that our hiv 1/2 stat pak® lateral flow hiv test will receive the ce mark during the first quarter of 2014. we anticipate that the dpp® hiv 1/2 test will receive ce mark approval in early 2014. fda approval for dpp® hiv 1/2 assay for use with oral fluid or blood samples – we received fda approval of our pre-marketing application ( pma ) for this product on december 19 , 2012 as we previously announced . the clia waiver application was submitted at the end of november 2013. in february 2014 we received a letter from the fda on the current status of review of our clia waiver application . the fda determined that additional information is needed to complete their review of the company 's dpp® hiv 1/2 assay clia waiver application . during the blinded prospective clinical study , a disproportionate number of new infections were found at one clinical site due to the lower than expected prevalence at two other sites . we are currently in discussion with the fda to finalize the protocol to collect additional data . upon receiving guidance on our proposed protocol , we anticipate that we will be able to update the timeline of activities for the clia waiver of the dpp hiv1/2 assay . dpp® hiv-syphilis – we have developed this product for international and us marketing . for the international market , the product has been registered in mexico . we have submitted this product both for evaluation by the cdc , acting on behalf of the united states agency of international development , and the who , which has accepted this product to be evaluated for pre-qualification in its global procurement scheme . 29 the fda review timeline for this product , which we originally anticipated would be in mid-2014 , has now been shifted to late 2014 , with clia waiver now anticipated in 2015. this development is due to this product being characterized by fda as a pma , not a 510 ( k ) , as the syphilis component performance will be compared to actual patient infection status , as compared to a predicate device allowed in 510 ( k ) . this change will be more time consuming due to the increased statutory review time , and potentially more costly . we collected and completed phase i of the clinical study and found that the patient infected status varied dependent on the comparator assay used for the serological clinical diagnosis of syphilis . due to the complex nature of the disease state of syphilis as well as the varying algorithms used for diagnosis , the original requirement discussed with the fda may not be appropriate . fda has requested the submission of preliminary data collected during the clinical study , which we did in february 2014 , to further the discussion regarding the requirement for the dpp hiv-syphilis assay . story_separator_special_tag there can be no assurance that any of the aforementioned research & development and or regulatory products or activities will result in any product approvals or commercialization , nor that any of the existing research and development activities , or any new potential development programs or collaborations will materialize or that they will meet regulatory or any other technical requirements and specifications , and or that if continued , will result in completed products , or that such products , if they are successfully completed , can or will be successfully commercialized . 30 results of operations for the year ended december 31 , 2013 as compared with the year ended december 31 , 2012 income : income before income taxes for the year ended december 31 , 2013 decreased to $ 1,018,000 from $ 1,451,000 for the year ended december 31 , 2012. net income decreased from $ 941,000 for 2012 to $ 531,000 for 2013. the decrease in net income is primarily attributable to a $ 695,000 increase in clinical trial expenses , along with other increased operating expenses , offset by a higher gross margin . in 2013 , as a result of a 13.1 % increase in net product sales and a 58.5 % increase in non-product revenues , the company had a $ 1,510,000 , or 14.0 % , increase in its gross margin , to $ 12,300,000. this increased gross margin funded most of the increased operating expenses , the most significant of which was an increase in clinical trial expenses of $ 695,000 , due to the clia trials for our dpp hiv 1/2 product . revenues : replace_table_token_3_th revenues for our lateral flow hiv tests and related components during the year ended december 31 , 2013 increased by $ 6.7 million over the same period in 2012. this was primarily attributable to increased sales in south america , of $ 4.6 million , in africa of $ 1.7 million , and in the u.s. of $ 1.1 million ; and was partially offset by decreased sales in other regions . partially offsetting these increases were decreased other sales , which decreased by 8.2 % , or $ 60,000. sales of our dpp® products in 2013 decreased by $ 3,494,000 , or 34.6 % , compared to levels in 2012 as brazil reduced purchases for the five anvisa-approved dpp® products . the increase in r & d , milestone and grant revenue was primarily due to an increase in grants and other development projects of $ 746,000 along with an increase in royalty income of $ 5,000. r & d revenues in 2013 include funds , recognized on an `` as expenses are incurred '' basis , from a phase ii nih grant for leptospirosis , which was effective as of june 1 , 2009 , and from a phase ii grant for tuberculosis which was effective march 1 , 2011 as well as from two milestone based projects . gross margin : replace_table_token_4_th the gross margin dollar increase of $ 1,510,000 included a $ 760,000 increase in gross margin from product sales and a $ 751,000 increase in non-product revenues . the increase in product gross margin dollars is primarily attributable to the higher product sales compared to the 2012 period which resulted in $ 1,246,000 ( this is calculated by taking the increase in sales times the gross margin percentage from 2012 ) and was partially offset by the 1.8 % decrease in our product gross margin percentage , from 39.1 % in 2012 to 37.3 % in 2013 , accounting for the $ 486,000 balance , which was primarily due to increased costs of royalties from 7.4 % of product sales in 2012 to 9.0 % in 2013 . 31 research and development : this category includes costs incurred for product research and development , regulatory approvals , technical support , evaluations and registrations . replace_table_token_5_th expenses for clinical & regulatory affairs increased by $ 714,000 for the year ended december 31 , 2013 , as compared to the same period in 2013. this was primarily due to an increase of $ 695,000 in clinical trial expenses which in 2013 are mostly associated with clia waiver studies for our dpp® hiv 1/2 assay . r & d expenses other than clinical & regulatory affairs increased by $ 634,000 in the year ended december 31 , 2013 , as compared with the same period in 2012. the increases were primarily related to an increase in wages and related costs and in material and supplies to support our sponsored research and internal development programs . selling , general and administrative expense : replace_table_token_6_th selling , general and administrative expenses for the year ended december 31 , 2013 , increased by $ 609,000 as compared with the same period in 2012. the primary factor of this increase was a $ 534,000 increase in wages and related expenses , primarily attributable to the hiring of a coo and a vp of sales and marketing , and a new medical device tax of $ 72,000 , along with other increases . these increases were partially offset by decreases in commissions due to decreased sales to brazil , bad debt allowance and other decreases . 32 other income and expense : replace_table_token_7_th other income for the year ended december 31 , 2013 increased approximately $ 15,000 from an expense of $ 2,000 in the same period in 2012 , primarily as a result of a gain on the sale of fixed assets and a decrease in interest expense due on the term loan with hsbc . income tax ( benefit ) provision : for the years ended december 31 , 2013 and 2012 , the company charged $ 487,000 and $ 509,000 , respectively to income tax expense and reduced the deferred tax asset by $ 458,000 and $ 471,000 , respectively . the company still maintains a full valuation allowance on research and development tax credits .
| you can identify forward-looking statements by terminology such as `` may , '' `` could '' , `` will , '' `` should , '' `` expects , '' `` intends , '' `` plans , '' `` anticipates , '' `` believes , '' `` estimates , '' `` predicts , '' `` potential , '' `` continues '' or the negative of these terms or other comparable terminology . although we believe that the expectations reflected in the forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . except as may be required by applicable law , we do not undertake or intend to update or revise our forward-looking statements , and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments . thus , you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements . you should carefully review and consider the various disclosures we make in this report and our other reports filed with the securities and exchange commission that attempt to advise interested parties of the risks , uncertainties and other factors that may affect our business . all of the company 's future products that are currently being developed are based on its patented dual path platform ( dpp® ) , which is a unique diagnostic point-of-care platform that has certain advantages over lateral flow technology . the company has completed development of several products that employ the dpp® technology which will be marketed under chembio 's label or pursuant to private label license or distribution agreements such as those with fiocruz , labtest , rvr and bio-rad . the company has had very active research and development programs and has significantly increased its spending on research and development during the last three years . third-party funding from research and development contracts and grants have offset a significant portion of these increased research and development expenses . moreover
| 13,873 |
the decrease in interest related to the private placement senior unsecured notes was due to notes maturing , while the increase in the credit facility was due primarily to increased borrowings related to the repayment of the private placement senior unsecured notes and to our share repurchase program . earnings before income taxes earnings before income taxes decreased to $ 79.7 million during fiscal 2019 , primarily due to the impairment losses of approximately $ 220.3 million and lower equity in earnings from unconsolidated joint venture of approximately $ 4.8 million . these were partially offset by lower corporate general and administrative expense and litigation settlements and losses of approximately $ 3.8 million and $ 43.3 million , respectively . income tax expense income tax expense was approximately $ 10.9 million and $ 15.3 million for fiscal 2019 and fiscal 2018 , respectively . the tax rate for fiscal 2019 was approximately 14 % , compared with 6 % for fiscal 2018. the increase in the fiscal 2019 tax rate was primarily due to the enactment of tax reform which created a onetime discrete benefit in fiscal 2018 , partially offset by the decrease in earnings before income taxes related to the impairment . the lower fiscal 2018 tax rate reduced deferred tax liabilities by approximately $ 61.2 million . see footnote ( g ) to the consolidated financial statements for more information on the change in corporate tax rates . net earnings and diluted earnings per share net earnings decreased 73 % in fiscal 2019 to $ 68.9 million . diluted earnings per share in fiscal 2019 were $ 1.47 , compared with $ 5.28 for fiscal 2018. lower net earnings and diluted earnings per share were primarily due to the impairment losses recognized during the fourth quarter of fiscal 2019 , as discussed above . 47 fiscal year 2019 vs fiscal year 2018 results by segment the following presents results within our three business sectors in fiscal 2019 and fiscal 2018. revenue and operating results are organized by sector and discussed by individual business segment within each respective business sector . heavy materials cement ( 1 ) replace_table_token_10_th ( 1 ) total of wholly owned subsidiaries and proportionately consolidated 50 % interest of the joint venture 's results . ( 2 ) net of freight per ton , including the joint venture . cement revenue was $ 656.8 million for fiscal 2019 , a 1 % increase over fiscal 2018. the increase in revenue was primarily due to an increase in gross sales prices , which positively affected revenue by $ 8.1 million , partially offset by lower sales volume , which negatively affected revenue by approximately $ 3.1 million . cement operating earnings decreased 8 % to $ 164.8 million for fiscal 2019. the decrease in operating earnings was due primarily to lower sales volume and increased operating costs of approximately $ 1.0 million and $ 21.5 million , respectively , partially offset by increased gross sales prices , which positively affected operating earnings by approximately $ 8.1 million . the increase in operating cost was primarily due to freight , maintenance , and energy costs of approximately $ 3.4 million , $ 11.2 million , and $ 5.3 million , respectively . the operating margin declined to 25 % in fiscal 2019 , compared with 27 % in fiscal 2018 . 48 concrete and aggregates replace_table_token_11_th concrete and aggregates revenue decreased 11 % to $ 140.2 million for fiscal 2019. the primary reason for the decrease in revenue was the 13 % and 10 % decrease in sales volume for concrete and aggregates , respectively . these results adversely affected segment revenue by approximately $ 18.5 million . a decrease of 1 % in gross sales prices for aggregates also adversely affected revenue by approximately $ 1.1 million . this decrease was partially offset by increased gross sales prices of 3 % for concrete , which positively affected revenue by $ 2.8 million . operating earnings declined by 28 % to approximately $ 12.9 million for fiscal 2019. the decline resulted from increased operating costs and lower sales volume , which adversely affected operating earnings by approximately $ 4.5 million and $ 2.2 million , respectively . this decrease was partially offset by increased gross sales prices , which positively affected operating earnings by approximately $ 1.7 million . the increased operating expenses were primarily related to higher cost of materials of approximately $ 5.0 million , partially offset by lower maintenance costs of approximately $ 0.2 million . 49 light materials gypsum wallboard replace_table_token_12_th ( 1 ) net of freight per msf gypsum wallboard revenue increased 8 % to $ 532.7 million in fiscal 2019 , primarily due to a 4 % and 3 % increase in sales volume and gross sales prices , respectively . the increase in sales volume and gross sales prices positively affected revenue by approximately $ 18.4 million and $ 22.5 million , respectively . our market share was essentially unchanged during fiscal 2019 , with the higher sales volume being primarily due to increased construction activity in the markets we serve . operating earnings increased by 14 % to $ 180.8 million for fiscal 2019. this was primarily due to increased gross sales prices and sales volume of approximately $ 22.5 million , and $ 6.0 million , respectively . this increase was partially offset by higher operating costs of approximately $ 6.3 million . the increase in operating costs was primarily related to higher freight and energy costs of approximately $ 11.7 million and $ 0.4 million , respectively , partially offset by decreases in other production costs , primarily raw materials , of approximately $ 6.7 million . during fiscal 2019 , gypsum wallboard operating margin improved to 34 % from 32 % in fiscal 2018 , primarily due to the increase in gross sales prices , partially offset by higher operating costs . story_separator_special_tag fixed costs are not a significant part of the overall cost of wallboard ; therefore , changes in volume have a relatively minor impact on our operating cost per unit . 50 recycled paperboard replace_table_token_13_th ( 1 ) net of freight per ton . recycled paperboard revenue decreased 8 % to $ 167.7 million for fiscal 2019. the decrease in revenue was due to decreased gross sales prices and sales volume , which adversely affected revenue by approximately $ 10.8 million and $ 3.3 million , respectively . the decrease in gross sales prices was due to the price-adjustment provisions in our long-term sales agreements . operating earnings increased 8 % to $ 35.3 million for fiscal 2019. the increase in operating earnings was primarily due to lower operating costs , which positively affected operating earnings by approximately $ 14.0 million . this was partially offset by decreased gross sales prices and sales volume of approximately $ 10.8 million and $ 0.6 million , respectively . the decrease in operating costs was due primarily to input and energy costs , which declined by approximately $ 14.9 million , partially offset by increased freight expense , which increased operating costs by approximately $ 0.9 million . during fiscal 2019 , operating margin increased to 21 % from 18 % in fiscal 2018 , primarily due to lower operating costs , partially offset by decreased gross sales prices . 51 oil and gas proppants replace_table_token_14_th ( 1 ) net of freight per ton . revenue from our oil and gas proppants segment decreased 16 % to $ 83.0 million for fiscal 2019. excluding approximately $ 2.5 million in revenue from the wildcat acquisition , revenue decreased approximately $ 17.7 million . the decrease in revenue was primarily due to lower gross sales prices , which adversely affected revenue by approximately $ 23.0 million , partially offset by higher sales volume , which positively affected revenue by approximately $ 5.3 million . operating loss for fiscal 2019 was approximately $ 28.7 million , an increase of 367 % over the operating loss of $ 6.1 million in fiscal 2018. excluding operating loss of $ 1.3 million from the wildcat acquisition , operating loss increased by $ 21.3 million in fiscal 2019. operating loss was adversely affected by lower gross sales prices of approximately $ 23.0 million , partially offset by lower operating costs of approximately $ 1.7 million . the decrease in operating expenses was primarily due to freight expense , which declined by approximately $ 7.5 million , partially offset by increased lease and energy costs of approximately $ 4.1 million and $ 1.6 million , respectively . during the fourth quarter of fiscal 2019 , we recognized an impairment loss of approximately $ 220.3 million related to property and equipment , goodwill and intangible , and other assets . the impairment loss is not included in operating earnings disclosed above . see footnote ( a ) of the notes to consolidated financial statements for more discussion of the impairment loss . 52 fiscal year 2019 compared with fiscal year 2018 please see our form 10-k for fiscal year 2018 for the discussion of our results of operations and results of revenue and operating income by segment for fiscal 2018 compared with fiscal 2017. our 2018 form 10-k can be found on the investor page of our website , at www.eaglematerials.com . critical accounting policies certain of our critical accounting policies require the use of judgment in their application or require estimates of inherently uncertain matters . although our accounting policies are in compliance with generally accepted accounting principles , a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact . listed below are those policies that we believe are critical and require the use of complex judgment in their application . impairment of long-lived assets we assess our long-lived assets , including mining and related assets , for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset , or group of assets , may not be recoverable . long-lived assets , or groups of assets , are evaluated for impairment at the lowest level for which cash flows are largely independent of the cash flows of other assts . we assess recoverability of assets , or group of assets , by comparing the carrying amount of an asset , or group of assets , to the future undiscounted net cash flows that we expect the asset , or group of assets , to generate . these impairment evaluations are significantly affected by estimates of future revenue , costs and expenses , and other factors . if the carrying value of the assets , or group of assets , exceeds the undiscounted cash flows , then an impairment is indicated . if such assets , or group of assets , are considered to be impaired , the impairment is recognized as the amount by which the carrying amount of the asset , or group of assets , exceeds the fair value of the asset , or group of assets . during the latter part of fiscal 2019 , continued declining sales prices , sales volume and operating results in our oil and gas proppants business indicated that impairment indictors were present . the decline in sales volume was primarily related to decreased demand from the permian basin . the decline in orders is due to several factors , including reduced completion budgets , limited pipeline take away capacity in the permian basin , and an increase in the usage of in-basin regional sand . the capacity for in-basin sand has increased in recent years , and certain of our customers have shifted their purchases from northern white sand to lower cost regional sand .
| million . the increase in operating costs was due primarily to higher freight and purchased cement costs of approximately $ 1.9 million and $ 0.8 million , respectively . corporate general and administrative corporate general and administrative expenses decreased 9 % to $ 37.4 million in fiscal 2019. the decrease was due primarily to lower stock and incentive compensation , profit sharing , and legal expense of approximately $ 0.7 million , $ 1.3 million , and $ 1.6 million , respectively . the decrease in stock and incentive compensation was primarily due to reduced earnings from operations . the decrease in profit sharing was due to a one-time increase in fiscal 2018 , and the decline in legal expense was related to the fiscal 2018 settlement of the domestic wallboard antitrust litigation . impairment losses impairment losses were approximately $ 220.3 million in fiscal 2019 and related to impairment charges taken in our oil and gas proppants segment . the charges included a $ 211.3 million impairment of property and equipment , and a $ 9.0 million impairment of goodwill and intangible , and other assets . the impairment losses have not been included in the oil and gas proppants ' segment operating earnings . see footnote ( a ) of the notes to consolidated financial statements for more information . litigation settlements and losses litigation settlements and losses for fiscal 2019 pertain to third-party property damage that occurred several years ago related to our recycled paperboard business . the loss in fiscal 2018 was due to the settlement of the domestic wallboard antitrust litigation . during december 2017 and january 2018 , we entered into the direct purchaser and indirect purchaser settlement agreements , respectively , under which we agreed to pay a total of approximately $ 39.1 million to settle all outstanding claims under these class action cases . at march 31 , 2018 , we accrued $ 6.0 million to settle all outstanding claims with a group
| 13,874 |
until such time that we can generate meaningful revenue from product sales , if ever , we expect to finance our operating activities through public or private equity or debt financings , government or other third-party funding and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . if we are unable to obtain funding on a timely basis , we may be required to significantly curtail , delay or discontinue one or more of our research or development programs or the commercialization of any approved therapies or products or be unable to expand our operations or otherwise capitalize on our business opportunities , as desired , which could adversely affect our business , financial condition and results of operations . financial overview reverse stock split on august 3 , 2018 , we effected a 1 for 6.417896 reverse stock split of our common stock . the par value and the number of authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split . all common stock share and per-share amounts for all periods presented in this annual report on form 10-k have been adjusted retroactively to reflect the reverse stock split . initial public offering on august 13 , 2018 , our registration statement on form s-1 relating to our ipo of our common shares ( the `` ipo '' ) was declared effective by the securities and exchange commission ( `` sec '' ) . the ipo closed on august 16 , 2018 and we issued and sold 2,000,000 common shares at a public offering price of $ 13.00 per share . gross proceeds totaled $ 26.0 million and net proceeds totaled $ 22.8 million 101 after deducting underwriting discounts and commissions of $ 1.8 million and other offering expenses of approximately $ 1.4 million . the underwriters of the ipo partially exercised their over-allotment option , and on august 30 , 2018 , we issued and sold 192,824 common shares at a public offering price of $ 13.00 per share for gross proceeds totaling approximately $ 2.5 million and net proceeds of approximately $ 2.3 million after deducting underwriting discounts and commissions of approximately $ 0.2 million . in connection with the ipo , the holders of a majority of the series a preferred stock approved the mandatory conversion of the series a preferred stock into one share of common stock for every 6.417896 shares of series a preferred stock which converted immediately prior to the consummation of the ipo . upon conversion , a total of 5,744,586 shares of common stock were issued for the converted series a preferred stock which included the accrued dividends upon conversion . all warrants to purchase series a preferred stock became warrants to purchase common stock , adjusted for the 1 for 6.417896 shares reverse stock split . revenue our sources of revenue are grants and contract services provided to third party entities related to research and development activities under specific agreements with such granting authorities and third parties . as there is a contractually agreed upon price , and collectability from the granting authorities or other entities is reasonably assured , revenue for these services are earned according to the terms of the respective agreements , usually as progress is made throughout the term of the agreement or as certain material milestones are met . we have an award agreement with the cystic fibrosis foundation , or cf foundation to support funding for the development of our inhaled gallium citrate anti-infective program . we have a collaborative and option agreement with glaxosmithkline biologicals s.a. , or gsk , aimed at evaluating improved formulations for a rotavirus vaccine . these agreements contain upfront payments . we recognize revenue from upfront payments ratably over the term of our estimated period of performance under the agreements or as certain milestones are met . in addition to receiving upfront payments , we are entitled to milestone and other contingent payments upon achieving predefined objectives or the exercise of options for specified programs by our strategic partners . such payments are recorded as revenue when we achieve the underlying milestone if there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved . for the years ended december 31 , 2018 and 2017 , pursuant to our cf foundation agreement we recognized revenue of $ 1,589,000 and $ 89,000 , respectively . for the years ended december 31 , 2018 and 2017 , pursuant to our gsk agreement , we recognized revenue of $ 1,168,000 and $ 771,000 , respectively . no revenue was recognized on either agreement prior to 2017. in december 2018 at a meeting of the joint steering committee , it was agreed by the parties to terminate the gsk collaboration and option agreement . we expect that any revenue we generate for the foreseeable future will fluctuate from period to period as a result of the timing and amount of milestones and other payments from our agreements . research and development expenses we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and related overhead expenses , which include stock-based compensation and benefits for personnel in research and development functions ; fees paid to consultants and contract research organizations , or cros , including in connection with our preclinical studies and clinical trials and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial material management and statistical compilation and analyses ; 102 costs related to acquiring and manufacturing clinical trial materials ; costs related to compliance with regulatory requirements ; and payments related to licensed products and technologies . we expense all research and development costs in the periods in which they are incurred . story_separator_special_tag costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and clinical sites . nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized . the capitalized amounts are then expensed as the related goods are delivered and the services are performed . from our inception through december 31 , 2018 , we have incurred approximately $ 69.7 million in research and development expenses . replace_table_token_3_th we plan to increase our research and development expenses for the foreseeable future as we continue to develop our therapeutic programs , and subject to the availability of additional funding , further advance the development of our therapeutic candidates for additional indications and begin to conduct clinical trials . we typically use our employee and infrastructure resources across multiple research and development programs , and accordingly we have not historically allocated resources specifically to our individual clinical programs . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming , and the successful development of our therapeutic 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 therapeutic candidates . general and administrative expenses general and administrative expenses consist primarily of costs related to executive , finance , corporate development and administrative support functions , including stock-based compensation expenses and benefits for personnel in general and administrative functions . other significant , general and administrative expenses include rent , accounting and legal services , obtaining and maintaining patents or other intellectual property rights , the cost of various consultants , occupancy costs , insurance premiums and information systems costs . we expect that our general and administrative expenses will increase as we operate as a public company , continue to conduct our clinical trials and prepare for commercialization . we believe that these increases will likely include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel to support product commercialization efforts and increased fees for outside consultants , attorneys and accountants . we also expect to incur increased costs to 103 comply with corporate governance , internal controls , investor relations and disclosures , and similar requirements applicable to public companies . interest and other income , net interest and other income , net consists primarily of interest on our cash balances . critical accounting policies 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 generally accepted accounting principles in the united states , or gaap . 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 expenses during the reported 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 . we define our critical accounting policies as those accounting principles generally accepted in the united states that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles . we believe the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments are as follows : use of estimates the preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period . such estimates include those related to the evaluation of our ability to continue as a going concern , revenue recognition , allowance for doubtful accounts , long-lived assets , convertible debt , income taxes , assumptions used in the black-scholes-merton , or bsm , model to calculate the fair value of stock-based compensation , monte carlo simulation , or msm , model to calculate the fair value of warrants , deferred tax asset valuation allowances , valuation of our common and convertible preferred stock , fair value assumptions used in the valuation of warrants issued with convertible notes and convertible preferred stock warrant liabilities , preclinical study and clinical trial accruals and various accrued liabilities . our actual results could differ from these estimates . revenue recognition revenue is recognized in accordance with the financial accounting standards board , or fasb accounting standards codification , or asc 605 , revenue recognition which requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered ; ( 3 ) the price is fixed or determinable ; and ( 4 ) collectability is reasonably assured . during 2018 and 2017 , revenue includes grant awards and contract services entered into for specific research and development efforts .
| interest and other income , net for the year ended december 31 , 2018 increased by approximately $ 186,000 from income of $ 234,000 for the year ended december 31 , 2017 to income of $ 420,000 for the year ended december 31 , 2018 primarily due to a higher average cash balance after the completion of our ipo in august 2018 . 108 change in fair value of warrant liability . change in fair value of warrant liability for the year ended december 31 , 2018 decreased by approximately $ 6,784,000 from a loss of $ 5,152,000 for the year ended december 31 , 2017 to a gain of $ 1,632,000 for the year ended december 31 , 2018 due to a decrease in the underlying fair value of the our series a convertible preferred stock prior to the our series a convertible preferred stock being converted into common stock upon our ipo in august 2018. liquidity , capital resources and going concern our ipo closed on august 16 , 2018 and we issued and sold 2,000,000 common shares at a public offering price of $ 13.00 per share . gross proceeds totaled $ 26.0 million and net proceeds totaled $ 22.8 million after deducting underwriting discounts and commissions of $ 1.8 million and other offering expenses of approximately $ 1.4 million . the underwriters of the ipo partially exercised their over-allotment option , and on august 30 , 2018 , we issued and sold 192,824 common shares at a public offering price of $ 13.00 per share for gross proceeds totaling approximately $ 2.5 million and net proceeds of approximately $ 2.3 million after deducting underwriting discounts and commissions of approximately $ 0.2 million . we anticipate that we will continue to generate operating losses and use cash in operations through the foreseeable future . management plans to finance operations through equity or debt financings or other capital sources , including potential collaborations or other strategic transactions . there is substantial doubt about our ability to continue as a going concern unless we are able to successfully raise additional capital . there can be no assurances that ,
| 13,875 |
the company uses cash generated from operations to fund capital expenditures and acquisitions , repurchase shares of its common stock , pay dividends and reduce indebtedness . in 2018 , the company generated operating cash flow of $ 1,112.7. tax cuts and jobs act of 2017 on december 22 , 2017 , the united states federal government enacted the tax cuts and jobs act ( “ tax act ” ) , marking a change from a worldwide tax system to a modified territorial tax system in the united states . as part of this change , the tax act , among other changes , provides for a transition tax on the accumulated unremitted foreign earnings and profits of the company 's foreign subsidiaries ( “ transition tax ” ) and a reduction of the u.s. federal corporate income tax rate from 35 % to 21 % . as a result , in the fourth quarter of 2017 , the company recorded an income tax charge of $ 398.5 ( “ tax act charge ” ) that was comprised of ( i ) the transition tax of $ 259.4 , ( ii ) a charge of $ 176.6 related to changes in the company 's permanent reinvestment assertion with regards to prior accumulated unremitted earnings from certain foreign subsidiaries , partially offset by ( iii ) a tax benefit of $ 37.5 associated with the remeasurement of the company 's u.s. net deferred tax liabilities due to the u.s. federal corporate tax rate reduction . as discussed under critical accounting policies and estimates within this item 7 , the three components of the tax act charge were provisional amounts recorded in accordance with sec staff accounting bulletin no . 118 ( “ sab 118 ” ) . sab 118 , which is now codified under asu 2018-05 , income taxes ( topic 740 ) : amendments to sec paragraphs pursuant to sec staff accounting bulletin no . 118 , addresses the application of u.s. gaap in situations where a registrant does not have the necessary information available , prepared , or analyzed in reasonable detail to complete the accounting for certain income tax effects of the tax act . due to the timing of the tax act 's enactment and the complexity of its provisions , the company had not completed its accounting for the impact of the tax act as of december 31 , 2017. the company analyzed guidance and technical interpretations issued in 2018 related to the provisions of the tax act , and refined , analyzed and updated the underlying data , computations and assumptions used to prepare the tax act charge . as a result , the company recorded an income tax benefit of $ 14.5 in 2018 related to the completion of the accounting for the tax act charge . 24 results of operations the following table sets forth the components of net income attributable to amphenol corporation as a percentage of net sales for the years indicated . replace_table_token_5_th 2018 compared to 2017 net sales were $ 8,202.0 for the year ended december 31 , 2018 compared to $ 7,011.3 for the year ended december 31 , 2017 , an increase of 17 % in both u.s. dollars and constant currencies and 14 % organically ( excluding both currency and acquisition impacts ) over the prior year . net sales in the interconnect products and assemblies segment ( approximately 95 % of net sales ) increased 18 % in u.s. dollars , 17 % in constant currencies and 14 % organically in 2018 , compared to 2017. the sales growth was driven by growth in the mobile devices , industrial , automotive , information technology and data communications , military , mobile networks and commercial aerospace markets , partially offset by a slight decline in sales into the broadband communications market , with growth resulting primarily from organic strength , in addition to contributions from the company 's acquisitions . net sales to the mobile devices market increased ( approximately $ 403.6 ) primarily due to growth in sales of products incorporated into smartphones and related accessories , partially offset by declining sales of products incorporated into tablets . net sales to the industrial market increased ( approximately $ 214.9 ) , reflecting sales strength in medical , heavy equipment , electric vehicle , railway and mass transit , and oil and gas , as well as contributions from acquisitions . net sales to the automotive market increased ( approximately $ 184.9 ) , driven by growth and expansion in most regions of the global automotive market , as well as contributions from acquisitions . net sales to the information technology and data communications market increased ( approximately $ 166.1 ) , reflecting organic growth in products for data centers , including server and networking-related applications , storage , and consumer electronics . net sales to the military market increased ( approximately $ 133.2 ) , driven by broad strength across the market including increased sales into avionics , military communications and military airframe applications , as well as missile applications . net sales to the mobile networks market increased ( approximately $ 56.3 ) , due to increased sales to both mobile networks equipment manufacturers and mobile operators . net sales to the commercial aerospace market increased ( approximately $ 39.6 ) primarily due to strength in large passenger planes . net sales in the cable products and solutions segment ( approximately 5 % of net sales ) , which primarily serves the broadband communications market , increased 4 % in u.s. dollars , 6 % in constant currencies and 6 % organically in 2018 , compared to 2017. the increase in the cable products and solutions segment was primarily due to an increase in cable products sold into the mobile networks market , which was partially offset by the slight decrease in sales into the broadband communications market . story_separator_special_tag 25 the table below reconciles constant currency net sales growth and organic net sales growth to the most directly comparable u.s. gaap financial measures , by segment and consolidated , for the year ended december 31 , 2018 compared to the year ended december 31 , 2017 : replace_table_token_6_th ( 1 ) net sales growth in u.s. dollars is calculated based on net sales as reported in the consolidated statements of income and note 11 of the accompanying financial statements . ( 2 ) foreign currency translation impact , a non-gaap measure , represents the impact on net sales resulting from foreign currency exchange rate changes in the current year compared to the prior year . such amount is calculated by subtracting current year net sales translated at average foreign currency exchange rates for the respective prior year from current year reported net sales , taken as a percentage of the respective prior year 's net sales . ( 3 ) constant currency net sales growth and organic net sales growth are non-gaap financial measures as defined in the `` non-gaap financial measures '' section . ( 4 ) acquisition impact , a non-gaap measure , represents the impact on net sales resulting from acquisitions closed since the beginning of the prior calendar year , which were not included in the company 's results as of the comparable prior year and which do not reflect the underlying growth of the company on a comparative basis . geographically , net sales in the united states in 2018 increased approximately 13 % in u.s. dollars ( $ 2,241.4 in 2018 versus $ 1,978.4 in 2017 ) and 9 % organically , compared to 2017. foreign sales in 2018 increased approximately 18 % in u.s. dollars ( $ 5,960.6 in 2018 versus $ 5,032.9 in 2017 ) , 17 % in constant currencies and 15 % organically , compared to 2017 with strength in both asia and europe . the comparatively slightly weaker u.s. dollar in 2018 had an insignificant effect on net sales compared to 2017. selling , general and administrative expenses were $ 959.5 or 11.7 % of net sales for 2018 , compared to $ 878.3 or 12.5 % of net sales for 2017. administrative expenses increased approximately $ 46.4 in 2018 primarily related to increases in employee-related benefits and stock-based compensation expense , and represented approximately 4.7 % of net sales in 2018 and 4.8 % of net sales in 2017. research and development expenses increased approximately $ 27.2 in 2018 primarily related to increases in expenses for new product development and represented approximately 2.7 % of net sales in 2018 and 2.8 % of net sales in 2017. selling and marketing expenses increased approximately $ 7.6 in 2018 primarily related to the increase in sales volume and represented approximately 4.3 % of net sales in 2018 and 4.9 % of net sales in 2017. operating income was $ 1,686.9 or 20.6 % of net sales in 2018 , compared to $ 1,427.6 or 20.4 % of net sales in 2017. operating income for 2018 and 2017 includes acquisition-related expenses of $ 8.5 and $ 4.0 , respectively , related to external transaction costs . these acquisition-related expenses are separately presented in the consolidated statements of income . excluding the effect of these acquisition-related expenses , adjusted operating income and adjusted operating margin , as defined in the “ non-gaap financial measures ” section below , were $ 1,695.4 or 20.7 % of net sales in 2018 and $ 1,431.6 or 20.4 % in 2017. the increase in adjusted operating margin for 2018 compared to 2017 was driven primarily by an increase in operating margin for the interconnect products and assemblies segment . operating income for the interconnect products and assemblies segment in 2018 was $ 1,752.5 or 22.5 % of net sales , compared to $ 1,475.2 or 22.3 % of net sales in 2017. the increase in operating income margin was driven primarily by strong operating leverage on higher sales volumes . in addition , the operating income for the cable products and solutions segment in 2018 was $ 52.6 or 12.5 % of net sales , compared to $ 54.2 or 13.4 % of net sales in 2017. the decrease in operating income margin for the cable products and solutions segment in 2018 compared to 2017 was primarily driven by increases in certain commodity costs . interest expense was $ 101.7 in 2018 compared to $ 92.3 in 2017. the increase is primarily due to higher average interest rates on the company 's u.s. commercial paper program ( as defined below in this item 7 ) and the senior note issuances in april 2017. provision for income taxes was at an effective rate of 23.4 % in 2018 and 51.1 % in 2017. the lower effective tax rate in 2018 compared to 2017 resulted primarily from the tax act charge of $ 398.5 recorded in 2017 , which was partially offset by the excess tax benefits of $ 66.6 from stock option exercises . the effects of these items were significantly lower in 2018 , as the company recorded an income tax benefit of $ 14.5 in 2018 related to the completion 26 of the accounting for the tax act charge , along with the excess tax benefits of $ 19.8 from stock option exercises . excluding the effect of these items along with the effect of acquisition-related expenses in each respective year , the adjusted effective tax rate , a non-gaap financial measure defined in the “ non-gaap financial measures ” section below , was 25.5 % and 26.5 % for 2018 and 2017 , respectively , as reconciled in the table below to the comparable effective tax rate based on gaap results . for additional details related to the reconciliation between the u.s. statutory federal tax rate and the company 's effective tax rate for these years , refer to note 4 of the notes to the consolidated financial statements . net income attributable to amphenol corporation and net income per common share-diluted ( “ diluted eps ” ) was $ 1,205.0
| 30 in 2018 , the components of working capital as presented on the accompanying consolidated statements of cash flow increased $ 362.4 , excluding the impact of acquisitions and foreign currency translation , primarily due to increases in accounts receivable , inventories and other current assets of $ 237.9 , $ 173.3 and $ 47.7 , respectively , partially offset by increases in accounts payable and accrued liabilities , including income taxes , of $ 48.8 and $ 47.7 , respectively . in 2017 , the components of working capital as presented on the accompanying consolidated statements of cash flow increased $ 158.1 , excluding the impact of acquisitions and foreign currency translation , due primarily to increases in accounts receivable , inventories and other current assets of $ 146.5 , $ 100.4 and $ 75.9 , respectively , partially offset by increases in accounts payable and accrued liabilities of $ 140.5 and $ 24.2 , respectively . in 2016 , the components of working capital as presented on the accompanying consolidated statements of cash flow decreased $ 51.2 , excluding the impact of acquisitions and foreign currency translation , due primarily to increases in accrued income taxes , other accrued liabilities , and accounts payable of $ 91.7 , $ 61.9 , and $ 47.8 , respectively , and a decrease in other current assets of $ 29.9 , partially offset by increases in accounts receivable and inventories of $ 165.9 and $ 14.2 , respectively . the following describes the significant changes in the amounts as presented on the accompanying consolidated balance sheets at december 31 , 2018 compared to december 31 , 2017. accounts receivable increased $ 193.2 to $ 1,791.8 primarily due to increased sales volumes in the fourth quarter of 2018 relative to the fourth quarter of 2017 , partially offset by the effect of translation from exchange rate changes at december 31 , 2018 compared to december 31 , 2017 ( “ translation ” ) . days sales outstanding at december 31 , 2018 and 2017 were approximately 73 days . inventories increased $ 126.9 to $ 1,233.8 , primarily to support higher sales levels , partially offset by translation . inventory days at december 31 , 2018 and 2017
| 13,876 |
technology building blocks from mce are deployed as part of solutions that fall into the areas of ew and ecm , sigint , electro optical/infrared , and radar test and simulation . most of this work is done with defense contract audit agency ( “ dcaa ” ) oversight on behalf of one or more of our prime contractor customers and u.s. department of defense agencies . mdis also provides services of a classified nature , also under dcaa oversight , to the intelligence community . this professional services work falls into the critical areas of big data processing , predictive analytics and multi-intelligence analysis . in fiscal 2013 , mdis accounted for 27 % of our total net revenues . since we are an oem supplier to our commercial markets and conduct much of our business with our defense customers via commercial items , requests by customers are a primary driver of revenue fluctuations from quarter to quarter . customers specify delivery date requirements that coincide with their need for our products . because these customers may use our products in connection with a variety of defense programs or other projects of different sizes and durations , a customer 's orders for one quarter generally do not indicate a trend for future orders by that customer . additionally , order patterns do not necessarily correlate amongst customers and , therefore , we generally can not identify sequential quarterly trends , even within our business units . 29 b usiness d evelopments : f iscal 2013 on january 1 , 2013 , we reorganized internally to logically group our expanded capabilities with our recent acquisitions of lnx , kor electronics , and micronetics . this internal reorganization grouped our product and service offerings into three business units : mce , mds , and mis . during the first quarter of fiscal 2013 , we announced a restructuring plan ( `` 2013 plan '' ) impacting primarily the mce business segment as a result of a significant decline in bookings and revenue . the plan consisted of the elimination of 142 positions primarily in engineering and support staff areas . additionally , during the fourth quarter of fiscal 2013 , as a result of the integration activities surrounding our recent acquisitions , we initiated a plan that included the sale of our hudson , nh facility and the elimination of 17 positions primarily in operations . we incurred restructuring charges of $ 7.1 million for the fiscal year ended june 30 , 2013 and expect to realize approximately $ 22 million in annual savings from these activities . the amounts of revenue and net ( loss ) of micronetics included in our consolidated statements of operations for fiscal 2013 was $ 35.5 million and $ ( 3.8 ) million , respectively . f iscal 2012 on december 30 , 2011 , we acquired both kor and its wholly-owned subsidiary , pdi . based in cypress , california , kor designs and develops drfm units for a variety of modern ew applications , as well as radar environment simulation and test systems for defense applications . based in aurora , co , pdi provides sophisticated analytic exploitation services and customized multi-intelligence data fusion solutions for the u.s. intelligence community . for segment reporting both kor and pdi are included in the mdis reportable segment . the amounts of revenue and net income of kor and pdi included in our consolidated statements of operations for fiscal 2012 was $ 19.8 million and $ 2.7 million , respectively . in fiscal 2012 , we concluded the financial targets which underlie the $ 5.0 million earn-out related to the lnx acquisition would not be achieved . during the fourth quarter of fiscal 2012 , we did not receive a purchase order for long lead-time materials associated with the jcrew counter ied program . this timing issue , in itself , triggered a reversal of the earn-out ( see note c to the consolidated financial statements ) . this reversal of the earn-out was recorded as an offset to operating expenses . in fiscal 2012 , we announced a restructuring plan ( “ 2012 plan ” ) affecting both the mce and mdis reportable segments . the 2012 plan primarily consisted of involuntary separation costs related to the reduction in force which eliminated 41 positions largely in engineering and manufacturing functions ; and facility costs related to outsourcing of certain manufacturing activities at our huntsville , al site . the 2012 plan for which expense of $ 2.8 million was recorded in fiscal 2012 was implemented to cope with the near term uncertainties in the defense industry , lower our fixed costs and capital investing , while improving our overall business scalability . restructuring expenses of approximately $ 0.7 million associated with the 2012 plan were incurred in fiscal 2013 as we transitioned the manufacturing activities formerly conducted at the huntsville , alabama facility to our contract manufacturing partner . f iscal 2011 on january 12 , 2011 , we acquired the outstanding equity interests in lnx corporation . the cash purchase price for the acquisition was approximately $ 31.0 million , subject to post-closing adjustments . we funded the purchase price with cash on hand and assumed no debt . in addition to the $ 31.0 million cash purchase price , we also committed to pay up to $ 5.0 million upon the achievement of financial targets in calendar years 2011 and 2012. during the fourth quarter of fiscal 2012 , we concluded the financial targets which underlie the $ 5.0 million payment of contingent consideration relating to the acquisition of lnx would not be met . on february 16 , 2011 , we completed a follow-on public stock offering of 5,577,500 shares of common stock , which were sold at a price to the public of $ 17.75 per share . the follow-on public stock offering resulted in $ 93.6 million of net proceeds to us . story_separator_special_tag the underwriting discount of $ 5.0 million and other expenses of $ 0.4 million related to the follow-on public stock offering were recorded as an offset to additional paid-in-capital ( see note m to the consolidated financial statements ) . 30 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > interest income for fiscal years 2013 and 2012 was minimal due to the near zero percent yield on our u.s. treasury bills and money market accounts . we incurred a minimal amount of interest expense for fiscal 2013 and 2012 , which primarily consisted of finance charges related to capital lease obligations . i ncome t axes we recorded an income tax benefit of $ 10.0 million in fiscal 2013 compared to an income tax provision of $ 9.2 million in fiscal 2012 . the effective tax rate for fiscal 2013 and fiscal 2012 was 43.1 % and 28.8 % , respectively . our effective tax rate for fiscal 2013 differed from the federal statutory rate primarily due to the retroactive extension of research and development tax credits . the difference in the effective tax rates in fiscal 2012 is mainly driven by the change in the fair value of the liability related to the lnx earn-out of $ 4.9 million offset by $ 1.2 million of acquisition costs , both of which were not subject to tax . the fiscal 2012 rate was also impacted by six-months of federal research and development tax credits compared to 18 months in fiscal 2013 due to the timing of the tax credit extension . s egment o perating r esults adjusted ebitda , the non-gaap profitability measure for our segment reporting , is defined as net income ( loss ) before interest income and expense , income taxes , depreciation , amortization of acquired intangible assets , restructuring , impairment of long-lived assets , acquisition costs and other related expenses , fair value adjustments from purchase accounting and stock-based compensation costs . we utilize the adjusted ebitda financial measure to assist in providing a more complete understanding of our underlying operational measures in order to manage the business , evaluate our performance compared to prior periods and the marketplace , and to establish operational goals . adjusted ebitda for the mce segment decreased $ 37.7 million to $ 2.8 million during fiscal 2013 , as compared to $ 40.5 million during fiscal 2012 . the decrease in adjusted ebitda was primarily driven by lower revenues and lower gross margins within the product revenue mix . mce generated $ 166.3 million in revenues including intersegment revenues in fiscal 2013 compared to $ 216.5 million in fiscal 2012 . this decrease in revenues was partially offset by lower operating expenses as a result of our fiscal 2013 cost saving initiatives , including the reductions in force which eliminated 159 positions . overall , operating expenses increased as a percent of revenue . adjusted ebitda for the mdis segment increased by $ 0.6 million during fiscal 2013 to $ 8.8 million , as compared to $ 8.2 million in fiscal 2012 . the fiscal 2013 increase in adjusted ebitda was primarily due to an additional $ 15.5 million of revenue from kor and pdi , acquired in december 2011 , which only included six months of revenues in the prior year . see note p to our consolidated financial statements for more information regarding our operating segments . 33 f iscal 2012 v s . f iscal 2011 the following tables set forth , for the periods indicated , financial data from the consolidated statement of operations : replace_table_token_7_th r evenues replace_table_token_8_th total revenues increased $ 16.2 million , or 7 % , to $ 244.9 million during fiscal 2012 compared to fiscal 2011 . net mce revenues decreased $ 13.4 million , or 6 % , during fiscal 2012 compared to fiscal 2011. the decrease in net mce revenues was primarily due to lower commercial revenues of $ 33.3 million , partially offset by higher defense revenues of $ 19.9 million . defense revenue accounted for 93 % of net mce revenues during fiscal 2012 compared to 78 % in fiscal 2011. net mdis revenues increased $ 29.2 million to $ 40.6 million during fiscal 2012 compared to $ 11.4 million in fiscal 2011. this increase was driven by revenues from gorgon stare and revenue contributed by kor and pdi which were acquired on december 30 , 2011. international revenues , which consist of direct sales to non-u.s. based customers , increased slightly by $ 0.3 million to $ 9.6 million during fiscal 2012 compared to $ 9.3 million during fiscal 2011. the increase was primarily driven by higher defense revenues in the european region , partially offset by lower commercial revenue from the asia pacific region . international revenues represented 4 % of total revenues during fiscal 2012 and 2011. eliminations revenue is attributable to development programs where the revenue is recognized in both segments under contract accounting , and reflects the reconciliation to our consolidated results . 34 g ross m argin gross margin was 55.6 % for fiscal 2012 , a decrease of 120 basis points from the 56.8 % gross margin achieved in fiscal 2011. the decrease in gross margin was driven by product mix and the inclusion of kor and pdi revenues . kor and pdi are service based business models which typically carry lower margins than product based models . s elling , g eneral and a dministrative selling , general and administrative expenses decreased 1.2 % , or $ 0.7 million , to $ 57.2 million during fiscal 2012 compared to $ 57.9 million during fiscal 2011. the overall decrease was primarily due to lower variable compensation expense partially offset by increased headcount related expenses as a result of the kor and lnx acquisitions . selling , general and administrative expenses decreased as a percentage of revenues to 23.3 % during fiscal 2012 from 25.3 % during fiscal 2011 due to higher revenue and increased operating leverage .
| g ross m argin gross margin was 39.6 % for fiscal 2013 , a decrease of 1600 basis points , from the 55.6 % gross margin achieved in fiscal 2012 . the decrease in gross margin was primarily driven by revenue declines in our higher margin mce embedded computing product line coupled with inclusion of revenues from micronetics , and mdis which are comparatively lower margin businesses . s elling , g eneral and a dministrative selling , general and administrative expenses increased 0.7 % , or $ 0.4 million , to $ 57.6 million during fiscal 2013 compared to $ 57.2 million during fiscal 2012 . the overall increase was primarily due to increased employee compensation expenses from the micronetics , kor , and pdi acquisitions partially offset by decreases in compensation expenses from cost reduction initiatives as a result of our 2012 and 2013 restructuring plans which occurred in the fourth quarter of fiscal 2012 , and the first and fourth quarters of fiscal 2013. selling , general and administrative expenses increased as a percentage of revenues to 27.6 % during fiscal 2013 from 23.3 % during fiscal 2012 due to lower revenue . r esearch and d evelopment research and development expenses decreased 29 % , or $ 13.3 million , to $ 32.7 million during fiscal 2013 compared to $ 46.0 million for fiscal 2012 . the decrease was primarily due to a $ 10.2 million decrease in compensation expense from cost reduction initiatives as a result of our 2012 and 2013 restructuring plans which occurred in the fourth quarter of fiscal 2012 , the first quarter of fiscal 2013 and the fourth quarter of fiscal 2013 , and a $ 4.2 million decrease in prototype material . these decreases were slightly offset by increased compensation expenses from the micronetics acquisition . research and development expenses accounted for 15.7 % and 18.8 % of our revenues during fiscal 2013 and fiscal 2012 , respectively . as we continue to focus on improving the leverage of
| 13,877 |
in addition , he-aac is a de facto audio standard across mobile devices . throughout fiscal 2018 , the availability of dolby-atmos enabled mobile devices gained momentum from a growing list of partners such as amazon , lenovo , zte , and razer . samsung and huawei released the first mobile phones featuring dolby atmos , and then expanded the number of models supported beyond their flagship lines . both partners ran trials of live-streaming matches from the french open to their phones in dolby atmos . also during the year , lenovo launched a new series of dolby atmos-enabled tablets with price points starting at $ 100 , while sharp released the first mobile phone in japan with both dolby atmos and dolby vision . key challenges : growth in this market is dependent on several factors . due to short product life cycles , mobile device oems can easily add or remove certain of our technologies from their devices . our success depends on our ability to address the rapid pace of change in mobile devices , and we must continuously collaborate with mobile device oems to incorporate our technologies . finally , we must continue to support the development and distribution of dolby content via various ecosystems . personal computers highlights : dd+ continues to enhance playback in both mac and windows operating systems , including native support in their respective safari and microsoft edge browsers . dolby 's presence in these browsers enables us to reach more users through new types of content , including streaming video entertainment . during fiscal 2018 , the number of pcs available with dolby atmos continued to expand from partners such as huawei , xiaomi , and lenovo . we also partnered with lenovo to develop the world 's first laptop featuring the combined experience of dolby vision and the dolby atmos speaker system . key challenges : pc revenues have been impacted by a decline in the portion of pcs that have optical disc functionality which has resulted in a decline in our asps . we must continuously collaborate with pc manufacturers to incorporate our technologies , and we must continue to support the development and distribution of dolby content via various ecosystems . if these conditions and trends persist , and oems do not incorporate our technologies in current and future products , our pc revenues could face continuing downward pressure . other highlights : dd+ is incorporated in both the xbox and playstation gaming consoles and platforms . in addition , dolby atmos is enabled for windows and xbox one , which enables playback on devices such as dolby atmos soundbars and avrs . also , customers can purchase an oem gaming headset bundled with dolby atmos for headphones , or an app on the microsoft app store to enable dolby atmos on their headphones . six dolby atmos-titles from major game publishers are currently available on the xbox one . we also generate revenue from the automotive industry primarily through disc playback devices as well as other elements of the entertainment system . key challenges : the gaming console market continues to be challenged by competition from mobile devices and gaming pcs , which have faster refresh cycles and appeal to a broader consumer base . this may adversely impact our future revenues . 31 products and services we also generate revenue by providing products and services for a variety of applications in the cinema , broadcast , and communications markets . story_separator_special_tag generally . dolby voice highlights : in fiscal 2018 , we launched our newest offering , dolby voice room , our video conferencing solution for huddle rooms and small conference rooms that combines a camera product with the dolby conference phone . dolby voice room creates an experience that more closely resembles an in-person meeting by coupling the benefits of the dolby voice audio quality with new innovations in the video experience . in addition , dolby voice room is designed to be easy to set up and use . our first go-to-market partners for dolby voice room , which began shipping during the year , are bluejeans and highfive , two of our current dolby voice partners . we continue to focus on expanding dolby voice 's availability to the global market for audio and video conferencing services with dolby voice room which will address a broader set of customers in the growing huddle room space . key challenges : our success in this market will depend on the number of service providers and enterprise customers we are able to attract from competing conferencing service providers , the volume of products that we are able to sell , and the volume of usage of the service . dolby dimension more recently , on november 14 , 2018 , we also introduced dolby dimension , a wireless headphone that will provide consumers with an innovative way to experience shows , movies , and music at home . dolby dimension features our dolby lifemix proprietary technology , which allows consumers to control how much they hear of their surroundings—experiencing cinematic sound while hearing as much or as little from their surroundings as desired with optimal balance and clarity . while dolby dimension was not previously announced , the anticipated revenue and operating expenses related to this initiative were factored into our previously released financial guidance for fiscal 2019. revenue from significant customers in fiscal 2018 , 2017 , and 2016 , we did not have any individual customers whose revenue exceeded 10 % of our total revenue . critical accounting policies and estimates our consolidated financial statements and accompanying notes are prepared in accordance with u.s. gaap , pursuant to sec rules and regulations . the preparation of these financial statements requires us to establish accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses . story_separator_special_tag the sec considers an accounting policy and estimate to be critical if it is both important to a company 's financial condition or results of operations and requires significant judgment by management in its application . on a regular basis , we evaluate our assumptions , judgments , and estimates , and historically , actual results have not differed significantly from them . if actual results or events differ materially from our judgments and estimates , our reported financial condition and results of operation for future periods could be materially affected . we have reviewed the selection and development of the critical accounting policies and estimates discussed below with the audit committee of our board of directors . 33 revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable , and collection is probable . determining whether and when these criteria have been satisfied may involve assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . revenue recognition for transactions may include multiple elements such as hardware and accompanying software , upgrade rights , support , maintenance , and extended warranty services , and rights to receive commissioning services in connection with certain digital servers . for those transactions that contain multiple elements , we : identify the deliverables ( or elements ) within the arrangements and determining whether they represent separate units of account . an element constitutes a separate unit of account when it has standalone value and delivery of an undelivered element is both probable and within our control . when these criteria are not met , the delivered and undelivered elements are combined and accounted for together . determine a standalone selling price ( whether vsoe , tpe , or esp ) for the separate units of account . where we determine a standalone selling price using esp , we estimate the selling price by considering actual sales prices if we sell the element on a standalone basis . otherwise , we estimate the selling price by considering internal factors such as pricing practices and margin objectives . consideration is also given to market conditions such as competitor pricing strategies , customer demands , and industry technology lifecycles . estimate , for certain arrangements , the period of time over which revenue should be recognized when there is no stated term over which the customer may benefit from the contract . income taxes we make estimates and judgments that affect our accounting for income taxes . these include estimating temporary differences from differing treatment of items for tax and accounting purposes , future taxable income , uncertainties in tax positions , and interpretations of current and changes to current tax laws . these differences result in deferred tax assets and liabilities which are included in our consolidated balance sheets . we recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . we also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent that we believe that recovery is not likely , we establish a valuation allowance . lastly , we are subject to the review of our income tax returns by the irs and other tax authorities in the u.s. and abroad . we periodically assess the likelihood of adverse outcomes from these examinations to determine the adequacy of our provision for income taxes . the tax act , which was enacted on december 2017 , significantly changed existing u.s. tax laws and introduced new provisions that affected our business and required that we make preliminary estimates that significantly affected our reported income tax expense . the tax act , among other things , includes a permanent reduction in the corporate income tax rate from 35 % to 21 % and a one-time transition tax on unrepatriated foreign earnings . other significant provisions that will impact our income taxes effective for our fiscal year 2019 include : an exemption from u.s. federal tax on dividends of future foreign earnings , an incremental tax on excessive amounts paid to foreign related parties , and a minimum tax on certain low taxed foreign earnings . the tax act requires complex computations to be performed that were not previously required in u.s. tax law . it also requires that we make significant judgments and estimates in interpreting its provisions . the u.s. treasury department , the internal revenue service , and other standard-setting bodies could interpret or issue guidance on how provisions of the tax act should be applied or otherwise administered that is different from our interpretation . in addition , further legislative action could be taken to address questions or issues caused by the tax act . as we continue our analysis of the tax act and its related interpretations , collect and prepare necessary data , and interpret additional guidance that may be issued , we may be required to materially adjust amounts that we have recorded thereby impacting our results of operations and financial condition . additionally , state and foreign governments may enact tax laws in response to the tax act or other global initiatives requiring further judgments and estimates to be made resulting in potentially material changes to our income tax expense , results of operations , and financial condition . refer to note 10 `` income taxes '' to our consolidated financial statements for further detail . 34 impact of new accounting standards not yet adopted revenue recognition .
| our hevc and avc imaging technologies offer efficient delivery of video content across a variety of devices , and we continue to see expanded adoption of our hevc technologies , primarily in the broadcast and mobile markets . during fiscal 2018 , we continued to see a growing number of tvs that include dolby vision , with increasing inclusion in mid-tier tvs with price points starting at $ 350. dolby vision is included in apple 's iphone x , iphone 8 , ipad pro , and apple tv 4k , as well as other devices such as uhd bly-ray players , tablets , dmas , and pcs . the availability of content in dolby vision continues to grow . there are movie titles and original tv content available in dolby vision through our ott streaming partners , which include netflix , itunes , amazon , vudu , tencent , and iqiyi . currently , itunes has over 350 movies available in dolby vision , and netflix has over 400 hours of original content in dolby vision . in september 2018 , tencent streamed the first live sporting event in dolby vision . in fiscal 2018 , we saw increasing availability of devices that offer the combined dolby atmos and dolby vision experience globally . at this year 's ces , lg announced the inclusion of both dolby atmos and dolby vision in their 2018 oled and super uhd tvs . other tv partners now offering a combined dolby atmos and dolby vision experience include tcl , hisense , changhong , and skyworth , among others . the apple tv 4k became the first dma supporting both dolby atmos and dolby vision , and , the first mobile phone supporting both dolby atmos and dolby vision was launched by sharp in japan . other products supporting both dolby atmos and dolby vision announced during the year include amazon 's fire tv stick 4k , the first stb by orange , a laptop from lenovo , and select xbox devices by microsoft . the distribution of content available in the combined format of dolby atmos and
| 13,878 |
we expect to deliver between 62,000 and 64,000 homes in 2021 with between a 23.75 % and 24 % gross margin as compared to the 22.8 % full year gross margin in 2020. our technology initiatives have contributed meaningfully to our readiness for current economic and structural shifts while helping to improve our core business and drive our sg & a to a historic low of 8.1 % for 2020. our results and our expectations for next year are solid in all respects , and they reflect our focused strategy to balance growth , margin , cash flow and returns . we have remained focused on our optioned versus owned land strategy and believe we are in an excellent position to achieve our target of 50 % owned land and 50 % land controlled through options or similar agreements by the end of 2021. at the end of fiscal 2020 , the portion of land we controlled through options or similar agreements was 39 % , up from 33 % at the start of the year . we ended fiscal 2020 with a 3.5 year supply of land owned , compared to a 4.1 year supply of land owned at the start of fiscal 2020 , which put us well on the way to our goal of a 3.0 year supply by the end of 2021. among other things , this has increased our cash flow , which enabled us to reduce debt , including prepaying all of our senior debt that was scheduled to become due in fiscal 2021 , such that our year-end homebuilding debt-to-total capital ratio improved to 24.9 % , the lowest in our history . we expect to be in a strong cash and liquidity position in 2021 , and plan to continue with our strategies of reducing our debt balances and leverage ratio , and focusing on total shareholder return . while we continue to refine and grow our ancillary business divisions , they are becoming a decidedly smaller part of the overall company picture . we continue to work on strategies to better position our multifamily platform , our emerging single-family home for rent platform , our strategic investment in fivepoint holdings entities and our growing technology investments platform . with a solid balance sheet , leading positions in almost all of our homebuilding markets and continued execution of our core operating strategies , we believe that we are well positioned to meet demand , drive strong margins and cash flow and continue to grow with the market . 22 story_separator_special_tag west : arizona , california , colorado , nevada , oregon , utah and washington other : urban divisions and other homebuilding related investments primarily in california , including fivepoint the following tables set forth selected financial and operational information related to our homebuilding operations for the years indicated : 24 selected financial and operational data year ended november 30 , 2020 gross margins operating earnings ( loss ) ( dollars in thousands ) sales of homes revenue costs of sales of homes gross margin % net margins on sales of homes ( 1 ) gross margins ( loss ) on sales of land other revenues equity in earnings ( loss ) from unconsolidated entities other income ( expenses ) , net operating earnings ( loss ) east $ 5,689,419 4,269,452 25.0 % $ 929,181 2,587 6,404 4,189 ( 9,064 ) 933,297 central 4,084,514 3,265,086 20.1 % 481,697 ( 544 ) 2,787 792 ( 1,803 ) 482,929 texas 2,640,762 1,974,375 25.2 % 416,520 6,994 1,292 782 ( 3,994 ) 421,594 west 8,400,942 6,535,718 22.2 % 1,268,716 ( 34,713 ) 6,083 4,635 ( 3,227 ) 1,241,494 other ( 2 ) 24,522 47,438 ( 93.5 ) % ( 45,119 ) ( 23,439 ) 1,046 ( 11,234 ) ( 11,661 ) ( 90,407 ) year ended november 30 , 2019 gross margins operating earnings ( loss ) ( dollars in thousands ) sales of homes revenue costs of sales of homes gross margin % net margins on sales of homes ( 1 ) gross margins ( loss ) on sales of land other revenues equity in earnings ( loss ) from unconsolidated entities other income ( expenses ) , net operating earnings ( loss ) east $ 5,688,262 4,406,966 22.5 % $ 792,144 5,170 18,553 ( 793 ) 15,545 830,619 central 4,089,841 3,335,324 18.4 % 416,910 6,266 1,946 178 6,072 431,372 texas 2,526,364 2,003,650 20.7 % 278,121 9,378 2,256 569 ( 4,450 ) 285,874 west 8,203,790 6,520,975 20.5 % 1,062,701 ( 23,900 ) 4,495 1,263 6,291 1,050,850 other ( 2 ) 51,890 57,074 ( 10.0 ) % ( 28,903 ) 127 2,252 ( 14,490 ) ( 54,796 ) ( 95,810 ) ( 1 ) net margins on sales of homes include selling , general and administrative expenses . ( 2 ) negative gross and net margins were due to period costs in urban divisions that impact costs of homes sold without sufficient sales of homes revenue to offset those costs . summary of homebuilding data deliveries : replace_table_token_5_th of the total homes delivered listed above , 112 homes with a dollar value of $ 36.1 million and an average sales price of $ 322,000 represent home deliveries from unconsolidated entities for the year ended november 30 , 2020 and 79 home deliveries with a dollar value of $ 36.1 million and an average sales price of $ 458,000 for the year ended november 30 , 2019. new orders ( 1 ) : replace_table_token_6_th 25 of the total new orders listed above , 119 represent the dollar value of new orders from unconsolidated entities with a dollar value of $ 37.3 million and an average sales price of $ 314,000 for the year ended november 30 , 2020 and 103 new orders with a dollar value of $ 43.7 million and an average sales price of $ 424,000 for the year ended november 30 , 2019 . story_separator_special_tag ( 1 ) new orders represent the number of new sales contracts executed with homebuyers , net of cancellations , during the years ended november 30 , 2020 and 2019. backlog : replace_table_token_7_th of the total homes in backlog listed above , 38 homes with a backlog dollar value of $ 11.5 million and an average sales price of $ 302,000 represent homes in backlog from unconsolidated entities at november 30 , 2020 and 31 homes with a dollar value of $ 10.2 million and an average sales price of $ 328,000 represent homes in backlog from unconsolidated entities at november 30 , 2019 . ( 1 ) during the year ended november 30 , 2019 , we acquired 13 homes in backlog . backlog represents the number of homes under sales contracts . homes are sold using sales contracts , which are generally accompanied by sales deposits . in some instances , purchasers are permitted to cancel sales if they fail to qualify for financing or under certain other circumstances . we do not recognize revenue on homes under sales contracts until the sales are closed and title passes to the new homeowners . homebuilding east : revenues from home sales increased in 2020 compared to 2019 , primarily due to an increase in the average sales price in all the states of the segment , except in pennsylvania and south carolina , partially offset by a decrease in the number of home deliveries in florida and pennsylvania . the decrease in the number of home deliveries in florida and pennsylvania was primarily due to the effects of covid-19 and the economic shutdown . the increase in the average sales price of homes delivered in florida and new jersey was primarily due to favorable market conditions . the decrease in the average sales price of homes delivered in south carolina and pennsylvania was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities . gross margin percentage on home sales for the year ended november 30 , 2020 increased compared to the same period last year primarily due to reducing our construction costs and an increase in the average sales price of homes delivered . homebuilding central : revenues from home sales decreased in 2020 compared to 2019 , primarily due to a decrease in the number of home deliveries in minnesota , north carolina and virginia , partially offset by an increase in the average sales price in all the states of the segment , except in indiana , north carolina and tennessee . the decrease in the number of deliveries was primarily due to the effects of covid-19 and the economic shutdown . the increase in the average sales price of homes delivered was primarily due to favorable market conditions . the decrease in the average sales price of homes delivered in indiana , north carolina and tennessee was primarily driven by a change in product mix due to a higher percentage of deliveries in lower-priced communities . gross margin percentage on home sales for the year ended november 30 , 2020 increased compared to the same period last year primarily due to reducing our construction costs , partially offset by valuation adjustments taken in a few communities . homebuilding texas : revenues from home sales increased in 2020 compared to 2019 , primarily due to an increase in the number of home deliveries , partially offset by a decrease in the average sales price . the increase in the number of deliveries was primarily due to higher demand as the number of deliveries per active community increased . the decrease in the average sales price of homes delivered was primarily due to closing out higher priced communities and shifting into lower priced communities . gross margin percentage on home sales for the year ended november 30 , 2020 increased compared to the same period last year primarily due to reducing our construction costs . homebuilding west : revenues from home sales increased in 2020 compared to 2019 , primarily due to an increase in the number of home deliveries in arizona , california and utah . the increase in revenues was partially offset by a decrease in the average sales price in all the states of the segment , except in arizona , oregon and utah . the increase in the number of deliveries in arizona , california and utah was primarily due to higher demand as the number of deliveries per active community increased . the decrease in the number of home deliveries in colorado , nevada , oregon and washington was primarily due to the effects of covid-19 and the economic shutdown and a decrease in active communities due to timing of opening and closing of communities . the decrease in the average sales price of homes delivered in nevada , california , colorado and washington was primarily driven by a change in product mix due to a higher percentage of deliveries in lower- 26 priced communities . the increase in the average sales price of homes delivered in arizona , oregon and utah was primarily due to favorable market conditions . gross margin percentage on home sales for the year ended november 30 , 2020 increased compared to the same period last year primarily due to reducing our construction costs . financial services segment our financial services reportable segment primarily provides mortgage financing , title and closing services primarily for buyers of our homes , as well as property and casualty insurance . the segment also originates and sells into securitizations commercial mortgage loans through its lmf commercial business . our financial services segment sells substantially all of the residential loans it originates within a short period in the secondary mortgage market , the majority of which are sold on a servicing released , non-recourse basis . after the loans are sold , we retain potential liability for possible claims by purchasers that we breached certain limited industry-standard representations and warranties in the loan sale agreements .
| loss on land sales in the year ended november 30 , 2020 was $ 49.1 million , primarily due to a write-off of costs in the second quarter as a result of us not moving forward with a naval base development in concord , california , northeast of san francisco and a change in strategy with three land assets that resulted in impairments in the fourth quarter . selling , general and administrative expenses were $ 1.7 billion in both years ended november 30 , 2020 and 2019. as a percentage of revenues from home sales , selling , general and administrative expenses improved to 8.1 % in the year ended november 30 , 2020 , from 8.3 % in the year ended november 30 , 2019 , due to improved operating leverage as a result of an increase in home deliveries combined with the benefits of our technology initiatives . operating earnings for the financial services segment were $ 481.0 million ( $ 495.0 million net of noncontrolling interests ) in the year ended november 30 , 2020 , compared to $ 224.6 million ( $ 244.3 million net of noncontrolling interests ) in the year ended november 30 , 2019. operating earnings increased due to an improvement in the mortgage and title businesses as a result of an increase in volume and margin , as well as reductions in loan origination costs . additionally , in the second quarter of 2020 , the financial services segment recorded a $ 61.4 million gain on the deconsolidation of a previously consolidated entity . operating earnings for the multifamily segment were $ 22.7 million in the year ended november 30 , 2020 , compared to operating earnings of $ 16.4 million ( $ 18.1 million net of noncontrolling interests ) in the year ended november 30 , 2019. operating loss for the lennar other segment was $ 10.3 million in the year ended november 30 , 2020 , compared to operating earnings of $ 31.5 million ( $ 32.0 million net of noncontrolling interests ) in the year ended november 30 , 2019. in the fourth quarter of 2020 , we retired $ 1.2 billion of senior notes which included the redemption of $
| 13,879 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.