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as a result of the payment of the special dividend , our cash , cash equivalents and short-term investments declined significantly . this will result in significantly lower investment income for the foreseeable future , which will also impact cash provided by operating activities , net income and net income per share in future periods . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; font-weight : bold ; '' > cost of services revenue cost of services revenue primarily includes the costs of personnel and related overhead to physically and electronically deliver technical support for our products , hosted services supporting our saas offerings , and costs to deliver professional services . additionally , cost of services revenue includes depreciation of equipment supporting our service offerings . cost of services revenue during the periods presented was as follows ( dollars in millions ) : replace_table_token_7_th cost of services revenue increased during fiscal 2019 compared to fiscal 2018 . the increase was primarily due to an increase in costs associated with third-party hosting services to support our saas offerings of $ 36 million in fiscal 2019 , and growth in cash-based employee-related expenses of $ 27 million , driven by incremental growth in headcount and salaries . cost of services revenue increased in fiscal 2018 compared to fiscal 2016 , but remained consistent as a percentage of revenue . the increase was primarily due to growth in cash-based employee-related expenses of $ 81 million during fiscal 2018 , driven by incremental growth in headcount and salaries , as well as increased it development costs of $ 24 million . these increased costs were offset in part by a decrease in equipment , depreciation and facilities-related costs of $ 33 million . research and development expenses research and development expenses include the personnel and related overhead associated with the development of our product software and service offerings . we continue to invest in our key growth areas , including nsx and vmware vsan , while also investing in areas that we expect to be significant growth drivers in future periods , such as vmware cloud on aws . 41 research and development expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_8_th research and development expenses increased in fiscal 2019 compared to fiscal 2018 . the increase was primarily due to growth in cash-based employee-related expenses of $ 136 million in fiscal 2019 , driven by incremental growth in headcount and salaries , and an increase in stock-based compensation of $ 16 million , primarily driven by an increase in performance stock unit awards granted in fiscal 2019. the increase was also driven by increased equipment , depreciation and facilities-related costs of $ 50 million , primarily including costs associated with third-party hosting services related to research and development , and a decrease in capitalized internal-use software development costs of $ 26 million . research and development expenses increased in fiscal 2018 compared to fiscal 2016. the increase was primarily due to growth in cash-based employee-related expenses of $ 194 million , driven by incremental growth in headcount and salaries . in addition , stock-based compensation increased by $ 49 million , primarily driven by an increase in restricted stock unit awards and performance stock unit awards granted after the fourth quarter of fiscal 2016. research and development expenses also increased due to higher equipment , depreciation and facilities-related costs of $ 34 million . these increases were offset in part by an increase in capitalized internal-use software development costs of $ 55 million . sales and marketing expenses sales and marketing expenses include personnel costs , sales commissions and related overhead associated with the sale and marketing of our license and services offerings , as well as the cost of product launches and marketing initiatives . a significant portion of our sales commissions are deferred and recognized over the expected period of benefit . sales and marketing expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_9_th ( 1 ) fiscal 2018 and fiscal 2016 amounts reflect the impact of our retrospective adoption of topic 606 , effective february 3 , 2018. sales and marketing expenses increased in fiscal 2019 compared to fiscal 2018 . the increase was primarily due to growth in cash-based employee-related expenses of $ 298 million in fiscal 2019 , driven by incremental growth in headcount and salaries , as well as higher commission costs , resulting from increased sales volume and headcount . the increase during fiscal 2019 was also driven by an increase in costs incurred for sales enablement-based initiatives of $ 30 million and an increase in travel-related expenses primarily driven by incremental growth in headcount . an increase in equipment , depreciation and facilities-related costs of $ 20 million also contributed to the increase in sales and marketing expenses during fiscal 2019. sales and marketing expenses increased in fiscal 2018 compared to fiscal 2016. the increase was primarily due to growth in cash-based employee-related expenses of $ 233 million , driven by incremental growth in headcount and salaries , as well as higher commission costs , resulting from increased sales volume . 42 general and administrative expenses general and administrative expenses include personnel and related overhead costs to support the business . these expenses include the costs associated with finance , human resources , it infrastructure and legal , as well as expenses related to corporate costs and initiatives , including certain charitable donations to the vmware foundation . general and administrative expenses during the periods presented were as follows ( dollars in millions ) : replace_table_token_10_th general and administrative expenses increased in fiscal 2019 compared to fiscal 2018 . story_separator_special_tag the increase was primarily due to $ 45 million of costs incurred in connection with the special dividend and an increase in stock-based compensation of $ 25 million , primarily driven by an increase in performance stock unit awards granted in fiscal 2019. an increase in it-related costs , including telecommunication , of $ 23 million also contributed to the increase in general and administrative costs during fiscal 2019. general and administrative expenses decreased in fiscal 2018 compared to fiscal 2016. the decrease was primarily driven by a decrease in it-related costs , including telecommunication , equipment and depreciation , of $ 73 million , offset in part by decreased capitalization of internal-use software development costs of $ 27 million , as well as increased cash-based employee-related expenses of $ 33 million , resulting primarily from incremental growth in headcount and salaries . realignment and loss on disposition realignment expenses and loss on disposition during the periods presented were as follows ( dollars in millions ) : replace_table_token_11_th ( 1 ) fiscal 2018 amounts reflect the impact of our retrospective adoption of topic 606 , effective february 3 , 2018. during the second quarter of fiscal 2018 , we completed the sale of our vmware vcloud air business to ovh us llc . the loss recognized in connection with this transaction was $ 104 million during fiscal 2018 and included the impairment of deferred commissions of approximately $ 13 million resulting from the retrospective adoption of topic 606. on january 22 , 2016 , we approved a plan to streamline our operations , with plans to reinvest the associated savings in field , technical and support resources associated with growth products . as a result of these actions , approximately 800 positions were eliminated during fiscal 2016. we recognized $ 50 million of severance-related realignment expenses during fiscal 2016 on the consolidated statements of income ( loss ) . additionally , we consolidated certain facilities as part of this plan , which resulted in the recognition of $ 2 million of related expenses during fiscal 2016. actions associated with this plan were substantially completed by december 31 , 2016 . 43 investment income investment income during the periods presented was as follows ( dollars in millions ) : replace_table_token_12_th investment income increased in fiscal 2019 compared to fiscal 2018 and fiscal 2018 compared to fiscal 2016 , primarily driven by increased interest income earned on our cash equivalents and short-term investments resulting from higher yields and from higher average invested balances . our cash , cash equivalents and short-term investments declined significantly as a result of the special dividend paid on december 28 , 2018. upon liquidation of investment securities that were used primarily to fund the special dividend , the company recognized a loss of $ 53 million . we expect to have significantly lower investment income in future periods as a result of the decline in our cash equivalents and short-term investments . interest expense interest expense during the periods presented was as follows ( dollars in millions ) : replace_table_token_13_th on august 21 , 2017 , we issued three series of unsecured senior notes ( “ senior notes ” ) pursuant to a public debt offering in the aggregate principal amount of $ 4,000 million . upon closing , a portion of the net proceeds from the offering was used to repay two of the notes payable to dell in the aggregate principal amount of $ 1,230 million . interest expense increased by $ 60 million in fiscal 2019 compared to fiscal 2018 and $ 48 million in fiscal 2018 compared to fiscal 2016 , due to the issuance of the senior notes , offset in part by a reduction in interest expense on the notes payable to dell . other income ( expense ) , net other income ( expense ) , net during the periods presented was as follows ( dollars in millions ) : replace_table_token_14_th other income ( expense ) , net increased in fiscal 2019 compared to fiscal 2018 primarily due to the adoption of asu 2016-01 , financial instruments-overall ( subtopic 825-10 ) : recognition and measurement of financial assets and financial liabilities . upon adoption , all gains and losses on non-marketable equity securities , realized and unrealized , are recognized in other income ( expense ) , net on the consolidated statements of income ( loss ) . during fiscal 2019 , we recognized an unrealized gain of $ 813 million on our investment in pivotal software inc. ( “ pivotal ” ) , which included an unrealized gain of $ 668 million resulting from pivotal 's initial public offering during the first quarter of fiscal 2019. as of february 1 , 2019 , the fair value of our investment in pivotal was $ 833 million . the fair value of our investment is determined primarily using the quoted market price of pivotal 's class a common stock . as a result , any volatility in pivotal 's publicly traded class a common stock introduces variability to our consolidated statements of income ( loss ) . 44 the unrealized gain related to our investment in pivotal was partially offset by the absence of gains recognized on two step acquisitions completed in fiscal 2018. during fiscal 2018 , we completed two step acquisitions , wavefront , inc. ( “ wavefront ” ) and velocloud , which resulted in an aggregate gain of $ 42 million for the remeasurement of our respective ownership interest in each company .
| revenue growth from our vcpp offerings continued to contribute to license revenue growth during fiscal 2019 . strength in our ea renewal business and product offerings acquired in recent acquisitions such as velocloud networks , inc. ( “ velocloud ” ) , also contributed to license revenue growth during fiscal 2019 compared to fiscal 2018 . drivers of license revenue growth during fiscal 2018 compared to fiscal 2016 included continued scale and growth of our vmware nsx ( “ nsx ” ) and vsan offerings . euc growth driven in part by sales of workspace one and continued strength of our vcpp offerings were also key factors contributing to license growth . strength in our renewal business , including eas , also contributed to license revenue growth during fiscal 2018 compared to fiscal 2016 . services revenue during fiscal 2019 and fiscal 2018 , software maintenance revenue continued to benefit from strong renewals of our eas , maintenance contracts sold in previous periods and additional maintenance contracts sold in conjunction with new software license sales . in each period presented , customers purchased , on a weighted-average basis , approximately three years of support and maintenance with each new license purchased . professional services revenue increased 8 % in fiscal 2019 and 14 % in fiscal 2018 . services we provide through our technical account managers and our continued focus on solution deployments , including our nsx products , contributed to the increase in professional services revenue . we continue to also focus on enabling our partners to deliver professional services for our solutions and as such , our professional services revenue may vary as we continue to leverage our partners . timing of service engagements will also impact the amount of professional services revenue we recognize during a period . 39 unearned revenue unearned revenue as of the periods presented consisted of the following ( dollars in millions ) : replace_table_token_5_th ( 1 ) fiscal 2018 amounts reflect the impact of our retrospective adoption of topic 606 , effective february 3 , 2018. unearned license revenue is primarily related to the
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the purchase price was funded by belgian volition with cash on hand and the monies received under the capital lease agreement . the company occupied the property commencing in march 2017. total depreciation charged to the income statement , related to the leased building was $ 43,633 for the year ended december 31 , 2017 and $ nil for the year ended december 31 , 2016. f-21 volitionrx limited notes to consolidated financial statements ( continued story_separator_special_tag overview we have identified the specific processes and resources required to achieve the near and medium term objectives of our business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to our business plan . however it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium term objectives of our business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . our future as an operating business will depend on our ability to obtain sufficient capital contributions , financing and or generate revenues as may be required to sustain our operations . management plans to address the above as needed by : ( a ) securing additional grant funds ; ( b ) obtaining additional equity or debt financing ; ( c ) grants of licensing rights to third parties in exchange for specified up-front and or back end payments ; and ( d ) developing and commercializing our products on an accelerated timeline . management continues to exercise tight cost controls to conserve cash . our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations . the accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . if we are unable to obtain adequate capital , we could be forced to cease operations . liquidity and capital resources we have financed our operations since inception primarily through private placements and public offerings of our common stock . as of december 31 , 2017 , we had cash and cash equivalents of approximately $ 10.1 million . for the year ended december 31 , 2017 , we used approximately $ 12.2 million in net cash from operating activities , compared to $ 8.9 million for the year ended december 31 , 2016. the increase in cash used year over year was primarily due to increased expenditures on research and development activities , as well as increased general and administrative activities , including increases in stock-based compensation and personnel expenses . net cash used in investing activities was $ 1.4 million and $ 0.4 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in cash used in investing activities for the year ended december 31 , 2017 when compared to same period in 2016 was primarily a result of the purchase of equipment and facility improvements for the new research and development facility in belgium and investment in our information technology infrastructure . net cash provided by financing activities was approximately $ 2.0 million for the year ended december 31 , 2017 , compared to $ 25.2 million for the year ended december 31 , 2016. the decrease in cash provided by financing activities was primarily the result of a significant decrease in capital raising activities during the year ended december 31 , 2017 offset by an increase in debt financing as compared to the prior year period . the following table summarizes our approximate contractual payments due by period as of december 31 , 2017 : replace_table_token_2_th ( 1 ) loans repayable includes the total value of the sofinex loan of 1.0 million euros . see note 10 ( k ) to the consolidated financial statements for the details . 21 we intend to use our cash reserves to predominantly fund further research and development activities . we do not currently have any substantial source of revenues and expect to rely upon additional financing to fully-fund our current strategic plan , which includes successfully commercializing a suite of diagnostic tests as well as additional products . we can provide no assurance that we will be successful in raising further funds . in the event that additional financing is delayed , we will prioritize the maintenance of our research and development personnel and facilities , primarily in belgium , and the maintenance of our patent rights . the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market would be delayed . in the event of an ongoing lack of financing , it may be necessary to discontinue operations , which will adversely affect the value of our common stock . story_separator_special_tag in accordance with asc 360 , property plant and equipment , the company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of story_separator_special_tag the purchase price was funded by belgian volition with cash on hand and the monies received under the capital lease agreement . the company occupied the property commencing in march 2017. total depreciation charged to the income statement , related to the leased building was $ 43,633 for the year ended december 31 , 2017 and $ nil for the year ended december 31 , 2016. f-21 volitionrx limited notes to consolidated financial statements ( continued story_separator_special_tag overview we have identified the specific processes and resources required to achieve the near and medium term objectives of our business plan , including personnel , facilities , equipment , research and testing materials including antibodies and clinical samples , and the protection of intellectual property . to date , operations have proceeded satisfactorily in relation to our business plan . however it is possible that some resources will not readily become available in a suitable form or on a timely basis or at an acceptable cost . it is also possible that the results of some processes may not be as expected and that modifications of procedures and materials may be required . such events could result in delays to the achievement of the near and medium term objectives of our business plan , in particular the progression of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market . our future as an operating business will depend on our ability to obtain sufficient capital contributions , financing and or generate revenues as may be required to sustain our operations . management plans to address the above as needed by : ( a ) securing additional grant funds ; ( b ) obtaining additional equity or debt financing ; ( c ) grants of licensing rights to third parties in exchange for specified up-front and or back end payments ; and ( d ) developing and commercializing our products on an accelerated timeline . management continues to exercise tight cost controls to conserve cash . our ability to continue as a going concern is dependent upon our accomplishment of the plans described in the preceding paragraph and eventually to attain profitable operations . the accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern . if we are unable to obtain adequate capital , we could be forced to cease operations . liquidity and capital resources we have financed our operations since inception primarily through private placements and public offerings of our common stock . as of december 31 , 2017 , we had cash and cash equivalents of approximately $ 10.1 million . for the year ended december 31 , 2017 , we used approximately $ 12.2 million in net cash from operating activities , compared to $ 8.9 million for the year ended december 31 , 2016. the increase in cash used year over year was primarily due to increased expenditures on research and development activities , as well as increased general and administrative activities , including increases in stock-based compensation and personnel expenses . net cash used in investing activities was $ 1.4 million and $ 0.4 million for the years ended december 31 , 2017 and 2016 , respectively . the increase in cash used in investing activities for the year ended december 31 , 2017 when compared to same period in 2016 was primarily a result of the purchase of equipment and facility improvements for the new research and development facility in belgium and investment in our information technology infrastructure . net cash provided by financing activities was approximately $ 2.0 million for the year ended december 31 , 2017 , compared to $ 25.2 million for the year ended december 31 , 2016. the decrease in cash provided by financing activities was primarily the result of a significant decrease in capital raising activities during the year ended december 31 , 2017 offset by an increase in debt financing as compared to the prior year period . the following table summarizes our approximate contractual payments due by period as of december 31 , 2017 : replace_table_token_2_th ( 1 ) loans repayable includes the total value of the sofinex loan of 1.0 million euros . see note 10 ( k ) to the consolidated financial statements for the details . 21 we intend to use our cash reserves to predominantly fund further research and development activities . we do not currently have any substantial source of revenues and expect to rely upon additional financing to fully-fund our current strategic plan , which includes successfully commercializing a suite of diagnostic tests as well as additional products . we can provide no assurance that we will be successful in raising further funds . in the event that additional financing is delayed , we will prioritize the maintenance of our research and development personnel and facilities , primarily in belgium , and the maintenance of our patent rights . the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the ivd market would be delayed . in the event of an ongoing lack of financing , it may be necessary to discontinue operations , which will adversely affect the value of our common stock . story_separator_special_tag in accordance with asc 360 , property plant and equipment , the company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable . circumstances which could trigger a review include , but are not limited to : significant decreases in the market price of the asset ; significant adverse changes in the business climate or legal factors ; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset ; current period cash flow or operating losses combined with a history of losses or a forecast of
| replace_table_token_6_th other income other income decreased to $ 0.3 million for the year ended december 31 , 2017 from $ 0.5 million for the year ended december 31 , 2016. the decrease was due to less grant funds received from public bodies in respect of approved expenditures , where there is no obligation to repay in 2017 compared to 2016. net loss net loss increased to $ 14.8 million for the year ended december 31 , 2017 from $ 11.9 million for the year ended december 31 , 2016. the change resulted from the factors described above . going concern we have not attained profitable operations and are dependent upon obtaining external financing to continue to pursue our operational and strategic plans . for these reasons , management has determined that there is substantial doubt that the business will be able to continue as a going concern without further financing . 23 off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , collaborative agreements , liquidity , capital expenditures or capital resources that are material to stockholders . critical accounting policies our financial statements and accompanying notes have been prepared in accordance with united states generally accepted accounting principles , or u.s. gaap , applied on a consistent basis . the preparation of financial statements in conformity with u.s. gaap 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
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acquired a $ 125.0 million participation in a senior loan secured by all the material assets of a worldwide operator of hotels , resorts and timeshare properties for a discounted purchase price of approximately $ 115.7 million . the acquisition was financed with an $ 81.0 million increase in a financing facility previously provided by the seller . we , through certain of our subsidiaries , entered into a new $ 125.0 million financing facility with an affiliate of citigroup global markets inc. , to finance commercial mortgage loans and senior interests in commercial mortgage loans originated or acquired by us and including loans and interests intended to be included in commercial mortgage loan securitizations as well as those not intended to be securitized . advances under the facility accrue interest at a per annum interest rate equal to the sum of ( i ) 30-day libor plus ( ii ) a margin of between 1.75 % and 3.75 % depending on ( a ) asset type , ( b ) the amount advanced and ( c ) the debt yield and loan-to-value ratios of the purchased mortgage loan . the facility has an initial maturity date of march 29 , 2014 , subject to three one-year extension options , which may be exercised by us upon the satisfaction of certain conditions . we have guaranteed the obligations of our subsidiaries under the facility up to a maximum liability of 25 % of the then-currently outstanding repurchase price of assets financed there under . the facility and related guarantee contain various affirmative and negative covenants applicable to us that are similar in nature to covenants contained in our other financing agreements . on february 29 , 2012 , our board of directors declared a dividend of $ 0.44 per share for the first quarter of 2012 , which was payable on april 13 , 2012 to shareholders of record on march 30 , 2012. funded a $ 59.0 million mortgage loan secured by an office campus located in northern california . the terms of the loan provide for up to $ 4.0 million of future advances upon the satisfaction of specified conditions . sold the remainder of our held-for-sale first mortgage loans targeted for securitization . as of december 31 , 2011 , our net equity investment in these six loans was $ 36.5 million and the loans had a carrying value of $ 128.6 million . we realized an aggregate profit of approximately $ 1.0 million on the held-for-sale loans and associated interest rate hedges . 57 three months ended june 30 , 2012 acquired $ 75.6 million of cmbs at a discounted price of $ 70.7 million , where the obligors are certain special purpose entities that were formed to hold substantially all of the assets of a worldwide operator of hotels , resorts and timeshare properties . the acquisition was partially financed using a $ 49.3 million increase in a financing facility previously provided by the seller . sold 20,000,000 shares of common stock at a net price of $ 19.88 per share , resulting in gross proceeds of $ 397.7 million . on april 30 , 2012 , the underwriters exercised their option to purchase 3,000,000 additional shares of common stock at $ 19.88 per share , resulting in additional gross proceeds of $ 59.6 million . originated a $ 73.0 million junior mezzanine loan , of which $ 45.0 million was initially funded , collateralized by a portfolio of six office buildings located in rosslyn , virginia . the loan provides for up to $ 28.0 million in future funding for projected capital improvements and leasing costs . our junior mezzanine loan was co-originated with a $ 125.0 million first mortgage loan and a $ 40.0 million senior mezzanine loan , which were separately funded by third party lenders at closing . originated a $ 170.0 million first mortgage loan on two class b office buildings located in the soho district of midtown manhattan . collectively known as one soho square , the two properties located at 161 avenue of the americas and 233 spring street comprise over 600,000 square feet of office and retail space , which is currently 96 % occupied . the first mortgage loan had an initial funding of $ 135.0 million , with $ 35.0 million available for future advances to pay for tenant improvements , leasing commissions and redevelopment costs . originated an $ 11.6 million first mortgage loan collateralized by a collection of office , retail and parking properties in downtown san diego , california . on may 8 , 2012 , our board of directors declared a dividend of $ 0.44 per share for the second quarter of 2012 , which was payable on july 13 , 2012 to common stockholders of record as of june 30 , 2012. on may 24 and june 28 , 2012 we acquired 226 and 26 residential real estate owned ( `` reo '' ) properties from a major bank at a cost of $ 24.5 million and $ 2.8 million , respectively . most of the properties were vacant at acquisition , and we are actively preparing the properties to be either rented or sold , as applicable . from the date of acquisition through june 30 , 2012 , we incurred approximately $ 0.3 million in costs of getting the properties ready for their intended use , and such costs were added to our investment basis . originated a $ 30.0 million mezzanine loan collateralized by an office building in philadelphia , pennsylvania . during the second quarter 2012 we acquired $ 173.0 million of rmbs ( face value ) at a $ 65.2 million discount . three months ended september 30 , 2012 : on july 3 , 2012 , we entered into a purchase and repurchase agreement and securities contract ( `` onewest repurchase agreement '' ) with onewest bank , fsb ( `` onewest '' ) . at closing , we transferred loan investments to onewest in exchange for a $ 78.3 million advance . story_separator_special_tag borrowings under the onewest repurchase agreement accrue interest at a pricing rate of one-month libor plus a margin of 3.0 % . the initial maturity date of the facility is july 3 , 2015 with two one-year extension options , subject to certain conditions . 58 on july 6 , 2012 , we originated a $ 51.5 million first mortgage collateralized by three hotels located in north carolina , new jersey , and virginia . the initial term for the loan is two years , with three one-year extension options . on july 20 , 2012 , we purchased a 50 % undivided participation interest ( the `` le meridien participation interest '' ) in a eur-denominated mezzanine loan for $ 68.4 million ( `` le méridien loan '' ) from an independent third party . the borrower is starman luxembourg holdings s.à r.l . ( `` holdings '' ) , an entity that indirectly owns and operates a portfolio of hotels in france and germany . holdings is owned 50 % by an independent third party and 50 % by several private investment funds that were previously sponsored by starwood capital group global i , l.l.c. , an affiliate of our manager . the le méridien loan has an initial term of two years with an option to extend for an additional year , subject to certain conditions , an interest rate of 12.5 % , an upfront fee of 2.0 % and a prepayment fee of 1.0 % . we acquired the le meridien participation interest from an independent third party and own the le meridien participation interest subject to a participation agreement between us and the independent third party ( the `` le meridien participation agreement '' ) . the le meridien participation agreement provides for the payment to us , on a pro rata basis with an independent third party , of customary payments in respect of the le meridien participation interest and affords us customary voting , approval and consent rights . on august 3 , 2012 , starwood property mortgage sub-10 , llc ( `` spm sub-10 '' ) and starwood property mortgage sub-10a ( `` spm sub 10-a '' ) , our indirect wholly-owned subsidiaries , jointly entered into a $ 250.0 million senior secured revolving credit facility arranged by merrill lynch , pierce , fenner & smith incorporated ( `` mlpfs '' ) . lender participants in the facility include bank of america , citibank , barclays bank plc , deutsche bank trust company americas , goldman sachs bank usa , and stifel bank & trust . the facility matures 364 days from closing , and may be extended from time to time , provided the aggregate tenure shall not exceed four years . outstanding borrowings under the facility will be priced at libor + 325 bps , with an unused fee of 30 to 35 bps per annum depending upon the usage of the facility . the facility will be used primarily to finance our purchase or origination of commercial mortgage loans for the time period between transaction closing and the time in which a financing of the loan can be closed with one of our existing secured warehouse facilities or the loan is sold/syndicated in whole or in part . the term of financing provided under the facility for any individual loan is limited in most instances to the lesser of six months or the maturity of the facility . the facility will be secured by each loan for which financing has been provided as well at least $ 500,000,000 in market value of additional preapproved unencumbered senior , subordinate , and mezzanine loan assets . the facility is full recourse to us . on august 2 , 2012 , our board of directors declared a dividend of $ 0.44 per share for the third quarter of 2012 , which was payable on october 15 , 2012 to common stockholders of record on september 28 , 2012. on august 17 , 2012 , we originated a $ 46.0 million first mortgage collateralized by a 315-room hilton hotel in rockville , maryland . the term of the loan is three years , with two one-year extension options . on august 21 , 2012 , we acquired a $ 250.0 million participation in a mezzanine loan that is secured primarily by indirect equity interests in subsidiaries that own substantially all of the assets of a worldwide operator of hotels , resorts , and timeshare properties . we acquired this investment at a discounted price of $ 233.75 million , with $ 158.75 million being financed by the seller . the maturity date of the mezzanine loan is november 12 , 2012 , with three one-year extensions remaining , subject to a 0.5 % fee for the second and third remaining extensions . coincident with this purchase , we sold $ 165 million in face value of the securitized first 59 mortgage loan component of the same financing transaction , which resulted in a gain of $ 8.2 million . this sale was undertaken to manage our overall credit exposure to the borrower . on september 18 , 2012 , we originated a $ 61.0 million first mortgage collateralized by two class b+/a- office buildings located in glendale , california . the term of the loan is three years , with two one-year extension options . three months ended december 31 , 2012 : on october 3 , 2012 , we sold the $ 94.5 million a-note component of a $ 135.0 million first mortgage loan on two class b office buildings located in the soho district of midtown manhattan . we retained the $ 40.5 million b-note . we originated the first mortgage loan during the second quarter of 2012. on october 10 , 2012 , we completed an underwritten public offering of 18,400,000 shares of our common stock at a price of $ 22.74 for total estimated gross proceeds of approximately $ 418.4 million .
| the increase in the base management fee was primarily due to our supplemental equity raises in april 2012 and october 2012 with net proceeds of $ 873.3 million . in connection with the october 2012 supplemental equity raise , our manager was granted an additional 875,000 restricted stock units , resulting in higher stock compensation expense in the subsequent periods . the increase in acquisition and investment pursuit costs and general and administrative expenses are primarily attributed to the company 's increased size , as well as the volume of transactions and the increase in professional fees such as legal , audit and consulting , resulting from the growing investment portfolio . for the year ended december 31 , 2012 , we had realized gains from the sale of investments of $ 25.5 million , of which $ 17.3 million related to the sale of mbs securities and other investments and $ 8.2 million related to the sale of loans . for the year ended december 31 , 2011 , we had realized gains from the sale of investments of $ 21.0 million , of which $ 10.7 million related to the sale of mbs and other investments and $ 10.3 million related to the sale of loans . in 2012 , we sold nine loans and in 2011 , sold seven loans into two separate securitization vehicles , and sold two loans in private sale , 65 respectively . we have historically used the securitization markets as a source of advantageously priced , non-recourse , matched term financing for many of the fixed rate first mortgage loans we originate . our business model is to originate the whole loan and either securitize or sell a senior portion of the loan , leaving us with a higher yielding subordinated loan component . refer to note 7 to the consolidated financial statements in this annual report for more information on loan securitization and sale activities . for the year ended december 31 , 2012 , we had net losses on currency hedges of $
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for our mexico segment , we do not designate derivative financial instruments that we purchase to mitigate commodity purchase or currency exchange rate exposures as cash flow hedges ; therefore , we recognize changes in the fair value of these derivative financial instruments immediately in earnings . for our u.k. and europe segment , we do designate certain derivative financial instruments that we have purchased to mitigate foreign currency transaction exposures as cash flow hedges ; therefore , before the settlement date of the financial derivative instruments , we recognize changes in the fair value of the effective portion of the cash flow hedge in accumulated other comprehensive income ( loss ) , while we recognize changes in the fair value of the ineffective portion immediately in earnings . when the derivative financial instruments associated with the effective portion are settled , the amount in accumulated other comprehensive income ( loss ) is then reclassified to earnings . gains or losses related to these derivative financial instruments are included in the line item cost of sales in the consolidated and combined statements of income . we recognized $ 27.1 million in net losses related to changes in the fair value of our derivative financial instruments during 2018. we recognized $ 6.7 million in net gains and $ 4.3 million in net losses related to changes in the fair value of our derivative financial instruments during 2017 and 2016 , respectively . although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients , such changes do not immediately impact cost of sales . the cost of feed ingredients is recognized in cost of sales , on a first-in-first-out basis , at the same time that the sales of the chickens that consume the feed grains are recognized . thus , there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold . for example , corn delivered to a feed mill and paid for one week might be used to manufacture feed the following week . however , the chickens that eat that feed might not be processed and sold for another 42 to 63 days , and only at that time will the costs of the feed consumed by the chickens become included in cost of goods sold . commodities such as corn , soybean meal , and soybean oil are actively traded through various exchanges with future market prices quoted on a daily basis . these quoted market prices , although a good indicator of the commodity 's base price , do not represent the final price for which we can purchase these commodities . there are several components in addition to the quoted market price , such as freight , storage and seller premiums , that are included in the final price that we pay for grain . although 31 changes in quoted market prices may be a good indicator of the commodity 's base price , the components mentioned above may have a significant impact on the total change in grain costs recognized from period to period . market prices for chicken products are currently at levels sufficient to offset the costs of feed ingredients . however , there can be no assurance that chicken prices will not decrease due to such factors as competition from other proteins and substitutions by consumers of non-protein foods because of uncertainty surrounding the general economy and unemployment . acquisition activity moy park acquisition . on september 8 , 2017 , we acquired 100 % of the issued and outstanding shares of moy park from jbs s.a. for cash of $ 301.3 million and a note payable to the seller in the amount of £562.5 million . moy park is one of the top-ten food companies in the u.k. , northern ireland 's largest private sector business and one of europe 's leading poultry producers . with 4 fresh processing plants , 10 prepared foods cook plants , 3 feed mills , 7 hatcheries and 1 rendering facility in the u.k. , france and the netherlands , the acquired business processes 6.0 million birds per seven-day work week , in addition to producing around 456.0 million pounds of prepared foods per year . moy park currently has approximately 10,200 employees . see “ note 2. business acquisitions ” of our consolidated and combined financial statements included in this annual report for additional information relating to this acquisition . the moy park operations constitutes our u.k. and europe segment . the acquisition was treated as a common-control transaction under u.s. gaap . a common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent . the accounting and reporting for a transaction between entities under common control is not to be considered a business combination under u.s. gaap . accordingly , for the period from september 30 , 2015 through september 7 , 2017 , the consolidated and combined financial statements includes the accounts of our company and our majority-owned subsidiaries combined with the accounts of moy park . for the periods subsequent to september 8 , 2017 , the consolidated and combined financial statements includes the accounts of our company and our majority-owned subsidiaries , including moy park . gnp acquisition . on january 6 , 2017 , we acquired 100 % of the membership interests of gnp from maschhoff family foods , llc for a cash purchase price of $ 350 million , subject to customary working capital adjustments . gnp is a vertically integrated poultry business based in st. cloud , minnesota . the acquired business has a production capacity of 2.1 million birds per five-day work week in its two plants and employed approximately 1,600 people at the time of acquisition . this acquisition further strengthens our strategic position in the u.s. chicken market . the gnp operations are included in our u.s. segment . story_separator_special_tag 2017 tax reform on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation ( the “ tax act ” ) , which significantly revises the ongoing u.s. corporate income tax law by lowering the u.s. federal corporate income tax rate from 35.0 % to 21.0 % , implementing a territorial tax system , imposing one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs ( e.g. , interest expense ) , among other things . we applied the guidance in staff accounting bulletin ( “ sab ” ) 118 when accounting for the enactment date effects of the tax act . as of december 30 , 2018 , we have completed our accounting for all of the tax effects of the tax act . as further discussed below , during 2018 , we recognized adjustments of $ 18.2 million to the provisional amounts recorded at december 31 , 2017 and included these adjustments as a component of income tax expense . as of december 31 , 2017 , we estimated no tax liability on foreign unremitted earnings due to a net earnings and profits ( “ e & p ” ) deficit on accumulated post-1986 deferred foreign income . therefore , we did not accrue any amount of tax expense for the tax act 's one-time transition tax on the foreign subsidiaries ' accumulated , unremitted earnings going back to 1986 for the year ended december 31 , 2017. upon further analysis of certain aspects of the tax act and a refinement of the historical calculation of e & p on accumulated post-1986 deferred foreign income during 2018 , we finalized the e & p analysis of our foreign subsidiaries and recalculated significant overall positive e & p . therefore , due to this recalculation , we recorded a $ 26.4 million tax liability for the one-time transition tax . this one-time transition tax adjustment increased the 2018 effective tax rate by approximately 7.9 % . we have elected to pay this liability over the eight-year period provided in the tax act . as of december 30 , 2018 the remaining balance of our transition tax obligation is $ 7.7 million , which will be paid over the next seven years . no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time transition tax or any additional outside basis difference inherent in these foreign subsidiaries , as these amounts continue to be permanently reinvested in foreign operations . the undistributed earnings of our mexico , puerto rico and u.k. subsidiaries totaled $ 683.0 million , $ 13.2 million and $ 2.2 million , respectively , at december 30 , 2018. as of december 31 , 2017 , we accrued $ 41.5 million in provisional tax benefit related to the net change in deferred tax liabilities stemming from the tax act 's reduction of the u.s. federal tax rate from 35 % to 21 % for the year ended december 31 , 2017. due to return to provision adjustments which resulted from the filing of our 2017 federal income tax return , we recorded 32 an additional $ 8.2 million tax benefit resulting from the tax act 's rate reduction . this benefit reduced the 2018 effective tax rate by approximately 2.5 % . the tax act subjects a u.s. shareholder to tax on global intangible low-taxed income ( “ gilti ” ) earned by certain foreign subsidiaries . the fasb staff q & a , topic 740 , no . 5 , accounting for gilti , states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as gilti in future years or provide for the tax expense related to gilti in the year the tax is incurred as a period expense only . we have elected to account for gilti in the year the tax is incurred . as of december 30 , 2018 , we recorded a $ 5.4 million federal gilti tax liability , which increased the 2018 effective tax rate by approximately 1.6 % . the tax act provides for a foreign-derived intangible income ( “ fdii ” ) deduction , which is available to domestic c corporations that derive income from the export of property and services . as of december 30 , 2018 , we recorded a $ 0.1 million federal fdii benefit , which decreased the 2018 effective tax rate by an immaterial amount . potential impact of tariffs we continue to monitor recent trade and tariff activity and its potential impact to exports and inputs costs across our segments . currently , we are experiencing impacts to domestic and export prices of chicken resulting from uncertainty in trade policies and increased tariffs . we are unable to give any assurance as to the scope , duration , or impact of any changes in trade policies or tariffs , how successful any mitigation efforts will be , or the extent to which mitigation will be necessary , and accordingly , changes in trade policies and increased tariffs could have a material adverse effect on our business and results of operations . business segment and geographic reporting we operate in three reportable business segments : the u.s. , the u.k. and europe , and mexico . we measure segment profit as operating income . corporate expenses are allocated to mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the u.s. for additional information , see “ note 22. business segment and geographic reporting ” of our consolidated and combined financial statements included in this annual report . story_separator_special_tag individually immaterial .
| ( c ) mexico sales generated in 2018 increased $ 35.1 million , or 2.6 % , from mexico sales generated in 2017 primarily because of an increase in net sales per pound and an increase in sales volume , partially offset by the impact of foreign currency translation . the increase in net sales per pound contributed $ 46.1 million , or 3.5 percentage points , to the increase in mexico net sales . the increase in sales volume contributed $ 10.0 million , or 0.8 percentage points , to the increase in mexico net sales . the impact of foreign currency translation partially offset the overall net sales increase by $ 21.0 million , or 1.6 percentage points . gross profit . gross profit decreased by $ 628.1 million , or 42.7 % , from $ 1.5 billion generated in 2017 to $ 843.5 million generated in 2018. the following tables provide gross profit information : 33 replace_table_token_12_th replace_table_token_13_th replace_table_token_14_th ( a ) cost of sales incurred by our u.s. operations in 2018 increased $ 561.4 million , or 8.8 % , from cost of sales incurred by our u.s. operations in 2017. cost of sales primarily increased because of increased cost per pound sold , increased poultry sales volume , increased freight and storage costs , and increased grower costs . increased cost per pound contributed $ 353.0 million mainly due to increased feed costs of $ 143.2 million and increased poultry sales volume contributed $ 78.2 million to the increase in cost of sales . the increased freight and storage costs contributed $ 77.2 million mainly due to driver shortages and the impact of new federal regulations . the increased grower costs contributed $ 51.8 million to the increase in cost of sales , mainly due to increased grower pay rates , feed delivery costs and utility costs . other factors affecting u.s. cost of sales were individually immaterial . ( b ) cost of sales incurred by the u.k. and europe operations during 2018 increased $ 169.7 million , or 9.4 % , from cost of sales incurred by the
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during the second half of 2020 , our expanded service offering , particularly the increased demand for covid-19 screening together with routine and preventative care deferred from the first half of the year , and increased demand for flu vaccines , helped us deliver total billable services in excess of pre-covid-19 levels . while the average reimbursement for these billable services remains below pre-covid-19 levels , total aggregate reimbursement exceeded pre-covid-19 levels . we believe the precautionary measures and challenges resulting from the covid-19 pandemic will likely continue for the duration of the pandemic , which is uncertain , and may present additional challenges to our business , financial condition and results of operations while the pandemic continues . as a result , we can not assure you that our recent increase in membership , aggregate reimbursement and revenue are indicative of future results or will be sustained , including following the covid-19 pandemic , or that we will not experience additional impacts associated with covid-19 , which could be significant . the coronavirus aid , relief , and economic security act ( “ cares act ” ) was enacted on march 27 , 2020. intended to provide economic relief to those impacted by the covid-19 pandemic , the cares act includes various tax and lending provisions , among others . under the cares act , we received an income grant of $ 2.6 million from the provider relief fund administered by the department of health and human services ( “ hhs ” ) , which was recognized as grant income during the year ended december 31 , 2020 . please see note 5 , revenue recognition , to our consolidated financial statements in part ii , item 8 of this annual report on form 10-k. covid-19 has also disrupted or delayed delivery of materials and products in the supply chain for our offices , including protective equipment for healthcare providers , caused staffing shortages , and increased capital expenditures due to the need to buy incremental hardware . given the uncertainty around the duration and extent of the covid-19 pandemic , we can not accurately predict at this time the future potential impact on our business , results of operations , financial condition or liquidity . as of december 31 , 2020 , we had cash , cash equivalents and short-term marketable securities of $ 683.0 million and $ 316.3 million principal amount of debt outstanding . 65 our business model we have developed a modernized healthcare membership model based on direct consumer enrollment as well as employer sponsorship . our annual membership model includes seamless access to 24/7 digital health paired with inviting in-office care routinely covered under health insurance programs . our members join either individually as consumers by paying an annual membership fee or are sponsored by an enterprise client who purchases a subscription for their employees and , increasingly , their dependents . all members have actively registered with us . digital health services are delivered via our mobile app and website , through such modalities as video and voice encounters , chat and messaging , and our in-office care is delivered at any of our medical offices . as of december 31 , 2020 , we had 107 medical offices , including some on-site medical offices at certain enterprise clients which are closed as a result of the current covid-19 pandemic . we derive net revenue from multiple stakeholders , including consumers , employers , and health networks . we recognize net revenue as ( i ) membership revenue from employer and consumer subscription fees , including fees paid for our one medical now service offering ( ii ) partnership revenue predominantly on a pmpm basis from health networks , largely fixed payments from enterprise clients for on-site medical services , covid-19 on-site testing services for enterprise clients , schools and universities where we typically bill such customers directly for the services we perform , and capitation payments from ipas and ( iii ) net patient service revenue on a per visit basis from health insurers and patients , including covid-19 testing services for members that are being billed to health insurers or patients . we are in-network with most health insurance plans in all of our markets . we generate a portion of our revenue through membership fees charged to either consumer members or enterprise clients . as of december 31 , 2020 , our list price for new members for an annual consumer membership was $ 199. our enterprise clients typically pay a discounted fee collected in advance , based on a rate per employee per month . we have entered into clinically integrated care partnerships with health networks , which generate revenue either through fee-for-service reimbursements for member in-office visits under the health network 's contracts or as pmpm payments . for our health network arrangements that provide for pmpm payments , when our medical offices provide professional clinical services to covered members , we , as administrator , perform billing and collection services on behalf of the health network , and the health network receives the fees for services provided , including those paid by members ' insurance plans . in those circumstances , we earn pmpm payments in lieu of per visit fees for services from member office visits . see “ business—our health network partnerships. ” we generate partnership revenue from ( i ) our health network partners on a pmpm basis , ( ii ) largely fixed price or fixed price per employee contracts with enterprise clients for on-site medical services , ( iii ) covid-19 on-site testing services for enterprise clients , schools and universities where we typically bill such customers a fixed price per service performed or ( iv ) capitation payments from ipas that contract with health maintenance organizations ( “ hmos ” ) for medical services provided to covered participants . our membership fee revenue and partnership revenue are contractual and , with the exception of our covid-19 on-site testing services , generally recurring in nature . story_separator_special_tag membership revenue and partnership revenue as a percentage of total net revenue was 60 % , 47 % and 32 % for the years ended december 31 , 2020 , 2019 and 2018 , respectively . the increased percentage of revenue is , among other factors , due to new and expanded partnership with health networks since 2019 , and covid-19 on-site testing services since 2020. the remainder of our net revenue is primarily received on a per visit fee-for-service basis from member health insurance plans or patients with billing rates based on our agreements with health network partners . we call this net patient service revenue . we use historical patient visit rates , our historical mix of services performed , and current reimbursement rates to help us analyze and explain historical net patient service revenue from this part of our business . key factors affecting our performance acquisition of net new members and enterprise clients . we believe that our ability to increase our membership will enable us to drive financial growth as members drive our membership revenue , partnership revenue and net patient service revenue . we continue to have significant opportunities to increase members in our existing markets through ( i ) new sales to consumers and enterprise clients , ( ii ) expansion of the number of enrolled members , including dependents , within our enterprise clients , 66 and ( iii ) adding other potential services . our ability to enroll new members either as consumer members or through enterprise clients will impact our results of operations . we define estimated activation rate for any enterprise client at a given time as the percentage of eligible lives enrolled as members . some of our enterprise clients offer membership benefits to the dependents of their employees , for which we assume eligible lives include one dependent per employee . the levels of activation rates at our enterprise clients may also affect the renewal rates of our enterprise clients . while we do not regularly monitor activation rates and related metrics across enterprise clients , we may use these metrics to compare member activation across different enterprise clients and to look for opportunities for additional membership activation within existing enterprise clients . we also intend to acquire members by expanding into new markets . i n 2020 , we have expanded into four new markets by partnering with new and existing health networks . components of revenue . our ability to maintain or improve pricing levels for our memberships and the pricing under our contracts with health networks will impact our results of operations . as of december 31 , 2020 , our list price for new members for an annual consumer membership was $ 199. our enterprise clients typically pay a discounted fee collected in advance , based on a rate per employee per month . as of december 31 , 2020 , all of our members were covered by health network partnerships . in geographies where our health network partners pay us on a pmpm basis , to the extent that the pmpm rate changes , our partnership revenue will change . similarly , if the fixed price or number of employees covered by fixed price per employee arrangements change , the number of covid-19 on-site tests or vaccinations change , or capitation payments from ipas change , our net partnership revenue will also change . our net patient service revenue is dependent on ( i ) our billing rates and third-party payer contracted rates through agreements with health networks , ( ii ) the mix of members who are commercially insured and ( iii ) the nature of visits . in the future , we may add additional services for which we may charge in a variety of ways . to the extent the net amounts we charge our members , partners and clients change , our net revenue will also change . care margin . care margin is driven by net revenue , expansion of new medical offices or new services , average utilization of our services , and provider- and office-related expenses . as we open new medical offices or add new services , our care margin is likely to decrease initially due to a lag in realization of revenue from those new offices or services . in markets where we earn partnership revenue on pmpm contracts , higher patient visits , longer lengths of visits or increased use of medical supplies will typically lower our care margin . in markets where we earn patient service revenue , increased visits typically result in higher care margin . to the extent we need to increase the compensation for our providers , our care margin may decline . investments in growth . we expect to continue to focus on long-term growth through investments in sales and marketing , technology research and development , and existing and new medical offices . we are working to enhance our digital health and technology offering and increase the potential breadth of our modernized platform solution . in particular , we have launched several new service offerings throughout 2020. we have also launched new offices , including in four new markets , during 2020. as we expand to new markets , we expect to make significant upfront investments in sales and marketing to establish brand awareness and acquire new members . additionally , we intend to continue to invest in new offices in new and existing markets . as we invest in new markets , in the short term , we expect these activities to increase our operating expenses and cost of care ; however , in the long term we anticipate that these investments will positively impact our results of operations . seasonality . as a result of seasonal trends , we typically experience our highest levels of office visits and patient service revenue during the first and fourth quarters of each year when compared to other quarters of the year .
| partnership revenue increased $ 80.7 million , or 103 % , from $ 78.7 million for the year ended december 31 , 2019 to $ 159.5 million for the year ended december 31 , 2020. the increase in partnership revenue for the year ended december 31 , 2020 was primarily a result of the new and expanded partnerships with health networks and increased members , in addition to new on-site clinics and expanded capacity of existing on-site clinics . the covid-19 on-site testing services for employers , schools and universities during the year ended december 31 , 2020 also positively impacted our partnership revenue . net patient service revenue increased by 3 % for the year ended december 31 , 2020 primarily due to an increase in aggregate billable services , which is offset by a lower average reimbursement for these billable services as a result of covid-19 , as well as a lower mix of fee-for-service revenue due to a shift in our revenue away from patient service revenue to partnership revenue . as of december 31 , 2020 , all of our members are covered by health network partnerships . as a result , we expect the shift in revenue from net patient services to partnership revenue to abate going forward . membership revenue increased $ 16.3 million , or 31 % , from $ 52.1 million for the year ended december 31 , 2019 to $ 68.5 million for the year ended december 31 , 2020. the increase in membership revenue for the year ended december 31 , 2020 was primarily due to an increase in members of 127,000 , or 30 % from 422,000 as of december 31 , 2019 to 549,000 as of december 31 , 2020 . 74 operating expenses cost of care , exclusive of depreciation and amortization year ended december 31 , 2020 2019 change % change ( dollar amounts in thousands ) cost of care , exclusive of depreciation and amortization $ 234,959 $ 167,618 $ 67,341 40 % cost of care , exclusive of depreciation and amortization , increased $ 67.3 million , or 40 % , from $ 167.6 million for the year ended december 31 , 2019 to $ 235.0 million for the year ended december 31 , 2020. this increase was primarily due to increases in provider employee and support employee-related expenses of $
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terms of sale for most domestic sales are fob destination , reflecting that title and risk of loss are assumed by the purchaser upon delivery . terms of sales to international distributors are fob shipping point , reflecting that title and risk of loss are assumed by the distributor at the shipping point . under the revenue recognition rules for tangible products , we allocate revenue from arrangements with multiple deliverables to each of the deliverables based upon their relative selling prices as determined by a selling-price hierarchy . a deliverable in an arrangement qualifies as a separate unit of accounting if 1 ) the delivered item has value to the customer on a stand-alone basis , and 2 ) the arrangement includes a general right of return relative to the delivered item , delivery or performance of the undelivered items is considered probable and substantially in control of the vendor . 34 the principal deliverables in our multiple deliverable arrangements that qualify as separate units of accounting consist of ( i ) sales of medical devices and supplies , ( ii ) installation and training services , and ( iii ) extended warranty agreements . we use a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( vsoe ) , ( ii ) third-party evidence of selling price ( tpe ) , and ( iii ) best estimate of the selling price ( esp ) . vsoe of fair value is defined as the price charged when the same element is sold separately , or if the element has not yet been sold separately , the price for the element established by management having the relevant authority when it is probable that the price will not change before the introduction of the element into the marketplace . vsoe generally exists only when we sell the deliverable separately and is the price actually charged for that deliverable . for certain sales under gpo contracts , we have established vsoe for all of the elements in our multiple element arrangements . this determination is based on the volume of sales to these customers in relation to our total sales and the discount tier in which those sales are made . for all other sales we rely on esp , reflecting our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis , to establish the amount of revenue to allocate to the undelivered elements . tpe generally does not exist for our products because of their uniqueness . for products shipped under fob shipping point terms , delivery is generally considered to have occurred when shipped . undelivered elements in our sales arrangements , which are not considered to be essential to the functionality of a product , generally include installation and training services that are performed after the related products have been delivered and extended warranty agreements . revenue related to undelivered installation and training services is deferred until such time as those services are complete , which is typically within 30 days of the related products being delivered to the customer 's location . revenue and direct acquisition costs related to undelivered extended warranty agreements are deferred and recognized ratably over the service period , which is between one and four years . deferred revenue for extended warranty agreements is based on the price charged when the service is sold separately . shipping and handling charges billed to customers are included in revenue and shipping and handling related expenses are charged to cost of revenue . advance payments from customers are recorded as deferred revenue and recognized as revenue as otherwise described above . most of our sales are subject to 30 to 60 day customer-specified acceptance provisions . these provisions require us to estimate the amount of future returns and recognize revenue net of these potential returns . in certain states we are required to collect sales taxes from our customers . these amounts are excluded from revenue and recorded as a liability until remitted to the taxing authority . gpos negotiate volume purchase prices for hospitals , group practices and other clinics that are members of a gpo . our agreements with gpos typically include the following provisions : · negotiated pricing for all group members ; · volume discounts and other preferential terms on their members ' purchases from us ; · promotion of our products by the gpo to its members ; · payment of administrative fees by us to the gpo , based on purchases of our products by group members . we do not sell to gpos . hospitals , group practices and other acute care facilities that are members of a gpo purchase products directly from us under the terms negotiated by the gpo . negotiated pricing and discounts are recognized as a reduction of the selling price of products at the time of the sale . revenue from sales to members of gpos is otherwise consistent with revenue recognition policies described above . accounts receivable and allowance for doubtful accounts accounts receivable is recorded at the sales price of the related products and services . we assess the sufficiency of the allowance for estimated uncollectible accounts receivable . estimates are based on historical collection experience and other customer-specific information , such as bankruptcy filings or liquidity issues of our customers . when it is determined that an account receivable is uncollectible , it is written off and relieved from the allowance . any future determination that the allowance for estimated uncollectible accounts receivable is not properly stated could result in changes in operating expense and results of operations . 35 inventory inventories are stated at the lower of standard cost , which approximates actual cost on a first-in , first-out basis , or market . we may be exposed to a number of factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage . story_separator_special_tag these factors include , but are not limited to , technological changes , competitive pressures in products and prices , and the introduction of new product lines . we regularly evaluate our ability to realize the value of inventory based on a combination of factors , including historical usage rates , forecasted sales , product life cycles , and market acceptance of new products . when inventory that is obsolete or in excess of anticipated usage is identified , it is written down to realizable salvage value or an inventory valuation allowance is established . the estimates we use in projecting future product demand may prove to be incorrect . any future determination that our inventory is overvalued could result in increases to our cost of sales and decreases to our operating margins and results of operations . stock-based compensation we apply the fair value recognition provisions of financial accounting standards board accounting standards codification topic 718 , compensation stock compensation ( asc 718 ) . determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock options as of their grant date . stock-based compensation expense is recognized ratably over the requisite service period , which is the vesting period of the award . calculating the fair value of stock-based awards requires that we make highly subjective assumptions . we use the black-scholes option pricing model to value our stock option awards . use of this valuation methodology requires that we make assumptions as to the volatility of our common stock , the expected term of our stock options , the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield . as we just completed our ipo in july 2014 , we utilize the historical stock price volatility from a representative group of public companies , which includes the company , to estimate expected stock price volatility . we selected companies from the medical device industry with market capitalizations that are similar to ours . we intend to continue to utilize the historical volatility of the same or similar public companies to estimate expected volatility until a sufficient amount of historical information regarding the price of our publicly traded stock becomes available . we use the simplified method as prescribed by asc 718 to calculate the expected term of stock options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term of our stock option awards . the risk-free interest rate used for each grant is based on the u.s. treasury yield curve in effect at the time of the grant for instruments with a similar expected life . we utilize a dividend yield of zero as we have no current intention to pay cash dividends . we estimated the fair value of options granted using a black-scholes option pricing model with the following weighted average assumptions : replace_table_token_1_th stock-based compensation expense totaled $ 1,220,118 and $ 724,063 for the years ended december 31 , 2015 and 2014 , respectively . as of december 31 , 2015 we had $ 2,539,673 of total unrecognized stock-based compensation expense , which is expected to be recognized over a weighted-average period of 2.6 years . we expect the future impact of stock-based compensation expense on our financial results to grow due to the potential increases in the value of our common stock , additional stock grants and increased headcount . under asc 718 , we are required to estimate the level of forfeitures expected to occur and record stock-based compensation expense only for those awards that we ultimately expect will vest . we estimate our forfeiture rate based on historical experience and employee class . the estimated forfeiture rate used to determine stock-based compensation expense was 1.4 % and 3.0 % for the years ended december 31 , 2015 and 2014 , respectively . income taxes we estimate certain components of our provision for income taxes . these estimates include , among other items , depreciation and amortization expense allowable for tax purposes , allowable tax credits , effective rates for state taxes and tax deductibility of certain other items . we adjust our annual effective income tax rate as additional information on outcomes or events becomes available . 36 we account for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . the effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date . we record net deferred tax assets to the extent we believe these assets will more likely than not be realized . in making such determination , we consider all available positive and negative evidence , including future reversals of existing taxable temporary differences , projected future taxable income , tax planning strategies and recent financial operations . a valuation allowance is recorded to offset net deferred tax assets if , based upon the available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . we recognize the tax benefit of uncertain tax positions in the financial statements based on the technical merits of the position . when the tax position is deemed more likely than not of being sustained , we recognize the largest amount of tax benefit that is greater than 50 percent likely of being ultimately realized upon settlement . we believe our tax positions are fully supportable .
| increase in our average selling price is the result of higher domestic sales as a percent of revenue during the year ended december 31 , 2015 compared to the same period in 2014. revenue from sales of our disposable iv sets and services increased approximately $ 2.4 million , or 85 % , to $ 5.2 million for the year ended december 31 , 2015 , from $ 2.8 million for the same period in 2014. we expect revenue from sales of disposables and services to increase relative to the sale of devices as the installed base of our mri compatible iv infusion pumps systems increases . cost of revenue cost of revenue increased approximately $ 2.4 million , or 72 % , to $ 5.8 million for year ended december 31 , 2015 , from $ 3.4 million for the same period in 2014. gross profit increased approximately $ 13.6 million , or 110 % , to $ 25.8 million for the year ended december 31 , 2015 from $ 12.2 million for the same period in 2014. gross profit margin increased to 81.5 % for the year ended december 31 , 2015 , from 78.3 % for the same period in 2014 primarily due to higher domestic sales as a percent of total revenue and sales leverage , partially offset by unfavorable overhead changes . general and administrative general and administrative expense increased approximately $ 3.0 million , or 61 % , to $ 7.8 million for the year ended december 31 , 2015 , from $ 4.8 million for the same period last year . this increase is primarily due to higher payroll and employee benefits , administration fees paid to our gpo 's , legal and professional fees , stock compensation expense , consulting expense , medical device excise tax expense , regulatory approval and certification expense , and corporate and franchise tax expense . sales and marketing sales and marketing expense increased approximately $ 1.4 million , or 43 % ,
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in addition , we may also consider the disposition of certain core assets or businesses , to the extent such a transaction would improve our capital structure or otherwise be accretive to the company . there can be no assurance as to the timing or success of any such potential transaction , or any other transaction , or that we will be able to sell such assets or businesses on satisfactory terms , if at all . in addition , as economic conditions improve , we may seek acquisitions of assets that management believes will be financially accretive and consistent with our strategic goals . to meet the economic challenges of 2020 , we reduced our fixed and variable costs associated with cost of sales , restructured our organization to match activity where necessary , and reduced our planned capital investment program by more than 30 % , keeping our focus on prudent replacement , maintenance and turnaround projects . contingencies for a summary of litigation and other contingencies , please read note 8 — “ commitments and contingencies ” under part ii , item 8 “ financial statements and supplementary data — notes to consolidated financial statements. ” based on information available to us at the present time , we do not believe that any liabilities beyond the amounts already accrued , which may result from these contingencies , will have a material adverse effect on our liquidity , financial condition or results of operations . story_separator_special_tag year 2018 , compliance with the rfs would represent a “ disproportionate economic hardship ” for these small refineries . the rins exemption resulted in a decrease in the rins obligation and was recorded as a reduction to cost of sales in the consolidated statements of operations for the year ended december 31 , 2019. we continue to anticipate that expenses related to rfs compliance have the potential to remain a significant expense for our fuel products segment . if legal or regulatory changes occur that have the effect of increasing our rins obligation or eliminating or narrowing the availability of the “ small refinery exemption ” under the rfs program , we could be required to purchase additional rins in the open market , which may materially increase our costs related to rfs compliance and could have a material adverse effect on our results of operations and liquidity . key performance measures our sales and net loss are principally affected by demand for specialty products and fuel products , price of raw materials , prevailing crack spreads for fuel products , the price of natural gas used as fuel in our operations and our results from derivative instrument activities . our primary raw materials are crude oil and other specialty feedstocks , and our primary outputs are specialty petroleum products and fuel products . the prices of crude oil , specialty products and fuel products are subject to fluctuations in response to changes in supply , demand , market uncertainties and a variety of factors beyond our control . we monitor these risks and from time-to-time enter into derivative instruments designed to help mitigate the impact of commodity price fluctuations on our business . the primary purpose of our commodity risk management activities is to economically hedge our cash flow exposure to commodity price changes so that we can meet our debt service and capital expenditure requirements despite fluctuations in crude oil and fuel products prices . we also may hedge when market conditions exist that we believe to be out of the ordinary and particularly supportive of our financial goals . we enter into derivative contracts for future periods for quantities that do not exceed our projected purchases of crude oil and sales of fuel products . please read note 11 — “ derivatives ” under part ii , item 8 “ financial statements and supplementary data — notes to consolidated financial statements. ” our management uses several financial and operational measurements to analyze our performance . these measurements include the following : sales volumes ; segment gross profit ; segment adjusted ebitda ; and selling , general and administrative expenses . sales volumes . we view the volumes of specialty products and fuel products sold as an important measure of our ability to effectively utilize our operating assets . our ability to meet the demands of our customers is driven by the volumes of crude oil and feedstocks that we run through our facilities . higher volumes improve profitability both through the spreading of fixed costs over greater volumes and the additional gross profit achieved on the incremental volumes . segment gross profit . specialty products and fuel products gross profit are important measures of our ability to maximize the profitability of our specialty products and fuel products segments . we define gross profit as sales less the cost of crude oil and other feedstocks and other production-related expenses , the most significant portion of which includes labor , plant fuel , utilities , contract services , maintenance , depreciation and processing materials . we use gross profit as an indicator of our ability to manage our business during periods of crude oil and natural gas price fluctuations , as the prices of our specialty products and fuel products generally do not change immediately with changes in the price of crude oil and natural gas . the increase or decrease in selling prices typically lags behind the rising or falling costs , respectively , of crude oil feedstocks for specialty products . other than plant fuel , production-related expenses generally remain stable across broad ranges of specialty products and fuel products throughput volumes but can fluctuate depending on maintenance activities performed during a specific period . story_separator_special_tag our fuel products segment gross profit per barrel may differ from standard u.s. gulf coast , padd 4 billings , montana or 3/2/1 and 2/1/1 market crack spreads due to many factors , including our fuel products mix as shown in our production table being different than the ratios used to calculate such market crack spreads , lcm and lifo inventory adjustments reflected in gross profit , operating costs including fixed costs , actual crude oil costs differing from market indices and our local market pricing differentials for fuel products in the shreveport , louisiana and great falls , montana vicinities as compared to u.s. gulf coast and padd 4 billings , montana postings . 53 segment adjusted ebitda . we believe that specialty products and fuel products segment adjusted ebitda measures are useful as they exclude transactions not related to our core cash operating activities and provide metrics to analyze our ability to pay distributions to our unitholders and pay interest to our noteholders as adjusted ebitda is a component in the calculation of distributable cash flow and allows us to meaningfully analyze the trends and performance of our core cash operations as well as to make decisions regarding the allocation of resources to segments . the corporate segment adjusted ebitda primarily reflects general and administrative costs not related to our core cash operating activities . 54 results of operations the following table sets forth information about our continuing operations . facility production volume differs from sales volume due to changes in inventories and the sale of purchased fuel product blendstocks , such as ethanol and biodiesel , and the resale of crude oil in our fuel products segment . the historical results of operations of the san antonio refinery are included through the effective date of its disposition , november 10 , 2019. replace_table_token_9_th ( 1 ) total sales volume includes sales from the production at our facilities and certain third-party facilities pursuant to supply and or processing agreements , sales of inventories and the resale of crude oil to third-party customers . total sales volume also includes the sale of purchased fuel product blendstocks , such as ethanol and biodiesel , as components of finished fuel products in our fuel products segment sales . the decrease in total sales volume in 2020 compared to 2019 , is due primarily to the sale of the san antonio refinery , the terminated third-party naphthenic lubricating oil production arrangement , intentional stock-keeping unit ( “ sku ” ) rationalization and elimination of low margin toll processing , and softened demand due to the covid-19 pandemic . ( 2 ) total feedstock runs represent the barrels per day of crude oil and other feedstocks processed at our facilities and at certain third-party facilities pursuant to supply and or processing agreements . the decrease in total feedstock runs in 2020 compared to 2019 is due primarily to the sale of the san antonio refinery , the terminated third-party naphthenic lubricating oil production arrangement , terminated low margin tolling of packaged and synthetic products , and softened demand due to the covid-19 pandemic . ( 3 ) total facility production represents the barrels per day of specialty products and fuel products yielded from processing feedstocks at our facilities and at certain third-party facilities pursuant to supply and or processing agreements . the difference between total facility production and total feedstock runs is primarily a result of the time lag between the input of feedstocks and the production of finished products , intermediates transferred to internal sites for further processing , and volume loss . the changes in total facility production in 2020 over 2019 are due primarily to the sale of the san antonio refinery and the operational items discussed above . ( 4 ) represents production of finished lubricants and specialty chemicals products , including the products from our royal purple , bel-ray and calumet packaging facilities . 55 the following table reflects our consolidated results of operations and includes the non-gaap financial measures ebitda , adjusted ebitda and distributable cash flow . for a reconciliation of ebitda , adjusted ebitda and distributable cash flow to net loss and net cash provided by operating activities , our most directly comparable financial performance and liquidity measures calculated and presented in accordance with gaap , please read “ non-gaap financial measures. ” replace_table_token_10_th 56 non-gaap financial measures we include in this annual report the non-gaap financial measures ebitda , adjusted ebitda and distributable cash flow . we provide reconciliations of ebitda , adjusted ebitda and distributable cash flow to net loss , our most directly comparable financial performance measure . we also provide a reconciliation of distributable cash flow , adjusted ebitda and ebitda to net cash provided by operating activities , our most directly comparable liquidity measure . both net loss and net cash provided by operating activities are calculated and presented in accordance with gaap . ebitda , adjusted ebitda and distributable cash flow are used as supplemental financial measures by our management and by external users of our financial statements , such as investors , commercial banks , research analysts and others , to assess : the financial performance of our assets without regard to financing methods , capital structure or historical cost basis ; the ability of our assets to generate cash sufficient to pay interest costs and support our indebtedness ; our operating performance and return on capital as compared to those of other companies in our industry , without regard to financing or capital structure ; and the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities . management believes that these non-gaap measures are useful to analysts and investors as they exclude transactions not related to our core cash operating activities and provide metrics to analyze our ability to pay interest costs and distributions . however , the indentures governing our senior notes contain covenants that , among other things , restrict our ability to pay distributions .
| results were also impacted by a $ 7.8 million unfavorable lcm inventory adjustment in 2020 compared to a $ 9.5 million favorable lcm inventory adjustment in 2019 , as well as $ 3.9 million of losses related to the liquidation of lifo inventory layers in 2020 compared to $ 2.8 million of gains in 2019. specialty products represented approxima tely 26 % of total production in 2020 , compared to 24 % in 2019. fuel products segment adjusted ebitda wa s negative $ 30.3 million in 2020 compared to positive $ 152.5 million in 2019. fuel products segment results for fiscal year 2020 were impacted by decreased sales volumes , weaker u.s. gulf coast crack spreads , a tightening in the average pricing discount between wcs and nymex wti of $ 3 per barrel whe n compared to the prior year , and increasing rins prices . results were also impacted b y a $ 16.2 million unfavorable lcm inventory adjustment in 2020 compared to a $ 26.3 million favorable lcm inventory adjustment in 2019 , as well a s $ 0.6 million of losses rel ated to the liquidation of lifo inventory layers in 2020 compared to $ 3.2 million of gains in 2019. fuel products represented approximatel y 74 % of t otal production during the year , compared to 76 % in 2019. corporate segment adjusted ebitda w as negative $ 66.2 million in 2020 versus negative $ 97.6 million in 2019 , due primarily to cost reductions in outside services and corporate staffing . 51 acquisitions on march 2 , 2020 , we acquired a 100 % ownership interest in paralogics , llc , a producer of candle and industrial wax blends , using cash on hand . this investment expanded calumet 's presence in the specialty wax blending and packaging market while adding new capabilities into calumet 's existing wax business value chain , adding approximately 20 million pounds of annual blending and formulating capabilities . business divestitures in march 2019 , we sold our interest in biosyn holdings , llc ( “ biosyn ” ) to the heritage group , a related party , for total proceeds of $ 5.0 million which was recorded in the “ other ” component of other income ( expense ) in the consolidated statements of operations . in november 2019 , we completed the sale of all of the issued and outstanding membership interests in calumet san antonio refining , llc , which owned the san antonio refinery . the sale included the refinery and related assets , including associated hydrocarbon inventories , a crude oil
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corporate segment results of operations were as follows ( dollars in thousands ) : replace_table_token_8_th 22 2013 compared with 2012 the 2012 gain from the sale of patents and other technology assets to intel corporation of $ 116.4 million reflects the cash proceeds of $ 120.0 million in the second quarter , less $ 3.6 million of direct transaction expenses incurred during the first and second quarters . operating expenses decreased by $ 1.8 million , or 3 % . the decrease was primarily due to reductions in personnel and related costs of $ 3.0 million , in addition to reduced restructuring charges of $ 9.7 million . partially offsetting these decreases were the 2013 litigation settlements of $ 11.5 million . 2012 compared with 2011 cost of revenue increased by $ 2.9 million . the increase was due primarily to a reduction in expense in 2011 from a change in estimates of our accrued royalties on our historical music business of approximately $ 3.6 million . the 2012 gain from the sale of patents and other technology assets to intel corporation of $ 116.4 million reflects the cash proceeds of $ 120.0 million in the second quarter , less $ 3.6 million of direct transaction expenses incurred during the first and second quarters . operating expenses increased by $ 13.8 million , or 33 % . the increase compared with 2011 was primarily due to increased restructuring costs and lease exit and related charges totaling $ 10.5 million , and to the impact of a benefit in 2011 of $ 6.4 million related to an insurance reimbursement for previously settled litigation that reduced expense in 2011. these increases were partially offset by reductions in personnel and related costs of $ 2.1 million in 2012 , which resulted from our ongoing work to align our operating expenses with our revenue profile . consolidated operating expenses our operating expenses consist primarily of salaries and related personnel costs including stock based compensation , consulting fees associated with product development , sales commissions , amortization of certain intangible assets capitalized in our acquisitions , professional service fees , advertising costs , and restructuring charges . operating expenses were as follows ( dollars in thousands ) : replace_table_token_9_th research and development expenses decreased by $ 2.3 million , or 4 % , in the year-ended 2013 , compared with 2012. while we continue to invest in new products , we saw an overall decrease in personnel and related costs of $ 3.6 million , resulting from our ongoing expense alignment efforts . research and development expenses , including non-cash stock-based compensation , decreased by $ 7.0 million , or 10 % , in the year-ended 2012 , compared with 2011. this decrease was primarily due to a decrease in personnel and related costs of $ 6.1 million . sales and marketing expenses , including non-cash stock-based compensation , decreased by $ 10.3 million , or 11 % , in the year-ended 2013 , compared with 2012. the decrease was due primarily to a decrease in personnel and related costs of $ 7.8 million resulting from our ongoing expense alignment efforts . sales and marketing expenses , including non-cash stock-based compensation , decreased by $ 21.0 million , or 19 % , in the year-ended 2012 , compared with 2011. the decrease was due primarily to a decrease in personnel and related costs of $ 13.4 million . further contributing to the decline in sales and marketing costs was reductions in marketing expenses of $ 7.1 million , primarily related to our non-social games . general and administrative expenses , including non-cash stock-based compensation , decreased by $ 7.2 million , or 17 % , in the year-ended 2013 , compared with 2012. contributing to the decrease for the period was a decrease in personnel and 23 related costs of $ 6.0 million , and to $ 1.3 million related to the expense in 2012 for the final settlement of the washington state attorney general 's office matter , as disclosed in the 2012 10-k. general and administrative expenses , including non-cash stock-based compensation , increased by $ 6.7 million , or 18 % , in the year-ended 2012 , compared with 2011. this increase was primarily due to the impact of a benefit in the first quarter of 2011 of $ 6.4 million related to an insurance reimbursement for previously settled litigation that reduced expense in the prior year . restructuring and other charges in 2013 , 2012 and 2011 consist of costs associated with the ongoing reorganization of our business operations and primarily relate to severance costs due to workforce reductions . for additional details on these charges see note 10 , restructuring charges . as a result of the reduction in use of realnetworks ' office space , primarily in our former corporate headquarters in seattle , washington , and certain other locations , losses have been recognized representing rent and contractual operating expenses over the remaining life of the leases , and related write-downs of leasehold improvements to their estimated fair value . for additional details on these charges see note 11 , lease exit and related charges . loss on litigation settlements recorded during 2013 relates to settlement agreements executed in october 2013 , for which we paid in full an aggregate amount of $ 11.5 million during the fourth quarter of 2013 , as discussed in note 16 , commitments and contingencies . other income ( expenses ) other income ( expenses ) , net was as follows ( dollars in thousands ) : replace_table_token_10_th as described further in note 4 , rhapsody joint venture , we account for our investment in rhapsody under the equity method of accounting . the net carrying value of our investment in rhapsody is not necessarily indicative of the underlying fair value of our investment . story_separator_special_tag the increase in other income ( expense ) , net , of $ 14.9 million for 2013 , was due primarily to the $ 21.4 million net gain ( loss ) on sale of equity investments in 2013. this net gain was due to the sale of all our remaining shares of common stock in loen entertainment , inc. for additional details on this transaction see note 5 , fair value measurements . the increase in other income ( expense ) , net , of $ 8.6 million for 2012 , was due primarily to the $ 5.1 million net gain ( loss ) on sale of equity investments in 2012. this net gain was driven by the sale of a portion of our investment in loen entertainment , inc. and a gain on the sale of our film.com assets , totaling $ 5.3 million . an additional increase was due to non-cash gains for 2012 due to the release of a $ 2.0 million cumulative foreign exchange translation gain from accumulated other comprehensive loss on the balance sheet related to the liquidations of investments in certain of our foreign entities . income taxes during the years ended december 31 , 2013 , 2012 , and 2011 , we recognized income tax expense of $ 4.9 million , $ 12.5 million and an income tax benefit of $ 17.3 million , respectively , related to u.s. and foreign income taxes . the tax expense in the year ended december 31 , 2013 was largely the result of valuation allowances we recorded in certain foreign jurisdictions . the tax expense for the year ended december 31 , 2012 was largely the result of the sale of certain patent assets and other technology assets to intel corporation for gross cash consideration of $ 120 million in 2012. the tax benefit in the year ended december 31 , 2011 was largely the result of a release in our valuation allowance relating to significant known income expected in 2012 due to the then-pending patent sale to intel . we assess the likelihood that our deferred tax assets will be recovered based upon our consideration of many factors , including the current economic climate , our expectations of future taxable income , our ability to project such income , and the appreciation of our investments and other assets . we maintain a partial valuation allowance of $ 128.9 million for our deferred tax assets due to uncertainty regarding their realization as of december 31 , 2013. the net increase in the valuation allowance since december 31 , 2012 of $ 38.1 million was the result of a $ 30.6 million increase in current year deferred tax assets for which the company maintains a valuation allowance on , and a $ 7.5 million increase due to valuation allowances placed on certain non-u.s. deferred tax assets because it is not more likely than not that the deferred tax asset will be realized . 24 we generate income in a number of foreign jurisdictions , some of which have higher tax rates and some of which have lower tax rates relative to the u.s. federal statutory rate . changes to the blend of income between jurisdictions with higher or lower effective tax rates than the u.s. federal statutory rate could affect our effective tax rate . for the year ended december 31 , 2013 , decreases in tax expense from income generated in foreign jurisdictions with lower tax rates in comparison to the u.s. federal statutory rate were offset by increases in tax expense from income generated in foreign jurisdictions having comparable , or higher tax rates in comparison to the u.s. federal statutory rate . as of december 31 , 2013 and 2012 , we had $ 4.5 million and $ 4.0 million of unrecognized tax benefits , respectively . the increase in unrecognized tax benefits is due to federal research & development tax credit carryforward risks . the total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $ 0.4 million as of december 31 , 2013 and $ 0.4 million as of december 31 , 2012. we currently anticipate the expiration of the statute of limitations within the next twelve months that may decrease our total unrecognized tax benefit by an amount up to $ 0.9 million . we file numerous consolidated and separate income tax returns in the u.s. including federal , state and local , as well as foreign jurisdictions . with few exceptions , we are no longer subject to u.s. federal income tax examinations for tax years before 2008 or state , local , or foreign income tax examinations for years before 1993. we are currently under audit by various states and foreign jurisdictions for certain tax years subsequent to 1993. geographic revenue revenue by geographic region was as follows ( dollars in thousands ) : replace_table_token_11_th revenue in the u.s. declined by $ 27.6 million , or 23 % , in the year-ended 2013 , compared with 2012. the decline was primarily due to reductions in revenue generated from our saas offerings of $ 13.0 million , lower sales of realplayer group subscriptions , mainly including our superpass product , of $ 8.3 million , and lower sales of games subscriptions and licenses of $ 5.8 million . revenue in the u.s. declined by $ 44.9 million , or 28 % , in the year-ended 2012 , compared with 2011. the decline was primarily due to reductions in revenue generated from our saas offerings of $ 19.2 million , lower sales of games subscriptions and licenses of $ 12.4 million , lower sales of realplayer group subscriptions , primarily related to our superpass product , of $ 5.3 million , and lower intellectual property licensing revenue of $ 3.9 million .
| these declines were partially offset by an increase of $ 10.5 million in restructuring costs and lease exit and related charges , in addition to a benefit in 2011 of $ 6.4 million related to an insurance reimbursement for previously settled litigation that reduced expenses during the quarter ended march 31 , 2011. segment results realplayer group realplayer group segment results of operations were as follows ( dollars in thousands ) : replace_table_token_5_th 2013 compared with 2012 20 total realplayer group revenue decreased by $ 16.3 million , or 18 % . this decrease was primarily a result of lower subscriptions revenue of $ 11.8 million due to fewer subscribers , primarily attributable to our superpass product . gross margin increased by 2 percentage points , due primarily to a higher proportion of lower margin revenue in the prior year . operating expenses increased by $ 5.3 million . personnel and related costs increased $ 5.2 million , primarily due to investment in our new realplayer cloud service . 2012 compared with 2011 revenue decreased by $ 10.9 million , or 11 % . this decrease was due primarily to a decline in subscriptions revenue , mainly from our superpass product , of $ 8.9 million . operating expenses decreased by $ 4.6 million , due primarily to reductions in personnel and related costs of $ 7.6 million , which resulted from our ongoing work to align our operating expenses with our revenue profile . partially offsetting these decreases was increased expense of $ 1.3 million related to the expense in 2012 for the final settlement of the washington state attorney general 's office matter , as disclosed in the 2012 10k , in addition to increased marketing spend of $ 0.8 million . mobile entertainment mobile entertainment segment results of operations were as follows ( dollars in thousands ) : replace_table_token_6_th 2013 compared with 2012 in the quarter ended september 30 , 2013 , we acquired muzicall , a ringback tone company based in london , for total cash consideration of $ 6.7 million . this acquisition is intended to accelerate our growth initiatives within the mobile entertainment segment . mobile entertainment revenue decreased
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this phase ii study of tpiv200 in the treatment of triple-negative breast cancer began enrolling patients in late 2017. on december 9 , 2015 , we announced that we received orphan drug designation from the u.s. food & drug administration 's office of orphan products development ( “ oopd ” ) for our cancer vaccine tpiv200 in the treatment of ovarian cancer . the tpiv200 ovarian cancer clinical program will now receive benefits including tax credits on clinical research and seven-year market exclusivity upon receiving marketing approval . tpiv200 is a multi-epitope peptide vaccine that targets folate receptor alpha which is overexpressed in multiple cancers including over 90 % of ovarian cancer cells . on february 3 , 2016 , we announced that the u.s. fda designated the investigation of multiple-epitope folate receptor alpha peptide vaccine ( tpiv200 ) with gm-csf adjuvant for maintenance therapy in subjects with platinum-sensitive advanced ovarian cancer who achieved stable disease or partial response following completion of standard-of-care chemotherapy , as a fast track development program . we began enrolling a phase ii study in this indication in 2017. we have opened multiple clinical sites and have completed enrollment of patients in a phase ii trial of our folate receptor alpha cancer vaccine , tpiv200 , in the treatment of triple-negative breast cancer , one of the most difficult-to-treat cancers representing a clear unmet medical need . the open-label , 80-patient clinical trial is designed to evaluate dosing regimens , efficacy , and immune responses in women with triple-negative breast cancer . key data from the trial is expected to be included in a future new drug application submission to the fda for marketing clearance . this trial is sponsored and conducted by tapimmune . on april 21 , 2016 , we announced our participation in an ovarian cancer study sponsored by memorial sloan kettering cancer center in new york city in collaboration with astrazeneca pharmaceuticals in ovarian cancer patients who are not responsive to platinum , a commonly used chemotherapy for ovarian cancer . this study , a phase ii study of tpiv200 is currently enrolling ovarian cancer patients and is designed to look at the effects of combination therapy with astrazeneca 's checkpoint inhibitor durvalumab . the study will enroll 40 patients and is open-label . because they are unresponsive to platinum , these patients have no real options left . if the combination therapy proves effective , we believe it would address a critical unmet need . tpiv200 has received orphan drug designation for use in the treatment of ovarian cancer . although we have no business relationship with astrazeneca , we are paying for one-half of the costs of the clinical study in addition to providing our tpiv200 for the study . a company-sponsored phase ii study in platinum-sensitive ovarian cancer patients was initiated in 2017. this study is designed to evaluate tpiv200 with gm-csf in a randomized , placebo-controlled fashion during the first maintenance period after primary surgery and chemotherapy . patients at this stage of their treatment have the highest potential for an immunotherapeutic effect and no other approved treatment options . the study will enroll up to 120 patients over the next year and a half , with an interim analysis planned in the first quarter of 2019. tpiv100/110 phase i human clinical trials – her2/neu+ breast cancer – mayo clinic a phase i study using tpiv100 ( the four-peptide product ) was completed in 2015. final safety analysis on all the patients treated is complete and the product was shown to be safe . in addition , 19 out of 20 evaluable patients showed robust t-cell immune responses to the antigens in the vaccine composition , providing a solid case for advancement to phase ii in 2017. an additional secondary endpoint incorporated into this phase i trial was a two-year follow on recording time to disease recurrence in the participating breast cancer patients . a second trial is being started in 2018 that uses a novel vaccine strategy in patients with dcis to eliminate disease and protect from recurrence . for phase i ( b ) /ii studies , we plan to add a class i peptide , licensed from the mayo clinic ( april 16 , 2012 ) , to the four class ii peptides , producing tpiv110 ( the five-peptide product ) . management believes that the combination of class i and class ii her2/neu+ antigens , gives us the leading her2/neu+ vaccine platform . we plan to amend the ind to incorporate the fifth peptide in the phase i ( b ) /ii study . discussions with the fda have resulted in a pre-clinical development project that should allow us to file the amended ind in the first half of 2018 . 40 products and technology-preclinical polystart we converted the previously filed u.s. provisional patent application on polystart into a full patent application , and in february 2016 we received a notice of allowance from the u.s. patent and trademark office ( “ uspto ” ) for a patent application entitled , “ a chimeric nucleic acid molecule with non-aug initiation sequences. ” the term of this patent extends to march 17 , 2034. additional patent filings are in progress . we plan to develop polystart as both a stand-alone therapy and as a ‘ boost strategy ' to be used synergistically with our peptide-based vaccines for breast and ovarian cancer . current state of the company we are a clinical-stage immunotherapy company specializing in the development of innovative peptide and gene-based immunotherapeutics and vaccines for the treatment of cancer . we now plan to conduct multiple phase ii clinical trials on our vaccines . the largest of these studies in triple-negative breast cancer is totally funded by a $ 13.3 million grant from the u.s. department of defense to our collaborators at the mayo clinic in jacksonville , florida . story_separator_special_tag a company-sponsored trial in triple-negative breast cancer started during the second quarter of 2016 and a company-sponsored trial in ovarian cancer was started in the fourth quarter of 2017. we believe that our development pipeline is strong and provides us the opportunity to continue to expand on collaborations with leading institutions and corporations . we believe , the strength of our science and development approaches is becoming more widely appreciated , particularly as our clinical program has now generated positive interim data on both clinical programs in breast and ovarian cancer . we continue to be focused on our entry into phase ii triple-negative breast cancer trials including application for fast track & orphan drug status as well as planning for phase ii her2/neu+ breast cancer trials . we expect to continue to prosecute our polystart patent filings and develop new constructs to facilitate collaborative efforts in our current clinical indications and those where others have already indicated interest in combination therapies . we believe that these fundamental programs and corporate activities have positioned tapimmune to capitalize on the acceptance of immunotherapy as a leading therapeutic strategy in cancer and infectious disease . 41 tapimmune 's pipeline clinical program we have a pipeline of potential immunotherapies under development . phase i clinical programs on her2/neu+ for breast and ovarian cancer have been completed and strong immune responses in over 90 % of patients treated has provided the rationale and catalyst to advance these programs to phase ii clinical trials . in addition to the exciting clinical developments , our peptide vaccine technology may be coupled with our developed in-house polystart nucleic acid-based technology designed to make vaccines significantly more effective by producing four times the required peptides for the immune systems to recognize and act on . our nucleic acid-based systems can also incorporate “ tap ” which stands for transporter associated with antigen presentation . a key component to success is having a comprehensive patent strategy that continually updates and extends patent coverage for key products . it is highly unlikely that early patents will extend through ultimate product marketing , so extending patent life is an important strategy for ensuring product protection . we have three active patent families that we are supporting : 1. filed patents on polystart expression vector ( owned by tapimmune and filed in 2014 : this ip covers the use with tap ) . we announced the allowance of this patent in february 2016 . 2. filed patents on her2/neu+ class ii and class i antigens : exclusive license from mayo foundation ; and 3. filed patents on folate receptor alpha antigens : exclusive license from mayo foundation while the pathway to successful product development takes time , we believe we have put in place significant for success . the strength of our product pipeline and access to leading scientists and institutions gives us a unique opportunity to make a major contribution to global health care . 42 with respect to the broader market , a major driver and positive influence on our activities has been the emergence and general acceptance of the potential of a new generation of immunotherapies that promise to change the standard of care for cancer . the immunotherapy sector has been greatly stimulated by the approval of provenge® for prostate cancer and yervoy for metastatic melanoma , progression of the areas of checkpoint inhibitors and adoptive t-cell therapy and multiple approaches reaching phase ii and phase iii status . we believe that through our combination of technologies , we are well positioned to be a leading player in this emerging market . it is important to note that many of the late-stage immunotherapies currently in development do not represent competition to our programs , but instead offer synergistic opportunities to partner our antigen based immunotherapeutics , and polystart expression system . thus , the use of naturally processed t-cell antigens discovered using samples derived from cancer patients plus our polystart expression technology to improve antigen presentation to t-cells could not only produce an effective cancer vaccine in its own right but also to enhance the efficacy of other immunotherapy approaches such as car-t and pd1 inhibitors for example . recent developments and company highlights recent developments completed gmp manufacturing scale up and second clinical lot of tpiv200 ; to supply additional phase ii clinical trials we successfully completed a multi-gram production scale-up as well as gmp manufacturing of a second clinical lot of tpiv200 . the vaccine supply will be used in the company 's ongoing phase ii study in platinum-sensitive ovarian cancer , as well as the planned 280-patient phase ii study sponsored by the mayo clinic and funded by the u.s. department of defense for treating triple-negative breast cancer . we also made various improvements to the vaccine manufacturing process , resulting in , what we believe to be , a superior formulation of the vaccine that is more amenable to large-scale manufacturing and commercialization . clinical program pipeline status updates announcement of publication of clinical trial results for the tpiv200 cancer vaccine in clinical cancer research on march 15 , 2018 , we announced the publication of clinical data from a phase i trial of tpiv200 , our multi-epitope t-cell vaccine targeting folate receptor alpha ( “ fra ” ) in patients with ovarian and breast cancer . the results show that tpiv200 vaccination was well tolerated by all patients and over 90 % developed robust and durable antigen-specific immune responses against fra without regard for hla type , which aligns with the intended mechanism of action of the vaccine . enrollment completed : phase ii tpiv200 trial in triple-negative breast cancer we have completed enrollment and are now treating and following the patients in a phase ii trial of our folate receptor alpha cancer vaccine , tpiv200 , in the treatment of triple-negative breast cancer , one of the most difficult cancers to treat , representing a clear unmet medical need .
| june 2017 exercise and repricing of warrants held by existing institutional investors on june 23 , 2017 , certain existing institutional shareholders of the company who hold various outstanding warrants ( i.e . c , d , e and f ) to purchase company common stock , entered into warrant repricing and exercise agreements . series e repriced and exercised warrants approximately 168,000 of series e warrants were repriced from $ 15.00 per share to $ 3.97 per share and exercised immediately for gross proceeds of approximately $ 0.7 million . series e warrants to purchase approximately 187,000 shares of company common stock being reduced from $ 15.00 per share to $ 4.50 per share . series c , d & f repriced warrants additionally , the exercise prices for certain investors of series c , series d and series f warrants were reduced as follows : replace_table_token_2_th the fair value relating to the modification of exercise prices on the repriced warrants was treated as deemed dividend on the statement of stockholders ' equity of $ 0.6 million . june 2017 agent warrants pursuant to an agency agreement , dated may 12 , 2017 , by and between katalyst securities llc and us , katalyst agreed to act as our placement agent in connection with the june 26 , 2017 private placement offering . pursuant to the agreement , we agreed to pay to katalyst : ( i ) an aggregate cash fee for placement agent and financial advisory services equal to 10 % of the gross proceeds of the offering ; ( ii ) a non-accountable expense allowance in the amount of seventy thousand dollars ( $ 70,000 ) ; and ( iii ) five-year warrants to purchase a number of shares of our common stock equal to 10 % of the number of shares sold in the offering . the katalyst warrants have the same terms as the private placement warrants issued in the offering . based on the 1,503,567 shares of common stock sold in the private placement , we issued five-year warrants to katalyst providing for the purchase of up to 150,357 shares of company common stock for $
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the impact of gains or losses related to transactions in covered loans and other real estate owned is significantly mitigated by indemnification by the fdic ; and aci loans that are contractually delinquent may not be reflected as non-accrual loans or non-performing assets due to the accounting treatment accorded such loans under accounting standards codification ( `` asc '' ) section 310-30 , `` loans and debt securities acquired with deteriorated credit quality . '' these factors may impact the comparability of our financial performance to that of other financial institutions . 42 critical accounting policies and estimates our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles and follow general practices within the banking industry . application of these principles requires management to make complex and subjective estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable and appropriate under current circumstances . these assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent , objective sources . we evaluate our estimates on an ongoing basis . use of alternative assumptions may have resulted in significantly different estimates . actual results may differ from these estimates . accounting policies are an integral part of our financial statements . a thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position . we believe that the critical accounting policies and estimates discussed below involve a heightened level of management judgment due to the complexity , subjectivity and sensitivity involved in their application . note 1 to the consolidated financial statements contains a further discussion of our significant accounting policies . allowance for loan and lease losses the allowance for loan and lease losses ( `` alll '' ) represents management 's estimate of probable loan losses inherent in the company 's loan portfolio . determining the amount of the alll is considered a critical accounting estimate because of its complexity and because it requires significant judgment and estimation . estimates that are particularly susceptible to change that may have a material impact on the amount of the alll include : the amount and timing of expected future cash flows from aci loans and impaired loans ; the value of underlying collateral , which impacts loss severity and certain cash flow assumptions ; the selection of proxy data used to calculate loss factors ; our evaluation of the risk profile of various loan portfolio segments , including internal risk ratings ; and our selection and evaluation of qualitative factors . note 1 to the consolidated financial statements describes the methodology used to determine the alll . accounting for acquired loans and the fdic indemnification asset a significant portion of the covered loans are aci loans . the accounting for aci loans requires the company to estimate the timing and amount of cash flows to be collected from these loans and to continually update estimates of the cash flows expected to be collected over the lives of the loans . similarly , the accounting for the fdic indemnification asset requires the company to estimate the timing and amount of cash flows to be received from the fdic in reimbursement for losses and expenses related to the covered loans ; these estimates are directly related to estimates of cash flows to be received from the covered loans . estimated cash flows impact the rate of accretion on covered loans and the rate of accretion or amortization on the fdic indemnification asset as well as the amount of any alll to be established related to the covered loans . these cash flow estimates are considered to be critical accounting estimates because they involve significant judgment and assumptions as to their amount and timing . 43 covered 1-4 single family residential and home equity loans were placed into homogenous pools at the time of the fsb acquisition ; the ongoing credit quality and performance of these loans is monitored on a pool basis and expected cash flows are estimated on a pool basis . at acquisition , the fair value of the pools was measured based on the expected cash flows to be derived from each pool . for aci pools , the difference between total contractual payments due and the cash flows expected to be received at acquisition was recognized as non-accretable difference . the excess of expected cash flows over the recorded fair value of each aci pool at acquisition was recognized as accretable yield . the accretable yield is accreted into interest income over the life of each pool . we monitor the pools quarterly by updating our expected cash flows to determine whether any changes have occurred in expected cash flows that would be indicative of impairment or necessitate reclassification between non-accretable difference and accretable yield . initial and ongoing cash flow expectations incorporate significant assumptions regarding prepayment rates , the timing of resolution of loans , the timing and amount of loan sales , frequency of default , delinquency and loss severity , which is dependent on estimates of underlying collateral values . changes in these assumptions could have a potentially material impact on the amount of the alll related to the covered loans as well as on the rate of accretion on these loans . prepayment , delinquency and default curves used to forecast pool cash flows are derived from roll rates generated from the historical performance of the aci residential loan portfolio observed over the immediately preceding four quarters . generally , improvements in expected cash flows less than 1 % of the expected cash flows from a pool are not recorded . this threshold is judgmentally determined . generally , commercial loans are monitored and expected cash flows updated at the individual loan level due to the size and other unique characteristics of these loans . story_separator_special_tag the expected cash flows are estimated based on judgments and assumptions which include credit risk grades established in the bank 's ongoing credit review program , likelihood of default based on observations of specific loans during the credit review process as well as applicable industry data , loss severity based on updated evaluations of cash flows from available collateral , and the contractual terms of the underlying loan agreements . changes in the assumptions that impact forecasted cash flows could result in a potentially material change to the amount of the alll or the rate of accretion on these loans . the estimated cash flows from the fdic indemnification asset are sensitive to changes in the same assumptions that impact expected cash flows on covered loans . estimated cash flows impact the rate of accretion or amortization on the fdic indemnification asset . other real estate owned assets acquired through , or in lieu of , loan foreclosure are held for sale and are initially recorded at the fair value of the collateral at the date of foreclosure based on estimates , including some obtained from third parties , less estimated costs to sell , establishing a new cost basis . subsequent to foreclosure , valuations are periodically performed , and the assets are carried at the lower of cost or fair value less estimated costs to sell . significant property improvements that enhance the salability of the property are capitalized to the extent that the carrying value does not exceed estimated realizable value . legal fees , maintenance and other direct costs of foreclosed properties are expensed as incurred . given the level of judgment involved in estimating fair value of the properties , accounting for oreo is regarded as a critical accounting policy . estimates of value of oreo properties are typically based on real estate appraisals performed by independent appraisers . in some cases , if an appraisal is not available , values may be based on brokers ' price opinions . these values are generally updated as appraisals become available . 44 fair value measurements the company measures certain of its assets and liabilities at fair value on a recurring or non-recurring basis . assets and liabilities measured at fair value on a recurring basis include investment securities available for sale and derivative instruments . assets that may be measured at fair value on a non-recurring basis include oreo , impaired loans , loans held for sale , intangible assets , mortgage servicing rights and assets acquired and liabilities assumed in business combinations . the consolidated financial statements also include disclosures about the fair value of financial instruments that are not recorded at fair value . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date . inputs used to determine fair value measurements are prioritized into a three level hierarchy based on observability and transparency of the inputs , summarized as follows : level 1observable inputs that reflect quoted prices in active markets , level 2inputs other than quoted prices in active markets that are based on observable market data , and level 3unobservable inputs requiring significant management judgment or estimation . when observable market inputs are not available , fair value is estimated using modeling techniques such as discounted cash flow analyses and option pricing models . these modeling techniques utilize assumptions that we believe market participants would use in pricing the asset or the liability . particularly for estimated fair values of assets and liabilities categorized within level 3 of the fair value hierarchy , the selection of different valuation techniques or underlying assumptions could result in fair value estimates that are higher or lower than the amounts recorded or disclosed in our consolidated financial statements . considerable judgment may be involved in determining the amount that is most representative of fair value . because of the degree of judgment involved in selecting valuation techniques and underlying assumptions , fair value measurements are considered critical accounting estimates . notes 1 , 4 and 17 to our consolidated financial statements contain further information about fair value estimates . recent accounting pronouncements see note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements . results of operations net interest income net interest income is the difference between interest earned on interest earning assets and interest incurred on interest bearing liabilities and is the primary driver of core earnings . net interest income is impacted by the relative mix of interest earning assets and interest bearing liabilities , the ratio of interest earning assets to total assets and of interest bearing liabilities to total funding sources , movements in market interest rates , levels of non-performing assets and pricing pressure from competitors . the mix of interest earning assets is influenced by loan demand , market and competitive conditions in our primary lending markets and by management 's continual assessment of the rate of 45 return and relative risk associated with various classes of earning assets . the mix of interest bearing liabilities is influenced by management 's assessment of the need for lower cost funding sources weighed against relationships with customers and growth requirements and is impacted by competition for deposits in the company 's markets and the availability and pricing of other sources of funds . net interest income is also impacted by the accounting for aci loans and to a declining extent , the accretion of fair value adjustments recorded in conjunction with the fsb acquisition . aci loans were initially recorded at fair value , measured based on the present value of expected cash flows . the excess of expected cash flows over carrying value , known as accretable yield , is recognized as interest income over the lives of the underlying loans .
| the decrease in the average rate paid on interest bearing liabilities resulted from declines in market interest rates and a continued shift in deposit mix into lower cost deposit products . the following chart provides a comparison of net interest margin , the interest rate spread , the average yield on 38 interest earning assets and the average rate paid on interest bearing liabilities for the years ended december 31 , 2013 and 2012 ( on a tax-equivalent basis ) : bankunited launched its new york franchise in 2013. in conjunction with the new york launch , herald was merged into bankunited . we currently operate four locations in manhattan , one in long island and one in brooklyn . 2013 was marked by strong loan growth across our markets , resulting in increased geographic diversification in the portfolio . new loans grew by $ 3.9 billion in 2013 to $ 7.6 billion . new loan growth was concentrated in the commercial portfolio segment , commensurate with our core business strategy . the following charts compare the composition of our loan portfolio at december 31 , 2013 and 2012 : ( 1 ) national platform is defined as purchased residential loans , loans and leases made by our commercial lending subsidiaries and indirect auto loans . 39 total deposits grew by $ 2.0 billion to $ 10.5 billion while demand deposits increased to 27 % of total deposits at december 31 , 2013. the following charts illustrate the composition of deposits at december 31 , 2013 and 2012 : the cost of deposits continued to decline . the weighted average cost of deposits declined to 0.65 % for the year ended december 31 , 2013 as compared to 0.81 % for the year ended december 31 , 2012. asset quality remained strong . at december 31 , 2013 , 99 % of the new commercial loan portfolio was rated `` pass '' and substantially all of the new residential portfolio was current . the ratio of non-performing , non-covered loans to total non-covered loans was 0.31 % and the ratio of
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marketing and sales expense our most significant expense relates to marketing and sales activities to attract students to our offerings across both of our segments . this includes the cost of search engine optimization , search engine marketing and social media optimization , as well as personnel and personnel-related expense for our marketing and recruiting teams . graduate program segment our marketing and sales expense in any period generates student enrollments eight months later , on average . we then generate revenue as students progress through their programs , which generally occurs over a two-year period following initial enrollment . accordingly , our marketing and sales expense in any period is an investment to generate revenue in future periods . therefore , we do not believe it is meaningful to directly compare current period revenue to current period marketing and sales expense . further , we believe that our marketing and sales expense in future periods will generally decline as a percentage of the revenue reported in those same periods as our revenue base from returning students in existing programs increases . alternative credential segment our marketing and sales expense in any period generates student enrollments as much as 24 weeks later , on average . we then generate revenue as students progress through their courses , which typically occurs over a two to six month period following initial enrollment . other operating expense our other operating expense consist of the following : curriculum and teaching . curriculum and teaching expense consists primarily of amounts due to universities for licenses to use their brand names and other trademarks in connection with our short course and boot camp offerings . the payments are based on contractually specified percentages of the tuition and fees we receive from students in those offerings . curriculum and teaching expense also includes personnel and personnel-related expense for our short course and boot camp instructional staff . servicing and support . servicing and support expense consists primarily of personnel and personnel-related expense associated with the management and operations of our educational offerings , as well as supporting students and faculty members . servicing and support expense also includes costs to support our platform , facilitate in-program field placements and student immersions , and assist with compliance requirements . technology and content development . technology and content development expense consists primarily of personnel and personnel-related expense associated with the ongoing improvement and maintenance of our platform , as well as hosting and licensing costs . technology and content expense also includes the amortization of capitalized technology and content . 40 general and administrative . general and administrative expense consists primarily of personnel and personnel-related expense for our corporate departments , including executive management , legal , finance , human resources , and other departments that do not provide direct operational services . general and administrative expense also includes professional fees and other corporate expense . net interest income ( expense ) net interest income ( expense ) consists primarily of interest expense from our long-term debt and interest income from our cash and cash equivalents . interest expense also includes the amortization of debt issuance costs . other expense , net other expense , net primarily consists of foreign currency gains and losses . income taxes our income tax provisions for all periods consist of u.s. federal , state and foreign income taxes . our effective tax rate for the period is based on a mix of higher-taxed and lower-taxed jurisdictions . due to our current and accumulated net operating losses , we have not been required to pay u.s. federal income taxes to date . story_separator_special_tag style= '' line-height:120 % ; padding-bottom:10px ; padding-top:10px ; text-indent:48px ; font-size:10pt ; '' > other expense , net . other expense , net was $ 0.7 million and $ 1.7 million for the years ended december 31 , 2019 and 2018 , respectively . this decrease was primarily due to fluctuations in foreign currency rates impacting our operations in the alternative credential segment . income tax benefit . for the year ended december 31 , 2019 , we recognized a tax benefit of $ 19.9 million , and our effective tax rate was approximately 8 % . this tax benefit was primarily due to a discrete tax benefit of approximately $ 17.5 million related to the acquisition of trilogy . the acquisition of trilogy triggered a release of our tax valuation allowance as a result of recognizing an additional net deferred tax liability . the remaining tax benefit of $ 2.4 million was due to net operating 42 loss and the reversal of taxable temporary differences of the acquired intangibles in our alternative credential segment . we expect to continue to recognize a tax benefit for our alternative credential segment to the extent that this segment continues to generate pre-tax losses while carrying a net deferred tax liability . to date , we have not been required to pay u.s. federal income taxes because of our current and accumulated net operating losses . business segment operating results we define segment profitability as net income or net loss , as applicable , before net interest income ( expense ) , taxes , depreciation and amortization expense , foreign currency gains or losses , deferred revenue fair value adjustments , transaction costs , integration costs , restructuring-related costs , shareholder activism costs , impairment charges , and stock-based compensation expense . some or all of these items may not be applicable in any given reporting period . the following table reconciles net loss to total segment profitability : replace_table_token_3_th years ended december 31 , 2019 and 2018 revenue by segment and segment profitability for the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_4_th * immaterial amounts of intersegment revenue have been excluded from the above results for the years ended december 31 , 2019 and 2018 . * * not meaningful for comparative purposes . story_separator_special_tag graduate program segment profitability decreased $ 11.1 million , or 66 % , to $ 5.8 million as compared to $ 16.8 million in 2018 . this decrease was primarily due to an increase in marketing and sales expense incurred to support the launch of new degree programs . 43 alternative credential segment profitability decreased $ 30.5 million to $ ( 29.7 ) million as compared to $ 0.8 million in 2018 . this decrease was primarily due to the addition of trilogy 's results of operations since the acquisition date . key business and financial performance metrics we use a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . in addition to adjusted ebitda ( loss ) , which we discuss below , and revenue and the components of loss from operations in the section above entitled “ our business model and components of operating results , ” we utilize full course equivalent enrollments as a key metric to evaluate the success of our business . full course equivalent enrollments we measure full course equivalent enrollments for each of the courses offered during a particular period by taking the number of students enrolled in that course and multiplying it by the percentage of the course completed during that period . we add the full course equivalent enrollments for each course within each segment to calculate the total full course equivalent enrollments per segment . this metric allows us to consistently view period over period changes in enrollments by accounting for the fact that many courses we enable straddle multiple fiscal quarters . for example , if a course had 25 enrolled students and 40 % of the course was completed during a particular period , we would count the course as having 10 full course equivalent enrollments for that period . any individual student may be enrolled in more than one course during a period . average revenue per full course equivalent enrollment represents our weighted-average revenue per course across the mix of courses being offered during a period in each of our operating segments . this number is derived by dividing the total revenue for a period for each of our operating segments by the number of full course equivalent enrollments within the applicable segment during that same period . this amount may vary from period to period depending on the academic calendars of our university clients , the relative growth rates of our degree programs , short courses , and boot camps , as applicable , and varying tuition levels , among other factors . the following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in our graduate program segment and alternative credential segment for the periods presented . replace_table_token_5_th * trilogy 's results of operations are included in our results of operations since the acquisition date . * * the calculation of the alternative credential segment 's average revenue per full course equivalent enrollment includes $ 11.2 million of revenue that was excluded from the results of operations in the year ended december 31 , 2019 , due to a deferred revenue fair value purchase accounting adjustment recorded in connection with the acquisition of trilogy . of the increase in full course equivalent enrollments in our graduate program segment for the years ended december 31 , 2019 and 2018 , 4,354 or 12.9 % and 7,899 or 27.5 % , respectively , were attributable to degree programs launched during the preceding 12 months . of the increase in full course equivalent enrollments in our alternative credential segment for the years ended december 31 , 2019 and 2018 , 7,106 or 37.5 % and 7,266 or 34.0 % , respectively , were attributable to short courses launched during the preceding 12 months . adjusted ebitda ( loss ) we define adjusted ebitda ( loss ) as net income or net loss , as applicable , before net interest income ( expense ) , taxes , depreciation and amortization expense , foreign currency gains or losses , deferred revenue fair value adjustments , transaction costs , integration costs , restructuring-related costs , shareholder activism costs , impairment charges , and stock-based compensation expense . 44 in 2019 , we revised our definition of adjusted ebtida ( loss ) to exclude the impact of ( i ) transaction costs , deferred revenue fair value adjustments , integration and restructuring-related costs and impairment charges , in each case , in connection with the acquisition of trilogy and ( ii ) shareholder activism costs . we believe these changes are meaningful to investors because we did not have these costs in prior periods , and as a result , excluding the impact of such costs in 2019 facilitates a period-to-period comparison of our business . the revision to the definition of adjusted ebitda ( loss ) had no material impact on our reported adjusted ebitda ( loss ) for the years ended december 31 , 2018. adjusted ebitda ( loss ) is a key measure used by our management and board of directors to understand and evaluate our operating performance and trends , to develop short- and long-term operational plans and to compare our performance against that of other peer companies using similar measures . in particular , the exclusion of certain expenses in calculating adjusted ebitda ( loss ) can provide a useful measure for period-to-period comparisons of our business . accordingly , we believe that adjusted ebitda ( loss ) provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors . adjusted ebitda ( loss ) is not a measure calculated in accordance with u.s. gaap , and should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with u.s. gaap .
| million , or 47.2 % , to $ 98.9 million as compared to $ 67.2 million in 2018 . this increase was primarily due to a $ 27.7 million increase in personnel and personnel-related expense to serve a greater number of students and faculty in existing and new offerings , including the incremental addition of trilogy boot camps . the remaining $ 4.0 million of the increase was primarily due to travel , rent and other servicing and support expense . technology and content development . technology and content development expense increased $ 51.7 million , or 81.0 % , to $ 115.5 million as compared to $ 63.8 million in 2018 . this increase was due in part to a $ 29.3 million increase in amortization expense and a $ 14.4 million increase in personnel and personnel-related expense ( net of amounts capitalized for technology and content development ) , including the addition of incremental technology and content development expense from trilogy . in addition , $ 6.5 million of the increase was due to non-capitalized curriculum expense and hosting and licensing expense to support the launch of new programs , including the incremental addition of trilogy boot camps . the remaining $ 1.5 million of the increase was primarily due to costs to support and maintain our internal software applications . marketing and sales . marketing and sales expense increased $ 121.4 million , or 54.9 % , to $ 342.4 million as compared to $ 221.0 million in 2018 . this increase was primarily due to a $ 72.7 million increase in marketing and sales expense to attract prospective students to new and existing offerings , including the addition of incremental marketing and sales expense from trilogy . in addition , $ 34.1 million of the increase was due to personnel and personnel-related expense , primarily related to the addition of incremental personnel and personnel-related expense
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the increase in average premiums per policy was attributable to rate increases , coverage changes and changes in state and risk mix . voluntary auto new business sales in 2017 increased 10.5 % compared to 2016. voluntary auto policies-in-force increased approximately 1,276,000 during 2017. pre-tax underwriting losses in 2017 were $ 310 million compared to pre-tax gains of $ 462 million in 2016. losses and loss adjustment expenses in 2017 increased approximately $ 4.5 billion ( 21.2 % ) compared to 2016. our loss ratio in 2017 increased 4.0 percentage points compared to 2016. the increase in losses incurred was attributable to increased average claims severities , losses from significant catastrophe events in 2017 ( $ 450 million ) and losses with respect to prior years ' loss events ( $ 517 million ) . average claims severities were higher in 2017 for property damage and collision coverages ( four to six percent range ) and bodily injury coverage ( five to seven percent range ) . claims frequencies in 2017 were relatively unchanged compared to 2016 for bodily injury coverage , decreased about one percent for property damage and collision coverages and decreased about two to three percent for personal injury protection coverage . underwriting expenses increased $ 277 million ( 7.0 % ) in 2017 compared to 2016. our expense ratio in 2017 declined 1.1 percentage points compared to 2016. berkshire hathaway reinsurance group we offer excess-of-loss and quota-share reinsurance coverages on property and casualty risks and life and health reinsurance to insurers and reinsurers worldwide through several subsidiaries , led by national indemnity company ( nico ) , berkshire hathaway life insurance company of nebraska ( bhln ) and general reinsurance corporation , general reinsurance ag and general re life corporation ( collectively , general re ) . we also periodically assume property and casualty risks under retroactive reinsurance contracts written through nico . in addition , we write periodic payment annuity contracts predominantly through bhln . with the exception of our retroactive reinsurance and periodic payment annuity businesses , we strive to generate pre-tax underwriting profits . time-value-of-money concepts are important elements in establishing prices for retroactive reinsurance and periodic payment annuity businesses due to the expected long durations of the liabilities . we expect to incur pre-tax underwriting losses from such businesses , primarily through deferred charge amortization and discount accretion charges . we receive premiums at the inception of these contracts , which are then available for investment . a summary of bhrg 's premiums and pre-tax underwriting results follows ( dollars in millions ) . replace_table_token_8_th k-35 management 's discussion and analysis ( continued ) insuranceunderwriting ( continued ) berkshire hathaway reinsurance group ( continued ) property/casualty a summary of property/casualty reinsurance underwriting results follows ( dollars in millions ) . replace_table_token_9_th property/casualty premiums earned in 2018 were $ 8.9 billion , an increase of 18.2 % compared to 2017 , while premiums earned in 2017 increased 4.6 % compared to 2016. these increases were primarily attributable to higher direct and broker markets business , derived primarily from new business and increased participations for renewal business in both property and casualty lines . premiums earned included approximately $ 1.8 billion in both 2018 and 2017 and $ 1.7 billion in 2016 from a 10-year , 20 % quota-share contract entered into by nico with insurance australia group limited , which expires in 2025. losses and loss adjustment expenses in 2018 decreased $ 288 million ( 4.0 % ) compared to 2017 , and the loss ratio declined 18 percentage points to 77.6 % . losses incurred from significant catastrophe events in 2018 were approximately $ 1.3 billion , which derived from hurricanes florence and michael , typhoon jebi and the wildfires in california , including $ 1.1 billion in the fourth quarter . losses from significant catastrophe events in 2017 were approximately $ 2.4 billion , which derived from hurricanes harvey , irma and maria , an earthquake in mexico , a cyclone in australia and wildfires in california . there were no significant catastrophe loss events in 2016. in addition , losses and loss adjustment expenses reflected net gains of $ 469 million in 2018 , $ 295 million in 2017 and $ 874 million in 2016 from reductions of estimated ultimate losses for prior years ' events . the net gain in 2018 was primarily due to lower than expected property losses . the net gain from prior years ' loss events in 2017 reflected losses from higher than expected property claims and increases in certain united kingdom ( u.k. ) claim liabilities attributable to the u.k. ministry of justice 's decision to reduce the fixed discount rate required in lump sum settlement calculations of personal injury claims from 2.5 % to negative 0.75 % . retroactive reinsurance retroactive reinsurance premiums earned in 2018 were $ 517 million , which derived primarily from one contract . premiums earned in 2017 included $ 10.2 billion from an aggregate excess-of-loss retroactive reinsurance agreement with various subsidiaries of american international group , inc. ( the aig agreement ) . at the inception of our retroactive reinsurance contracts , we record the estimated ultimate claim liabilities , and we also record the excess of such claim liabilities over the premiums received as a deferred charge asset . thus , as of the inception dates of these contracts , there is no net underwriting gain or loss . deferred charge assets are subsequently amortized over the expected claim settlement period as losses and loss adjustment expenses . pre-tax underwriting losses from retroactive reinsurance contracts were $ 778 million in 2018 , $ 1,330 million in 2017 and $ 60 million in 2016. certain retroactive reinsurance liabilities of our u.s. subsidiaries are denominated in foreign currencies . pre-tax underwriting results included gains of $ 169 million in 2018 , losses of $ 264 million in 2017 and gains of $ 392 million in 2016 associated with the re-measurement of such liabilities due to currency exchange rate changes . story_separator_special_tag pre-tax underwriting losses before foreign currency gains/losses were $ 947 million in 2018 , $ 1,066 million in 2017 and $ 452 million in 2016 , which derived from deferred charge amortization and changes in the estimated timing and amount of future claim payments . pre-tax underwriting losses related to the aig agreement were $ 611 million in 2018 and $ 527 million in 2017. in 2018 , we decreased estimated ultimate liabilities $ 341 million for prior years ' retroactive reinsurance contracts , which after adjustments to the related unamortized deferred charges from changes in the estimated timing and amount of the future claim payments , produced pre-tax underwriting gains of approximately $ 185 million . changes in estimated ultimate liabilities for prior years ' contracts had a relatively insignificant effect on pre-tax underwriting results in 2017 and 2016. k-36 management 's discussion and analysis ( continued ) insuranceunderwriting ( continued ) berkshire hathaway reinsurance group ( continued ) retroactive reinsurance ( continued ) unpaid losses assumed under retroactive reinsurance contracts were approximately $ 41.8 billion at december 31 , 2018 and $ 42.9 billion at december 31 , 2017. deferred charge assets related to such contracts were approximately $ 14.1 billion at december 31 , 2018 and $ 15.3 billion at december 31 , 2017. deferred charge assets will be charged to pre-tax earnings over the expected remaining claims settlement periods through periodic amortization . life/health a summary of our life/health reinsurance underwriting results follows ( dollars in millions ) . replace_table_token_10_th life/health premiums earned were $ 5.3 billion , an increase of $ 535 million ( 11.1 % ) over 2017 , which increased $ 221 million ( 4.8 % ) compared to 2016. the increases in each year were primarily attributable to growth in the north america , asia and australia life insurance markets . in each of the last three years , premiums earned of approximately $ 1.0 billion derived from a bhln reinsurance contract with a major reinsurer covering predominantly life risks in north america . our life/health business produced pre-tax underwriting gains of $ 216 million in 2018 , losses of $ 52 million in 2017 and gains of $ 305 million in 2016. the underwriting gains in 2018 reflected lower losses from the run-off of u.s. long-term care business , partially offset by lower gains from the run-off of variable annuity guarantee contracts . in the fourth quarter of 2017 , we recorded pre-tax losses of $ 450 million from discount rate reductions and changes in other actuarial assumptions associated with long-term care liabilities . pre-tax gains from variable annuity guarantee reinsurance were $ 34 million in 2018 , $ 256 million in 2017 and $ 231 million in 2016. underwriting results from this business reflect changes in estimated liabilities for guaranteed benefits , which result from changes in securities markets and interest rates and from the periodic amortization of expected profit margins . periodic payment annuity periodic payment annuity premiums earned in 2018 were $ 1,156 million , an increase of $ 258 million ( 28.7 % ) compared to 2017 , which declined $ 184 million ( 17.0 % ) from 2016 , reflecting a corresponding increase and decrease in new business volumes . periodic payment business is price sensitive , and the volume we write can change rapidly due to changes in prices , which are affected by prevailing interest rates , the perceived risks and durations associated with the expected annuity payments , and the level of competition . periodic payment annuity contracts produced pre-tax losses of $ 340 million in 2018 , $ 671 million in 2017 and $ 128 million in 2016. certain contracts written by our u.s. subsidiaries are denominated in foreign currencies and pre-tax underwriting results included gains of $ 93 million in 2018 , losses of $ 190 million in 2017 and gains of $ 313 million in 2016 from the re-measurement of such liabilities due to changes in exchange rates . before foreign currency gains and losses , pre-tax underwriting losses were $ 433 million in 2018 , $ 481 million in 2017 and $ 441 million in 2016. these losses primarily derived from the recurring discount accretion of annuity liabilities , as well as the impact of mortality and interest rate changes . discounted annuity liabilities approximated $ 12.5 billion at december 31 , 2018 and $ 11.2 billion at december 31 , 2017 , reflecting a weighted average discount rate of approximately 4.1 % . k-37 management 's discussion and analysis ( continued ) insuranceunderwriting ( continued ) berkshire hathaway primary group the berkshire hathaway primary group ( bh primary ) provides a variety of commercial insurance solutions , including healthcare malpractice , workers ' compensation , automobile , general liability , property and various specialty coverages for small , medium and large clients . the largest of these insurers are berkshire hathaway specialty insurance ( bh specialty ) , berkshire hathaway homestate companies ( bhhc ) , medpro group , berkshire hathaway guard insurance companies ( guard ) , and national indemnity company ( nico primary ) . other bh primary insurers include u.s. liability insurance company , applied underwriters , central states indemnity company and mlmic insurance company , acquired october 1 , 2018. a summary of bh primary underwriting results follows ( dollars in millions ) . replace_table_token_11_th premiums written and earned in 2018 increased 14.4 % and 13.6 % , respectively , compared to 2017. the increases in premiums written and earned were primarily attributable to written premium growth at bh specialty ( 32.5 % ) , guard ( 19.4 % ) , nico primary ( 14.0 % ) and bhhc ( 7.6 % ) . premiums written and earned in 2017 increased 12.0 % and 14.2 % , respectively , compared to 2016 reflecting written premium increases from all of the significant bh primary insurers , led by guard ( 26 % ) , bh specialty ( 23 % ) and bhhc ( 9 % ) .
| net earnings in 2017 included approximately $ 29.1 billion attributable to a one-time net benefit from the enactment of the tax cuts and jobs act of 2017 ( tcja ) on december 22 , 2017. see note 18 to the consolidated financial statements . this benefit included approximately $ 29.6 billion related to a one-time non-cash reduction of net deferred income tax liabilities from the reduction in the statutory u.s. corporate income tax rate from 35 % to 21 % , and a net benefit of approximately $ 900 million primarily attributable to our earnings from kraft heinz , partly offset by a one-time income tax expense of approximately $ 1.4 billion on the deemed repatriation of certain accumulated undistributed earnings of foreign subsidiaries . due to their significance , we presented these one-time effects as a distinct item in the preceding table . accordingly , the after-tax figures presented for 2017 in the discussion of our various operating businesses and other activities exclude the one-time effects of the tcja . after-tax earnings from insurance underwriting were approximately $ 1.6 billion in 2018 compared to after-tax losses of approximately $ 2.2 billion in 2017. results in 2018 included reductions of estimated ultimate liabilities for prior years ' property/casualty loss events , gains from foreign currency exchange rate changes on certain non-u.s. dollar denominated liabilities of u.s subsidiaries of $ 207 million and a lower effective income tax rate , partly offset by losses from significant catastrophe events of approximately $ 1.6 billion ( $ 1.3 billion after-tax ) . after-tax losses from insurance underwriting in 2017 included estimated pre-tax losses of approximately $ 3.0 billion ( $ 1.95 billion after-tax ) from significant catastrophe events . underwriting results in 2017 also included after-tax foreign currency exchange rate losses of $ 295 million . our railroad business generated a 31.8 % increase in after-tax earnings in 2018 compared to 2017 , reflecting an increase in unit volume , higher
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our integrated manufacturing and converting operations and geographic footprint enable us to deliver a broad range of cost-competitive products with brand equivalent quality to our consumer products customers . in 2015 , our consumer products segment had net sales of $ 959.9 million , representing approximately 55 % of our total net sales . our pulp and paperboard segment manufactures and markets bleached paperboard for the high-end segment of the packaging industry and is a leading producer of solid bleach sulfate paperboard . this segment also produces hardwood and softwood pulp , which is primarily used as the basis for our paperboard products , and slush pulp , which it supplies to our consumer products segment . in 2015 , our pulp and paperboard segment had net sales of $ 792.5 million , representing approximately 45 % of our total net sales . developments and trends in our business net sales prices for our consumer tissue products are affected by competitive conditions and the prices of branded tissue products . tissue has historically been one of the strongest segments of the paper and forest products industry due to its steady demand growth . in recent years , the industry has seen an increase in tad tissue products as industry participants have added or improved tad production capacity . our consumer products segment competes based on product quality , customer service and price . we deliver customer-focused business solutions by assisting in managing product assortment , category management , and pricing and promotion optimization . our pulp and paperboard business is affected by macro-economic conditions around the world and has historically experienced cyclical market conditions . as a result , historical prices for our products and sales volumes have been volatile . product pricing is significantly affected by the relationship between supply and demand for our products . product supply in the industry is influenced primarily by fluctuations in available manufacturing production , which tends to increase during periods when prices remain strong . in addition , currency exchange rates affect u.s. supplies of paperboard , as non-u.s. manufacturers are attracted to the u.s. market when the dollar is relatively strong . paperboard pricing decreased in 2015 compared to 2014. the markets for our products are highly competitive . our business is capital intensive , which leads to high fixed costs and large capital outlays and generally results in continued production as long as prices are sufficient to cover variable costs . these conditions have contributed to substantial price competition , particularly during periods of reduced demand . some of our competitors have lower production costs and greater buying power and , as a result , may be less adversely affected than we are by price decreases . net sales consist of sales of consumer tissue and paperboard , net of discounts , returns and allowances and any sales taxes collected . 21 operating costs prices for our principal operating cost items are variable and directly affect our results of operations . for example , as economic conditions improve , we normally would expect at least some upward pressure on these operating costs . competitive market conditions can limit our ability to pass cost increases through to our customers . replace_table_token_4_th 1 includes internal and external transportation costs . 2 excluding related labor costs . 3 results include the specialty business and mills , which were sold in december 2014. purchased pulp . we purchase a significant amount of the pulp needed to manufacture our consumer products , and to a lesser extent our paperboard , from external suppliers . for 2015 , total purchased pulp costs decreased by $ 109.8 million , compared to 2014 , as a direct result of the sale of our former specialty business and mills in december 2014. excluding pulp costs associated with the specialty business and mills , purchased pulp costs increased $ 3.1 million during 2015. the increase for 2015 was primarily due to an increase in pulp purchased during the first half of 2015 resulting from the scheduled major maintenance outages taken at our idaho and arkansas pulp and paperboard facilities . this increase was partially offset by favorable external pulp pricing and a higher utilization of internally sourced pulp compared to 2014. transportation . fuel prices , mileage driven and line-haul rates largely impact transportation costs for the delivery of raw materials to our manufacturing facilities , internal inventory transfers and delivery of our finished products to customers . changing fuel prices particularly affect our margins for consumer products because we supply customers throughout the u.s. and transport unconverted parent rolls from our tissue mills to our tissue converting facilities . our transportation costs for 2015 decreased $ 7.0 million compared to 2014 primarily due to the sale of our specialty business and mills , as discussed above . excluding transportation costs associated with the specialty business and mills , transportation costs during 2015 were slightly lower compared to 2014. in the first quarter of 2015 , we improved inventory levels and implemented network optimization measures , which resulted in fewer internal transfers and miles per shipment and lower overall transportation costs . in addition , milder weather conditions in 2015 favorably affected transportation costs as extreme cold weather conditions in the midwest and northeast negatively affected carrier costs in the first quarter of 2014 by limiting vendor availability . these improvements more than offset higher line-haul rates and increases in carrier costs during 2015 primarily attributable to tighter carrier supply . chemicals . we consume a substantial amount of chemicals in the production of pulp and paperboard , as well as in the production of tad tissue . the chemicals we use include polyethylene , caustic , starch , sodium chlorate , latex and paper processing chemicals . a portion of the chemicals used in our manufacturing processes , particularly in the paperboard extrusion process , are petroleum-based and are impacted by petroleum prices . story_separator_special_tag our chemical costs decreased $ 26.2 million during 2015 , primarily due to lower usage resulting from the sale of our specialty business and mills . excluding chemical costs associated with the specialty mills , chemical costs for 2015 decreased $ 9.9 million compared to 2014. this favorable comparison was primarily due to decreased pricing for polyethylene and other paper making chemicals , as well as lower consumption for the year due to the scheduled major maintenance downtime at our pulp and paperboard facilities in the first half of 2015. in addition , the comparable 2014 period had higher chemical costs due to operational issues at our arkansas pulp and paperboard facility that caused both the pulp mill and paper machine to consume elevated levels of chemicals . 22 chips , sawdust and logs . we purchase chips , sawdust and logs that we use to manufacture pulp . we source residual wood fibers under both long-term and short-term supply agreements , as well as in the spot market . overall costs decreased by $ 3.8 million for chips , sawdust and logs for 2015 compared to 2014 . the decreases were due to lower pulp and paperboard production as a result of major maintenance activities in 2015 that did not occur in 2014. energy . we use energy in the form of electricity , hog fuel , steam and natural gas to operate our mills . energy prices have fluctuated widely from period-to-period due primarily to volatility in weather and electricity and natural gas rates . we generally strive to reduce our exposure to volatile energy prices through conservation . in addition , a cogeneration facility that produces steam and electricity at our lewiston , idaho manufacturing site helps to lower our energy costs . tad tissue production involves increased natural gas usage compared to conventional tissue manufacturing and , as a result , our natural gas requirements have increased in connection with the increase of production from our north carolina tad paper machine . energy costs for 2015 were $ 33.8 million lower than those for 2014 due largely to lower usage resulting from the sale of our specialty business and mills . excluding costs associated with the specialty mills , energy costs decreased $ 8.4 million during 2015 . the decrease for the year was primarily the result of lower natural gas pricing and lower usage at many of our facilities due primarily to the absence of the extremely cold weather conditions in the midwest and northeast that occurred in 2014 , as well as the absence of operational issues at our arkansas facility that occurred during 2014. to help mitigate our exposure to changes in natural gas prices , we use firm-price contracts to supply a portion of our natural gas requirements . as of december 31 , 2015 , these contracts covered approximately 44 % of our expected average monthly natural gas requirements for 2016 , which includes approximately 59 % of the expected average monthly requirements for the first quarter . our energy costs in future periods will depend principally on our ability to produce a substantial portion of our electricity needs internally , on changes in market prices for natural gas and on our ability to reduce our energy usage through conservation . maintenance and repairs . we regularly incur significant costs to maintain our manufacturing equipment . we perform routine maintenance on our machines and periodically replace a variety of parts such as motors , pumps , pipes and electrical parts . major equipment maintenance and repairs in our pulp and paperboard segment also require maintenance shutdowns approximately every 18 months to 24 months at both our idaho and arkansas facilities , which increase costs and may reduce net sales in the quarters in which the major maintenance shutdowns occur . during the first quarter of 2015 , we had eleven days of paper machine downtime at our idaho facility at a cost of approximately $ 15 million . during the second quarter of 2015 , we had four days of paper machine downtime at our arkansas facility at a cost of approximately $ 7 million . we did not have any major maintenance outages during the third and fourth quarters of 2015 , nor did we have any major maintenance outages during 2014. we expect our 2016 planned major maintenance costs to be approximately $ 15 million at our idaho facility during the third quarter of 2016. this planned major maintenance is expected to result in five days of paper machine downtime . in addition to ongoing maintenance and repair costs , we make capital expenditures to increase our operating capacity and efficiency , improve safety at our facilities and comply with environmental laws . for example , in 2015 we initiated a strategic capital spending project at our lewiston , idaho pulp and paperboard facility with an estimated $ 150- $ 160 million cost , excluding capitalized interest . during 2015 , excluding capitalized interest , we spent $ 133.7 million on capital expenditures , which includes $ 73.2 million of strategic capital spending on projects designed to reduce future manufacturing costs and provide a positive return on investment . during 2014 , we spent $ 99.6 million on capital expenditures . we expect our total estimated capital expenditures to be approximately $ 155 million in 2016. packaging supplies . as a significant producer of private label consumer tissue products , we package to order for retail chains , wholesalers and cooperative buying organizations . under our agreements with those customers , we are responsible for the expenses related to the unique packaging of our products for direct retail sale to their consumers . for 2015 , packaging costs decreased $ 13.1 million compared to 2014 due largely to lower production resulting from the sale of our specialty business and mills . excluding packaging costs associated with the specialty mills , packaging costs for 2015 decreased $ 8.8 million compared to 2014 due to lower case sales and favorable pricing for packaging supplies . depreciation .
| these improvements were partially offset by a $ 1.9 million increase in contributions to our qualified pension plans in 2014 compared to 2013. investing activities —net cash flows from investing activities decreased $ 114.2 million in 2015 , compared to 2014. the decrease in cash flows from investing activities was largely due to $ 107.7 million of net cash proceeds received in 2014 from divested assets , which related to the sale of our specialty business and mills . in addition , cash spent for plant and equipment increased $ 35.9 million compared to 2014. these decreases were partially offset by a $ 29.8 million increase in cash provided by the conversion of short-term investments into cash during 2015 compared to 2014. net cash flows from investing activities increased $ 176.3 million in 2014 , compared to 2013. the primary increase in cash flows from investing activities was largely due to the $ 107.7 million of net cash proceeds from divested assets . investing cash flows also increased due to $ 20.0 million of cash provided by the conversion of short-term investments into cash during 2014 , as compared to $ 50.0 million of cash converted into short-term investments in 2013. cash spent for plant and equipment was $ 93.0 million in 2014 , compared to $ 90.6 million in 2013. financing activities —net cash flows used for financing activities were $ 102.8 million for 2015 , and were largely driven by the completion of our 2015 $ 100 million stock repurchase program . net cash flows used for financing activities were $ 171.1 million for 2014 , and were largely driven by the completion of our 2014 $ 100 million stock repurchase program , as well as a $ 75.0 million decrease in long-term debt associated with the issuance of the 2014 notes and retirement of the 2010 notes . capital resources due to the competitive and cyclical nature of the markets in which we operate , there is uncertainty regarding the amount of cash flows we will generate during the next twelve months . however , we believe that our cash flows from operations , cash on hand , short-term investments and available borrowing capacity under our credit facility will be adequate
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actual results could differ materially from those estimates . we believe the following accounting policies for the years ended december 31 , 2019 and 2018 to be applicable : revenue recognition beginning january 1 , 2018 , we have followed the provisions of asc topic 606 , revenue from contracts with customers . the guidance provides a unified model to determine how revenue is recognized . we generate revenue principally from the sale of probuphine in the u.s. , collaborative research and development arrangements , technology licenses and sales , and government grants . consideration received for revenue arrangements with multiple components is allocated among the separate performance obligations based upon their relative estimated standalone selling price . 35 in determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreements , we perform the following steps for our revenue recognition : ( i ) identification of the promised goods or services in the contract ; ( ii ) determination of whether the promised goods or services are performance obligations , including whether they are distinct in the context of the contract ; ( iii ) measurement of the transaction price , including the constraint on variable consideration ; ( iv ) allocation of the transaction price to the performance obligations based on estimated selling prices ; and ( v ) recognition of revenue when ( or as ) we satisfy each performance obligation . net product revenue we recognize revenue from product sales when control of the product transfers , generally upon shipment or delivery , to our customers , which include distributors . as customary in the pharmaceutical industry , our gross product revenue is subject to a variety of deductions in the forms of variable consideration , such as rebates , chargebacks , returns and discounts , in arriving at reported net product revenue . this variable consideration is estimated using the most-likely amount method , which is the single most-likely outcome under a contract and is typically at stated contractual rates . the actual outcome of this variable consideration may materially differ from our estimates . from time to time , we will adjust our estimates of this variable consideration when trends or significant events indicate that a change in estimate is appropriate to reflect the actual experience . additionally , we will continue to assess the estimates of our variable consideration as we continue to accumulate additional historical data . changes in the estimates of our variable consideration could materially affect our financial statements . returns – consistent with the provisions of asc 606 , we estimate returns at the inception of each transaction , based on multiple considerations , including historical sales , historical experience of actual customer returns , levels of inventory in our distribution channel , expiration dates of purchased products and significant market changes which may impact future expected returns to the extent that we would not reverse any receivables , revenues , or contract assets already recognized under the agreement . during the year ended december 31 , 2019 , we entered into agreements with large national specialty pharmacies with a distribution channel different from that of our existing customers and , therefore , the related reserves have unique considerations . we will continue to evaluate the activities with these specialty pharmacies during upcoming quarters and will update the related reserves accordingly . rebates – our provision for rebates is estimated based on our customers ' contracted rebate programs and our historical experience of rebates paid . discounts –the provision is estimated based upon invoice billings , utilizing historical customer payment experience . performance obligations a performance obligation is a promise in a contract to transfer a distinct good or service to the customer . our performance obligations include commercialization license rights , development services and services associated with the regulatory approval process . we have optional additional items in contracts , which are accounted for as separate contracts when the customer elects such options . arrangements that include a promise for future commercial product supply and optional research and development services at the customer 's discretion are generally considered as options . we assess if these options provide a material right to the customer and , if so , such material rights are accounted for as separate performance obligations . if we are entitled to additional payments when the customer exercises these options , any additional payments are recorded in revenue when the customer obtains control of the goods or services . transaction price we have both fixed and variable consideration . non-refundable upfront payments are considered fixed , while milestone payments are identified as variable consideration when determining the transaction price . funding of research and development activities is considered variable until such costs are reimbursed at which point they are considered fixed . we allocate the total transaction price to each performance obligation based on the relative estimated standalone selling prices of the promised goods or services for each performance obligation . at the inception of each arrangement that includes milestone payments , we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method . if it is probable that a significant revenue reversal would not occur , the value of the associated milestone is included in the transaction price . milestone payments that are not within our control , such as approvals from regulators , are not considered probable of being achieved until those approvals are received . story_separator_special_tag for arrangements that include sales-based royalties or earn-out payments , including milestone payments based on the level of sales , and the license or purchase agreement is deemed to be the predominant item to which the royalties or earn-out payments relate , we recognizes revenue at the later of ( a ) when the related sales occur , or ( b ) when the performance obligation to which some or all of the royalty or earn-out payment has been allocated has been satisfied ( or partially satisfied ) . 36 allocation of consideration as part of the accounting for these arrangements , we must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract . estimated selling prices for license rights are calculated using the residual approach . for all other performance obligations , we use a cost-plus margin approach . timing of recognition significant management judgment is required to determine the level of effort required under an arrangement and the period over which we expect to complete our performance obligations under an arrangement . we estimate the performance period or measure of progress at the inception of the arrangement and re-evaluate it each reporting period . this re-evaluation may shorten or lengthen the period over which revenue is recognized . changes to these estimates are recorded on a cumulative catch up basis . if we can not reasonably estimate when our performance obligations either are completed or become inconsequential , then revenue recognition is deferred until we can reasonably make such estimates . revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method . revenue is recognized for licenses or sales of functional intellectual property at the point in time the customer can use and benefit from the license . for performance obligations that are services , revenue is recognized over time proportionate to the costs that we have incurred to perform the services using the cost-to-cost input method . inventories inventories are recorded at the lower of cost or net realizable value . cost is based on the first in , first out method . we regularly review inventory quantities on hand and write down to its net realizable value any inventory that we believe to be impaired . the determination of net realizable value requires judgment including consideration of many factors , such as estimates of future product demand , product net selling prices , current and future market conditions and potential product obsolescence , among others . share-based payments we recognize compensation expense for all share-based awards made to employees , directors and consultants . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2019 and 2018 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience . if our actual forfeiture rate is materially different from our estimate , our stock-based compensation expense could be significantly different from what we have recorded in the current period . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if it is not more likely than not that we will recover our deferred tax assets , we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . 37 clinical trial accruals we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by cros and clinical sites . these costs are recorded as a component of research and development expenses . under our agreements , progress payments are typically made to investigators , clinical sites and cros .
| other research and development expenses include internal operating costs such as research and development personnel-related expenses , non-clinical and clinical product development related travel expenses , and allocation of facility and corporate costs . as a result of the risks and uncertainties inherently associated with pharmaceutical research and development activities described elsewhere in this document , we are unable to estimate the specific timing and future costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . however , we anticipate that our research and development expenses will increase in connection with the probuphine phase 4 clinical studies commencing in 2020 , our current proneura development programs and any other proneura technology based product development activities we may pursue to the extent these costs are not supported through grants or partners . the increase in selling , general and administrative expenses was primarily due to higher sales and marketing expenses related to establishing the infrastructure to streamline the probuphine ordering and distribution network and the increased expenses associated with expanding our probuphine commercial activities . other expenses , net replace_table_token_3_th 40 net other income for the year ended december 31 , 2019 was primarily due to non-cash gain on change in the fair value of warrants and gain on debt extinguishment related to our molteni loan , partially offset by interest expense on our loans . net other expense for the year ended december 31 , 2018 was primarily due to interest expense on our loans . higher interest expense for the year ended december 31 , 2019 was primarily due to higher loan balances , partially offset by the settlement of our molteni convertible loan in june 2019. net loss and net loss per share our net loss applicable to common stockholders for the year ended december 31 , 2019 was approximately $ 16.5 million , or approximately $ 0.72 per share , compared to our net loss applicable to common stockholders of approximately $ 9.3 million , or approximately $ 1.64 per share , for
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we believe that the assumptions , judgments and estimates involved in the accounting for revenue recognition , fair value measurements , fair value estimates – auction rate securities ( “ ars ” ) put option , business combinations – purchase accounting , accounting for goodwill and other intangible assets , stock-based compensation and accounting for income taxes have the greatest potential impact on our consolidated financial statements , so we consider these to be our critical accounting policies . we discuss below the critical accounting estimates associated with these policies . for further information on the critical accounting policies , see note 1 of our notes to consolidated financial statements . revenue recognition our revenue recognition policy is one of our critical accounting policies because revenue is a key component of our results of operations and revenue recognition is based on complex rules which require us to make judgments . in applying our revenue recognition policy we must determine whether revenue is to be recognized on a gross or net basis in accordance with the provisions of asc 605 , revenue recognition , which portions of our revenue are to be recognized in the current period , and which portions must be deferred and recognized in subsequent periods . we also recognize services breakage on non-subscription deferred revenue balances , and we use judgment in evaluating the historical redemption patterns used to estimate services breakage . we do not record revenue on sales transactions when the collection of cash is in doubt at the time of sale , and we use management judgment in determining collectability . from time to time , we may enter into agreements which involve us making payments to our channel partners . we use judgment in evaluating the treatment of such payments and in determining which portions of the consideration paid to customers should be recorded as contra-revenue and which should be recorded as an expense . we generally provide a refund period on services and software , and we employ judgment in determining whether a customer is eligible for a refund based on that customer 's specific facts and circumstances . if our estimates and judgments on any of the foregoing are incorrect , our revenue for one or more periods may be incorrectly recorded . please see note 1 in notes to consolidated financial statements for further discussion of our revenue recognition policies . fair value measurements asc 820 , fair value measurements and disclosures defines fair value , establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability 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 . the standard describes a fair value hierarchy based on three levels of inputs , of which the first two are considered observable and the last unobservable , that may be used to measure fair value , which are the following : level 1 - quoted prices in active markets for identical assets or liabilities . therefore , determining fair value for level 1 instruments generally does not require significant management judgment , and the estimation is not difficult . 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 . the determination of fair value for level 3 instruments requires the most management judgment and subjectivity . our level 2 securities are priced using quoted market prices for similar instruments , nonbinding market prices that are corroborated by observable market data , or discounted cash flow techniques . there have been no transfers between level 1 and level 2 measurements during the year of 2010 . 24 our level 3 assets consist of ars with various state student loan authorities , and an ars put option with ubs ( as described below ) . beginning february 2008 , all auctions for the ars have failed . based on the continued failure of these auctions and the underlying maturities of the securities , we continue to classify our non-ubs holdings as long-term assets . on june 30 , 2010 , we exercised our rights under the rights agreement with ubs and we sold the underlying investments for cash on june 30 , 2010 and july 1 , 2010. the fair value of our ars holdings was estimated by management using assumptions regarding market volatility and discount rates . if any of these estimates change , the value of level 3 assets could change in future periods . fair value estimates-ars put option in november 2008 , we signed a rights agreement with ubs concerning the disposition of its ars . the ubs agreement gave us the right to sell our ars holdings back to ubs , at par value , beginning june 30 , 2010 through july 2 , 2012. on june 30 , 2010 , we exercised our rights under the rights agreement with ubs . this right represented a freestanding financial instrument for accounting purposes . we elected to value this put option at fair value . we recognized the value of the repurchase right as an asset with corresponding gain/loss recorded in earnings . story_separator_special_tag fair value was determined using a “ with and without ” approach , based on a discounted cash flow valuation comparing the value of the auction rate securities with the put option and without it . we took into account the same factors as those used to value the auction rate securities noted above . the value of the rights offer was recorded in interest income ( expense ) , net on our consolidated statement of operations . we previously made certain estimates in calculating the fair value of the ars put option for our ubs securities , including estimates for the weighted average remaining term ( wart ) of the underlying securities in which actual wart from servicing reports was unavailable , the expected return , and the discount rate . since our rights under the rights agreement were exercised on june 30 , 2010 , the value of the ars put option was written down to zero as of june 30 , 2010. business combinations – purchase accounting under the purchase method of accounting , we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values . we record the excess of purchase price over the aggregate fair values as goodwill . we engage third-party appraisal firms to assist us in determining the fair values of assets acquired and liabilities assumed . these valuations require us to make significant estimates and assumptions , especially with respect to intangible assets . such estimates include assumptions regarding future revenue streams , market performance , customer base , and various vendor relationships . we estimate the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expenses . we estimate the future cash flows to be derived from such assets , and these estimates are used to determine the fair value of the assets . if any of these estimates change , depreciation or amortization expenses could be accelerated and the value of our intangible assets could be impaired . accounting for goodwill and other intangible assets we assess the impairment of goodwill annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable . consistent with our determination that we have only one reporting segment , we have determined that there is only one reporting unit and goodwill is evaluated for impairment at the entity level . we test goodwill using the two-step process required by asc 350 , intangibles – goodwill and other . in the first step , we compare the carrying amount of the reporting unit to the fair value based on quoted market prices of our common stock . if the carrying value of the reporting unit exceeds the fair value , goodwill is potentially impaired and the second step of the impairment test must be performed . in the second step , if such comparison reflects potential impairment , we would compare the implied fair value of the goodwill , as defined by asc 350 , to its carrying amount to determine the amounts of impairment loss , if any . we performed our annual goodwill impairment tests september 30 , 2010 , 2009 , and 2008 and concluded that there was no impairment . we assess the impairment of identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . an impairment loss would be recognized when the sum of the future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount . if our estimates regarding future cash flows derived from such assets were to change , we may record an impairment to the value of these assets . such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value . 25 stock-based compensation we account for stock-based compensation in accordance with the provisions of asc 718 , compensation – stock compensation . under the fair value recognition provisions of asc 718 , stock-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense ratably over the requisite service period of the award . we estimate the fair value of stock-based awards on the grant date using the black-scholes-merton option-pricing model . determining the appropriate fair value model and calculating the fair value of stock-based awards requires judgment , including estimating stock price volatility , forfeiture rates and expected life . if any of these assumptions used in the option-pricing models change , our stock-based compensation expense could change on our consolidated financial statements . accounting for income taxes we are required to estimate our income taxes in each of the tax jurisdictions in which we operate . this process involves management 's estimation of our current tax exposures together with an assessment of temporary differences determined based on the difference between the financial statement and tax basis of certain items . these differences result in net deferred tax assets and liabilities , which are included in our consolidated balance sheet . we must assess the likelihood that we will be able to recover our deferred tax assets . if recovery is not likely , we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . we currently have provided a full valuation allowance on our u.s deferred tax assets and a full valuation allowance on certain foreign deferred tax assets . if any of our estimates change , we may change the likelihood of recovery and our tax expense as well as the value of our deferred tax assets would change . our income tax calculations are based on application of the respective u.s. federal , state or foreign tax law . support.com 's tax filings , however , are subject to audit by the respective tax authorities .
| the year-over-year growth in software and other revenue from 2009 to 2008 reflects one month of selling the acquired products in 2009. we expect our software and other revenue to continue to grow in 2011 as we release new products into the marketplace and continue leveraging our software products with service channel partners . revenue mix the components of revenue by type , expressed as a percentage of total revenue were : replace_table_token_6_th we expect that services revenue will continue to comprise a majority of our total revenue but that software and other revenue will represent a material percentage of our total revenue over the next year . for the year ended december 31 , 2010 , customer a and customer b accounted for 43 % and 17 % of our total revenue , respectively . no other customers accounted for 10 % or more of total revenue . for the years ended december 31 , 2009 and 2008 , one customer , customer a , accounted for 82 % and 81 % of our total revenue , respectively . no other customers accounted for 10 % or more of our total revenue in either of these years . the percentage of revenue attributable to customer a has decreased year-over-year as expected as we have expanded our service partnerships and grown our software business . revenue from customers outside the united states accounted for approximately 1 % , 2 % and 8 % of our total revenue in 2010 , 2009 and 2008 , respectively . 27 cost of revenue replace_table_token_7_th cost of services . cost of services consists primarily of salary and related expenses for our personal technology experts , technology and telecommunication expenses related to the delivery of services and other employee-related expenses for our service delivery organization . the increase in 2010 as compared to 2009 was due to increases in salary and related overhead expense as a result of growing our workforce of personal technology experts , as well as a corresponding increase in direct technology
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the following table provides detail of our operating revenues from the consolidated statements of operations for the years ended december 31 , 2016 , 2015 and 2014 . replace_table_token_12_th nymex henry hub prompt month contract prices are widely-used benchmarks in the pricing of natural gas . the following table provides the high and low prices for nymex henry hub prompt month contract prices and our differential to the average of those benchmark prices for the periods indicated . replace_table_token_13_th ( 1 ) differential is calculated by comparing the average nymex henry hub price to our volume weighted average realized price per mmbtu before hedges , including 50 % of the volumes sold by our marcellus joint venture for the period from january 1 , 2014 through january 28 , 2014 , contained within the year ended december 31 , 2014. the remainder of the year ended december 31 , 2014 reflects 100 % of the volumes sold by our marcellus joint venture . we sell a substantial majority of our production to two natural gas marketers , sequent and bp . for the year ended december 31 , 2016 , sales to sequent and bp represented 25 % and 24 % of our total sales , respectively . if our natural gas marketers decided to stop purchasing natural gas from us , our revenues could decline and our operating results and financial condition could be harmed . although a substantial portion of production is purchased by these customers , we do not believe the loss of these customers would have a material adverse effect on our business , as other customers or markets would be accessible to us . for the year ended december 31 , 2016 , our exploration and production segment accounted for 87 % of our operating revenues . while we anticipate that the rice midstream holdings segment and the rice midstream partners segment will continue to represent a meaningful portion of our operating revenues in future periods , we expect that a substantial majority of our operating revenues will remain attributable to our exploration and production segment . 49 principal components of our cost structure lease operating expense . these are the day to day operating costs incurred to maintain production of our natural gas producing wells . such costs include field personnel costs , produced water disposal , maintenance and repairs . cost levels for these expenses can vary based on supply and demand for oilfield services . gathering , compression and transportation . these are costs incurred to bring natural gas to the market . such costs include fees paid to third parties who operate low- and high-pressure gathering systems that transport our natural gas . we often enter into firm transportation contracts that secure takeaway capacity that includes minimum volume commitments , the cost for which is included in these expenses . midstream operation and maintenance . these are costs incurred to operate and maintain our low- and high-pressure natural gas gathering and compression systems and our water services assets used to support well completion activities and to collect and recycle or dispose of flowback and produced water . incentive unit expense . these costs represent non-cash compensation expense that have been pushed down from rice energy for incentive units awarded to certain of its employees by ngp rice holdings llc ( “ ngp holdings ” ) and rice holdings . in connection with rice energy 's initial public offering ( “ ipo ” ) and related corporate reorganization , the holders of our incentive units contributed a portion of their incentive units to rice holdings and ngp holdings in return for substantially similar incentive units in such entities . this resulted in the incentive units being deemed to have been modified , and the performance conditions were considered to be probable of occurring . therefore , their fair values were measured and compensation expense from the date of initial grant through december 31 , 2016 has been recognized in the year ended december 31 , 2016 . the payment obligation as it relates to the incentive units resides with ngp holdings and rice holdings and has not been , and will not be borne by us . in april 2016 , ngp holdings settled its remaining incentive unit obligation in connection with rice energy 's equity offering of an aggregate of 34,337,725 shares of common stock in april 2016 ( the “ april 2016 equity offering ” ) , which included 20,000,000 shares of common stock sold by rice energy and 14,337,725 shares sold by ngp holdings . no future expense will be recognized related to the ngp holdings incentive units . general and administrative expense . these costs include rice energy 's overhead costs , which have been allocated and or pushed down to us , including payroll and benefits for rice energy 's corporate staff , costs of maintaining our headquarters , costs of managing our exploration and production operations , midstream operations , franchise taxes , audit and other professional fees and legal compliance expenses . general and administrative expense also includes stock-based compensation expense related to awards granted under our long-term incentive plan . please see “ note 16— stock-based compensation ” in the notes of the consolidated financial statements under item 8 of this annual report . depreciation , depletion and amortization . depreciation , depletion and amortization ( “ dd & a ” ) includes the systematic expensing of the capitalized costs incurred to acquire , explore and develop natural gas . as a “ successful efforts ” company , we capitalize all costs associated with our acquisition and development efforts and all successful exploration efforts and allocate these costs to each unit of production using the units of production method . interest expense . we have financed a portion of our working capital requirements and property acquisitions with borrowings under our revolving credit facilities and our notes . story_separator_special_tag as a result , we incur interest expense that is affected by the level of drilling , completion and acquisition activities , as well as fluctuations in interest rates and our financing decisions . we will likely continue to incur significant interest expense as we continue to grow . to date , we have not entered into any interest rate hedging arrangements to mitigate the effects of interest rate changes . for the years ended december 31 , 2015 and 2014 , rice energy maintained the debt and related interest charges . these amounts have been pushed down to us for periods in which we were not a co-obligor of the debt . gain on derivative instruments . we and rice energy utilize commodity derivative contracts to reduce exposure to fluctuations in the price of natural gas . we recognize gains and losses associated with our open commodity derivative contracts as commodity prices and the associated fair value of our commodity derivative contracts change . the commodity derivative contracts in place are not designated as hedges for accounting purposes . consequently , these commodity derivative contracts are recorded at fair value at each balance sheet date with changes in fair value recognized as a gain or loss in the results of operations . cash flow is only impacted to the extent the actual settlements under the contracts result in making a payment to or receiving a payment from the counterparty . income tax expense . prior to our change in tax status to a partnership on october 19 , 2016 , our income was included as part of rice energy 's consolidated federal tax return , and we are taxed as a corporation under the internal revenue code subject to federal income tax at a statutory rate of 35 % . we did not report any income tax benefit or expense for periods subsequent to the change in tax status because , as a partnership , we are not subject to federal income tax . 50 in addition , we did not report any income tax benefit or expense for periods prior to the consummation of rice energy 's ipo in january 2014 because rice drilling b , rice energy 's accounting predecessor , is a limited liability company that was not and currently is not subject to federal income tax . the reorganization of our business into a corporation in connection with the closing of rice energy 's ipo required the recognition of a deferred tax asset or liability for the initial temporary differences at the time of the ipo . the resulting deferred tax liability of approximately $ 162.3 million was recorded in equity at the date of the completion of rice energy 's ipo because it represented a transaction among shareholders . how we evaluate our operations in evaluating our financial results , we focus on production , revenues , per unit cash production costs and general and administrative ( “ g & a ” ) expenses . we also evaluate our rates of return on invested capital in our wells , and we measure the expected return of our wells based on eur and the related costs of acquisition , development and production . we believe the quality of our assets combined with our technical and managerial expertise can generate attractive rates of return as we develop our core acreage position in the marcellus and utica shales . additionally , by focusing on concentrated acreage positions , we can build and own centralized midstream infrastructure , including low- and high-pressure gathering lines , compression facilities and water pipeline systems , which enable us to reduce reliance on third-party operators , minimize costs and increase our returns . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > impairment expense in 2016 was primarily related to a $ 20.3 million impairment for pipeline assets that were decommissioned . general and administrative expense . for the year ended december 31 , 2016 , general and administrative expense ( before stock compensation expense ) increased $ 10.3 million , or 12 % , primarily due to the additions of personnel to support growth activities and related salary and employee benefits . at december 31 , 2016 , rice energy had 467 employees , a 26 % increase compared to december 31 , 2015 . additionally , general and administrative expenses increased year-over-year due to an increase in rent expense primarily related to office leases . on a per unit basis , general and administrative expense ( before stock compensation 54 expense ) decreased by 26 % , from $ 0.43 per mcfe during the year ended december 31 , 2015 to $ 0.32 per mcfe during the year ended december 31 , 2016 , primarily due to a 51 % increase in production . slightly offsetting the increase in general and administrative expenses was an increase in allocated employee time to capital projects due to increased production . included in general and administrative expense is stock compensation expense of $ 21.3 million and $ 16.5 million for the years ended december 31 , 2016 and december 31 , 2015 , respectively . the increase is primarily attributable to increased compensation expense associated with rice energy 's restricted stock unit and performance stock unit awards . please see “ note 16—stock-based compensation ” in the notes to the consolidated financial statements in item 8 of this annual report for further information on these awards . dd & a . the $ 45.7 million increase in dd & a expense was a result of an increase in production driven by a greater number of producing wells in 2016 compared to 2015. as of december 31 , 2016 , we had 282 net producing appalachian wells , an 97 % increase when compared to the number of producing wells as of december 31 , 2015. in addition , the increase in dd & a was the result of an increase in midstream assets placed in service in 2016 as compared to the prior year and the related depreciation of those assets .
| our realized price in 2016 was $ 2.14 per mcf compared to $ 2.21 per mcf in 2015 , in each case before the effect of hedges . operating revenues were also positively impacted by a $ 51.9 million , or 105 % , increase in gathering , compression and water service revenues year-over-year . this increase primarily relates to an increase in third-party volumes and revenues on our gathering contracts . in addition , post-acquisition revenue associated with the vantage acquisition was $ 51.6 million for the period from october 19 , 2016 through december 31 , 2016. lease operating expenses . the $ 6.2 million increase in lease operating expenses was attributable to an increase in our production base in 2016 as compared to the prior year . however , on a per unit basis , lease operating expenses decreased from $ 0.22 for the year ended december 31 , 2015 to $ 0.17 for the year ended december 31 , 2016. the decrease on a per unit basis was attributable to improved efficiencies , primarily relating to production water recycling and reduced flowback periods . gathering , compression and transportation . gathering , compression and transportation expense for 2016 of $ 123.9 million was mainly comprised of $ 105.1 million of transportation contracts with third parties and $ 19.3 million of gathering charges from third parties . the $ 39.1 million , or 46 % , increase in expense was primarily attributable to a 51 % increase in production volumes , as well as increased firm transportation expense for the year ended december 31 , 2016. exploration . the increase in exploration expense year over year of $ 12.0 million was primarily due to leasehold write-offs , mainly associated with expired leaseholds . midstream operation and maintenance . the $ 6.2 million increase in midstream operation and maintenance expense in 2016 compared to the prior year was primarily due to on and off pad water transfer
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the preparation of financial statements and related disclosures in conformity with u.s. generally accepted accounting principles requires us to make judgments , assumptions , and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes to the consolidated financial statements . we consider the accounting polices described below to be our critical accounting policies . these critical accounting policies are impacted significantly by judgments , assumptions , and estimates used in the preparation of the consolidated financial statements , and actual results could differ materially from the amounts reported based on these policies . revenue recognition we recognize revenue when it is realized or realizable and earned . we consider revenue realized or realizable and earned when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed or determinable , and collectibility is reasonably assured . in instances where final acceptance of the product is specified by the customer or is uncertain , revenue is deferred until all acceptance criteria have been met . contracts and or customer purchase orders are used to determine the existence of an arrangement . shipping documents and customer acceptance , when applicable , are used to verify delivery . we assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment . we assess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analyses , as well as the customer 's payment history . revenue for orders is not recognized until the product is shipped and title has transferred to the buyer . we bear all costs and risks of loss or damage to the goods up to that point . our shipment terms for u.s. orders and international orders fulfilled from our european distribution center typically provide that title passes to the buyer upon delivery of the goods to the carrier named by the buyer at the named place or point . if no precise point is indicated by the buyer , delivery is deemed to occur when the carrier takes the goods into its charge from the place determined by us . other shipment terms may provide that title passes to the buyer upon delivery of the goods to the buyer . shipping and handling costs are included in cost of sales . revenue from sales to distributors and dealers is recognized upon shipment , assuming all other criteria for revenue recognition have been met . distributors and dealers do not have a right of return . revenue from purchased extended warranty and post contract support ( pcs ) agreements is deferred and recognized ratably over the term of the warranty or support period . revenue from our subscription services related to our hardware and applications is recognized ratably over the term of the subscription service period beginning on the date that service is made available to the customer , assuming all revenue recognition criteria have been met . we present revenue net of sales taxes and any similar assessments . our software arrangements generally consist of a perpetual license fee and pcs . we generally have established vendor-specific objective evidence ( vsoe ) of fair value for our pcs contracts based on the renewal rate . the remaining value of the software arrangement is allocated to the license fee using the residual method . license revenue is primarily recognized when the software has been delivered and fair value has been established for all remaining undelivered elements . in cases where vsoe of fair value for pcs is not established , revenue is recognized ratably over the pcs period after all software deliverables have been made and the only the undelivered element is pcs . for services performed on a fixed-fee basis , revenue is recognized using the proportional performance method , with performance measured based on hours of work performed . for contracts that involve significant customization and implementation or consulting services that are essential to the functionality of the software , the license and services revenues are recognized using the percentage-of-completion method or , if we are unable to reliably estimate the costs to complete the services , we use the completed-contract method of accounting . a contract is considered complete when all significant costs have been incurred or when acceptance from the customer has been received . some of our subscription product offerings include hardware , subscription services and extended warranty . under these hosted arrangements , the customer typically does not have the contractual right to take possession of the software at any time during the 33 hosting period without incurring a significant penalty and it is not feasible for the customer to run the software either on its own hardware or on a third-party 's hardware . our multiple deliverable product offerings include hardware with embedded firmware , extended warranty , software , pcs services and subscription services , which are considered separate units of accounting . for certain of our products , software and non-software components function together to deliver the tangible product 's essential functionality . in evaluating the revenue recognition for our hardware or subscription agreements which contain multiple deliverables , we determined that in certain instances we were not able to establish vsoe for some or all deliverables in an arrangement as we infrequently sold each element on a standalone basis , did not price products within a narrow range , or had a limited sales history . when vsoe can not be established , we attempt to establish the selling price of each element based on relevant third-party evidence ( tpe ) . tpe is determined based on competitor prices for similar deliverables when sold separately . our offerings may contain a significant level of proprietary technology , customization or differentiation such that the comparable pricing of products with similar functionality can not be obtained . furthermore , we are unable to reliably determine what similar competitor products ' selling prices are on a stand-alone basis . story_separator_special_tag therefore , we typically are not able to establish the selling price of an element based on tpe . when we are unable to establish selling price using vsoe or tpe , we use our best estimate of selling price ( besp ) in our allocation of arrangement consideration . the objective of besp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . we determine besp for a product or service by considering multiple factors including , but not limited to , pricing practices , market conditions , competitive landscape , internal costs , geographies and gross margin . the determination of besp is made through consultation with and formal approval by our management , taking into consideration our go-to-market strategy . income taxes income taxes are accounted for under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income . a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized . relative to uncertain tax positions , we only recognize a tax benefit 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 consider many factors when evaluating and estimating our tax positions and tax benefits , which may require periodic adjustments and may not accurately forecast actual tax audit outcomes . determining whether an uncertain tax position is effectively settled requires judgment . changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision . our practice is to recognize interest and or penalties related to income tax matters in income tax expense . our valuation allowance is primarily attributable to foreign net operating losses and state research and development credit carryforwards . management believes that it is more likely than not that we will not realize these deferred tax assets , and , accordingly , a valuation allowance has been provided for such amounts . valuation allowance adjustments associated with an acquisition after the measurement period are recorded through income tax expense . business combinations we allocate the fair value of purchase consideration to the assets acquired , liabilities assumed , and non-controlling interests in the acquiree based on their fair values at the acquisition date . the excess of the fair value of purchase consideration over the fair value of these assets acquired , liabilities assumed and non-controlling interests in the acquiree is recorded as goodwill . when determining the fair values of assets acquired , liabilities assumed , and non-controlling interests in the acquiree , management makes significant estimates and assumptions , especially with respect to intangible assets . critical estimates in valuing intangible assets include , but are not limited to , expected future cash flows , which includes consideration of future growth rates and margins , customer attrition rates , future changes in technology and brand awareness , loyalty and position , and discount rates . fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability . amounts recorded in a business combination may change during the measurement period , which is a period not to exceed one year from the date of acquisition , as additional information about conditions existing at the acquisition date becomes available . 34 goodwill and purchased intangible assets goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination . intangible assets acquired individually , with a group of other assets , or in a business combination , are recorded at fair value . identifiable intangible assets are comprised of distribution channels and distribution rights , patents , licenses , technology , acquired backlog , trademarks , and in-process research and development . the fair value of intangible assets acquired is generally determined based on a discounted cash flow analysis . identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line method , reflecting the pattern of economic benefits associated with these assets , and have estimated useful lives ranging from one to twelve years with a weighted average useful life of 6.2 years . goodwill is not subject to amortization , but is subject to at least an annual assessment for impairment , applying a fair-value based test . impairment of goodwill , intangible assets and other long-lived assets we evaluate goodwill , at a minimum , on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable . the annual goodwill impairment testing is performed in the fourth fiscal quarter of each year based on the values on the first day of that quarter . goodwill was reviewed for impairment utilizing a quantitative two-step process . in the first step of this test , goodwill is tested for impairment at the reporting unit level by comparing the reporting unit 's carrying amount , including goodwill , to the fair value of the reporting unit . the fair values of the reporting units are estimated using a discounted cash flow approach . if the carrying amount of the reporting unit exceeds its fair value , a second step is performed to measure the amount of impairment loss , if any .
| the decline in field solutions revenue was primarily due to softness in agricultural markets and to a lesser extent , gis and foreign currency effects . mobile solutions revenue increased due to continued growth in the transportation and logistics market . advanced devices revenue decreased primarily due to weaker sales of timing component products . by revenue category , overall product revenue decreased $ 180.1 million , or 11 % , service revenue increased $ 23.9 million , or 6 % , and subscription revenue increased $ 51.1 million , or 18 % . the product revenue decrease was primarily within engineering and construction and field solutions , slightly offset by a product revenue increase in mobile solutions . service and subscription increases were primarily due to organic growth within engineering and construction and mobile solutions , as we continue to expand software and services , including implementation and maintenance , and subscription services as a portion of our revenue . although to a lesser extent , acquisitions growth within engineering and construction also contributed . we consider organic growth to include all revenue except for revenue associated with acquisitions made within the last four quarters . in fiscal 2014 , total revenue increased by $ 107.4 million , or 5 % , to $ 2.40 billion from $ 2.29 billion in fiscal 2013. overall revenue was up due to growth in building construction , heavy civil , and transportation and logistics markets , partially offset by a decline in agricultural market conditions . on a segment basis , the increase in fiscal 2014 was primarily due to engineering and construction and mobile solutions , and to a lesser extent advanced devices . engineering and construction revenue increased $ 126.1 million , or 10 % , mobile solutions increased $ 21.7 million , or 5 % , and advanced devices increased $ 11.4 million , or 9 % , partially offset by a decrease in field solutions of $ 51.8 million , or 11 % , as compared to fiscal 2013. revenue growth within engineering and construction was driven primarily by organic growth due to
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the strategy is to purchase these events for approximately four to six times earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) of the events , with the expectation that the combined ebitda of the company from these events will receive a higher valuation multiple in the public markets . 28 assuming the availability of capital , stratus is targeting acquisitions of event properties . the goal is to aggressively build-up a critical mass of events , venues and companies that allow for numerous cross-event synergies . specifically : · on the expense side , to share sales , financial and operations resources across multiple events , creating economies of scale , increasing the company 's purchasing power , eliminating duplicative costs , and bringing standardized operating and financial procedures to all events , thus increasing the margins of all events . · on the revenue side , to present advertisers and corporate sponsors an exciting and diverse menu of demographics and programming that allows sponsors “ one stop shopping ” rather than having to deal with each event on its own , and in so doing , convert these sponsors into “ strategic partners. ” with these core operational synergies and subject to available capital , stratus intends to ( 1 ) expand its acquisition strategy of additional live sports and entertainment events and companies , ( 2 ) create entirely new event properties on the forefront of the “ experience economy ” and thus tap into people 's lifestyle passions , and ( 3 ) cross-promote the stratus white visa card with these events to enhance the results of the card and event businesses . the business plan of stratus is to provide integrated event management , television programming , marketing , talent representation and consulting services in the sports and other live entertainment industries . stratus 's event management , television programming and marketing services may involve : · managing sporting events , such as college bowl games , golf tournaments and auto racing team and events ; · managing live entertainment events , such as music festivals , car shows and fashion shows ; · producing television programs , principally sports entertainment and live entertainment programs ; and · marketing athletes , models and entertainers and organizations . the following discussion relates to the operations of stratus and should be read in conjunction with the notes to financial statements . description of our revenues , costs and expenses revenues our past revenues have included event revenues from ticket sales , sponsorships , concessions and merchandise , which are recorded when the event occurs , and stratus revenues from membership fees , fees on purchases and interest income earned on the redemption trust . gross profit ( loss ) our gross profit represents revenues less the cost of sales . our event cost of sales consists of the costs renting the venue , structures at the venue , concessions , and temporary personnel hired for the event . operating expenses our selling , general and administrative expenses include personnel , rent , travel , office and other costs for selling and promoting events and running the administrative functions of the company . legal and professional services are paid to outside attorneys , auditors and consultants are broken out separately given the size of these expenses relative to selling , general and administrative expenses . operating expenses also include expenses for impairment of goodwill , fair value expenses for issuing common stock for consideration less than the number of shares issued valued at market closing price on the day of issuance , and black-scholes expenses for options and warrants . interest expense our interest expense results from accruing interest on preferred shares , loans payable to shareholders , current portion of notes payable-related parties and notes payable . 29 critical accounting policies goodwill and intangible assets intangible assets consist of goodwill related to proelite and the stratus white visa white card that we acquired . goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed . we apply asc 350 “ goodwill and other intangible assets ” , which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach . the company purchased several events valued on the company 's balance sheet as intangible assets at the consideration paid for such assets , which generally include licensing rights , naming rights , merchandising rights and the right to hold such event in particular geographic locations . there was no goodwill assigned to any of these events and the value of the consideration paid for each event is considered to be the value for each related intangible asset . each event has separate accounts for tracking revenues and expenses per event and a separate account to track the asset valuation . a portion of the consideration used to purchase the stratus white visa card program was allocated to specific assets , as disclosed in the footnotes to the financial statements , with the difference between the specific assets and the total consideration paid for the program being allocated to goodwill . goodwill and intangible assets were as follows : replace_table_token_2_th the company reviews the value of intangible assets and related goodwill as part of its annual reporting process , which generally occurs in february or march of each calendar year . in between valuations , the company conducts additional tests if circumstances warrant such testing . to review the value of intangible assets and related goodwill as of december 31 , 2011 , the company followed accounting standards update ( “ asu ” ) 2011-08 and first examined the facts and circumstances for each event or business to determine if it was more likely than not that an impairment had occurred . story_separator_special_tag if this examination suggested it was more likely that an impairment had occurred , the company then compares discounted cash flow forecasts related to the asset with the stated value of the asset on the balance sheet . the objective is to determine the value of each asset to an industry participant who is a willing buyer not under compulsion to buy and the company is a willing seller not under compulsion to sell . the events are forecasted based on the assumption they are standalone entities and adjusted for historical performance and the facts and circumstances surrounding the event and the macroeconomic conditions that affect the event . for the freedom bowl , the cash flows for the event were forecast then a 5 % royalty rate was used to determine the value of the naming rights for this event . these forecasts are discounted at a range of discount rates determined by taking the risk-free interest rate at the time of valuation , plus premiums for equity risk to small companies in general , for factors specific to the company and the business . the total discount rates ranged from 25 % for the naming rights for the freedom bowl to 60 % for the stratus white program . terminal values are determined by taking cash flows in year five of the forecast , then applying an annual growth of 0 % to 4.0 % for the next seven years and discounting that stream of cash flows by the discount rate used for that section of the business . if the company determines the discount factor for cash flows should be substantially increased , or the event will not be able to begin operations when planned , or that facts and circumstances for each asset have changed , it is possible that the values for the intangible assets currently on the balance sheet could be substantially reduced or eliminated , which could result in a maximum charge to operations equal to the current carrying value of the intangible assets of $ 3,359,466 . 30 the following chart shows each event with an intangible value above $ 5,000 on the balance sheet as of december 31 , 2011 and the peak revenue and gross margin that each event achieved prior to acquisition . replace_table_token_3_th as of december 31 , 2011 , the following are the results and assumptions used for the valuation of intangibles assets and goodwill : replace_table_token_4_th key assumptions and risk factors for each of the events and stratus white are as follows . each event carries general risks of restarting an event after being dormant for a number of years and requires the availability of sufficient capital , along with the specific risks mentioned below . most events are held during the summer months and require approximately six months of lead time to adequately plan the event . rodeo drive concours d'elegance : in examining the facts and circumstances of this event , we determined the company had ownership of an llc to run the event and did not have naming rights or current trademarks for this event . further , a separate entity holds trademarks for a similar name and conducts the “ concours on rodeo drive ” every year . accordingly , the event was valued at the time a third party would save by using past agreements , vendor relationships , etc. , through purchase of the event . we determined the resulting value would be 25 hours saved times $ 100 per hour , or $ 2,500. santa barbara concours d'elegance : in 2011 , revenues from this event were $ 197,415. assuming sufficient funding , this event is forecast to have $ 649,468 in revenues for 2012 , compared to $ 880,000 in peak revenues in 2000 , and grow 12 % per year thereafter . core tour : this event has not been run since 2004. assuming sufficient funding , revenues are forecast to begin in 2013 at $ 1,134,000 , compared with peak revenues in 2002 of $ 2,300,000 , and grow 32 % per year thereafter . freedom bowl : this event was last conducted in 1996 , prior to the company 's acquisition of this event in 1998. the company plans to begin recertification in 2012 to allow for sufficient time for the national college athletics association to recertify this event for 2014 and strategic negotiations with target ncaa conference alignment . there can be no guarantee that certification will be achieved for 2014 or at all . assuming sufficient funding , revenues in 2014 are forecast to be $ 1,965,000 , compared with peak revenues in 1996 of $ 3,603,000 , and grow at 25 % per year thereafter . maui music festival : this event was last conducted in 2002 , prior to its acquisition by the company in 2003. in examining the facts and circumstances of this event , we determined the company had ownership of the books and records of the event and did not have naming rights or current trademarks for this event . accordingly , the event was valued at the time a third party would save by using past agreements , vendor relationships , etc. , through purchase of the event . it was determined that the resulting value would be 50 hours saved times $ 100 per hour , or $ 5,000 . 31 stratus white visa program : in may 2010 , we signed a co-branded credit card agreement with cornèr bank of switzerland to issue the stratus white visa card throughout europe . since that time , we have engaged a concierge service , developed new software and internet platform and taken other steps to bring stratus white to market . assuming sufficient and timely capital , revenues in 2012 are forecast to be $ 5,788,414 , but may be deferred in whole or in part to 2013 , depending on the timing of capital , and grow at 184 % per year for 2013 and 2014. revenues for 2015 and 2016 are forecast to grow 20 % per year .
| summary of contractual obligations set forth below is information concerning our known contractual obligations as of december 31 , 2011 that are fixed and determinable by year . replace_table_token_7_th financing activities during 2011 , we received cash proceeds of $ 3,989,359 and $ 9,406,051 from sales of common and preferred stock , respectively . during 2010 , we received cash proceeds of $ 2,310,000 and $ 625,720 from sales of common and preferred stock , respectively . off balance sheet arrangements we have no off balance sheet arrangements . item
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according to the altagamma studies , demand for the worldwide luxury goods industry is predicted to grow from approximately $ 251.5 billion in 2011 to between $ 314.4 billion and $ 327.5 billion in 2015. the accessories product category represented 27 % of total sales for the worldwide luxury goods industry in 2010 and was the fastest growing product category between 2005 and 2011 , growing at a compound annual rate of 9.9 % . we believe that we are well positioned to capitalize on the continued growth of the accessories product category , as it is one of our primary product category focuses . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenue and expenses during the reporting period . critical accounting policies are those that are the most important portrayal of our financial condition and results of operations , and that require our most difficult , subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain . while our significant accounting policies are described in more detail in the notes to our financial statements , our most critical accounting policies , discussed below , pertain to revenue recognition , impairment of long-lived assets , goodwill , share-based compensation and income taxes . in applying such policies , we must use some amounts that are based upon our informed judgments and best estimates . estimates , by their nature , are based upon judgments and available information . the estimates that we make are based upon historical factors , current circumstances and the experience and judgment of management . we evaluate our assumptions and estimates on an ongoing basis . revenue recognition we recognize retail store revenue upon sale of our products to retail consumers , net of estimated returns . wholesale revenue is recognized net of estimates for sales returns , discounts , markdowns and allowances , after merchandise is shipped and title and risk of loss are transferred to our wholesale customers . to arrive at net sales for retail , gross sales are reduced by actual returns and by a provision for estimated future customer returns , which is based on management 's review of historical and current customer returns . the amounts reserved for retail sales returns were $ 3.1 million , $ 1.7 million , and $ 2.3 million at march 30 , 2013 , march 31 , 2012 and april 2 , 2011 , respectively . to arrive at net sales for wholesale , gross sales are reduced by provisions for estimated future returns , based on current expectations , trade discounts , markdowns , allowances , operational chargebacks , as well as for certain cooperative selling expenses . total sales reserves for wholesale were $ 43.0 million , $ 30.4 million and $ 25.2 million at march 30 , 2013 , march 31 , 2012 , and april 2 , 2011 , respectively . royalty revenue generated from product licenses , which includes contributions for advertising , is based on reported sales of licensed products bearing our trademarks , at rates specified in the license agreements . these agreements are also subject to contractual minimum levels . royalty revenue generated by geography-specific licensing agreements is recognized as earned under the licensing agreements based on reported sales by licensees applicable to specified periods as outlined in the agreements . these agreements allow for the use of our trademarks to sell our branded products in certain geographic regions . long-lived assets all long-lived assets are recorded at cost less accumulated amortization or depreciation . for the purposes of impairment testing the group our long-lived assets according to their lowest level of use , such as aggregating and capitalizing all construction costs related to a retail store into leasehold improvements and those related to our wholesale business into shop-in-shops . our leasehold improvements are typically amortized over the life of the store lease , and our shop-in-shops are amortized over a three year period . we evaluate all long-lived assets , including fixed assets and intangible assets with finite useful lives , for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable . if the sum of our estimated undiscounted future cash flows is less than the carrying value , we recognize an impairment loss , measured as the amount by which the carrying value exceeds the fair value of the asset . these estimates of cash flow require significant management judgment and certain assumptions about future volume , sales and expense growth rates , devaluation and inflation . as such , these estimates may differ from actual cash flows . for fiscal 2013 , fiscal 2012 and fiscal 2011 , we recorded charges for impairments on fixed assets and intangible assets related to our retail segment of $ 0.7 , $ 3.3 million and $ 3.8 million , respectively . goodwill on an annual basis , or whenever impairment indicators exist , we perform an impairment assessment of goodwill . in the absence of any impairment indicators , goodwill is assessed during the fourth quarter of each fiscal year . these assessments are made with regards to reporting units within our wholesale and licensing segments , which are based on our current operating projections . judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business . future events could cause us to conclude that impairment indicators exist and therefore that goodwill is impaired . story_separator_special_tag prior to 23 fiscal 2012 , we performed our impairment testing for goodwill using the fair value approach , employing both the discounted cash flow method and market multiples method to determine the fair value of our reporting units ( step one ) . these methods utilized both our historical results and projected future results . during fiscal 2012 , we adopted a new accounting pronouncement related to goodwill impairment analysis , which allows entities to initially perform a qualitative analysis ( step zero ) of the fair value of its reporting units to determine whether it is necessary to undertake a quantitative ( two step ) goodwill analysis . in the fourth quarter of fiscal 2013 , we used this new guidance in our annual impairment analysis for goodwill , and concluded that the carrying amounts of all reporting units did not exceed their respective fair values . we will continue to perform this initial qualitative analysis in future years . should the results of this assessment result in either ambiguous or unfavorable conclusion we will perform additional quantitative testing consistent with the fair value approach mentioned above . the valuation methods used in the fair value approach , discounted cash flow and market multiples methods , require our management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units . if the carrying amount of a reporting unit exceeds its fair value , we would compare the implied fair value of the reporting unit goodwill with its carrying value . to compute the implied fair value , we would assign the fair value of the reporting unit to all of the assets and liabilities of that unit ( including any unrecognized intangible assets ) as if the reporting unit had been acquired in a business combination . the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill . if the carrying value of the reporting unit goodwill exceeded the implied fair value of the reporting unit goodwill , we would record an impairment loss to write down such goodwill to its implied fair value . the valuation of goodwill is affected by , among other things , our business plan for the future and estimated results of future operations . we have assessed our goodwill for impairment in our fourth quarter for the periods presented . there are no impairment charges related to goodwill for any of the fiscal periods presented . share-based compensation we grant share-based awards to certain of our employees and directors . these awards are measured at the grant date based on the fair value as calculated using the black-scholes option pricing model and are recognized as expense over the requisite service period , based on attainment of certain vesting requirements , as well as our completion of an initial public offering . determining the fair value of share-based awards at the grant date requires considerable judgment , including estimating expected volatility , expected term and risk-free rate . our expected volatility is based on the average volatility rates of similar actively traded companies over the past 4.5-9.5 years , which is our range of estimated expected holding periods . the expected holding period for a performance based option is based on the period to expiration which is generally 9-10 years . this approach was chosen as it directly correlates to our service period . the expected holding period for time-based vesting options is based on the simplified method using the vesting term of generally 4 years and the contractual term of 7 years , resulting in a holding periods ranging from 4.5-4.75 years . the simplified method was chosen as a means to determine the company 's holding period as prior to december 2011 there was no historical option exercise experience due to the company being privately held . the risk-free rate is derived from the zero-coupon u.s. treasury strips yield curve , the period of which relates to the grant 's holding period . if factors change and we employ different assumptions , the fair value of future awards and resulting share-based compensation expense may differ significantly from what we have estimated in the past . expense related to equity compensation during fiscal 2013 and 2012 was approximately $ 20.9 million and $ 27.0 million , respectively . there was no expense related to equity compensation for periods prior to fiscal 2012 , as all of our equity grants were not exercisable due to an initial public offering ( ipo ) being one of the vesting requirements . the weighted average grant date fair value of share options granted during fiscal 2013 , fiscal 2012 , and fiscal 2011 was $ 20.66 , $ 8.01 , and $ 3.08 , respectively . derivative financial instruments we use forward currency exchange contracts to manage exposure to fluctuations in foreign currency for certain of our transactions . we are exposed to risks on certain purchase commitments to foreign suppliers based on the value of the functional currency relative to the local currency of the supplier on the date of the commitment . as such , we enter into forward currency contracts that generally mature in 18 months or less and are consistent with the related purchase commitments . these contracts are recorded at fair value in our consolidated balance sheets as either an asset or liability , and are derivative contracts to hedge cash flow risks . certain of these contracts , are designated as hedges for accounting purposes , while the balance of these contracts are undesignated . accordingly , the changes in the fair value of those contracts not designated as hedges for accounting purposes , are , at the balance sheet date and upon maturity ( settlement ) , recorded in our cost of sales or operating expenses , in our consolidated statements of operations , as applicable to the transactions for which the forward exchange contracts were established .
| enhance our presence in department and specialty stores by converting more doors to shop-in-shops , and in continuing our expansion of our european operations . net wholesale sales from our european operations increased approximately 81.7 % during fiscal 2013 compared to fiscal 2012 , due largely to an increase in full-price doors to 1,034 from 650 in the same period last year . licensing royalties earned on our licensing agreements increased $ 21.8 million , or 33.5 % , to $ 87.0 million for fiscal 2013 , compared to $ 65.2 million for fiscal 2012. the increase in royalties was primarily due to royalties earned on licensing agreements related to sales of watches . gross profit gross profit increased $ 553.5 million , or 73.5 % , to $ 1,306.6 million during fiscal 2013 , compared to $ 753.1 million for fiscal 2012. gross profit as a percentage of total revenue increased to 59.9 % during fiscal 2013 , compared to 57.8 % during fiscal 2012. this increase in gross profit margin in the aggregate was primarily due to a decrease in sales allowances and markdowns , as well as experiencing a more favorable product mix , during fiscal 2013 as compared to fiscal 2012. this contributed to an increase in gross profit margin in our retail and wholesale segments individually by approximately 220 basis points and 300 basis points , respectively . the increase in gross profit margin in our retail segment was due primarily to sales of higher margin product as well as a decrease in markdowns given during fiscal 2013 as compared to fiscal 2012. the increase in gross profit margin in our wholesale segment resulted largely from a decrease in discounts and allowances given during fiscal 2013 as compared to fiscal 2012. total operating expenses total operating expenses increased $ 171.1 million , or 33.9 % , to $ 676.6 million during fiscal 2013 , compared to $ 505.4 million for fiscal 2012. total operating expenses decreased
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the decrease was driven by the exiting of the marketing applications business . this was partially offset by an increase in marketing spend and regional selling expense due to investments in demand creation , primarily in the americas region . r & d expenses increased $ 93 million or 44 % due to the company no longer capitalizing certain software development costs resulting from the transition to agile development methodologies . the company did not capitalize any r & d costs in 2017 compared to $ 59 million in 2016. these development costs are now expensed as incurred as r & d expense . the increase in r & d expense was also due to new strategic initiatives relating to our cloud offerings . in 2016 , the company recognized an impairment of goodwill of $ 57 million and acquired intangibles of $ 19 million to adjust the marketing applications business , which was sold on july 1 , 2016 , to its fair value less cost to sell . in addition , the company recorded a $ 4 million impairment charge related to the sale of its corporate airplane . other expense , net replace_table_token_7_th in 2018 , other expense , net is comprised primarily of interest expense on long-term debt , partially offset by interest income earned on our cash and cash equivalents . interest income and interest expense increased due to increases in interest rates . in 2017 , the increase in interest expense and interest income compared to 2016 was due to an increase in interest rates . interest expense also increased due to the use of our revolving credit facility . 30 income taxes the effective income tax rate for the following years ended december 31 was as follows : replace_table_token_8_th the 2018 and 2017 effective tax rates were impacted by the passage of the tax cuts and jobs act of 2017 ( the “ tax act ” ) , which was signed into law on december 22 , 2017 , making significant changes to the united states internal revenue code . changes include , but are not limited to , a corporate tax rate decrease from 35 % to 21 % effective for tax years beginning after december 31 , 2017 , the transition of u.s international taxation from a worldwide tax system to a modified territorial tax system , and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of december 31 , 2017. on december 22 , 2017 , staff accounting bulletin no . 118 ( `` sab 118 '' ) was issued to address the application of u.s. generally accepted accounting principles ( `` gaap '' ) in situations when a registrant does not have the necessary information available , prepared , or analyzed ( including computations ) in reasonable detail to complete the accounting for certain income tax effects of the tax act . for the year ended december 31 , 2018 , the company recorded $ 6 million of tax benefit in accordance with sab 118 as an adjustment to the provisional estimates resulting from additional regulatory guidance available as of the date of this filing and changes in interpretations and assumptions the company initially made because of the tax act . this resulted in an overall income tax benefit for the period . the 2017 effective tax rate was impacted by a net $ 126 million of additional provisional income tax expense recorded in the fourth quarter of 2017 related to the tax act . the provisional amount related to the one-time transition tax expense of $ 145 million on the mandatory deemed repatriation of cumulative foreign earnings of $ 1.3 billion , which the company will pay over an 8-year period through 2025. the company also recorded a provisional benefit of $ 19 million , a majority of which related to the re-measurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future . the 2016 effective tax rate was impacted by the $ 57 million of goodwill impairment charge recorded in the first quarter of 2016 , all of which was treated as a permanent non-deductible tax item . in addition , a discrete tax charge of $ 22 million was recorded in the third quarter of 2016 for the tax impact on the sale of the marketing applications business , which occurred on july 1 , 2016. in the fourth quarter of 2016 , the company recorded $ 8 million of tax expense associated with the issuance of new united states treasury regulations under internal revenue code section 987 on december 7 , 2016 , which clarified how companies calculate foreign currency translation gains and losses for income tax purposes for branches whose accounting records are kept in a currency other than the currency of the company . also , in the fourth quarter of 2016 , the company elected to early adopt accounting standards update 2016-09 , improvements to employee share-based payment accounting . as a result , the company incurred a $ 5 million discrete tax expense associated with the net shortfall arising from 2016 equity compensation vesting and exercises . revenue and gross profit by operating segment effective july 1 , 2016 , following the sale of the marketing applications business , teradata is managing its business in two operating segments : ( 1 ) americas region ( north america and latin america ) ; and ( 2 ) international region ( europe , middle east , africa , asia pacific and japan ) . for purposes of discussing results by segment , management excludes the impact of certain items , consistent with how management evaluates the performance of each segment . this format is useful to investors because it allows analysis and comparability of operating trends . it also includes the same information that is used by teradata management to make decisions regarding the segments and to assess financial performance . story_separator_special_tag the chief operating decision maker , who is our president and chief executive officer , evaluates the performance of the segments based on revenue and multiple profit measures , including segment gross profit . for management reporting purposes , assets are not allocated to the segments . our segment results are reconciled to total company results reported under gaap in note 13 of notes to consolidated financial statements . prior period segment information has been reclassified to conform to the current period presentation . the following table presents revenue and operating performance by segment for the years ended december 31 : 31 replace_table_token_9_th americas : 2018 compared to 2017 - revenue decreased 6 % . an increase in recurring revenue of 8 % was offset by a decrease in perpetual software licenses and hardware . both were driven by the shift to subscription-based transactions . segment gross profit as a percentage of revenues was lower primarily due to lower perpetual revenue margin from a higher perpetual revenue mix of hardware as some customers continued to purchase hardware upfront while buying software on a subscription basis . 2017 compared to 2016 - revenue decreased 11 % . the revenue decline was driven by our customers ' movement to subscription-based contract options , which results in revenue being recognized over time instead of upfront . americas had a higher percent of subscription-based transactions in 2017 than international . segment gross profit as a percentage of revenues was lower , driven by lower perpetual revenue margin from a higher perpetual revenue mix of hardware versus software revenue due to customers moving to subscription-based options . consulting margins were also lower and impacted by investments that we made in our consulting business to drive increased consumption of teradata 's offerings . international : 2018 compared to 2017 - revenue increased by 8 % , which included a 1 % favorable impact from foreign currency fluctuations . the increase was driven by both recurring revenue as well as perpetual software and hardware . the increase in recurring revenue is consistent with our strategy to shift to subscriptions . segment gross profit as a percentage of revenues was higher primarily due to growth in higher margin recurring revenue and an increase in consulting services gross margin as the company continues to focus on making operational improvements in its consulting business . 2017 compared to 2016 - revenue increased 5 % . the revenue increase was driven by improved perpetual revenues in europe , middle east and africa ( `` emea '' ) as well as the asia pacific and japan ( `` asia pacific '' ) regions . segment gross profit as a percentage of revenues was down in 2017 driven by lower consulting margins from investments that we made in our consulting business to drive increased consumption of teradata 's offerings . marketing applications : t he marketing applications business was sold on july 1 , 2016. change in segment reporting : effective january 1 , 2019 , the company implemented an organizational change to its operating segments and will report future results under three separate segments : ( 1 ) the americas region , ( 2 ) the emea region , and ( 3 ) the asia pacific region , to align with the way the company 's management operates and reviews the results of these businesses . 32 financial condition , liquidity and capital resources teradata ended 2018 with $ 715 million in cash and cash equivalents , a $ 374 millio n decrease from the december 31 , 2017 balance , after using approximately $ 300 million for repurchases of company common stock during the year . cash provided by operating activities increased by $ 40 million to $ 364 million in 2018 . the increase in cash provided by operating activities was primarily due to differences in timing of various components of working capital . teradata 's management uses a non-gaap measure called “ free cash flow , ” which is not a measure defined under gaap . we define free cash flow as net cash provided by operating activities less capital expenditures for property and equipment and additions to capitalized software . free cash flow is one measure of assessing the financial performance of the company , and this may differ from the definition used by other companies . the components that are used to calculate free cash flow are gaap measures taken directly from the consolidated statements of cash flows . we believe that free cash flow information is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations . in particular , free cash flow indicates the amount of cash available after capital expenditures for , among other things , investments in the company 's existing businesses , strategic acquisitions and repurchase of teradata common stock . free cash flow does not represent the residual cash flow available for discretionary expenditures since there may be other non-discretionary expenditures that are not deducted from the measure . this non-gaap measure should not be considered a substitute for , or superior to , cash flows from operating activities under gaap . the table below shows net cash provided by operating activities and capital expenditures for the following periods : replace_table_token_10_th financing activities and certain other investing activities are not included in our calculation of free cash flow . other investing activities for 2018 include release of a hold-back payment from a previous year 's acquisition .
| 27 results from operations for the years ended december 31 , 2018 , 2017 and 2016 revenue replace_table_token_4_th 2018 compared to 2017 - total revenue was up $ 8 million in 2018. recurring revenue grew 10 % , driven by our movement to subscription-based transactions from perpetual software licenses and hardware transactions , which is consistent with our strategy . under subscription models , we recognize revenue over time as opposed to the upfront recognition under the perpetual model . we expect to continue to have a significant percent of bookings be subscription-based , consistent with our overall strategy and to continue to grow recurring revenue and arr year-over-year . revenues from perpetual software licenses and hardware decreased 21 % , including a 1 % favorable impact from foreign currency fluctuations . we expect perpetual revenues to continue to decline as customers switch to our subscription-based offerings . however , some customers continue to purchase on a perpetual basis . perpetual revenue is primarily hardware-related , as software is generally being sold on subscription . we expect that perpetual revenue will continue to decline in 2019 and will continue to be predominantly hardware-related . consulting services revenue decreased 2 % as we are shifting our strategy relating to our consulting business to focus on megadata companies and , within that target market , to prioritize higher value , higher margin , business-related consulting , which is intended to increase consumption of vantage , our software-based analytics platform . we expect consulting revenue to continue to decline as the company implements this strategic change and focus . as a portion of the company 's operations and revenue occur outside the united states , and in currencies other than the u.s. dollar , the company is exposed to fluctuations in foreign currency exchange rates . based on currency rates as of january 31 , 2019 , teradata is expecting one percentage point negative impact from currency translation on our 2019 full year projected revenue growth rate . included below are financial and performance growth metrics for 2018 : at the end of 2018 , arr was $ 1.308 billion , a 10 % increase from $ 1.184 billion at
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in addition during 2011 , we recorded non-cash charges of an additional $ 0.1 million relating to the valuation of our common stock issued to lincoln park capital partners , llc . please refer to note 12 , shareholders ' equity , to the consolidated financial statements for a discussion of these transactions . restructuring we incurred no restructuring expense during 2011. for the twelve months ended december 31 , 2010 , we recognized restructuring expenses of $ 26 thousand . these expenses are associated with the relocation of our remaining manufacturing equipment and operations in solon , ohio to a third-party warehouse facility located in california . during the twelve months ended december 31 , 2009 , we incurred restructuring expenses of $ 0.1 million associated with relocating our manufacturing operations in the united states from solon , ohio to mexico . other income and expenses we had interest expense of $ 0.9 million , $ 0.6 million , and $ 88 thousand in 2011 , 2010 and 2009 , respectively . interest expense is primarily related to our debt , which includes the amortization of debt discounts . interest income was $ 4 thousand in 2011 compared to $ 6 thousand in 2010 and $ 15 thousand in 2009. interest income consists of interest earned on deposits . we have certain long-term leases . payments due under these leases are disclosed below and in note 11 , commitments and contingencies , to the consolidated financial statements and related notes included elsewhere in this report . discontinued operations as part of our strategy of evaluating the viability of our non-core businesses and our aggressive pursuit of capital funding , we determined that our german subsidiary , lichtleit-fasertechnik ( lbm ) , was not directly aligned with our objective to become a leading provider of turnkey , comprehensive energy-efficient lighting solutions . therefore , in the third quarter of 2009 , we committed to a plan to sell our german subsidiary , lbm . in december 2009 , we completed the sale of our ownership in lbm for $ 0.2 million comprised of cash and a promissory note . furthermore , we will receive an earn-out equal to ten percent ( 10 % ) of post-acquisition , pre-amortization , pre-tax profit for a period of 24 months commencing january , 2010. in march 2011 , the company received an earn-out payment in the amount of $ 27 thousand . excluding this earn-out , we recorded a loss on disposal of subsidiary of $ 0.7 million . as part of this transaction , the purchaser assumed all rights to both tangible and intangible assets as well as all of the liabilities of lbm . there were no net sales or losses from discontinued operations in 2011 or 2010. net sales from discontinued operations for 2009 were $ 1.5 million . losses from discontinued operations , net of taxes were $ 1.2 million in 2009. included in the 2009 loss from discontinued operations , net of taxes was the loss on the sale of lbm of $ 0.7 million , and an impairment charge of $ 0.2 million that arose when the office building owned by lbm was sold during the restructuring of lbm into a sales office . we have reported the business described above as discontinued operations for all periods presented . for further information about discontinued operations , see note 4 , discontinued operations , to the consolidated financial statements . income taxes we provided a full valuation allowance against our united states deferred tax assets in 2011 , 2010 and 2009. the net deferred tax assets for 2011 , 2010 and 2009 were $ 2 thousand , $ 14 thousand , and $ 11 thousand for our united kingdom subsidiary , which has been profitable in prior years . we had no net deferred liabilities at december 31 , 2011 , 2010 or 2009. there were no federal tax expenses for the united states operations in 2011 , 2010 and 2009 , as any expected benefits were offset by an increase in the valuation allowance . 24 net loss the net loss was $ 6.1 million for 2011 , a decrease of $ 2.5 million from our net loss of $ 8.5 million for 2010. included in the net loss for 2010 are non-cash charges of $ 2.0 million related to a charge for the impairment of long-lived assets and the valuation of equity instruments . this compares to the net loss of $ 11.0 million in 2009. liquidity and capital resources cash and cash equivalents at december 31 , 2011 , our cash and cash equivalents were $ 2.1 million , compared to $ 4.1 million at december 31 , 2010. this 2011 balance includes restricted cash of $ 19 thousand , compared to $ 0.1 million in 2010 , which relates to funds received from a grant from/for a branch of the united states government . we had $ 2.5 million in borrowings as of december 31 , 2011 and $ 1.8 million as of december 31 , 2010. the net decrease in cash and cash equivalents was $ 2.0 million for the twelve months ended december 31 , 2011. at december 31 , 2010 , our cash and cash equivalents were $ 4.1 million , compared to $ 1.1 million at december 31 , 2009. we had $ 1.8 million in borrowings as of december 31 , 2010 and $ 0.7 million in borrowings as of december 31 , 2009. the net increase in cash and cash equivalents was $ 3.0 million for the twelve months ended december 31 , 2010. cash proceeds of $ 3.8 million were received in november 2009 from the issuance of rights to purchase common stock . on december 31 , 2009 , $ 3.7 million of cash was disbursed related to the acquisition of src and related bond securitization . excluding bonding securitization , net cash disbursements related to the acquisition of src were $ 1.2 million . story_separator_special_tag in november , 2009 , we received an additional $ 3.3 million in equity financing , net of expenses by selling 4,813,000 shares of common stock in a registered offering . the investment was made by numerous current energy focus shareholders . the investment was made under our company 's registration statement for a $ 3.5 million common stock subscription rights offering . under the terms of the rights offering , we distributed , at no charge to our shareholders , transferable rights to purchase up to 3,500,000 of our common stock at the established subscription price per share of $ 0.75 , which was set by our board of directors . at the time the offering began , we distributed to each shareholder one transferable right for each share of common stock owned by the shareholder . each right entitled the holder to purchase one share of our common stock , par value $ 0.0001 per share , subject to a maximum of 4,600,000 shares to be issued in the offering . shareholders were entitled to subscribe for shares not subscribed for by other shareholders . cash ( used in ) provided by operating activities net cash ( used in ) provided by operating activities primarily consists of net losses adjusted by non-cash items , including depreciation , amortization , stock-based compensation , loss on impairment , and the effect of changes in working capital . in 2011 , net cash used in continuing operating activities was $ 2.6 million compared to net cash provided of $ 1.5 million in 2010 and net cash used of $ 10.1 million in 2009. cash decreased during 2011 by a net loss of $ 6.1 million , which was partially offset by $ 2.4 million of non-cash charges to net income and a $ 1.0 million decrease in net assets and liabilities . cash increased in 2010 primarily due to $ 6.3 million of non-cash charges to income , a decrease in net assets and liabilities of $ 3.7 million , partially offset by an $ 8.5 million net loss . cash used in 2009 was $ 10.6 million and was the result of $ 11.0 million of net losses . there was no cash used in discontinued operating activities in 2011 or 2010. net cash used in discontinued operating activities was $ 0.4 million for 2009. cash used in investing activities net cash used in continuing investing activities was $ 0.2 million in 2011 and $ 0.3 million in 2010 , primarily for the purchase of property and equipment . net cash used in 2009 was $ 1.7 million , primarily for the acquisition of src . there was no cash provided by discontinued investing activities in 2011 or 2010. net cash provided by discontinued investing activities was $ 0.8 million for 2009 . 25 cash provided by financing activities net cash provided by continuing financing activities was $ 0.9 million in 2011 , compared to $ 1.8 million in 2010 and $ 2.4 million in 2009. in 2011 , cash proceeds from borrowings were $ 0.6 million and $ 0.7 million from a credit facility , which were reduced by $ 0.9 million for debt repayments . cash proceeds from stock issuances , net of expenses , provided an additional $ 0.5 million . in 2010 , proceeds from borrowings were $ 1.2 million and cash proceeds from stock issuances , net of expenses , provided an additional $ 0.7 million . in 2009 , proceeds from stock issuances , net of expenses , provided $ 3.5 million of additional working capital . also in 2009 , additional long-term borrowings of $ 0.6 million were reduced by debt repayments of $ 1.8 million . in 2011 , the cash provided by financing activities was the result of lincoln park capital fund llc purchases from a shelf registration . in 2010 , the cash provided by financing activities was primarily the result of us issuing a secured subordinated note payable to ef energy partners . the additional working capital provided by financing activities in 2009 was related to a subscription rights offering . there was no cash used in discontinued financing activities in 2011 or 2010. net cash used in discontinued financing activities was $ 0.4 million for 2009. the net decrease in cash of $ 2.0 million over the prior year was primarily the result of cash used by operating activities , which resulted in an ending cash balance of $ 2.1 million as of december 31 , 2011. this compares to a net increase in cash of $ 3.0 million in 2010 and a net decrease of $ 9.5 million in cash in 2009. debt credit facilities on december 22 , 2011 , we entered into a $ 4.5 million revolving line of credit with rosenthal & rosenthal . the total loan amount available to us under the line of credit is equal to 85 % of our net amount of eligible receivables , plus available inventory ( the lesser of 50 % of the lower of cost or market value of eligible inventory , or $ 0.3 million ) . the credit facility is secured by a lien on our domestic assets . the interest rate for borrowing on accounts receivable is 8.5 % , on inventories 10.0 % and on overdrafts 13.0 % . additionally , there is an annual 1 % facility fee on the entire amount of the credit facility , $ 4.5 million , payable at the beginning of the year . the credit facility is a three year agreement , expiring on december 31 , 2014 , unless terminated sooner . there are liquidated damages if the credit facility is terminated prior to december 31 , 2014 , which are based on the maximum credit facility amount then in effect . the damages are : 3 % if terminated prior to the first anniversary of the closing date , 2 % if terminated prior to the second anniversary of the closing date , and 1 % if terminated prior to the third anniversary of the closing date .
| of this amount , net sales for pool and commercial products increased $ 0.7 million , representing 34.9 % of total net sales , and net sales from government products/r & d services increased $ 2.2 million over 2009 , representing 8.8 % of total net sales . the increase in the net sales of the product segment is primarily related to a slight improvement in customer confidence as it relates to the economy and a general softening within the markets in which we serve . our solutions segment accounted for 56.3 % of our total sales for 2010 and was derived primarily from the public sector markets such as state and municipal governments . international sales we have a foreign manufacturing operation in the united kingdom , and net sales and expenses from these operations are denominated in local currency , thereby creating exposures to changes in exchange rates . fluctuations in this operation 's respective currency may have an impact on our business , results of operations , and financial position . we currently do not use financial instruments to hedge our exposure to exchange rate fluctuations with respect to our international operations . as a result , we may experience foreign currency translation gains or losses due to the volatility of other currencies compared to the united states dollar , which may positively or negatively affect our results of operations attributed to these operations . for continuing operations , international net sales accounted for approximately 15.6 % of net sales in 2011 , as compared to 10.9 % for 2010 , and 36.5 % for 2009. on a local currency basis , net sales increased 3.9 % for our united kingdom operation from 2010 levels . the breakdown of our global sales is as follows ( in thousands ) : replace_table_token_5_th gross profit we had gross profit of $ 5.2 million in 2011 compared to $ 6.4 million in 2010. total gross profit as a percentage of total net sales was 20.1 % in 2011 , compared to 18.2 % in 2010. the $ 1.2 million decrease in
| 14,000 |
” unconsolidated affiliate as a result of the dissolution of an unconsolidated subsidiary and discontinuation of its operations , the company recognized no impact for the year ended december 31 , 2018 , compared to a small loss during the year ended december 31 , 2017. income before income taxes income before income taxes increased $ 1.7 million to income of $ 1.2 million for the year ended december 31 , 2018 , compared to a loss of $ 0.5 million for the year ended december 31 , 2017 , primarily as a result of increased revenues and a reduction in expenses . income taxes generally , the company 's combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization and depreciation expense , stock based compensation , and corporate overhead not being deductible and income being attributable to certain states in which it operates . the company operates in four states which have relatively high tax rates : california , new york , illinois , and florida . as of december 31 , 2018 , the company had federal income tax loss carryforwards of $ 0.5 million . the u.s. tax cuts and jobs act ( “ the act ” ) reduced the u.s. statutory tax rate from 35 % to 21 % for years after 2017 and imposed a repatriation tax on deemed repatriated earnings of foreign subsidiaries . the company remeasured all deferred taxes as of december 31 , 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized . we recognized a deferred tax benefit of $ 0.7 million attributable to the effects of the tax act in 2017. the company 's deemed repatriation liability is not deemed material due to a foreign deficit . net income net income increased to $ 0.9 million for the year ended december 31 , 2018 , from $ 0.2 million , for the year ended december 31 , 2017 , primarily due to an increase in operating income , partially offset by an increase in income tax expense . 13 liquidity and capital resources the company 's cash balance increased to $ 6.7 million at december 31 , 2018 from $ 4.3 million at december 31 , 2017. the cash balance increased primarily as a result of $ 3.8 million net cash provided by operating activities , partially offset by $ 0.4 million cash used in investing activities , and $ 0.7 million cash used in financing activities . net cash provided by operating activities of $ 3.8 million was primarily the result of increases in net income and accounts payable and accrued liabilities and a decrease in accounts receivable , partially offset by a decrease in amounts due to models . the $ 0.4 million cash used in investing activities was attributable to purchases of property and equipment , including software , office furniture , and computer equipment . the $ 0.7 million of cash used in financing activities was attributable to purchase of treasury stock and principal payments on the company 's term loan , partially offset by proceeds from the term loan . the company 's primary liquidity needs are for working capital associated with performing services under its client contracts and servicing its term loan . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . based on 2019 budgeted and year-to-date cash flow information , management believes that the company has sufficient liquidity to meet its projected operational expenses and capital expenditure requirements for the next twelve months . amegy bank credit agreement the company has a credit agreement with amegy bank which provides a $ 4.0 million revolving line of credit and previously provided up to a $ 3.0 million term loan which could be drawn through october 24 , 2016. amounts outstanding under the term loan reduce the availability under the revolving line of credit . the revolving line of credit is also subject to a borrowing base derived from 80 % of eligible accounts receivable ( as defined ) and the company 's minimum net worth covenant of $ 20.0 million . the revolving line of credit bears interest at prime plus 0.50 % payable monthly . as of december 31 , 2018 , the company had a $ 0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit and had additional borrowing capacity of $ 1.2 million . the revolving line of credit presently expires october 24 , 2019. on august 16 , 2016 , the company drew $ 2.7 million of the term loan and used the proceeds to fund the purchase of shares of its common stock in a private transaction . the term loan bears interest at 4.5 % per annum and is payable in monthly payments of interest only until november , 2016 , followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on october 24 , 2020. on july 16 , 2018 , the company amended its credit agreement with amegy bank to provide for an additional term loan of up to $ 1.0 million that could be drawn by the company through july 12 , 2019 , for the purpose of repurchases of its common stock . the additional term loan is evidenced by a promissory note bearing interest at 5.15 % per annum and payable in monthly installments of interest only through july 12 , 2019. thereafter , the note is payable in monthly installments sufficient to fully amortize the outstanding principal balance in 60 months with the balance of principal and accrued interest due on july 12 , 2023. the amendment also revised the calculation of the fixed charge coverage ratio for the three quarters following the maturity date of the previous term loan story_separator_special_tag ” unconsolidated affiliate as a result of the dissolution of an unconsolidated subsidiary and discontinuation of its operations , the company recognized no impact for the year ended december 31 , 2018 , compared to a small loss during the year ended december 31 , 2017. income before income taxes income before income taxes increased $ 1.7 million to income of $ 1.2 million for the year ended december 31 , 2018 , compared to a loss of $ 0.5 million for the year ended december 31 , 2017 , primarily as a result of increased revenues and a reduction in expenses . income taxes generally , the company 's combined effective tax rate is high relative to reported net income as a result of certain amounts of amortization and depreciation expense , stock based compensation , and corporate overhead not being deductible and income being attributable to certain states in which it operates . the company operates in four states which have relatively high tax rates : california , new york , illinois , and florida . as of december 31 , 2018 , the company had federal income tax loss carryforwards of $ 0.5 million . the u.s. tax cuts and jobs act ( “ the act ” ) reduced the u.s. statutory tax rate from 35 % to 21 % for years after 2017 and imposed a repatriation tax on deemed repatriated earnings of foreign subsidiaries . the company remeasured all deferred taxes as of december 31 , 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized . we recognized a deferred tax benefit of $ 0.7 million attributable to the effects of the tax act in 2017. the company 's deemed repatriation liability is not deemed material due to a foreign deficit . net income net income increased to $ 0.9 million for the year ended december 31 , 2018 , from $ 0.2 million , for the year ended december 31 , 2017 , primarily due to an increase in operating income , partially offset by an increase in income tax expense . 13 liquidity and capital resources the company 's cash balance increased to $ 6.7 million at december 31 , 2018 from $ 4.3 million at december 31 , 2017. the cash balance increased primarily as a result of $ 3.8 million net cash provided by operating activities , partially offset by $ 0.4 million cash used in investing activities , and $ 0.7 million cash used in financing activities . net cash provided by operating activities of $ 3.8 million was primarily the result of increases in net income and accounts payable and accrued liabilities and a decrease in accounts receivable , partially offset by a decrease in amounts due to models . the $ 0.4 million cash used in investing activities was attributable to purchases of property and equipment , including software , office furniture , and computer equipment . the $ 0.7 million of cash used in financing activities was attributable to purchase of treasury stock and principal payments on the company 's term loan , partially offset by proceeds from the term loan . the company 's primary liquidity needs are for working capital associated with performing services under its client contracts and servicing its term loan . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . based on 2019 budgeted and year-to-date cash flow information , management believes that the company has sufficient liquidity to meet its projected operational expenses and capital expenditure requirements for the next twelve months . amegy bank credit agreement the company has a credit agreement with amegy bank which provides a $ 4.0 million revolving line of credit and previously provided up to a $ 3.0 million term loan which could be drawn through october 24 , 2016. amounts outstanding under the term loan reduce the availability under the revolving line of credit . the revolving line of credit is also subject to a borrowing base derived from 80 % of eligible accounts receivable ( as defined ) and the company 's minimum net worth covenant of $ 20.0 million . the revolving line of credit bears interest at prime plus 0.50 % payable monthly . as of december 31 , 2018 , the company had a $ 0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit and had additional borrowing capacity of $ 1.2 million . the revolving line of credit presently expires october 24 , 2019. on august 16 , 2016 , the company drew $ 2.7 million of the term loan and used the proceeds to fund the purchase of shares of its common stock in a private transaction . the term loan bears interest at 4.5 % per annum and is payable in monthly payments of interest only until november , 2016 , followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on october 24 , 2020. on july 16 , 2018 , the company amended its credit agreement with amegy bank to provide for an additional term loan of up to $ 1.0 million that could be drawn by the company through july 12 , 2019 , for the purpose of repurchases of its common stock . the additional term loan is evidenced by a promissory note bearing interest at 5.15 % per annum and payable in monthly installments of interest only through july 12 , 2019. thereafter , the note is payable in monthly installments sufficient to fully amortize the outstanding principal balance in 60 months with the balance of principal and accrued interest due on july 12 , 2023. the amendment also revised the calculation of the fixed charge coverage ratio for the three quarters following the maturity date of the previous term loan
| wilhelmina 's primary sources of revenue include : ( i ) revenues from principal relationships where the gross amount billed to the client is recorded as revenue when earned and collectability is reasonably assured ; and ( ii ) separate service charges , paid by clients in addition to the booking fees , which are calculated as a percentage of the models ' booking fees and are recorded as revenues when earned and collectability is reasonably assured . see “ critical accounting policies - revenue recognition. ” wilhelmina provides professional services . therefore , salary and service costs represent the largest part of the company 's operating expenses . salary and service costs are comprised of payroll and related costs and travel , meals and entertainment ( “ t & e ” ) to deliver the company 's services and to enable new business development activities . 11 analysis of consolidated statements of operations replace_table_token_3_th * not meaningful service revenues the company 's service revenues fluctuate in response to its clients ' willingness to spend on advertising and the company 's ability to have the desired talent available . the 6.3 % increase in total service revenues for the year ended december 31 , 2018 when compared to the year ended december 31 , 2017 was primarily due to an increase in core model bookings and an increase in bookings in the aperture and wilhelmina studio divisions . license fees and other income license fees and other income include management and administrative services from an unconsolidated affiliate and franchise revenues from independently owned model agencies that use the wilhelmina trademark and various services provided by the company . license fees increased 76.5 % for the year ended december 31 , 2018 , when compared to the year ended december 31 , 2017 , primarily due to the timing of payments received and increased fees from existing affiliates . gross profit margin gross profit margins as a percentage of revenue for the year ended december 31 , 2018 , when compared to the year ended december 31 , 2017 was relatively unchanged . salaries and service costs salaries and service costs
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the company utilized its remaining available operating loss carry-forwards in 2011. tax expense in 2010 related primarily to alternative minimum taxes as a result of the utilization of available net operating loss carry-forwards for which valuation allowances existed . liquidity and capital resources cash and cash equivalents were $ 3.6 million at december 31 , 2012 , a decrease of $ 0.3 million from $ 3.9 million at december 31 , 2011. capital expenditures for 2012 were $ 5.1 million compared with $ 2.3 million in 2011 and $ 1.8 million in 2010. expenditures in 2012 were mainly for folding cartons equipment and facilities improvements including a seven color printing press which cost approximately $ 2.0 million and a facilities power expansion project which cost approximately $ 1.6 million . expenditures in 2011 were mainly for folding cartons equipment and facilities improvements . the spending in 2010 was primarily related to folding cartons equipment and system related investments . we anticipate approximately $ 1.8 to $ 2.1 million in capital spending for 2013. 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 , 2012 , $ 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 , 2012. the amount of the line of credit that was unused and available to the company at december 31 , 2012 was $ 2.8 million . 12 there were no shares repurchased in 2012. the company repurchased 182,539 and 165,572 shares in 2011 and 2010 at an average price of $ 5.53 and $ 4.74 , respectively . the company has authorization to repurchase 200,000 shares at december 31 , 2012. the closing price of the company 's stock at december 31 , 2012 was $ 6.78. at this price , the repurchase of 200,000 shares would require $ 1.4 million . we believe cash and cash equivalents , which totaled $ 3.6 million at december 31 , 2012 , in combination with cash expected to be generated from our 2013 operations , can meet our obligations , other working capital requirements and capital expenditure needs in 2013. contractual obligations ( in thousands ) replace_table_token_2_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 253,000 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 2028 , 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 $ 25 thousand in 2012 , $ 16 thousand in 2011 and $ 413 thousand in 2010. recently issued accounting standards a variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and certain regulatory agencies . due to the tentative and preliminary nature of such proposed standards , the company has not yet determined the effect , if any , the implementation of such proposed standards would have on the consolidated financial statements . accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized when title , ownership , and risk of loss pass to the customer , all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and normally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . a valuation reserve exists for inventory likely to be written-off or written-down . 13 deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred tax assets at december 31 , 2012 of $ 4.0 million related to story_separator_special_tag the company utilized its remaining available operating loss carry-forwards in 2011. tax expense in 2010 related primarily to alternative minimum taxes as a result of the utilization of available net operating loss carry-forwards for which valuation allowances existed . liquidity and capital resources cash and cash equivalents were $ 3.6 million at december 31 , 2012 , a decrease of $ 0.3 million from $ 3.9 million at december 31 , 2011. capital expenditures for 2012 were $ 5.1 million compared with $ 2.3 million in 2011 and $ 1.8 million in 2010. expenditures in 2012 were mainly for folding cartons equipment and facilities improvements including a seven color printing press which cost approximately $ 2.0 million and a facilities power expansion project which cost approximately $ 1.6 million . expenditures in 2011 were mainly for folding cartons equipment and facilities improvements . the spending in 2010 was primarily related to folding cartons equipment and system related investments . we anticipate approximately $ 1.8 to $ 2.1 million in capital spending for 2013. 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 , 2012 , $ 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 , 2012. the amount of the line of credit that was unused and available to the company at december 31 , 2012 was $ 2.8 million . 12 there were no shares repurchased in 2012. the company repurchased 182,539 and 165,572 shares in 2011 and 2010 at an average price of $ 5.53 and $ 4.74 , respectively . the company has authorization to repurchase 200,000 shares at december 31 , 2012. the closing price of the company 's stock at december 31 , 2012 was $ 6.78. at this price , the repurchase of 200,000 shares would require $ 1.4 million . we believe cash and cash equivalents , which totaled $ 3.6 million at december 31 , 2012 , in combination with cash expected to be generated from our 2013 operations , can meet our obligations , other working capital requirements and capital expenditure needs in 2013. contractual obligations ( in thousands ) replace_table_token_2_th ( 1 ) represents a forty-nine year lease beginning november 2003 for 253,000 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 2028 , 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 $ 25 thousand in 2012 , $ 16 thousand in 2011 and $ 413 thousand in 2010. recently issued accounting standards a variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and certain regulatory agencies . due to the tentative and preliminary nature of such proposed standards , the company has not yet determined the effect , if any , the implementation of such proposed standards would have on the consolidated financial statements . accounting policies our financial statements and accompanying notes are prepared in accordance with u.s. generally accepted accounting principles . the preparation of our financial statements requires management to make estimates , assumptions and judgments that affect the amounts reported . these estimates , assumptions and judgments are affected by management 's application of accounting policies , which are discussed in note 2 of item 8 , financial statements and supplementary data of this report . actual results may differ from these estimates under different assumptions or conditions . the critical accounting policies have been reviewed with the audit committee of our board of directors . revenue recognition revenue is recognized when title , ownership , and risk of loss pass to the customer , all of which occurs upon shipment or delivery of the product and is based on the applicable shipping terms . accounts receivable and allowance for doubtful accounts a trade receivable is recorded at the value of the sale . we perform periodic credit evaluations of our customers ' financial condition and normally do not require collateral . generally , amounts not collected from customers within 120 days of the due date of the invoice are credited to an allowance for doubtful accounts . after collection efforts have been exhausted , uncollected balances are charged off to the allowance . inventory valuation inventories are stated at the lower of cost or market , with cost being determined in accordance with the first-in , first-out method . costs included in inventory are the cost to purchase the raw material , the direct labor incurred on work in progress and finished goods , and an overhead factor based on other indirect manufacturing costs incurred . a valuation reserve exists for inventory likely to be written-off or written-down . 13 deferred tax asset and liability valuation allowances we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities . deferred tax assets are reduced , if deemed necessary , by a valuation allowance for the amount of tax benefits not expected to be realized . investment tax credits are recognized on the flow through method . specifically and with respect to deferred tax assets , we had gross deferred tax assets at december 31 , 2012 of $ 4.0 million related to
| because we provide products such as personalized dinner and cocktail napkins , small boxes for sundries at events and other celebration type items for the retail and corporate markets , this product line can be heavily impacted by economic downturns . we can compete with much larger companies in the personalized print industry and have developed a strong brand in krepe-kraft among event planners and wedding coordinators . through our websites , www.partybasics.com and myweddingbasics.com , our products are available directly to the retail market . we also provide our products to third-party web-stores . revenue 2012 compared with 2011 for fiscal 2012 , revenue was $ 59.3 million compared with $ 56.2 million in 2011 , an increase of $ 3.1 million or 5.4 % . the custom folding cartons product line had sales of $ 46.0 million in 2012 , an increase of 7.4 % from 2011 , primarily the result of increased business volume from several large existing customers , offset partially by decreased waste sales due to receding market conditions and decreased business from several large customers . the stock packaging product line had sales of $ 10.2 million in 2012 , an increase of 1.2 % from 2011. the slight increase in customer sales was partially offset by decreased waste sales resulting from receding market conditions . the personalized print product line had sales of $ 2.7 million in 2012 , down $ 0.2 million , or 5.7 % , from $ 2.9 million in 2011. the decline from the prior year was mainly due to continued weakness in general business conditions . 2011 compared with 2010 for fiscal 2011 , revenue was $ 56.2 million which was an increase of 15.4 % from $ 48.7 million in 2010. the custom folding cartons product line had sales of $ 42.8 million in 2011 , an increase of 19.9 % from 2010 , mainly attributable to additional business volume from several large existing customers , sales to three new customers and increased waste revenue due to improved market conditions in the recycled paperboard market , offset partially by decreased business from
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interest expense . interest expense was $ 338 in 2019 compared with $ 378 in 2018 . the decrease of $ 40 , or 11 % , 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 2019 that did not recur in 2019. interest expense was $ 378 in 2018 compared with $ 496 in 2017 . the decrease of $ 118 , or 24 % , was the result of higher costs incurred in 2017 related to the early redemption of the company 's outstanding debt than were incurred during 2018 , as well as lower debt outstanding . other expense ( income ) , net . other expense , net was $ 122 in 2019 compared with $ 79 in 2018 . the increase of $ 43 was primarily due to an increase in deferred compensation arrangements and related investment performance 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 favorable foreign currency movements . other expense , net was $ 79 in 2018 compared with other income , net of $ 486 in 2017 . the decrease in other income , net of $ 565 was the result of gains recorded during 2017 related to the sale of a portion of arconic 's investment in alcoa corporation common stock of $ 351 , the debt-for-equity exchange ( in april and may 2017 , the company acquired a portion of its outstanding notes held by two investment banks ( the “ investment banks ” ) in exchange for cash and the company 's remaining 12,958,767 shares ( valued at $ 35.91 per share ) in alcoa corporation stock and recorded a gain of $ 167 ) , income associated with an adjustment to the contingent earn-out liability related to the firth rixson acquisition of $ 81 ( see note s to the consolidated financial statements in part ii , item 8 . ( financial statements and supplementary data ) of this form 10-k ) , and 39 income due to the reversal of a liability associated with a separation-related guarantee of $ 25 , none of which recurred in 2018 , and unfavorable foreign currency movements , somewhat offset by lower non-service related net periodic benefit cost and the benefit of $ 29 from establishing a tax indemnification receivable reflecting alcoa corporation 's 49 % share of a spanish tax reserve ( see note t to the consolidated financial statements in part ii , item 8 . ( financial statements and supplementary data ) of this form 10-k ) . income taxes . arconic 's effective tax rate was 18.3 % 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 a $ 94 net 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 , a $ 24 net benefit associated with the deduction of foreign taxes that were previously claimed as a u.s. foreign tax credit , and a $ 12 net benefit for foreign tax rate changes , partially offset by the tax impact of $ 89 of non-deductible executive compensation and transaction costs , $ 53 of impairment charges related to the company 's brazilian rolling mill operations and other foreign losses with no tax benefit , a $ 14 charge for u.s. state taxes , and by foreign income subject to u.s. taxes . arconic 's effective tax rate was 26.0 % in 2018 compared with the u.s. federal statutory rate of 21 % . 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 acts of 2017 ( `` the 2017 act '' ) , a $ 13 charge for u.s. state taxes , foreign income taxed in higher rate jurisdictions , and foreign losses with no tax benefit , 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 is effectively settled , and a $ 10 benefit for the release of u.s. valuation allowances . arconic 's effective tax rate was 115.7 % in 2017 compared with the u.s. federal statutory rate of 35 % . the effective tax rate differs from the u.s. federal statutory rate primarily as a result of a $ 719 impairment of goodwill , a $ 41 impairment of assets in the latin america extrusions business , and a $ 60 charge related to the sale of a rolling mill in italy that are nondeductible for income tax purposes , a $ 272 tax charge as a provisional impact of the 2017 act , and a $ 23 tax charge for an increase in an uncertain tax position in germany , partially offset by a $ 73 tax benefit related to the sale and debt-for-equity exchange of the alcoa corporation stock , a $ 69 tax benefit for the release of u.s. state valuation allowances net of the federal tax benefit , a $ 27 favorable tax impact associated with a non-taxable earn-out liability adjustment in connection with the firth rixson acquisition , and by foreign income taxed in lower rate jurisdictions . story_separator_special_tag arconic 's effective tax rate was 356.5 % in 2016 compared with the u.s. fed arconic anticipates that the effective tax rate in 2020 will be between 26.5 % and 28.5 % . however , the planned separation of arconic , other business portfolio actions , 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 . net income was $ 470 for 2019 , or $ 1.03 per diluted share , compared to net income of $ 642 for 2018 , or $ 1.33 per share . the decrease in results of $ 172 was primarily due to higher restructuring and other charges ; higher sg & a expenses due to costs associated with the planned separation of arconic of $ 70 ( $ 78 before-tax ) and higher annual incentive compensation accruals and executive compensation costs ; and higher other expense , net due to an increase in deferred compensation arrangements and related investment performance and the benefit recognized in 2018 from establishing a tax indemnification receivable reflecting alcoa corporation 's 49 % share of a spanish tax reserve of $ 28 ( $ 29 before-tax ) 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 in the ep & f segment ; lower interest expense due to lower debt outstanding and costs incurred of $ 15 ( $ 19 before-tax ) in 2018 related to the premium paid on the early redemption of debt that did not recur in 2019 ; lower r & d expenses due to the consolidation of the company 's primary r & d facility in conjunction with ongoing cost reduction efforts ; 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 was $ 642 for 2018 , or $ 1.30 per diluted share , compared to a net loss of $ 74 for 2017 , or $ 0.28 per share . the increase in results of $ 716 was due in part to the following items that occurred in 2017 but did not recur in 2018 : a charge for goodwill impairment of $ 719 ( $ 719 pre-tax ) ; gains related to the sale of a portion of arconic 's investment in alcoa corporation common stock and the debt-for-equity exchange of $ 405 ( $ 518 pre-tax ) ; and favorable adjustments to contingent earn-out and guarantee liabilities of $ 97 ( $ 106 pre-tax ) . additional favorable impacts in 2018 included : volume growth across both segments ; lower sg & a expenses due to proxy and separation costs incurred in 2017 and not recurring in 2018 , as well as lower incentive compensation accruals ; lower restructuring and other charges driven primarily by the gain on sale of the texarkana rolling mill , offset by pension settlement charges and the loss on sale of the forgings business in hungary ; lower interest expense due to lower debt levels ; lower pension expenses ; and lower income taxes . these favorable impacts were partially offset by unfavorable aerospace product mix , higher aluminum prices , manufacturing inefficiencies in engineered structures , performance shortfalls in the disks asset group , settlements of certain customer claims , and an unfavorable physical inventory adjustment at one plant . 40 segment information arconic 's operations consist of two worldwide reportable segments : engineered products and forgings ( ep & f ) and global rolled products ( grp ) . segment performance under arconic 's management reporting system is evaluated based on a number of factors ; however , the primary measure of performance is segment operating profit . arconic '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 arconic are in corporate . in the third quarter of 2019 , the company realigned its operations by eliminating its transportation and construction solutions ( tcs ) segment and transferring the forged wheels business to its ep & f segment and the building and solutions systems ( bcs ) business to its grp segment , consistent with how the chief executive officer is assessing operating performance and allocating capital in conjunction with the planned separation of arconic ( see note u to the consolidated financial statements in part ii , item 8 . ( financial statements and supplementary data ) of this form 10-k ) . the latin america extrusions business , which was formerly part of the company 's tcs segment until its sale in april of 2018 ( see note s to the consolidated financial statements in part ii , item 8 . ( financial statements and supplementary data ) of this form 10-k ) , was moved to corporate . in the first quarter of 2019 , management transferred its aluminum extrusions operations from its engineered structures business unit within the ep & f segment to the grp segment , based on synergies with the grp segment including similar customer base , technologies , and manufacturing capabilities . prior period financial information has been recast to conform to current year presentation . arconic produces aerospace engine parts and components , aerospace fastening systems , and aluminum sheet and plate products for boeing 737 max airplanes . the temporary reduction in the production rate of the 737 max airplanes that was announced by boeing in april 2019 did not have a significant impact on the company 's sales or segment operating profit in 2019.
| ” spin co. will be comprised of the company 's global rolled products businesses ( global rolled products , aluminum extrusions and building and construction systems ) and will be held by a new company that will be named arconic corporation at separation and that intends to list its common stock on the new york stock exchange under the symbol “ arnc. ” on february 5 , 2020 , arconic 's board of directors approved the completion of the separation of arconic by means of a pro rata distribution by the company of all of the outstanding common stock of arconic corporation , with each arconic inc. stockholder of record as of the close of business on march 19 , 2020 receiving one share of arconic corporation common stock for every four shares of the company 's common stock held as of the record date . on february 7 , 2020 , the company announced that arconic rolled products corporation ( the “ issuer ” ) , which is currently a wholly-owned subsidiary of arconic , 37 closed its offering of $ 600 aggregate principal amount of 6.125 % second-lien notes due 2028. the proceeds will be used to make a payment to arconic to fund the transfer of certain assets to the issuer in connection with the separation and for general corporate purposes . on february 13 , 2020 , the registration statement on form 10 for arconic rolled products corporation was declared effective by the securities and exchange commission . in conjunction with the separation of arconic , the company realigned its reporting segments in the third quarter of 2019 by eliminating its transportation and construction solutions segment and transferring the forged wheels business to the ep & f segment and transferring the building and construction systems business to the grp segment . the company also executed on its plan to sell businesses that do not best fit into one of its two segments , having signed or closed on divestitures in 2019 resulting in proceeds of approximately $ 190. results of operations earnings summary sales . sales for 2019 were $ 14,192 compared with $ 14,014 in 2018 , an increase of $ 178 , or 1 % . the increase was primarily due to volume growth in the aerospace , packaging , commercial transportation ,
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inventory per store decreased 2 % and units per store decreased 3 % from 2013. accounts payable as a percent of inventory was 39.6 % at january 31 , 2015 , compared to 35.2 % at february 1 , 2014 . the increase reflects higher receipt volume and timing of payments to some of our vendors . cash provided by operations increased $ 619 million to $ 1.9 billion in 2013 . the increase was primarily due to reduced inventory growth and to lower bonus and other payroll-related liability payments in 2013. investing activities . net cash used in investing activities decreased $ 30 million to $ 593 million in 2014 . capital expenditures totaled $ 682 million in 2014 , a $ 39 million increase over 2013 . the increase in capital spending is primarily due to the expansion of our corporate campus , increased it spending and the purchase and build out of a call center in texas , partially offset by decreased new store spending . proceeds from sales of investments in auction rate securities totaled $ 82 million in 2014 and $ 1 million in 2013. all of our auction rate securities have now been sold . despite the non-liquid nature of these investments following market conditions that arose in 2008 , we were able to sell substantially all of our investments at par . 22 the following table summarizes expected and actual capital expenditures by major category as a percentage of total capital expenditures : replace_table_token_17_th we expect total capital expenditures of approximately $ 800 million in fiscal 2015 . the actual amount of our future capital expenditures will depend on the number and timing of new stores and refreshes ; expansion and renovations to distribution centers ; the mix of owned , leased or acquired stores ; and it and corporate spending . we do not anticipate that our capital expenditures will be limited by any restrictive covenants in our financing agreements . net cash used in investing activities decreased $ 37 million to $ 623 million in 2013 . the decrease reflects a $ 142 million decrease in capital expenditures which was substantially offset by a $ 108 million decrease in auction rate securities sales . financing activities . our financing activities used cash of $ 995 million in 2014 and $ 827 million in 2013 . we repurchased 12 million shares of our common stock for $ 677 million in 2014 and 15 million shares for $ 799 million in 2013 . share repurchases are discretionary in nature . the timing and amount of repurchases is based upon available cash balances , our stock price and other factors . the shares were purchased as part of our share repurchase program . we have $ 1.6 billion of authorized share repurchases remaining from the $ 3.5 billion program approved by our board of directors in november 2012. we expect to execute the share repurchase program primarily in open market transactions , subject to market conditions . in september 2013 , we issued $ 300 million of 4.75 % notes with semi-annual interest payments that began in december 2013. we have various facilities upon which we may draw funds , including a 5-year , $ 1 billion senior unsecured revolving credit facility which matures in 2018. there were no draws on these facilities during 2014 or 2013 . as of january 31 , 2015 , our credit ratings were as follows : moody 's standard & poor 's fitch long-term debt baa1 bbb bbb+ we may from time to time seek to retire or purchase our outstanding debt through open market cash purchases , privately negotiated transactions or otherwise . such repurchases , if any , will depend on prevailing market conditions , our liquidity requirements , contractual restrictions and other factors . the amounts involved could be material . during 2014 , we paid cash dividends of $ 317 million as detailed in the following table : replace_table_token_18_th on february 25 , 2015 our board of directors approved a 15 % increase to our dividend to $ 0.45 per common share which will be paid on march 25 , 2015 to shareholders of record as of march 11 , 2015 . 23 our financing activities used cash of $ 827 million in 2013 and $ 1.3 billion in 2012 . the decrease was primarily due to lower share repurchases . free cash flow we generated $ 1.2 billion of free cash flow in 2014 ; an increase of $ 107 million over 2013. as discussed above , the increase is primarily the result of higher cash provided by operating activities in 2014. free cash flow is a non-gaap financial measure which we define as net cash provided by operating activities and proceeds from financing obligations ( which generally represent landlord reimbursements of construction costs ) less acquisition of property & equipment and capital lease & financing obligation payments . free cash flow should be evaluated in addition to , and not considered a substitute for , other financial measures such as net income and cash flow provided by operating activities . we believe that free cash flow represents our ability to generate additional cash flow from our business operations . see the key financial ratio calculations section below . key financial ratios . the following ratios provide additional measures of our liquidity , return on investments , and capital structure . replace_table_token_19_th ( a ) non-gaap financial measure liquidity ratios . liquidity measures our ability to meet short-term cash needs . working capital increased $ 283 million and our current ratio increased 6 basis points over year-end 2013. in 2013 , working capital increased $ 372 million and our current ratio increased 7 basis points over year-end 2012. the increases were primarily due to higher cash balances . return on investment ratios . lower earnings resulted in decreases in all three of our return on investment ratios - ratio of earnings to fixed charges , return on assets and return on gross investment ( `` roi '' ) . story_separator_special_tag see exhibit 12.1 to this annual report on form 10-k for the calculation of our ratio of earnings to fixed charges and the key financial ratio calculations below for the return on assets and roi calculations . we believe that roi is a useful financial measure in evaluating our operating performance . when analyzed in conjunction with our net earnings and total assets and compared with return on assets , it provides investors with a useful tool to evaluate our ongoing operations and our management of assets from period to period . roi is a non-gaap financial measure which we define as earnings before interest , taxes , depreciation , amortization and rent ( “ ebitdar ” ) divided by average gross investment . our roi calculation may not be comparable to similarly-titled measures reported by other companies . roi should be evaluated in addition to , and not considered a substitute for , other financial measures such as return on assets . capital structure ratios . our debt agreements contain various covenants including limitations on additional indebtedness and a maximum permitted debt ratio . as of january 31 , 2015 , we were in compliance with all debt covenants and expect to remain in compliance during 2015 . see the key financial ratio calculations section below for our debt covenant calculation . our debt/capitalization ratio was 44.3 % at year-end 2014 and 44.8 % at year-end 2013. the decrease is primarily due to lower store lease obligations . 24 our adjusted debt to ebitdar ratio was 2.45 for 2014 , 2.42 for 2013 , and 2.23 for 2012. the increases are primarily due to lower ebitdar . adjusted debt to ebitdar is a non-gaap financial measure which we define as our adjusted outstanding debt balance divided by ebitdar . we believe that our debt levels are best analyzed using this measure . our current goals are to maintain an adjusted debt to ebitdar ratio of approximately 2.25 , to manage debt levels to maintain a bbb+ investment-grade credit rating and to operate with an efficient capital structure for our size , growth plans and industry . we exceeded our target goal in 2014 and 2013 to take advantage of a favorable , low interest rate debt environment . we expect to manage our business and debt levels to get our overall ratio back to our target goal over the next several years . we currently have no plans for new debt in 2015. our adjusted debt to ebitdar calculation may not be comparable to similarly-titled measures reported by other companies . adjusted debt to ebitdar should be evaluated in addition to , and not considered a substitute for , other financial measures such as debt/capitalization . see the key financial ratio calculations section below for our adjusted debt to ebitdar calculation . key financial ratio calculations . the following table reconciles net cash provided by operating activities ( a gaap measure ) to free cash flow ( a non-gaap measure ) . replace_table_token_20_th the following table includes our roi and return on assets ( the most comparable gaap measure ) calculations : replace_table_token_21_th ( a ) represents average of 5 most recent quarter end balances ( b ) represents excess cash not required for operations ( c ) represents 10 times store rent and 5 times equipment/other rent ( d ) net income divided by average total assets ( e ) ebitdar divided by gross investment 25 the following table includes our debt ratio calculation , as defined by our debt agreements , as of january 31 , 2015 : replace_table_token_22_th ( a ) included indebtedness divided by adjusted debt compliance ebitdar the following table includes our adjusted debt to ebitdar and debt/capitalization ( a comparable gaap measure ) calculations : replace_table_token_23_th ( a ) total debt divided by total debt and total equity ( b ) adjusted debt divided by ebitdar 26 contractual obligations our contractual obligations as of january 31 , 2015 were as follows : replace_table_token_24_th ( a ) our leases typically require that we pay real estate taxes , insurance and maintenance costs in addition to the minimum rental payments included in the table above . such costs vary from period to period and totaled $ 175 million for both 2014 and 2013 and $ 165 million for 2012. the lease term includes cancelable option periods where failure to exercise such options would result in an economic penalty . ( b ) purchase obligations consist mainly of purchase orders for merchandise . amounts committed under open purchase orders for merchandise are cancelable without penalty prior to a date that precedes the vendors ' scheduled shipment date . ( c ) other includes royalties , legally binding minimum lease and interest payments for stores opening in 2015 or later , as well as payments associated with technology and marketing agreements . we have not included $ 146 million of long-term liabilities for unrecognized tax benefits and the related interest and penalties in the contractual obligations table because we are not able to reasonably estimate the timing of cash settlements . it is reasonably possible that such tax positions may change within the next 12 months , primarily as a result of ongoing audits . while it is possible that one or more of these audits may be resolved in the next year , it is not anticipated that payment of any such amounts in future periods will materially affect liquidity and cash flows . off-balance sheet arrangements we have not provided any financial guarantees as of year-end 2014 . we have not created , and are not party to , any special-purpose or off-balance sheet entities for the purpose of raising capital , incurring debt or operating our business . we do not have any arrangements or relationships with entities that are not consolidated into the financial statements that are reasonably likely to materially affect our financial condition , liquidity , results of operations or capital resources .
| ( b ) net sales per selling square foot includes on-line sales and stores open for the full current period . 2012 excludes the impact of the 53rd week . the following table summarizes the changes in net sales : replace_table_token_10_th ( a ) 2013 compares the 52 weeks ending february 1 , 2014 to the 52 weeks ending january 26 , 2013. drivers of the changes in comparable sales were as follows : replace_table_token_11_th the increase in selling price per unit was primarily due to increases in national brand merchandise penetration . units per transaction decreased as customers purchased fewer items in response to the higher prices . transactions improved throughout the year and were higher in the fourth quarter as the greatness agenda initiatives gained traction . from a regional perspective , including on-line originated sales , the west , southeast , and midwest reported higher sales , which were offset by sales decreases in the northeast , mid-atlantic , and south central regions . by line of business , children 's , footwear , and men 's reported sales increases . all children 's categories reported sales increases , with toys reporting the largest increase . accessories , led by bath and beauty , was slightly above the company average , primarily as a result of our beauty remodel program . home and women 's both underperformed the company average . active was the strongest category in the men 's , women 's , and footwear businesses . electrics and luggage reported the highest sales increases in the home business . net sales per selling square foot ( which includes on-line sales and stores open for the full current period and includes omni-channel ) , decreased $ 1 to $ 226 in 2014 . the decrease is consistent with the decrease in comparable sales . 19 net sales for 2013 decreased $ 248 million from 2012 and comparable sales decreased 1.2 % . from a line of business perspective , children 's , men 's and home outperformed the company average in 2013. comparable sales in women 's was
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operating profit as a percentage of sales decreased from 11.2 % in 2016 to 7.1 % in 2017. operating expenses for 2017 were $ 334.0 million , or 29.5 % of sales , compared to $ 315.5 million , or 27.1 % of sales , for 2016. in addition to selling , general and administrative expenses , operating expenses for 2017 included an asset impairment of $ 16.3 million , restructuring charges of $ 2.2 million , and acquisition costs of $ 0.5 million . the remaining decrease of $ 2.5 million was primarily related to lower incentive compensation due to decreased profitability , partially offset by increased sales headcount . pension settlement charge in 2017 , the company incurred of $ 2.2 million of pension settlement charges related to cash payments from lump sum elections . interest expense interest expense for 2017 was $ 7.5 million , an increase of $ 2.1 million from interest expense of $ 5.4 million for 2016 . the increase in interest expense was due primarily to a higher average outstanding debt balance , and increased interest rates during 2017. during 2017 and 2016 , the company 's weighted average interest rates were approximately 2.4 % and 2.0 % , respectively . other income , net other income in 2017 was $ 7.7 million compared to other income of $ 2.4 million in 2016 . other income in 2017 was related primarily to net periodic benefit income from the company 's pension and other post-employment benefit plans offset in part by foreign exchange losses that resulted from the revaluation of intercompany balances between our u.s. and foreign entities in both 2017 and 2016. income tax expense the effective tax rate for 2017 was ( 2.0 ) % compared to 35.6 % for 2016. the primary driver of the lower effective tax rate in 2017 was a $ 26.6 million benefit resulting from the impacts of the tax cuts and jobs act of 2017 ( `` tax act '' ) being signed into law in december of 2017. additional factors impacting the rate included the vesting of a large quantity of equity awards during the first quarter of 2017 , and the reversal in the third quarter of 2017 of a valuation allowance against certain foreign jurisdiction deferred tax assets . in addition , our effective tax rate is directly affected by the mix of pretax income and the varying effective tax rates in the countries and states in which we operate . segment reporting the company manages our business through our reportable segments : office and lifestyle . all unallocated expenses are included within corporate . the office segment includes a complete range of workplace products that address diverse workplace planning paradigms in north america and europe , while the lifestyle segment includes high quality residential furniture , ancillary products and affordable luxury furnishings for high performance workplaces , as well as uber-luxury living spaces to affordable-luxury residential living . see item 1 business contained in this annual report on form 10-k for further information regarding the business segments . the comparisons of segment results found below present our segment information with corporate costs excluded from operating segment results . 29 comparison of segment results for the years ended december 31 , 2018 and december 31 , 2017 replace_table_token_7_th _ ( 1 ) the company does not allocate interest expense or other ( income ) expense , net to the reportable segments . office net sales for the office segment in 2018 were $ 782.0 million , an increase of $ 59.0 million , or 8.2 % , when compared with 2017 . the increase in the office segment was due primarily to strong volume growth in new workplace platforms and ancillary products , as well as strategic price increases implemented in 2018. operating profit for the office segment in 2018 was $ 50.4 million , an increase of $ 22.1 million , or 78.5 % , when compared with 2017 . the increase in operating profit for the office segment was due primarily to increased sales volume . lifestyle net sales for the lifestyle segment in 2018 were $ 520.3 million , an increase of $ 110.3 million , or 26.9 % , when compared with 2017 . this increase was driven by the inclusion of muuto acquired late in january 2018 as well as higher sales volume across our lifestyle businesses . operating profit for the lifestyle segment in 2018 was $ 89.1 million , an increase of $ 12.7 million , or 16.6 % , when compared with 2017 due primarily to the inclusion of eleven months of muuto and increased warehousing and showroom investments . corporate corporate costs in 2018 were $ 24.3 million , an increase of $ 0.2 million , or 15.1 % , when compared with 2017 . the increase was driven by higher spending on consulting services and acquisition-related costs which were offset by lower employee benefit costs during 2018 . 30 comparison of segment results for the years ended december 31 , 2017 and december 31 , 2016 replace_table_token_8_th _ ( 1 ) the company does not allocate interest expense or other ( income ) expense , net to the reportable segments . office net sales for the office segment in 2017 were $ 723.0 million , a decrease of $ 45.9 million , or 6.0 % , when compared with 2016 . this decrease in the office segment for the year was due to decline in volume , primarily in the first half of the year . operating profit for the office segment in 2017 was $ 28.2 million , a decrease of $ 43.9 million , or 60.9 % , when compared with 2016 . the decrease in operating profit was primarily due to infrequent charges of $ 21.2 million which includes a $ 16.3 million asset impairment charge , a $ 2.2 million pension settlement change , a $ 2.2 million restructuring charge and acquisition costs of $ 0.5 million . story_separator_special_tag lifestyle net sales for the lifestyle segment in 2017 were $ 409.9 million , an increase of $ 14.5 million , or 3.7 % , when compared with 2016 . the increase in the lifestyle segment was driven by growth from holly hunt® and knoll europe , incremental sales from a full year of datesweiser and continued year-over-year growth from spinneybeck filzfelt particularly in the architectural space . operating profit for the lifestyle segment in 2017 was $ 76.4 million , a decrease of $ 4.2 million , or 5.2 % , when compared with 2016 . corporate corporate costs in 2017 were $ 24.1 million , a decrease of $ 1.9 million , or 15.1 % , when compared with 2016 . the decrease was driven primarily by reduced costs associated with employee benefits and incentive compensation expense in 2017 . 31 foreign and domestic operations our principal manufacturing operations and markets are in north america , and we also have manufacturing operations and markets in europe . our sales to clients and net property , plant and equipment are summarized by geographic areas below . sales are attributed to the geographic areas based on the origin of sale . replace_table_token_9_th liquidity and capital resources the following table highlights certain key cash flows and capital information pertinent to the discussion that follows : replace_table_token_10_th we have historically funded our business through cash generated from operations , supplemented by debt borrowings . available cash is primarily used for our working capital needs , ongoing operations , capital expenditures , the payment of quarterly dividends , and the repurchase of shares . our investment in capital expenditures shows our commitment to improving our operating efficiency , innovation and modernization , showroom investment , new product tooling , manufacturing equipment and technology infrastructure . during 2018 , we made annual dividend payments of $ 0.60 per share , returning $ 30.0 million of cash to our shareholders . 32 cash provided by operating activities was $ 108.2 million , $ 103.7 million , and $ 104.3 million in 2018 , 2017 and 2016 , respectively . for the year ended december 31 , 2018 , cash provided by operating activities consisted primarily of $ 73.3 million of net income and $ 55.7 million of various non-cash charges , including $ 35.3 million of depreciation and amortization , $ 9.1 million of stock-based compensation and a $ 4.8 million provision for deferred income taxes , offset in part by $ 20.8 million of unfavorable changes in assets and liabilities primarily driven by growth in accounts receivable and inventory as a result of growth in sales and ramping up inventory for our current order backlog . for the year ended december 31 , 2017 , cash provided by operating activities consisted primarily of $ 80.2 million of net income and $ 38.0 million of various non-cash charges , including $ 26.6 million of depreciation and amortization , a $ 16.3 million asset impairment charge , and $ 9.6 million of stock-based compensation , offset in part by $ 14.5 million of unfavorable changes in assets and liabilities primarily driven by a $ 26.6 million benefit in current and deferred income taxes as a result of the 2017 tax cut and jobs act . for the year ended december 31 , 2016 , cash provided by operating activities consisted primarily of $ 82.1 million of net income and $ 69.0 million of various non-cash charges , including $ 26.0 million of deferred taxes driven by discretionary pension funding , $ 23.0 million of depreciation and amortization , and $ 10.5 million of stock based compensation , offset by $ 46.8 million of unfavorable changes in assets and liabilities primarily driven by our discretionary pension plan contribution during the year of $ 53.2 million . investing activities for the year ended december 31 , 2018 included the purchase of muuto for $ 308.0 million , net of cash acquired . in addition , during 2018 , we used $ 40.3 million of cash for capital expenditures . during 2017 , we used $ 40.6 million of cash for capital expenditures . during 2016 , we spent $ 40.1 million and $ 18.5 million of cash for capital expenditures and the purchase of businesses , respectively . the capital expenditures are reflective of our commitment to enhance and modernize our sales , manufacturing and information technology infrastructure . acquisitions are reflective of our strategy of building our global capabilities as a singular resource for high-design workplaces and homes . during the year ended december 31 , 2018 , we amended and extended our existing credit facility . the proceeds from our term loans and revolving credit facilities under our amended credit agreement were $ 350.2 million and $ 490.5 million , respectively . borrowings under our term loans and our revolving credit facilities were used to finance a portion of the muuto acquisition , repay the outstanding balance on the term loans of our existing credit facility of $ 165.0 million , and to fund our working capital needs . additionally , we paid $ 30.0 million of cash to fund dividend payments to our shareholders , $ 4.4 million of cash for the repurchase of shares used to offset the cost of employee tax withholdings , and $ 5.7 million of fees related to the issuance of the amended credit facility , of which $ 4.7 million was capitalized as deferred financing fees and $ 1.0 million was expensed as a loss on extinguishment .
| 27 operating expenses were $ 366.3 million for the year ended 2018 , or 28.1 % of net sales , compared to $ 334.0 million , or 29.5 % of net sales , for the year ended 2017. the increase in operating expenses was related primarily to incremental operating expenses from the acquisition of muuto , increased warehousing and showroom investments , and additional incentive compensation due to greater profitability . operating expenses also included $ 1.9 million of acquisition-related expenses related to the muuto transaction and restructuring charges of $ 2.6 million related to the supply chain optimization initiative , organizational realignment and headcount rationalization in the office segment that will result in greater operational efficiency and control . additionally , as a result of adopting asu 2017-07 , compensation – retirement benefits ( topic 715 ) , we reclassified $ 1.4 million and $ 7.4 million of net periodic benefit income from operating expense to other income on the consolidated statement of operations for the year ending december 31 , 2018 and 2017 , respectively . pension settlement charge in 2018 , the company incurred $ 5.7 million of pension settlement charges related to the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections . in 2017 , the company incurred of $ 2.2 million of pension settlement charges related to cash payments from lump sum elections . interest expense interest expense for 2018 was $ 20.9 million , an increase of $ 13.4 million from $ 7.5 million for 2017 . the increase in interest expense was due primarily to additional debt from the muuto acquisition and higher interest rates during 2018 . during 2018 and 2017 , the company 's weighted average interest rates were approximately 3.6 % and 2.4 % , respectively . other income , net other income in 2018 was $ 9.6 million compared to $ 7.7 million in 2017 . other income during the year ended 2018 was primarily related to foreign exchange gains and net periodic benefit
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( 3 ) does not reflect $ 3.9 million of non-agency mbs , which is a re-performing deal with both fixed rate and hybrid re-performing loans . as of december 31 , 2013 , approximately $ 7.833 billion , or 68.9 % , of our mbs portfolio was in its contractual fixed-rate period or were fixed-rate mbs and approximately $ 3.533 billion , or 31.1 % , was in its contractual adjustable-rate period , or were floating rate mbs . our arm-mbs in their contractual adjustable-rate period primarily include mbs collateralized by hybrids for which the initial fixed-rate period has elapsed , such that the interest rate will typically adjust on an annual or semiannual basis . in addition , at december 31 , 2013 , we had $ 183.2 million , or 1.6 % , of mbs with interest rates that reset monthly . premiums arise when we acquire mbs at a price in excess of the principal balance of the mortgages securing such mbs ( i.e. , par value ) . conversely , discounts arise when we acquire mbs at a price below the principal balance of the mortgages securing such mbs . premiums paid on our mbs are amortized against interest income and accretable purchase discounts on our mbs are accreted to interest income . purchase premiums on our mbs , which are primarily carried on our agency mbs , are amortized against interest income over the life of each security using the effective yield method , adjusted for actual prepayment activity . an increase in the prepayment rate , as measured by the cpr , will typically accelerate the amortization of purchase premiums , thereby reducing the yield/interest income earned on such assets . generally , if prepayments on our non-agency mbs are less than anticipated , we expect that the income recognized on such assets would be reduced and impairments could result . cpr levels are impacted by , among other things , conditions in the housing market , new regulations , government and private sector initiatives , interest rates , availability of credit to home borrowers , underwriting standards and the economy in general . in particular , cpr reflects the conditional repayment rate ( or crr ) , which measures voluntary prepayments of mortgages collateralizing a particular mbs , and the conditional default rate ( or cdr ) , which measures involuntary prepayments resulting from defaults . cprs on agency mbs and non-agency mbs may differ significantly . for the year ended december 31 , 2013 , our agency mbs portfolio experienced a weighted average cpr of 17.9 % , and our non-agency mbs portfolio ( including non-agency mbs underlying our linked transactions ) experienced a cpr of 15.9 % . for the year ended december 31 , 2012 , our agency mbs portfolio experienced a weighted average cpr of 19.8 % , and our non-agency mbs portfolio ( including non-agency mbs underlying our linked transactions ) experienced a cpr of 15.0 % . over the last consecutive eight quarters , ending with december 31 , 2013 , the monthly fair value weighted average cpr on our mbs portfolio ranged from a high of 19.7 % experienced during the quarter ended september 30 , 2013 to a low of 12.1 % experienced during the quarter ended december 31 , 2013 , with an average cpr over such quarters of 17.4 % . when we purchase non-agency mbs at significant discounts to par value , we make certain assumptions with respect to each security . these assumptions include , but are not limited to , future interest rates , voluntary prepayment rates , default rates , mortgage modifications and loss severities . as part of our non-agency mbs surveillance process , we track and compare each security 's actual performance over time to the performance expected at the time of purchase or , if we have modified our original purchase assumptions , to our revised performance expectations . to the extent that actual performance or our expectation of future performance of our non-agency mbs deviates materially from our expected performance parameters , we may revise our performance expectations , such that the amount of purchase discount designated as credit discount may be increased or decreased over time . nevertheless , credit losses greater than those anticipated or in excess of the recorded purchase discount could occur , which could materially adversely impact our operating results . 29 it is our business strategy to hold our mbs as long-term investments . on at least a quarterly basis , we assess our ability and intent to continue to hold each security and , as part of this process , we monitor our securities for other-than-temporary impairment . a change in our ability and or intent to continue to hold any of our securities that are in an unrealized loss position , or a deterioration in the underlying characteristics of these securities , could result in our recognizing future impairment charges or a loss upon the sale of any such security . at december 31 , 2013 , we had net unrealized gains of $ 14.4 million on our agency mbs , comprised of gross unrealized gains of $ 106.7 million and gross unrealized losses of $ 92.3 million , and had net unrealized gains on our non-agency mbs of $ 738.5 million , comprised of gross unrealized gains of $ 742.3 million and gross unrealized losses of $ 3.7 million . at december 31 , 2013 , we did not intend to sell any of our mbs that were in an unrealized loss position , and we believe it is more likely than not that we will not be required to sell those mbs before recovery of their amortized cost basis , which may be at their maturity . we rely primarily on borrowings under repurchase agreements to finance our agency mbs and non-agency mbs . our mbs have longer term contractual maturities than our borrowings under repurchase agreements . we have also engaged in resecuritization transactions with respect to our non-agency mbs , which provide access to non-recourse financing . story_separator_special_tag even though the majority of our mbs have interest rates that adjust over time based on short-term changes in corresponding interest rate indices ( typically following an initial fixed-rate period for our hybrids ) , the interest rates we pay on our borrowings and securitized debt will typically change at a faster pace than the interest rates we earn on our mbs . in order to reduce this interest rate risk exposure , we may enter into derivative instruments , which at december 31 , 2013 were comprised of swaps . our swap derivative hedging instruments are designated as cash-flow hedges against a portion of our current and forecasted libor-based repurchase agreements and securitized debt . our swaps do not extend the maturities of our repurchase agreements and or securitized debt ; they do , however , lock in a fixed rate of interest over their term for the notional amount of the swap corresponding to the hedged item . during 2013 , we entered into 23 new swaps with an aggregate notional amount of $ 2.501 billion , a weighted average fixed-pay rate of 1.85 % and initial maturities ranging from two months to ten years and had swaps with an aggregate notional amount of $ 975.4 million and a weighted average fixed-pay rate of 2.78 % amortize and or expire . at december 31 , 2013 , we had swaps with an aggregate notional amount of $ 4.045 billion with a weighted average fixed-pay rate of 1.91 % and a weighted average variable interest rate of 0.17 % . recent market conditions and our strategy during 2013 , we continued to invest in both agency and non-agency mbs . during the year ended december 31 , 2013 , we acquired approximately ( i ) $ 1.384 billion of agency mbs at a weighted average purchase price of 104.3 % of par value and ( ii ) $ 430.4 million of non-agency mbs ( including $ 97.1 million of mbs , which are reported as a component of linked transactions ) , at a weighted average purchase price of 90.0 % of par value . at december 31 , 2013 , our combined mbs portfolio was approximately $ 11.371 billion compared to $ 12.608 billion at december 31 , 2012 . during 2013 , we experienced a decrease in our mbs portfolio primarily due to principal repayments exceeding the addition of newly acquired assets . at december 31 , 2013 , $ 6.519 billion , or 57.3 % of our mbs portfolio , was invested in agency mbs . during the year ended 2013 , the fair value of our agency mbs holdings declined by $ 706.2 million . this was due to $ 1.846 billion of principal repayments , $ 57.9 million of premium amortization , and a $ 186.6 million decrease in net unrealized gains , which was partially offset by the addition of $ 1.384 billion of newly acquired assets . at december 31 , 2013 , $ 4.852 billion , or 42.7 % of our mbs portfolio , was invested in non-agency mbs . in addition , we had $ 130.8 million of non-agency mbs that were reported as a component of our linked transactions . during the year ended december 31 , 2013 , the fair value of our non-agency mbs holdings declined by $ 530.0 million . this was due to $ 924.4 million of principal repayments and the sale of non-agency mbs with an amortized cost of $ 126.8 million , which was partially offset by $ 73.2 million of discount accretion and a $ 114.7 million increase in net unrealized gains . in addition , we purchased $ 430.4 million of non-agency mbs , of which $ 97.1 million are reported as a component of linked transactions . our book value per common share was $ 8.06 as of december 31 , 2013 . book value declined from $ 8.99 as of december 31 , 2012 due primarily to previously disclosed special dividends of $ 0.78 per common share , a decline in the value of our agency mbs portfolio partially offset by appreciation within the non-agency mbs portfolio . due to the interest rate environment in 2013 , yields on acquired assets were lower than in prior periods . at the end of 2013 , the average coupon on mortgages underlying our agency mbs was lower compared to the end of 2012 , due to acquisition of assets in the marketplace at generally lower coupons reflecting current market conditions and as a result of prepayments on higher yielding assets and downward resets on hybrid and arm-mbs within the portfolio . as a result , the coupon yield on our agency mbs portfolio declined 45 basis points to 3.13 % for 2013 from 3.58 % for 2012 . in addition , the net agency mbs yield decreased to 2.28 % for 2013 , from 2.83 % for 2012 . our non-agency mbs portfolio yielded 7.25 % for 2013 compared to 6.76 % for 2012 . 30 the increase in the yield on our non-agency mbs portfolio is primarily due to increases in accretable discount and changes in the forward yield curve . we continue to believe that loss-adjusted returns on non-agency mbs represent attractive investment opportunities . we believe that our $ 1.043 billion credit reserve and otti appropriately factors in remaining uncertainties regarding underlying mortgage performance and the potential impact on future cash flows . home price appreciation and underlying mortgage loan amortization continue to decrease the loan-to-value ( or ltv ) for many of the mortgages underlying our non-agency mbs portfolio . home price appreciation is generally due to a combination of limited housing supply , low mortgage rates , capital flows into own-to-rent foreclosure purchases and demographic-driven u.s. household formation . we estimate that the ltv of mortgage loans underlying our non-agency mbs has declined from approximately 105 % as of january 2012 to less than 85 % as of december 31 , 2013 . lower ltvs lessen the likelihood of defaults and simultaneously decrease loss severities .
| in addition , during 2013 we had an increase in preferred stock dividends resulting from the issuance of the series b preferred stock and a $ 3.9 million write-off of issuance costs on the redemption of series a preferred stock ( see note 11 to the accompanying consolidated financial statements , included under item 8 of this annual report on form 10-k ) . net interest income net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities . net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned or paid . our net interest income varies primarily as a result of changes in interest rates , the slope of the yield curve ( i.e. , the differential between long-term and short-term interest rates ) , borrowing costs ( i.e. , our interest expense ) and prepayment speeds on our mbs . interest rates and cprs ( which measure the amount of unscheduled principal prepayment on a bond as a percentage of the bond balance ) , vary according to the type of investment , conditions in the financial markets , and other factors , none of which can be predicted with any certainty . the changes in average interest-earning assets and average interest-bearing liabilities and their related yields and costs are discussed in greater detail below under “ interest income ” and “ interest expense. ” for 2013 , our net interest income decreased by $ 8.6 million , or 2.6 % , to $ 318.9 million from $ 327.5 million for 2012. this decrease primarily reflects the impact of lower yielding agency mbs , increased non-agency mbs borrowing costs ( primarily due to allocation of swap expense ) , partially offset by lower agency mbs borrowing costs and higher yielding non-agency mbs due to strong credit performance . the net interest spread on our agency mbs portfolio declined to 1.09 % for 2013 compared to 1.27 % for 2012. the net interest spread on our non-agency mbs portfolio increased to 4.55 % for 2013 compared to 4.42 % for the 2012. our net interest spread and margin for 2013 were 2.32 % and 2.70 % , respectively , compared to a net
| 14,006 |
in order to generate global synergies , major decisions ( including supply chain , technology , finance , stock allocation and communications ) are becoming more centralized in the company 's management team in los angeles . this centralized approach reinforces our focus on sales and profitability and fosters an environment of accountability and execution measured through key performance metrics . improving our cost structure . we plan to continue improving our cost structure by identifying synergies among departments and strengthening our supply chain . we are executing on the following supply chain initiatives to drive improvements in product costs : ( i ) developing a sourcing network in new territories that can offer better costs ; ( ii ) consolidating and building strategic partnerships with high-quality suppliers to gain scale efficiencies ; and ( iii ) implementing a fabric platforming process to develop and utilize common fabrics across multiple styles . we are also working to shorten our lead times through partnering with our suppliers , exercising agility in the production process and continuously searching for new suppliers and sourcing opportunities in reaction to the latest trends . during fiscal 2017 , the company implemented a global cost reduction and restructuring plan to better align its global cost and organizational structure with its current strategic initiatives . this plan included the consolidation and streamlining of the company 's business processes and a reduction in its global workforce and other expenses . these actions resulted in restructuring charges of $ 6.1 million and a related estimated exit tax charge of approximately $ 1.9 million ( or $ 5.8 million after considering a $ 2.2 million tax benefit as a result of the restructuring charges ) during fiscal 2017. the company does not expect significant future cash-based severance charges to be incurred as the actions under this plan were substantially completed during fiscal 2017. stabilizing our wholesale business . we are partnering with our wholesale customers to emphasize a retail-oriented mindset and encourage the adoption of best practices , including high quality visual merchandising , frequent rotation of products and maximization of inventory turns . 31 capital allocation the company plans to allocate capital , including capital expenditures and working capital investments , to fund the growth of its retail and e-commerce businesses in europe and asia , while reducing its allocation of capital to its retail business in the americas . during fiscal 2018 , we plan to close 60 stores in the u.s. and canada and limit future store openings . additionally , we plan to continue to invest capital in technology to improve our global structure and support our long-term growth plans . the company 's investments in capital for the full fiscal year 2018 are planned between $ 85 million and $ 95 million . during fiscal 2018 , we also expect that working capital will grow in europe and asia , while contracting in the americas . comparable store sales the company reports national retail federation calendar comparable store sales on a quarterly basis for our retail businesses which include the combined results from our brick-and-mortar retail stores and our e-commerce sites . we also separately report the impact of e-commerce sales on our comparable store sales metric . as a result of our omni-channel strategy , our e-commerce business has become strongly intertwined with our brick-and-mortar retail store business . therefore , we believe that the inclusion of e-commerce sales in our comparable store sales metric provides a more meaningful representation of our retail results . sales from our brick-and-mortar retail stores include purchases that are initiated , paid for and fulfilled at our retail stores and directly operated concessions as well as merchandise that is reserved online but paid for and picked-up at our retail stores . sales from our e-commerce sites include purchases that are initiated and paid for online and shipped from either our distribution centers or our retail stores as well as purchases that are initiated in a retail store , but due to inventory availability at the retail store , are ordered and paid for online and shipped from our distribution centers or picked-up from a different retail store . store sales are considered comparable after the store has been open for 13 full months . if a store remodel results in a square footage change of more than 15 % , or involves a relocation or a change in store concept , the store sales are removed from the comparable store base until the store has been opened at its new size , in its new location or under its new concept for 13 full months . e-commerce sales are considered comparable after the online site has been operational in a country for 13 full months and exclude any related revenue from shipping fees . definitions and calculations of comparable store sales used by the company may differ from similarly titled measures reported by other companies . executive summary overview net earnings attributable to guess ? , inc. de creased 72.2 % to $ 22.8 million , or diluted earnings of $ 0.27 per common share , for fiscal 2017 , compared to net earnings attributable to guess ? , inc. of $ 81.9 million , or diluted earnings of $ 0.96 per common share , for fiscal 2016 . during fiscal 2017 , the company recognized asset impairment charges of $ 34.4 million , restructuring charges of $ 6.1 million , a restructuring related estimated exit tax charge of $ 1.9 million and a valuation allowance established on certain deferred tax assets of $ 6.8 million , partially offset by a gain from the sale of a minority interest investment of $ 22.3 million ( or a combined $ 14.5 million after considering the net $ 12.5 million tax benefit resulting from the asset impairment charges , restructuring charges and the sale of the minority interest investment ) , or an unfavorable $ 0.17 per share impact . excluding the impact of these items , adjusted net earnings attributable to guess ? story_separator_special_tag , inc. were $ 37.2 million and adjusted diluted earnings were $ 0.44 per common share for fiscal 2017 . during fiscal 2016 , the company also recognized asset impairment charges of $ 2.3 million ( or $ 1.5 million after considering the related tax benefit of $ 0.8 million ) , or an unfavorable $ 0.02 per share impact . excluding the impact of the asset impairment charges and the related tax impact , adjusted net earnings attributable to guess ? , inc. were $ 83.4 million and adjusted diluted earnings were $ 0.98 per common share for fiscal 2016 . references to financial results excluding the impact of these items are non-gaap measures and are addressed below under “ non-gaap measures. ” 32 highlights of the company 's performance for fiscal 2017 compared to the prior year are presented below , followed by a more comprehensive discussion under “ results of operations ” : operations total net revenue in creased 0.2 % to $ 2.21 billion for fiscal 2017 , compared to $ 2.20 billion in the prior year . in constant currency , net revenue increase d by 1.0 % . gross margin ( gross profit as a percentage of total net revenue ) de creased 200 basis points to 33.7 % for fiscal 2017 , from 35.7 % in the prior year . selling , general and administrative ( “ sg & a ” ) expenses as a percentage of total net revenue ( “ sg & a rate ” ) in creased 70 basis points to 30.8 % for fiscal 2017 , compared to 30.1 % in the prior year . sg & a expenses in creased 2.7 % to $ 681.9 million for fiscal 2017 , compared to $ 663.8 million in the prior year . during fiscal 2017 , the company recognized asset impairment charges of $ 34.4 million , compared to $ 2.3 million in the prior year . the company incurred $ 6.1 million in restructuring charges during fiscal 2017 . operating margin de creased 450 basis points to 1.0 % for fiscal 2017 , from 5.5 % in the prior year . higher asset impairment charges recorded during fiscal 2017 unfavorably impacted operating margin by 150 basis points compared to the prior year . restructuring charges negatively impacted operating margin by 30 basis points in fiscal 2017 . earnings from operations de creased 81.3 % to $ 22.7 million for fiscal 2017 , from $ 121.4 million in the prior year . other income , net ( including interest income and expense ) , totaled $ 30.9 million for fiscal 2017 , compared to $ 5.9 million in the prior year . during fiscal 2017 , the company recorded a gain of $ 22.3 million in other income , net related to the sale of a minority interest investment . the effective income tax rate in creased 19.2 % to 52.6 % for fiscal 2017 , compared to 33.4 % in the prior year . the company 's effective tax rate for fiscal 2017 included the impact of a valuation allowance established on certain deferred tax assets of $ 6.8 million and an estimated exit tax charge of $ 1.9 million related to the company 's reorganization in europe as a result of the global cost reduction and restructuring plan . these items negatively impacted the company 's effective tax rate by 16.3 % in fisca l 2017 . key balance sheet accounts the company had $ 396.1 million in cash and cash equivalents as of january 28 , 2017 , compared to $ 445.5 million at january 30 , 2016 . ◦ the company invested $ 3.5 million to repurchase 289,968 of its common shares during fiscal 2017 . during fiscal 2016 , the company invested $ 44.0 million to repurchase 2,000,000 of its common shares . ◦ the company purchased the facility that houses its u.s. distribution center for approximately $ 28.8 million during fiscal 2016. during fiscal 2017 , the company entered into a ten-year $ 21.5 million real estate secured loan to partially finance this purchase . accounts receivable , which consists of trade receivables relating primarily to the company 's wholesale business in europe and , to a lesser extent , to its wholesale businesses in the americas and asia , royalty receivables relating to its licensing operations and certain other receivables , in creased by $ 3.1 million , or 1.4 % , to $ 225.5 million as of january 28 , 2017 , compared to $ 222.4 million at january 30 , 2016 . on a constant currency basis , accounts receivable increased by $ 5.5 million , or 2.5 % . inventory in creased by $ 55.7 million , or 17.9 % , to $ 367.4 million as of january 28 , 2017 , compared to $ 311.7 million at january 30 , 2016 . on a constant currency basis , inventory increased by $ 55.9 million , or 17.9 % . 33 global store count in fiscal 2017 , together with our partners , we opened 165 new stores worldwide , consisting of 73 stores in asia , 65 stores in europe and the middle east , 13 stores in the u.s. , seven stores in canada and seven stores in central and south america . together with our partners , we closed 124 stores worldwide , consisting of 59 stores in asia , 30 stores in europe and the middle east , 15 stores in the u.s. , 11 stores in central and south america and nine stores in canada . we ended fiscal 2017 with 1,680 stores worldwide , comprised as follows : replace_table_token_8_th this store count does not include 446 concessions located primarily in south korea and greater china , which have been excluded because of their smaller store size in relation to our standard international store size . of the total 1,680 stores , 1,320 were guess ? stores , 215 were guess ?
| operating margin increased 30 basis points to 5.5 % for fiscal 2016 , compared to 5.2 % in fiscal 2015. currency exchange rate fluctuations negatively impacted operating margin by approximately 140 basis points . 39 earnings from operations . earnings from operations decreased by $ 4.6 million , or 3.6 % , to $ 121.4 million for fiscal 2016 , from $ 125.9 million in fiscal 2015. currency translation fluctuations relating to our foreign operations unfavorably impacted earnings from operations by $ 10.3 million . interest expense , net . interest expense , net was $ 0.9 million for both of fiscal 2016 and fiscal 2015 and includes the impact of hedge ineffectiveness of foreign exchange currency contracts designated as cash flow hedges . other income , net . other income , net was $ 6.8 million for fiscal 2016 , compared to $ 18.0 million in fiscal 2015. other income , net in fiscal 2016 consisted primarily of net realized and unrealized mark-to-market revaluation gains on foreign exchange currency contracts and realized gains on the sale of other assets , partially offset by net unrealized mark-to-market revaluation losses on foreign currency balances . other income , net in fiscal 2015 consisted primarily of net unrealized and realized mark-to-market revaluation gains on foreign exchange currency contracts . income tax expense . income tax expense for fiscal 2016 was $ 42.5 million , or a 33.4 % effective tax rate , compared to income tax expense of $ 45.8 million , or a 32.0 % effective tax rate , in fiscal 2015. the increase in effective tax rate was due primarily to more losses incurred in certain foreign jurisdictions which we were not able to recognize a benefit due to a full valuation allowance and higher non-deductible compensation costs during fiscal 2016 compared to the prior year . net earnings attributable to noncontrolling interests . net earnings attributable to noncontrolling interests for fiscal 2016 was $ 3.0 million , net of taxes , compared to $ 2.6 million , net of taxes , in fiscal
| 14,007 |
oil and natural gas prices are inherently volatile and sustained lower commodity prices could have a material impact upon our full cost ceiling test calculation . the ceiling test calculation dictates that we use the unweighted arithmetic average price of crude oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date . using the first-day-of-the-month average for the 12-months ended march 31 , 2020 of the wti crude oil spot price of $ 55.96 per barrel , adjusted by lease or field for quality , transportation fees , and regional price differentials , and the first-day-of-the-month average for the 12-months ended march 31 , 2020 of the henry hub natural gas price of $ 2.298 per mmbtu , adjusted by lease or field for energy content , transportation fees , and regional price differentials , our ceiling amount related to the net book value of our oil and natural gas properties would not have generated a full cost ceiling impairment , holding all other inputs and factors constant . in addition to commodity prices , our production rates , levels of proved reserves , future development costs , transfers of unevaluated properties to our full cost pool , capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods . recent developments listing of our common stock on nyse american our predecessor common stock was previously listed on the new york stock exchange ( nyse ) under the symbol “ hk. ” as a result of our failure to satisfy the continued listing requirements of the nyse , on july 22 , 2019 , our predecessor common stock was delisted from the nyse . effective february 20 , 2020 , we commenced trading on the nyse american exchange under the symbol “ batl. ” reorganization on august 2 , 2019 , we entered into a restructuring support agreement ( the restructuring support agreement ) with certain holders of our 6.75 % senior unsecured notes due 2025 ( the unsecured senior noteholders ) . on august 7 , 2019 , we filed voluntary petitions for relief under chapter 11 of the united states bankruptcy code in the u.s. bankruptcy court for the southern district of texas ( the bankruptcy court ) to effect a prepackaged plan of reorganization ( the plan ) as contemplated in the restructuring support agreement . our chapter 11 proceedings were administered under the caption in re halcón resources corporation , et al . ( case no . 19-34446 ) . on september 24 , 2019 , the bankruptcy court entered an order confirming the plan and on october 8 , 2019 ( the effective date ) , we emerged from chapter 11 bankruptcy . 46 pursuant to the terms of the plan contemplated by the restructuring support agreement , the unsecured senior noteholders and other claim and interest holders received the following treatment in full and final satisfaction of their claims and interests : · borrowings outstanding under the predecessor credit agreement , plus unpaid interest and fees , were repaid in full , in cash , including by a refinancing ( see below for further details regarding the credit agreement ) ; · the unsecured senior noteholders received their pro rata share of 91 % of the common stock of reorganized battalion ( new common shares ) , subject to dilution , issued pursuant to the plan and participated in the senior noteholder rights offering ( defined below ) ; · our general unsecured claims were unimpaired and paid in full in the ordinary course ; and · all of our predecessor company 's outstanding shares of common stock were cancelled and the existing common stockholders received their pro rata share of 9 % of the new common shares issued pursuant to the plan , subject to dilution , together with warrants ( defined below ) to purchase common stock of reorganized battalion and participated in the existing equity interests rights offering ( defined below and , collectively , the existing equity total consideration ) ; provided , however , that registered holders of existing common stock with 2,000 shares or fewer of common stock received cash in an amount equal to the inherent value of such holder 's pro rata share of the existing equity total consideration ( the existing equity cash out ) . each of the foregoing percentages of equity in the reorganized company were as of october 8 , 2019 and are subject to dilution by new common shares issued in connection with ( i ) a management incentive plan , ( ii ) the warrants ( defined below ) , ( iii ) the equity rights offerings ( defined below ) , and ( iv ) the backstop commitment premium ( defined below ) . as a component of the restructuring support agreement ( i ) certain unsecured senior noteholders purchased their pro rata share of new common shares for an aggregate purchase price of $ 150.2 million ( the senior noteholder rights offering ) and ( ii ) certain existing common stockholders purchased their pro rata share of new common shares for an aggregate purchase price of $ 5.8 million ( the existing equity interests rights offering , and together with the senior noteholder rights offering , the equity rights offerings ) , in each case , at a price per share equal to a 26 % discount to the value of the new common shares based on an assumed total enterprise value of $ 425.0 million . certain of the unsecured senior noteholders backstopped the senior noteholder rights offering and received as consideration ( the backstop commitment premium ) new common shares equal to 6 % of the aggregate amount of the senior noteholder rights offering subject to dilution by new common shares issued in connection with a management incentive plan and the warrants . if the backstop agreement had been terminated , we would have been obligated to make a cash payment equal to 6 % of the aggregate amount of the senior noteholder rights offering . story_separator_special_tag we used the proceeds of the equity rights offerings to ( i ) provide additional liquidity for working capital and general corporate purposes , ( ii ) pay reasonable and documented restructuring expenses , and ( iii ) fund plan distributions . under the restructuring support agreement , the existing common stockholders ( subject to the existing equity cash out ) were issued a series of warrants exercisable for cash for a three year period subsequent to the effective date of the plan ( warrants ) . the warrants were issued with strike prices based upon stipulated rate-of-return levels achieved by the unsecured senior noteholders . the warrants cumulatively represent 30 % of the new common shares issued pursuant to the plan . fresh-start accounting upon emergence from chapter 11 bankruptcy , we adopted fresh-start accounting in accordance with the provisions set forth in accounting standards codification ( asc ) 852 , reorganizations , as ( i ) the reorganization value of our assets immediately prior to the date of confirmation was less than the post-petition liabilities and allowed claims , and ( ii ) the holders of the existing voting shares of the predecessor entity received less than 50 % of the voting shares of the emerging entity . 47 we elected to adopt fresh-start accounting effective october 1 , 2019 , to coincide with the timing of our normal fourth quarter reporting period , which resulted in us becoming a new entity for financial reporting purposes . we evaluated and concluded that events between october 1 , 2019 and october 8 , 2019 were immaterial and use of an accounting convenience date of october 1 , 2019 was appropriate . as such , fresh-start accounting is reflected in the accompanying consolidated balance sheet as of december 31 , 2019 ( successor ) and related reorganization adjustments and fresh-start adjustments are included in the accompanying statement of operations for the period from january 1 , 2019 through october 1 , 2019 ( predecessor ) . adopting fresh-start accounting results in a new financial reporting entity with no beginning or ending retained earnings or deficit balances as of the fresh-start reporting date . upon the adoption of fresh-start accounting , our assets and liabilities were recorded at their fair values as of the fresh-start reporting date . our adoption of fresh-start accounting may materially affect our results of operations following the fresh-start reporting date , as we have a new basis in our assets and liabilities . as a result of the adoption of fresh-start reporting and the effects of the implementation of the plan , our consolidated financial statements subsequent to october 1 , 2019 are not comparable to our consolidated financial statements prior to october 1 , 2019. references to “ successor ” or “ successor company ” relate to the financial position and results of operations of the reorganized company subsequent to october 1 , 2019. references to “ predecessor ” or “ predecessor company ” relate to the financial position and results of operations of the company prior to , and including , october 1 , 2019 , and as such , “ black-line ” financial statements are presented to distinguish between the predecessor and successor companies . refer to item 8. consolidated financial statements and supplementary data—note 3 , “ fresh-start accounting , ” for further details . common stock on the effective date , pursuant to the terms of the plan , all shares of our predecessor company were cancelled and we filed an amended and restated certificate of incorporation with the delaware secretary of state and adopted amended and restated bylaws . pursuant to the amended and restated certificate of incorporation , the number of authorized shares of common stock which we have the authority to issue was reduced from 1,001,000,000 to 101,000,000. of the 101,000,000 authorized shares , 100,000,000 are common stock , par value $ 0.0001 per share and 1,000,000 are preferred stock , par value $ 0.0001 per share . on the effective date , pursuant to the terms of the plan and the confirmation order , we issued : · 421,827 shares of new common shares pursuant to the existing equity interests rights offering ; 8,059,111 shares of new common shares pursuant to the senior noteholder rights offering ; and 3,558,334 shares of new common shares in connection with the backstop commitment , which includes 657,590 shares of new common shares issued as the backstop commitment premium ; · 3,790,247 shares of new common shares to the senior noteholders pursuant to a mandatory exchange ; and · 374,421 shares of new common shares , 1,798,322 series a warrants ( defined below ) , 2,247,985 series b warrants ( defined below ) and 2,890,271 series c warrants ( defined below ) , to pre-emergence holders of our existing equity interests pursuant to a mandatory exchange . warrant agreement on the effective date , by operation of the plan and the confirmation order , all warrants of our predecessor company were cancelled and we entered into a warrant agreement ( the warrant agreement ) with broadridge corporate issuer solutions , inc. as the warrant agent , pursuant to which we issued three series of warrants ( the series a warrants , the series b warrants and the series c warrants and together , the warrants , and the holders thereof , the warrant holders ) , on a pro rata basis to pre-emergence holders of our existing equity interests pursuant to the plan . each warrant represents the right to purchase one share of new common shares at the applicable exercise price , subject to adjustment as provided in the warrant agreement and as summarized below .
| average realized prices ( excluding the effects of hedging arrangements ) were $ 34.88 per boe , $ 33.71 per boe and $ 44.44 per boe for the period of october 2 , 2019 through december 31 , 2019 ( successor ) , the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) and the year ended december 31 , 2018 ( predecessor ) , respectively . the amount we realize for our production depends predominantly upon commodity prices , which are affected by changes in market demand and supply , as impacted by overall economic activity , weather , transportation take-away capacity constraints , inventory storage levels , quality of production , basis differentials and other factors . lease operating expenses were $ 12.8 million , $ 39.6 million and $ 25.1 million for the period of october 2 , 2019 through december 31 , 2019 ( successor ) , the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) and the year ended december 31 , 2018 ( predecessor ) , respectively . on a per unit basis , lease operating expenses were $ 6.86 per boe , $ 8.43 per boe and $ 4.94 per boe for the period of october 2 , 2019 through december 31 , 2019 ( successor ) , the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) and the year ended december 31 , 2018 ( predecessor ) , respectively . the increase in lease operating expenses from 2018 levels results from higher third party water hauling and disposal costs resulting from our divestiture of the water assets and an increase in our inventory of wells due to our drilling and acquisition activities . workover and other expenses were $ 1.7 million , $ 5.6 million and $ 8.6 million for the period of october 2 , 2019 through december 31 , 2019 ( successor ) , the period of january 1 , 2019 through october 1 , 2019 ( predecessor ) and the year ended december 31 , 2018 ( predecessor ) , respectively . on a per unit basis , workover and other expenses were $
| 14,008 |
purely historical information , including estimates , projections , statements relating to our business plans , objectives and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 , as amended , or the securities act , and section 21e of the securities exchange act of 1934 , as amended , or the exchange act . these forward-looking statements generally are identified by the words “ may , ” “ will , ” “ could , ” “ would , ” “ should , ” “ expect , ” “ intend , ” “ plan , ” “ anticipate , ” “ believe , ” “ approximately , ” “ estimate , ” “ predict , ” “ project , ” “ potential , ” “ continue , ” “ ongoing , ” or the negative of these terms or other comparable terminology , although the absence of these words does not necessarily mean that a statement is not forward-looking . historical results may not indicate future performance . our forward-looking statements reflect our current views about future events , are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements . factors that may cause differences between actual results and those contemplated by forward-looking statements include , but are not limited to , the risk factors described in this report . except to the extent required by law , we undertake no obligation to update or revise any forward-looking statements , whether because of new information , future events , a change in events , conditions , circumstances or assumptions underlying such statements , or otherwise . - 19 - plan of operations our plan is to develop our brand name , to have it strongly associated with all of our distributed products and to focus on finding and developing the best nutritional supplement product options for north america and beyond . we believe that we may be able to offer products that could capitalize on the growing alcohol beverage market and changing consumer habits in the industry . human brands ' diversified operating divisions currently own and manage over 250,000 agave plants , several premium spirit brands , three hospitality concepts , and holds exclusive import/export rights for a variety of spirit brands primarily in the tequila industry . it currently has several wholly-owned subsidiaries that focus on five key areas of business : ( i ) agave , ( ii ) bulk tequila production , ( iii ) brand development , ( iv ) import/export , and ( v ) hospitality . an experienced but limited core management team is in place and has , on a limited basis , reviewed , studied and analyzed the alcoholic beverage product market . in the event that the company can secure additional capital in sufficient amounts and on a timely basis , the company may be able to establish a procurement program and may be able to work with outside professionals to build its business , create brands through eco-friendly packaging and distinctive labeling , and develop key distribution relationships . basis of presentation our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . these accounting principles require us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments , and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented . our financial statements would be affected to the extent there are material differences between these estimates and actual results . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . the following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report . results of operations for the years ended december 31 , 2020 and 2019 story_separator_special_tag presently unable to meet our obligations as they come due . at december 31 , 2020 , we had $ 111 in assets and a working capital deficit of $ 5,583,345. our working capital deficit is largely due to the balance of our convertible notes payable and related derivative liabilities . during the year ended december 31 , 2020 , we used net cash of $ 101,408 from our operating activities from continuing operations compared to $ 55,669 cash used in our operating activities from continuing operations for the year ended december 31 , 2019. during the year ended december 31 , 2020 , net cash provided by our financing activities from continuing operations was $ 101,500 compared to $ 55,500 cash provided by or used in our financing activities from continuing operations for the year ended december 31 , 2019. we anticipate that our cash requirements will arise from the need to fund our growth from operations , pay current and prior period obligations and future capital expenditures . the primary sources of funding in the near term for such requirements are expected to be cash generated from raising additional funds by the issuance of convertible notes . however , we can provide no assurances that we will be able to generate sufficient cash flow or obtain additional financing on terms satisfactory to us story_separator_special_tag purely historical information , including estimates , projections , statements relating to our business plans , objectives and expected operating results , and the assumptions upon which those statements are based , are “ forward-looking statements ” within the meaning of the private securities litigation reform act of 1995 , section 27a of the securities act of 1933 , as amended , or the securities act , and section 21e of the securities exchange act of 1934 , as amended , or the exchange act . these forward-looking statements generally are identified by the words “ may , ” “ will , ” “ could , ” “ would , ” “ should , ” “ expect , ” “ intend , ” “ plan , ” “ anticipate , ” “ believe , ” “ approximately , ” “ estimate , ” “ predict , ” “ project , ” “ potential , ” “ continue , ” “ ongoing , ” or the negative of these terms or other comparable terminology , although the absence of these words does not necessarily mean that a statement is not forward-looking . historical results may not indicate future performance . our forward-looking statements reflect our current views about future events , are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements . factors that may cause differences between actual results and those contemplated by forward-looking statements include , but are not limited to , the risk factors described in this report . except to the extent required by law , we undertake no obligation to update or revise any forward-looking statements , whether because of new information , future events , a change in events , conditions , circumstances or assumptions underlying such statements , or otherwise . - 19 - plan of operations our plan is to develop our brand name , to have it strongly associated with all of our distributed products and to focus on finding and developing the best nutritional supplement product options for north america and beyond . we believe that we may be able to offer products that could capitalize on the growing alcohol beverage market and changing consumer habits in the industry . human brands ' diversified operating divisions currently own and manage over 250,000 agave plants , several premium spirit brands , three hospitality concepts , and holds exclusive import/export rights for a variety of spirit brands primarily in the tequila industry . it currently has several wholly-owned subsidiaries that focus on five key areas of business : ( i ) agave , ( ii ) bulk tequila production , ( iii ) brand development , ( iv ) import/export , and ( v ) hospitality . an experienced but limited core management team is in place and has , on a limited basis , reviewed , studied and analyzed the alcoholic beverage product market . in the event that the company can secure additional capital in sufficient amounts and on a timely basis , the company may be able to establish a procurement program and may be able to work with outside professionals to build its business , create brands through eco-friendly packaging and distinctive labeling , and develop key distribution relationships . basis of presentation our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . these accounting principles require us to make certain estimates , judgments and assumptions . we believe that the estimates , judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates , judgments and assumptions are made . these estimates , judgments , and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented . our financial statements would be affected to the extent there are material differences between these estimates and actual results . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . there are also areas in which management 's judgment in selecting any available alternative would not produce a materially different result . the following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report . results of operations for the years ended december 31 , 2020 and 2019 story_separator_special_tag presently unable to meet our obligations as they come due . at december 31 , 2020 , we had $ 111 in assets and a working capital deficit of $ 5,583,345. our working capital deficit is largely due to the balance of our convertible notes payable and related derivative liabilities . during the year ended december 31 , 2020 , we used net cash of $ 101,408 from our operating activities from continuing operations compared to $ 55,669 cash used in our operating activities from continuing operations for the year ended december 31 , 2019. during the year ended december 31 , 2020 , net cash provided by our financing activities from continuing operations was $ 101,500 compared to $ 55,500 cash provided by or used in our financing activities from continuing operations for the year ended december 31 , 2019. we anticipate that our cash requirements will arise from the need to fund our growth from operations , pay current and prior period obligations and future capital expenditures . the primary sources of funding in the near term for such requirements are expected to be cash generated from raising additional funds by the issuance of convertible notes . however , we can provide no assurances that we will be able to generate sufficient cash flow or obtain additional financing on terms satisfactory to us
| the value of these instruments will fluctuate as the trading price of our common stock changes . during the year ended december 31 , 2020 , we recorded an unrealized gain of $ 104,386 , compared to an unrealized loss of $ 292,536 during the year ended december 31 , 2019 from the change in the value of these derivative features . during the year ended december 31 , 2020 we recorded a derivative liability expense of $ 129,961 , compared to no derivative liability expense recorded during the year ended december 31 , 2019. during the year ended december 31 , 2021 , we recorded interest expense on convertible notes or $ 227,570 , compared to interest expense of $ 490,548 during the year ended december 31 , 2019. during the year ended december 31 , 2020 , we recorded interest expense related to the amortization of debt discounts totaling $ 49,450 compared to $ 17,347 during the year ended december 31 , 2019 . - 20 - net loss from continuing operations we incurred a net loss from continuing operations of $ 566,221 , or $ 0.00 per share , for the year ended december 31 , 2020 , compared to a net loss of $ 965,686 , or $ 0.00 per share , for the year ended december 31 , 2019. the weighted average number of basic and fully diluted shares outstanding for the year ended december 31 , 2020 was 9,259,486,613 , compared to 8,833,435,867 for the year ended december 31 , 2019. there are no dilutive equivalents included in our calculation of fully diluted shares for the years ended december 31 , 2020 and 2019 , since their inclusion would be anti-dilutive due to our net loss per share . liquidity and capital resources the accompanying financial statements have been prepared assuming that the company will continue as a going concern , which contemplates , among other things , the realization of assets and satisfaction of liabilities in the ordinary course of business . the company sustained
| 14,009 |
the company made matching contributions under the 401 ( k ) plan of approximately $ 68,000 and $ 49,000 for the years ended december 31 , 2018 and 2017 , respectively . 86 diffusion pharmaceuticals inc. notes to consolidated financial statements 12. income taxes deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for years in which differences are expected to reverse . significant components of the company 's deferred tax assets for federal income taxes consisted of the following : replace_table_token_18_th the company does not have unrecognized tax benefits as of december 31 , story_separator_special_tag introduction this management 's discussion and analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations . statements that are not historical are forward-looking and involve risks and uncertainties discussed under the headings “ part i. item 1. business—cautionary note regarding forward-looking statements ” and “ part i. item 1a . risk factors ” of this report . the following discussion of our results of operations and financial condition should be read in conjunction with our financial statements and the related notes thereto included elsewhere in this report . these risks could cause our actual results to differ materially from any future performance suggested below . business overview we are a clinical stage biotechnology company developing new treatments for life threatening conditions by improving the body 's ability to bring oxygen to the areas where it is needed most . we are developing our lead product candidate , transcrocetinate sodium , also known as trans sodium crocetinate ( “ tsc ” ) , for use in those life threatening conditions in which cellular oxygen deprivation ( “ hypoxia ” ) is the basis for significant unmet medical needs . tsc is designed to safely and selectively target and re-oxygenate the micro-environment of hypoxic cells , and potentially be used in many indications , including oncology and cardiovascular/stroke . in cancer , tsc re-oxygenates treatment-resistant cancerous tissue , making the cancer cells up to three times more susceptible to the therapeutic effects of standard-of-care radiation therapy and chemotherapy . in stroke , tsc helps promote the diffusion of oxygen into those brain cells in which oxygen-deprivation causes neuronal death resulting in patient mortality or morbidity . a range of tissue types , including both cancerous and normal cells , has been shown to be safely re-oxygenated in our preclinical and clinical studies using tsc 's novel mechanism of action . in oncology , we believe tsc 's therapeutic potential is not limited to one specific tumor type , thereby making it potentially useful to improve standard-of-care treatments in many life-threatening cancers . given tsc 's safety profile and animal data , we could , with appropriate funding , move directly into phase 2 studies in many such cancers . likewise , we believe tsc 's ability to re-oxygenate normal tissue that has become oxygen-deprived provides opportunities for new therapeutic approaches to conditions ranging from stroke and emergency medicine to cardiovascular indications . the successful completion of trials for tsc or any other potential product candidate in these or any other indication are dependent upon our ability to further raise necessary capital . our most advanced program targets tsc against treatment-resistant brain cancer . a phase 2 clinical program , completed in the second quarter of 2015 , evaluated 59 patients with newly diagnosed glioblastoma multiforme ( “ gbm ” ) , a particularly deadly form of primary brain cancer . this open label , historically controlled study demonstrated a favorable safety and efficacy profile for tsc when combined with gbm 's standard of care , including a 37 % improvement in overall survival over the control group at two years . a particularly strong efficacy signal was seen in the inoperable patients , where survival of tsc-treated patients at two years was increased by almost four-fold over the controls . in december 2017 , we initiated the in vestigation of t sc a gainst c ancerous t umors ( intact ) phase 3 trial in the newly diagnosed inoperable gbm patient population . patient enrollment began in january 2018. the trial will enroll 236 patients in total , with 118 in the treatment arm and 118 in the control arm . the trial is beginning with an 8 patient safety run-in which the company expects to be finished in the second quarter of 2019. other cancerous tumor targets upon which the company 's technology is focused include pancreatic cancer and brain metastasis , for which an fda orphan designation has been granted to tsc . we believe that tsc programs for such cancers are phase 2 ready , as safety profiles have been demonstrated in other oncology programs , protocols have been written , fda interaction has taken place , and key opinion leaders have been engaged . further research and development of tsc as a potential treatment for these indications is largely dependent on the necessary financial resources becoming available . we believe that tsc has potential application in other indications involving hypoxia , notably stroke and emergency medicine , as well as cardiovascular and neurodegenerative diseases . a phase 2 trial program in cooperation with ucla and the university of virginia to test tsc in the treatment of acute stroke has received approval for enrollment by the fda , with the first enrolled patient expected in q2 2019. this trial , which will feature in-ambulance dosing of tsc , is named the p re h ospital a cute s troke t herapy - tsc ( phast -tsc ) and is expected to enroll 160 patients , with 80 in the treatment arm and 80 in the control arm . story_separator_special_tag we believe in-ambulance dosing of tsc could significantly cut the time in which the stroke-related oxygen deprivation to brain cells goes untreated , potentially leading to a better outcome for stroke victims treated in this manner . in the last quarter of 2018 , we received fda permission to begin patient enrollment in the phast - tsc phase 2 trial and expect to begin enrollment so in second quarter 2019 , following completion of institutional review board and contracting activities . 62 in addition to the tsc programs , we are exploring alternatives regarding how best to capitalize upon our product candidate res-529 , which may include possible out-licensing and other options . res-529 is a novel pi3k/akt/mtor pathway inhibitor which has completed two phase 1 clinical trials for age-related macular degeneration and was in preclinical development in oncology , specifically gbm . res-529 has shown activity in both in vitro and in vivo glioblastoma animal models and has been demonstrated to be orally bioavailable and capable of crossing the blood brain barrier . critical accounting policies certain of our critical accounting estimates require the application of significant judgment by management in selecting the appropriate assumptions in determining the estimate . by their nature , these judgments are subject to an inherent degree of uncertainty . we develop these judgments based on our historical experience , terms of existing contracts , our observance of trends in the industry and information available from other outside sources , as appropriate . actual results may differ from these judgments under different assumptions or conditions . different , reasonable estimates could have been used for the current period . additionally , changes in accounting estimates are reasonably likely to occur from period to period . both of these factors could have a material impact on the presentation of our financial condition , changes in financial condition or results of operations . we believe the following accounting estimates are the most critical to aid in fully understanding and evaluating our financial statements as they require our most subjective or complex judgments : goodwill goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed . we apply accounting standards codification ( asc ) 350 “ goodwill and other intangible assets , ” which requires testing goodwill for impairment on an annual basis . we assess goodwill for impairment as part of our annual reporting process on october 1 of each year , or more frequently if triggering events indicate a possible impairment . we evaluate goodwill on a consolidated basis as we are organized as a single reporting unit . we consider certain triggering events when evaluating whether an interim goodwill impairment analysis is warranted . among these would be a significant long-term decrease in our market capitalization . we recognized a non-cash goodwill impairment charge of $ 6.9 million during the year ended december 31 , 2018. intangible assets our sole intangible asset as of december 31 , 2018 consists of an in-process research and development ( “ ipr & d ” ) intangible asset acquired in 2016. the fair value of the ipr & d asset was determined as of the acquisition date using the cost approach , which establishes a value based on the cost of reproducing or replacing the asset , often referred to as current replacement cost . the cost approach was chosen as we were not able to estimate an income stream attributable to the ipr & d asset given the fact that the related products have only completed limited preclinical and clinical trials and the timeline to commercial viability , if the fda approval process is successful , is somewhat uncertain and would take a number of years , and the costs would be significant . as the development efforts for our res-529 ipr & d asset continues , based on the facts and circumstances at the time of a future valuation for the purposes of assessing impairment , it is possible that the value for res-529 could be substantially reduced or eliminated , which could result in a maximum pretax charge to operations equal to the current carrying value of our intangible asset of $ 8.6 million as of december 31 , 2018. we tested the ipr & d intangible asset for impairment on october 1 , which is our annual impairment testing date . we consider certain triggering events when evaluating whether an interim ipr & d impairment analysis is warranted . there was no impairment to our ipr & d asset during the years ended december 31 , 2018 and 2017 . 63 story_separator_special_tag revaluation of our deferred tax liability as a result of the 2017 tax act , which reduced our corporate tax rate to 21 % . liquidity and capital resources working capital the following table summarizes our working capital as of december 31 , 2018 and 2017 : replace_table_token_2_th we expect to continue to incur net losses for the foreseeable future . we intend to use our existing cash and cash equivalents for working capital and to fund the research and development of our product candidates . cash flows the following table sets forth our cash flows for the years ended december 31 , 2018 and 2017 : replace_table_token_3_th operating activities net cash used in operating activities of $ 10.8 million during the year ended december 31 , 2018 was primarily attributable to our net loss of $ 18.4 million , a $ 0.4 million change in deferred income taxes , and our net change in operating assets and liabilities of $ 0.3 million . this amount was offset by the recognition of a $ 6.9
| we do not expect to generate revenue from product sales for the foreseeable future . research and development expense research and development costs include , but are not limited to , third-party contract research arrangements , employee-related expenses , including salaries , benefits , stock-based compensation and travel expense reimbursement . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as we advance our product candidates , we expect the amount of research and development costs will continue to increase for the foreseeable future . research and development costs are charged to expense as incurred . general and administrative expense general and administrative expense consists principally of salaries and related costs for executive and other personnel , including stock-based compensation , expenses associated with investment bank and other financial advisory services , and travel expenses . other general and administrative expenses include professional fees that were incurred in connection with operating as a public company , facility-related costs , communication expenses and professional fees for legal , patent prosecution and maintenance , and consulting and accounting services . goodwill impairment expense goodwill impairment expense relates to a non-cash impairment charge recognized as a write-down of the company 's goodwill due to the company 's carrying value of equity exceeding its fair value throughout the second half of 2018. interest ( income ) expense , net interest ( income ) expense , net consisted principally of the interest expense recorded in connection with our previously outstanding convertible debt instruments offset by the interest earned from our cash and cash equivalents and our certificate of deposit . change in fair value of warrant liabilities , warrant related expenses , and other financing expenses in connection with our private placement in march 2017 , we recorded warrant expense associated with the change in fair value of the common stock warrants from issuance , the
| 14,010 |
management believes that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations . however , investors are cautioned that the sensitivity of financial statements to these methods , assumptions and estimates could create materially different results under different conditions or using different assumptions . below are those policies applied in preparing our financial statements that management believes are the most dependent on the application of estimates and assumptions . for additional accounting policies , see note 3 , “ summary of significant accounting policies , ” in the notes to the consolidated financial statements included herein . revenue recognition : in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update ( “ asu ” ) 2014-09 , which created a new topic in the accounting standards codification ( “ asc ” ) 606 , “ revenue from contracts with customers. ” in addition to superseding and replacing nearly all existing u.s. gaap revenue recognition guidance , including industry-specific guidance , asc 606 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the standard also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure requirements around contracts with customers . the company adopted this standard in the first quarter of fiscal 2019 using the modified retrospective method . the adoption of this standard did not have a material impact on our consolidated results of operations , financial position or cash flows . the results for periods before fiscal 2019 were not restated for the new standard and the cumulative effect of the change in accounting was recognized through retained earnings at the date of adoption . refer to note 5 , `` revenue recognition , '' for additional disclosures relating to asc 606. revenue is recognized from the sale of products when control transfers to the customer , which is demonstrated by our right to payment , a transfer of title , a transfer of the risk and rewards of ownership , or the customer acceptance , but most frequently upon shipment where the customer obtains physical possession of the goods . the majority of the company 's revenue is recorded at a point in time . sales recognized over time are generally accounted for using an input measure to determine progress completed at the end of the period . sales for service contracts generally are recognized as the services are provided . for agreements with multiple performance obligations , judgment is required to determine whether performance obligations specified in these agreements are distinct and should be accounted for as separate revenue transactions for recognition purposes . inventories : inventories are stated at the lower of cost or net realizable value . cost of inventories is generally determined by the average cost and the first-in , first-out ( fifo ) methods and includes material , labor and overhead related to the manufacturing process . because the company sells products that are installed on airframes that can be in-service for 25 or more years , it must keep a supply of such products on hand while the airframes are in use . where management estimated that the net realizable value was below cost or determined that future demand was lower than current inventory levels , based on historical experience , current and projected market demand , current and projected volume trends and other relevant current and projected factors associated with the current economic conditions , a reduction in inventory cost to estimated net realizable value was made by recording a provision included in cost of sales . although management believes that the company 's estimates of excess and obsolete inventory are reasonable , actual results may differ materially from the estimates and additional provisions may be required in the future . in addition , in accordance with industry practice , all inventories are classified as current assets as all inventories are available and necessary to support current sales , even though a portion of the inventories may not be sold within one year . historically , changes in estimates in the net realizable value of inventories have not been significant . goodwill and other intangible assets : in accordance with asc 805 , “ business combinations , ” the company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition . the excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as goodwill . the valuations of the acquired assets and liabilities will impact the determination of future operating results . determining the fair value of assets acquired and liabilities 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 , revenue growth rates , discount rates , customer attrition rates , royalty 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 . fair value adjustments to the company 's assets and liabilities are recognized and the results of operations of the acquired business are included in our consolidated financial statements from the effective date of the merger or acquisition . 28 intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other legal rights , or if the intangible asset can be sold , transferred , licensed or exchanged , regardless of the company 's intent to do so . story_separator_special_tag goodwill and identifiable intangible assets are recorded at their estimated fair value on the date of acquisition and are reviewed at least annually for impairment based on cash flow projections and fair value estimates . gaap requires that the annual , and any interim , impairment assessment be performed at the reporting unit level . the reporting unit level is one level below an operating segment . substantially all goodwill was determined and recognized for each reporting unit pursuant to the accounting for the merger or acquisition as of the date of each transaction . with respect to acquisitions integrated into an existing reporting unit , any acquired goodwill is combined with the goodwill of the reporting unit . at the time of goodwill impairment testing , the company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , and whether it is necessary to perform the quantitative goodwill impairment test . the quantitative test is required only if the company concludes that it is more likely than not that a reporting unit 's fair value is less than its carrying amount , or if the company elects not to perform a qualitative assessment of a reporting unit . for the quantitative test , management determines the estimated fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved for each reporting unit . if the calculated estimated fair value is less than the current carrying value , impairment of goodwill of the reporting unit may exist . the use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing . the key assumptions used in the discounted cash flow valuation model for impairment testing includes discount rates , growth rates , cash flow projections and terminal value rates . discount rates are set by using the weighted average cost of capital ( “ wacc ” ) methodology . the wacc methodology considers market and industry data as well as company specific risk factors for each reporting unit in determining the appropriate discount rates to be used . the discount rate utilized for each reporting unit is indicative of the return an investor would expect to receive for investing in such a business . management , considering industry and company-specific historical and projected data , develops growth rates , sales projections and cash flow projections for each reporting unit . terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant wacc and low long-term growth rates . as an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow valuation model , the aggregate of all reporting unit 's estimated fair value is reconciled to the total market capitalization of the company . the company had 54 reporting units with goodwill as of the first day of the fourth quarter of fiscal 2019 , the date of the last annual impairment test . the estimated fair values of each of the reporting units was substantially in excess of their respective carrying values , and therefore , no goodwill impairment was recorded . the company performed a sensitivity analysis on the discount rate , which is a significant assumption in the calculation of fair values . with a one percentage point increase in the discount rate , all of the reporting units would continue to have fair values in excess of their respective carrying values . management tests indefinite-lived intangible assets for impairment at the asset level , as determined by appropriate asset valuation at the time of acquisition . the impairment test for indefinite-lived intangible assets consists of a comparison between the estimated fair values and carrying values . if the carrying amounts of intangible assets that have indefinite useful lives exceed their estimated fair values , an impairment loss will be recognized in an amount equal to the difference . management utilizes the royalty savings valuation method to determine the estimated fair value for each indefinite-lived intangible asset . in this method , management estimates the royalty savings arising from the ownership of the intangible asset . the key assumptions used in estimating the royalty savings for impairment testing include discount rates , royalty rates , growth rates , sales projections and terminal value rates . discount rates used are similar to the rates developed by the wacc methodology considering any differences in company-specific risk factors between reporting units and the indefinite-lived intangible assets . royalty rates are established by management with the advice of valuation experts and periodically substantiated by valuation experts . management , considering industry and company-specific historical and projected data , develops growth rates and sales projections for each significant intangible asset . terminal value rate determination follows common methodology of capturing the present value of perpetual sales estimates beyond the last projected period assuming a constant wacc and low long-term growth rates . the discounted cash flow and royalty savings valuation methodologies require management to make certain assumptions based upon information available at the time the valuations are performed . actual results could differ from these assumptions . management believes the assumptions used are reflective of what a market participant would have used in calculating fair value considering the current economic conditions . stock-based compensation : the cost of the company 's stock-based compensation is recorded in accordance with asc 718 , “ stock compensation. ” the company uses a black-scholes pricing model to estimate the grant-date fair value of the stock options awarded . the black-scholes pricing model requires assumptions regarding the expected volatility of the company 's common shares , the risk-free interest rate , the expected life of the stock options award and the company 's dividend yield . the company utilizes historical data in determining these assumptions .
| cost of sales and the related percentage of total sales for the fiscal years ended september 30 , 2019 and 2018 were as follows ( amounts in millions ) : replace_table_token_12_th the net increase in the dollar amount of cost of sales during the fiscal year ended september 30 , 2019 was primarily due to increased sales volume , both organic and from recent acquisitions , an increase in inventory acquisition accounting adjustments resulting from the esterline acquisition , and an increase in stock compensation expense . the increases were partially offset by a decrease in acquisition integration costs and higher foreign currency gains as presented in the table above . gross profit as a percentage of sales decreased by 3.3 percentage points to 53.8 % for the fiscal year ended september 30 , 2019 from 57.1 % for the fiscal year ended september 30 , 2018 . the dollar amount of gross profit increased by $ 631.8 million , or 29.0 % , for the fiscal year ended september 30 , 2019 compared to the fiscal year ended september 30 , 2018 due to the following items : gross profit on the sales from the acquisitions ( excluding acquisition-related costs ) was approximately $ 416.1 million for the fiscal year ended september 30 , 2019 , which represented gross profit of approximately 41 % of the acquisition sales . organic sales growth described above , application of our three core value-driven operating strategies and positive leverage on our fixed overhead costs spread over a higher production volume resulted in an increase in gross profit of approximately $ 283.8 million for the fiscal year ended september 30 , 2019 . offsetting increases in gross profit by $ 68.1 million compared to the prior fiscal year was attributable to increased inventory acquisition accounting adjustments , increased stock compensation expense , partially offset by a decrease in acquisition integration costs and higher foreign currency gains . selling and administrative expenses . selling and administrative expenses increased by $ 298.6 million to $ 748.7 million , or 14.3 % of sales , for the fiscal year ended september 30 , 2019 from $ 450.1 million , or 11.8 % of sales , for the comparable period last year . selling and administrative expenses and the
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the tax cuts and jobs act was enacted on december 22 , 2017. among other things , the new law ( i ) establishes a reduced , flat corporate federal statutory income tax rate of 21 % , ( ii ) eliminates the corporate alternative minimum tax and allows the use of any tax net operating loss carryforwards to offset regular tax liability for any taxable year , ( iii ) limits the deduction for net interest expense incurred by u.s. corporations , ( iv ) allows businesses to immediately expense , for tax purposes , the cost of new investments in certain qualified depreciable assets , ( v ) eliminates or reduces certain deductions related to meals and entertainment expenses , ( vi ) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and ( vii ) limits the deductibility of deposit insurance premiums . the tax cuts and jobs act also significantly changes u.s. tax law related to foreign operations , but such changes do not currently impact us . critical accounting policies our accounting and financial reporting policies conform to the accounting principles generally accepted in the united states of america ( “ gaap ” ) and general practice within the banking industry . accordingly , preparation of the financial statements requires management to exercise significant judgment or discretion and make significant assumptions and estimates based on the information available that have , or could have , a material impact on the carrying value of certain assets or on income . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented . in reviewing and understanding financial information for us , you are encouraged to read and understand the significant accounting policies used in preparing our financial statements . the accounting policies we view as critical are those relating to the allowance for credit losses , goodwill and other intangible assets , income taxes and share based compensation . allowance for credit losses the allowance for credit losses is established through a provision for credit losses charged against income . loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . the allowance is an amount that represents the amount of probable and reasonably estimable known and inherent losses in the loan portfolio , based on evaluations of the collectability of loans . the evaluations take into consideration such factors as changes in the types and amount of loans in the loan portfolio , historical loss experience , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral , estimated losses relating to specifically identified loans , and current economic conditions . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our loan portfolios as well as consideration of general loss experience . based on our estimate of the level of allowance for credit losses required , we record a provision for credit losses to maintain the allowance for credit losses at an appropriate level . we can not predict with certainty the amount of loan charge-offs that we will incur . we do not currently determine a range of loss with respect to the allowance for credit losses . in addition , our regulatory agencies , as an integral part of their examination processes , periodically review our allowance for credit losses . such agencies may require that we recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for credit losses may be required that would adversely impact earnings in future periods . 32 goodwill and other intangible assets goodwill represents the excess of the purchase price over the sum of the estimated fair values of tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed . core deposit intangibles represent the estimated value of long-term deposit relationships acquired in a business combination . the core deposit intangible is amortized over the estimated useful lives of the acquired long-term deposits , and the remaining amounts of the core deposit intangible are periodically reviewed for reasonableness . goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired . we perform a qualitative assessment annually to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if , after assessing updated qualitative factors , the company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , it does not have to perform the two step impairment test . determining the fair value under the first step of the goodwill impairment test and determining the fair value if individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions . similarly , estimates and assumptions are used in determining the fair value of other intangible assets . estimates of fair value are primarily determined using discounted cash flows , market comparisons and recent transactions . significant estimates and assumptions include projected future cash flows , discount rates , reflective market rate of return , projected growth rates and determination and evaluation of appropriate market comparables . story_separator_special_tag future events could cause the company to conclude that goodwill or other intangible assets have become impaired , which would result in the company recording an impairment loss . any resulting impairment loss could have a material impact on the company 's financial condition and results of operations . based on the results of qualitative assessment , the company determined that there was not an impairment of the carrying value of either the goodwill or core deposit intangible at december 31 , 2018. income taxes we account for income taxes under the asset/liability method . we recognize deferred tax assets and liabilities for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases , as well as operating loss and tax credit carry-forwards . we measure deferred tax assets and liabilities 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 . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period indicated by the enactment date . we establish a valuation allowance for deferred tax assets when , in the judgment of management , it is more likely than not that such deferred tax assets will not become realizable . the judgment about the level of future taxable income is dependent to a great extent on matters that may , at least in part , be beyond our control . it is at least reasonably possible that management 's judgment about the need for a valuation allowance for deferred tax assets could change in the near term . share based compensation we follow the provisions of asc topic 718 “ compensation – stock compensation , ” which requires the expense recognition over the respective service period for the fair value of share based compensation awards , such as stock options , restricted stock , and performance based shares . this standard allows management to establish modeling assumptions as to expected stock price volatility , option terms , forfeiture rates and dividend rates which directly impact estimated fair value . the accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined . our practice is to utilize reasonable and supportable assumptions that are reviewed with the appropriate board committee . balance sheet analysis and comparison of financial condition a comparison between december 31 , 2018 and december 31 , 2017 balance sheets is presented below . general all aspects of our financial condition were greatly impacted by the first mariner merger . total assets increased $ 1.1 billion , or 97.1 % , to $ 2.3 billion at december 31 , 2018 compared to assets of $ 1.1 billion at december 31 , 2017. this asset growth consisted primarily of increases in our portfolio loans of $ 713.1 million and investment securities of $ 149.6 million , cash and cash equivalents of $ 72.5 million and $ 45.5 million in bank owned life insurance ( “ boli ” ) , partially offset by a decline of $ 20.9 million in loans held for sale . the primary source of funding for the asset growth was an increase in deposit balances . customer deposits increased from $ 863.9 million at december 31 , 2017 to $ 1.7 billion at december 31 , 2018 , an increase of $ 821.9 million or 95.1 % . supplementing this deposit growth , our borrowings increased $ 127.7 million , partially due to the issuance of $ 25 million of notes issued in the fourth quarter of 2018. total stockholders ' equity increased $ 162.4 million during 2018 primarily as a result of the shares issued in connection with the first mariner merger . investment securities available for sale available for sale securities are reported at fair value . we currently hold u.s. agency and treasury securities and mortgage backed securities in our securities portfolio , which are categorized as available for sale . we use our securities portfolio to provide the required collateral for funding via commercial customer overnight securities sold under agreement to repurchase ( “ repurchase agreements ” ) as well as to provide sufficient liquidity to fund our loans and provide funds for withdrawals of deposits . 33 held to maturity held to maturity securities are reported at amortized cost . the only investments that we have classified as held to maturity are corporate debentures . these investments are intended to be held until maturity . nonmarketable equity at december 31 , 2018 and 2017 , we held an investment in stock of the federal home loan bank ( “ fhlb ” ) of $ 11.8 million and $ 6.5 million , respectively . this investment is required for continued fhlb membership and is based partially upon the amount of borrowings outstanding from the fhlb . this fhlb stock is carried at cost . the following table sets forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_4_th we had available for sale securities of $ 223.9 million and $ 74.3 million at december 31 , 2018 and december 31 , 2017 , respectively , which were recorded at fair value . this represents an increase of $ 149.6 million for the year ended december 31 , 2018 from the prior year end . all acquired first mariner investment securities were classified as available for sale , and were acquired at their fair values . for interest rate sensitivity reasons , we elected to immediately liquidate a portion of acquired securities portfolio . because we sold these securities acquired within days of the closing of the transaction we did not record any gain or loss on the sale . we sold approximately $ 69.7 million of the acquired securities and retained nearly $ 51.0 million in our portfolio .
| other interest income increased $ 686 thousand year over year as a result of increases in both the average balance and the average yield on these assets . overall , total average earning assets increased by $ 749.6 million , or 74 % , and the average yield on all interest earning assets during 2018 increased by 32 basis points compared to 2017 . 40 interest expense interest expense increased $ 8.6 million , to $ 13.8 million , for the year ending december 31 , 2018 , from $ 5.2 million in 2017. interest expense on deposits increased by $ 4.5 million in 2018 as compared to 2017 , with $ 3.3 million of the increase resulting from increases in the average volumes and $ 1.2 million from increased rates paid on interest-bearing deposits these increases were due largely to a $ 179.1 million increase in the average balances of , and the 26 basis point increase in the rate paid on , time deposits . we increased the interest rates on our time deposits in response to the prevailing competitive rates in the market . in addition , interest expense on borrowings increased $ 4.1 million in 2018 as compared to 2017 , primarily as a result of increases in the average balance of borrowings increasing $ 150.0 million . average rates paid on our short-term borrowing increased 60 basis points , while average rates paid on our long-term borrowings decreased 42 basis points . because of the timing of the closing of our notes offering in december of 2018 , the interest expense on this did not have a major impact on the total level of interest expense for 2018. net interest income net interest income is our largest source of operating revenue . net interest income is affected by various factors including changes in interest rates and the composition of interest-earning assets and interest-bearing liabilities and maturities . net interest income is determined by the interest rate spread ( i.e. , the difference between the yields earned on interest-earning assets
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the unit of measure for these volumes is metric tons as these businesses are linked to the commodity raw materials , which are their primary inputs . sugar and bioenergy the sugar and bioenergy segment is an integrated business which primarily includes the procurement and growing of sugarcane and the production of sugar , ethanol and electricity in our eight mills in brazil , global sugar trading and merchandising activities , and investment interests in affiliates . profitability in this segment is affected by the availability and quality of sugarcane , which impacts our capacity utilization rates and the amount of sugar that can be extracted from the sugarcane , and by market prices of sugarcane , sugar and ethanol . availability and quality of sugarcane is affected by many factors , including weather , geographical factors such as soil quality and topography , and agricultural practices . once planted , sugarcane may be harvested for several continuous years , but the yield decreases with each subsequent harvest . as a result , the current optimum economic cycle is generally five to seven consecutive harvests , depending on location . we own and or have partnership agreements to manage farmland on which we grow and harvest sugarcane . we also purchase sugarcane from third parties . prices of sugarcane in brazil are established by consecana , the são paulo state sugarcane , sugar and ethanol council , and are based on the sucrose content of the cane and the market prices of sugar and ethanol . demand for our products is affected by such factors as changes in global or regional economic conditions , the financial condition of customers and customer access to credit , worldwide consumption of food products , population growth rates , changes in per capita incomes and demand for and governmental support of renewable fuels produced from agricultural commodities , including sugarcane . we expect that these factors will continue to affect supply and demand for our sugar and bioenergy products in the foreseeable future . reported volumes in this segment reflect third-party sales of sugar and ethanol . fertilizer in the fertilizer segment , demand for our products is affected by the profitability of the agricultural sectors we serve , the availability of credit to farmers , agricultural commodity prices , the types of crops planted , the number of acres planted , the quality of the land under cultivation and weather-related issues affecting the success of the harvests . our profitability is impacted by international selling prices for fertilizers and fertilizer raw materials , such as phosphate , sulfur , ammonia and urea , ocean freight rates and other import costs , as well as import volumes at the port facilities we manage . as our operations are in south america , primarily argentina , our results in this segment are typically seasonal , with fertilizer sales normally concentrated in the third and fourth quarters of the year due to the timing of the south american agricultural cycle . reported volumes in this segment reflect third-party sales of our finished products . in addition to these industry related factors which impact our business areas , our results of operations in all business areas and segments are affected by the following factors : foreign currency exchange rates due to the global nature of our operations , our operating results can be materially impacted by foreign currency exchange rates . both translation of our foreign subsidiaries ' financial statements and foreign currency transactions can affect our results . on a monthly basis , for subsidiaries whose functional currency is a currency other than the u.s. dollar , subsidiary statements of income and cash flows must be translated into u.s. dollars for consolidation purposes based on weighted-average exchange rates in each monthly period . as a result , fluctuations of local currencies compared to the u.s. dollar during each monthly period impact our consolidated statements of income and cash flows for each reported period ( quarter and year-to-date ) and also affect comparisons between those reported periods . subsidiary balance sheets are translated using exchange rates as of the balance sheet date with the resulting translation adjustments reported in our consolidated balance sheets as a component of other comprehensive income ( loss ) . included in accumulated other comprehensive income for the years ended 28 december 31 , 2017 , 2016 , and 2015 were foreign currency net translation gains ( losses ) of $ 187 million , $ 709 million and $ ( 2,546 ) million , respectively , resulting from the translation of our foreign subsidiaries ' assets and liabilities . additionally , we record transaction gains or losses on monetary assets and liabilities that are not denominated in the functional currency of the entity . these amounts are remeasured into their respective functional currencies at exchange rates as of the balance sheet date , with the resulting gains or losses included in the entity 's statement of income and , therefore , in our consolidated statements of income as foreign currency gains ( losses ) . we primarily use a combination of equity and intercompany loans to finance our subsidiaries . intercompany loans that are of a long-term investment nature with no intention of repayment in the foreseeable future are considered permanently invested and as such are treated as analogous to equity for accounting purposes . as a result , any foreign currency translation gains or losses on such permanently invested intercompany loans are reported in accumulated other comprehensive income ( loss ) in our consolidated balance sheets . in contrast , foreign currency translation gains or losses on intercompany loans that are not of a permanent nature are recorded in our consolidated statements of income as foreign currency gains ( losses ) . income taxes as a bermuda exempted company , we are not subject to income taxes on income in our jurisdiction of incorporation . story_separator_special_tag however , our subsidiaries , which operate in multiple tax jurisdictions , are subject to income taxes at various statutory rates ranging from 0 % to 39 % . the jurisdictions that significantly impact our effective tax rate are brazil , the united states , argentina and bermuda . determination of taxable income requires the interpretation of related and often complex tax laws and regulations in each jurisdiction where we operate and the use of estimates and assumptions regarding future events . story_separator_special_tag style= '' line-height:120 % ; text-align : left ; text-indent:48px ; font-size:10pt ; '' > bunge has five reportable segments-agribusiness , edible oil products , milling products , sugar and bioenergy , and fertilizer-which are organized based upon similar economic characteristics and are similar in nature of products and services offered , the nature of production processes , the type and class of customer , and distribution methods . the agribusiness segment is characterized by both inputs and outputs being agricultural commodities and thus high volume and low margin . the edible oil products segment involves the manufacturing and marketing of products derived from vegetable oils . the milling products segment involves the manufacturing and marketing of products derived primarily from wheat and corn . the sugar and bioenergy segment involves sugarcane growing and milling in brazil , sugar and ethanol trading and merchandising in various countries , as well as sugarcane-based ethanol production and corn-based ethanol investments and related activities . the fertilizer segment includes the activities of our port operations in brazil and argentina and blending and distribution operations in argentina . 30 a summary of certain items in our consolidated statements of income and volumes by reportable segment for the periods indicated is set forth below . replace_table_token_8_th 31 replace_table_token_9_th ( 1 ) we refer to our earnings before interest and taxes in each of our segments as `` segment ebit '' . total segment ebit is an operating performance measure used by bunge 's management to evaluate its segments ' operating activities . total segment ebit is a non-u.s. gaap financial measure and is not intended to replace net income attributable to bunge , the most directly comparable u.s. gaap financial measure . bunge 's management believes segment ebit is a useful measure of its segments ' operating profitability , since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure . in addition , ebit is a financial measure that is widely used by analysts and investors in bunge 's industries . total segment ebit excludes ebit attributable to noncontrolling interests and is not a measure of consolidated operating results under u.s. gaap and should not be considered as an alternative to net income attributable to bunge or any other measure of consolidated operating results under u.s. gaap . 32 a reconciliation of net income attributable to bunge to total segment ebit follows : replace_table_token_10_th 2017 compared to 2016 net income attributable to bunge — for the year ended december 31 , 2017 , net income attributable to bunge decreased by $ 585 million to $ 160 million from $ 745 million in 2016 . this decrease resulted primarily from a decrease in total segment ebit of $ 707 million , particularly in agribusiness , partially offset by decreases in losses from discontinued operations and income tax expense . income tax expense — in the year ended december 31 , 2017 , income tax expense was $ 56 million compared to income tax expense of $ 220 million in 2016 . the effective tax rate for 2017 was 24 % compared to 22 % for 2016. the higher tax rate in 2017 was primarily due to an income tax charge recognized in the u.s. from newly enacted tax reform of $ 60 million , an income tax charge due to a tax rate change in argentina for $ 6 million and a valuation allowance recognized in europe for $ 26 million . this was partly offset by an income tax benefit of $ 32 million for a favorable resolution of income tax matters in asia-pacific , an income tax benefit of $ 17 million related to a prior year tax election in south america , and the release of a valuation allowance in asia-pacific for $ 6 million . the 2016 effective tax rate of 22 % was driven primarily by certain discrete items including an income tax benefit of $ 60 million recorded for a change in estimate resulting from a tax election for north america , a release of valuation allowance for sugar entities of $ 19 million , and an income tax benefit of $ 11 million recorded for income tax refund claims in europe , partially offset by an income tax charge of $ 56 million recorded for an uncertain tax position related to asia-pacific . excluding the effect of these discrete items noted above , our effective tax rate for 2017 , and 2016 was 8 % and 26 % , respectively . the reduction in the effective tax rate from 2016 to 2017 , after taking into account the discrete tax items noted above , is primarily attributable to favorable earnings mix on a lower base of pretax income and due to other net favorable discrete items , recognized primarily in the fourth quarter of 2017. on december 22 , 2017 , h.r . 1 , commonly known as the “ tax cuts and jobs act ” ( the “ tax act ” ) was signed into u.s. law . we recognized the income tax effects of the tax act in accordance with staff accounting bulletin no . 118 , which provides sec staff guidance for the application of asc 740 , income taxes , in the reporting period in which the tax act was signed into law .
| in addition , ebit included $ 20 million of asset impairment charges in asia-pacific and europe relating to feedmill and port assets , $ 17 million of impairment charges related to our palm oil affiliate in indonesia and our renewable oils affiliate in brazil , and impairment charges of $ 7 million of intangible assets . ebit also included $ 9 million of gains on the disposition of equity interests in brazil and $ 9 million of acquisition fees . ebit for 2016 included $ 120 million of gains on the disposition of equity interests in port and transshipment operations in brazil and an oilseed crush facility in vietnam and a $ 14 million gain related to a wheat export tax contingency settlement . in addition , 2016 total segment ebit included impairment charges of $ 44 million and $ 15 million relating to equity investments in brazil and asia-pacific , respectively , impairment charges of $ 12 million of intangible assets , $ 9 million of asset impairment charges in our fertilizer operations in argentina , a provision of $ 8 million for long-term receivables in brazil and $ 3 million of restructuring charges in our industrial sugar operations in brazil . agribusiness segment ebit decreased by $ 619 million primarily driven by our grain origination business which was impacted by weaker margins , slow farmer selling , strong competition and take-or-pay logistics commitments in south america and weaker results in our soybean processing facilities in most regions . contributing to lower ebit were severance , employee benefit and other program costs related to our gcp and impairment charges . edible oil products segment ebit increased $ 14 million to $ 126 million in 2017 from $ 112 million in 2016 . increases to gross profit from acquisitions in europe and argentina and increased volumes in asia-pacific were partially offset by program costs related to our gcp and acquisition costs . 29 milling products segment ebit decreased by $ 68 million to $ 63 million in 2017 driven primarily by continued weak economic conditions and lower demand for higher value wheat
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us gaap is complex and require management to apply significant judgment to various accounting , reporting and disclosure matters . management must use assumptions and estimates to apply these principles where actual measurement is not possible or practical . actual results may differ from these estimates under different assumptions or conditions . in management 's opinion , the most critical accounting policies and estimates impacting the company 's consolidated financial statements are listed below . these policies are critical because they are highly dependent upon subjective or complex judgments , assumptions and estimates . changes in such estimates may have a significant impact on the financial statements . for a complete discussion of the company 's significant accounting policies , see the footnotes to the consolidated financial statements and discussion throughout this form 10-k. determination of the allowance for loan losses the level of the allowance for credit losses and the provision for credit losses involve significant estimates by management . in evaluating the adequacy of the allowance for loan losses , management considers the specific collectability of impaired and nonperforming loans , past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect borrowers ability to repay ( including the timing of future payments ) , the estimated value of any underlying collateral , composition of the loan portfolio , current economic conditions and other relevant qualitative factors . while management uses available information to make such evaluations , future adjustments to the allowance for credit losses and the provision for credit losses may be necessary if economic conditions , loan credit quality , or collateral issues differ substantially from the factors and assumptions used in making the evaluation . the allowance for loan losses is evaluated on a regular basis by management and consists of specific and general components . the specific component relates to loans that are classified as either loss , doubtful , substandard or special mention . for such loans that are also classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan are lower than the carrying value of that loan . the general component covers non-classified loans and is based on historical industry loss experience adjusted for qualitative factors . a loan is considered impaired when , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the 30 contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value , and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record , and the amount of the shortfall in relation to the principal and interest owed . impairment is measured on a loan by loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . revenue recognition for insurance activities insurance revenues are derived from commissions and fees . commission revenues , as well as the related premiums receivable and payable to insurance companies , are recognized the later of the effective date of the insurance policy or the date the client is billed , net of an allowance for estimated policy cancellations . the reserve for policy cancellations is periodically evaluated and adjusted as necessary . commission revenues related to installment premiums are recognized as billed . commissions on premiums billed directly by insurance companies are generally recognized as income when received . contingent commissions from insurance companies are generally recognized as revenue when the data necessary to reasonably estimate such amounts is obtained . a contingent commission is a commission paid by an insurance company that is based on the overall profit and or volume of the business placed with the insurance company . fee income is recognized as services are rendered . stock-based compensation fasb accounting standards codification ( `` asc '' ) 718 , `` share-based payment '' addresses the accounting for share-based payment transactions subsequent to 2006 in which an enterprise receives employee services in exchange for ( a ) equity instruments of the enterprise or ( b ) liabilities that are based on the fair value of the enterprise 's equity instruments or that may be settled by the issuance of such equity instruments . fasb asc 718 requires an entity to recognize the grant-date fair-value of stock options and its other equity-based compensation issued to the employees in the consolidated statements of operations . the revised statement generally requires that an entity account for those transactions using the fair-value-based method , and eliminates the intrinsic value method of accounting in apb opinion no . 25 . `` accounting for stock issued to employees , '' which was permitted under fasb asc 718 , as originally issued . effective january 1 , 2006 , the company adopted fasb asc 718 using the modified prospective method . any additional impact the adoption of this statement will have on our results of operations will be determined by share-based payments granted in future periods . story_separator_special_tag derivative financial instruments : the company maintains an overall interest rate risk-management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility . the company 's goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not , on a material basis , adversely affected by movements in interest rates . as a result of 31 interest rate fluctuations , hedged assets and liabilities will appreciate or depreciate in market value . the effect of this unrealized appreciation or depreciation will generally be offset by income or loss on the derivative instruments that are linked to the hedged assets and liabilities . the company views this strategy as a prudent management of interest rate sensitivity , such that earnings are not exposed to undue risk presented by changes in interest rates . by using derivative instruments , the company is exposed to credit and market risk . if the counterparty fails to perform , credit risk exists to the extent of the fair value gain in a derivative . when the fair value of a derivative contract is positive , this generally indicates that the counterparty owes the company , and , therefore , creates a repayment risk for the company . when the fair value of a derivative contract is negative , the company owes the counterparty and , therefore , it has no repayment risk . the company minimizes the credit ( or repayment ) risk in the derivative instruments by entering into transactions with high quality counterparties . market risk is the adverse effect that a change in interest rates , currency , or implied volatility rates has on the value of a financial instrument . the company manages the market risk associated with interest rate contracts by establishing and monitoring limits as to the types and degree of risk that may be undertaken . the company periodically measures this risk by using value-at-risk methodology ( refer to note 21 of the consolidated financial statements for information on interest rate swap and interest rate cap agreements the company has used to manage its exposure to interest rate risk ) . goodwill and other intangible assets the company had goodwill and other intangible assets of $ 45.7 million at december 31 , 2010 , related to the acquisition of its banking , insurance and wealth management companies . the company utilizes a third party valuation service to perform its goodwill impairment test both on an interim and annual basis . a fair value is determined for the banking and financial services , insurance services and investment services reporting units . if the fair value of the reporting business unit exceeds the book value , then no impairment write down of goodwill is necessary ( a step one evaluation ) . if the fair value is less than the book value , then an additional test ( a step two evaluation ) is necessary to assess goodwill for potential impairment . as a result of the goodwill impairment valuation analysis , the company determined that no goodwill impairment write-off for any of its reporting units was necessary for the year ended december 31 , 2010 ; however , a step two evaluation was necessary for the banking and financial services reporting unit ( for additional information , refer to note 5acquisitions including goodwill and other intangible assets of the consolidated financial statements . reporting unit valuation is inherently subjective , with a number of factors based on assumption and management judgments . among these are future growth rates , discount rates and earnings capitalization rates . changes in assumptions and results due to economic conditions , industry factors and reporting business unit performance could result in different assessments of the fair value and could result in impairment charges in the future . framework for interim impairment analysis the company utilizes the following framework from fasb asc 350 `` intangiblesgoodwill & other '' to evaluate whether an interim goodwill impairment test is required , given the occurrence of events or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount . examples of such events or circumstances include : a significant adverse change in legal factors or in the business climate ; an adverse action or assessment by a regulator ; unanticipated competition ; 32 a loss of key personnel ; a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of ; financing transactions , '' of a significant asset group within a reporting unit ; and recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit . when applying the framework above , management additionally considers that a decline in the company 's market capitalization could reflect an event or change in circumstances that would more likely than not reduce the fair value of reporting business unit below its carrying value . however , in considering potential impairment of goodwill , management does not consider the fact that our market capitalization is less than the carrying value of our company to be determinative that impairment exists . this is because there are factors , such as our small size and small market capitalization , which do not take into account important factors in evaluating the value of our company and each reporting business unit , such as the benefits of control or synergies . consequently , management 's annual process for evaluating potential impairment of our goodwill ( and evaluating subsequent interim period indicators of impairment ) involves a detailed level analysis and incorporates a more granular view of each reporting business unit than aggregate market capitalization , as well as significant valuation inputs .
| 36 average balances , rates and net yield the table below provides average asset and liability balances and the corresponding interest income and expense along with the average interest yields ( assets ) and interest rates ( liabilities ) for the years 2010 , 2009 and 2008. replace_table_token_5_th ( 1 ) interest income and rates on loans and investment securities are reported on a tax-equivalent basis using a tax rate of 34 % . ( 2 ) held for sale and non-accrual loans have been included in average loan balances . ( 3 ) for 2010 , covered loans acquired in the allegiance acquisition on november 19 , 2010 are included in loans . the impact on average balance , interest income and yield was not significant for 2010. net interest income as adjusted for tax-exempt financial instruments was $ 42.7 million for the twelve months ended december 31 , 2010 , as compared to $ 37.2 million for the same period in 2009. a benefit of a lower cost of funds resulted in less interest paid on average interest-bearing liabilities , which more than offset the decrease in the yield on interest-earning assets , which resulted in a higher net interest margin for 2010 , as compared to 2009. the taxable-equivalent net interest margin percentage for 2010 was 3.44 % , as compared to 3.22 % for 2009. the interest rate paid on average interest-bearing liabilities decreased by 56 basis points to 2.11 % for 2010 , as compared to 2.67 % for 37 2009. the yield on interest-earning assets decreased by 19 basis points to 5.32 % for 2010 , as compared to 5.51 % for 2009. interest and fees on loans on a taxable equivalent basis increased by $ 1.3 million , or 2.4 % to $ 52.2 million for the year ended december 31 , 2010 , as compared to $ 50.9 million for the same period in 2009. the increase in interest and fees on loans was primarily the result of an increase in the average balance of loans resulting from strong commercial loan growth , which increased by $ 24.4 million in 2010 , as compared to 2009. management attributes this increase in organic commercial loan growth to a well established market in the reading ,
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probuphine® , our first product candidate to utilize proneura , is being developed for the long term maintenance treatment of opioid dependence and is designed to maintain a stable , around the clock blood level of the medicine buprenorphine in patients for six months following a single treatment . we have licensed the rights to commercialize probuphine in the u.s. and canada to braeburn pharmaceuticals sprl ( “ braeburn ” ) and during 2014 we have been supporting braeburn and a team of experts to implement the program developed in cooperation with the fda to address the items in the complete response letter ( “ crl ” ) issued in april 2013. this includes conducting a double blind , double dummy clinical study of a four implant dose of probuphine in clinically stable patients who are receiving maintenance treatment with an approved sublingual formulation containing buprenorphine at a daily dose of 8mg or less . this clinical study , which is being funded and managed by braeburn , completed patient enrollment in november 2014 and study completion is anticipated by the end of the second quarter of 2015 followed by resubmission of the nda later in the year , with a potential pdufa date for the probuphine nda in the first half of 2016. pursuant to our license agreement with braeburn , as amended to date , we are entitled to receive a $ 15 million milestone payment upon fda approval of the probuphine nda and royalties on net sales of probuphine ranging in percentage from the mid-teens to the low twenties . the agreement also provides for up to $ 165 million in sales milestones and $ 35 million in regulatory milestones and entitles us to royalty in the low single digit percentage on sales by braeburn , if any , of other future products in the addiction market . we believe that our proneura technology has the potential to be used in the treatment of other chronic conditions , such as parkinson 's disease ( pd ) , where maintaining stable , around the clock blood levels of a dopamine agonist may benefit the patient and improve medical outcomes . we have commenced initial work on an implant formulation with ropinirole , a dopamine agonist approved for the treatment of pd . our goal is to complete the non-clinical studies required in support of an investigational new drug ( “ ind ” ) application by early next year and enable commencement of a ‘ proof of concept ' clinical study following the potential approval of probuphine . we are also currently evaluating drugs and disease settings for opportunities to develop our drug delivery technology for other potential treatment applications in situations where conventional treatment is limited by variability in blood drug levels and poor patient compliance . we operate in only one business segment , the development of pharmaceutical products . 29 critical accounting policies and the use of estimates critical accounting policies and use of estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes . actual results could differ materially from those estimates . we believe the following accounting policies for the years ended december 31 , 2014 and 2013 to be applicable : revenue recognition we generate revenue principally from collaborative research and development arrangements , technology licenses , and government grants . consideration received for revenue arrangements with multiple components is allocated among the separate units of accounting based on their respective selling prices . the selling price for each unit is based on vendor-specific objective evidence , or vsoe , if available , third party evidence if vsoe is not available , or estimated selling price if neither vsoe nor third party evidence is available . the applicable revenue recognition criteria are then applied to each of the units . revenue is recognized when the four basic criteria of revenue recognition are met : ( 1 ) a contractual agreement exists ; ( 2 ) transfer of technology has been completed or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectibility is reasonably assured . for each source of revenue , we comply with the above revenue recognition criteria in the following manner : · technology license agreements typically consist of non-refundable upfront license fees , annual minimum access fees or royalty payments . non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed , provided that the technology transferred or accessed is not dependent on the outcome of our continuing research and development efforts . · royalties earned are based on third-party sales of licensed products and are recorded in accordance with contract terms when third-party results are reliably measurable and collectibility is reasonably assured . we no longer recognize royalty income related to the fanapt royalty payments received from novartis unless fanapt sales exceed certain thresholds ( see note 8 , “ royalty liability ” for further discussion ) . · government grants , which support our research efforts in specific projects , generally provide for reimbursement of approved costs as defined in the notices of grants . grant revenue is recognized when associated project costs are incurred . · collaborative arrangements typically consist of non-refundable and or exclusive technology access fees , cost reimbursements for specific research and development spending , and various milestone and future product royalty payments . if the delivered technology does not have stand-alone value , the amount of revenue allocable to the delivered technology is deferred . story_separator_special_tag non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received , and are deferred if we have continuing performance obligations and have no evidence of fair value of those obligations . cost reimbursements for research and development spending are recognized when the related costs are incurred and when collections are reasonably expected . payments received related to substantive , performance-based “ at-risk ” milestones are recognized as revenue upon achievement of the clinical success or regulatory event specified in the underlying contracts , which represent the culmination of the earnings process . amounts received in advance are recorded as deferred revenue until the technology is transferred , costs are incurred , or a milestone is reached . share-based payments we recognize compensation expense for all share-based awards made to employees and directors . the fair value of share-based awards is estimated at the grant date based on the fair value of the award and is recognized as expense , net of estimated pre-vesting forfeitures , ratably over the vesting period of the award . 30 we use the black-scholes option pricing model to estimate the fair value method of our awards . calculating stock-based compensation expense requires the input of highly subjective assumptions , including the expected term of the share-based awards , stock price volatility , and pre-vesting forfeitures . we estimate the expected term of stock options granted for the years ended december 31 , 2014 and 2013 based on the historical experience of similar awards , giving consideration to the contractual terms of the share-based awards , vesting schedules and the expectations of future employee behavior . we estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock . the assumptions used in calculating the fair value of stock-based awards represent our best estimates , but these estimates involve inherent uncertainties and the application of management judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . in addition , we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest . we estimate the pre-vesting forfeiture rate based on historical experience . if our actual forfeiture rate is materially different from our estimate , our stock-based compensation expense could be significantly different from what we have recorded in the current period . income taxes we make certain estimates and judgments in determining income tax expense for financial statement purposes . these estimates and judgments occur in the calculation of certain tax assets and liabilities , which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes . as part of the process of preparing our financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves us estimating our current tax exposure under the most recent tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . we assess the likelihood that we will be able to recover our deferred tax assets . we consider all available evidence , both positive and negative , expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance . if it is not more likely than not that we will recover our deferred tax assets , we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable . clinical trial accruals we also record accruals for estimated ongoing clinical trial costs . clinical trial costs represent costs incurred by clinical research organizations ( “ cros ” ) and clinical sites . these costs are recorded as a component of research and development expenses . under our agreements , progress payments are typically made to investigators , clinical sites and cros . we analyze the progress of the clinical trials , including levels of patient enrollment , invoices received and contracted costs when evaluating the adequacy of accrued liabilities . significant judgments and estimates must be made and used in determining the accrued balance in any accounting period . actual results could differ from those estimates under different assumptions . revisions are charged to expense in the period in which the facts that give rise to the revision become known . the actual clinical trial costs for the probuphine studies conducted in the past three years have not differed materially from the estimated projection of expenses . warrants issued in connection with equity financing we generally account for warrants issued in connection with equity financings as a component of equity , unless there is a deemed possibility that we may have to settle warrants in cash . for warrants issued with deemed possibility of cash settlement , we record the fair value of the issued warrants as a liability at each reporting period and record changes in the estimated fair value as a non-cash gain or loss in the statements of operations and comprehensive income ( loss ) . 31 liquidity and capital resources replace_table_token_3_th liquidity and capital resources we have funded our operations since inception primarily through the sale of our securities and the issuance of debt , as well as with proceeds from warrant and option exercises , corporate licensing and collaborative agreements , the sale of royalty rights and government-sponsored research grants .
| as a result of the risks and uncertainties inherently associated with pharmaceutical research and development activities described elsewhere in this document , we are unable to estimate the specific timing and future costs of our clinical development programs or the timing of material cash inflows , if any , from our product candidates . however , we anticipate that our research and development expenses will increase in connection with our proneura for pd development activities and any other proneura technology based product development program we may pursue . 33 general and administrative expenses for 2014 and 2013 remained constant at approximately $ 3.1 million . net other income for the year ended december 31 , 2014 was approximately $ 1.1 million , compared to net other income of approximately $ 10.6 million in the comparable period in 2013. net other income in 2014 consisted primarily of $ 1.1 million related to non-cash gains on changes in the fair value of warrants . net other income in 2013 consisted primarily of approximately $ 9.0 million in other income generated by the termination of titan 's royalty repurchase agreement with deerfield , an approximately $ 1.9 million gain resulting from the settlement of indebtedness to deerfield as a result of the exercise of all of the deerfield warrants and non-cash gains on changes in the fair value of warrants of approximately $ 1.7 million , which amounts were offset in part by interest expense of approximately $ 1.6 million related to the deerfield loans and approximately $ 0.5 million in other expenses related to unamortized transaction fees related to the initial deerfield debt transaction . our net loss applicable to common stockholders for the year ended december 31 , 2014 was approximately $ 2.4 million , or approximately $ 0.03 per share , compared to our net income applicable to common stockholders of approximately $ 9.7 million , or approximately $ 0.12 per share , for the comparable period in 2013. year ended december 31 , 2013 compared to year ended december 31 , 2012 license revenues of approximately $ 9.1 million and $ 2.3 million for the years ended december 31 , 2013 and 2012 reflect the amortization of the upfront license fee received
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we are focused on expanding our position in the growing power markets where we expect investments to be made based on forecasts of increasing electricity demand covering decades into the future . we believe that our expectations are reasonable and that our future plans are based on reasonable assumptions . however , such forward-looking statements , by their nature , involve risks and uncertainties , and they should be considered in conjunction with the risk factors included elsewhere in this 2011 annual report . discontinued operations in december 2010 , our board of directors approved management 's plan to dispose of the operations of the nutritional products line of business conducted by its wholly-owned subsidiary , vitarich laboratories , inc. ( vli ) . since 2006 , vli incurred operating results that were consistently below expected results . the loss of certain major customers and the reduction in the amounts of orders received from other large customers caused net revenues to decline and this business segment to report operating losses . the board of directors considered that , despite turnaround efforts , vli incurred an operating loss of approximately $ 2.9 million for the nine months ended october 31 , 2010. we reported operating losses for vli of approximately $ 2.2 million , $ 6.9 million and $ 8.9 million for the fiscal years ended january 31 , 2010 , 2009 and 2008 , respectively , including impairment losses related to the indefinite-lived and long-lived assets of approximately $ 2.0 million and $ 6.8 million for the fiscal years ended january 31 , 2009 and 2008 , respectively . on march 11 , 2011 , we completed the sale of substantially all of the assets of vli to an unrelated company . the asset sale was consummated for an aggregate cash purchase price of up to $ 3,100,000 and the assumption by the purchaser of certain trade payables , accrued expenses and remaining obligations under vli 's facility leases . of the cash purchase price , $ 800,000 was paid at closing and the remaining $ 2,300,000 was placed into escrow . vli will be paid from the escrow amount as purchased inventory is used in production or sold and purchased accounts receivable are collected . at the end of nine months of the closing , all money still held in the escrow account will be returned to the purchaser . including additional loss from operations , we expect the disposition to result in income ( loss ) from discontinued operations in the range of $ 700,000 loss to $ 300,000 income for the fiscal year ending january 31 , 2012. the assets and liabilities of vli as of january 31 , 2011 and 2010 are classified as held for sale and the financial results of vli have been presented as discontinued operations in the accompanying consolidated financial statements . the losses from discontinued operations for the years ended january 31 , 2011 and 2010 were $ 2.2 million , or $ 0.16 per diluted share , and $ 1.3 million , or $ 0.09 per diluted share , respectively . cash used in the discontinued operations of vli for the years ended january 31 , 2011 and 2010 was $ 2.9 million and $ 2.2 million , respectively . - 25 - comparison of the results of operations for the years ended january 31 , 2011 and 2010 the following schedule compares the results of our operations for the years ended january 31 , 2011 and 2010. except where noted , the percentage amounts represent the percentage of net revenues for the corresponding year . as analyzed below the schedule , we reported net income of $ 7.8 million for the fiscal year ended january 31 , 2011. for the fiscal year ended january 31 , 2010 , we reported net income of $ 7.0 million . replace_table_token_2_th * less than 1 % . * * the cost of revenues percentage amounts represent the percentage of net revenues of the applicable segment . net revenues power industry services the net revenues of the power industry services business decreased by $ 34.9 million , or 16.6 % , to $ 174.9 million for the year ended january 31 , 2011 compared with net revenues of $ 209.8 million for the prior year . the net revenues of this business represented approximately 96 % of consolidated net revenues from continuing operations for both the year ended january 31 , 2011 and the year ended january 31 , 2010. the operating results of the power industry services segment for the current fiscal year reflected a decline in activity on this segment 's largest current project as it moved into the commissioning phase . net revenues related to this project , a gas-fired power plant located in southern california , represented 58.9 % and 56.5 % of power industry services net revenues and consolidated net revenues from continuing operations for the current year , respectively , and was substantially completed at january 31 , 2011. a year ago , the net revenues related to this project represented 96.2 % and 92.4 % of segment net revenues and consolidated net revenues from continuing operations , respectively . construction activity on the gas-fired peaking plant under construction in connecticut provided net revenues representing 23.4 % and 22.4 % of power industry services net revenues and consolidated net revenues from continuing operations for the current year , respectively . construction activities related to wind-energy farms provided approximately 17 % of the net revenues of the segment and continuing operations for the current year . - 26 - telecommunications infrastructure services the telecommunications infrastructure services business of smc is challenged by the depressed state of commercial and residential construction activity in the mid-atlantic region . as a result , net revenues for the year ended january 31 , 2011 decreased to $ 7.7 million compared with net revenues of $ 8.5 million for the prior year , representing a 10.1 % decrease between years . story_separator_special_tag the net revenues of this business represented approximately 4 % of consolidated net revenues from continuing operations for the years ended january 31 , 2011 and 2010. net revenues related to the performance of outside premises activities increased to approximately 48.9 % of this segment 's business for the year ended january 31 , 2011 from approximately 47.3 % of this segment 's net revenues for the year ended january 31 , 2010 due primarily to the amount of work performed under a contract , awarded during the current year , with a local government for the installation of battery systems designed to provide prolonged power for traffic signals during electricity outages , including material purchases , and under a subcontract for both outside and inside plant services on a large commercial building construction project . smc also experienced an increase in net revenues from its long-time local electricity cooperative customer . we experienced an increase in the number of work orders for maintenance and repair services issued by and completed pursuant to our master agreement with this customer . as a result , this segment was able to offset substantially the effect of net revenues lost under a services contract with the regional telecommunications service provider that expired at the end of december 2009. this business represented approximately 17.7 % of the net revenues of smc for the year ended january 31 , 2010. net revenues related to the performance of inside premises cabling activities declined by approximately 13 % between years . smc 's second largest customer had a prime contract with the federal government that expired during the current year . on a subcontractor basis for this customer , we performed inside services at various government installations throughout our region . the net revenues provided by this customer represented approximately 28.0 % and 34.0 % of smc 's net revenues for the years ended january 31 , 2011 and 2010 , respectively . smc 's business plan for the new fiscal year is based on the continuation of aggressive bid and proposal efforts resulting in the addition of new business . however , despite our business development efforts , we can not provide assurance that smc will maintain its current level of net revenues for the fiscal year ending january 31 , 2012. cost of revenues due primarily to the decline in consolidated net revenues for the year ended january 31 , 2011 compared with the year ended january 31 , 2010 , the consolidated cost of revenues also declined . these costs were $ 153.5 million and $ 195.6 million for the years ended january 31 , 2011 and 2010 , respectively , representing a decrease of approximately $ 42.1 million between the years , or 21.5 % . the overall gross profit percentage for the current year improved to 15.9 % from 10.4 % last year due primarily to the change in the mix of projects performed for power industry services customers during the current year as described above . the margin percentages associated with projects commenced in the current year , which together represented slightly in excess of 41 % of this segment 's net revenues for the current year , are more favorable than the overall margin percentage experienced on the gas-fired power plant construction project located in california which was the primary project underway last year . the cost of revenues for the power industry services business of gps decreased for the year ended january 31 , 2011 to $ 147.0 million from $ 189.0 million for the year ended january 31 , 2010. moreover , the cost of revenues as a percentage of corresponding net revenues decreased to 84.0 % for the current year from 90.1 % last year . the decrease in this percentage in the current year was due primarily to the types of costs incurred on our largest construction project for the year , as this project neared its completion , and the improved gross profit on newer projects underway during the current year . for smc , the cost of revenues , expressed as a percentage of corresponding net revenues , increased to 84.8 % for the current year from 77.8 % last year due primarily to a change in the mix of customers contributing to net revenues between the years . selling , general and administrative expenses these costs increased by $ 130,000 , or 1.1 % , to approximately $ 12.1 million for the current year from approximately $ 12.0 million last year . the increase in stock option compensation expense of approximately $ 462,000 and the increase in salaries and benefits costs of $ 339,000 ( due to the consolidation of grp ) were substantially offset by a reduction of $ 575,000 between years in the amount of bonus expense . - 27 - other income and expense included in these results last year was our share of the earnings of grp , a 50 % owned subsidiary until december 2009 , of approximately $ 1,288,000 and the gain of $ 877,000 realized in connection with the acquisition of the remaining 50 % ownership interest whereby grp became a wholly-owned subsidiary . income tax expense for the year ended january 31 , 2011 , we incurred income tax expense related to continuing operations of $ 7.0 million reflecting an annual effective income tax rate of 41.3 % which differed from the expected federal income tax rate of 34 % due primarily to the unfavorable effects of state income taxes and income tax return to provision true-up adjustments in the approximate amount of $ 338,000. for the year ended january 31 , 2010 , we incurred income tax expense of $ 4.5 million reflecting an effective annual income tax rate of 35.2 % which differed from the expected federal income tax rate of 34 % due primarily to the effect of state income tax expense offset substantially by the favorable tax effects of permanent differences including the domestic manufacturing deduction .
| as a result , income from continuing operations before income taxes increased by $ 4.2 million to $ 17.0 million for the year ended january 31 , 2011 from $ 12.8 million for the year ended january 31 , 2010. the cash and cash equivalents increased by $ 17.1 million during the current year to $ 83.3 million at january 31 , 2011. our operating activities from continuing operations provided $ 22.2 million of cash including income from continuing operations in the amount of $ 10.0 million , noncash charges in the amount of $ 2.9 million and a net favorable change in working capital accounts in the amount of $ 9.3 million . we used cash in discontinued operations of approximately $ 2.9 million . we also used cash in the total amount of $ 2.3 million to retire our bank debt and to make capital expenditures . - 23 - at january 31 , 2011 , the value of our construction contract backlog was $ 291 million compared with a backlog value of $ 300 million as of january 31 , 2010. during the current year , we signed a construction and start-up services contract , now valued at approximately $ 56 million , for the construction of a 200 megawatt peaking power plant in connecticut and received the related full notice-to-proceed . the completion of the project , which includes the installation of four gas turbines with ancillary equipment and systems , is expected to occur during the second quarter of fiscal year 2012. during the current year , the company also was awarded a contract , valued at approximately $ 51 million , by a wind-energy power project development firm for the design and construction of a 200 megawatt wind energy project in henry county , illinois . the scope of this project includes the design and construction of roads , foundations , and electrical collection systems in addition to erecting one hundred thirty-four ( 134 ) sets of towers , turbines , and blades . this project has a planned completion date in the first quarter of 2012. during the current year , we substantially completed the construction of a gas-fired power plant in northern california that represented approximately $ 60 million in contract backlog at january 31 , 2010. the renegotiation of our engineering , procurement and construction contract for the construction of a gas-fired electricity
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included in interest expense for the year ended december 31 , 2020 were non-cash charges of $ 13.8 million related to the amortization of debt discount and transaction costs of the 2023 notes , 2025 notes , and 2027 notes , while the year ended december 31 , 2019 included non-cash charges of $ 12.7 million related to the amortization of debt discount and transaction costs of the 2023 notes . additionally , interest income decreased approximately $ 3.1 million for the year ended december 31 , 2020 as compared to the prior period , primarily as a result of lower interest rates , and we expect interest income to remain depressed as a result . other income ( expense ) on may 18 , 2020 , in connection with the completion of a private offering of $ 125 million aggregate principal amount of 3.75 % convertible senior notes , we repurchased and retired approximately $ 88.3 million in aggregate principal amount of our outstanding 2023 notes , with a carrying amount of $ 78.1 million , for approximately $ 81.2 million of cash . additionally , on november 11 , 2020 , we entered into a privately negotiated exchange agreement with a holder of our outstanding 2023 notes , under which we agreed to retire $ 125.0 million in aggregate original principal amount of the 2023 notes , with a carrying amount of $ 113.1 million , in exchange for the issuance of $ 132.5 million in aggregate principal amount of new 3.50 % convertible senior notes . we accounted for both transactions as an extinguishment of the 2023 notes , and as such , recorded a loss on extinguishment of approximately $ 7.8 million for the year ended december 31 , 2020. during the fourth quarter of 2019 , we determined that our equity investment in kateeva had indicators of impairment , and as such , we reviewed this investment for impairment . based on this review , we recorded a non-cash impairment charge of $ 21.0 million . income taxes the 2020 income tax benefit of $ 0.1 million is comprised of : ( i ) a $ 0.8 million income tax benefit related to the amortization and subsequent sale of certain intangible assets during the year , which was partially offset by ( ii ) a $ 0.5 million income tax expense attributed to the profitable non-u.s. operations , as well as withholding tax to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act , and ( iii ) a $ 0.2 million income tax expense related primarily to u.s. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets , as well as state and local income taxes . the 2019 income tax expense of $ 0.8 million is comprised of : ( i ) a $ 1.0 million income tax expense attributed to the profitable non-u.s. operations , as well as withholding tax as we now expect to repatriate certain foreign earnings as a result of changes in tax laws under the 2017 tax act , ( ii ) a $ 0.3 million income tax expense related primarily to u.s. tax amortization of our indefinite-lived intangible assets that is not available to offset existing deferred tax assets , as well as state and local income taxes , which were partially offset by ( iii ) a $ 0.5 million income tax benefit related to the amortization and subsequent impairment of certain non-u.s. intangible assets during the year . 35 years ended december 31 , 2019 and 2018 see part ii , item 7 of our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 21 , 2020 , for management 's discussions and analysis of financial condition and results of operations for the fiscal year ended december 31 , 2018. in addition , in order to align with our evolving strategy , we have changed the end-markets by which we categorize sales . prior period sales have been reclassified to the new end-markets for comparative purposes . the following is an analysis of sales by end-market : replace_table_token_6_th total sales decreased for the year ended december 31 , 2019 against the comparable prior year period principally in the compound semiconductor market , partially offset by increases in the semiconductor and data storage markets . pricing did not have a significant impact on the change in total sales . the decrease in sales in the compound semiconductor market was largely driven by our exit out of the low margin commoditized led market . we expect there will continue to be year-to-year variations in our future sales distribution across markets . liquidity and capital resources our cash and cash equivalents , restricted cash , and short-term investments are as follows : replace_table_token_7_th a portion of our cash and cash equivalents is held by our subsidiaries throughout the world , frequently in each subsidiary 's respective functional currency , which is typically the u.s. dollar . at december 31 , 2020 and 2019 , cash and cash equivalents of $ 40.2 million and $ 73.0 million , respectively , were held outside the united states . as of december 31 , 2020 , we had $ 12.6 million of accumulated undistributed earnings generated by our non-u.s. subsidiaries for which the u.s. repatriation tax has been provided and did not require the use of cash due to the use of net operating loss carryforwards . approximately $ 6.0 million of undistributed earnings would be subject to foreign withholding taxes if distributed back to the united states . we believe that our projected cash flow from operations , combined with our cash and short-term investments , will be sufficient to meet our projected working capital requirements , contractual obligations , and other cash flow needs for the next twelve months , including scheduled interest payments on our convertible senior notes . story_separator_special_tag 36 a summary of the cash flow activity for the year ended december 31 , 2020 and 2019 is as follows : cash flows from operating activities replace_table_token_8_th net cash provided by operating activities was $ 43.0 million for the year ended december 31 , 2020 and was due to the net loss of $ 8.4 million plus a decline in cash flow from operating activities due to changes in operating assets and liabilities of $ 13.7 million , being more than offset by adjustments for non-cash items of $ 65.2 million . the changes in operating assets and liabilities was largely attributable to increases in accounts receivable and inventories and decreases in deferred revenue , partially offset by increases in accounts payable and customer deposits . net cash used in operating activities was $ 7.4 million for the year ended december 31 , 2019 and was due to the net loss of $ 78.7 million plus a decline in cash flow from operating activities due to changes in operating assets and liabilities of $ 16.8 million , partially offset by adjustments for non-cash items of $ 88.1 million . the changes in operating assets and liabilities was largely attributable to decreases in accounts payable and accrued expenses and customer deposits and deferred revenue , partially offset by decreases in inventories and deferred cost of sales , accounts receivable and contract assets , and prepaid expenses and other current assets . cash flows from investing activities replace_table_token_9_th the net cash used in investing activities during the year ended december 31 , 2020 was attributable to capital expenditures and net change in investments , partially offset by the proceeds from the sale of a non-core product line . as discussed in note 20 to the consolidated financial statements , we have entered into a new lease agreement in san jose , california , and as such , capital expenditures associated with the build-out of the new facility are expected to total between $ 30 million and $ 40 million over the next two years . in addition , we expect a period of duplicate operating expenses until the transition from our existing facility to our new facility is completed over the next two years . the net cash used in investing activities during the year ended december 31 , 2019 was attributable to net change in investments as well as capital expenditures . 37 cash flows from financing activities replace_table_token_10_th the net cash provided by financing activities for the year ended december 31 , 2020 was primarily related to the net cash proceeds received from the issuance of the 2025 notes and 2027 notes , net of issuance costs , partially offset by the cash used to repurchase the 2023 notes as well as the purchase of capped calls . convertible senior notes 2023 notes on january 10 , 2017 , we issued $ 345.0 million of 2.70 % convertible senior notes . on may 18 , 2020 , in connection with the completion of a private offering of $ 125 million aggregate principal amount of 3.75 % convertible senior notes described below , we repurchased and retired approximately $ 88.3 million in aggregate principal amount of our outstanding 2023 notes . additionally , on november 11 , 2020 , we entered into a privately negotiated exchange agreement with a holder of our outstanding 2023 notes , under which we agreed to retire $ 125.0 million in aggregate original principal amount of the 2023 notes , in exchange for the issuance of $ 132.5 million in aggregate principal amount of new 3.50 % convertible senior notes described below . the remaining 2023 notes bear interest at a rate of 2.70 % per year , payable semiannually in arrears on january 15 and july 15 of each year . the 2023 notes mature on january 15 , 2023 , unless earlier purchased by the company , redeemed , or converted . 2025 notes on november 17 , 2020 , as part of the privately negotiated exchange agreement described above , we issued $ 132.5 million of 3.50 % convertible senior notes . the 2025 notes bear interest at a rate of 3.50 % per year , payable semiannually in arrears on january 15 and july 15 of each year , commencing on july 15 , 2021. the 2025 notes mature on january 15 , 2025 , unless earlier purchased by the company , redeemed , or converted . 2027 notes on may 18 , 2020 , we completed a private offering of $ 125.0 million of 3.75 % convertible senior notes . we received net proceeds of approximately $ 121.9 million , after deducting underwriting discounts and fees and expenses payable by the company . additionally , we used approximately $ 10.3 million of cash to purchase the capped calls . the 2027 notes bear interest at a rate of 3.75 % per year , payable semiannually in arrears on june 1 and december 1 of each year , commencing on december 1 , 2020. the 2027 notes mature on june 1 , 2027 , unless earlier purchased by the company , redeemed , or converted . we believe that we have sufficient capital resources and cash flows from operations to support scheduled interest payments on these debts . contractual obligations and commitments we have commitments under certain contractual arrangements to make future payments for goods and services . these contractual arrangements secure the rights to various assets and services to be used in the future in the normal course of business . we expect to fund these contractual arrangements with cash generated from operations in the normal course of business , as well as existing cash and cash equivalents and short-term investments . in addition , we have bank guarantees and letters of credit issued by a financial institution on our behalf as needed .
| several markets continue to remain challenged in light of ongoing restrictions on business and travel , and decreased business and consumer spending generally , resulting from the covid-19 pandemic . gross profit in 2020 , gross profit increased compared to 2019 primarily due to an increase in sales volume , as well as increased gross margins . gross margins increased principally due to higher production activity , as well as reductions in inventory reserves and warranty expenses . we expect our gross margins to fluctuate each period due to product mix and other factors . research and development the markets we serve are characterized by continuous technological development and product innovation , and we invest in various research and development initiatives to maintain our competitive advantage and achieve our growth objectives . research and development expenses decreased in 2020 compared to 2019 primarily from reductions to personnel-related expenses , project materials , and professional fees as a result of our initiative to streamline operations , enhance efficiency , and reduce costs . in the second half of 2019 , we executed an initiative to reorganize various functions along product lines and created a central research and development organization to better allocate our resources to our highest priority projects . additionally , we had a decrease in travel-related expenses as a result of covid-19 related restrictions . selling , general , and administrative selling , general , and administrative expenses decreased in 2020 compared to 2019 primarily related to personnel-related expenses and professional fees as a result of our initiative to streamline operations , enhance efficiency , and reduce costs . additionally , we had a decrease in travel-related expenses as a result of covid-19 related restrictions . given the uncertainty regarding the impacts on our business resulting from the covid-19 pandemic , we are focused on the proactive management of expenses . in future periods , we may incur additional selling , general and administrative expenses to support our responses to the covid-19 pandemic . amortization expense amortization expense
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our ability to complete these investments , and thereby earn structuring revenue , fluctuates based on the pricing and availability of transactions and the pricing and availability of financing , among other factors . as a result of the recent improving economic conditions and increasing seller optimism , we have seen an increased number of investment opportunities that we believe will allow us to structure transactions on behalf of the cpa ® reits on favorable terms . although capitalization rates have remained compressed over the past few quarters compared to their credit crisis highs , we believe that the investment environment remains attractive and that we will be able to achieve the targeted returns of our managed funds . we believe that the significant amount of corporate debt that remains outstanding in the marketplace , which will need to be refinanced over the next several years , will provide attractive investment opportunities for net lease investors such as w. p. carey and the cpa ® reits . to the extent that these trends continue , we believe that investment volume will benefit . however , we have recently seen an increasing level of competition for investments , both domestically and internationally , and further capital inflows into the marketplace could put additional pressure on the returns that we can generate from investments . we structured investments on behalf of the cpa ® reits totaling $ 1.0 billion during 2010 and entered into several investments for our owned real estate portfolio totaling $ 76.8 million , and based on current conditions , we expect that in 2011 we will be able to continue to take advantage of the investment opportunities we are seeing in both the u.s. and europe . international investments comprised 43 % of total investments during 2010. we currently expect that international transactions will continue to form a significant portion of the investments we structure , although the relative portion of international investments in any given period will vary . financing conditions we have recently seen a gradual improvement in both the credit and real estate financing markets . during 2010 , we saw an increase in the number of lenders for both domestic and international investments as market conditions improved compared to prior years . however , during the fourth quarter of 2010 , the cost of debt rose , but we anticipate that this may be recoverable either through deal pricing or if lenders adjust their spreads , which had been unusually high during the crisis . the increase was primarily a result of a rise in the 10-year treasury rates for domestic deals and due to the impact of the sovereign debt issues in europe . during 2010 , we obtained non-recourse mortgage financing totaling $ 626.1 million on behalf of the cpa ® reits and $ 70.3 million for our owned real estate portfolio . real estate sector as noted above , the commercial real estate market is impacted by a variety of macro-economic factors , including but not limited to growth in gross domestic product , unemployment , interest rates , inflation , and demographics . since the beginning of the credit crisis , these macro-economic factors have persisted , negatively impacting commercial real estate market fundamentals , which has resulted in higher vacancies , lower rental rates , and lower demand for vacant space . while more recently there have been some indications of stabilization in asset values and slight improvements in occupancy rates , general uncertainty surrounding commercial real estate fundamentals and property valuations continues . we and the cpa ® reits are chiefly affected by changes in the appraised values of our properties , tenant defaults , inflation , lease expirations , and occupancy rates . w. p. carey 2010 10-k 23 net asset values of the cpa ® reits we own shares in each of the cpa ® reits and earn asset management revenue based on a percentage of average invested assets for each cpa ® reit . as such , we benefit from rising investment values and are negatively impacted when these values decrease . as a result of continued weakness in the economy and a weakening of the euro versus the dollar during 2010 and 2009 , the navs for cpa ® :14 and cpa ® :16 global at september 30 , 2010 , which were calculated in connection with the proposed merger , were lower than the navs at december 31 , 2009 , and we currently expect that the nav for cpa ® :15 at december 31 , 2010 , which is not yet available , will also be lower . however , the negative impact on our asset management revenue related to tenant defaults during 2009 was substantially offset by asset management revenues earned related to new investments structured on behalf of cpa ® :17 global during 2010. the following table presents recent navs per share for these cpa ® reits : replace_table_token_9_th the navs of the cpa ® reits are based on a number of variables , including individual tenant credits , lease terms , lending credit spreads , foreign currency exchange rates , and tenant defaults , among others . we do not control these variables and , as such , can not predict how they will change in the future . tenant defaults as a net lease investor , we are exposed to credit risk within our tenant portfolio , which can reduce our results of operations and cash flow from operations if our tenants are unable to pay their rent . within our managed cpa ® reit portfolios , tenant defaults can reduce our asset management revenue if they lead to a decline in the appraised value of the assets of the cpa ® reits and can also reduce our income from equity investments in the cpa ® reits . story_separator_special_tag tenants experiencing financial difficulties may become delinquent on their rent and or default on their leases and , if they file for bankruptcy protection , may reject our lease in bankruptcy court resulting in reduced cash flow which may negatively impact net asset values and require us or the cpa ® reits to incur impairment charges . even where a default has not occurred and a tenant is continuing to make the required lease payments , we may restructure or renew leases on less favorable terms , or the tenant 's credit profile may deteriorate , which could affect the value of the leased asset and could in turn require us or the cpa ® reits to incur impairment charges . as of the date of this report , we have no significant exposure to tenants operating under bankruptcy protection in our owned portfolio , while in the cpa ® reit portfolios , tenants operating under bankruptcy protection , administration or receivership account for less than 1 % of aggregate annualized contractual minimum base rent , a decrease from levels experienced during the crisis . during 2008 and 2009 , the cpa ® reits experienced a significant increase in tenant defaults as companies across many industries experienced financial distress due to the economic downturn and the seizure in the credit markets . our experience for 2010 reflected an improvement from the unusually high level of tenant defaults experienced during 2008 and 2009 due to the economic downturn . we have observed that many of our tenants have benefited from continued improvements in general business conditions , which we anticipate will result in reduced tenant defaults going forward ; however , it is possible that additional tenants may file for bankruptcy or default on their leases during 2011 and that economic conditions may again deteriorate . to mitigate these risks , we have historically looked to invest in assets that we believe are critically important to a tenant 's operations and have attempted to diversify the portfolios by tenant , tenant industry and geography . we also monitor tenant performance through review of rent delinquencies as a precursor to a potential default , meetings with tenant management and review of tenants ' financial statements and compliance with any financial covenants . when necessary , our asset management process includes restructuring transactions to meet the evolving needs of tenants , re-leasing properties , refinancing debt and selling properties , as well as protecting our rights when tenants default or enter into bankruptcy . w. p. carey 2010 10-k 24 inflation our leases and those of the cpa ® reits generally have rent adjustments that are either fixed or based on formulas indexed to changes in the cpi or other similar indices for the jurisdiction in which the property is located . because these rent adjustments may be calculated based on changes in the cpi over a multi-year period , changes in inflation rates can have a delayed impact on our results of operations . rent adjustments during 2009 and , to a lesser extent , 2010 generally benefited from increases in inflation rates during the years prior to the scheduled rent adjustment date . however , despite recent signs of inflationary pressure , we continue to expect that rent increases in our owned portfolio and in the portfolios of the cpa ® reits will be significantly lower in coming years as a result of the current historically low inflation rates in the u.s. and the euro zone . lease expirations and occupancy we actively manage our owned real estate portfolio and the portfolios of the cpa ® reits and begin discussing options with tenants in advance of the scheduled lease expiration . in certain cases , we obtain lease renewals from our tenants ; however , tenants may elect to move out at the end of their term or may elect to exercise purchase options , if any , in their leases . in cases where tenants elect not to renew , we may seek replacement tenants or try to sell the property . as of the date of this report , 9 % of the annualized contractual minimum base rent in our owned portfolio is scheduled to expire in the next twelve months . for those leases that we believe will be renewed , we expect that renewed rents may be below the tenants ' existing contractual rents and that lease terms may be shorter than historical norms , reflecting current market conditions . the occupancy rate for our owned real estate portfolio declined from 94 % at december 31 , 2009 to 90 % as of the date of this report , primarily reflecting the impact of two tenants who vacated during 2010. fundraising fundraising trends for non-traded reits overall include an increase in average monthly volume during 2010 compared to 2009. additionally , the number of offerings has increased over 2009 levels . consequently , there has been an increase in the competition for investment dollars . we are currently fundraising for cpa ® :17 global . while fundraising trends are difficult to predict , our recent fundraising continues to be strong . we raised $ 593.1 million for cpa ® :17 global 's initial public offering in 2010 and , through the date of this report , have raised more than $ 1.4 billion on its behalf since beginning fundraising in december 2007. we have made a concerted effort to broaden our distribution channels and are seeing a greater portion of our fundraising come from an expanded network of broker-dealers as a result of these efforts . cpa ® :17 global has filed a registration statement with the sec for a possible continuous public offering of up to an additional $ 1.0 billion of common stock , which we currently expect will commence after the initial public offering terminates . there can be no assurance that cpa ® :17 global will actually commence the follow-on offering or successfully sell the full number of shares registered .
| 2009 vs. 2008 for the year ended december 31 , 2009 as compared to 2008 , asset management revenue decreased by $ 4.1 million , primarily due to declines in the appraised value of the real estate-related assets of cpa ® :14 , cpa ® :15 and cpa ® :16 global at december 31 , 2008. w. p. carey 2010 10-k 27 structuring revenue we earn structuring revenue when we structure and negotiate investments and debt placement transactions for the cpa ® reits . structuring revenue is dependent on investment activity , which is subject to significant period-to-period variation . investment volume on behalf of the cpa ® reits was $ 1.0 billion in 2010 , $ 507.7 million in 2009 and $ 457.3 million in 2008. included in the 2010 and 2008 investment activity were $ 91.7 million of real estate-related loans originated by us and $ 20.0 million of cmbs , respectively , acquired on behalf of cpa ® :17 global , for which we earned structuring revenues of 1 % compared to an average of 4.5 % that we generally earn for structuring long-term net lease investments . 2010 vs. 2009 for the year ended december 31 , 2010 as compared to 2009 , structuring revenue increased by $ 21.3 million , primarily due to higher investment volume in 2010 compared to 2009 . 2009 vs. 2008 for the year ended december 31 , 2009 as compared to 2008 , structuring revenue increased by $ 3.0 million , primarily due to higher investment volume in 2009 compared to 2008. wholesaling revenue we earn wholesaling revenue based on the number of shares sold in connection with cpa ® :17 global 's initial public offering . wholesaling revenue earned is offset by underwriting costs incurred in connection with the offering , which are included in general and administrative expenses . 2010 vs. 2009 for the year ended december 31 , 2010 as compared to 2009 , wholesaling revenue increased by $ 3.4 million primarily due to an increase in the number of shares sold related to cpa ® :17 global 's initial public offering in 2010 compared to 2009. as described in current trends fundraising
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if we fail to raise capital or enter into such agreements as and when needed , we may have to significantly delay , scale back or discontinue the development and commercialization of our product candidates . we plan to continue to use third-party service providers , including clinical research organizations , or cros , and contract manufacturing organization , or cmos , to carry out our preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of our product candidates . we do not currently have a sales force . components of results of operations revenue to date , we have not generated any revenue from any sources , including from product sales , and we do not expect to generate any revenue from the sale of products in the foreseeable future . if our development efforts for our product candidates are successful and result in regulatory approval , or license agreements with third parties , we may generate revenue in the future from product sales . however , there can be no assurance as to when we will generate such revenue , if at all . operating expenses research and development expenses our research and development expenses consist primarily of costs incurred to conduct research , such as the discovery and development of our product candidates as well as the development of future product candidates . research and development expenses include personnel costs , including stock-based compensation expense , third-party contractor services , laboratory materials and supplies , and depreciation and maintenance of research equipment . we expense research and development costs as they are incurred . as we are at a very early stage of development , we do not allocate our costs by product candidate or development program , as a significant amount of research and development expenses include compensation costs , materials , supplies , depreciation on and maintenance of research equipment , and the cost of services provided by outside contractors , which are not tracked by product candidate or development program . in particular , with respect to internal costs , several of our departments support multiple product candidate research and development programs , and therefore the costs can not be allocated to a particular product candidate or development program . substantially all of our research and development costs are associated with our lead product candidate , pc14586 . we initiated a phase 1/2 clinical trial in october 2020 for our lead product candidate , pc14586 . in october 2020 , we were granted fda fast track designation of pc14586 for the treatment of patients with locally advanced or metastatic solid tumors that have a p53 y220c mutation . we dosed our first patient in this clinical trial in the fourth quarter of 2020. we expect our research and development expenses to increase substantially in absolute dollars in the future as we advance our 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 is costly and time-consuming . the actual probability of success for our product candidates may be affected by a variety of factors including : the safety and efficacy of our product candidates , early clinical data , investment in our clinical program , the ability of any future collaborators to successfully develop our licensed product candidates , competition , manufacturing capability , and commercial viability . we may never succeed in achieving regulatory approval for any of our product candidates . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our research and development projects . general and administrative expenses general and administrative expenses include personnel costs , expenses for outside professional services and other allocated expenses . personnel costs consist of salaries , bonuses , benefits and stock-based compensation . outside professional services consist of legal , accounting and audit services and other consulting fees . allocated 110 expenses consist of rent expense related to our office and research and development facility . we expect to incur additional expenses as a public company , including expenses related to compliance with the rules and regulations of the sec , and those of any national securities exchange on which our securities are traded , additional insurance expenses , investor relations activities and other administrative and professional services . we expect to increase our headcount significantly to support our operations as a public company . we also expect to increase our general and administrative expenses as we advance our product candidates through preclinical research and development , manufacturing , clinical development and commercialization . interest income , net interest income , net primarily consists of interest income from our interest-bearing cash , cash equivalents and short-term marketable securities and interest costs related to amortization of premiums and discounts on short-term marketable securities . story_separator_special_tag cellpadding= '' 0 '' cellspacing= '' 0 '' style= '' border-collapse : collapse ; width:100 % ; '' > the timing and amount of milestone payments we may receive under any future collaboration agreements ; our ability to maintain future licenses and research and development programs and to establish new collaboration arrangements ; the costs involved in prosecuting and enforcing patent and other intellectual property claims ; the cost and timing of regulatory approvals ; and our efforts to enhance operational systems and hire additional personnel , including personnel to support development of our product candidates and satisfy our obligations as a public company . until such time , if ever , as we can generate substantial revenue from product sales , we expect to fund our operations and capital funding needs through equity and or debt financing . we may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization . the sale of additional equity would result in additional dilution to our stockholders . story_separator_special_tag the incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends , among other items . if we raise additional funds through governmental funding , collaborations , strategic partnerships and alliances or marketing , distribution or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are not able to secure adequate additional funding , we may be forced to make reductions in spending , extend payment terms with suppliers , liquidate assets where possible , and or suspend or curtail planned programs . any of these actions could materially and adversely affect our business , financial condition , results of operations and prospects . 113 cash flows the following table summarizes our cash flows for the period indicated ( in thousands ) : replace_table_token_6_th operating activities net cash used in operating activities for the year ended december 31 , 2020 , was $ 32.7 million , which consisted primarily of net loss of $ 34.4 million increased by non-cash charges of $ 2.5 million and decreased by a net change of $ 0.9 million in our net operating assets . the non-cash charges primarily consisted of stock-based compensation of $ 1.9 million and depreciation of $ 0.3 million . the change in our net operating assets and liabilities was primarily due to an increase in current assets , accompanied by a decrease in outstanding payables , and an increase in accrued compensation and accrued liabilities in 2020. net cash used in operating activities for the year ended december 31 , 2019 , was $ 22.1 million , which consisted primarily of net loss of $ 25.4 million decreased by non-cash charges of $ 1.4 million and by a net change of $ 1.9 million in our net operating assets . the non-cash charges primarily consisted of stock-based compensation of $ 0.9 million and depreciation and amortization expense of $ 0.5 million . the change in our net operating assets and liabilities was primarily due to an increase in outstanding payables in 2019. investing activities our investing activities provided $ 28.0 million of cash during the year ended december 31 , 2020 , which consisted primarily of maturities of marketable securities of $ 42.6 million , partially offset by purchases of marketable securities of $ 14.5 million and purchases of property and equipment of $ 0.1 million . our investing activities provided $ 3.2 million of cash during the year ended december 31 , 2019 , which consisted primarily of maturities of marketable securities of $ 46.8 million , partially offset by purchases of marketable securities of $ 43.5 million and purchases of property and equipment of $ 0.1 million . financing activities our financing activities provided $ 293.0 million of cash during the year ended december 31 , 2020 , which consisted primarily of gross ipo proceeds of $ 243.5 million and series d preferred stock issuance of $ 70.0 million , offset by equity issuance costs of $ 20.6 million . our financing activities provided $ 61.8 million of cash during the year ended december 31 , 2019 , which consisted primarily of proceeds from the issuance of our series c convertible preferred stock of $ 61.9 million , and proceeds from the exercise of stock options of $ 0.1 million , partially offset by payments of equity issuance costs of $ 0.2 million . off-balance sheet arrangements we have not entered into any off-balance sheet arrangements . 114 contractual obligations and commitments the following table summarizes our contractual obligations as of december 31 , 2020 ( in thousands ) : replace_table_token_7_th we enter into contracts in the normal course of business with cros and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes . these contracts generally provide for termination on notice , and therefore are cancelable contracts and not included in the table of contractual obligations and commitments . in january 2021 , we signed a lease for 50,581 square feet of office and laboratory space at one research way in princeton , new jersey . that lease term extends through 2032 , has a five-year extension option , and is intended to replace our two existing facilities . payments under this lease will total $ 19.6 million through may 2032. critical accounting policies and significant judgments and estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes . although we believe that the estimates we use are reasonable , due to the inherent uncertainty involved in making those estimates , actual results reported in future periods could differ from those estimates . we believe that the accounting policies described below involve a high degree of judgment and complexity . accordingly , these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of our operations . research and development costs , accrued research and development costs and related prepaid expenses research and development costs are expensed as incurred . research and development expenses consist principally of personnel costs , including salaries , stock-based compensation and benefits for employees , third-party license fees and other operational costs related to our research and development activities , including allocated facility-related expenses and external costs of outside vendors , and other direct and indirect costs . non -refundable research and development advance payments are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or services are performed .
| interest income , net interest income , net was $ 0.7 million for the year ended december 31 , 2020 , compared to $ 1.3 million for the year ended december 31 , 2019. the decrease of $ 0.6 million is driven by decreased income from cash investments in marketable securities and u.s treasuries . liquidity and capital resources sources of liquidity since our inception , we have not generated any revenue from any product sales or any other sources , and have incurred significant operating losses and negative cash flows from our operations . we have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years , if at all . as of december 31 , 2020 , we have cash and cash equivalents of $ 361.4 million and an accumulated deficit of $ 109.9 million . prior to our initial public offering , or ipo , we financed our operations primarily through issuances of our convertible preferred stock . in 2019 , we sold an aggregate of 5,469,606 shares of our series c convertible preferred stock to accredited investors , generating gross proceeds of $ 61.9 million . in july 2020 , we sold an aggregate of 5,321,864 shares of our series d convertible preferred stock to accredited investors , generating gross proceeds of $ 70.0 million . on september 25 , 2020 , we completed our ipo pursuant to which we issued and sold 13,529,750 shares of our common stock , including the exercise in full by the underwriters of their option to purchase up to 1,764,750 additional shares of common stock , at a public offering price of $ 18.00 per share . the gross proceeds from the ipo were approximately $ 243.5 million and the net proceeds were approximately $ 223.2 million , after deducting underwriting discounts and commissions and other offering expenses . plan of operation and future funding requirements we use our capital resources primarily to fund operating expenses , primarily research and development
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the program does not yet represent a material portion of our revenue . however , we may face additional material risks as the program expands , including our ability to obtain additional financing partners as well as our ability to collect finance and rent receivables in view of the general challenging credit markets worldwide . we believe that our concentration of credit risk is limited because of our large number of customers , credit quality of the customer base , small account balances for most of these customers , and customer geographic diversification . we have applied and will apply for the §48 ( c ) solar commercial investment tax credit ( `` itc '' ) and treasury grant payments under section 1603 of the american recovery and reinvestment act ( the `` cash grant '' ) , which is administered by the u.s. internal revenue services ( `` irs '' ) and treasury department , for residential leases . we have structured the tax incentive applications , both in timing and amount , to be in accordance with the guidance provided by treasury and irs . if the amount or timing of the itc or cash grant payments received in connection with the residential lease program varies from what we have projected , this may impact our revenues and margins and we may have to recognize losses , which may adversely impact our results of operations and cash flows . we make certain assumptions in accounting for the residential lease program , including , among others , the residual value of the leased systems . as the residential lease program grows , if the residual value of leased systems does not materialize as assumed , our results of operations would be adversely affected . financial operations overview the following describes certain line items in our consolidated statements of operations : revenue we recognize revenue on the following types of transactions within our regional segments : power plant project development and projects , turn-key engineering , procurement , and construction ( `` epc '' ) services for power plant construction , and power plant operations and maintenance ( `` o & m '' ) services ; 53 components , including large volume sales of solar panels and mounting systems to third parties , sometimes on a multi-year , firm commitment basis ; solar equipment for the residential and small commercial market , sold through our third-party global dealer network ; and direct sales and epc and o & m services for rooftop and ground-mounted solar power systems for new homes , commercial , and public sectors . in the united states , where customers often utilize rebate and tax credit programs in connection with projects rated one mw or less of capacity , we typically sell solar power systems rated up to one mw of capacity to provide a supplemental , distributed source of electricity for a customer 's facility as well as ground mount systems reaching up to hundreds of mws for regulated utilities . in the united states , many customers choose to purchase solar electricity under a power purchase agreement ( `` ppa '' ) with an investor or financing company which buys the system from us . in europe and the united states , our systems are often purchased by third-party investors as central-station solar power plants , typically rated from one to 25 mw , which generate electricity for sale under tariff to regional and public utilities . we additionally have large utility power plants currently under construction which when completed will have total rated capacities greater than 250mw . we also sell our solar panels and balance of systems components under materials-only sales contracts in the united states , europe and asia . our revenue recognition policies are described in more detail under `` critical accounting estimates . '' cost of revenue our cost of revenue will fluctuate from period to period due to the mix of projects completed and recognized as revenue , in particular between large utility projects and large commercial installation projects . the cost of solar panels is the single largest cost element in our cost of revenue . our cost of solar panels consists primarily of : ( i ) polysilicon , silicon ingots and wafers used in the production of solar cells , along with other materials such as chemicals and gas that are needed to transform silicon wafers into solar cells ; ( ii ) raw materials such as glass , frame , backing and other materials ; ( iii ) solar cells from our auo sunpower sdn . bhd . ( `` auosp '' ) joint venture ; as well as ( iv ) direct labor costs and assembly costs we pay to our third-party contract manufacturers in california and china . other cost of revenue associated with the construction of solar power systems includes real estate , mounting systems , inverters , third-party contract manufacturer costs , construction subcontract and dealer costs . in addition , other factors contributing to cost of revenue include amortization of other intangible assets , stock-based compensation , depreciation , provisions for estimated warranty claims , salaries , personnel-related costs , freight , royalties , facilities expenses , and manufacturing supplies associated with contracting revenue and solar cell fabrication as well as factory pre-operating costs associated with our manufacturing facilities . such pre-operating costs included compensation and training costs for factory workers as well as utilities and consumable materials associated with preproduction activities . we are targeting to improve cost of revenue over time as we implement cost reduction programs , improve our manufacturing processes , and grow our business to attain economies of scale on fixed costs . an expected reduction in cost of revenue based on manufacturing efficiencies , however , could be partially or completely offset by increased raw material costs . story_separator_special_tag gross margin our gross margin each quarter is affected by a number of factors , including average selling prices for our solar power products , the types of projects in progress , the gross margins estimated for those projects in progress , our product mix , our actual manufacturing costs , the utilization rate of our solar cell manufacturing facilities , and actual overhead costs . historically , revenue from materials-only sales contracts generate a higher gross margin percentage than revenue generated from turn-key solar power system contracts . turn-key contracts generate higher revenue per watt as a result of the included epc services , o & m services and power plant project development . from time to time , we enter into agreements whereby the selling price for certain of our solar power products is fixed over a defined period . in addition , almost all of our construction contracts are fixed price contracts . however , we have in several instances obtained change orders that reimburse us for additional unexpected costs due to various reasons . we also have long-term agreements for polysilicon , ingots , wafers , and solar cells with suppliers , some with take-or-pay arrangements . an increase in our manufacturing costs and other project costs over such a defined period could have a negative impact on our overall gross margin . our gross margin may also be impacted by fluctuations in manufacturing yield rates and certain adjustments for inventory reserves . our inventory policy is described in more detail under `` critical accounting estimates . '' operating expenses 54 our operating expenses include research and development ( `` r & d '' ) expenses and sales , general and administrative ( `` sg & a '' ) expenses , goodwill and other intangible asset impairment , and restructuring charges . r & d expenses consist primarily of salaries and related personnel costs , depreciation of equipment and the cost of solar cells , solar panel materials , various prototyping materials , and services used for the development and testing of products . we expect our r & d expense to continually increase in absolute dollars as we continue to develop new processes to further improve the conversion efficiency of our solar cells and reduce their manufacturing cost , and as we develop new products to diversify our product offerings . r & d expense is reported net of any funding received under contracts with governmental agencies because such contracts are considered collaborative arrangements . these awards are typically structured such that only direct costs , r & d overhead , procurement overhead , and general and administrative expenses that satisfy government accounting regulations are reimbursed . in addition , our government awards from state agencies will usually require us to pay to the granting governmental agency certain royalties based on sales of products developed with government funding or economic benefit derived from incremental improvements funded . royalties paid to governmental agencies are charged to cost of goods sold . sg & a expense for our business consists primarily of salaries and related personnel costs , professional fees , insurance , and other selling and marketing expenses . goodwill and other intangible asset impairment primarily consists of impairment of goodwill as a result of our annual impairment test , performed in the third quarter of both fiscal 2012 and 2011 , as we determined the carrying value of certain reporting units exceeded their fair value . additionally , during the third quarter of both fiscal 2012 and 2011 we determined the carrying value of certain intangible assets in europe were no longer recoverable . for additional details see note 6 of notes to consolidated financial statements . restructuring expense consists of four restructuring plans effected in both fiscal 2012 and 2011 in response to reductions in european government incentives , which had a significant impact on the global solar market , and to accelerate operating cost reduction and improve overall operating efficiency . charges in connection with these plans relate to employee severance and benefits , lease termination costs , and legal and other related charges . for additional details , see note 9 of notes to consolidated financial statements . other income ( expense ) , net interest income represents interest income earned on our cash , cash equivalents , restricted cash , restricted cash equivalents , held-to-maturity securities and available-for-sale debt securities . interest expense primarily relates to : ( i ) amortization expense recorded for warrants issued to total in connection with the liquidity support agreement executed in the first quarter of fiscal 2012 ; ( ii ) debt under our senior convertible debentures ; ( iii ) fees for our outstanding letters of credit ; ( iv ) outstanding term loans ; ( v ) our revolving credit facilities ; ( vi ) our mortgage loan ; and ( vii ) customer advance payments . for additional details see notes 8 , 10 , and 12 of notes to consolidated financial statements . gain on deconsolidation of consolidated subsidiary is the result of the deconsolidation of auosp in the third quarter of fiscal 2010. net gain on change in equity interest in unconsolidated investee refers to the value of our equity interests in woongjin energy co. , ltd. ( `` woongjin energy '' ) and first philec solar corporation ( `` first philec solar '' ) being adjusted upon dilutive events . gain on sale of equity interest in unconsolidated investee represents net gains from the sale of our woongjin energy shares in the open market during second half of fiscal 2011. for additional details see note 11 of notes to consolidated financial statements . gain on mark-to-market derivatives during fiscal 2012 , 2011 and 2010 relates to derivative instruments associated with our 4.50 % senior cash convertible debentures ( `` 4.50 % debentures '' ) : ( i ) the embedded cash conversion option ; ( ii ) the over-allotment option ; ( iii ) the bond hedge transaction ; and ( iv ) the warrant transactions .
| the table below represents our significant customers which accounted for greater than 10 percent of total revenue during fiscal 2012 , 2011 , and 2010 . 62 year ended revenue december 30 , 2012 january 1 , 2012 january 2 , 2011 significant customers : business segment nrg solar , inc. americas 35 % * * customer b emea * * 12 % * denotes less than 10 % during the period americas revenue : americas revenue in fiscal 2012 increased 34 % as compared to fiscal 2011 primarily as a result of an increase in the number and size of the various utility-scale solar power systems under construction , which includes the ramp up in construction of the 250 mw california valley solar ranch ( `` cvsr '' ) project in san luis obispo county , california ; revenue recognized on the 579 mw antelope valley solar projects ( `` avsp '' ) in california ; a 25 mw project in modesto , california ; and 20 mw project in north carolina during fiscal 2012. the increase in americas revenue in fiscal 2012 as compared to fiscal 2011 was partially offset by projects which were substantially completed during the interim period as well as a 52 % decrease in component sales year over year . in fiscal 2012 , we recognized 31.8 mw of component sales as compared to 66.9 mw in fiscal 2011. americas revenue in fiscal 2011 increased 100 % as compared to fiscal 2010 primarily as a result of an increase in the number of utility-scale solar power systems under construction as well as an increase in component shipments . in fiscal 2011 , we recognized revenue on 66.9 mw of components sales as compared to 7.6 mw in fiscal 2010. in fiscal 2011 , we additionally recognized revenue under the percentage-of-completion method for several power plants , including three under construction in the united states , totaling 60 mw and the completion of a 20 mw solar plant in ontario , canada . revenue recognition on project under construction in the
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we have a global team of approximately 1,500 it professionals who understand how to drive innovation for the benefit of our customers . our annual investment in technology is among the highest in our industry , because we see the ongoing development of our proprietary technology as being critical to our ability to continually improve customer service and leverage our scale . strategy for growth xpo logistics is a top ten global transportation and logistics company , providing cutting-edge supply chain solutions to the most successful companies in the world . we 've established leading positions in key areas of transportation and logistics , where there is strong secular demand . we offer our solutions through our highly integrated , multi-modal organization that operates under the single xpo logistics brand . our strategy is to optimize our global franchise , execute on opportunities to increase our profitability , and create dramatic long-term value for our customers and shareholders . our integrated network includes approximately 89,000 employees at 1,451 locations in 33 countries serving over 50,000 customers . our global contract logistics platform includes 151 million square feet of facility space . our global ground transportation network includes approximately 19,000 owned tractors and 47,000 owned trailers , 10,000 trucks contracted through independent owner operations , and access to more than 50,000 independent carriers . we intend to continue to grow the business in a disciplined manner , and with a compelling value proposition : integrated solutions for any company , of any size , with any combination of supply chain needs . recent developments restructuring in conjunction with various acquisitions , the company has initiated a cost savings program aimed at restructuring and leveraging the company 's businesses to better serve our customers . this includes facility rationalization , severance programs and eliminating redundancies in the workforce in order to improve efficiency and profitability . for additional information refer to note 4 —restructuring charges . acquisition of con-way on september 9 , 2015 , the company entered into a definitive agreement and plan of merger ( the “ merger agreement ” ) with con-way inc. and canada merger corp. , a delaware corporation and wholly owned subsidiary of xpo ( “ merger subsidiary ” ) . under the terms of the merger agreement , xpo caused merger subsidiary to commence a cash tender offer ( the “ offer ” ) for all of con-way 's outstanding shares of common stock , par value $ 0.625 per share ( the “ shares ” ) , at a purchase price of $ 47.60 per share , net to the seller in cash , without interest thereon and less any applicable withholding taxes . headquartered in ann arbor , michigan , con-way was a fortune 500 company with a transportation and logistics network of 582 locations and approximately 30,000 employees serving over 36,000 customers . the aggregate consideration paid in the offer and merger agreement was approximately $ 2.3 billion , without giving effect to related transaction fees and expenses . the acquisition of con-way closed on october 30 , 2015. for additional information refer to note 3 —acquisitions . financing of con-way acquisition in connection with the completion of the acquisition of con-way , xpo entered into a new $ 1.6 billion term loan credit agreement , the proceeds of which were used , together with cash on hand , to finance a portion of the acquisition consideration as well as other costs and expenses related to the transaction . xpo also entered into a new $ 1.0 billion asset-based revolving credit facility , which replaced xpo 's existing $ 415.0 million asset-based revolving credit facility . for additional information refer to note 9 —debt . 29 acquisition of majority interest in norbert dentressangle sa on june 8 , 2015 , pursuant to the terms and subject to the conditions of the nd share purchase agreement , dentressangle initiatives , mrs. evelyne dentressangle , mr. pierre-henri dentressangle and ms. marine dentressangle ( collectively , the “ sellers ” ) sold to xpo and xpo purchased from the sellers ( the “ share purchase ” ) , all of the ordinary shares of nd owned by the sellers , representing a total of approximately 67 % of the share capital of nd and all of the outstanding share subscription warrants granted by nd to employees , directors or other officers of nd and its affiliates . on june 11 , 2015 , xpo filed with the french autorité des marchés financiers ( the “ amf ” ) a mandatory simplified cash offer ( the “ tender offer ” ) to purchase all of the remaining outstanding ordinary shares of nd ( other than the shares already owned by xpo ) at a price of 217.50 per share . on june 23 , 2015 , the company received the necessary approvals from the amf to launch the tender offer and the tender offer was launched on june 25 , 2015. the tender offer remained open for a period of 16 trading days . as of december 31 , 2015 , the company had purchased 1,921,553 shares under the tender offer and acquired a total of approximately 86.25 % of the share capital of nd , including all of the outstanding share subscription warrants granted by nd to employees , directors or other officers of nd and its affiliates . the fair value of total consideration paid for nd , net of acquired cash , was 2,645.2 million , or $ 2,955.3 million . for additional information refer to note 3 —acquisitions . story_separator_special_tag redemption of nd 's euro private placement notes in conjunction with the acquisition of nd , we assumed nd 's euro private placement debt of 75.0 million aggregate principal amount of 3.80 % notes due december 20 , 2019 ( the “ euro private placement notes due 2019 ” ) and 160.0 million aggregate principal amount of 4.00 % notes due december 20 , 2020 ( the “ euro private placement notes due 2020 ” and together with the euro private placement notes due 2019 , the “ euro private placement notes ” ) . the company redeemed 223.0 million of the euro private placement notes at par on july 31 , 2015. acquisition of bridge terminal transport services , inc. on may 4 , 2015 , we entered into a stock purchase agreement with btts holding corporation to acquire all of the outstanding capital stock of btt , a leading asset-light drayage provider in the united states . the fair value of the total consideration paid under the btt stock purchase agreement was $ 103.8 million and consisted of $ 103.1 million of cash paid at the time of closing , including an estimate of the working capital adjustment , and $ 0.7 million of equity . the closing of the transaction was effective on june 1 , 2015. for additional information refer to note 3 —acquisitions . acquisition of ux specialized logistics on february 9 , 2015 , we entered into an asset purchase agreement to acquire certain of the assets of ux specialized logistics , llc , a north american provider of last mile logistics and same day delivery services for major retail chains and e-commerce companies . the fair value of the total consideration paid under the ux asset purchase agreement was $ 58.9 million and consisted of $ 58.1 million of cash paid at the time of closing , including an estimate of the working capital adjustment , and $ 0.8 million of equity . for additional information refer to note 3 —acquisitions . issuance of senior notes due 2019 , 2021 and 2022 on february 13 , 2015 , the company completed an additional private placement of $ 400.0 million aggregate principal amount of senior notes due 2019 for a total issuance of $ 900.0 million . on june 4 , 2015 , the company completed a private placement of $ 1.6 billion aggregate principal amount of 6.50 % fixed rate senior notes due 2022 and 500.0 million euro-denominated aggregate principal amount of 5.75 % fixed rate senior notes due 2021 . the senior notes due 2019 , 2021 and 2022 were offered to qualified institutional buyers in reliance on rule 144a under the securities act . the sale of the senior notes due 2019 , 2021 and 2022 was not registered under the securities act . unless so registered , the senior notes due 2019 , 2021 and 2022 may not be offered or sold in the united states except pursuant to an exemption from , or in a transaction not subject to , the registration requirements of the securities act and applicable state securities laws . for additional information refer to note 9 —debt . series c convertible perpetual preferred stock and common stock on may 29 , 2015 , we entered into fifteen separate investment agreements ( the “ investment agreements ” ) with sovereign wealth funds and institutional investors ( collectively , the “ purchasers ” ) . pursuant to the investment agreements , on june 3 , 2015 , we issued and sold 15,499,445 shares ( the “ purchased common shares ” ) in the aggregate of our common stock , and 562,525 shares ( the `` purchased preferred stock ” and , together with the purchased common shares , the “ purchased securities ” ) in the aggregate of our series c convertible perpetual preferred stock in a private placement . the purchase price per purchased common share was $ 45.00 and the purchase price per share of purchased preferred stock was $ 1,000. the purchased preferred stock was mandatorily convertible into an aggregate of 12,500,546 additional shares of company common stock subject to the approval of the company 's stockholders . we held a special meeting of stockholders of the company on september 8 , 2015 in which the company 's stockholders approved the issuance of shares of company common stock upon the conversion of the purchased preferred stock . immediately following the special meeting , the purchased preferred stock was automatically 30 converted into 12,500,546 shares of company common stock . no additional consideration was received by the company in connection with the conversion of the purchased preferred stock into company common stock . the purchased preferred stock was issued with an initial conversion price of $ 45.00 per share . as of may 29 , 2015 , our common stock price was $ 49.16. as a result , the conversion feature was issued “ in-the-money ” and we allocated the beneficial conversion feature of $ 52.0 million to additional paid-in capital . the beneficial conversion feature was contingent upon receiving approval of our stockholders and was therefore recognized in net loss attributable to common shareholders upon receiving stockholder approval on september 8 , 2015. for additional information refer to note 12 —stockholders ' equity . convertible debt conversions during the year ended december 31 , 2015 , we entered into transactions pursuant to which we issued an aggregate of 3,315,705 shares of our common stock to certain holders of the 4.50 % convertible senior notes due october 1 , 2017 ( the “ convertible notes ” ) in connection with the conversion of $ 54.5 million aggregate principal amount of the convertible notes . certain of these transactions included induced conversions pursuant to which we paid the holder a market-based premium in cash . the negotiated market-based premiums , in addition to the difference between the current fair value and the book value of the convertible notes , are reflected in interest expense .
| cash flow during 2015 , $ 90.8 million of cash was provided by operations compared to $ 21.3 million used in 2014 and $ 66.3 million used for 2013 . cash flow increases from operations between the period ended december 31 , 2015 and 2014 related to businesses acquired , including larger non-cash charges related to depreciation and amortization in 2015 . the primary use of cash for the periods ended december 31 , 2014 and 2013 was the payment of outstanding accounts payable . cash generated from revenue equaled $ 7,631.0 million for 2015 as compared to $ 2,212.8 million in 2014 and $ 665.3 million for 2013 and correlates directly with the revenue increase between periods . cash flow increases are related primarily to acquisitions and margin increases between the periods ended december 31 , 2015 , 2014 and 2013 . 37 cash used for payment of transportation services and direct operating expenses in 2015 equaled $ 6,417.9 million as compared to $ 1,929.9 million in 2014 and $ 585.1 million for 2013 . the increase in cash outflows between the periods directly correlates to the increase in revenues between the periods ended december 31 , 2015 , 2014 and 2013 . other operating uses of cash included sg & a items , which equaled $ 1,058.8 million , $ 299.7 million and $ 134.4 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . payroll represents the most significant sg & a item . in 2015 , cash used for payroll equaled $ 769.1 million as compared to $ 138.3 million and $ 74.9 million for the same period for 2014 and 2013 , respectively . investing activities used $ 4,085.4 million in 2015 compared to a use of $ 858.3 million in 2014 and $ 470.3 million in 2013 . during 2015 , $ 3,887.0 million was used for acquisitions , $ 249.0 million was used to
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additionally , the estimate of the allowance required to absorb credit losses in the entire portfolio may change due to shifts in the mix and level of loan balances outstanding and in prevailing economic conditions , as evidenced by changes in real estate demand and values , interest rates , unemployment rates and energy costs . while no one factor is dominant , each could cause actual loan losses to differ materially from originally estimated amounts . for a discussion of other considerations in establishing the allowance for loan losses and our loan policies and procedures for addressing credit risk , please refer to the disclosures in this item under the heading risk management credit risk and allowance for loan losses. certain loans acquired in acquisitions or mergers are accounted for under asc 310-30 , loans and debt securities acquired with deteriorated credit quality ( asc 310-30 ) . asc 310-30 prohibits the carryover of an allowance for loan losses for loans acquired in which the acquirer concludes that it will not collect the contractual amount . as a result , these loans are carried at values which represent management 's estimate of the future cash flows of these loans . increases in expected cash flows to be collected from the contractual cash flows are required to be recognized as an adjustment of the loan 's yield over its remaining life , while decreases in expected cash flows are required to be recognized as an impairment . a more detailed discussion of loans accounted for under asc 310-30 resulting from the capital and heritage mergers is set forth below under the heading risk management credit risk and allowance for loan losses and in note d , loans and the allowance for loan losses , in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . intangible assets our intangible assets consist primarily of goodwill and core deposit intangibles . goodwill arises from business combinations and represents the value attributable to unidentifiable intangible elements of the business acquired . our reporting units are comprised of the operations we have acquired . specifically , our reporting units are currently broken out into four geographic units of our bank and our insurance company . we review the goodwill of each reporting unit for impairment on an annual basis , or more often , if events or circumstances indicate that it is more likely than not that the fair value of the reporting unit is below the carrying value of its equity . in determining the fair value of our reporting units , we used discounted cash flow analyses , which require assumptions about short and long-term net cash flow growth rates for each reporting unit , as well as discount rates . we assess the reasonableness of the estimated fair value of the reporting units by reference to our market capitalization ; however , due to the significant volatility in the equity markets with respect to the financial institution sector throughout 2009 and 2010 , we also consulted supplemental information based on observable market multiples , adjusting to reflect our specific factors , as well as current market conditions . long-term net cash flow forecasts are developed for each reporting unit by considering several key business drivers such as new business initiatives , market share changes , anticipated loan and deposit growth , historical performance , and industry and economic trends , among other considerations . the long-term growth rate used in determining the terminal value of each reporting unit was estimated at 5.2 % in 2010 based on management 's assessment of the minimum expected terminal growth rate of each reporting unit , as well as broader economic considerations . in 2010 , the discount rates used ranged from 13.6 % to 15.1 % . the estimated fair value of a reporting unit is highly sensitive to changes in the estimates and assumptions . in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its 31 carrying value . we perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values . if the carrying value of a reporting unit 's equity exceeds its estimated fair value , we then calculate the fair value of the reporting unit 's implied goodwill . implied goodwill is the excess fair value of a reporting unit ( as determined using the above-described methodology ) over the fair value of its net assets and is calculated by determining fair value of the reporting unit 's assets and liabilities , including previously unrecognized intangible assets , on an individual basis . this calculation is performed in the same manner as goodwill is recognized in a business combination . significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of the reporting unit . other identifiable intangible assets , primarily core deposit intangibles , are reviewed at least annually for events or circumstances which could impact the recoverability of the intangible asset , such as loss of core deposits , increased competition or adverse changes in the economy . to the extent an other identifiable intangible asset is deemed unrecoverable , an impairment loss would be recorded as a noninterest expense to reduce the carrying amount . these events or circumstances , when or if they occur , could be material to our operating results for any particular reporting period . benefit plans and stock based compensation our independent actuary firm prepares actuarial valuations of our pension cost under asc 715 , compensation retirement benefits ( asc 715 ) . the discount rate utilized in the december 31 , 2010 valuation was 5.50 % , compared to 6.00 % in 2009. actual plan assets as of december 31 , 2010 were used in the calculation and the expected long-term return on plan assets assumed for this valuation was 8.00 % . actual return on plan assets during 2010 approximated 14.30 % . story_separator_special_tag changes in these assumptions and estimates can materially affect the benefit plan obligation and the funded status of the plan which in turn may impact shareholders ' equity through an adjustment to accumulated other comprehensive income and future pension expense . the pension plan covered under asc 715 was frozen as of december 31 , 1996. the company recognizes compensation expense for all share-based payments to employees in accordance with asc 718 , compensation stock compensation. we utilize the black-scholes model for determining fair value of our options . determining the fair value of , and ultimately the expense we recognize related to , our stock options requires us to make assumptions regarding dividend yields , expected stock price volatility , estimated forfeitures and the expected life of the option . changes in these assumptions and estimates can materially affect the calculated fair value of stock-based compensation and the related expense to be recognized . due to the low historical forfeiture rate , the company has not estimated any forfeitures in determining the fair value of options granted in 2010 , 2009 and 2008. changes in this assumption in the future could result in lower expenses related to the company 's stock option . for a description of our assumptions utilized in calculating the fair value of our share-based payments , please refer to note m , employee benefit and deferred compensation plans , in the notes to consolidated financial statements in item 8 , financial statements and supplementary data . accounting for acquired loans and related assets the company accounts for its acquisitions under asc 805 , business combinations , which requires the use of the purchase method of accounting . all identifiable assets acquired , including loans , are recorded at fair value . no allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value measurements incorporate assumptions regarding credit risk . the fair value measurements of acquired loans are based on estimates related to expected prepayments and the amount and timing of undiscounted expected principal , interest and other cash flows . over the life of the acquired loans , the company continues to estimate cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics . the company evaluates , as of the end of each fiscal quarter , the present value of the acquired loans determined using the effective interest rates . if the cash flows expected to be collected have decreased , the company recognizes a provision for loan loss in its consolidated statement of income ; for any increases in cash flows expected to be collected , the company adjusts the amount of accretable yield recognized on a prospective basis over the loan 's or pool 's remaining life . because the fdic will reimburse the company for losses related to a portion of the acquired loans , an indemnification asset is recorded at fair value at the acquisition date . the indemnification asset is recognized at the same time as the indemnified loans , and measured on the same basis , subject to collectability or contractual limitations . the fair value of the indemnification asset reflects the reimbursements expected to be received from the fdic , using an appropriate discount rate , which reflects counterparty credit risk and other uncertainties . 32 the indemnification asset continues to be measured on the same basis as the related indemnified loans . subsequent changes to the fair value of the indemnification asset also follow that model . decreases in the future cash flows expected to be collected on the loans immediately increase the fair value of the indemnification asset . increases in the future cash flows expected to be collected on the loans decrease the fair value of the indemnification asset , with such decrease being accreted into interest income over 1 ) the same period or 2 ) the life of the fair value of the indemnification asset , whichever is shorter . loss assumptions used in the basis of the indemnified loans are consistent with the loss assumptions used to measure the indemnification asset . fair value accounting incorporates into the fair value of the indemnification asset an element of the time value of money , which is accreted back into income over the life of the shared loss agreements . upon the determination of an incurred loss the indemnification asset will be reduced by the amount owed by the fdic . a corresponding receivable is recorded on the balance sheet until cash is received from the fdic . income taxes accrued taxes represent the estimated amount payable to or receivable from taxing jurisdictions , either currently or in the future , and are reported , on a net basis , as a component of other assets in the consolidated balance sheets . the calculation of our income tax expense is complex and requires the use of many estimates and judgments in its determination . management 's determination of the realization of the net deferred tax asset is based upon management 's judgment of various future events and uncertainties , including the timing and amount of future income earned by certain subsidiaries and the implementation of various tax plans to maximize realization of the deferred tax asset . management believes that the company and its subsidiaries will generate sufficient operating earnings to realize the deferred tax assets . for certain business plans enacted by the company , management bases the estimates of related tax liabilities on its belief that future events will validate management 's current assumptions regarding the ultimate outcome of tax-related exposures . as part of this process , management consults with its outside advisers to assess the relative merits and risks of our proposed tax treatment of such business plans .
| the primary concerns in managing net interest income are the mix and the repricing of rate-sensitive assets and liabilities . net interest income increased 5.63 % to $ 105,062 for 2010 compared to $ 99,466 for the same period in 2009. on a tax equivalent basis , net interest income increased $ 6,135 to $ 110,207 in 2010 as compared to $ 104,072 in 2009. of the increase in net interest income , the increase due to the change in the volume of net earning assets was $ 1,677 , while the increase from the changing interest rate environment was $ 4,458. replace_table_token_11_th net interest margin , the tax equivalent net yield on earning assets , increased to 3.26 % during 2010 from 3.16 % in 2009 and 3.44 % in 2008. net interest margin and net interest income are influenced by several factors , primarily changes in interest rates , competition and the shape of the interest rate yield curve . significant reductions in interest rate indices throughout 2008 had a negative impact on net interest margin in 2009. with each rate reduction in rate indices , specifically , the prime rate , rates paid on u.s. treasury securities and the london interbank offering rate ( libor ) , the yield on our variable rate loans indexed to these indices decreased . at the same time , competitive and market-wide liquidity factors prevented the cost of funding sources , particularly deposits , from declining proportionately . as a result , net interest margin declined . increased liquidity due to deposit growth , coupled with loan paydowns and higher than anticipated prepayment speeds within our investment portfolio , resulted in changes in the mix of our earning assets . these changes also had a negative impact on net interest margin . we currently intend to keep these excess funds in interest-bearing balances with banks until they are utilized in future quarters to fund loan growth , purchase investment securities or pay off borrowings . not
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we believe that inhibitors of arginase can promote an anti-tumor immune response by restoring arginine levels , thereby allowing activati on of the body 's own immune cells , including cytotoxic t-cells and nk-cells . data from the phase 1/2 clinical trials of incb001158 are expected to be presented at a medical meeting in the second half of 2019. our product candidate cb-280 is an oral arginase inhibitor for the treatment of cystic fibrosis . it is a novel oral arginase inhibitor which is solely owned by calithera . in february , we initiated a phase 1 trial designed to assess the safety , tolerability and pharmacokinetics of cb-280 in healthy volunteers . we anticipate completion of this study in 2019. cb-708 , our fourth compound planned to enter clinical trials , inhibits the oncometabolism target cd73 . cd73 is an enzyme in the atp adenosine metabolic pathway that plays a critical immunosuppressive role in tumors . initiation of a phase 1 study for cb-708 , an orally administered small molecule inhibitor of cd73 , is planned for 2019. we are a fully integrated biopharmaceutical company with expertise in biology and chemistry , and our ongoing research efforts are focused on discovering additional product candidates for the treatment of cancer and other life threatening diseases . in addition to the products described above , we are also advancing additional preclinical stage programs with a focus on oncology . critical accounting polices and estimates our management 's 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 united states generally accepted accounting principles , or u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition effective january 1 , 2018 , we adopted accounting standards codification , or asc , revenue from contracts with customers ( topic 606 ) , or asc 606 , using the modified retrospective approach . under this approach , we recorded a cumulative adjustment to decrease accumulated deficit and deferred revenue by $ 8.8 million . under asc 606 , an entity recognizes revenue when its customer obtains control of promised goods or services , in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services . to determine revenue recognition for arrangements that an entity determines are within the scope of asc 606 , the entity performs the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) the entity satisfies a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer . at contract inception , once the contract is determined to be within the scope of asc 606 , we assess the goods or services promised within each contract and determine those that are performance obligations , and assess whether each promised good or service is distinct . we then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when ( or as ) the performance obligation is satisfied . 50 we have a collaboration and licensing agreement that is within the scope of asc 606 , under which we license certain rights to one of our product candidates to incyte corporation . the terms of this arrangement include payment to us of a non-refundable , upfront license fee , and potential development , regulatory and sales milestones , and sales royalties . each of these payments results i n collaboration revenues , except for revenues from royalties on net sales of licensed products , which would be classified as royalty revenues . in determining the appropriate amount of revenue to be recognized as we fulfill our obligations under our agreement , we perform the following steps : ( i ) identification of the promised goods or services in the contract ; ( ii ) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract ; ( iii ) measurement of the transaction price , including the constraint on variable consideration ; ( iv ) allocation of the transaction price to the performance obligations ; and ( v ) recognition of revenue when ( or as ) we satisfy each performance obligation . as part of the accounting for these arrangements , we must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract . story_separator_special_tag licenses of intellectual property : if the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement , we recognize revenues from non-refundable , upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license . for licenses that are bundled with other promised goods or services , we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and , if over time , the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable , upfront fees . we evaluate the measure of progress each reporting period and , if necessary , adjust the measure of performance and related revenue recognition . milestone payments : at the inception of each arrangement that includes development , regulatory or commercial milestone payments , we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price . if it is probable that a significant reversal of cumulative revenue would not occur , the associated milestone value is included in the transaction price . milestone payments that are not within our control or the licensees ' control , such as regulatory approvals , are not considered probable of being achieved until those approvals are received or the underlying activity has been completed . the transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis , for which we recognize revenue as or when the performance obligations under the contract are satisfied . at the end of each subsequent reporting period , we re-evaluate the probability of achievement of such development milestones and any related constraint , and if necessary , adjust our estimate of the overall transaction price . any such adjustments are recorded on a cumulative catch-up basis , which would affect collaboration revenue in the period of adjustment . royalties : for arrangements that include sales-based royalties , including milestone payments based on the level of sales , and the license is deemed to be the predominant item to which the royalties relate , we recognize revenue at the later of ( i ) when the related sales occur , or ( ii ) when the performance obligation to which some or all of the royalty has been allocated has been satisfied ( or partially satisfied ) . to date , we have not recognized any royalty revenue resulting from any of our licensing arrangements . contract balances upfront payments and fees are recorded as deferred revenue upon receipt or when due , and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements . amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional . we receive payments from incyte based on billing schedules established in the contract . upfront payments and fees are recorded as deferred revenue upon receipt or when due , and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements . amounts are recorded as accounts receivable when our right to consideration is unconditional . we do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less . 51 accrued research and development costs we record accrued liabilities for estimated costs of our research and development activities conducted by third-party service providers , which include the conduct of preclinical and clinical studies , and contract manufacturing activities . we record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced , and include these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations . these costs are a significant component of our research and development expenses . we accrue for these costs based on factors such as estimates of the work completed and in accordance with agreements established with our third-party service providers under the service agreements . we have not experienced any material differences between accrued costs and actual costs incurred . however , the status and timing of actual services performed , number of patients enrolled , and the rate of patient enrollments may vary from our estimates , resulting in adjustments to expense in future periods . changes in these estimates that result in material changes to our accruals could materially affect our results of operations . stock-based compensation we recognize compensation costs related to stock options granted to employees and nonemployee directors based on the estimated fair value of the awards on the date of grant , net of forfeitures . through december 31 , 2016 , we estimated forfeitures at the time of grant based on actual forfeiture experience , analysis of employee turnover behavior , and other factors and revised , if necessary , in subsequent periods if actual forfeitures differed from estimates . upon the adoption of asu no . 2016-09 , improvements to employee share-based payment accounting , effective as of january 1 , 2017 , we elected to account for forfeitures as they occur . we estimate the grant date fair value for employee and nonemployee directors , and the resulting stock-based compensation expense , using the black-scholes option-pricing model . the grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period , which is generally the vesting period of the respective awards . stock-based option awards issued to non-employees are recorded at fair value as of the grant date using the black-scholes option-pricing model and recognized as expense on a straight-line basis over the vesting period .
| general and administrative general and administrative expenses increased $ 0.8 million , or 6 % , from $ 12.5 million for 2017 to $ 13.3 million for 2018. the increase was due to an increase of $ 1.9 million in higher personnel-costs primarily as a result of higher headcount , salary increases and stock-based compensation expenses , partially offset by $ 0.8 million of lower outside professional services , including legal expenses in connection with the incyte collaboration agreement , and $ 0.3 million lower expenses due to the execution of the sublease agreement for our office and laboratory space in the first quarter of 2017. interest income interest income increased $ 0.8 million , from $ 1.9 million for the year ended december 31 , 2017 to $ 2.7 million for the year ended december 31 , 2018. the increase of $ 0.8 million was due to higher interest income generated from higher returns on our investments , partially offset by lower cash equivalents and investment balances compared to the prior year . comparison of the years ended december 31 , 2017 and 2016 replace_table_token_5_th * percentage not meaningful . 55 collaboration revenue collaboration revenue increased $ 26.0 million for the year ended december 31 , 2017 and represented the portion of deferred revenue from the $ 45.0 million upfront fee and $ 12.0 million milestone achieved in the first quarter of 2017 from the incyte collaboration agreement recognized ratably over the estimated performance period that was consistent with the term of our obligations under the agreement and prior to the adoption of asc 606. refer to item 8 , notes to consolidated financial statements , notes 2 and 10 , for further information on the adoption of asc 606 and the incyte collaboration agreement . research and development research and development expenses increased $ 15.4 million , or 55 % , from $ 27.7 million for 2016 to $ 43.1 million for 2017. the increase of $ 15.4 million was due to an $ 18.5 million increase in the telaglenastat program to support our new and ongoing clinical trials , including our two phase 2 trials , as
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because we only have one operating segment , holding company expenses are included in our calculation of the combined ratio , which increased the combined ratio by 2.0 , 2.0 , and 1.9 percentage points for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the following table provides the calculation of our calendar year combined ratios . replace_table_token_16_th loss and lae ratio . this is the ratio of losses and lae to net premiums earned . we analyze our loss and lae ratios on both a calendar year and accident year basis . a calendar year loss and lae ratio is calculated by dividing the losses and lae incurred during the calendar year , regardless of when the underlying insured event occurred , by the net premiums earned during that calendar year . the calendar year loss and lae ratio includes changes made during the calendar year in reserves for losses and lae established for insured events occurring in the current and prior years . a calendar year loss and lae ratio is calculated using premiums and losses and lae that are net of amounts ceded to reinsurers . the calendar year loss and lae ratio for a particular year will not change in future periods . the accident year loss and lae ratio is calculated by dividing the losses and lae , regardless of when such loss and lae are incurred , for insured events that occurred during a particular year by the net premiums earned for that year . the accident year losses and lae ratio is calculated using premiums and losses and lae that are net of amounts ceded to reinsurers . the accident year loss and lae ratio for a particular year can decrease or increase when recalculated in subsequent periods as the reserves established for insured events occurring during that year develop favorably or unfavorably , and is an operating ratio based on our statutory financial statements and is not derived from our gaap financial information . we analyze our calendar year loss and lae ratio to measure our profitability in a particular year and to evaluate the adequacy of our premium rates charged in a particular year to cover expected losses and lae from all periods , including development ( whether favorable or unfavorable ) of reserves established in prior periods . in contrast , we analyze our accident year loss and lae ratios to evaluate our underwriting performance and the adequacy of the premium rates we charged in a particular year in relation to ultimate losses and lae from insured events occurring during that year . the loss and lae ratios provided in this report are calendar year basis , except where they are expressly identified as accident year loss and lae ratios . losses and lae represents our largest expense item and includes claim payments made , amortization of the deferred gain , lpt reserve adjustments , lpt contingent commission adjustments , estimates for future claim payments and changes in those estimates for current and prior periods , and costs associated with investigating , defending , and adjusting claims . the quality of our financial reporting depends in large part on accurately predicting our losses and lae , which are inherently uncertain as they are estimates of the ultimate cost of individual claims based on actuarial estimation techniques . our indemnity claims frequency ( the number of claims expressed as a percentage of payroll ) continued to decrease year-over-year in 2015 and 2014 ; however , our loss experience indicates a slight upward movement in medical and indemnity costs per claim that are reflected in our current accident year loss estimates . in california , we experienced increased costs per claim associated with an increase in the number of cumulative trauma claims filed during 2015 and 2014 , compared to 2013. total claims costs 30 have also been reduced by cost savings associated with increased claims settlement activity beginning in 2014 and continuing through 2015. we believe our current accident year loss estimate is adequate ; however , ultimate losses will not be known with any certainty for many years . we assume that increasing medical and indemnity cost trends will continue to impact our long-term claims costs and current accident year loss estimate , which may be offset by rate increases . additional information regarding our reserves for losses and lae is set forth under “ –critical accounting policies–reserves for losses and lae. ” overall , losses and lae were $ 429.4 million , $ 453.4 million , and $ 463.6 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the decreases from 2013 through 2015 were primarily due to a decrease in the current accident year loss estimate , partially offset by higher net premiums earned over that period . additionally , there were favorable lpt reserve adjustments of $ 6.4 million , $ 31.1 million , and $ 19.0 million that decreased losses and lae by those amounts for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . in 2015 , we had $ 7.2 million of favorable prior accident year loss development , which included $ 9.0 million of favorable prior accident year loss development on our voluntary risk business , which was partially offset by $ 1.8 million of unfavorable loss development related to our assigned risk business . prior accident year loss development in 2014 was primarily related to our assigned risk business . unfavorable prior accident year development in 2013 included $ 5.0 million related to california loss reserves for the 2009 through 2011 accident years and $ 1.9 million related to our assigned risk business . our current accident year loss estimates were 66.2 % , 73.6 % , and 77.0 % for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . story_separator_special_tag the decreasing trend in our current accident year loss estimates reflects the impact of key business initiatives , including : emphasizing the settlement of open claims ; diversifying our risk exposure across our markets ; non-renewing under-performing business ; and targeting profitable classes of business across all of our markets . excluding the impact from the lpt agreement , losses and lae would have been $ 449.8 million , $ 508.4 million , and $ 501.5 million , or 65.2 % , 74.3 % , and 78.1 % of net premiums earned , for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the table below reflects losses and lae reserve adjustments and the impact of the lpt on net income before taxes . replace_table_token_17_th underwriting and other operating expenses ratio . the underwriting and other operating expenses ratio is the ratio of underwriting and other operating expenses to net premiums earned and measures an insurance company 's operational efficiency in producing , underwriting , and administering its insurance business . underwriting and other operating expenses are those costs that we incur to underwrite and maintain the insurance policies we issue , excluding commission . these expenses include premium taxes and certain other general expenses that vary with , and are primarily related to , producing new or renewal business . other underwriting expenses include policyholder dividends , changes in estimates of future write-offs of premiums receivable , general administrative expenses such as salaries and benefits , rent , office supplies , depreciation , and all other operating expenses not otherwise classified separately . policy acquisition costs are variable based on premiums earned . other operating costs are more fixed in nature and become a smaller percentage of net premiums earned as premiums increase . our underwriting and other operating expenses ratio was 19.5 % , 18.9 % , and 19.5 % , and our underwriting and other operating expenses were $ 135.2 million , $ 129.1 million , and $ 125.3 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . during the year ended december 31 , 2015 , our bad debt allowance increased $ 2.8 million , our compensation-related expenses increased $ 1.5 million , professional fees increased $ 1.2 million , and it expense increased $ 0.9 million , partially offset by a $ 0.8 million decrease in our premium taxes and assessments , compared to 2014. during the year ended december 31 , 2014 , premium taxes and assessments increased $ 1.6 million as net premiums earned increased , professional fees increased $ 1.0 million , and policyholder dividends increased $ 0.8 million , compared to 2013. commission expense ratio . the commission expense ratio is the ratio of commission expense to net premiums earned and measures the cost of compensating agents and brokers for the business we have underwritten . commission expense includes direct commissions to our agents and brokers for the premiums that they produce for us , as well as incentive payments , other marketing costs , and fees . 31 our commission expense ratio was 12.4 % , 11.9 % , and 12.2 % , and our commission expense was $ 85.4 million , $ 81.4 million , and $ 78.3 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the increase in the commission expense ratio in 2015 was primarily due to higher agency incentives , compared to 2014. the decrease in our commission expense ratio in 2014 , compared to 2013 , was primarily due to lower base commissions paid and lower agency incentives . interest expense we incur interest expenses on notes payable . interest expense was $ 2.7 million , $ 3.0 million , and $ 3.2 million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the decrease in interest expense from 2013 through 2015 was primarily due to the reduction in principal balance on our credit facility with wells fargo by $ 10.0 million in the fourth quarters of each of 2013 and 2014. the remaining $ 60.0 million principal balance on our credit facility was repaid in the fourth quarter of 2015. interest paid on the credit facility during the years ended december 31 , 2015 , 2014 , and 2013 totaled $ 1.3 million , $ 1.4 million , and $ 1.6 million , respectively . income tax expense ( benefit ) income tax expense ( benefit ) was $ 5.0 million , $ 5.9 million , and $ ( 10.7 ) million for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the effective tax rate was 5.0 % , 5.5 % , and ( 20.2 ) % for the years ended december 31 , 2015 , 2014 , and 2013 , respectively . the decrease in income tax expense in 2015 , compared to 2014 , was primarily due to the reallocation of $ 56.3 million in reserves from non-taxable periods prior to january 1 , 2000 , which reduced our effective tax rate by 15.4 percentage points for the year . the increase in income tax expense in 2014 , compared to 2013 , was primarily due to increased underwriting income . underwriting income was $ 40.4 million , $ 20.6 million , and $ ( 24.9 ) million in 2015 , 2014 , and 2013 , respectively . for additional information regarding our income tax expense ( benefit ) see note 8 in the notes to our consolidated financial statements . liquidity and capital resources holding company liquidity we are a holding company and our ability to fund our operations is contingent upon existing capital and the ability of our insurance subsidiaries ' to pay dividends up to the holding company . payment of dividends by our insurance subsidiaries is restricted by state insurance laws and regulations , including laws establishing minimum solvency and liquidity thresholds .
| markets ; utilizing a three-company pricing platform ; utilizing territorial multipliers in california ; non-renewing under-performing business ; and targeting profitable classes of business across all of our markets . 27 the following items were included in our 2015 results of operations : ( 1 ) favorable prior year accident year loss development of $ 7.2 million , including a $ 9.0 million favorable development on our voluntary business , partially offset by a $ 1.8 million unfavorable development on our assigned risk business , which decreased our losses and lae by the same amount ; ( 2 ) favorable development in the estimated reserves ceded under the lpt agreement that resulted in a $ 6.4 million cumulative adjustment to the deferred gain and reduced our losses and lae by the same amount ( lpt reserve adjustment ) ; ( 3 ) an increase in the contingent commission receivable under the lpt agreement that resulted in a $ 2.6 million cumulative adjustment , which reduced our losses and lae by the same amount ( lpt contingent commission adjustment ) ; and ( 4 ) a reallocation of $ 56.3 million of reserves from non-taxable periods prior to january 1 , 2000 , which reduced our tax expenses by $ 15.3 million and reduced our effective tax rate by 15.4 percentage points . collectively , these items increased net income by $ 31.5 million for the year ended december 31 , 2015. the following items were included in our 2014 results of operations : ( 1 ) favorable development in the estimated reserves ceded under the lpt agreement that resulted in a $ 31.1 million lpt reserve adjustment ; ( 2 ) an increase in the contingent commission receivable under the lpt agreement that resulted in a $ 10.8 lpt contingent commission adjustment ; and ( 3 ) a reallocation of $ 13.1 million of reserves from non-taxable periods prior to january 1 , 2000 , which reduced our effective tax rate by 3.4 percentage points , or $ 3.6 million . collectively , these items increased net
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we invested in additional staff and as well as external consulting in developing and maintaining our ecommerce platform , which we use to sell our branded consumer product tru niagen® . operating expenses – other . other expense consists of loss from an ongoing litigation . twelve months ending december 30 , 2017 december 31 , 2016 change other $ 746,000 $ - - ● in relation to the ongoing litigation , the company incurred a write-off of approximately $ 746,000 in gross trade receivable from elysium related to royalties billed as part of the existing trademark license and royalty agreement . nonoperating – interest expense , net . interest expense , net consists of interest on loan payable and capital leases offset by interest income . twelve months ending december 30 , 2017 december 31 , 2016 change interest expense , net $ 153,000 $ 333,000 -54 % ● the decrease in interest expense was mainly due to the term loan from hercules technology ii , l.p. which the company drew down an initial $ 2.5 million on september 29 , 2014 and a second $ 2.5 million on june 18 , 2015. the company fully repaid the loan on june 14 , 2016 . -43- depreciation and amortization . for the twelve-month period ended december 30 , 2017 , we recorded approximately $ 0.5 million in depreciation compared to approximately $ 0.3 million for the twelve-month period ended december 31 , 2016. we depreciate our assets on a straight-line basis , based on the estimated useful lives of the respective assets . we amortize intangible assets using a straight-line method , generally over 10 years . for licensed patent rights , the useful lives are 10 years or the remaining term of the patents underlying licensing rights , whichever is shorter . the useful lives of subsequent milestone payments that are capitalized are the remaining useful life of the initial licensing payment that was capitalized . in the twelve-month period ended december 30 , 2017 , we recorded amortization on intangible assets of approximately $ 0.2 million compared to approximately $ 0.1 million for the twelve-month period ended december 31 , 2016. income taxes . at december 30 , 2017 and december 31 , 2016 , the company maintained a full valuation allowance against the entire deferred income tax balance which resulted in an effective tax rate of 0 % for each of 2017 and 2016. net cash used in operating activities . net cash used in operating activities for the twelve-month period ended december 30 , 2017 was approximately $ 9.8 million as compared to approximately $ 2.9 million for the twelve-month period ended december 31 , 2016. along with the net loss , a decrease in accounts payable was the largest use of cash during the twelve-month period ended december 30 , 2017. net cash used in operating activities for the twelve-month period ended december 31 , 2016 largely reflects increase in trade receivables along with the net loss . we expect our operating cash flows to fluctuate significantly in future periods as a result of fluctuations in our operating results , shipment timetables , accounts receivable collections , inventory management , and the timing of our payments , among other factors . net cash used in investing activities . net cash provided by investing activities was approximately $ 4.6 million for the twelve-month period ended december 30 , 2017 , compared to approximately $ 1.7 million used in for the twelve-month period ended december 31 , 2016. net cash provided by investing activities for the twelve-month period ended december 30 , 2017 mainly consisted of proceeds from disposal of assets , offset by purchases of leasehold improvements and equipment and intangible assets . net cash used in investing activities for the twelve-month period ended december 31 , 2016 mainly consisted of purchases of leasehold improvements and equipment and intangible assets . net cash provided by financing activities . net cash provided by financing activities was approximately $ 48.9 million for the twelve-month period ended december 30 , 2017 , compared to approximately $ 0.8 million for the twelve-month period ended december 31 , 2016. net cash provided by financing activities for 2017 mainly consisted of proceeds from issuances of our common stock and exercise of stock options , offset by principal payments on capital leases . net cash provided by financing activities for 2016 mainly consisted of proceeds from issuances of our common stock and warrants through a private offering to our existing stockholders and exercise of stock options , offset by principal payments on loan payable and capital leases . trade receivables . as of december 30 , 2017 , we had approximately $ 5.3 million in trade receivables as compared to approximately $ 5.9 million as of december 31 , 2016. inventories . as of december 30 , 2017 , we had approximately $ 5.8 million in inventory , compared to approximately $ 7.9 million as of december 31 , 2016. as of december 30 , 2017 , our inventory consisted of approximately $ 4.2 million of bulk ingredients , approximately $ 0.7 million of consumer products and approximately $ 0.9 million of phytochemical reference standards . bulk ingredients are proprietary compounds sold to customers in larger quantities , typically in kilograms . these ingredients are used by our customers in the dietary supplement , food and beverage , animal health , cosmetic and pharmaceutical industries to manufacture their final products . consumer products inventory consists of tru niagen® branded finished bottles of dietary supplement products that contain niagen® ingredient and related work-in-process inventory . phytochemical reference standards are small quantities of plan-based compounds typically used to research an array of potential attributes or for quality control purposes . the company currently lists over 1,800 phytochemicals and 400 botanical reference materials in our catalog and holds a lot of these as inventory in small quantities , mostly in grams and milligrams . -44- our normal operating cycle for reference standards is currently longer than one year . story_separator_special_tag due to the large number of different items we carry , certain groups of these reference standards have a sales frequency that is slower than others and varies greatly year to year . in addition , for certain reference standards , the cost saving is advantageous when purchased in larger quantities and we have taken advantage of such opportunities when available . such factors have resulted in an operating cycle to be more than one year on average . the company gains competitive advantage through the broad offering of reference standards and it is critical for the company to continue to expand its library of reference standards it offers for the growth of business . nevertheless , the company has recently made changes in its reference standards inventory purchasing practice , which the management believes will result in an improved turnover rate and shorter operating cycle without impacting our competitive advantage . the company regularly reviews inventories on hand and reduces the carrying value for slow-moving and obsolete inventory , inventory not meeting quality standards and inventory subject to expiration . the reduction of the carrying value for slow-moving and obsolete inventory is based on current estimates of future product demand , market conditions and related management judgment . any significant unanticipated changes in future product demand or market conditions that vary from current expectations could have an impact on the value of inventories . we strive to optimize our supply chain as we constantly search for better and more reliable sources and suppliers of bulk ingredients and phytochemical reference standards . by doing so , we believe we can lower the costs of our inventory , which we can then pass along the savings to our customers . in addition , we are working with our suppliers and partners to develop more efficient manufacturing methods of the raw materials , in an effort to lower the costs of our inventory . accounts payable . as of december 30 , 2017 , we had $ 3.7 million in accounts payable compared to approximately $ 6.0 million as of december 31 , 2016. advances from customers . as of december 30 , 2017 , we had approximately $ 0.4 million in advances from customers compared to approximately $ 0.4 million as of december 31 , 2016. these advances are for large-scale consulting projects , contract services and contract research projects where we require a deposit before beginning work . year ended december 31 , 2016 compared to year ended january 2 , 2016 net sales . net sales consist of gross sales less discounts and returns . replace_table_token_16_th ● the increase in sales for the ingredients segment is due to increased sales of niagen® and pteropure® . ● the decrease in sales for the core standards and contract services segment is primarily due to decreased sales from our regulatory consulting operations . for regulatory consulting operations , we put a further emphasis on intercompany work supporting our ingredients segment . -45- cost of sales . costs of sales include raw materials , labor , overhead , and delivery costs . replace_table_token_17_th the cost of sales , as a percentage of net sales , decreased 6 % . ● the decrease in cost of sales , as a percentage of net sales , for the ingredients segment is largely due to price reductions from our suppliers through increased purchase volumes . ● the cost of sales , as a percentage of net sales for the core standards and contract services segment remained the same at 69 % . gross profit . gross profit is net sales less the cost of sales and is affected by a number of factors including product mix , competitive pricing and costs of products and services . replace_table_token_18_th ● the gross profit for the ingredients segment increased due to the increased sales of the ingredient portfolio we offer , coupled with lower prices from our suppliers due to increased purchase volumes . ● the decreased gross profit for the core standards and contract services segment is largely due to decreased sales from our regulatory consulting operations , which put a greater focus on intercompany work supporting our ingredients segment . -46- operating expenses – sales and marketing . sales and marketing expenses consist of salaries , advertising and marketing expenses . replace_table_token_19_th ● for the ingredients segment , the increase is largely due to increased marketing efforts to raise the consumer awareness for our line of proprietary ingredients . ● for the core standards and contract services segment , the decrease is largely due to making certain operational changes as certain personnel who were previously assigned to the sales and marketing group were moved to an administrative group . operating expenses – research and development . research and development expenses consist of clinical trials and process development expenses . replace_table_token_20_th ● for the ingredients segment , we increased our research and development efforts with a focus on niagen® . ● for the core standards and contract services segment , the expense is mainly associated with exploring processes to develop certain compounds at a larger scale . operating expenses – general and administrative . general and administrative expenses consist of general company administration , it , accounting and executive management expenses . twelve months ending december 31 , 2016 january 2 , 2016 change general and administrative $ 9,215,000 $ 7,201,000 28 % -47- ● one of the factors that contributed to the increase in general and administrative expenses was an increase in bad debt expense . our bad debt expense for 2016 increased to approximately $ 0.9 million compared to $ 0.4 million for 2015. in december 2016 , we recorded an allowance of $ 0.5 million for a certain doubtful account against bad debt expenses . ● another factor that contributed to the increase was an increase in patent maintenance expense . our patent maintenance expense for 2016 increased to approximately $ 0.7 million compared to approximately $ 0.4 million for 2015 . ● another factor that contributed to the increase was an increase of approximately $ 0.5
| this increase as a percentage of net sales was primarily due to a write-off of our niagen® related inventory of approximately $ 183,000 in 2017 . ● the cost of sales , as a percentage of net sales for the core standards and contract services segment , decreased 3 % . we were able to lower our reference standards purchasing costs by diversifying our sources . gross profit . gross profit is net sales less the cost of sales and is affected by a number of factors including product mix , competitive pricing and costs of products and services . replace_table_token_13_th ● the decreased gross profit for the ingredients segment is due to the decreased sales of niagen® . the company made a strategic decision to transition from an ingredient and testing company to a consumer driven nutraceutical company . this has resulted in a shift in our sales away from resellers of niagen® to our tru niagen® branded consumer product . ● the consumer products segment posted gross profit of $ 3.3 million for the year ending in december 30 , 2017. the company expects the sales and gross profit for consumer products segment to grow over the next twelve months . ● the gross profit for the core standards and contract services segment remained the same as the decrease in sales was offset by improved profitability . operating expenses – sales and marketing . sales and marketing expenses consist of salaries , advertising and marketing expenses . replace_table_token_14_th -41- ● for the ingredients segment , the increase is largely due to increased marketing efforts to raise consumer awareness for our line of proprietary ingredients . ● for the consumer products segment , we have increased staffing as well as direct marketing expenses associated with social media and other customer awareness and acquisition programs . we will continue to expand both staffing as well as increase other marketing expense as we invest in building out our own global branded consumer product business . ● for the core standards and contract services segment , the increase is
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loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed and recoveries are credited to the allowance when received . we may also account for expected recoveries should information of an anticipated recovery become available . in the case of actual or expected recoveries , amounts may not exceed the aggregate of amounts previously charged off . management utilizes relevant available information , from internal and external sources , relating to past events , current conditions , historical loss experience , and reasonable and supportable forecasts . the lookback period in the analysis includes historical data from june 2015 to present . adjustments to historical loss information are made when management determines historical data are not likely reflective of the current portfolio such as limited data sets or lack of default or loss history . management may selectively apply external market data to subjectively adjust our own loss history including index or peer data . accrued interest receivable was excluded from the estimate of credit losses for loans except for accrued interest receivable on loans with deferrals . collective assessment the allowance for credit losses on loans is measured on a collective cohort basis when similar risk characteristics exist . generally , collectively assessed loans are grouped by call report code and then risk grade grouping . risk grade is grouped within each call code by pass , special mention , substandard , and doubtful . other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans . examples include cd-secured fintech loans , sba purchased loans , ppp loans and trinet loans . we have elected a cash flow methodology with pd and lgd for all call code cohorts and trinet . cd-secured fintech loans , ppp loans and sba purchased loans are measured with zero risk due to cash collateral and full guaranty , respectively . the pd calculation looks at the historical loan portfolio at particular points in time ( each month during the lookback period ) to determine the probability that loans in a certain cohort will default over the next 12 month period . a default is defined as a loan that has moved to past due 90 days and greater , nonaccrual status , or experienced a charge-off during the period . in cohorts where our historical data are insufficient due to less than 20 loans on average in the pool or zero defaults , management uses index pds in place of our historical pds . additionally , management reviews all other cohorts to determine if index pds should be used outside of these criteria . the lgd calculation looks at actual losses ( net charge-offs ) experienced over the entire lookback period for each cohort of loans . the aggregate loss amount is divided by the exposure at default to determine an lgd rate . all defaults ( nonaccrual , charge-off , or greater than 90 days past due ) occurring during the lookback period are included in the denominator , whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event ( i.e . nonaccrual or charge-off ) . due to very limited charge-off history , management uses index lgds in place of our historical lgds . we utilize reasonable and supportable forecasts of future economic conditions when estimating the allowance for credit losses on loans . the calculation includes a 12-month pd forecast based on our regression model comparing peer nonperforming loan ratios to the national unemployment rate and the most recently published wall street journal survey of economists ' forecast . after the forecast period , pd rates revert on a straight-line basis to long-term average rates over a 12-month period . we recognize that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date . furthermore , the collective assessment methodology , in and of itself and even when selectively adjusted by comparison to market and peer data , does not provide a sufficient basis to determine the estimated credit losses . we adjust the modeled historical losses by a qualitative and environmental factor to incorporate all significant risks to form a sufficient basis to estimate the credit losses . 43 individual assessment loans classified as nonaccrual , tdr , or reasonably expected tdr will be reviewed quarterly for potential individual assessment . any loan classified as a nonaccrual or tdr that is not determined to need individual assessment will be evaluated collectively within its respective cohort . all reasonably expected tdr loans will be evaluated individually to account for expected modifications in loan terms . where the primary and or expected source of repayment of a specific loan is believed to be the future liquidation of available collateral , impairment will generally be measured based upon expected future collateral proceeds , net of disposition expenses including sales commissions as well as other costs potentially necessary to sell the asset ( s ) ( i.e . past due taxes , liens , etc . ) estimates of future collateral proceeds will be based upon available appraisals , reference to recent valuations of comparable properties , use of consultants or other professionals with relevant market and or property-specific knowledge , and any other sources of information believed appropriate by management under the specific circumstances . when appraisals are ordered to support the impairment analysis of an impaired loan , the appraisal is reviewed by atlantic capital 's internal appraisal reviewer or a qualified third party reviewer . where the primary and or expected source of repayment of a specific loan is believed to be the receipt of principal and interest payments from the borrower and or the refinancing of the loan by another creditor , impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate . story_separator_special_tag expected refinancing proceeds may be estimated from review of term sheets actually received by the borrower from other creditors and or from our knowledge of terms generally available from other banks , asset-based lenders , factoring companies and institutional lenders ( government sponsored entities , insurance companies , etc . ) determining the contractual term expected credit losses are estimated over the contractual term of the loans , adjusted for expected prepayments when appropriate . the contractual term excludes expected extensions , renewals and modifications unless either of the following applies : management has a reasonable expectation at the reporting date that a tdr will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by us . prepayment assumptions will be determined by analysis of historical behavior by loan cohort . troubled debt restructurings a loan for which the terms have been modified resulting in a concession , and for which the borrower is experiencing financial difficulties , is considered to be a tdr . any loan that is being considered for modification and expected to result in a tdr is identified as a reasonably expected tdr . reasonably expected tdrs are assessed in the cecl calculation utilizing their expected modified terms . the allowance for credit losses on a tdr is measured using the same method as all other loans held for investment , except that the original interest rate is used to discount the expected cash flows when a rate modification has occurred . allowance for credit losses on unfunded commitments we estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit , unless that obligation is unconditionally cancellable by us . the allowance for credit losses on unfunded commitments is adjusted through a provision for credit loss expense . the estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life . the estimate utilizes the same factors and assumptions as the allowance for credit losses on loans and is applied at the same collective cohort level . 44 fair value measurements . our impaired loans and foreclosed assets may be measured and carried at fair value , the determination of which requires management to make assumptions , estimates and judgments . see “ note 18 - fair value measurements ” to the consolidated financial statements for additional disclosures regarding the fair value of our assets and liabilities . when a loan is considered individually impaired , a specific valuation allowance is allocated , if necessary , so that the loan is reported net , at the present value of estimated future cash flows using the loan 's existing rate or at the fair value of collateral if repayment is expected solely from the collateral . in addition , foreclosed assets are carried at the lower of cost , fair value , less cost to sell , or listed selling price less cost to sell , following foreclosure . fair value is defined by gaap as “ the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ” gaap further defines an “ orderly transaction ” as “ a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets . it is not a forced transaction ( for example , a forced liquidation or distress sale ) . ” although management believes its processes for determining the value of impaired loans and foreclosed properties are appropriate and allow us to arrive at a fair value , the processes require management judgment and assumptions and the value of such assets at the time they are revalued or divested may be significantly different from management 's determination of fair value . in addition , because of subjectivity in fair value determinations , there may be grounds for differences in opinions , which may result in disagreements between management and our regulators , which could cause us to change our judgments about fair value . the fair values for available-for-sale securities are generally based upon quoted market prices or observable market prices for similar instruments . we utilize a third-party pricing service to assist with determining the fair value of our securities portfolio . the pricing service uses observable inputs when available including benchmark yields , reported trades , broker-dealer quotes , issuer spreads , benchmark securities , bids and offers . these values take into account recent market activity as well as other market observable data such as interest rate , spread and prepayment information . when market observable data is not available , which generally occurs due to the lack of liquidity for certain securities , the valuation of the security is subjective and may involve substantial judgment by management . for debt securities available for sale , we review our securities portfolio for impairment and determine if impairment is related to credit loss or non-credit loss . in making the assessment of whether a loss is from credit or other factors , management considers the extent to which fair value is less than amortized cost , and adverse conditions related to the security , among other factors . if this assessment indicates that a credit loss exists , the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security . if the present value of cash flows is less than the amortized cost basis , a credit loss exists and an allowance is created , limited by the amount that the fair value is less than the amortized cost basis . atlantic capital uses derivatives primarily to manage interest rate risk .
| taxable equivalent net interest income from continuing operations was $ 88.5 million for 2020 , compared to $ 81.3 million for 2019. taxable equivalent net interest margin from continuing operations decreased to 3.16 % for the year ended december 31 , 2020 , from 3.58 % for 2019. the margin decrease was primarily due to lower rates on loans resulting from federal funds rate decreases during 2019 and 2020. taxable equivalent net interest income from continuing operations was $ 81.3 million for 2019 , compared to $ 76.6 million for 2018. taxable equivalent net interest margin from continuing operations increased to 3.58 % for the year ended december 31 , 2019 , from 3.50 % for 2018. the margin increase was primarily due to increases in loan yields and a higher average federal funds rate during the first half of 2019. the cares act and applicable extensions provide relief to borrowers , including the opportunity to defer loan payments while not negatively affecting their credit standing , and also provide funding opportunities for small businesses under the ppp from approved sba lenders . for commercial and consumer customers , we have provided a host of relief options , 40 including payment deferrals ( including maturity extensions ) , loan covenant waivers and low interest rate loan products . the bank funded approximately $ 234 million of ppp loans during 2020 , of which $ 192.2 million remained outstanding at december 31 , 2020. provision for credit losses from continuing operations for the year ended december 31 , 2020 totaled $ 17.4 million , an increase of $ 14.7 million from the year ended december 31 , 2019 , primarily as a response to the expected impact from the economic slowdown from covid-19 . for the years ended december 31 , 2018 to 2019 , provision expense increased by $ 766,000 , or 39 % , from $ 1.9 million to $ 2.7 million , due to higher net charge-offs and specific reserve impairments . noninterest income from continuing operations decreased $ 440,000 , or 4 % , to $ 10.3 million for the year ended december 31 , 2020 from the year ended december 31 , 2019. this was primarily due to a decrease of $ 1.1 million in sba lending activities from continuing operations and decreases in gains on the sale of investment securities of $ 930,000 ; partially offset by an increase in service charges from continuing operations of $ 1.3 million and a change of $ 579,000 in derivatives income ( loss ) from continuing operations . noninterest income from continuing operations increased $ 678,000 , or 7 % , to $ 10.7 million for the year ended december 31 , 2019 from the year ended december 31 , 2018. this was
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the net revenue per barrel for core brands increased by 1.6 % to $ 220.46 per barrel for the year ended december 27 , 2014 , as compared to $ 216.94 per barrel for the year ended december 28 , 2013 , due primarily to price increases and changes in product and package mix . significant changes in the package mix could have a material effect on net revenue . the company primarily packages its core brands in kegs , bottles and cans . assuming the same level of production , a shift in the mix from bottles and cans to kegs would effectively decrease revenue per barrel , as the price per equivalent barrel is lower for kegs than for bottles and cans . the percentage of bottles and cans to total shipments increased by 1.1 % to 77.0 % of total shipments for the year ended december 27 , 2014 as compared to the year ended december 28 , 2013. gross profit . gross profit for core products was $ 113.55 per barrel for the year ended december 27 , 2014 , as compared to $ 113.03 per barrel for the year ended december 28 , 2013. gross margin for core products was 51.5 % for the year ended december 27 , 2014 , as compared to 52.1 % for the year ended december 28 , 2013. the increase in gross profit per barrel of $ 0.52 is primarily due to an increase in net revenue per barrel , partially offset by an increase in cost of goods sold per barrel . cost of goods sold for core brands was $ 106.91 per barrel for the year ended december 27 , 2014 , as compared to $ 103.91 per barrel for the year ended december 28 , 2013. the 2014 increase in cost of goods sold of $ 3.00 per barrel of core product is due to increased ingredients costs , product mix effects and increases in brewery processing costs . the company includes freight charges related to the movement of finished goods from manufacturing locations to distributor locations in its advertising , promotional and selling expense line item . as such , the company 's gross margins may not be comparable to other entities that classify costs related to distribution differently . advertising , promotional and selling . advertising , promotional and selling expenses , increased $ 42.8 million , or 20.6 % , to $ 250.7 million for the year ended december 27 , 2014 , as compared to $ 207.9 million for the year ended december 28 , 2013. the increase was primarily a result of increased media advertising of $ 14.0 million , increased freight to distributors of $ 12.3 million due to higher volumes , increased local marketing of 28 $ 10.4 million , increased costs for additional sales personnel and commissions of $ 8.9 million and increased point of sale of $ 3.7 million . advertising , promotional and selling for core brands were 27.8 % of net revenue , or $ 61.25 per barrel , for the year ended december 27 , 2014 , as compared to 28.2 % of net revenue , or $ 61.10 per barrel , for the year ended december 28 , 2013. the company will invest in advertising and promotional campaigns that it believes are effective , but there is no guarantee that such investment will generate sales growth . the company conducts certain advertising and promotional activities in its distributors ' markets , and the distributors make contributions to the company for such efforts . these amounts are included in the company 's statement of operations as reductions to advertising , promotional and selling expenses . historically , contributions from distributors for advertising and promotional activities have amounted to between 2 % and 4 % of net sales . the company may adjust its promotional efforts in the distributors ' markets , if changes occur in these promotional contribution arrangements , depending on the industry and market conditions . general and administrative . general and administrative expenses increased by $ 3.7 million , or 5.8 % , to $ 66.0 million for the year ended december 27 , 2014 , as compared to $ 62.3 million for the comparable period in 2013. the increase was primarily due to increases in salary costs . impairment of assets . for the year ended december 27 , 2014 , the company incurred impairment charges of $ 1.8 million based upon its review of the carrying values of its property , plant and equipment , primarily due to a $ 1.6 million change in the estimated fair value of machinery that is intended to be replaced in early 2015. stock-based compensation expense . for the year ended december 27 , 2014 , an aggregate of $ 6.9 million in stock-based compensation expense is included in advertising , promotional and selling expenses and general and administrative expenses . stock compensation decreased by $ 0.5 million in 2014 compared to 2013 , primarily due to decreased awards granted during 2014. provision for income taxes . the company 's effective tax rate for the year ended december 27 , 2014 of 37.7 % increased from the year ended december 28 , 2013 rate of approximately 37.5 % . this increase was primarily a result of a federal income tax audit settlement during 2013. liquidity and capital resources cash increased to $ 94.2 million as of december 26 , 2015 from $ 76.4 million as of december 27 , 2014 , reflecting cash provided by operating activities that was partially offset by purchases of property , plant and equipment and repurchase of class a common stock . cash provided by or used in operating activities consists of net income , adjusted for certain non-cash items , such as depreciation and amortization , stock-based compensation expense and related excess tax benefit , other non-cash items included in operating results , and changes in operating assets and liabilities , such as accounts receivable , inventory , accounts payable and accrued expenses . story_separator_special_tag cash provided by operating activities in 2015 was $ 168.7 million and primarily consisted of net income of $ 98.4 million , non-cash items of $ 42.1 million and a net decrease in operating assets and liabilities of $ 28.2 million . cash provided by operating activities in 2014 totaled $ 141.2 million and primarily consisted of net income of $ 90.7 million , non-cash items of $ 42.2 million and a net decrease in operating assets and liabilities of $ 8.3 million . the company used $ 74.2 million in investing activities during 2015 , as compared to $ 151.8 million during 2014. investing activities primarily consisted of discretionary equipment purchases to increase capacity of the company-owned breweries . 29 cash used in financing activities was $ 76.7 million during 2015 , as compared to $ 37.5 million provided by financing activities during 2014. the $ 114.2 million difference in financing cash flow in 2015 from 2014 is primarily due to an increase in stock repurchases under the company 's stock repurchase program partially offset by an increase in proceeds from the exercise of stock options and the related tax benefits . during the year ended december 26 , 2015 , the company repurchased approximately 616,700 shares of its class a common stock for an aggregate purchase price of $ 138.7 million . on february 10 , 2016 , the board of directors approved an increase of $ 50.0 million to the previously approved $ 525.0 million share buyback expenditure limit , for a new limit of $ 575.0 million . as of december 26 , 2015 , the company had repurchased a cumulative total of approximately 11.5 million shares of its class a common stock for an aggregate purchase price of $ 446.1 million . from december 27 , 2015 through february 12 , 2016 , the company repurchased 184,000 additional shares of its class a common stock for a total cost of $ 33.0 million . as of february 12 , 2016 , the company has repurchased a cumulative total of approximately 11.7 million shares of its class a common stock for an aggregate purchase price of $ 479.1 million . the company has approximately $ 95.9 million remaining on the $ 575.0 million stock repurchase expenditure limit set by the board of directors . the company expects that its cash balance as of december 26 , 2015 of $ 94.2 million , along with future operating cash flow and the company 's unused line of credit of $ 150.0 million , will be sufficient to fund future cash requirements . the company 's $ 150.0 million credit facility has a term not scheduled to expire until march 31 , 2019. as of the date of this filing , the company was not in violation of any of its covenants to the lender under the credit facility and there were no amounts outstanding under the credit facility . critical accounting policies the discussion and analysis of the company 's financial condition and results of operations is based upon its consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires the company to make significant estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . these items are monitored and analyzed by management for changes in facts and circumstances , and material changes in these estimates could occur in the future . the more judgmental estimates are summarized below . changes in estimates are recorded in the period in which they become known . the company bases its estimates on historical experience and various other assumptions that the company believes to be reasonable under the circumstances . actual results may differ from the company 's estimates if past experience or other assumptions do not turn out to be substantially accurate . provision for excess or expired inventory inventories are stated at the lower of cost , determined on a first-in , first-out basis , or market value . the company enters into multi-year purchase commitments in order to secure adequate supply of ingredients and packaging , to brew and package its products . inventory on hand and under purchase commitments totaled approximately $ 193.8 million at december 26 , 2015. the company 's provisions for excess or expired inventory are based on management 's estimates of forecasted usage of inventories on hand and under contract . forecasting usage involves significant judgments regarding future demand for the company 's various existing products and products under development as well as the potency and shelf-life of various ingredients . a significant change in the timing or level of demand for certain products as compared to forecasted amounts may result in recording additional provisions for excess or expired inventory in the future . provisions for excess or expired inventory are recorded as a cost of goods sold and have historically been adequate to provide for losses on its raw materials . provision for excess or expired inventory included in cost of goods sold was $ 4.0 million , $ 6.1 million , and $ 4.9 million in fiscal years 2015 , 2014 , and 2013 . 30 valuation of long-lived assets the company 's long-lived assets include property , plant and equipment which are depreciated over their estimated useful lives . the carrying value of property , plant and equipment , net of accumulated depreciation , at december 26 , 2015 was $ 409.9 million . for purposes of determining whether there are any impairment losses , management has historically examined the carrying value of the company 's identifiable long-lived assets , including their useful lives , when indicators of impairment are present . evaluations of whether indicators of impairment exist involve judgments regarding the current and future business environment and the length of time the company intends to use the asset .
| depletions , or sales by distributors to retailers , of the company 's core products for the year ended december 26 , 2015 increased by approximately 4 % compared to the prior year , primarily due to increases in depletions of twisted tea , coney island , angry orchard and traveler brand products that were only partially offset by declines in depletions of samuel adams brand products . 26 net revenue per barrel . the net revenue per barrel for core brands increased by 2.6 % to $ 226.18 per barrel for the year ended december 26 , 2015 , as compared to $ 220.46 per barrel for the year ended december 27 , 2014 , due primarily to price increases and changes in product and package mix . significant changes in the package mix could have a material effect on net revenue . the company primarily packages its core brands in kegs , bottles and cans . assuming the same level of production , a shift in the mix from bottles and cans to kegs would effectively decrease revenue per barrel , as the price per equivalent barrel is lower for kegs than for bottles and cans . the percentage of bottles and cans to total shipments increased by 1.7 % to 78.7 % of total shipments for the year ended december 26 , 2015 as compared to the year ended december 27 , 2014. gross profit . gross profit for core products was $ 118.29 per barrel for the year ended december 26 , 2015 , as compared to $ 113.55 per barrel for the year ended december 27 , 2014. gross margin for core products was 52.3 % for the year ended december 26 , 2015 , as compared to 51.5 % for the year ended december 27 , 2014. the increase in gross profit per barrel of $ 4.74 is primarily due to an increase in net revenue per barrel , partially offset by an increase in cost of goods sold per barrel . cost of goods sold for core brands was $ 107.89 per barrel for the year ended december 26 , 2015 , as compared to $ 106.91 per barrel for the year ended december 27 , 2014. the 2015 increase in cost of goods sold of $ 0.98 per barrel of core product is primarily due to product and package mix and higher brewery operating costs , partially offset by
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changes in revpar that are primarily driven by changes in adr ty pically have a greater impact on operating margins and profitability as they do not generate all the additional variable operating costs associated with higher occupancy . we also use ffo , adjusted ffo and hotel ebitda as measures of our operating performance . see “ non-gaap financial measures ” . story_separator_special_tag style= '' color : # 000000 ; '' > year ended december 31 , 2017 was substantially related to increases for food and beverage expenses of approximately $ 1.7 million in the aggregate at our properties in savannah , georgia ; laurel , maryland ; jacksonville , florida ; hollywood beach , florida and houston , texas , offset by a decrease in expenses of approximately $ 1.1 million following the sale of our property in hampton , virginia along with decreases of approximately $ 0.4 million in the aggregate at our remaining properties . expenses from other operating departments increased approximately $ 2.0 million , or 80.6 % , to approximately $ 4.4 million for the year ended december 31 , 2017 compared to expenses from other operating departments of approximately $ 2.4 million for the year ended december 31 , 2016. the increase in expense from other operating departments for the year ended december 31 , 2017 resulted mainly from the acquired interest and new operations in hollywood beach , florida , accounting for an increase of approximately $ 2.5 million for the period , offset by a net decrease of approximately $ 0.5 million at our other properties . indirect expenses at our properties for the year ended december 31 , 2017 decreased approximately $ 0.1 million , or 0.2 % , to approximately $ 57.6 million compared to indirect expenses of approximately $ 57.7 million for the year ended december 31 , 2016. sales and marketing costs , franchise fees , utilities , repairs and maintenance , insurance , management fees , real and personal property taxes as well as general and administrative costs at the property level are included in indirect expenses . after a $ 0.6 million reclassification reduced rooms expenses and increased indirect costs during the year ended december 31 , 2016 , most of the increase in indirect expenses related to expenses that increase proportionally with increases in occupancy and or revenue , including management fees and franchise fees . specifically , increases in indirect expenses were substantially related to our acquisition of the hyde resort in hollywood beach , florida , accounting for an increase of approximately $ 1.8 million for the period , compared to the year ended december 31 , 2016. additionally , there were increases in indirect expenses at our properties in wilmington , north carolina , savannah , georgia ; raleigh , north carolina ; laurel , maryland ; jacksonville , florida ; tampa , florida ; houston , texas and atlanta , georgia of approximately $ 1.9 million in the aggregate . these increases were offset by a decrease in expenses of approximately $ 2.3 million following the sale of our property in hampton , virginia and by decreases of indirect expenses at our properties in philadelphia , pennsylvania and hollywood beach , florida , by approximately $ 1.5 million in the aggregate . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2017 increased approximately $ 2.0 million , or 13.2 % , to approximately $ 17.0 million compared to depreciation and amortization expense of approximately $ 15.0 million for the year ended december 31 , 2016. the increase was mostly attributable to increases in depreciation and amortization related to our renovated properties in wilmington , north carolina ; savannah , georgia and hollywood beach , florida in the amount of $ 2.2 million in the aggregate , and from our acquisition of the hyde resort property for approximately $ 0.1 million along with increases at all the remaining properties by approximately $ 0.1 million in the aggregate , offset by the reduction from our sold property in hampton , virginia by approximately $ 0.4 million . gain / loss on disposal of assets . during the year ended december 31 , 2017 , we recorded a net loss on disposal of assets of approximately $ 1.5 million , compared to a net loss on disposal of assets of approximately $ 0.4 million for the year ended december 31 , 2016. the approximate $ 1.1 million increase in net loss on disposal of assets resulted mainly from the renovated properties in savannah , georgia and hollywood beach , florida . these hotels were also impacted by hurricane irma and realized a loss on disposal of assets of approximately $ 1.4 million in the aggregate . these loss increases were offset by a gain on disposal of our hampton , virginia property by approximately $ 0.1 million and a one-time gain of approximately $ 0.1 million for defective materials . 46 corporate general and administrative . corporate general and administrative expenses for the year ended december 31 , 2017 increased approximately $ 0.3 million , or 5.2 % , to approximately $ 6.3 million compared to corporate general and administrative expens es of approximately $ 6.0 million for the year ended december 31 , 2016. the increase in corporate general and administrative expenses was mainly due to an increase in aborted offering costs of approximately $ 0.5 million , which was offset by reductions in ac counting fees of approximately $ 0.1 million and legal fees of approximately $ 0.1 million . interest expense . story_separator_special_tag interest expense for the year ended december 31 , 2017 decreased approximately $ 2.0 million , or 11.3 % , to approximately $ 15.7 million compared to approximately $ 17.7 million of interest expense for the year ended december 31 , 2016. the decrease in interest expense for the year ended december 31 , 2017 , was substantially related to the redemption of the 8 % senior unsecured notes ( the “ 8 % notes ” ) in august of 2016 and the redemption of the 7 % notes in november of 2017 , resulting in the aggregate reduction of approximately $ 1.6 million . we also reduced our hampton , virginia and houston , texas loans by approximately $ 9.0 million in the aggregate resulting in a reduction of interest by approximately $ 0.4 million . loss on early debt extinguishment . the loss on early debt extinguishment for the year ended december 31 , 2017 decreased approximately $ 0.2 million , or 16.9 % , to approximately $ 1.2 million compared to a loss on debt extinguishment of approximately $ 1.4 million for the year ended december 31 , 2016. during the year ended december 31 , 2017 , we redeemed our 7 % notes which reflect the majority of the loss on early debt extinguishment of approximately $ 1.0 million . unrealized loss on hedging activities . during august 2015 , we purchased an interest rate cap for $ 179,800. as of december 31 , 2017 , the fair market value of the interest rate cap is $ 5,213 compared to the fair market value of $ 33,597 , as of december 31 , 2016. the unrealized loss on hedging activities during the year ended december 31 , 2017 and 2016 , was $ 28,384 and $ 37,384 , respectively . gain on involuntary conversion of asset s. gain on involuntary conversion of assets for the year ended december 31 , 2017 increased approximately $ 2.2 million to approximately $ 2.2 million compared to gain on involuntary conversion of assets of $ 0 for the year ended december 31 , 2016. during october 2016 , hurricane matthew damaged real and personal property at our hampton , virginia and savannah , georgia properties , and we had a one-time involuntary conversion in the amount of approximately $ 1.0 million . then in august and september 2017 , hurricanes harvey and irma damaged real and personal property at our properties in jacksonville , florida , tampa , florida , houston , texas and atlanta , georgia , resulting in a one-time involuntary conversion in the amount of approximately $ 1.2 million . income tax ( provision ) benefit . the income tax provision for the year ended december 31 , 2017 increased approximately $ 3.1 million , or 227.1 % , to approximately $ 1.7 million compared to an income tax benefit of approximately $ 1.4 million for the year ended december 31 , 2016. the income tax provision was primarily derived from the operations of our trs lessees . our trs lessees realized a lower operating loss for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , resulting in a lower income tax benefit . however , there was a one-time charge of approximately $ 2.7 million resulting from a change in the federal income tax rate , due to the tcja . at december 31 , 2017 , deferred tax assets total approximately $ 5.5 million , of which approximately $ 4.9 million relate to net operating losses of our trs lessee . at december 31 , 2017 , we determined , based on all available positive and negative evidence , that it is more-likely-than-not that future taxable income will be available during the carryforward periods to absorb all of the consolidated federal and state net operating loss carryforward . we will continue to regularly evaluate the likelihood that we will be able to realize our deferred tax assets and the need for a valuation allowance for the deferred tax assets . net income . net income for the year ended december 31 , 2017 decreased approximately $ 0.9 million , or 96.7 % , to approximately $ 29.5 thousand compared to net income of approximately $ 0.9 million for the year ended december 31 , 2016 , as a result of the operating results discussed above . distributions to preferred stockholders . during the year ended december 31 , 2017 , we recorded distributions to preferred stockholders of approximately $ 3.8 million , compared to approximately $ 1.1 million distributions to preferred stockholders for the year ended december 31 , 2016. as of december 31 , 2017 and 2016 , we accrued approximately $ 1.4 million and $ 0.8 million , respectively , as dividends on the preferred stock . these increases were due to the issuance of series c preferred stock in october 2017 . 47 comparison of year ende d december 31 , 2016 to year ended december 31 , 2015 the following table illustrates the key operating metrics for the years ended december 31 , 2016 and 2015 for our wholly-owned properties during each respective reporting period ( “ actual ” properties ) as well as the key operating metrics for the eleven wholly-owned properties that were under our control during all of 2015 ( “ same-store ” properties ) . accordingly , the same-store data does not reflect the performance of the doubletree resort by hilton hollywood beach , which was acquired through a joint venture and in which we had a 25.0 % indirect interest through july 31 , 2015 and a 100.0 % interest thereafter . replace_table_token_15_th revenue . total revenue for the year ended december 31 , 2016 was approximately $ 152.8 million , an increase of approximately $ 14.3 million , or 10.3 % , from total revenue for the year ended december 31 , 2015 of approximately $ 138.5 million .
| room revenues at our properties for the year ended december 31 , 2017 decreased approximately $ 2.5 million , or 2.3 % , to approximately $ 105.7 million compared to room revenues for the year ended december 31 , 2016 of approximately $ 108.2 million . the decrease in room revenue for the year ended december 31 , 2017 resulted mainly from the sale of our property in hampton , virginia which reduced revenues by approximately $ 3.2 million . in addition , our properties impacted by renovation activities in wilmington , north carolina ; savannah , georgia and hollywood beach , florida had reduced revenues of approximately $ 2.2 million in the aggregate . room revenue decreases of approximately $ 1.3 million in the aggregate were also realized by our properties in philadelphia , pennsylvania and jeffersonville , indiana . these decreases in room revenues for the year ended december 31 , 2017 were offset by room revenue increases of approximately $ 4.2 million in the aggregate at our properties in raleigh , north carolina ; laurel , maryland ; jacksonville , florida ; tampa , florida ; houston , texas and atlanta , georgia , which on a combined basis reflected a 1.7 % decrease in occupancy , as compared to the same period in 2016. food and beverage revenues at our properties for the year ended december 31 , 2017 decreased approximately $ 0.9 million , or 2.5 % , to approximately $ 34.5 million compared to food and beverage revenues of approximately $ 35.4 million for the year ended december 31 , 2016. the decrease in food and beverage revenues for the year ended december 31 , 2017 , resulted mainly from the sale of our property in hampton , virginia which reduced revenues by approximately $ 1.4 million . food and beverage revenue decreases of approximately $ 0.7 million were also realized by our properties in raleigh , north carolina ; jeffersonville , indiana ; tampa , florida ; and atlanta , georgia . these decreases were offset by an increase in food and beverage revenues of approximately $ 1.2 million at our properties in wilmington , north carolina , savannah , georgia ; philadelphia , pennsylvania ; laurel ,
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in making this evaluation , management used the criteria set forth by story_separator_special_tag overview we operate in one reportable segment : as a distributor of products and services to the industrial , commercial , institutional , and governmental maintenance , repair and operations ( `` mro '' ) marketplace . the north american mro industry is highly fragmented . we compete for business with several national distributors as well as a large number of regional and local distributors . the mro business is significantly influenced by the overall strength of the manufacturing sector of the u.s. economy . one measure used to evaluate the strength of the industrial products market is the pmi index published by the institute for supply management . the pmi index is a composite index of economic activity in the united states manufacturing sector . it is published by the institute for supply management and is available at https : //www.instituteforsupplymanagement.org . a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction . the average monthly pmi was 51.5 for the year ended december 31 , 2016 compared to 51.3 for the year ended december 31 , 2015 indicating a slight improvement in 2016 in the u.s. manufacturing economy compared to the prior year primarily occurring in the second half of the year . our sales are also affected by the number and effectiveness of sales representatives and the amount of sales each representative can generate , which we measure as average sales per day per sales representative . in 2016 , we increased the number of sales representatives , by 72 net new sales representatives , to a total of 1,009 at december 31 , 2016. we plan to continue to expand our sales representative count by the end of 2017. while we anticipate future sales growth from our expanded sales force , we also anticipate a short-term decrease in average sales per day per sales representative , as new representatives build up customer relationships in their territories . results of operations are examined in detail following a recap of our major activities in 2016 . 2016 activities increased sales team - we increased the number of net active sales representatives by approximately 8 % to 1,009 on december 31 , 2016 from 937 on december 31 , 2015. acquisitions - we completed three acquisitions in 2016. mattic industries ltd located in western canada , f.b feeney hardware located in ontario , canada and perfect products company of michigan . streamlined supply chain - in 2016 , primarily due to excess capacity within our supply chain , we announced the closure of our fairfield , new jersey distribution center . we plan to discontinue use of the facility in the first quarter of 2017 and anticipate selling the facility for a gain in 2017. amended loan agreement - we extended the maturity date of our loan agreement to august 8 , 2020 , expanded the amount of credit available by increasing the borrowing base , removed certain financial covenant reporting requirements and reduced the unused borrowing fees . lean six sigma - over the past three years we have had well over 100 employees complete lean six sigma training , which is a systematic data driven approach to analyzing and improving business processes . improved operational performance - we continued to improve the fundamentals of our business , measured as improved customer service levels to our customers . we believe we have created a scalable infrastructure that will allow us to take full advantage of future growth opportunities . we continue to strive to be our customers ' first choice for maintenance , repair and operational solutions . 14 story_separator_special_tag selling expenses decreased $ 0.7 million to $ 90.1 million in 2015 from $ 90.8 million in 2014 primarily driven by lower commission expense on lower sales and lower performance-based compensation . these decreases were partially offset by $ 1.9 million of expense related to the north american sales meeting which was not held in 2014 and expenses associated with newly hired sales representatives . selling expenses increased as a percent of net sales to to 32.7 % from 31.8 % in 2014 . 17 general and administrative expenses general and administrative expenses decreased $ 7.4 million to $ 76.0 million in 2015 from $ 83.4 million in 2014. a decrease of $ 4.3 million in stock-based compensation of which a portion varies with our stock price , and a decrease in other compensation of $ 3.2 million , combined with decreases across many other expense categories as a result of cost reduction efficiencies , were offset partially by an increase of $ 0.6 million in severance expense and a favorable legal settlement of $ 0.7 million in 2014. other operating expenses , net in 2015 and 2014 we accrued $ 0.9 million and $ 0.3 million , respectively , related to estimated future remediation of an environmental matter involving land owned in decatur , alabama , that was part of a division that was previously sold in 2014. in 2014 , we completed the sale of our reno , nevada , distribution center . as part of the review of the impact of a prospective sale , we determined that the full carrying amount of the asset was not recoverable . therefore , we recorded a $ 3.0 million non-cash impairment charge prior to the sale . in conjunction with the sale , we entered into an agreement to leaseback , for a 10-year term , approximately one-half of the building that we were previously using . interest and other expenses , net interest and other expenses , net increased to $ 1.0 story_separator_special_tag million in 2015 from $ 0.9 million in 2014 due primarily to $ 0.2 million of interest recorded in 2015 related to the settlement of a canadian tax matter ( see note 12 - commitments and contingencies of the consolidated financial statements included in item 8 of this form 10-k for further details ) partially offset by a decrease in interest expense from our revolving credit facility due to a lower average debt balance during 2015. income tax expense due to historical cumulative losses , in 2012 , we determined that it was more likely than not that we would not be able to utilize our deferred tax assets to offset future taxable income . therefore , substantially all of our deferred tax assets are subject to a tax valuation allowance . although we are in a full tax valuation allowance position , an income tax expense of $ 0.9 million and $ 0.2 million were recorded in 2015 and 2014 , respectively . the 2015 tax expense was due to state taxes , reserves for uncertain tax positions and the settlement of a canadian tax matter . the 2014 tax expense was due to state taxes , reserves for uncertain tax positions , partially offset by the allocation of income taxes between continuing and discontinued operations . income ( loss ) from continuing operations we reported income from continuing operations of $ 0.3 million in 2015 compared to a loss from continuing operations of $ 6.1 million in 2014. the 2014 results were negatively affected by the one-time $ 3.0 million impairment charge related to the sale of the reno , nevada , distribution center . 18 liquidity and capital resources cash provided by operating activities was $ 8.5 million , $ 9.3 million and $ 1.8 million in 2016 , 2015 and 2014 , respectively , primarily reflecting operating results , net of depreciation and amortization . capital expenditures were $ 3.1 million , $ 2.3 million and $ 2.8 million in 2016 , 2015 and 2014 , respectively , were primarily for improvements to our distribution centers and information technology . we invested $ 6.0 million and $ 0.4 million in 2016 and 2015 , respectively , in business acquisitions . loan agreement in 2016 , we entered into an amendment to the loan agreement that extended the maturity date to august 8 , 2020. we also received an increase in the credit available under the loan agreement from 80 % to 85 % of our eligible accounts receivable , as defined in the amendment , and from 50 % to 60 % of our eligible inventory , as defined in the amendment , up to the facility limit of $ 40.0 million . we have the ability to borrow funds through the loan agreement which consists of a $ 40.0 million revolving credit facility which includes a $ 10.0 million sub-facility for letters of credit . the terms of the loan agreement as amended are more fully detailed in note 9 – loan agreement of the consolidated financial statements included in item 8 of this form 10-k. at december 31 , 2016 , we had $ 0.8 million borrowings on our revolving line of credit under the loan agreement and had borrowing availability of $ 35.0 million . in addition to other customary representations , warranties and covenants , and if the excess capacity is below $ 10.0 million , we are required to meet a minimum trailing twelve month ebitda to fixed charges ratio , as defined in the amended loan agreement , and a minimum quarterly tangible net worth level as defined in the amended loan agreement . on december 31 , 2016 , our borrowing capacity exceeded $ 10.0 million , therefore , we were not subject to these financial covenants , however , for informational purposes we have provided the results of the financial covenants below : quarterly financial covenants requirement actual ebitda to fixed charges ratio 1.10 : 1.00 1.75 : 1.00 minimum tangible net worth $ 45.0 million $ 48.6 million although we have met the minimum financial covenant levels for all quarters since the loan agreement was put in place including the quarter ended december 31 , 2016 , failure to meet these covenant requirements in future quarters could lead to higher financing costs , increased restrictions , or reduce or eliminate our ability to borrow funds . no cash dividends were paid in the three years ended december , 31 2016 and dividends are currently restricted under our loan agreement to amounts not to exceed $ 7.0 million annually . we believe cash expected to be provided by operations and the funds available under our loan agreement are sufficient to fund our operating requirements , strategic initiatives and capital improvements throughout 2017 . discontinued operations in february 2014 , we completed the sale of substantially all of the assets of our non-core asmp business for $ 12.5 million plus the assumption of certain liabilities and recorded a $ 1.5 million pre-tax gain on the sale . we retained ownership of the decatur , alabama , facility , where asmp was located , and are leasing it back to the buyer of the business . asmp generated pre-tax operating earnings of $ 0.3 million in 2014 . 19 contractual obligations contractual obligations that require cash payments over future periods at december 31 , 2016 were as follows : replace_table_token_8_th ( 1 ) the revolving line of credit with the privatebank expires in august 2020. due to the lock box arrangement and a subjective acceleration clause contained in the borrowing agreement , the revolving line of credit is classified as a current contractual obligation .
| general and administrative expenses increased $ 0.6 million to $ 76.6 million in 2016 from $ 76.0 million in 2015 , driven by an increase of $ 1.1 million in severance expense , primarily related the closure of the fairfield , new jersey distribution center , and increases in compensation including an increase of $ 0.4 million in stock-based compensation of which a portion varies with our stock price . these increases were partially offset by decreases across many other expense categories as a result of cost reduction efficiencies . other operating expenses in 2015 we accrued $ 0.9 million related to estimated future remediation of an environmental matter involving land owned in decatur , alabama , that was part of a division that was previously sold in 2014. the estimated cost of remediation will most likely be adjusted in future years as more information becomes available . interest and other expenses , net interest and other expenses , net decreased to $ 0.1 million in 2016 from $ 1.0 million in 2015 due primarily to an increase of $ 0.5 million in foreign currency transaction gains , a $ 0.1 million decrease in interest expense from our revolving credit facility due to a lower average debt balance and an increase of $ 0.1 million in interest income . income tax expense due to historical cumulative losses , in 2012 , we determined it was more likely than not we would not be able to utilize our deferred tax assets to offset future taxable income . therefore , substantially all of our deferred tax assets are subject to a tax valuation allowance . however , due to recent reductions in these losses resulting in net income in certain periods , it may become necessary to reduce all or a portion of the valuation allowance resulting in a decrease to income tax expense for the period in which the reduction is recorded . although we are in a
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the assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management t o determine that the resulting values reasonably reflect amounts realizable on the related loans . management performs a quarterly evaluation of the adequacy of the allowance for loan losses . consideration is given to a variety of factors in establishing this estimate including , but not limited to , current economic conditions , delinquency statistics , geographic and industry concentrations , the adequacy of the underlying collateral , the financial strength of the borrower , results of internal and external loan reviews and other relevant factors . this evaluation is inherently subjective , as it requires material estimates that may be susceptible to significant revision based on changes in economic and real estate market conditions . the analysis of the allowance for loan losses has two components : specific 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 adjusted for market conditions and selling expenses . the general allocation is determined by segregating the remaining loans by type of loan , risk weighting ( if applicable ) and payment history . we also analyze historical loss experience , 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 allocations . actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results . goodwill and intangible assets . goodwill is not amortized , but it is tested at least annually for impairment in the fourth quarter , or more frequently if indicators of impairment are present . if the estimated current fair value of a reporting unit exceeds its carrying value , no additional testing is required and an impairment loss is not recorded . the company uses market capitalization and multiples of tangible book value methods to determine the estimated current fair value of its reporting unit . based on this analysis , no impairment was recorded in 2019 or 2018. the other intangibles assets are assigned useful lives , which are amortized on an accelerated basis over their weighted-average lives . the company periodically reviews the intangible assets for impairment as events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable . based on these reviews , no impairment was recorded in 2019 or 2018. derivative instruments and hedging activities . the company records all derivatives on the balance sheet at fair value . the accounting for changes in the fair value of derivatives depends on the intended use of the derivative , whether the company has elected to designate a derivative in hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting . derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset , liability , or firm commitment attributable to a particular risk , such as interest rate risk , are considered fair value hedges . derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows , or other types of forecasted transactions , are considered cash flow hedges . derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation . hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge . the company may enter into derivative contracts that are intended to economically hedge certain of its risk , even though hedge accounting does not apply or the company elects not to apply hedge accounting . employee benefit plans . the bank maintains a noncontributory , defined benefit pension plan for all employees who have met age and length of service requirements . the bank also maintains a defined contribution section 401 ( k ) plan covering eligible employees . the company created an employee stock ownership plan ( “ esop ” ) for the benefit of employees who meet certain eligibility requirements . the company makes cash contributions to the esop on an annual basis . the company maintains an equity incentive plan to provide for issuance or granting of shares of common stock for stock options or restricted stock . the company has recorded stock-based employee compensation cost using the fair value method as allowed under generally accepted accounting principles . management estimated the fair values of all option grants using the black-scholes option-pricing model . management estimated the expected life of the options using the simplified method as allowed under generally accepted accounting principles . the risk-free rate was determined utilizing the treasury yield for the expected life of the option contract . 34 fair value measurements . we group our assets at fair value in three levels , based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value . these levels are : level i – valuation is based upon quoted prices for identical instruments traded in active markets . level ii – valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques for which all significant assumptions are observable in the market . level iii – valuation is generated from model-based techniques that use significant assumptions not observable in the market . story_separator_special_tag these unobservable assumptions reflect the company 's own estimates of assumptions that market participants would use in pricing the asset . we base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements , in accordance with the fair value hierarchy in generally accepted accounting principles . fair value measurements for most of our assets are obtained from independent pricing services that we have engaged for this purpose . when available , we , or our independent pricing service , use quoted market prices to measure fair value . if market prices are not available , fair value measurement is based upon models that incorporate available trade , bid , and other market information . subsequently , all of our financial instruments use either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements . in certain cases , however , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of financial instruments . 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 parameters . for financial instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable market prices and parameters are not fully available , management judgment is necessary to estimate fair value . in addition , changes in the market conditions may reduce the availability of quoted prices or observable data . when market data is not available , we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement . therefore , the results can not be determined with precision and may not be realized in an actual sale or immediate settlement of the asset . additionally , there may be inherent weaknesses in any calculation technique , and changes in the underlying assumptions used , including discount rates and estimates of future cash flows , that could significantly affect the results of current or future valuations . other-than-temporary investment security impairment . securities are evaluated periodically to determine whether a decline in their value is other-than-temporary . management utilizes criteria such as the magnitude and duration of the decline , in addition to the reasons underlying the decline , to determine whether the loss in value is other-than-temporary . the term “ other-than-temporary ” is not intended to indicate that the decline is permanent , but indicates that the prospect for a near-term recovery of value is not necessarily favorable , or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment . once a decline in value is determined to be other-than-temporary , the value of the security is reduced and a corresponding charge to earnings is recognized . deferred income taxes . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . we consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . a valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carryback declines , or if we project lower levels of future taxable income . such a valuation allowance would be established through a charge to income tax expense which would adversely affect our operating results . comparison of financial condition at september 30 , 2019 and september 30 , 2018 total assets . total assets decreased $ 34.4 million , or 1.87 % , to $ 1.8 billion at september 30 , 2019 , compared to september 30 , 2018. cash and due from banks . cash and due from banks increased $ 9.2 million , or 23.6 % , to $ 48.4 million at september 30 , 2019 from $ 39.2 million at september 30 , 2018. the primary reason for the increase were increases in the federal reserve bank 's account of $ 10.5 million . 35 interest-bearing deposits with other institutions . interest-bearing deposits with o ther institution s decreased $ 526,000 , or 12.1 % , to $ 3.8 million at september 30 , 201 9 from $ 4.3 million at september 30 , 201 8 . the primary reason for the decrease was a decrease in the company 's interest bearing demand deposit accoun t at the fhlb-pittsburgh of $ 2.0 million . investment securities available for sale . investment securities available for sale decreased $ 58.0 million , or 15.6 % , to $ 313.4 million at september 30 , 2019 from $ 371.4 million at september 30 , 2018. the decrease was due primarily to decreases in obligations of states and political subdivisions of $ 20.7 million , mortgage held securities of $ 31.7 million , corporate obligations of $ 4.3 million and other debt securities of $ 2.5
| 39 the following table sets forth the results of the twelve month projected net interest incom e model as of september 30 , 201 9 . replace_table_token_20_th the above table indicates that as of september 30 , 2019 , in the event of a 400 basis point instantaneous increase in interest rates , the company would experience an 9.8 % , or $ 4.6 million , decrease in net interest income . in the event of a 200 basis point decrease in interest rates , the company would experience a 0.5 % , or $ 248,000 , increase in net interest income . another measure of interest rate sensitivity is to model changes in the economic value of equity through the use of immediate and sustained interest rate shocks . the following table illustrates the economic value of equity model results as of september 30 , 2019. replace_table_token_21_th the preceding table indicates that as of september 30 , 2019 , in the event of an immediate and sustained 400 basis point increase in interest rates , the company would experience a 18.9 % , or $ 47.6 million , decrease in the present value of equity . if rates were to decrease 100 basis points , the company would experience a 1.7 % , or $ 4.2 million , decrease in the present value of equity . certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements . modeling changes in net interest income requires the making of certain assumptions regarding prepayment and deposit decay rates , which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates . while management believes such assumptions are reasonable , there can be no assurance that assumed prepayment rates and decay rates will approximate actual future loan prepayment and deposit withdrawal activity . moreover , the net interest income table presented assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes
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general and administrative expenses were $ 2,577,213 for the year ended december 31 , 2004 , compared to $ 1,419,368 in 2003. this represented 8.1 % of revenue in 2004 as compared to 4.0 % of revenue in 2003. the 82 % increase in general and administrative expenses in 2004 is substantially due to the non-recurring legal and advisory expenses incurred in relation with the change of ownership of the company , the offer for additional equity received by the company and severance payments . in addition , the appreciation of the euro had a negative impact on the overhead expenses which were denominated in euros . impairment loss as of december 31 , 2004 , the company evaluated the recoverability of its vessels in accordance with fas 144 and determined that no provision for impairment loss was required . in 2003 , the company had recorded a provision for estimated impairment loss of $ 2,693,650. in january 2005 , the company received appraisals for its gas fleet from leading independent shipbrokers . the market value of the container vessels was assumed to be equal to the sale price received in january 2005. on this basis , the appraised value of the company 's entire fleet was approximately $ 91,850,000 compared to a book value of $ 57,051,369 on december 31 , 2004. if there are indicators of impairment , evaluating recoverability require management to make estimates and assumptions regarding future cash flows ( see below : critical accounting policies and estimates ) . actual results could differ from those estimates , which could have a material effect on the recoverability of vessels . management regularly obtains valuations of its vessels and will continue to monitor such valuations in order to determine if any indicators of impairment in vessel values occur . other income and expenses interest expense amounted to $ 3,463,491 for the year ended december 31 , 2004 as compared to $ 4,866,062 in 2003 , and represented 10.8 % of revenue as compared with 13.6 % in 2003. the decrease in interest expense resulted from a reduction in the company 's debt . interest income totaled $ 156,964 in 2004 , a 42 % increase from interest income of $ 110,603 in 2003. the increase in interest earnings was due to the increased cash balances and slightly higher interest rates . in 2004 , the company recorded a net loss on debt extinguishment of $ 744,250. this amount consisted of : ( 1 ) a net gain of $ 363,119 recorded on repurchases in the open market of notes having a total face value $ 6,540,000 and ( 2 ) a net loss of $ 1,107,369 recorded at the time of refinancing in the 4 th quarter 2004 , corresponding the 3.75 % call premium of the $ 21.1 million of notes ( $ 791,250 ) , to the write off of the notes unamortized issuance costs ( $ 183,938 ) and to the write off of the existing bank debt unamortized issuance costs ( $ 132,181 ) . ( see note 6 : long term debt to the consolidated financial statements in item 8 ) . 19 table of contents in 2003 , the company recorded a gain of $ 2,620,477 on the repurchase of notes having a total face value of $ 7,000,000 and a $ 1,785,253 gain on the sale of four container vessels . net income the net income for the year ended december 31 , 2004 was $ 1,112,379 as compared to a net income of $ 3,091,155 , for the year ended december 31 , 2003. impact of inflation management believes that inflation did not have a material impact upon the company 's business during the year ended december 31 , 2004. critical accounting policies and estimates the preparation of the company 's financial statements in accordance with accounting principles generally accepted in the united states requires that management make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . the following is a discussion of the accounting policies applied by the company that are considered to involve a higher degree of judgment in their application . depreciation and amortization we record the value of our vessels at their cost ( which includes pre-operating costs directly attributable to the vessel ) less accumulated depreciation . we depreciate our lpg vessels on a straight-line basis over their estimated useful lives , estimated to be 30 years from date of initial delivery from the shipyard . depreciation is based on cost less the estimated residual scrap value . for the larger vessels , we estimate residual scrap value as the lightweight tonnage of each vessel multiplied by $ 175 scrap value per ton , which management estimates to approximate the historical average price of scrap steel . for the smaller vessels , management 's estimates of the residual scrap value range from zero to $ 200,000. an increase in the useful life of a vessel would have the effect of decreasing the annual depreciation charge and extending it into later periods . an increase in the residual scrap value would decrease the amount of the annual depreciation charge . a decrease in the useful life of a vessel would have the effect of increasing the annual depreciation charge . a decrease in the residual scrap value would increase the amount of the annual depreciation charge . deferred dry dock cost our vessels are dry-docked approximately every 30 to 60 months for major repairs and maintenance that can not be performed while the vessels are operating . story_separator_special_tag we capitalize the costs associated with the dry-docks as they occur and amortize these costs on a straight line basis over the period between dry-docks . costs capitalized as part of the dry dock include actual costs incurred at the dry-dock yard ; cost of fuel consumed between the vessel 's last discharge port prior to the dry dock and the time the vessel leaves the dry dock yard ; cost of hiring riding crews to effect repairs on a ship and parts used in making such repairs that are reasonably made in anticipation of reducing the duration or cost of the dry dock ; cost of travel , lodging and subsistence of our personnel sent to the dry dock site to supervise ; and the cost of hiring a third party to oversee a dry dock . we believe that these criteria are consistent with gaap guidelines and industry practice , and that our policy of capitalization reflects the economics and market values of the vessels . 20 table of contents impairment of long-lived assets in accordance with sfas 144 “ accounting for the impairment or disposal of long-lived assets ” , the company 's vessels are regularly reviewed for impairment . the company performs the impairment valuations at the individual vessel level pursuant to paragraph 10 of sfas 144. to consider whether there is an impairment indicator , the company compares the book value and the market value of each vessel at the end of each quarterly reporting period . at year end , the market value used by the company is equal to the average of the appraisals provided by two leading independent shipbrokers . appraisals are based on the technical specifications of each vessel , but are not based on a physical inspection of the vessel . at quarter end , the market values are assessed by the chief executive officer on the basis of market information , shipping newsletters , sale of comparable vessels reported in the press , informal discussions with shipbrokers or unsolicited proposals received from third parties for the vessels . whenever a vessel market value is above its book value , the company considers there is no indication of impairment . whenever a vessel market value is below its book value , the company considers there is a potential impairment and performs a recoverability test . the company estimates the undiscounted future cash flows attributable to the vessel in order to determine if the book value of such vessel is recoverable . the assumptions used to determine whether the sum of undiscounted cash flows expected to result from the use and eventual disposition of the vessel exceeds the carrying value involve a considerable degree of judgment on the part of management . actual results could differ from those estimates , which could have a material effect on the recoverability of the vessels . the most significant assumptions are : - the time of final disposal corresponds to the estimated useful life of the vessel : 25 years for a container vessel or 30 years for a gas vessel . these assumptions are identical to the ones used for depreciation purposes . - the estimated value at time of disposal is the estimated scrapping price , calculated as lightweight of the vessel in tons times a certain price per ton , conservatively estimated by management relative to market price . - the projected increase in costs and in revenues is equal to the current inflation rate . - the charter rates used in such computations are estimated by the chief executive officer on the basis of past historical rates and modulated by his assessment of current and expected future economic and industry trends . they are subjective as they correspond to the company 's best estimate of an average long term rate . - the maintenance of the vessel is estimated at one dry-dock every 2.5 years , alternating intermediate and special survey dry-docks , - days on hire are estimated at a level consistent with the company 's on-hire statistics ( see management 's discussion and analysis of financial condition and results of operations - results of operations - revenue ) . if the book value of the vessel exceeds the estimated undiscounted future cash flows attributable to the vessel , the company recognizes an impairment loss equal to the excess of the book value over the market value as defined above . the company 's investment in munia is also reviewed for impairment at year end and at each quarter end . to consider whether there is an indication of impairment , the company compares the fair market value or estimated scrap value of each container vessel at the end of the reporting period with the minimum threshold of $ 4.9 million , which corresponds to a full recovery of the investment ( see note 4 : investment in associated companies to the consolidated financial statements in item 8 ) . whenever the fair market value or estimated scrap value ( corresponding to a price of scrap of $ 314 per ton ) of a vessel is below $ 4.9 million , the company considers there is a potential impairment and performs a recoverability test . to perform the recoverability test , the company estimates the undiscounted future cash flows attributable to the investment in order to determine if the book value of such investment is recoverable . if the book value of the investment exceeds the estimated undiscounted future cash flows attributable to the investment , the company recognizes an impairment loss equal to the excess of the book value over the scrap value . 21 table of contents liquidity and sources of capital liquidity the company had $ 12,292,015 in cash available on december 31 , 2005 as compared to $ 11,629,896 at december 31 , 2004. in addition , on december 31 , 2005 , deposits totaling $ 1,759,237 ( december 31 , 2004 - $ 5,000,000
| however , throughout 2005 , most of the company 's small lpg ships remained under charters or options granted under charters initiated in prior years . such rates reflected the then current market conditions and were substantially below those enjoyed today . one small lpg tanker was renewed at the end of 2005 at current market rate . four small lpg tankers are due for renewal in the first six-seven months of 2006 , one in december 2006 and one very large gas carrier ( “ vlgc ” ) tanker in november 2006 : the company hopes to secure current market rates at renewal . the company 's remaining vlgc tankers ( including galileo 50 % owned ) will continue on charter at the rates which were previously agreed . in general , increased freight rates are driven by increased production linked to lng projects which produce lpg as an associated gas , worldwide demand for lpg , an aging fleet , enhanced industry standards and shipyards ' inability to deliver replacement tonnage earlier than in the next 24 months due to prior commitments for other ship designs . the main lpg trade between arabian gulf countries and japan serves as a market indicator and the freight rates on this route are considered the industry benchmark for vlgcs . the table below demonstrates the recent increase in freight rates achieved on this route . the table also shows the evolution of 12-month time charter rates for vessels of sizes and types similar to the company 's ships . 14 table of contents replace_table_token_5_th source s : © clarkson research services limited ; © lorentzen & stemoco ; © barry rogliano salles ; © inge steensland as . like charter rates , lpg ship values have increased substantially over the last twelve months , as demonstrated by the appraisals received by the company for its gas fleet from leading independent shipbrokers . in 2005 , the market for containerships remained very strong , although the end of the year showed signs of a decline in rates . however ,
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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 ; acquiring available complementary technology rights ; payment of short-term debt ; hiring of additional personnel in 2019 ; and general and administrative operating costs . management projects these costs to total approximately $ 2,500,000. 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 at or close to profitability by the end of the third quarter of 2019. liquidity and capital resources replace_table_token_1_th the company recorded a net loss of $ 3,182,483 and had a working deficit of $ 1,606,592 for the year ended december 31 , 2018. we have recorded a relatively small amount of revenues from operations since inception and we have not established an ongoing source of revenue sufficient to cover our operating costs . during 2018 and 2017 the company has 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 , 2018 we had $ 4,893 in cash compared to $ 7,838 in cash at december 31 , 2017. we had total liabilities of $ 3,141,401 at december 31 , 2018 compared to $ 1,456,198 at december 31 , 2017 . 20 total assets increased by $ 92,807 at december 31 , 2018 compared to december 31 , 2017. this increase is primarily from increases property and equipment to $ 499,972 ( net of depreciation ) acquired during the year ended december 31 , 2018 , and prepaid expenses which increased to $ 218,494 which increased as a result of shares issued for prepaid consulting services . total liabilities increased by $ 1,685,203 at december 31 , 2018 compared to december 31 , 2017. this increase is primarily comprised of additions to convertible notes ( net of discount ) of $ 553,814 notes payable ( net of discount ) of approximately $ 526,371 , derivative liabilities of $ 322,976 , preferred stock liability of $ 144,352 and to accounts payable and accrued liabilities of approximately $ 445,081 related to administrative and professional services during the year ended december 31 , 2018. our current cash flow is not sufficient to meet our monthly expenses of approximately $ 210,000 and to fund future research and development . we intend to rely on additional debt financing , loans from existing shareholders and private placements of common 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 commitments and obligations at december 31 , 2018 the company recorded notes payable ( related and non-related party ) totaling approximately $ 1,353,197 ( net of debt discount ) compared to notes payable totaling $ 1,134,217 ( net of debt discount ) at december 31 , 2017. these notes payable represent cash advances received and expenses paid from third parties and related parties . all of the notes payable are non-collateralized , carry interest from 0 % to 13 % and are due ranging from on demand to january 2 , 2020. at december 31 , 2018 the company recorded convertible notes payable totaling approximately $ 553,814 ( net of debt discount ) compared to convertible notes payable totaling $ 0 at december 31 , 2017. these notes payable represent cash advances received and expenses paid from third parties and related parties . story_separator_special_tag all of the convertible notes payable are non-collateralized , carry interest from 5 % to 12 % and are due ranging from june 5 , 2019 to march 31 , 2021. in 2017 , we elected to centralize our headquarters and operations in south carolina , moving all office operations on december 31 , 2017 from lenexa , kansas to south carolina . the south carolina lease amounts to $ 4,800 per month , expires on november 30 , 2019 and includes an option to renew for two additional three-year periods . we are in arrears in our lease payment for this location but have a verbal arrangement with our landlord for making additional payments during 2019 in order to become current . 21 story_separator_special_tag 11pt times new roman , times , serif ; margin : 0 ; text-align : justify '' > use of estimates – the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting periods . estimates are based on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ materially from those estimates . derivative and preferred stock liabilities the company accounts for derivative instruments in accordance with asc topic 815 , “ derivatives and hedging ” and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet . the company uses estimates of fair value to value its derivative instruments . fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants . in general , the company 's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets , where available . when these are not available , other inputs are used to model fair value such as prices of similar instruments , yield curves , volatilities , prepayment speeds , default rates and credit spreads , relying first on observable data from active markets . depending on the availability of observable inputs and prices , different valuation models could produce materially different fair value estimates . the values presented may not represent future fair values and may not be realizable . the company categorizes its fair value estimates in accordance with asc 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above . as of december 31 , 2018 , and december 31 , 2017 , the company had a $ 322,976 and $ 0 derivative liability , respectively and preferred stock liabilities of $ 144,352 and $ 0 , respectively . fair value estimates are made at a specific point in time , based on relevant market information and information about the financial statement . these estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore can not be determined with precision . changes in assumptions could significantly affect the estimates . see note 7 for additional information . property and equipment– property and equipment are stated at purchased cost and depreciated utilizing a straight-line method over estimated useful lives ranging from 3 to 7 years after the asset has been placed in service . upon selling equipment that had been under a lease agreement , the company discontinues the depreciation on that piece of equipment , as it transfers ownership to another entity . additions and major improvements that extend the useful lives of property and equipment are capitalized . maintenance and repairs are charged to operations as incurred . upon trade-in , sale or retirement of property and equipment , the related cost and accumulated depreciation are removed from the accounts and any related gains or losses are recorded in the results of operations . impairment of long-lived assets – the carrying values of the company 's long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that they may not be recoverable . when projections indicate that the carrying value of the long-lived asset is not recoverable , the carrying value is reduced by the estimated excess of the carrying value over the fair value . under similar analysis no impairment was recorded during the years ended december 31 , 2018 and 2017. intangible assets – costs to obtain or develop patents are capitalized and amortized over the remaining life of the patents , and technology rights are amortized over their estimated useful lives . the company currently has the right to several patents and proprietary technology . patents and technology are amortized from the date the company acquires or is awarded the patent or technology right , over their estimated useful lives , which range from 1 to 15 years . an impairment charge is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible assets as determined by projected discounted net future cash flows . the recorded impairment expense was nil for the years ended december 31 , 2018 and 2017 , respectively . 23 research and development – research and development costs are recognized as an expense during the period incurred , which is until the conceptual formulation , design , and testing of a process is completed and the process has been determined to be commercially viable . revenue recognition – on may 2014 , the fasb issued asu no . 2014-09 , revenue from contracts with customer (
| the overall increase was a result of an increase in interest expense , loss on change in fair value of derivatives and loss on change in fair value of preferred stock liabilities . this was offset by a decrease in other expense . interest expense and other expense increased in 2018 as there was an increase in notes payable outstanding accruing interest during 2018. the loss on change in fair value of derivatives was the result of the company issuing notes with conversion features that required bifurcation for the first time in 2018 as a result of the changes described above , the net loss increased to $ 3,182,483 for the 2018 year compared to $ 2,721,536 for the 2017 year . 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 . 22 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
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from inception through march 31 , 2019 , we completed sales of 16 portfolio companies that we acquired under our buyout strategy ( which excludes investments in syndicated loans ) . in the aggregate , these sales have generated $ 185.9 million in net realized gains and $ 23.4 million in other income upon exit , for a total increase to our net assets of $ 209.3 million . we believe , in aggregate , these transactions were equity-oriented investment successes and exemplify our investment strategy of striving to achieve returns through current income on the debt portion of our investments and capital gains from the equity portion . the 16 liquidity events have offset any realized losses since inception , which were primarily incurred during the recession in connection with the sale of performing syndicated loans at a realized loss to pay off a former lender . these successful exits , in part , enabled us to increase the monthly distribution by 70.0 % from march 2011 through march 31 , 2019 , and allowed us to declare and pay a $ 0.03 per common share supplemental distribution in fiscal year 2012 , a $ 0.05 per common share supplemental distribution in november 2013 , a $ 0.05 per common share supplemental distribution in december 2014 , and a $ 0.06 per common share supplemental distribution in each of june 2017 , december 2017 , june 2018 , and december 2018. capital raising efforts we have been able to meet our capital needs through extensions of and increases to the credit facility and by accessing the capital markets in the form of public offerings of common and preferred stock . we have successfully extended the credit facility 's revolving period multiple times , most recently to august 2021 , and currently have a total commitment amount of $ 200.0 million ( with a potential total commitment of $ 300.0 million through additional commitments of new or existing lenders ) . during the year ended march 31 , 2019 , we sold 168,824 shares of our common stock under our at-the-market program for gross proceeds of approximately $ 1.9 million . during the year ended march 31 , 2018 , we sold 127,412 shares of our common stock under our at-the-market program for gross proceeds of approximately $ 1.3 million . additionally , we issued approximately 2.3 million shares of common stock for gross proceeds of $ 21.2 million in may 2017 , inclusive of the june 2017 over-allotment , and approximately 3.0 million shares of our series e term preferred stock for gross proceeds of $ 74.8 million in august 2018. refer to liquidity and capital resources revolving line of credit for further discussion of the credit facility and to liquidity and capital resources equity common stock and liquidity and capital resources equity term preferred stock for further discussion of our common stock , including our at-the-market program , and mandatorily redeemable preferred stock . although we have been able to access the capital markets historically , market conditions may continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of common equity . on march 31 , 2019 , the closing market price of our common stock was $ 11.60 per share , which represented a 6.5 % discount to our march 31 , 2019 nav per share of $ 12.40. when our common stock trades below nav , our ability to issue additional equity is constrained by provisions of the 1940 act , which generally prohibits the issuance and sale of our common stock at an issuance price below the then current nav per share without stockholder approval , other than through sales to our then existing stockholders pursuant to a rights offering . at our 2018 annual meeting of stockholders held on august 9 , 2018 , our stockholders approved a proposal authorizing us to issue and sell shares of our common stock at a price below our then current nav per share , subject to certain limitations , including that the number of common shares issued and sold pursuant to such authority does not exceed 25.0 % of our then outstanding common stock immediately prior to each such sale , provided that our board of directors makes certain determinations prior to any such sale . this august 2018 stockholder authorization is in effect for one year from the date of stockholder approval . we sought and obtained stockholder approval concerning similar proposals at each annual meeting of stockholders since 2008 , and with our board of directors ' subsequent approval , we issued shares of our common stock in three offerings at a price below the then current nav per share , once in may 2017 , once in march 2015 , and once in october 2012. certain sales under the at-the-market program in march 2018 and april 2018 were also below the then current estimated nav per share . the resulting proceeds , in part , have allowed us to ( i ) grow our portfolio by making new investments , ( ii ) generate additional income through these new investments , ( iii ) ensure continued compliance with regulatory tests and ( iv ) increase our debt capital while still complying with our applicable debt-to-equity ratios . refer to liquidity and capital resources equity common stock for further discussion of our common stock . 48 regulatory compliance our ability to seek external debt financing , to the extent that it is available under current market conditions , is further subject to the asset coverage limitations of the 1940 act , which require us to have asset coverage ( as defined in sections 18 and 61 of the 1940 act , as amended ) of at least 150 % on each of our senior securities representing indebtedness and our senior securities that are stock ( such as our two series of term preferred stock ) . story_separator_special_tag on april 10 , 2018 , our board of directors , including a required majority ( as such term is defined in section 57 ( o ) of the 1940 act ) thereof , approved the modified asset coverage requirements set forth in section 61 ( a ) ( 2 ) of the 1940 act , as amended by the sbcaa . as a result , the company 's asset coverage requirements for senior securities changed from 200 % to 150 % effective april 10 , 2019 , one year after the date of the board of directors ' approval . under the 200 % asset coverage standard prior to april 10 , 2019 , we were able to borrow debt or issue senior securities in the amount of $ 1.00 for every $ 1.00 of equity in the company . starting from april 10 , 2019 , under the 150 % asset coverage standard , we may borrow debt or issue senior securities in the amount of $ 2.00 for every $ 1.00 of equity in the company . notwithstanding the modified asset coverage requirement under the 1940 act described above , we are separately subject to a minimum asset coverage requirement of 200 % with respect to our series d term preferred stock . as of march 31 , 2019 , our asset coverage ratio on our senior securities representing indebtedness was 997.6 % and our asset coverage on our senior securities that are stock ( our series d term preferred stock and our series e term preferred stock ) was 309.1 % . investment highlights for the fiscal year ended march 31 , 2019 , and inclusive of non-cash transactions , we invested $ 57.8 million in two new portfolio companies , received $ 175.8 million in proceeds from repayments and sales , and extended $ 54.3 million of follow-on investments to existing portfolio companies through revolver draws , term loans , and additions to equity , as applicable . investment activity during the fiscal year ended march 31 , 2019 , the following significant transactions occurred : in april 2018 , we invested $ 29.2 million in bassett creek restoration , inc. ( d/b/a j.r. johnson , llc ) ( bassett creek ) through a combination of secured first lien debt and preferred equity . bassett creek , headquartered in portland , oregon , is a leading provider of commercial restoration and renovation services to the oregon and southwest washington region . in june 2018 , we sold our investment in drew foam companies , inc. ( drew foam ) , which resulted in dividend and success fee income of $ 0.2 million and a realized gain of $ 13.8 million . in connection with the sale , we received net cash proceeds of $ 27.3 million , including the repayment of our debt investment of $ 9.9 million at par . in july 2018 , we exited our investment in ndli , inc. ( ndli ) and recorded a realized loss of $ 3.6 million . in october 2018 , we invested an additional $ 15.0 million of secured first lien debt into j.r. hobbs , which together with our existing $ 21.0 million secured first lien term loan resulted in a new $ 36.0 million secured first lien term loan due in october 2023. in october 2018 , we exited our equity investment in country club enterprises , llc ( cce ) , which resulted in a realized loss of $ 7.7 million . as part of this transaction , we received success fee income of $ 1.0 million , reduced our existing guaranty to $ 1.0 million , and amended our existing $ 4.0 million secured second lien term loan to have a stated interest rate of libor + 8.0 % and mature in february 2022. in november 2018 , we sold our investment in logo sportswear , inc. ( logo ) , which resulted in success fee income of $ 0.2 million and a realized gain of $ 13.0 million . in connection with the sale , we received net cash proceeds of $ 22.7 million , including the repayment of our debt investment of $ 9.2 million at par . in november 2018 , we invested $ 28.6 million in educators resource , inc. ( educators resource ) through a combination of secured first lien debt and preferred equity . educators resource , headquartered in semmes , alabama , is a leading e-commerce wholesale distributor of supplemental teaching materials . 49 in december 2018 , we sold our investment in cambridge sound management , inc. ( cambridge ) , which resulted in success fee income of $ 0.4 million , dividend income of $ 0.1 million , and a realized gain of $ 65.7 million . in connection with the sale , we received net cash proceeds of $ 86.8 million , including the repayment of our debt investment of $ 16.0 million at par . in december 2018 , we sold our investment in star seed , inc. ( star seed ) , which resulted in success fee income of $ 0.5 million and a realized gain of $ 5.4 million . in connection with the sale , we received net cash proceeds of $ 12.5 million , including the repayment of our debt investment of $ 5.0 million at par . in january 2019 , we restructured two of our first lien term loans to sog specialty knives & tools , llc ( sog ) with a total cost basis of $ 18.4 million into a new $ 8.4 million first lien term loan , which resulted in a realized loss of $ 10.0 million . the new term loan has a stated interest rate of libor + 4.0 % and matures in august 2022. in addition , we invested $ 1.0 million of preferred equity in sog . in march 2019 , we restructured our existing second lien term loans and delayed draw term loan to the mountain corporation ( the mountain ) with a total cost basis of $ 21.7
| 51 at march 31 , 2019 , certain of our loans to b-dry , llc ( b-dry ) , meridian rack & pinion , inc. ( meridian ) , the mountain , psi molded plastics , inc. ( psi molded ) , and sog were on non-accrual status , with an aggregate debt cost basis of $ 68.3 million . at march 31 , 2018 , certain of our loans to two portfolio companies , alloy die casting ( adc ) and tread , were on non-accrual status , with an aggregate debt cost basis of $ 15.6 million . dividend , success fee , and other income for the year ended march 31 , 2019 increased 5.0 % from the prior year . during the year ended march 31 , 2019 , dividend , success fee , and other income primarily consisted of $ 3.9 million of dividend income and $ 6.1 million of success fee income . during the year ended march 31 , 2018 , dividend , success fee , and other income primarily consisted of $ 4.2 million of dividend income and $ 5.3 million of success fee income . the following table lists the fair value and investment income for our five largest portfolio company investments , at fair value , as of the end and during the respective fiscal years : replace_table_token_14_th ( a ) investment exited subsequent to march 31 , 2018 . ( b ) new investment during the applicable year . expenses total expenses , net of any non-contractual , unconditional , and irrevocable credits from the adviser , increased 43.2 % for the year ended march 31 , 2019 , as compared to the prior year , primarily due to an increase in the capital gains-based incentive fee , the base management fee , interest and dividend expense , and other expenses . in accordance with gaap , we recorded a capital gains-based incentive fee of $ 17.8 million and $ 4.4 million during the year ended march 31 , 2019 and march 31 , 2018 , respectively , which were not contractually due under the terms of the advisory agreement . the capital gains-based incentive fee was a result of the net impact of net realized gains ( losses ) and net unrealized
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during 2012 we completed four securitizations of approximately $ 603.5 million in contracts , including $ 58.2 million in contracts that were repurchased from 2006 and 2007 securitizations in 2012. in 2013 we completed four securitizations of approximately $ 778.0 million in contracts . since 2011 , all of our securitizations have been structured as secured financings . when structured to be treated as a sale for accounting purposes , the assets and liabilities of the special-purpose subsidiary are not consolidated with us . accordingly , the transaction removes the sold automobile contracts from our consolidated balance sheet , the related debt does not appear as our debt , and our consolidated balance sheet shows , as an asset , a retained residual interest in the sold automobile contracts . the residual interest represents the discounted value of what we expect will be the excess of future collections on the automobile contracts over principal and interest due on the asset-backed securities . that residual interest appears on our consolidated balance sheet as `` residual interest in securitizations , `` and the determination of its value is dependent on our estimates of the future performance of the sold automobile contracts . of our managed portfolio outstanding at december 31 , 2013 , only our september 2010 securitization was structured to be treated as a sale for accounting purposes . credit risk retained whether a sale of automobile contracts in connection with a securitization or warehouse credit facility is treated as a secured financing or as a sale for financial accounting purposes , the related special-purpose subsidiary may be unable to release excess cash to us if the credit performance of the related automobile contracts falls short of pre-determined standards . such releases represent a material portion of the cash that we use to fund our operations . an unexpected deterioration in the performance of such automobile contracts could therefore have a material adverse effect on both our liquidity and our results of operations , regardless of whether such automobile contracts are treated for financial accounting purposes as having been sold or as having been financed . for estimation of the magnitude of such risk , it may be appropriate to look to the size of our `` managed portfolio , `` which represents both financed and sold automobile contracts as to which such credit risk is retained . our managed portfolio as of december 31 , 2013 was approximately $ 1,231.4 million , which includes a third party servicing portfolio of $ 4.9 million on which we earn only servicing fees and have no credit risk . critical accounting policies we believe that our accounting policies related to ( a ) allowance for finance credit losses , ( b ) amortization of deferred originations costs and acquisition fees , ( c ) term securitizations , ( d ) finance receivables and related debt measured at fair value ( e ) accrual for contingent liabilities and ( f ) income taxes are the most critical to understanding and evaluating our reported financial results . such policies are described below . 33 allowance for finance credit losses in order to estimate an appropriate allowance for losses incurred on finance receivables , we use a loss allowance methodology commonly referred to as `` static pooling , `` which stratifies our finance receivable portfolio into separately identified pools based on the period of origination . using analytical and formula driven techniques , we estimate an allowance for finance credit losses , which we believe is adequate for probable incurred credit losses that can be reasonably estimated in our portfolio of automobile contracts . for each monthly pool of contracts that we purchase , we begin establishing the allowance in the month of acquisition and increase it over the subsequent 11 months , through a provision for credit losses charged to our consolidated statement of operations . net losses incurred on finance receivables are charged to the allowance . we evaluate the adequacy of the allowance by examining current delinquencies , the characteristics of the portfolio , prospective liquidation values of the underlying collateral and general economic and market conditions . as circumstances change , our level of provisioning and or allowance may change as well . broad economic factors such as recession and significant changes in unemployment levels influence the credit performance of our portfolio , as does the weighted average age of the receivables at any given time . our internal credit performance data consistently show that new receivables have lower levels of delinquency and losses early in their lives , with delinquencies increasing throughout their lives and losses gradually increasing to a peak between 36 and 42 months , after which they gradually decrease . the historical weighted average seasoning of our total owned portfolio excluding fireside , is summarized in the table below : replace_table_token_20_th the credit performance of our portfolio is also significantly influenced by our underwriting guidelines and credit criteria we use when evaluating contracts for purchase from dealers . we regularly evaluate our portfolio credit performance and modify our purchase criteria to maximize the credit performance of our portfolio , while maintaining competitive programs and levels of service for our dealers . amortization of deferred originations costs and acquisition fees upon purchase of a contract from a dealer , we generally either charge or advance the dealer an acquisition fee . in addition , we incur certain direct costs associated with originations of our contracts . all such acquisition fees and direct costs are applied to the carrying value of finance receivables and are accreted into earnings as an adjustment to the yield over the estimated life of the contract using the interest method . term securitizations our term securitization structure has generally been as follows : we sell automobile contracts we acquire to a wholly-owned special purpose subsidiary , which has been established for the limited purpose of buying and reselling our automobile contracts . the special-purpose subsidiary then transfers the same automobile contracts to another entity , typically a statutory trust . story_separator_special_tag the trust issues interest-bearing asset-backed securities , in a principal amount equal to or less than the aggregate principal balance of the automobile contracts . we typically sell these automobile contracts to the trust at face value and without recourse , except that representations and warranties similar to those provided by the dealer to us are provided by us to the trust . one or more investors purchase the asset-backed securities issued by the trust ; the proceeds from the sale of the asset-backed securities are then used to purchase the automobile contracts from us . we may retain or sell subordinated asset-backed securities issued by the trust or by a related entity . through 2008 , we generally purchased external credit enhancement for most of our term securitizations in the form of a financial guaranty insurance policy , guaranteeing timely payment of interest and ultimate payment of principal on the senior asset-backed securities , from an insurance company . however , in our 12 most recent securitizations since 2010 , we have not purchased financial guaranty insurance policies and do not expect to do so in the near future . 34 we structure our securitizations to include internal credit enhancement for the benefit the investors ( i ) in the form of an initial cash deposit to an account ( `` spread account `` ) held by the trust , ( ii ) in the form of overcollateralization of the senior asset-backed securities , where the principal balance of the senior asset-backed securities issued is less than the principal balance of the automobile contracts , ( iii ) in the form of subordinated asset-backed securities , or ( iv ) some combination of such internal credit enhancements . the agreements governing the securitization transactions require that the initial level of internal credit enhancement be supplemented by a portion of collections from the automobile contracts until the level of internal credit enhancement reaches specified levels , which are then maintained . the specified levels are generally computed as a percentage of the principal amount remaining unpaid under the related automobile contracts . the specified levels at which the internal credit enhancement is to be maintained will vary depending on the performance of the portfolios of automobile contracts held by the trusts and on other conditions , and may also be varied by agreement among us , our special purpose subsidiary , the insurance company , if any , and the trustee . such levels have increased and decreased from time to time based on performance of the various portfolios , and have also varied from one transaction to another . the agreements governing the securitizations generally grant us the option to repurchase the sold automobile contracts from the trust when the aggregate outstanding balance of the automobile contracts has amortized to a specified percentage of the initial aggregate balance . our september 2008 securitization and the subsequent re-securitization of the remaining receivables from such transaction in september 2010 were each in substance sales of the underlying receivables , and have been treated as sales for financial accounting purposes . they differ from those treated as secured financings in that the trust to which our special-purpose subsidiaries sold the automobile contracts met the definition of a `` qualified special-purpose entity '' under statement of financial accounting standards no . 140 ( asc 860 10 65-2 ) . as a result , assets and liabilities of those trusts are not consolidated into our consolidated balance sheet . historically , our warehouse credit facility structures were similar to the above , except that ( i ) our special-purpose subsidiaries that purchased the automobile contracts pledged the automobile contracts to secure promissory notes that they issued , ( ii ) no increase in the required amount of internal credit enhancement was contemplated , and ( iii ) we did not purchase financial guaranty insurance . since october 2009 , we have established new funding facilities and gradually increased our contract purchases . more recently , we increased our short-term contract financing resources by $ 200 million by entering into agreements for a $ 100 million credit facility in december 2010 and for another $ 100 million credit facility in february 2011. in may 2012 , the revolving period of the february 2011 facility expired and we entered into a new $ 100 million credit facility with a different lender . in march 2013 , the december 2012 facility was amended to extend the revolving period to march 2015 and also to include an amortization period through march 2017 for any receivables pledged to the facility at the end of the revolving period . in june 2013 , the may 2012 facility was amended to extend the revolving period to june 2015 and also to include an amortization period through june 2016 for any receivables pledged to the facility at the end of the revolving period . our current maximum revolving warehouse financing capacity is $ 200 million . upon each transfer of automobile contracts in a transaction structured as a secured financing for financial accounting purposes , whether a term securitization or a warehouse financing , we retain on our consolidated balance sheet the related automobile contracts as assets and record the asset-backed notes or loans issued in the transaction as indebtedness . under the september 2008 and september 2010 securitizations , and other term securitizations completed prior to july 2003 that were structured as sales for financial accounting purposes , we removed from our consolidated balance sheet the automobile contracts sold and added to our consolidated balance sheet ( i ) the cash received , if any , and ( ii ) the estimated fair value of the ownership interest that we retained in the automobile contracts sold in the transaction .
| the primary reason for the increase in interest income is the increase in finance receivables held by consolidated subsidiaries , which increased from $ 868.7 million at december 31 , 2012 to $ 1,222.5 million at december 31 , 2013. the table below shows the average balances of our portfolio held by consolidated subsidiaries for the year ended december 31 , 2013 and 2012 : replace_table_token_22_th servicing fees totaling $ 3.1 in the year ended december 31 , 2013 increased $ 788,000 , or 34.2 % , from $ 2.3 million in the prior year . we earn base servicing fees on three portfolios that are decreasing in size as we receive customer payments and , consequently , base servicing fees are decreasing also . on one of those portfolios , however , we recently began earning an incentive servicing fee . such incentive servicing fee was $ 1.6 million for the year ended december 31 , 2013 and more than offset the decrease of $ 600,000 in base servicing fees . we did not earn any incentive servicing fee in the prior year . as of december 31 , 2013 and 2012 , our managed portfolio owned by consolidated vs. non-consolidated subsidiaries and other third parties was as follows : replace_table_token_23_th ( 1 ) contractual balances . ( 2 ) percentages may not add up to 100 % due to rounding . 39 at december 31 , 2013 , we were generating income and fees on a managed portfolio with an outstanding principal balance of $ 1,231.4 million ( this amount includes $ 4.0 million of automobile contracts on which we earn servicing fees and own a residual interest and also includes another $ 4.9 million of automobile contracts on which we earn base and incentive servicing fees ) , compared to a managed portfolio with an outstanding principal balance of $ 897.6 million as of december 31 , 2012. at december 31 , 2013 and 2012 , the managed portfolio composition was as follows : replace_table_token_24_th ( 1 ) contractual balances . ( 2 ) percentages may not add up to 100 % due to rounding . other income increased by $ 816,000 , or 8.5 % , to $ 10.4 million in the year ended december 31 , 2013 from $ 9.6 million during the prior year . the increase is comprised of a net increase of $ 415,000 in the fair value of the receivables and debt associated with the fireside portfolio acquisition , an increase of $ 558,000 in fees associated with direct mail and other related products
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we have continued to make significant expenditures and investments , including in personnel-related costs , sales and marketing , infrastructure and operations , and have incurred net losses in each period since our inception , including net losses of $ 61.1 million , $ 67.5 million , and $ 50.1 million for the years ended march 31 , 2017 , 2016 , and 2015 , respectively . our accumulated deficit as of march 31 , 2017 was $ 260.2 million . internationally , we currently offer our products in europe , middle east , and africa , or emea ; asia-pacific , or apac ; and other non-u.s. locations , as determined based on the billing address of our customers , and our revenue from those regions constituted 19 % , 8 % , and 6 % , respectively , of our revenue for the year ended march 31 , 2017 , 19 % , 8 % , and 6 % , respectively , of our revenue for the year ended march 31 , 2016 , and 19 % , 8 % , and 7 % , respectively , of our revenue for the year ended march 31 , 2015 . we believe there is further opportunity to increase our international revenue overall and as a proportion of our revenue , and we are increasingly investing in our international operations and intend to invest in further expanding our footprint in international markets . our employee headcount has increased to 1,088 employees as of march 31 , 2017 from 936 as of march 31 , 2016 and we plan to continue to invest aggressively in the growth of our business to take advantage of our market opportunity . for example , we intend to continue to increase our investment in sales and marketing , as we further expand our sales teams , increase our marketing activities , and grow our international operations , particularly as we increase our sales to larger organizations . in addition , we plan to continue to invest in our research and development organization to enhance and further develop our products and platform capabilities . while these areas represent significant opportunities for us , we also face significant risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results . we are continuing to incur expenses in the near term as we continue to invest in the growth of our sales and expansion of paid business accounts . however , we may not realize any long-term benefit from these investments in the growth of our business . in addition , any investments that we make in sales and marketing or other areas will occur in advance of our experiencing any benefits from such investments , so it may be difficult for us to determine if we are efficiently allocating our resources in these areas . as a result , we have never achieved profitability and we do not expect to be profitable for the foreseeable future . further , our reported revenue , operating results , and cash flows for a given period may not be indicative of future results due to our limited operating history and fluctuations in the number of new employees , the rate of our expansion , the timing of expenses we incur to grow our business and operations , levels of competition , and market demand for our products . factors affecting our performance market adoption of our products . we are defining a new category of software , which we refer to as digital intelligence . our success is dependent on the market adoption of this emerging category of software , which may not yet be well understood by the market . for the foreseeable future , we expect that our revenue growth will be primarily driven by the pace of adoption and penetration of our products and we will incur significant expenses associated with educating the market about the benefits of our products . increasing the number of paid business accounts . our future growth is dependent on our ability to increase the number of accounts that pay us to use our products . many users experience our products with a free trial after which they have the option to purchase one or more of our subscription plans . we believe that we have a significant competitive advantage as our users experience the ease of installation and the full set of features that our products deliver during the free trial period . retention and expansion within paid business accounts . a key factor in our success is the retention and expansion of our subscription agreements with our existing customers . in order for us to continue to grow our business , it is important to 36 generate additional revenue from our existing customers , and we do this in several ways . as we improve our existing products and platform capabilities and introduce new products , we believe that the demand for our products will generally grow . we also believe that there is a significant opportunity for us to increase the number of subscriptions we sell to our current customers as they become more familiar with our products and adopt our products to address additional business use cases . investment in sales and marketing . we expect to continue to invest aggressively in sales and marketing to drive additional revenue . any investments that we make in sales and marketing will occur in advance of our experiencing any benefits from such investments , so it may be difficult for us to determine if we are efficiently allocating our resources . as we continue to focus sales and marketing investments more heavily towards large organizations , this may require more of our resources . in addition , we expect our sales cycle to be longer and less predictable with respect to larger customers , which may delay realization of future sales . story_separator_special_tag we also intend to increase our sales and marketing investment in international markets , such as europe , and those markets may take longer and be more costly to develop than the u.s. market . key operating metrics we review the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans , and make key strategic decisions : number of paid business accounts , number of paid business accounts with annual recurring revenue over $ 5,000 , and number of paid business accounts with annual recurring revenue over $ 100,000 . we believe that our ability to increase our number of paid business accounts is one indicator of our market penetration , the growth of our business and our potential future prospects . we define the number of paid business accounts at the end of any particular period as the number of accounts at the end of the period as identified by a unique account identifier for which we have recognized revenue on the last day of the period indicated . a single organization or customer may have multiple paid business accounts for separate divisions , segments , or subsidiaries . we expect the rate at which we add paid business accounts to decrease over time as we scale our business , but it may fluctuate from period to period as a result of the introduction of alternative pricing options for our products or other factors . the following table summarizes the number of paid business accounts at each quarter end presented : replace_table_token_6_th although presented with specificity in the table above , we anticipate that we will round the number of paid business accounts down to the nearest hundred in future presentations . we believe a rounded number , while still providing investors with a significant understanding of the direction of our business with respect to the factors specified above , reduces the chance that an investor could place undue importance on small changes in the number from quarter to quarter when assessing the success of our business . for example , the increase in paid business accounts in a given quarter may be moderated as a result of a successful expansion within a given enterprise if the customer had multiple operating divisions that are consolidated into a single paid business account . these consolidations could become more prevalent if our enterprise customers centralize account management . as a subset of our paid business accounts metric , we have in previous presentations provided the number of paid business accounts with annual recurring revenue over $ 5,000 to investors as an indicator of our business as it relates to the acquisition of larger accounts within our overall customer base , including our market penetration of larger mid-market and enterprise customers , as well as deeper penetration into our existing customer base . for this purpose , we define annual recurring revenue as the revenue we would contractually expect to receive from those customers over the following 12 months , without any increase or reduction in any of their subscriptions . the following table summarizes the number of paid business accounts with annual recurring revenue over $ 5,000 at each quarter end presented : replace_table_token_7_th we had 6,485 paid business accounts with annual recurring revenue over $ 5,000 as of march 31 , 2017 , which was a 10.2 % increase compared to 5,887 paid business accounts with annual recurring revenue over $ 5,000 as of march 31 , 2016 . since the introduction of this additional metric , our annualized revenue per average paid business account has greatly expanded , in significant part due to increased penetration of our existing customer base with expanded product offerings and usage as well as our success in acquiring an increased number of larger mid-market and enterprise paid business accounts . as a 37 result , we now believe that $ 100,000 would be a more appropriate threshold for annual recurring revenue to show our success in acquiring and expanding our reach with larger mid-market and enterprise customers . therefore , we intend to use this increased threshold in future presentations instead of the $ 5,000 threshold . the following table summarizes the number of paid business accounts with annual recurring revenue over $ 100,000 at each quarter end presented : replace_table_token_8_th we had 517 paid business accounts with annual recurring revenue over $ 100,000 as of march 31 , 2017 , which was a 40.9 % increase compared to 367 paid business accounts with annual recurring revenue over $ 100,000 as of march 31 , 2016 . we believe this increase reflects our continued sales and marketing focus on larger mid-market and enterprise customers . as with our total paid business accounts and our total paid business accounts with annual recurring revenue over $ 5,000 , we expect the rate at which we add paid business accounts with annual recurring revenue over $ 100,000 to decrease over time as a result of deeper penetration into the enterprise market . percentage of annualized recurring revenue from enterprise paid business accounts . we believe that our ability to increase the percentage of annualized recurring revenue from enterprise paid business accounts relative to our overall business is an important indicator of our success with respect to our focus in recent periods to improve our market penetration with enterprise companies . we define an enterprise paid business account as a paid business account that we measure to have over 1,000 employees . the following table summarizes the percentages of annualized recurring revenue from enterprise paid business accounts at each quarter end presented : replace_table_token_9_th our percentage of annualized recurring revenue from enterprise paid business accounts was 46 % as of march 31 , 2017 compared to 42 % as of march 31 , 2016 . we expect the percentage of annualized recurring revenue from enterprise paid business accounts to increase over time .
| the number of paid business accounts increased to 13,518 at march 31 , 2016 from 11,910 at march 31 , 2015. our revenue from emea increased $ 13.6 million , or 64 % , in the fiscal year ended march 31 , 2016 compared to the fiscal year ended march 31 , 2015 , and our revenue from apac increased $ 5.4 million , or 62 % , in the fiscal year ended march 31 , 2016 compared to the fiscal year ended march 31 , 2015 , as a result of an increase in the number of paid business accounts and an increase in product adoption by existing paid business accounts located in these geographic regions . cost of revenue replace_table_token_16_th cost of revenue increased $ 12.8 million , or 34 % , in the fiscal year ended march 31 , 2017 compared to the fiscal year ended march 31 , 2016 . the increase was primarily a result of an increase in personnel-related costs and hosting-related costs necessary to support our growth , as well as an increase in payment processing costs due to the increase in revenue . personnel-related costs increased by $ 6.5 million , driven by higher headcount , and hosting-related costs and payment processing fees increased by $ 3.1 million , primarily due to increased operating costs to support revenue growth . depreciation expense and amortization expense increased by $ 2.7 million , and software costs and other miscellaneous expenses increased by $ 0.5 million . cost of revenue increased $ 15.4 million , or 71 % , in the fiscal year ended march 31 , 2016 compared to the fiscal year ended march 31 , 2015. the increase was primarily a result of an increase in personnel-related costs and hosting-related costs necessary to support our growth , as well as an increase in payment processing costs due to the increase in revenue . personnel-related costs increased by $ 5.3 million , driven by higher headcount , and hosting-related costs , payment processing fees ,
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average earning asset growth included a $ 4.4 billion , or 6 % , increase in average loans and leases and a $ 0.4 billion , or 2 % , decrease in average securities . the nim expansion reflected a 35 basis point positive impact from the mix and yield on earning assets and a 10 basis point increase in the benefit from noninterest-bearing funding , partially offset by a 42 basis point increase in funding costs . average earning assets for 2018 increased $ 4.2 billion , or 4 % , from the prior year , reflecting loan growth of $ 4.4 billion , or 6 % , partially offset by decline in average securities . average c & i loans and leases increased $ 1.1 billion , or 4 % , reflecting broad-based growth . residential mortgages increased $ 1.7 billion , or 20 % , driven by increase in lending officers and expansion into the chicago market . average rv and marine finance loans increased $ 0.7 billion , or 32 % , reflecting the success of the expansion of the business over the past two years while maintaining our commitment to super prime originations . average automobile loans increased $ 0.8 billion , or 7 % , driven by originations consistent with the current market dynamics and our commitment to high quality borrowers , while optimizing yield and production in a rising rate environment over the past year . average securities decreased $ 0.4 billion , or 2 % . average total deposits for 2018 increased $ 3.2 billion , or 4 % , from the prior year , while average total core deposits increased $ 3.6 billion , or 5 % . average core cds increased $ 2.1 billion , or 98 % , reflecting consumer growth initiatives primarily in the first three quarters of 2018. average money market deposits increased $ 1.7 billion , or 9 % , reflecting growth in both commercial and consumer deposits . average total interest-bearing liabilities increased $ 4.5 billion , or 7 % , from the prior year as deposits shifted from non-interest bearing to interest bearing with the increase in rates . 2017 versus 2016 fte net interest income for 2017 increased $ 640 million , or 27 % , from 2016. this reflected the impact of 21 % average earning asset growth , a 14 basis point increase in the nim to 3.30 % , partially offset by 24 % average interest-bearing liability growth . average earning asset growth included a $ 10.4 billion , or 18 % , increase in average loans and leases and a $ 6.1 billion , or 34 % , increase in average securities . the nim expansion reflected a 27 basis point positive impact from the mix and yield on earning assets and a three basis point increase in the benefit from noninterest-bearing funding , partially offset by a 16 basis point increase in funding costs . average earning assets for 2017 increased $ 16.1 billion , or 21 % , from the prior year , primarily reflecting the full year impact of the firstmerit acquisition . average loans and leases increased $ 10.4 billion , or 18 % , including a $ 4.1 billion , or 17 % , increase in average c & i loans and leases primarily driven by an increase in commercial middle market and specialty banking , a $ 1.5 billion , or 23 % , increase in residential mortgage loans reflecting the benefit of the ongoing expansion of the home lending business , a $ 1.5 billion or 211 % , increase in rv and marine finance loans reflecting the success of the expansion of the acquired business into 17 new states over the past year and a $ 1.0 billion , or 9 % , increase in automobile loans reflecting continued strength in new and used automobile originations across our 23-state auto finance lending footprint . average securities increased $ 6.1 billion , or 34 % , which included $ 2.9 billion of direct purchase municipal instruments in our commercial banking segment , up from $ 2.1 billion in the year-ago period . average total deposits for 2017 increased $ 13.5 billion , or 21 % , from the prior year , while average total core deposits increased $ 13.5 billion , or 23 % , including a $ 9.2 billion , or 31 % , increase in average demand deposits and a $ 3.7 billion , or 47 % , increase in average savings and other domestic deposits . average total interest-bearing liabilities increased $ 13.0 billion , or 24 % , from the prior year . these increases primarily reflect the full year impact of the firstmerit acquisition . average long-term borrowings increased $ 0.8 billion , or 10 % , reflecting the issuance of $ 1.7 billion and maturity of $ 0.8 billion of senior debt during 2017. provision for credit losses ( this section should be read in conjunction with the credit risk section . ) the provision for credit losses is the expense necessary to maintain the alll and the aulc at levels appropriate to absorb our estimate of credit losses inherent in the loan and lease portfolio and the portfolio of unfunded loan commitments and letters-of-credit . the provision for credit losses in 2018 was $ 235 million , up $ 34 million , or 17 % , from 2017 . the increase in provision expense over the prior year is primarily attributed to loan balance growth across the portfolio . the provision for credit losses in 2017 was $ 201 million , up $ 10 million , or 5 % , from 2016 . the increase in provision expense over the prior year was primarily the result of loan growth . 45 noninterest income the following table reflects noninterest income for the past three years : replace_table_token_13_th 2018 versus 2017 noninterest income for 2018 increased $ 14 million , or 1 % , from the prior year . story_separator_special_tag card and payment processing income increased $ 18 million , or 9 % , due to higher check card interchange income and underlying customer growth . trust and investment management services increased $ 15 million , or 10 % , primarily reflecting increased sales production and year over year market growth . capital markets fees increased $ 15 million , or 20 % , reflecting increased sales of interest rate , foreign exchange and commodity derivatives as well as fees as a result of the acquisition of hse . service charges on deposit accounts increased $ 11 million , or 3 % , due to an increase in both personal and corporate service charges . these increases were partially offset by a $ 23 million , or 18 % decrease in mortgage banking income , due to lower margin on loans sold , $ 17 million , or 425 % , increase in securities losses reflecting portfolio repositioning completed in the 2018 fourth quarter and a $ 5 million , or 3 % , decrease in other income primarily reflecting an unfavorable visa class b derivative fair value adjustment . 2017 versus 2016 noninterest income for 2017 increased $ 157 million , or 14 % , from the prior year , reflecting the full year impact of the firstmerit acquisition . card and payment processing income increased $ 37 million , or 22 % , due to higher credit and debit card related income and underlying customer growth . trust and investment management services increased $ 33 million , or 27 % , and service charges on deposit accounts increased $ 29 million , or 9 % , reflecting market growth and ongoing customer acquisition . other income increased $ 28 million , or 18 % , primarily reflecting increases in servicing income , mezzanine lending , loan syndication fees and commitment fees . capital markets fees increased $ 16 million , or 27 % , reflecting our ongoing strategic focus on expanding the business . bank owned life insurance increased $ 9 million , or 16 % . gain on sale of loans increased $ 9 million , or 19 % , as a result of continued expansion of our sba lending business during 2017 which more than offset gains in the prior year from our balance sheet optimization strategy and the auto securitization completed in the 2016 fourth quarter . these increases were partially offset by a $ 4 million decline in securities gains and a $ 3 million decline in insurance income . 46 replace_table_token_14_th replace_table_token_15_th replace_table_token_16_th 47 2018 versus 2017 reported noninterest expense for 2018 decreased $ 67 million , or 2 % , from the prior year , primarily reflecting the $ 154 million of acquisition-related significant items in the year-ago period , offset by branch and facility consolidation-related expenses and personnel costs . net occupancy expense decreased $ 28 million , or 13 % , primarily reflecting $ 52 million of prior year acquisition-related expense , lower occupancy related expenses and reserves , partially offset by $ 28 million of branch and facility consolidation-related expense . outside data processing and other services decreased $ 19 million , or 6 % , primarily reflecting $ 24 million of acquisition-related expense in the year-ago period , partially offset by higher technology investment costs . deposit and other insurance expense decreased $ 15 million , or 19 % , primarily due to the discontinuation of the fdic surcharge in the 2018 fourth quarter . other noninterest expense decreased $ 14 million , or 6 % , reflecting $ 9 million of acquisition-related expense in the year-ago period , as well as declines in franchise and other taxes . professional services decreased $ 9 million , or 13 % , primarily reflecting $ 10 million of acquisition-related expense in the year-ago period . equipment decreased $ 7 million , or 4 % , primarily due to $ 16 million in acquisition-related costs in the year-ago period , partially offset by $ 7 million of branch and facility consolidation-related expense in the 2018 fourth quarter . marketing decreased $ 7 million , or 12 % , driven by a decrease in promotional expense , partially offset by an increase in advertising . partially offsetting these decreases , personnel costs increased $ 35 million , or 2 % , primarily reflecting higher benefit costs and merit increases . 2017 versus 2016 reported noninterest expense for 2017 increased $ 306 million , or 13 % , from the prior year , reflecting the full year impact of the first merit acquisition . personnel costs increased $ 175 million , or 13 % , primarily reflecting the full year impact of the addition of colleagues from firstmerit . net occupancy expense increased $ 59 million , or 39 % , primarily reflecting $ 52 million of acquisition-related expense . other expense increased $ 47 million , or 26 % , reflecting the full impact of firstmerit . amortization of intangibles increased $ 26 million , or 87 % , reflecting the full year impact of amortizing firstmerit related intangibles . deposit and other insurance expense increased $ 24 million , or 44 % , reflecting the increase in the assessment base . partially offsetting these increases , professional services decreased $ 36 million , or 34 % reflecting a reduction in legal and consultation fees attributable to acquisition-related expense . provision for income taxes ( this section should be read in conjunction with note 1 and note 16 of the notes to consolidated financial statements . ) 2018 versus 2017 the provision for income taxes was $ 235 million for 2018 compared with a provision for income taxes of $ 208 million in 2017 . both years included the benefits from tax-exempt income , tax-advantaged investments , general business credits , investments in qualified affordable housing projects , excess tax deductions for stock-based compensation , and capital losses .
| capital markets fees increased $ 15 million , or 20 % , reflecting increased sales of interest rate , foreign exchange and commodity derivatives as well as fees as a result of the acquisition of hutchinson , shockey , erley & co. ( hse ) . service charges on deposit accounts increased $ 11 million , or 3 % , due to an increase in both personal and corporate service charges . these increases were partially offset by a $ 23 million , or 18 % decrease in mortgage banking income , due to lower margin on loans sold , $ 17 million , or 425 % , increase in securities losses reflecting portfolio repositioning completed in the 2018 fourth quarter and a $ 5 million , or 3 % , decrease in other income primarily reflecting an unfavorable visa class b derivative fair value adjustment . noninterest expense was $ 2.6 billion , down $ 67 million , or 2 % , from the prior year . reported noninterest expense was impacted by firstmerit acquisition-related expenses totaling $ 154 million , offset by branch and facility consolidation-related expenses and personnel costs . net occupancy expense decreased $ 28 million , or 13 % , primarily reflecting $ 52 million of prior year acquisition-related expense , lower occupancy related expenses and reserves , partially offset by $ 28 million of branch and facility consolidation-related expense . outside data processing and other services decreased $ 19 million , or 6 % , primarily reflecting $ 24 million of acquisition-related expense in the year-ago period , partially offset by higher technology investment costs . deposit and other insurance expense decreased $ 15 million , or 19 % , primarily due to the discontinuation of the fdic surcharge in the 2018 fourth quarter . other noninterest expense decreased $ 14 million , or 6 % , reflecting $ 9 million of acquisition-related expense in the year-ago period , as well as declines in franchise and other taxes . professional services decreased $ 9 million , or 13 % , primarily reflecting $ 10 million of acquisition-related expense in the year-ago period . equipment decreased $ 7 million
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sg & a of $ 3.37 billion in 2016 increased by $ 93 million or approximately 3 % from 2015. this represents 22.0 % of net sales compared to 21.4 % of net sales in 2015. the increase in sg & a expenses from the prior year reflect the year one costs associated with our 19 acquisitions , as well as the impact of higher cost , and higher gross margin , models at select acquisitions . the increase in sg & a expenses as a percentage of net sales from the prior year reflect the loss of leverage due to negative comparable sales in our u.s. automotive , industrial , office and electrical/electronic businesses . to offset these increases , we implemented enhanced cost control measures and are intensely focused on assessing the optimal cost structure in our businesses . depreciation and amortization expense was $ 147 million in 2016 , an increase of approximately $ 6 million or 4 % from 2015. the provision for doubtful accounts was $ 12 million in 2016 , a decrease of $ 1 million from 2015. we believe the company is adequately reserved for bad debts at december 31 , 2016. sg & a of $ 3.28 billion in 2015 decreased by $ 37 million or approximately 1 % from 2014. this represents 21.4 % of net sales , and compares favorably to 21.6 % of net sales in 2014. the decrease in sg & a expenses as a percentage of net sales from the prior year reflect the positive impact of our cost control measures and our management teams ' focus on properly managing the company 's expenses . depreciation and amortization expense was $ 142 million in 2015 , a decrease of approximately $ 6 million or 4 % from 2014. the provision for doubtful accounts was $ 12 million in 2015 , up from $ 7 million in 2014. total share-based compensation expense for the years ended december 31 , 2016 , 2015 and 2014 was $ 19.7 million , $ 17.7 million and $ 16.2 million , respectively . refer to note 5 of the consolidated financial statements for further information regarding share-based compensation . non-operating expenses and income non-operating expenses consist primarily of interest . interest expense was $ 21 million in 2016 , $ 22 million in 2015 and $ 25 million in 2014. the $ 1 million decrease in interest expense in 2016 reflects the more favorable interest rate on certain debt , which was renewed in november 2016. this was partially offset by new long-term debt , which commenced in july 2016. the $ 3 million decrease in interest expense in 2015 reflects the impact of lower outstanding debt levels during the year relative to 2014. in “ other ” , the net benefit of interest income , equity method investment income , investment dividends and noncontrolling interests in 2016 was $ 26 million , a $ 5 million increase from the prior year due to higher interest income earned in 2016 relative to 2015. these items were $ 21 million in 2015 , an increase from $ 19 million in 2014. the $ 2 million increase from the prior year was due to higher interest income earned in 2015 relative to 2014. income before income taxes income before income taxes was $ 1.1 billion in 2016 , down 4 % from 2015. as a percentage of net sales , income before income taxes was 7.0 % in 2016 compared to 7.4 % in 2015. in 2015 , income before income taxes of $ 1.1 billion was up slightly from 2014 and as a percentage of net sales was 7.4 % compared to 7.3 % in 2014. automotive group automotive income before income taxes as a percentage of net sales , which we refer to as operating margin , decreased to 8.8 % in 2016 from 9.1 % in 2015. this group 's loss of expense leverage due to weak comparable sales in the u.s. was the primary factor in automotive 's decline in operating profit during the year . looking forward , planned initiatives to grow sales , 18 index to financial statements including store footprint expansion , expand gross margins and control costs are intended to improve its operating margin in the years ahead . automotive 's operating margin of 9.1 % in 2015 was up from 8.7 % in 2014. the change in gross margin and operating costs as a percentage of net sales positively impacted operating profit during the year . industrial group industrial 's operating margin was 7.3 % in 2016 , which is unchanged from 2015. the steady operating margin for this group primarily reflects improved gross margins and cost savings associated with initiatives to consolidate locations during 2016. these savings were partially offset by continued pressure on operating expenses associated with the decrease in comparable sales for the year . industrial implemented multiple initiatives to overcome the challenging sales environment and is well positioned to improve their operating margin in 2017. industrial 's operating margin decreased to 7.3 % in 2015 from 7.8 % in 2014 , as the decline in sales for the year resulted in lower volume incentives , which pressured gross margins , and reduced expense leverage relative to the prior year . office group office 's operating margin decreased to 5.9 % in 2016 from 7.3 % in 2015 , primarily due to gross margin pressures associated with lower supplier incentives and the deleveraging of expenses due to comparable sales declines in this group 's core office supplies business . office enters 2017 intensely focused on its initiatives to further diversify its business and drive sales growth , while also driving cost savings . story_separator_special_tag office 's operating margin decreased slightly to 7.3 % in 2015 from 7.4 % in 2014 , primarily related to the deleveraging of expenses due to slower sales growth in the last half of 2015. electrical/electronic group electrical/electronic 's operating margin decreased to 8.5 % in 2016 from 9.3 % in 2015 , as changes in product mix pressured gross margins and operating expenses were deleveraged due to the comparable sales decrease for the year . these items were partially offset by cost savings initiatives to consolidate locations during 2016. electrical/electronic will continue to focus on its sales initiatives and cost controls to further improve its operating margin in 2017. electrical/electronic 's operating margin increased to 9.3 % in 2015 from 8.8 % in 2014 , primarily due to the positive impact of higher margin acquisitions , declining copper prices and effective cost management . income taxes the effective income tax rate of 36.0 % in 2016 decreased from 37.2 % in 2015. the decrease in rate primarily reflects the company 's lower mix of u.s. earnings in 2016 , which is taxed at a higher rate relative to our foreign operations . additionally , the more favorable retirement asset valuation adjustment in 2016 relative to 2015 resulted in the decrease in rate . the effective income tax rate of 37.2 % in 2015 increased from 36.4 % in 2014. the increase in rate primarily reflects the company 's higher mix of u.s. earnings in 2015 , which is taxed at a higher rate relative to our foreign operations . to a lesser extent , the less favorable retirement asset valuation adjustment in 2015 relative to 2014 impacted the increase in rate . net income net income was $ 687 million in 2016 , a decrease of 3 % from $ 706 million in 2015. on a per share diluted basis , net income was $ 4.59 in 2016 , down 1 % compared to $ 4.63 in 2015. net income was 4.5 % of net sales in 2016 compared to 4.6 % of net sales in 2015. net income was $ 706 million in 2015 , a decrease of 1 % from $ 711 million in 2014. on a per share diluted basis , net income was $ 4.63 in 2015 , up slightly compared to $ 4.61 in 2014. net income was 4.6 % of net sales in each of 2015 and 2014. financial condition our cash balance of $ 243 million at december 31 , 2016 compares to our cash balance of $ 212 million at december 31 , 2015 , as discussed further below . the company 's accounts receivable balance at december 31 , 2016 increased by approximately 6 % from the prior year . this compares to the company 's 3 % sales increase for the fourth quarter of 2016 , and we are satisfied with the quality and collectability of our accounts receivable . inventory at december 31 , 2016 increased by 19 index to financial statements approximately 7 % from december 31 , 2015 , primarily due to acquisitions , and accounts payable increased $ 260 million or approximately 9 % from december 31 , 2015 due primarily to improved payment terms with certain suppliers . liquidity and capital resources the company 's sources of capital consist primarily of cash flows from operations , supplemented as necessary by private issuances of debt and bank borrowings . we have $ 875 million of total debt outstanding at december 31 , 2016 , of which $ 50 million matures in july 2021 , $ 250 million matures in december 2023 and $ 250 million matures in november 2026. in addition , the company has an unsecured revolving line of credit with a consortium of financial institutions for $ 1.2 billion , of which approximately $ 325 million and $ 125 million were outstanding under the line of credit at december 31 , 2016 and 2015 , respectively . currently , we believe that our cash on hand and available short-term and long-term sources of capital are sufficient to fund the company 's operations , including working capital requirements , scheduled debt payments , interest payments , capital expenditures , benefit plan contributions , income tax obligations , dividends , share repurchases and contemplated acquisitions . the ratio of current assets to current liabilities was 1.4 to 1 at december 31 , 2016 and 2015 , and our liquidity position remains solid . the company 's total debt outstanding at december 31 , 2016 increased by $ 250 million or 40 % from december 31 , 2015 , due primarily to the 19 acquisitions made in 2016. sources and uses of net cash a summary of the company 's consolidated statements of cash flows is as follows : replace_table_token_7_th net cash provided by operating activities : the company continues to generate cash and in 2016 net cash provided by operating activities totaled $ 946 million . this reflects an 18 % decrease from 2015 , as the collective change in trade accounts receivable , merchandise inventories and trade accounts payable represented a $ 123 million source of cash in 2016 compared to a $ 312 million source of cash in 2015. net cash provided by operating activities was $ 1.2 billion in 2015 , a 47 % increase from 2014 due primarily to the change in trade accounts receivable , merchandise inventories and trade accounts payable , which , collectively , net to a $ 312 million source of cash in 2015 compared to a $ 34 million use of cash in 2014. net cash used in investing activities : net cash flow used in investing activities was $ 594 million in 2016 compared to $ 264 million in 2015 , a 125 % increase .
| automotive sales were negatively impacted by product deflation of 0.7 % , which is included in the comparable sales increase . in 2016 , total automotive revenues were up 2 % in the first quarter , down 1 % in the second quarter , up 1.5 % in the third quarter and up 2 % in the fourth quarter . the underlying fundamentals in the automotive aftermarket , including the overall number and age of the vehicle population as well as the positive increase in miles driven , remain supportive of sustained 16 index to financial statements demand for automotive aftermarket maintenance and supply items . we expect these fundamentals as well as key sales initiatives to drive sales growth for the automotive business in 2017. net sales for the automotive group were $ 8.0 billion in 2015 , a 1 % decrease from 2014. the decrease in sales for the year consists of a positive core sales increase of approximately 3.5 % and a slight benefit from acquisitions . combined , the approximate 4 % growth was offset by a 5 % negative impact of currency associated with our automotive businesses in canada , australasia and mexico . automotive sales were not materially impacted by product inflation . in 2015 , automotive revenues were flat in the first and second quarters and down 2 % in the third and fourth quarters . industrial group net sales for motion industries , our industrial group ( “ industrial ” ) , were $ 4.6 billion in 2016 , basically unchanged from 2015. an approximate 2.6 % decrease in sales volumes and a slight negative impact of currency translation associated with our canadian and mexican operations were partially offset by higher transaction values associated with 0.4 % product inflation and approximately 2 % in sales from acquisitions . industrial revenues were down 2.5 % in the first quarter of 2016 , down 2 % in the second quarter and down 1 % in the third quarter . these quarterly declines were followed by a 4 % sales increase in the fourth quarter . the sequential
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se customers include similar csps , nems , government organizations , large corporate customers and storage-segment customers that are served by our ne segment . our se products and associated services are described below : data center : consisting of our network performance monitoring and security tools . assurance : primarily consisting of our ( a ) mature products ( legacy assurance , legacy wireline , protocol test , video assurance products and ran ) and ( b ) growth products ( xsight , packet portal products , location intelligence ) . optical security and performance products our osp segment leverages its core optical coating technologies and volume manufacturing capability to design , manufacture , and sell products targeting anti-counterfeiting , consumer and industrial , government , healthcare and other markets . our security offerings for the currency market include ovp® and ovmp® . ovp® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents . our technologies are deployed on the banknotes of more than 100 countries today . ovmp is an advanced product version of ovp with the added magnetic property feature . leveraging our expertise in spectral management and our unique high-precision coating capabilities , osp provides a range of products and technologies for the consumer and industrial market , including , for example , 3d sensing optical filters and engineered diffusers tm . osp value-added solutions meet the stringent requirements of commercial and government customers . our products are used in a variety of aerospace and defense applications , including optics for guidance systems , laser eye protection and night vision systems . these products , including coatings and optical filters , are optimized for each specific application . osp serves customers such as , l-3 communications , lockheed martin , seiko epson , sicpa and stmicroelectronics . recently issued accounting pronouncements refer to “ note 2. recently issued accounting pronouncements ” regarding the effect of certain recent accounting pronouncements on our consolidated financial statements . critical accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) , which require management to make judgments , estimates and assumptions that affect the reported amounts of assets and liabilities , net revenue and expenses , and the disclosure of contingent assets and liabilities . our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities . we believe that the accounting estimates employed and the resulting balances are reasonable ; however , actual results may differ from these estimates and such differences may be material . we believe the following critical accounting policies are affected by significant estimates , assumptions and judgments used in the preparation of our consolidated financial statements : 27 revenue recognition in the first quarter of fiscal 2019 , we adopted the revenue standard using the retrospective transition method which requires that we recast each prior period presented . the most significant impact of the revenue standard relates to our accounting for contracts containing software solutions bundled with post-contract support ( “ pcs ” ) and or services where , due to lack of vendor-specific objective evidence ( “ vsoe ” ) of fair value , the software revenue was deferred and recognized ratably over the support or service period . revenue associated with the software under these types of contracts will now be recognized when control of the software is transferred , which is usually at time of billing rather than ratably over the life of the support term . the actual revenue recognition treatment required under the standard will depend on contract-specific terms and in some instances transfer of control and revenue recognition may differ from the time of billing . revenue recognition under the revenue standard for the remainder of our products and services remains substantially unchanged . we derive revenue from a diverse portfolio of network solutions and optical technology products and services , as follows : products : ne and se products include instruments , microprobes and perpetual software licenses that support the development , production , maintenance and optimization of network systems . our osp products include proprietary pigments used for optical security and optical filters used in commercial and government 3d sensing applications . services : we also offer a range of product support and professional services designed to comprehensively address customer requirements . these include repair , calibration , extended warranty , software support , technical assistance , training and consulting services . implementation services provided in conjunction with hardware or software solution projects include sale of the products along with project management , set-up and installation . steps of revenue recognition we account for revenue in accordance with the revenue standard , in which the following five steps are applied to recognize revenue : 1. identify the contract with a customer : generally , we consider customer purchase orders which , in some cases are governed by master sales or other purchase agreements , to be the customer contract . all of the following criteria must be met before we consider an agreement to qualify as a contract with a customer under the revenue standard : ( i ) it must be approved by all parties ; ( ii ) each party 's rights regarding the goods and services to be transferred can be identified ; ( iii ) the payment terms for the goods and services can be identified ; ( iv ) the customer has the ability and intent to pay and collection of substantially all of the consideration is probable ; and , ( v ) the agreement has commercial substance . story_separator_special_tag we exercise reasonable judgment to determine the customer 's ability and intent to pay , which is based upon various factors including the customer 's historical payment experience or credit and financial information and credit risk management measures that we implement . 2. identify the performance obligations in the contract : we assess whether each promised good or service is distinct for the purpose of identifying the various performance obligations in each contract . promised goods and services are considered distinct provided that : ( i ) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer ; and , ( ii ) our promise to transfer the good or service to the customer is separately identifiable or distinct from other promises in the contract . our performance obligations consist of a variety of products and services offerings which include networking equipment ; proprietary pigment , optical filters , proprietary software licenses ; support and maintenance which includes hardware support that extends beyond our standard warranties , software maintenance , installation , professional and implementation services , and training . determining whether products and services are considered distinct performance obligations may require significant judgment . we may enter into contracts that involve a significant level of integration and interdependency between a software license and installation services . judgment may be required to determine whether the software license is considered distinct in the context of the contract and accounted for separately , or not distinct in the context of the contract and accounted for together with the installation service . 3. determine the transaction price : transaction price reflects the amount of consideration to which we expect to be entitled in exchange for transferring goods or services to the customer . our contracts may include terms that could cause variability in the transaction price including rebates , sales returns , market incentives and volume discounts . variable consideration is generally accounted for at the portfolio level and estimated based on historical information . if a contract includes a variable amount , the price adjustments are estimated at contract inception . in both cases , estimates are updated at the end of each reporting period as additional information becomes available . 4. allocate the transaction price to performance obligations in the contract : if the contract contains a single performance obligation , the entire transaction price is allocated to that performance obligation . many of our contracts include multiple 28 performance obligations with a combination of distinct products and services , maintenance and support , professional services and or training . contracts may also include rights or options to acquire future products and or services , which are accounted for as separate performance obligations by us , only if the right or option provides the customer with a material right that it would not receive without entering into the contract . for contracts with multiple performance obligations , we allocate the total transaction value to each distinct performance obligation based on relative standalone selling price ( “ ssp ” ) . judgment is required to determine the ssp for each distinct performance obligation . the best evidence of ssp is the observable price of a good or service when we sell that good or service separately under similar circumstances to similar customers . if a directly observable price is not available , the ssp must be estimated based on multiple factors including , but not limited to , historical pricing practices , internal costs , and profit objectives as well as overall market conditions . 5. recognize revenue when ( or as ) performance obligations are satisfied : revenue is recognized at the point in time control is transferred to the customer . for hardware sales , transfer of control to the customer typically occurs at the point the product is shipped or delivered to the customer 's designated location . for software license sales transfer of control to the customer typically occurs upon shipment , electronic delivery , or when the software is available for download by the customer . for sales of implementation service and solution contracts or in instances where software is sold along with essential installation services , transfer of control occurs and revenue is typically recognized upon customer acceptance . in certain instances , acceptance is deemed to have occurred if all acceptance provisions lapse , or if we have evidence that all acceptance provisions will be , or have been , satisfied . for fixed-price support and extended warranty contracts , or certain software arrangements which provide customers with a right to access over a discrete period , control is deemed to transfer over time and revenue is recognized on a straight-line basis over the contract term due to the stand-ready nature of the performance obligation . revenue from hardware repairs and calibration services outside of an extended warranty or support contract is recognized at the time of completion of the related service . for other professional services or time-based labor contracts , revenue is recognized as we perform the services and the customers receive and or consume the benefits . investments our investments are primarily investments in debt securities which are classified as available-for-sale investments or trading securities , recorded at fair value . the cost of securities sold is based on the specific identified method . unrealized gains and losses resulting from changes in fair value on available-for-sale investments , net of tax , are reported within accumulated other comprehensive ( loss ) . we periodically review these debt investments for impairment .
| the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2019 and 2018 , our consolidated operating expenses in “ constant dollars ” would have increased by approximately $ 10.1 million , or 0.9 % of net revenue . fiscal 2018 and 2017 if currency exchange rates had been constant in fiscal 2018 and 2017 , our consolidated net revenue in “ constant dollars ” would have decreased by approximately $ 12.8 million , or 1.5 % of net revenue , which primarily impacted our ne and se segments . the impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the offsetting foreign currency impact on operating costs and expenses . if currency exchange rates had been constant in fiscal 2018 and 2017 , our consolidated operating expenses in “ constant dollars ” would have decreased by approximately $ 9.3 million , or 1.1 % of net revenue . the results of operations are presented in accordance with u.s. gaap and not using constant dollars . refer to item 7a . qualitative and quantitative disclosures about market risk of this annual report on form 10-k for further details on foreign currency instruments and our related risk management strategies . net revenue revenue from our service offerings exceeds 10 % of our total consolidated net revenue and is presented separately in our consolidated statements of operations . service revenue primarily consists of maintenance and support , extended warranty , professional services and post-contract support in addition to other services such as calibration and repair services . when evaluating the performance of our segments , management focuses on total net revenue , gross profit and operating income and not the product or service categories . consequently , the following discussion of business segment performance focuses on total net revenue , gross profit , and operating income consistent with our approach for managing the business .
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during 2015 , we increased our equity interest from 55 % to 66.1 % , with the purchase of 5 % on september 24 , 2015 and an additional 6.1 % on november 5 , 2015. in 2014 , we increased our equity interest in cibil from 27.5 % to 55.0 % . this additional purchase gave us control and resulted in our consolidation of cibil . cibil 's results of operations , which are not material , are included as part of our international segment in our consolidated statements of income since may 21 , 2014 , the date we obtained control . on september 21 , 2016 , we acquired 100 % of the equity of rtech . rtech uses innovative proprietary technology to help healthcare providers protect revenue and cash . the results of operations of rtech , which are not material to our consolidated financial statements , have been included as part of our usis segment in our consolidated statements of income since the date of acquisition . on august 30 , 2016 , we made a noncontrolling interest investment in savvymoney , inc. ( “ savvymoney ” ) . savvymoney is a provider of credit information services for bank and credit union users . we account for savvymoney on the cost method of accounting . any future dividends will be recorded in other income and expense when received . on june 15 , 2016 , we acquired 100 % of the equity of auditz . auditz is a healthcare services organization that uses sophisticated proprietary technology to help healthcare providers identify and recover payments . the results of operations of auditz , which are not material to our consolidated financial statements , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on april 29 , 2016 , we acquired the remaining 12.5 % ownership interest in drivers history information sales , llc ( `` dhi '' ) and no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests on our consolidated balance sheets from the date we acquired the remaining interest . on november 12 , 2014 , we acquired an 87.5 % ownership interest in dhi . dhi collects traffic violation and criminal court data . the results of operations of dhi , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of acquisition . on april 15 , 2016 , we made a noncontrolling interest investment in dashlane , inc. ( “ dashlane ” ) . dashlane is a password management company that enables users to monitor their online identities across multiple sites and applications . we account for dashlane on the cost method of accounting . any future dividends will be recorded in other income and expense when received . on december 9 , 2015 , we acquired 100 % of the voting share capital in trustev limited ( `` trustev '' ) . trustev is a registered company in the republic of ireland that provides digital verification technology to multiple industries . the results of operations of trustev , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date of the acquisition . on october 21 , 2015 , we acquired the remaining 49 % equity interest in databusiness s.a. , our chile subsidiary . we no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests on our consolidated balance sheets from the date we acquired the remaining interest . 42 during january 2015 , we acquired the remaining equity interests in our two brazilian subsidiaries , data solutions serviços de informática ltda . ( “ zipcode ” ) and crivo sistemas em informática s.a. ( “ crivo ” ) . we no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests in our consolidated balance sheets from the date we acquired the remaining interests . on october 17 , 2014 , we increased our equity interest in l2c , inc. ( `` l2c '' ) from 11.6 % to 100 % . l2c provides predictive analytics generally focused on the unbanked market using alternative data . the results of operations of l2c , which are not material , have been included as part of our usis segment in our consolidated statements of income since the date we obtained control . effective january 1 , 2014 , we acquired the remaining 30 % equity interest in our guatemala subsidiary , trans union guatemala , s.a. ( transunion guatemala ) from the minority shareholders . we no longer record net income attributable to the noncontrolling interests in our consolidated statements of income or redeemable noncontrolling interests in our consolidated balance sheets from the date we acquired the remaining interests . key components of our results of operations revenue we derive our usis segment revenue from three operating platforms : online data services , marketing services and decision services . online data services encompass services delivered in real-time using both credit and public record datasets . we also provide online reports that link public record datasets for qualified businesses seeking to locate consumers , specific assets or investigate relationships among consumers , businesses and locations . collectively , the reports , characteristics and scores , with variations tailored for specific industries , form the basis of online data services . we also provide online services to help businesses manage fraud and authenticate a consumer 's identity when they initiate a new business relationship . additionally , we provide data to businesses to help them satisfy “ know your customer ” compliance requirements and to confirm an individual 's identity . marketing services help our customers develop marketing lists of prospects via direct mail , web and mobile . story_separator_special_tag our databases are used by our customers to contact individuals to extend firm offers of credit or insurance . we provide portfolio review services , which are periodic reviews of our customers ' existing accounts , to help our customers develop cross-selling offers to their existing customers and monitor and manage risk in their existing consumer portfolios . we also provide trigger services which are daily notifications of changes to a consumer profile . decision services , our software-as-a-service offerings , includes a number of platforms that help businesses interpret data and predictive model results and apply their customer-specific criteria to facilitate real-time automated decisions at the time of customer interaction . our customers use decision services to evaluate business risks and opportunities , including those associated with new consumer credit and checking accounts , insurance applications , optimize accounts receivable management and collections , patient registrations and insurance coverages , and apartment rental requests . we report our international segment revenue in two categories : developed markets and emerging markets . our developed markets are canada and hong kong . our emerging markets include africa , latin america , asia pacific and india . consumer interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft . services in this segment include credit reports and scores , credit monitoring , fraud protection and resolution and financial management . our products are provided through user friendly online and mobile interfaces and supported by educational content and customer support . cost of services costs of services include data acquisition and royalty fees , costs related to our databases and software applications , consumer and call center support costs , hardware and software maintenance costs , telecommunication expenses and occupancy costs associated with the facilities where these functions are performed . selling , general and administrative selling , general and administrative expenses include personnel-related costs for sales , administrative and management employees , costs for professional and consulting services , advertising and occupancy and facilities expense of these functions . 43 non-operating income and expense non-operating income and expense includes interest expense , interest income , earnings from equity-method investments , dividends from cost-method investments , impairments of equity-method and cost-method investments , if any , expenses related to successful and unsuccessful business acquisitions , loan fees , debt refinancing expenses , certain acquisition-related gains and losses and other non-operating income and expenses . results of operations— twelve months ended december 31 , 2016 , 2015 and 2014 key performance measures management , including our chief operating decision maker , evaluates the financial performance of our businesses based on a variety of key indicators . these indicators include the non-gaap measure adjusted ebitda and the gaap measures revenue , cash provided by operating activities and cash paid for capital expenditures . for the twelve months ended december 31 , 2016 , 2015 and 2014 , these key indicators were as follows : replace_table_token_6_th nm : not meaningful as a result of displaying amounts in millions , rounding differences may exist in the table above . 1. adjusted ebitda is defined as net income ( loss ) attributable to the company before net interest expense , income tax provision ( benefit ) , depreciation and amortization and other adjustments noted in the table above . we present adjusted ebitda as a supplemental measure of our operating performance because it eliminates the impact of certain items that we do not consider indicative of our cash operations and ongoing operating performance . also , adjusted ebitda is a measure frequently used by securities analysts , investors and other interested parties in their evaluation of the operating performance of companies similar to ours . in addition , our board of directors and executive management team use adjusted ebitda as a compensation measure under our incentive compensation plan . furthermore , under the credit agreement governing our senior secured credit facility , our ability to engage in activities such as incurring additional indebtedness , making investments and paying dividends is tied to a ratio based on adjusted ebitda . see “ management 's discussion and analysis of financial condition and results of operations - liquidity and capital resources - debt. ” adjusted 44 ebitda does not reflect our capital expenditures , interest , income tax , depreciation , amortization , stock-based compensation and certain other income and expense . other companies in our industry may calculate adjusted ebitda differently than we do , limiting its usefulness as a comparative measure . because of these limitations , adjusted ebitda should not be considered in isolation or as a substitute for performance measures calculated in accordance with gaap . adjusted ebitda is not a measure of financial condition or profitability under gaap and should not be considered as an alternative to cash flows from operating activities , as a measure of liquidity or as an alternative to operating income or net income as indicators of operating performance . we believe that the most directly comparable gaap measure to adjusted ebitda is net income attributable to the company . the table above provides a reconciliation from our net income ( loss ) attributable to the company to adjusted ebitda for the twelve months ended december 31 , 2016 , 2015 and 2014 . 2. consisted of stock-based compensation and cash-settled stock-based compensation . 3. for the twelve months ended december 31 , 2016 , consisted of the following adjustments to operating income : a $ ( 0.7 ) million net gain from exiting a business relationship and the closure and divestiture of certain business operations ; a $ ( 0.5 ) million adjustment to business optimization expenses ; and a $ ( 0.1 ) million reduction in contingent consideration expense from previous acquisitions .
| demand for consumer solutions is rising with higher consumer awareness of the importance and usage of their credit information , increased risk of identity theft due to data breaches and more readily available free credit information . the increasing number and complexity of regulations , including from the cfpb and the dodd-frank act , and new capital requirements , make operations for businesses more challenging . effects of inflation we do not believe that inflation has had a material effect on our business , results of operations or financial condition . recent developments on december 22 , 2016 , transunion agreed to settle a civil investigative demand ( the `` cid '' ) with the cfpb . the cid was focused on common industry practices relating to the advertising , marketing and sale of consumer reports , credit scores or credit monitoring products to consumers by our consumer interactive segment . as a result , we incurred a charge of approximately $ 19.4 million for the settlement and related costs in the fourth quarter of 2016 that we recorded in selling , general and administrative expenses . on september 14 , 2016 , certain of our stockholders completed a secondary public offering of approximately 16.0 million shares of transunion common stock . on june 10 , 2016 , one of our stockholders completed a secondary offering of approximately 18.0 million shares of transunion common stock . on march 14 , 2016 , certain of our stockholders completed a secondary offering of approximately 17.9 million shares of transunion common stock . these secondary offerings had no impact on our financial statements , other than approximately $ 2.7 million of transaction costs recorded in other income and expense . we were obligated to pay these costs in accordance with an agreement with these stockholders . we did not receive any proceeds from these offerings and all shares were sold by the selling stockholders . on may 31 , 2016 , we borrowed an additional $ 55.0 million of our senior secured term loan a , on the same
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see note regarding use of non-gaap financial measures and the reconciliation of reported amounts to non-gaap financial measures for additional detail regarding non-gaap financial measures . based on current trends , the company expects its first quarter 2020 unit costs , excluding fuel and oil expense and profitsharing expense , to increase in the range of 6.0 to 8.0 percent , year-over-year . this outlook includes an estimated seven point year-over-year unit cost headwind in first quarter 2020 driven by lower first quarter 2020 capacity as a result of the ongoing max groundings , which includes the impact of unabsorbed overhead that will be utilized upon the max return to service . it also includes one to two points of inflation primarily due to higher salaries , wages , and benefits ; maintenance expense ; and operating expenses related to investments in technology and facilities . this inflation will be substantially offset in first quarter 2020 due to the non-recurring first quarter 2019 costs associated with the company 's ratified labor agreement with its mechanics and costs associated with unscheduled maintenance disruptions and related flight cancellations . salaries , wages , and benefits expense for 2019 increase d by $ 644 million , or 8.4 percent , compared with 2018 . on a per asm basis , salaries , wages , and benefits expense for 2019 increased 10.0 percent , compared with 2018 . on both a dollar and per asm basis , the majority of the increases were the result of higher salaries expense , driven by annual wage rate increases as well as increased headcount . in addition , the company 's board of directors authorized a 43 discretionary , special $ 124 million pre-tax profitsharing award for boeing compensation which was accrued in fourth quarter 2019. based on current cost trends and anticipated capacity , the company expects first quarter 2020 salaries , wages , and benefits expense per asm , excluding profitsharing expense , to increase , compared with first quarter 2019 . during 2019 , the company conducted negotiations with various unionized employee groups . the following table sets forth the company 's unionized employee groups with amendable contracts that are currently in negotiations on collective-bargaining agreements : replace_table_token_9_th in addition to the above , the southwest airlines pilots ' association ( “ swapa ” ) , which represents the company 's approximately 9,300 pilots , has notified the company of its request to begin discussions on a new agreement , prior to the current contract amendable date of september 1 , 2020. the company and swapa are scheduled for initial discussions in first quarter 2020. fuel and oil expense for 2019 decrease d by $ 269 million , or 5.8 percent , compared with 2018 . on a per asm basis , fuel and oil expense decrease d 4.5 percent , compared with 2018 . on both a dollar and per asm basis , the decreases were primarily attributable to lower market jet fuel prices . the company 's 2019 average economic jet fuel cost per gallon decrease d 5.0 percent , year-over-year , to $ 2.09 from $ 2.20 . see note regarding use of non-gaap financial measures and the reconciliation of reported amounts to non-gaap financial measures for additional detail regarding non-gaap financial measures . these figures include $ .05 per gallon in premium expense and $ .02 per gallon in favorable cash settlements from fuel derivative contracts in 2019 , compared with $ .06 per gallon in premium expense and $ .07 per gallon in favorable cash settlements from fuel derivative contracts in 2018. the decrease s were partially offset by a decline in the company 's fuel efficiency during 2019 , compared with 2018 , when measured on the basis of asms generated per gallon of fuel . the decline in fuel efficiency was primarily due to the removal of the company 's most fuel efficient aircraft from its schedule as a result of the max groundings . as of january 17 , 2020 , on an economic basis , the company had derivative contracts in place related to expected future fuel consumption as follows : period maximum percent of estimated fuel consumption covered by fuel derivative contracts at varying west texas intermediate/brent crude oil , heating oil , and gulf coast jet fuel-equivalent price levels ( a ) 2020 59 % 2021 54 % 2022 31 % beyond 2022 less than 5 % 44 ( a ) the company 's hedge position can vary significantly at different price levels , including prices at which the company considers `` catastrophic '' coverage . the percentages provided are not indicative of the company 's hedge coverage at every price , but represent the highest level of coverage at a single price . see note 10 to the consolidated financial statements for further information . as a result of applying hedge accounting in prior periods , the company has amounts in accumulated other comprehensive income ( loss ) ( `` aoci '' ) that will be recognized in earnings in future periods when the underlying fuel derivative contracts settle . the following table displays the company 's estimated fair value of remaining fuel derivative contracts ( not considering the impact of the cash collateral provided to or received from counterparties - see note 10 to the consolidated financial statements for further information ) , as well as the amount of deferred gains/losses in aoci at december 31 , 2019 , and the expected future periods in which these items are expected to settle and or be recognized in earnings ( in millions ) : replace_table_token_10_th assuming no changes to the company 's current fuel derivative portfolio , but including all previous hedge activity for fuel derivatives that have not yet settled , and considering only the expected net cash receipts related to hedges that will settle , the company is providing the below sensitivity table for first quarter 2020 and full year 2020 jet fuel prices at different crude oil assumptions as of january 17 , 2020 , and for expected premium costs associated with story_separator_special_tag settling contracts each period , respectively . replace_table_token_11_th ( a ) brent crude oil average market prices as of january 17 , 2020 , were approximately $ 64 and $ 62 per barrel for first quarter 2020 and full year 2020 , respectively . ( b ) fuel hedging premium expense per gallon is included in the company 's estimated economic fuel price per gallon estimates above . ( c ) based on the company 's existing fuel derivative contracts and market prices as of january 17 , 2020 , first quarter 2020 gaap and economic fuel costs are estimated to be in the $ 2.05 to $ 2.15 per gallon range , including fuel hedging premium expense of approximately $ 24 million , or $ .05 per gallon , and an estimated $ .01 per gallon in favorable cash settlements from fuel derivative contracts . see note regarding use of non-gaap financial measures for additional information . ( d ) based on the company 's existing fuel derivative contracts and market prices as of january 17 , 2020 , annual 2020 gaap and economic fuel costs are estimated to be in the $ 2.00 to $ 2.10 per gallon range , including fuel hedging premium expense of approximately $ 97 million , or $ .04 per gallon , and no cash settlements from fuel derivative contracts , on a per gallon basis . see note regarding use of non-gaap financial measures for additional information . 45 ( e ) the company 's current hedge positions contain a combination of instruments based in west texas intermediate and brent crude oil ; however , the economic fuel price per gallon sensitivities provided assume the relationship between brent crude oil and refined products based on market prices as of january 17 , 2020 . maintenance materials and repairs expense for 2019 increase d by $ 116 million , or 10.5 percent , compared with 2018 . on a per asm basis , maintenance materials and repairs expense increase d 13.0 percent , compared with 2018 . on both a dollar and per asm basis , the majority of the increases were due to the timing and scope of regular airframe maintenance checks . the company currently expects maintenance materials and repairs expense per asm for first quarter 2020 to increase , compared with first quarter 2019 . landing fees and airport rentals expense for 2019 increase d by $ 29 million , or 2.2 percent , compared with 2018 . on a per asm basis , landing fees and airport rentals expense increase d 4.8 percent , compared with 2018 . on both a dollar and per asm basis , the majority of the increases were due to an increase in space rental rates and usage at various stations throughout the network , partially offset by higher settlements and credits from various airports received in 2019 . the company currently expects landing fees and airport rentals expense per asm for first quarter 2020 to increase , compared with first quarter 2019 . depreciation and amortization expense for 2019 increase d by $ 18 million , or 1.5 percent , compared with 2018 . on a per asm basis , depreciation and amortization expense increase d 4.0 percent , compared with 2018 . on both a dollar and per asm basis , the majority of the increases were associated with the deployment of new technology assets . based on the application of 2019 boeing settlement proceeds against the cost basis of owned 737 max aircraft in the company 's fleet , the company estimates an approximate $ 5 million benefit to depreciation expense for 2020. see note 16 to the consolidated financial statements for further information . the company currently expects depreciation and amortization expense per asm for first quarter 2020 to increase , compared with first quarter 2019 . other operating expenses for 2019 increase d by $ 174 million , or 6.1 percent , compared with 2018 . on a per asm basis , other operating expenses increase d 7.3 percent , compared with 2018 . on both a dollar and per asm basis , the increases in other operating expenses were partially due to a $ 25 million gain recognized during first quarter 2018 from the sale of 39 boeing 737-300 aircraft and a number of spare engines to a third party , which reduced other operating expenses for first quarter 2018. this gain on sale of retired boeing 737-300 aircraft was considered a special item and thus excluded from the company 's non-gaap results . see note regarding use of non-gaap financial measures and the reconciliation of reported amounts to non-gaap financial measures for additional detail regarding non-gaap financial measures . excluding this item , approximately 40 percent of the increases were due to technology project-related expenses , approximately 20 percent of the increases were due to insurance recoveries from the impacts of irregular operations , which were received in first quarter 2018 and reduced other operating expenses for first quarter 2018 , and the biggest portion of the remainder was due to expenses related to the grounding of the max aircraft , such as additional compensation issued to inconvenienced passengers associated with flight cancellations . the company currently expects other operating expenses per asm for first quarter 2020 to increase , compared with first quarter 2019 . other other expenses ( income ) include interest expense , capitalized interest , interest income , and other gains and losses . total other expenses ( income ) for 2019 decrease d by $ 42 million primarily due to higher interest income as a result of higher interest rates , and lower interest expense as a result of lower debt balances . income taxes the company 's effective tax rate was 22.2 percent for 2019 , compared with 22.1 percent for 2018 . the company currently projects the first quarter and full year 2020 effective tax rate to be in the 23 to 24 percent range based on currently forecasted financial results .
| boeing 737 max grounding the estimated 2019 operating income reduction attributable to the max groundings from march 13 , 2019 , through the end of the year , was $ 828 million . the company reached a confidential agreement ( the “ boeing settlement ” ) with the boeing company on compensation related to estimated 2019 financial damages due to the grounding of the max . the terms of the boeing settlement are confidential , but are intended to provide for a substantial portion of the company 's financial damages in 2019 associated with the max grounding . the boeing settlement did not impact 2019 earnings , as substantially all of the compensation will be accounted for as a reduction of the cost basis for both owned max aircraft and future purchased max aircraft , which is expected to reduce depreciation expense in future years . the company 's board of directors authorized a discretionary , special $ 124 million pre-tax profitsharing award for boeing compensation which was accrued in fourth quarter 2019. the company continues to engage in discussions with boeing regarding compensation for 2020 damages related to the max groundings ; however , no settlement assumptions have been factored into the company 's 2020 outlook . based on continued uncertainty around the timing of max return to service , the company has proactively removed the max from its flight schedule through june 6 , 2020. based on recent guidance from boeing estimating that the ungrounding of the max will be mid-2020 , the company will likely extend max-related flight schedule adjustments further to provide operational reliability and a dependable flight schedule 40 for our customers booking their summer travel . see note 16 to the consolidated financial statements for further information . for the twelve months ended december 31 , 2019 , the company 's earnings performance , combined with its actions to manage invested capital , produced a 22.9 percent pre-tax non-gaap return on invested capital ( `` roic '' ) , or 17.8
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story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2017 and 2016 , respectively , of certain product revenues from the medical segment to the interventional segment as further discussed in discussed in note 6 to the consolidated financial statements contained in item 8. financial statements and supplementary data . medical segment growth in 2018 was favorably impacted by the inclusion of revenues associated with certain bard products within the medication delivery solutions unit , beginning on january 1 , 2018. the medical segment 's underlying revenue growth was largely driven by sales of the medication delivery solutions unit 's vascular access and vascular care products as well as by the medication management solutions unit 's installations of dispensing and infusion systems . revenue growth in the medication management solutions unit was partially offset by the unfavorable impact , in the first half of 2018 , of a modification to dispensing equipment lease contracts with customers , which took place in april 2017. as a result of the lease modification , substantially all new lease contracts are accounted for as operating leases with revenue recognized over the agreement term , rather than upon the placement of capital . the medical segment 's underlying growth also reflected sales of the pharmaceutical systems unit 's prefillable products and the diabetes care unit 's pen needles . medical segment revenue growth in 2017 was driven by the medication delivery solutions unit 's sales of infusion disposables products , particularly in international markets , and the pharmaceutical systems unit 's sales of self-injection systems . revenue growth in 2017 also reflected the diabetes care unit 's increased sales of pen needles in the united states and emerging markets . international growth in the diabetes care unit was impacted by weaker revenues in europe , primarily in the united kingdom , due to increasing pressure from government 25 payers as part of austerity measures . medical segment revenues in 2017 were unfavorably impacted by the divestiture of the respiratory solutions business and the modification to dispensing equipment lease contracts in the medication management solutions unit , as discussed above . in 2017 , revenues in the medication management solutions unit included $ 151 million of revenues relating to amended preexisting lease contracts . medical segment operating income was as follows : replace_table_token_5_th ( a ) operating income in 2018 excluded certain general and administrative costs , which were allocated to the segment in 2017 and 2016 , due to a change in our management reporting approach , as is further discussed in note 6 to the consolidated financial statements contained in item 8. financial statements and supplementary data . ( b ) the presentation of prior-period amounts reflects reclassifications of $ 248 million and $ 245 million in 2017 and 2016 , respectively , relating to the movement of certain product offerings from the medical segment to the interventional segment as noted above . the medical segment 's operating income was driven by its performance with respect to gross profit margin and operating expenses as discussed in greater detail below : the medical segment 's gross profit margin in 2018 was lower as compared with 2017 primarily due to the expense related to amortization of intangible assets acquired in the bard transaction and the expense related to the recognition of a fair value step-up adjustment relating to bard 's inventory on the acquisition date . the medical segment 's gross profit margin in 2018 was also unfavorably impacted by charges to write down the value of fixed assets , primarily in the diabetes care unit , higher raw material costs and pricing pressures . these unfavorable impacts to the medical segment 's gross margin were partially offset by lower manufacturing costs resulting from continuous improvement projects which enhanced the efficiency of our operations and favorable product mix impact relating to the bard products reported within the segment . the medical segment 's gross profit margin in 2017 was higher as compared with 2016 primarily due to the divestiture of the respiratory solutions business , which had products with relatively lower gross profit margins . gross profit margin in 2017 also reflected lower manufacturing costs resulting from continuous improvement projects . selling and administrative expense as a percentage of revenues in 2018 was lower compared with 2017 which primarily reflected a reduction in the general and administrative costs allocated to the segment , as noted above . selling and administrative expense as a percentage of revenues in 2017 was lower compared with 2016 , primarily due to the divestiture of the respiratory solutions business , as this business generally had a lower operating margin . research and development expense as a percentage of revenues was higher in 2018 which reflected increased investment in new products and platforms . research and development expense as a percentage of revenues in 2017 reflected ongoing investment in new products and platforms , but was lower compared with 2016 as expense in 2016 included a one-time payment relating to one of the segment 's ongoing projects . 26 life sciences segment the following summarizes life sciences revenues by organizational unit : replace_table_token_6_th the life sciences segment 's revenue growth in 2018 was driven by growth across all three of its organizational units . the diagnostic systems unit 's revenues were primarily driven by sales of core microbiology products as well as continued strength in sales of the unit 's bd max tm molecular platform . revenue growth in the diagnostic systems unit also reflected a more severe influenza season in 2018 compared with 2017. the life sciences segment 's 2018 revenue growth was also driven by the biosciences unit 's sales of research reagents and recently launched instruments . growth in the preanalytical systems unit reflected global sales of core products . the life sciences segment 's 2017 revenues reflected growth in global sales of the preanalytical systems unit 's core products and growth in sales of the diagnostics systems unit 's microbiology and molecular platforms , particularly in emerging markets . story_separator_special_tag the segment 's 2017 revenue growth was also driven by increased biosciences unit sales , particularly in developed markets . life sciences segment operating income was as follows : replace_table_token_7_th ( a ) operating income in 2018 excluded certain general and administrative costs , which were allocated to the segment in 2017 and 2016 , due to a change in our management reporting approach , as noted above . the life sciences segment 's operating income was driven by its performance with respect to gross profit margin and operating expenses as discussed in greater detail below : the life sciences segment 's gross profit margin as a percentage of revenues was higher in fiscal year 2018 primarily due to lower manufacturing costs resulting from continuous improvement projects , which enhanced the efficiency of our operations , and favorable foreign currency translation . these favorable impacts to the life sciences segment 's gross margin were partially offset by expense related to the biosciences unit 's write-down of certain intangible and other assets , as well as higher raw material costs . the life sciences segment 's gross profit margin as a percentage of revenues was lower in fiscal year 2017 primarily due to unfavorable foreign currency translation , higher raw material costs and unfavorable product mix , partially offset by lower manufacturing costs resulting from operations improvement projects . selling and administrative expense as a percentage of life sciences revenues in 2018 was lower compared to 2017 primarily due to a reduction in the general and administrative costs allocated to the segment , as noted above . selling and administrative expense as a percentage of life sciences revenues in 2017 was higher compared to 2016 primarily due to slightly higher administrative costs . research and development expense as a percentage of revenues in 2018 was higher compared with 2017 primarily due to write-downs in the biosciences unit , as noted above . research and development expense as a percentage of revenues in 2017 was relatively flat compared with 2016 . 27 interventional segment the following summarizes interventional revenues by organizational unit : replace_table_token_8_th `` nm '' denotes that the percentage is not meaningful . ( a ) the presentation of prior-period amounts reflects reclassifications of $ 685 million and $ 689 million in 2017 and 2016 , respectively , of certain product revenues from the medical segment to the interventional segment as noted above . interventional segment operating income was as follows : replace_table_token_9_th ( a ) the presentation of prior-period amounts reflects reclassifications of $ 248 million and $ 245 million in 2017 and 2016 , respectively , relating to the movement of certain product offerings from the medical segment to the interventional segment as noted above . the interventional segment 's operating income was driven by its performance with respect to gross profit margin and operating expenses . the interventional segment 's operating income in 2018 reflected expense related to the recognition of a fair value step-up adjustment relating to bard 's inventory on the acquisition date . the fair value adjustment was a required non-cash adjustment to the value of acquired inventory and was expensed over a four-month period , consistent with an estimate of the period of time to sell the acquired inventory . geographic revenues bd 's worldwide revenues by geography were as follows : replace_table_token_10_th u.s. revenues in 2018 benefited from the inclusion of revenues associated with bard products in our financial results beginning on january 1 , 2018. underlying 2018 revenue growth in the united states was driven by revenues in the medical segment 's medication delivery solutions and medication management solutions units , as well as by revenues in the life sciences segment 's diagnostic systems unit . u.s. revenues in 2017 were unfavorably impacted by the medical segment 's divestiture of the respiratory solutions business and the modification to dispensing equipment lease contracts with customers in the medical segment 's medication management solutions unit , as previously discussed . these impacts to u.s. revenues in 2017 were partially offset by growth in sales in the medical segment 's medication management solutions and diabetes care units , as well as in all of the life sciences segment 's units . 28 international revenues in 2018 benefited from the inclusion of revenues associated with bard products in our financial results . international 2018 revenues also reflected increased sales in the medical segment 's medication delivery solutions , medication management solutions and pharmaceutical systems units , as well as growth attributable to sales in all three of the life sciences segment 's organizational units . international revenue growth in 2017 were driven by sales in the medical segment 's medication delivery solutions , medication management solutions and pharmaceutical systems units , as well as by sales in the life sciences segment 's preanalytical systems and diagnostic systems units . international revenue growth in 2017 was partially offset by the impact of the medical segment 's divestiture of the respiratory solutions business . emerging market revenues were $ 2.53 billion , $ 1.95 billion and $ 1.9 billion in 2018 , 2017 and 2016 , respectively . foreign currency translation favorably impacted emerging market revenues in 2018 by an estimated $ 19 million and unfavorably impacted emerging market revenues in 2017 by an estimated $ 29 million . emerging market revenue growth in 2018 benefited from the inclusion of revenues associated with bard products in our financial results . underlying growth was particularly driven by sales in china and ema . emerging market revenue growth in 2017 was driven by sales in greater asia , including china , and latin america . emerging market revenues in 2016 related to divested businesses , primarily the respiratory solutions business , were approximately $ 105 million . specified items reflected in the financial results for 2018 , 2017 and 2016 were the following specified items : replace_table_token_11_th ( a ) represents integration , restructuring and transaction costs , recorded in acquisitions and other restructurings , which are further discussed below .
| at september 30 , 2018 , we had $ 1.3 billion in cash and equivalents and short-term investments , including restricted cash . we continued to return value to our shareholders in the form of dividends . during fiscal year 2018 , we paid cash dividends of $ 927 million . each reporting period , we face currency exposure that arises from translating the results of our worldwide operations to the u.s. dollar at exchange rates that fluctuate from the beginning of such period . a weaker u.s. dollar in 2018 , compared with 2017 , resulted in a favorable foreign currency translation impact to our revenue and earnings during 2018 . we evaluate our results of operations on both a reported and a foreign currency-neutral basis , which excludes the impact of fluctuations in foreign currency exchange rates . as 24 exchange rates are an important factor in understanding period-to-period comparisons , we believe the presentation of results on a foreign currency-neutral basis in addition to reported results helps improve investors ' ability to understand our operating results and evaluate our performance in comparison to prior periods . foreign currency-neutral ( `` fxn '' ) information compares results between periods as if exchange rates had remained constant period-over-period . we use results on a foreign currency-neutral basis as one measure to evaluate our performance . we calculate foreign currency-neutral percentages by converting our current-period local currency financial results using the prior-period foreign currency exchange rates and comparing these adjusted amounts to our current-period results . these results should be considered in addition to , not as a substitute for , results reported in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) . results on a foreign currency-neutral basis , as we present them , may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with u.s. gaap . results of operations medical segment the following summarizes medical revenues by organizational unit : replace_table_token_4_th `` nm '' denotes that the percentage is not meaningful .
| 14,041 |
under the agreement , syros will use its leading gene control platform to identify therapeutic targets and discover drugs that potentially induce fetal hemoglobin , and we have an option to obtain an exclusive worldwide license to develop , manufacture and commercialize any compounds or products resulting from the collaboration , subject to syros ' option to co-promote the first product in the united states . we will continue to seek the best scientific approaches to transform the treatment of these devastating lifelong diseases . we own or jointly own and have exclusively licensed rights to oxbryta and our product candidates in the united states , europe and other major markets . we are the sole owner of issued u.s. patents covering oxbryta , including its composition of matter , methods of use , formulations and polymorphs of oxbryta . these issued u.s. patents covering oxbryta will expire between 2032 and 2037 , absent any applicable patent term extensions . we own or co-own additional pending patent applications in the united states and multiple foreign countries relating to oxbryta . since our inception in 2011 , we have devoted substantially all of our resources to identifying and developing oxbryta and product candidates , including conducting clinical trials and nonclinical studies and providing general and administrative support for these operations . we are not profitable and have incurred losses and negative cash flows from operations each year since our inception . we have financed our operations primarily through sale of equity securities and debt financing . in december 2018 , we completed a follow-on offering and issued 3,409,090 shares of common stock at a price of $ 41.54 per share with proceeds of $ 141.1 million net of underwriting costs and commissions and offering expenses . in addition , in january 2019 , we sold an additional 511,363 shares of our common stock directly to the underwriters when they exercised their over-allotment option at the price of $ 41.54 per share for proceeds of $ 21.2 million net of underwriting costs and commissions . in june 2019 , we completed a follow-on offering and issued 3,375,527 shares of common stock at a price of $ 57.12 per share with proceeds of $ 192.4 million net of underwriting costs and commissions and offering expenses . in addition , in july 2019 , we sold an additional 100,000 shares of our common stock directly to the underwriters when they exercised their over-allotment option at the price of $ 57.12 per share for proceeds of $ 5.7 million net of underwriting costs and commissions . in december 2019 , we entered into a $ 150.0 million term loan agreement and drew down proceeds of $ 72.5 million net of debt issuance costs . we have an option to draw an additional $ 75.0 million until december 31 , 2020. our net losses were $ 266.8 million for the year ended december 31 , 2019 , $ 174.2 million for the year ended december 31 , 2018 and $ 117.0 million for the year ended december 31 , 2017. as of december 31 , 2019 , we had an accumulated deficit of $ 738.9 million . substantially all of our net losses have resulted from costs incurred in 84 connection with our research and development programs and from selling , general and administrative costs associated with our operations . we had $ 302.2 million in cash and cash equivalents and $ 392.8 million in marketable securities as of december 31 , 2019. critical accounting polices and estimates our management 's 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 united states generally accepted accounting principles , or u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported expenses incurred during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition pursuant to accounting standards codification , topic 606 , revenue from contracts with customers , or asc 606 , we recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services . to determine revenue recognition for arrangements that we determine are within the scope of asc 606 , we perform the following five steps : ( i ) identify the contract ( s ) with a customer ; ( ii ) identify the performance obligations in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligations in the contract ; and ( v ) recognize revenue when ( or as ) we satisfy a performance obligation . we only apply the five-step model to contracts when it is probable that we will collect substantially all of the consideration we are entitled to in exchange for the goods or services we transfer to the customer . product sales , net our product sales consist of u.s. sales of oxbryta , which we began shipping to customers in december 2019. prior to december 2019 , we had no product sales . we sell oxbryta to a limited number of specialty pharmacies and a specialty distributor , or collectively , customers . story_separator_special_tag these agreements with our customers provide for transfer of title to the product at the time the product has been delivered to the customers . the customers subsequently dispense our product directly to a patient or resell our product to hospitals and certain pharmacies . we recognize revenue on product sales when the customers obtain control of our product , which occurs at a point in time , typically upon delivery to our customers . it is at that point that we have a right to payment and that our customers obtain title and the risks and rewards of ownership . shipping and handling activities are considered to be fulfillment activities rather than a separate performance obligation . payment terms are typically 30-60 days following delivery to our customers . as allowed under asc 606 via practical expedient , because payment is expected shortly after delivery , we do not adjust the amount of consideration expected to be received for the effects of a significant financing component . we consider the effects of items that can decrease the transaction price such as variable consideration and consideration payable to customers or payer . amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available . the amount of variable consideration may be constrained and is included in the transaction price only to the extent it is probable 85 that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved . revenue from product sales is recorded after considering the impact of the following variable consideration amounts along with the constraint at the time of revenue recognition : rebates : we are subject to government mandated rebates for medicaid drug rebate program , medicare part d prescription drug benefit program , and other government health care programs in the united states . rebate amounts are based upon contractual agreements or legal requirements with public sector benefit providers . we use the expected-value method for estimating these rebates based on statutory discount rates and expected utilization . the expected utilization of rebates is estimated based on third party market research data and data received from the specialty pharmacies and specialty distributor . estimates for these rebates are adjusted quarterly to reflect the most recent information . we record an accrued liability for unpaid rebates related to products for which control has been transferred to customers . prompt payment discounts : we provide discounts to our customers if they pay for our products within a defined period of time after title transfers , which terms are explicitly stated in the contract . we use the most-likely-amount method for estimating prompt payment discounts . we expect that our customers will earn prompt payment discounts . as a result , we deduct the full amount of those discounts from total product sales when revenues are recognized and record these discounts as a reduction of accounts receivable . co-payment assistance : we provide co-payment assistance to patients who have commercial insurance and meet certain eligibility requirements . we use the expected-value method for estimating co-payment assistance based on estimates of program redemption using data provided by third-party administrators . estimates for the co-payment assistance are adjusted quarterly to reflect actual experience . we record an accrued liability for unredeemed co-payment assistance related to products for which control has been transferred to customers . medicare part d coverage gap : the medicare part d coverage gap is a federal program to subsidize the costs of prescription drugs for medicare beneficiaries in the united states , which mandates manufacturers to fund a portion of the medicare part d insurance coverage gap for prescription drugs sold to eligible patients . funding of the coverage gap is generally invoiced and paid in arrears . we estimate the impact of the medicare part d coverage gap using the expected-value method based on an amount expected to be incurred for the current quarter 's activity , plus an accrual balance for known prior quarters . estimates for the impact of the medicare part d coverage gap are adjusted quarterly to reflect actual experience . we record an accrued liability for unpaid reserves related to the medicare part d coverage gap . product returns : consistent with industry practice , we offer limited product return rights and generally allow for the return of product that is damaged or defective , or within a few months prior to and up to a few months after the product expiration date . we consider several factors in the estimation of potential product returns , including expiration dates of the product shipped , the limited product return rights , third-party data in monitoring channel inventory levels , shelf life of the product , prescription trends , and other relevant factors . we expect product returns to be immaterial . other than these limited returns , we do not provide any product warranties . chargebacks : chargebacks are discounts that occur when contracted parties purchase directly from a specialty distributor . contracted parties , which currently consist primarily of public health service institutions and federal government entities purchasing via the federal supply schedule , generally purchase the product at a discounted price . the specialty distributor , in turn , charge back the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by the contracted parties to us . the reserves for chargeback are based on known sales to contracted parties . we establish the reserves for chargebacks in the same period that the related revenue is recognized , resulting in a reduction of product revenue and receivables . distributor fees : our specialty distributor provides distribution services to us for a fee , based on a contractually determined fixed percentage of sales . we estimate these distributor fees and record such estimates 86 in the same period the related revenue is recognized , resulting in a reduction of product revenue .
| we expense all research and development costs in the periods in which they are incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors 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 . the largest component of our total operating expenses is our investment in research and development activities , including the clinical development of oxbryta . we allocate research and development salaries , benefits , stock-based compensation and indirect costs to oxbryta , inclacumab and other product candidates that we may pursue on a program-specific basis . we expect our research and development expenses will increase in future periods as we continue to invest in research and development activities related to developing oxbryta and product candidates , and as programs advance into later stages of development and we begin to conduct larger clinical trials . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming , and research and development is highly uncertain . as a result , we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates . the following table summarizes our research and development expenses incurred during the respective periods ( in thousands , except percentages ) : replace_table_token_6_th * change is not meaningful research and development expenses increased by $ 43.2 million , or 33 % , to $ 174.6 million for the year ended december 31 , 2019 from $ 131.3 million for the year ended december 31 , 2018. the increase was primarily due to an increase of $
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our 2013 fiscal year ( “ 2013 ” ) ended on december 28 , 2013 , and included 52 weeks . our 2012 fiscal year ( “ 2012 ” ) ended on december 29 , 2012 , and included 52 weeks . 19 results of operations the following table sets forth our consolidated financial data as a percentage of total revenues for fiscal years 2013 and 2012 : replace_table_token_6_th the following table sets forth the key results of operations by segment for fiscal years 2013 and 2012 ( dollars in millions ) : replace_table_token_7_th our total revenues of $ 129.1 million for 2013 increased $ 14.9 million , or 13 % , from $ 114.2 million in 2012 . the change in revenues was attributed primarily to the following factors : recycling segment . appliance replacement program revenues increased by $ 18.3 million compared with the prior year . recycling-only program revenues declined $ 1.4 million compared with the prior year . byproduct revenues included $ 0.6 million in carbon offset sales compared with $ 0.2 million in the prior year . aap revenues , excluding carbon offsets increased by $ 0.2 million compared with the prior year . retail segment . same-store sales declined by $ 0.2 million compared with the prior year . the full-year impact of one new store only operating for the last five months of 2012 was $ 1.6 million . the impact of closing three stores that operated during 2012 but not 2013 was $ 4.0 million . we closed two stores during the fourth quarter of 2012 and one store during the second quarter of 2013 . 20 recycling segment revenues accounted for 46 % of total revenues in 2013 compared with 37 % in 2012 . recycling segment revenues and retail segment revenues each include a portion of byproduct revenues . in both 2013 and 2012 , the recycling segment accounted for approximately 94 % of byproduct revenues . the increase in replacement program revenues impacted the overall mix of revenues between the recycling and retail segments in 2013 compared with 2012. future revenues and related earnings from appliance replacement programs are uncertain and may fluctuate significantly from year to year . factors impacting future appliance replacement program revenues and earnings include the type and scope of energy efficiency programs approved by regulatory agencies , competitive bidding , contract changes , non-renewals and early cancellations . our operating income of $ 4.6 million for 2013 increased $ 7.8 million , or 244 % , compared with an operating loss of $ ( 3.2 ) million in 2012 . the change in operating income ( loss ) was attributed to several factors , including : recycling segment . the impact of higher appliance replacement volumes and better pricing for recyclable appliances by aap resulted in a $ 4.1 million improvement in gross profit during 2013. a goodwill impairment charge of $ 1.1 million was recorded in 2012 and not in 2013. operating expenses in 2013 declined by $ 0.9 million compared with 2012. carbon offset revenues in 2013 increased by $ 0.4 million compared with 2012. retail segment . operating expenses declined by $ 1.5 million compared with 2012. gross profit increased by $ 0.1 million compared with 2012. unallocated corporate costs increased by $ 0.3 million compared with 2012. in 2013 , we modified the estimate used to allocate certain corporate costs , and as a result , approximately $ 0.6 million of corporate services were not allocated to the retail and recycling segments during fiscal year 2013. the impact of the change in estimate to the retail and recycling segments during 2013 was $ 0.4 million and $ 0.2 million , respectively . revenues . revenues for the fiscal years of 2013 and 2012 were as follows ( dollars in millions ) : replace_table_token_8_th retail revenues . our retail revenues of $ 68.6 million for 2013 decreased $ 2.7 million , or 3.8 % , from $ 71.2 million in 2012 . the decrease in revenues was due primarily to the impact of closing three stores that were operating in 2012 and was partially offset by the impact of a new store that was not operating for the entire year of 2012. the store closures represented a $ 4.0 million revenue decline and new store sales represented a $ 1.6 million revenue increase in 2013 compared with 2012. same-store appliance revenues from appliancesmart stores operating during the entire fiscal years of 2013 and 2012 declined 0.2 % compared with 2012 . our same-store revenues include contract sales , which increased by $ 2.8 million and typically generate smaller profit margins . we continue to evaluate strategies for addressing our underperforming stores , from right-sizing showroom space to closure . the table below illustrates our retail revenues by quarter for fiscal years 2013 and 2012 ( dollars in millions ) : replace_table_token_9_th our stores carry a wide range of innovative and affordable appliances such as close-outs , factory overruns , discontinued models and other special-buy appliances , including out-of-carton merchandise . all of these appliances are new . 21 we continue to purchase the majority of our appliances from whirlpool , ge , electrolux and samsung . we have no minimum purchase requirements with any of these manufacturers . we believe purchases from these manufacturers will provide an adequate supply of high-quality appliances for our retail stores ; however , there is a risk that one or more of these sources could be curtailed or lost . recycling revenues . our recycling revenues of $ 42.2 million for 2013 increased $ 16.9 million , or 66.9 % , from $ 25.3 million in 2012 . recycling revenues are comprised of two components : ( 1 ) appliance recycling revenues generated by collecting and recycling appliances for utilities and other sponsors of energy efficiency programs and ( 2 ) appliance replacement revenues generated by recycling and replacing old appliances with new energy efficient models for programs sponsored by utility companies . story_separator_special_tag appliance recycling revenues decreased 10 % to $ 12.2 million in 2013 compared with $ 13.6 million in 2012 , due primarily to lower volumes and price compression within certain contracts . the number of units driving our appliance recycling revenues declined 5 % and the average revenue per unit declined by $ 5 compared with 2012 . appliance replacement revenues increased 157 % to $ 30.0 million in 2013 compared with $ 11.7 million in 2012 , due primarily to higher volumes and the mix of appliance replacements . future appliance recycling and appliance replacement revenues are uncertain and may fluctuate significantly from period to period . we aggressively pursue new appliance recycling and replacement contracts along with renewing our current contracts throughout north america but can not predict if we will be successful in signing new contracts or renewing existing contracts . the table below illustrates our recycling revenues by quarter for fiscal years 2013 and 2012 ( dollars in millions ) : replace_table_token_10_th byproduct revenues . our byproduct revenues of $ 18.3 million for 2013 increased $ 0.6 million or 3.4 % from $ 17.7 million in 2012 . the increase in byproduct revenues was primarily the result of the following factors : revenues related to carbon offset sales increased $ 0.4 million to $ 0.6 million in 2013 compared with 2012. byproduct revenues include all revenues generated by aap . aap revenues , excluding $ 0.4 million in carbon offset sales mentioned above , increased $ 0.2 million in 2013 to $ 11.4 million compared with 2012. the increase was due primarily to an 8 % increase in recyclable appliances that was partially offset by a 5 % decline in average steel scrap prices per gross ton . we can not predict byproduct material prices and results can vary significantly from period to period . we expect to generate higher carbon offset revenues in 2014 than 2013 , but can not predict the amount or frequency of carbon offset sales . carbon offset sales are dependent on market conditions , including demand and acceptable market prices . the table below illustrates our byproduct revenues by quarter for fiscal years 2013 and 2012 ( dollars in millions ) : replace_table_token_11_th total gross profit . during the first quarter of 2013 , we reclassified certain revenues , cost of revenues and sales , general and administrative expenses due to further industry analysis and conformed the 2012 presentation . the reclassification is related primarily to facility costs and certain other costs not directly related to the production of recycled materials within the recycling segment . our gross profit of $ 33.9 million in 2013 increased $ 4.6 million , or 15.5 % , compared with $ 29.3 million in 2012 . gross profit as a percentage of total revenues increased to 26.2 % in 2013 compared with 25.7 % in 2012 . 22 our gross profit for future periods can be affected favorably or unfavorably by numerous factors , including : 1. the mix of retail products we sell . 2. the prices at which we purchase product from the major appliance manufacturers who supply product to us . 3. the prices at which we can purchase recyclable appliances for processing at our rpcs . 4. the volume of appliances we receive through our recycling contracts . 5. the volume and price of byproduct materials . 6. the volume and price of carbon offset sales created by the destruction of ozone-depleting refrigerants . retail segment gross profit . gross profit increased to $ 18.6 million in 2013 compared with $ 18.5 million in 2012 . gross profit as a percentage of related revenues increased to 26.7 % in 2013 compared with 25.5 % in 2012. the year-over-year increase was due primarily to a shift in sales mix and reversing a noncash inventory charge . in 2013 , our product sales consisted of 67 % new ( in-the-box ) product compared with 71 % new ( in-the-box ) product in 2012 . new ( in-the-box ) product typically has lower profit margins than special buy ( out-of-the-box ) product . in 2012 , we recorded a $ 0.6 million noncash inventory charge related to aged inventory . in 2013 , we reversed $ 0.5 million of the noncash inventory charge recorded in 2012 due to selling the aged inventory . recycling segment gross profit . gross profit increased to $ 15.3 million in 2013 compared with $ 10.8 million in 2012 . gross profit as a percentage of related revenues was 25.7 % in 2013 compared with 25.9 % in 2012. the increase in gross profit was driven primarily by the following factors : increase in appliance replacement volumes , which partially offset a decline in appliance recycling volumes and price compression ; the net impact was a gross profit increase of $ 3.7 million . increase in carbon offset revenues of $ 0.4 million . increase in aap gross profit of $ 0.4 million due primarily to lower acquisition costs of recyclable appliances and improved labor efficiency . selling , general and administrative expenses . our selling , general and administrative ( “ sg & a ” ) expenses of $ 29.3 million for 2013 decreased $ 2.2 million or 6.9 % compared with $ 31.5 million in 2012 . our sg & a expenses as a percentage of total revenues decreased to 22.7 % in 2013 compared with 27.5 % in 2012 . selling expenses decreased $ 1.7 million to $ 17.2 million in 2013 compared with $ 18.9 million in 2012 . the decrease in selling expenses was due primarily to the closing of three appliancesmart stores that were operating in 2012. we closed two stores during the fourth quarter of 2012 and one store during the second quarter of 2013. store occupancy expenses and store operating expenses declined by $ 0.7 million and $ 1.0 million , respectively . general and administrative expenses decreased $ 0.5 million to $ 12.1 million in 2013 compared with $ 12.6 million in 2012 .
| net cash used in financing activities for the years ended december 28 , 2013 , and december 29 , 2012 , was related primarily to payments on our long-term borrowings and revolving line of credit . sources of liquidity . our principal sources of liquidity are cash from operations and borrowings under our revolving line of credit . our principal liquidity requirements consist of long-term debt obligations , capital expenditures and working capital . our total capital requirements for the next twelve months will depend upon , among other things , the number and size of appliancesmart stores operating during the period , the volumes generated from recycling and appliance replacement contracts during the period and our needs related to aap . currently , we have eighteen appliancesmart stores and eleven recycling centers , including aap , in operation . we believe , based on the anticipated revenues from our recycling and appliance replacement contracts , the anticipated sales per retail store , and our anticipated gross profit , that our cash balance , anticipated funds generated from operations and our revolving line of credit will be sufficient to finance our operations , long-term debt obligations and capital expenditures through at least the next twelve months . we may also need additional capital to finance our operations if our revenues are lower than anticipated , our expenses are higher than anticipated or we pursue new opportunities . sources of additional financing , if needed in the future , may include further debt financing or the sale of equity ( common or preferred stock ) or other financing opportunities . there can be no assurance that such additional sources of financing will be available on terms satisfactory to us or permitted by our credit agreement . 24 outstanding indebtedness . on january 24 , 2011 , we entered into a revolving credit , term loan and security agreement , as amended , ( “ revolving credit agreement ” ) with pnc bank , national association ( “ pnc ” ) that provides us with a $ 15.0 million revolving line of credit . see below for further discussion regarding
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we believe our patient care segment currently accounts for approximately 21 % of the market , providing a comprehensive portfolio of orthotic , prosthetic , and post-operative solutions to patients in acute , post-acute , and patient care clinic settings . the o & p patient care services market in the united states is highly fragmented and is characterized by regional and local independent o & p businesses operated predominantly by independent operators , but also including two o & p product manufacturers with substantial international patient care services operations . we do not believe that any single competitor accounts for 2 % or more of the nation 's total estimated o & p clinic revenues . the industry is characterized by stable , recurring revenues , primarily resulting from new patients as well as the need for periodic replacement and modification of o & p devices . we anticipate that the demand for o & p services will continue to grow as the nation 's population increases , and as a result of several trends , including the aging of the u.s. population , there will be an increase in the prevalence of disease-related disability and the demand for new and advanced devices . we believe the typical replacement time for prosthetic devices is three to five years , while the typical replacement time for orthotic devices varies , depending on the device . we estimate that approximately $ 1.8 billion is spent in the united states each year by providers of o & p patient care services for the o & p products , components , devices , and supplies used in their businesses . our products & services segment distributes to independent providers of o & p services . we estimate that our distribution sales account for approximately 9 % of the market for o & p products , components , devices , and supplies ( excluding sales to our patient care segment ) . we estimate the market for rehabilitation technologies , integrated clinical programs , and clinician training in skilled nursing facilities ( “ snfs ” ) to be approximately $ 150 million annually . we currently provide these products and services to approximately 25 % of the estimated 15,000 snfs located in the u.s. we estimate the market for rehabilitation technologies , clinical programs , and training within the broader post-acute rehabilitation markets to be approximately $ 400 million annually . we do not currently provide a meaningful amount of products and services to this broader market . 35 business description patient care our patient care segment employs approximately 1,600 clinical prosthetists , orthotists , and pedorthists , which we refer to as clinicians , substantially all of which are certified by either the american board for certification ( “ abc ” ) or the board of certification of orthotists and prosthetists , which are the two boards that certify o & p clinicians . to facilitate timely service to our patients , we also employ technicians , fitters , and other ancillary providers to assist our clinicians in the performance of their duties . through this segment , we additionally provide network contracting services to independent providers of o & p . patients are typically referred to hanger clinic by an attending physician who determines a patient 's treatment and writes a prescription . our clinicians then consult with both the referring physician and the patient with a view toward assisting in the selection of an orthotic or prosthetic device to meet the patient 's needs . o & p devices are increasingly technologically advanced and custom designed to add functionality and comfort to patients ' lives , shorten the rehabilitation process , and lower the cost of rehabilitation . based on the prescription written by a referring physician , our clinicians examine and evaluate the patient and either design a custom device or , in the case of certain orthotic needs , utilize a non-custom device , including , in appropriate circumstances , an “ off the shelf ” device , to address the patient 's needs . when fabricating a device , our clinicians ascertain the specific requirements , componentry , and measurements necessary for the construction of the device . custom devices are constructed using componentry provided by a variety of third party manufacturers that specialize in o & p , coupled with sockets and other elements that are fabricated by our clinicians and technicians , to meet the individual patient 's physical and ambulatory needs . our clinicians and technicians typically utilize castings , electronic scans , and other techniques to fabricate items that are specialized for the patient . after fabricating the device , a fitting process is undertaken and adjustments are made to ensure the achievement of proper alignment , fit , and patient comfort . the fitting process often involves several stages to successfully achieve desired functional and cosmetic results . given the differing physical weight and size characteristics , location of injury or amputation , capability for physical activity and mobility , cosmetic , and other needs of each individual patient , each fabricated prosthesis and orthosis is customized for each particular patient . these custom devices are commonly fabricated at one of our regional or national fabrication facilities . we have earned a reputation within the o & p industry for the development and use of innovative technology in our products , which has increased patient comfort and capability and can significantly enhance the rehabilitation process . we utilize multiple scanning and imaging technologies in the fabrication process , depending on the patient 's individual needs , including our proprietary insignia scanning system . the insignia system scans the patient and produces an accurate computer-generated image , resulting in a faster turnaround for the patient 's device and a more professional overall experience . in recent years , we have established a centralized revenue cycle management organization that assists our clinics in pre-authorization , patient eligibility , denial management , collections , payor audit coordination , and other accounts receivable processes . story_separator_special_tag the principal reimbursement sources for our services are : ● commercial private payors and other non-governmental organizations , which consist of individuals , rehabilitation providers , commercial insurance companies , health maintenance organizations ( “ hmos ” ) , preferred provider organizations ( “ ppos ” ) , hospitals , vocational rehabilitation centers , workers ' compensation programs , third party administrators , and similar sources ; ● medicare , a federally funded health insurance program providing health insurance coverage for persons aged 65 or older and certain persons with disabilities ; ● medicaid , a health insurance program jointly funded by federal and state governments providing health insurance coverage for certain persons requiring financial assistance , regardless of age , which may supplement medicare benefits for persons aged 65 or older requiring financial assistance ; and ● the va. 36 we typically enter into contracts with third party payors that allow us to perform o & p services for a referred patient and to be reimbursed for our services . these contracts usually have a stated term of one to three years and generally may be terminated without cause by either party on 60 to 90 days ' notice , or on 30 days ' notice if we have not complied with certain licensing , certification , program standards , medicare or medicaid requirements , or other regulatory requirements . reimbursement for services is typically based on a fee schedule negotiated with the third party payor that reflects various factors , including market conditions , geographic area , and number of persons covered . many of our commercial contracts are indexed to the commensurate medicare fee schedule that relates to the products or services being provided . government reimbursement is comprised of medicare , medicaid , and the va. these payors set maximum reimbursement levels for o & p services and products . medicare prices are adjusted each year based on the consumer price index for all urban consumers ( “ cpi-u ” ) unless congress acts to change or eliminate the adjustment . the cpi-u is adjusted further by an efficiency factor known as the “ productivity adjustment ” or the “ multi-factor productivity adjustment ” in order to determine the final rate adjustment each year . there can be no assurance that future adjustments will not reduce reimbursements for o & p services and products from these sources . we , and the o & p industry in general , are subject to various medicare compliance audits , including recovery audit contractor ( “ rac ” ) audits , comprehensive error rate testing ( “ cert ” ) audits , targeted probe and educate ( “ tpe ” ) audits , supplemental medical review contractor ( “ smrc ” ) audits , and unified program integrity contractor ( “ upic ” ) audits . tpe audits are generally pre-payment audits , while rac , cert , and smrc audits are generally post-payment audits . upic audits can be both pre- or post-payment audits , with a majority currently pre-payment . tpe audits replaced the previous medicare administrative contractor audits . adverse post-payment audit determinations generally require hanger to reimburse medicare for payments previously made , while adverse pre-payment audit determinations generally result in the denial of payment . in either case , we can request a redetermination or appeal , if we believe the adverse determination is unwarranted , which can take an extensive period of time to resolve , currently up to six years or more . products & services through our wholly-owned subsidiary , southern prosthetic supply , inc. ( “ sps ” ) , we distribute o & p components to independent o & p clinics and other customers . through our wholly-owned subsidiary , accelerated care plus corp. ( “ acp ” ) , our therapeutic solutions business is a leading provider of rehabilitation technologies and integrated clinical programs to skilled nursing and post-acute rehabilitation providers . our value proposition is to provide our customers with a full-service “ total solutions ” approach encompassing proven medical technology , evidence-based clinical programs , and ongoing consultative education and training . our services support increasingly advanced treatment options for a broader patient population and more medically complex conditions . we currently serve approximately 4,000 skilled nursing and post-acute providers nationwide . through our surefit subsidiary , we also manufacture and sell therapeutic footwear for diabetic patients in the podiatric market . we also operate the hanger fabrication network , which fabricates custom o & p devices for our patient care clinics , as well as for independent o & p clinics . through our internal “ supply chain ” organization , we purchase , warehouse , and distribute over 475,000 skus from more than 300 different manufacturers through sps or directly to our own clinics within our patient care segment . our warehousing and distribution facilities in nevada , georgia , illinois , and texas provide us with the ability to deliver products to the vast majority of our customers in the united states within two business days . the distribution facility we formerly operated in pennsylvania ceased operations in september 2020. our supply chain organization enables us to : ● centralize our purchasing and thus lower our material costs by negotiating purchasing discounts from manufacturers ; ● better manage our patient care clinic inventory levels and improve inventory turns ; ● improve inventory quality control ; ● encourage our patient care clinics to use the most clinically appropriate products ; and ● coordinate new product development efforts with key vendors . 37 effects of the covid-19 pandemic beginning in the last two weeks of march 2020 , our business volumes began to be adversely affected by the covid-19 pandemic . as federal , state , and local authorities implemented social distancing and suppression measures to respond to an increasing number of nationwide covid-19 infections , we experienced a decrease in our patient appointments and general business volumes .
| million . 58 interest expense , net . interest expense for the year ended december 31 , 2019 was $ 34.3 million , a decrease of $ 3.3 million , or 8.8 % , from $ 37.6 million for the same period in the prior year . this decrease was primarily due to lower interest rates on outstanding borrowings as a result of our debt refinancing in march 2018. provision for income taxes . the provision for income taxes for the year ended december 31 , 2019 was $ 3.0 million , or 9.7 % of income before taxes , compared to a provision of $ 5.2 million , or 119.6 % of income before taxes for the year ended december 31 , 2018. the effective tax rate in 2019 consists principally of the 21 % federal statutory tax rate and the rate impact from the release of valuation allowance on certain state deferred tax assets and permanent tax differences . the federal statutory tax rate in 2018 was 21 % . the decrease in the effective tax rate for the year ended december 31 , 2019 compared with the year ended december 31 , 2018 is primarily attributable to the increase in income before taxes and the release of valuation allowance on certain state deferred tax assets . during the year ended december 31 , 2019 , we determined that it was more likely than not that we would be able to realize the benefit of certain state deferred tax assets after we achieved twelve quarters of cumulative pretax income adjusted for permanent differences , as well as forecasted future taxable income and other positive evidence , and released $ 7.1 million of the valuation allowance related to certain state deferred tax assets in the fourth quarter of 2019. net income . our net income for year ended december 31 , 2019 was $ 27.5 million as compared to a net loss of $ 0.9 million for
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continue to expand our direct and indirect sales organization , including our channel relationships , to increase our sales capacity and enable greater market presence . further penetrate our existing customer base and drive enterprise-wide adoption . enhance our value proposition through a focus on solutions which address core and expanded use cases . grow our user communities and partner ecosystem to increase awareness of our brand , target new use cases , drive operational leverage and deliver more targeted , higher value solutions . continue to deliver a rich developer environment to enable rapid development of enterprise applications that leverage machine data and the splunk platform . we believe the factors that will influence our ability to achieve our goals include , among other things , our ability to deliver new offerings as well as additional product functionality ; acquire new customers across geographies and industries ; cultivate incremental sales from our existing customers by driving increased use of our software within organizations ; provide additional solutions that leverage our core machine data platform to help organizations understand and realize the value of their machine data in specific end markets and use cases ; add additional oem and strategic relationships to enable new sales channels for our software as well as extend our integration with third party products ; help software developers leverage the 43 functionality of our machine data platform through sdks and apis ; and successfully integrate acquired businesses and technologies . for the fiscal years ended january 31 , 2017 , 2016 and 2015 , our total revenues were $ 950.0 million , $ 668.4 million , and $ 450.9 million , respectively . for the fiscal year ended january 31 , 2017 , approximately 24 % of our total revenues were derived from customers located outside the united states . our customers and end-users represent the public sector and a wide variety of industries , including financial services , manufacturing , retail and technology , among others . as of january 31 , 2017 , we had over 13,000 customers , including more than 85 of the fortune 100 companies . for the fiscal years ended january 31 , 2017 , 2016 and 2015 , our gaap operating loss was $ 343.8 million , $ 287.9 million , and $ 215.8 million , respectively . our non-gaap operating income was $ 59.4 million , $ 25.4 million and $ 12.3 million for fiscal years ended january 31 , 2017 , 2016 and 2015 , respectively . for the fiscal years ended january 31 , 2017 , 2016 and 2015 , our gaap net loss was $ 355.2 million , $ 278.8 million , and $ 217.1 million , respectively . our non-gaap net income was $ 55.7 million , $ 23.6 million and $ 11.0 million for fiscal years ended january 31 , 2017 , 2016 , and 2015 , respectively . our quarterly results reflect seasonality in the sale of our offerings . historically , a pattern of increased license sales in the fourth fiscal quarter as a result of industry buying patterns has positively impacted sales activity in that period , which can result in lower sequential revenues in the following first fiscal quarter . our gross margins and operating losses have been affected by these historical trends because the majority of our expenses are relatively fixed in the short-term . the majority of our expenses are personnel-related and include salaries , stock-based compensation , benefits and incentive-based compensation plan expenses . as a result , we have not experienced significant seasonal fluctuations in the timing of expenses from period to period . non-gaap financial results to supplement our consolidated financial statements , which are prepared and presented in accordance with gaap , we provide investors with certain non-gaap financial measures , including non-gaap cost of revenues , non-gaap gross margin , non-gaap research and development expense , non-gaap sales and marketing expense , non-gaap general and administrative expense , non-gaap operating income ( loss ) , non-gaap operating margin , non-gaap net income ( loss ) and non-gaap net income ( loss ) per share ( collectively the “ 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 , employer payroll tax expense related to employee stock plans , amortization of acquired intangible assets , acquisition-related costs , adjustments related to a financing lease obligation , the partial release of the valuation allowance due to acquisition and facility exit costs . the adjustments for the financing lease obligation are to reflect the expense we would have recorded if our build-to-suit lease arrangement had been deemed an operating lease instead of a financing lease and is calculated as the net of actual ground lease expense , depreciation and interest expense over estimated straight-line rent expense . in addition , non-gaap financial measures include free cash flow , which represents cash from operations less purchases of property and equipment , and billings , which represents revenues plus the change in deferred revenue during the period . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . we use these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons . we believe that these non-gaap financial measures provide useful information about our operating results , enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in our financial and operational decision making . in addition , these non-gaap financial measures facilitate comparisons to competitors ' operating results . story_separator_special_tag we exclude stock-based compensation expense because it is non-cash in nature and excluding this expense provides meaningful supplemental information regarding our operational performance and allows investors the ability to make more meaningful comparisons between our operating results and those of other companies . we exclude employer payroll tax expense related to employee stock plans in order for investors to see the full effect that excluding that stock-based compensation expense had on our operating results . these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise , which may vary from period to period independent of the operating performance of our business . we also exclude amortization of acquired intangible assets , acquisition-related costs , the partial release of the valuation allowance due to acquisition , facility exit costs , and make adjustments related to a financing lease obligation from our non-gaap financial measures because these are considered by management to be outside of our core operating results . accordingly , we believe that excluding these expenses provides investors and management with greater visibility to the underlying performance of our business operations , facilitates comparison of our results with other periods and 44 may also facilitate comparison with the results of other companies in our industry . we consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities , including investing in our business , making strategic acquisitions and strengthening our balance sheet . we consider billings to be a useful measure for management and investors because it provides visibility into our sales activity for a particular period , which is not necessarily reflected in our revenues given that we recognize term licenses and subscriptions for cloud services ratably . there are limitations in using non-gaap financial measures because the non-gaap financial measures are not prepared in accordance with gaap , may be different from non-gaap financial measures used by our competitors and exclude expenses that may have a material impact upon our reported financial results . further , stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees . the non-gaap financial measures are meant to supplement and be viewed in conjunction with gaap financial measures . the following table reconciles our net cash provided by operating activities to free cash flow for the fiscal years ended january 31 , 2017 , 2016 and 2015 ( in thousands ) : replace_table_token_7_th the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2017 ( in thousands , except per share amounts ) . replace_table_token_8_th _ ( 1 ) gaap net loss per share calculated based on 133,910 weighted-average shares of common stock . non-gaap net income per share calculated based on 137,409 diluted weighted-average shares of common stock , which includes 3,499 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . ( 2 ) includes $ 7.7 million of interest expense related to the financing lease obligation . the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2016 ( in thousands , except per share amounts ) . 45 replace_table_token_9_th _ ( 1 ) gaap net loss per share calculated based on 126,746 weighted-average shares of common stock . non-gaap net income per share calculated based on 131,753 diluted weighted-average shares of common stock , which includes 5,007 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . ( 2 ) includes $ 10.9 million related to the partial release of the valuation allowance due to acquisition . the following table reconciles our gaap to non-gaap financial measures for the fiscal year ended january 31 , 2015 ( in thousands , except per share amounts ) . replace_table_token_10_th _ ( 1 ) gaap net loss per share calculated based on 119,775 weighted-average shares of common stock . non-gaap net income per share calculated based on 127,139 diluted weighted-average shares of common stock , which includes 7,364 potentially dilutive shares related to employee stock awards . gaap to non-gaap net income ( loss ) per share is not reconciled due to the difference in the number of shares used to calculate basic and diluted weighted-average shares of common stock . the following table reconciles our total revenues to billings for the fiscal year ended january 31 , 2017 ( in thousands , except per share amounts ) . total revenues $ 949,955 increase in deferred revenue 175,956 billings ( non-gaap ) $ 1,125,911 the following table reconciles our total splunk cloud revenues to splunk cloud billings for the fiscal year ended january 31 , 2017 ( in thousands , except per share amounts ) . 46 total splunk cloud revenues $ 47,773 increase in splunk cloud deferred revenue 47,745 splunk cloud billings ( non-gaap ) $ 95,518 components of operating results revenues license revenues . license revenues reflect the revenues recognized from sales of licenses to new customers and additional licenses to existing customers . we are focused on acquiring new customers and increasing revenues from our existing customers as they realize the value of our software by indexing higher volumes of machine data and expanding the use of our software through additional use cases and broader deployment within their organizations .
| our total number of splunk customers increased from approximately 9,000 at january 31 , 2015 to approximately 11,000 at january 31 , 2016. the increase in maintenance and services revenues of $ 95.4 million was due to increases in sales of maintenance agreements resulting from the growth of our installed customer base as well as sales of our professional services . cost of revenues and gross margin replace_table_token_13_th ( 1 ) includes stock-based compensation expense : cost of revenues $ 30,971 $ 26,057 $ 17,189 fiscal 2017 compared to fiscal 2016. total cost of revenues increased $ 76.9 million primarily due to a $ 74.0 million increase in cost of maintenance and services revenues . the increase in cost of maintenance and services revenues was primarily related to an increase of $ 30.2 million related to third-party hosting fees to support our cloud services , an increase of $ 23.6 million in salaries and benefits expense , which includes a $ 4.9 million increase in stock-based compensation expense due to increased headcount and an increase of $ 14.5 million related to third-party consulting services . the $ 2.9 million increase in cost of license revenues was primarily due to an increase in amortization expense related to acquired intangible assets . 50 maintenance and services gross margin decreased primarily due to the growth of our cloud revenues during the year . total gross margin decreased primarily due to maintenance and services revenues being a greater percentage of the overall revenue mix . fiscal 2016 compared to fiscal 2015. total cost of revenues increased $ 45.7 million primarily due to a $ 38.5 million increase in cost of maintenance and services revenues . the increase in cost of maintenance and services revenues was primarily related to an increase of $ 21.5 million in salaries and benefits expense , which includes a $ 8.9 million increase in stock-based compensation expense due to increased headcount , an increase of $ 9.9 million related to third-party hosting fees to support our cloud services and an increase of $ 4.7 million related to third-party consulting services . the $ 7.2 million increase in cost of license revenues was primarily due to
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during 2018 , we managed front yard 's entry into the following financing and interest rate cap arrangements that we believe better match the long-term nature of front yard 's assets than the shorter-term repurchase and loan agreements historically used to finance its portfolios while providing front yard with protection against rising interest rates . on april 5 , 2018 , front yard amended and restated its loan and security agreement with nomura corporate funding americas , llc to , among other things , ( i ) extend the termination date of the facility by two years to april 5 , 2020 , with a potential additional one-year extension to april 5 , 2021 , ( ii ) reduce the interest rate spread over one-month 39 ( ) libor by 0.25 % to 3.00 % and ( iii ) increase the advance rates on both non-stabilized properties and stabilized rental properties . in conjunction with the hb acquisition , berkadia commercial mortgage llc provided $ 508.7 million of financing ( the “ fyr sfr loan agreement ” ) to front yard as part of the federal home loan mortgage corporation 's ( “ freddie mac ” ) affordable single-family rental pilot program . the fyr sfr loan agreement was subsequently purchased by freddie mac . the fyr sfr loan agreement is non-amortizing , bears interest at a fixed rate of 4.65 % and has a 10-year term , maturing september 1 , 2028. this financing includes 2,798 of the rha acquired properties as well as 2,015 other properties already owned by front yard and previously financed on its existing warehouse facilities with other lenders . approximately 78 % of the homes financed pursuant to the fyr sfr loan agreement have rents that are considered affordable for families earning at or below 80 % of the area median income ( “ ami ” ) . moreover , approximately 93 % of the homes are affordable for families earning at or below 100 % of ami . we believe this further reinforces front yard 's value proposition as a leading provider of affordable single-family rental housing . on september 4 , 2018 , front yard amended and restated its repurchase agreement with credit suisse ( “ cs ” ) to , among other things , modify the interest rate from the cs cost of funds rate plus a fixed spread of 2.75 % to one-month libor plus a fixed spread of 3.00 % , resulting in a net lower cost of financing for front yard . on october 16 , 2018 , front yard entered into two interest rate caps to limit the maximum libor rate under two loan agreements with an aggregate outstanding balance of $ 172.4 million to one-month libor of 2.30 % , resulting a maximum interest rate of 4.40 % for each loan . on december 7 , 2018 , front yard entered into a loan agreement ( the “ ms loan agreement ” ) to refinance $ 489.3 million of borrowings , including increasing the borrowings against the collateral properties to $ 505.0 million while reducing the advance rate from 75 % to 70 % . we believe this increase in funding is indicative of the increases in fair value of front yard 's homes that is not represented in the historical cost carrying value . the ms loan agreement has a maturity date of december 7 , 2023 but can be prepaid without penalty at any time after december 7 , 2021. this refinancing also reduced the interest rate from one-month libor plus 3.285 % to one-month libor plus 1.80 % . in conjunction with its entry into the ms loan agreement , front yard entered into an interest rate cap to limit the maximum libor rate under the ms loan agreement to 2.50 % , resulting in a maximum interest rate of 4.30 % . these enhancements to front yard 's financing arrangements have strengthened its balance sheet by better matching its funding to the long-term nature of its assets while providing it with additional acquisition flexibility with lower cost and protection against rising interest rates . we believe all of the foregoing developments continue to be critical to our strategy of building long-term stockholder value for front yard through the creation and efficient management of a large portfolio of sfr homes that we target operating for front yard at an attractive yield . to the extent front yard is successful in implementing this strategy under our management , the fees we earn under the ama should be positively impacted . observations on current market opportunities we believe there is a compelling opportunity in the sfr market and that we have implemented the right strategic plan for front yard to capitalize on the sustained growth in sfr demand . front yard targets the moderately priced single-family home market to acquire rental properties , which , in our view , not only provide a safe , comfortable sfr rental opportunity for our residents , but also offer attractive yield opportunities driven by demand from renters . we believe that front yard 's focus on affordable housing provides it with a potential advantage , as we believe this is an underserved market segment that provides front yard with attractive yield and growth opportunities . in our view , the macroeconomic environment is creating favorable tailwinds for front yard 's business . economic indicators suggest that affordable single-family housing is in short supply , home building is not keeping up with demand and mortgage lending for credit-challenged families remains constrained . front yard provides an important alternative : affordable rental properties that our residents are proud to call home . by targeting moderately priced , single-family homes , we believe that front yard can optimize the yield on its investments and capitalize on the sustained growth in affordable single-family rental demand . story_separator_special_tag metrics affecting our consolidated results our operating results are affected by various factors and market conditions , including the following : 40 ( ) revenues our revenues primarily consist of quarterly fees due to us under the ama , including a base management fee , an incentive management fee and a conversion fee as described above and reimbursements of out-of-pocket expenses in our management of front yard 's business . the base management fee is derived as a percentage of front yard 's average invested capital , and the conversion fee is based on the number and value of mortgage loans and or reo properties that front yard converts to rental properties for the first time in each period . the incentive management fee is directly dependent upon front yard 's financial performance being in excess of a 7.0 % -8.25 % minimum return on invested capital and will vary with front yard 's financial performance . expense reimbursements we receive from front yard relate primarily to travel and other out-of-pocket expenses solely related to our management of front yard 's business and the base salary , bonus , benefits and stock compensation , if any , solely of the general counsel dedicated to front yard . for additional details on the ama , refer to item 1. business - asset management agreement with front yard . in addition to revenues under the ama , we receive dividends on the shares of front yard common stock that we own , which we record as other income . the amount of dividends we receive will vary with front yard 's financial performance , taxable income , liquidity needs and other factors deemed relevant by front yard 's board of directors . lastly , effective january 1 , 2018 , we recognize changes in the fair value of our holdings of front yard common stock as other income or loss , which will be directly dependent upon fluctuations in the market price of front yard 's common stock . expenses our expenses consist primarily of salaries and employee benefits , legal and professional fees and general and administrative expenses . salaries and employee benefits include the base salaries , incentive bonuses , medical coverage , retirement benefits , relocation , non-cash share-based compensation and other benefits provided to our employees for their services . legal and professional fees include services provided by third-party attorneys , accountants and other service providers of a professional nature . general and administrative expenses include costs related to the general operation and overall administration of our business as well as non-cash share-based compensation expense related to restricted stock awards to our directors . primary driver of our operating results our performance in each particular period will be affected by our ability to manage front yard 's business and rental portfolio effectively . if there are declines in front yard 's performance in either return on invested capital or in growing front yard 's rental portfolio and related operating metrics , our fees in each such period would be adversely affected . conversely , if there are improvements in front yard 's performance in either return on invested capital or in growing front yard 's rental portfolio and related operating metrics , our fees in each period would be positively affected . front yard 's operating results may be affected by various factors , including , but not limited to , the number and performance of front yard 's sfr properties , its ability to use financing to grow its sfr portfolio , its operating expenses , the success of its loan resolution methodologies and the size of its portfolio . the extent to which we are successful in managing these factors for front yard affects our ability to generate management fees , which are our primary source of income . under the ama , we are entitled to a base management fee , a conversion fee and an incentive management fee . the base management fee , which is derived as a percentage of front yard 's average invested capital , provides us with quarterly minimum revenues that are meant to cover our employment and other overhead costs and expenses . the conversion fee is based on the number and value of mortgage loans and or reo properties that front yard converts to rental properties for the first time in each period and will fluctuate over time . the incentive management fee is earned only if front yard exceeds the current required return threshold on invested capital ( as defined in the ama ) . with respect to our incentive management fee , in the event front yard 's return on invested capital is below the required hurdle rate in a quarter , a return rate shortfall in incentive management fees is created that is carried forward and added to the next quarter 's hurdle for the seven most recent trailing quarters or until the shortfall is reduced by front yard 's future performance above the hurdle rate . as of december 31 , 2018 , the aggregate return shortfall from the prior seven quarters under the ama was approximately 47.4 % of invested capital . as each quarter with a shortfall rolls off the trailing seven quarters , the aggregate shortfall will change by the difference in the quarter that rolls off versus the most recently completed quarter . if and when the trailing seven quarter performance of front yard allows front yard to meet the hurdle return rate for the incentive management fee , aamc will then earn an incentive management fee for the quarter of 25 % of the amount by which front yard 's return exceeds the hurdle .
| this decrease is primarily due to decreased share-based compensation expense for awards granted to our employees , partially offset by increases in our employee headcount . legal and professional fees legal and professional fees decreased to $ 1.6 million from $ 2.8 million for the years ended december 31 , 2018 and 2017 , respectively . this decrease is primarily due to decreased litigation-related expenses . general and administrative expenses general and administrative expenses increased to $ 3.6 million from $ 3.3 million for the years ended december 31 , 2018 and 2017 , respectively . this increase was primarily due to increased travel costs during 2018. change in fair value of front yard common stock the change in fair value of front yard common stock was $ ( 5.1 ) million compared to $ 1.3 million during the years ended december 31 , 2018 and 2017 , respectively . these changes in fair value were due solely to changes in the market price of front yard 's common stock as reported on the new york stock exchange at each reporting date . effective january 1 , 2018 , we began recording changes in the fair value of our front yard common stock through net income or loss upon our adoption of asu 2016-01 , financial instruments - overall ( subtopic 825-10 ) as discussed in note 1 of our consolidated financial statements . prior to january 1 , 2018 , we recognized changes in the fair value of our front yard common stock through other comprehensive income or loss . dividend income dividends recognized on shares of front yard common stock was approximately $ 1.0 million for each of the years ended december 31 , 2018 and 2017 . the amount of dividends we receive will vary with front yard 's financial performance , taxable income , liquidity needs and other factors deemed relevant by front yard 's board of directors . 42 ( ) fiscal year ended december 31 , 2017 compared to fiscal year ended december
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the aggregate excess of rental revenue recognized on a straight-line basis over base rents under applicable lease provisions is included in straight-line rents receivable on the consolidated balance sheet . leases also generally contain provisions under which the tenants reimburse the company for a portion of property operating expenses and real estate taxes incurred ; such income is recognized in the periods earned . in addition , certain operating leases contain contingent rent provisions under which tenants are required to pay a percentage of their sales in excess of a specified amount as additional rent . the company defers recognition of contingent rental income until those specified targets are met . the company must make estimates as to the collectability of its accounts receivable related to base rent , straight-line rent , expense reimbursements and other revenues . management analyzes accounts receivable by considering tenant creditworthiness , current economic conditions , and changes in tenants ' payment patterns when evaluating the adequacy of the allowance for doubtful accounts receivable . these estimates have a direct impact on net income , because a higher bad debt allowance would result in lower net income , whereas a lower bad debt allowance would result in higher net income . real estate investments real estate investments are carried at cost less accumulated depreciation . the provision for depreciation is calculated using the straight-line method based on estimated useful lives . expenditures for maintenance , repairs and betterments that do not materially prolong the normal useful life of an asset are charged to operations as incurred . expenditures for betterments that substantially extend the useful lives of real estate assets are capitalized . real estate investments include costs of development and redevelopment activities , and construction in progress . capitalized costs , including interest and other carrying costs during the construction and or renovation periods , are included in the cost of the related asset and charged to operations through depreciation over the asset 's estimated useful life . the company is required to make subjective estimates as to the useful lives of its real estate assets for purposes of determining the amount of depreciation to reflect on an annual basis . these assessments have a direct impact on net income . a shorter estimate of the useful life of an asset would have the effect of increasing depreciation expense and lowering net income , whereas a longer estimate of the useful life of an asset would have the effect of reducing depreciation expense and increasing net income . a variety of costs are incurred in the acquisition , development and leasing of a property , such as pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs , and other costs incurred during the period of development . after a determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . the company ceases capitalization on the portions substantially completed and occupied , or held available for occupancy , and capitalizes only those costs associated with the portions under construction . the company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but not later than one year from cessation of major development activity . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the effect of a longer capitalization period would be to increase capitalized costs and would result in higher net income , whereas the effect of a shorter capitalization period would be to reduce capitalized costs and would result in lower net income . the company allocates the fair value of real estate acquired to land , buildings and improvements . in addition , the fair value of in-place leases is allocated to intangible lease assets and liabilities . the fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant , which value is then allocated to land , buildings and improvements based on management 's determination of the fair values of such assets . in valuing an acquired property 's intangibles , factors considered by management include an estimate of carrying costs during the expected lease-up periods , such as real estate taxes , insurance , other operating expenses , and estimates of lost rental revenue during the expected lease-up periods based on its evaluation of current market demand . management also estimates costs to execute similar leases , including leasing commissions , tenant improvements , legal and other related costs . the values of acquired above-market and below-market leases are recorded based on the present values ( using discount rates which reflect the risks associated with the leases acquired ) of the differences between the contractual amounts to be received and management 's estimate of market lease rates , measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions . such valuations include a consideration of the non-cancellable terms of the respective leases as well as 30 any applicable renewal period ( s ) . the fair values associated with below-market rental renewal options are determined based on the company 's experience and the relevant facts and circumstances that existed at the time of the acquisitions . the values of above-market leases are amortized to rental income over the terms of the respective non-cancelable lease periods . the portion of the values of below-market leases associated with the original non-cancelable lease terms are amortized to rental income over the terms of the respective non-cance lable lease periods . the portion of the values of the leases associated with below-market renewal options that are likely of exercise are amortized to rental income over the respective renewal periods . the value of other intangible assets ( including leasi ng commissions , tenant improvements , etc . ) is amortized to expense over the applicable terms of the respective leases . story_separator_special_tag if a lease were to be terminated prior to its stated expiration or not renewed , all unamortized amounts relating to that lease would be r ecognized in operations at that time . management is required to make subjective assessments in connection with its valuation of real estate acquisitions . these assessments have a direct impact on net income , because ( 1 ) above-market and below-market lease intangibles are amortized to rental income , and ( 2 ) the value of other intangibles is amortized to expense . accordingly , higher allocations to below-market lease liability and other intangibles would result in higher rental income and amortization expense , whereas lower allocations to below-market lease liability and other intangibles would result in lower rental income and amortization expense . management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable . the review of recoverability is based on an estimate of the future cash flows that are expected to result from the real estate investment 's use and eventual disposition . these estimates of cash flows consider factors such as expected future operating income , trends and prospects , as well as the effects of leasing demand , competition and other factors . if an impairment event exists due to the projected inability to recover the carrying value of a real estate investment , an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value . a real estate investment held for sale is carried at the lower of its carrying amount or estimated fair value , less the cost of a potential sale . depreciation and amortization are suspended during the period the property is held for sale . management is required to make subjective assessments as to whether there are impairments in the value of its real estate properties . these assessments have a direct impact on net income , because an impairment loss is recognized in the period that the assessment is made . new accounting pronouncements see note 2 of notes to consolidated financial statements included in item 8 below for information relating to new accounting pronouncements . story_separator_special_tag expenses attributable to the company 's same-center properties ( consisting primarily of a reduction in bad debt expense , non-billable expenses and snow removal costs ) , partially offset by an increase of $ 2.2 million in property operating expenses attributable to properties acquired in 2016 and 2015. general and administrative costs were higher primarily as a result of ( 1 ) $ 1.4 million of costs and estimated expenses associated with the chief operating officer transition in 2016 , and ( 2 ) a $ 1.0 million increase in payroll , with approximately 50 % related to salaries and 50 % related to bonuses . acquisition pursuit costs in 2016 relate to ( 1 ) $ 1.7 million of transfer taxes relating to the buyout of a ground lease and acquisition of the fee interest in a currently owned property , ( 2 ) $ 0.6 million for the purchase of the shops at bloomfield station , located in bloomfield , new jersey , ( 3 ) $ 0.5 million for the purchase of the shoppes at arts district , located in hyattsville , maryland , ( 4 ) $ 0.4 million for additional real estate transfer taxes assessed on a property which was purchased in 2014 , and ( 5 ) $ 0.3 million of other costs . acquisition pursuit costs in 2015 relate to the purchase of lawndale plaza , located in philadelphia , pennsylvania . depreciation and amortization expenses were higher primarily as a result of ( 1 ) an increase of $ 3.1 million in depreciation and amortization expenses attributable to properties acquired in 2016 and 2015 , and ( 2 ) an increase of $ 0.2 million in depreciation and amortization expenses attributable to the company 's redevelopment properties , partially offset by ( 1 ) a decrease of $ 0.6 million in depreciation and amortization expenses attributable to properties that were sold or held for sale in 2016 and 2015 , and ( 2 ) a decrease of $ 0.5 million in depreciation and amortization expenses attributable to the company 's same-center properties . impairment charges in 2016 relate to the sale of upland square , located in pottstown , pennsylvania . impairment reversals in 2015 relate to properties that were initially classified as held for sale in 2015. interest expense was lower primarily as a result of ( 1 ) $ 1.9 million as a result of a decrease in the overall weighted average interest rate , and ( 2 ) $ 0.3 million as a result of additional capitalized interest , partially offset by ( 1 ) $ 0.4 million as a result of an increase in the overall outstanding principal balance of debt , and ( 2 ) $ 0.1 million as a result of an increase in amortization of deferred financing costs . early extinguishment of debt costs in 2016 and 2015 relates to defeasement fees and the accelerated write-off of unamortized fees associated with the prepayment of certain mortgage loans payable . discontinued operations in 2015 include the results of operations and impairment reversals attributable to a property that qualified for treatment as discontinued operations . same-property net operating income same-property net operating income ( “ same-property noi ” ) is a widely-used non-gaap financial measure for reits that the company believes , when considered with financial statements prepared in accordance with gaap , is useful to investors as it provides an indication of the recurring cash generated by the company 's properties by excluding certain non-cash revenues and expenses , as well as other infrequent items such as lease termination income which tends to fluctuate more than rents from year to year .
| acquisition pursuit costs in 2016 , which were recorded under the prior accounting guidance , relate to ( 1 ) $ 1.7 million of transfer taxes relating to the buyout of a ground lease and acquisition of the fee interest in a currently owned property , ( 2 ) $ 0.6 million for the purchase of the shops at bloomfield station , located in bloomfield , new jersey , ( 3 ) $ 0.5 million for the purchase of the shoppes at arts district , located in hyattsville , maryland , ( 4 ) $ 0.4 million for additional real estate transfer taxes assessed on a property which was purchased in 2014 , and ( 5 ) $ 0.3 million of costs associated with acquisitions the company chose not to continue to pursue . depreciation and amortization expenses were lower primarily as a result of ( 1 ) a decrease of $ 1.9 million attributable to properties that were sold in 2017 and 2016 , and ( 2 ) a decrease of $ 0.5 million attributable to redevelopment properties , partially offset by an increase of $ 1.7 million attributable to properties acquired in 2017 and 2016. gain on sale in 2017 relates to the sale of an outparcel building adjacent to camp hill , located in camp hill , pennsylvania on february 1 , 2017. impairment charges in 2017 relate to fredericksburg way , located in fredericksburg , virginia , which was sold on december 29 , 2017. impairment charges in 2016 relate to upland square , located in pottstown , pennsylvania , which was sold on november 2 , 2016. interest expense was lower primarily as a result of ( 1 ) $ 2.2 million as a result of a decrease in the overall outstanding principal balance of debt , ( 2 ) $ 1.8 million as a result of a decrease in the overall weighted average interest rate , and ( 3 ) $ 0.4 million as a result of a decrease in amortization of deferred financing costs . early extinguishment of debt costs in 2017 relates to the accelerated write-off of unamortized fees associated with amended
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capital reserve fund of $ 1.5 million was reduced by $ 0.6 million ( “ nwc adjustment amount ” ) , following completion of the process provided for in the merger agreement , in which an independent accounting firm ( the “ firm ” ) was engaged to review related working capital-related claims made by the company against such funds . as a result of the firm 's findings , the company has recognized and reported a corresponding gain in its consolidated statement of operations for the fiscal year ended september 30 , 2018 . 17 loss on extinguishment of debt there is no loss on extinguishment of debt for fiscal 2018. loss on the extinguishment of debt for fiscal 2017 , was $ 994.0 thousand , due to the change of the revolving credit facility and other subordinated debt during fiscal 2017. interest expense interest expense for fiscal 2018 , increased $ 5.5 million , or approximately 92 % compared with fiscal 2017 primarily as a result of the newly obtained long-term debt in fiscal 2017 , the interest expense for acquisition payments and higher average borrowings related to the new acquisitions . provision for income taxes the company recognized a tax benefit of approximately $ 0.8 million primarily associated with recognition of the newly adopted tax cuts and jobs act enacted in fiscal 2018. the company recognized a tax benefit of approximately $ 6.0 million mostly due to realization of net operating loss and change in valuation allowance in fiscal 2017. net loss the company incurred net losses for fiscal 2018 and fiscal 2017 of $ 7.6 million and $ 2.4 million , respectively . also impacting 2018 results were increases of $ 2.0 million in depreciation and amortization and $ 5.5 million in interest expense , which by themselves , accounted for substantially the entire net loss in fiscal 2018. liquidity and capital resources overview the following table sets forth certain consolidated statements of cash flows data : replace_table_token_5_th at september 30 , 2018 , the company had $ 3.2 million of cash which was an increase of approximately $ 0.4 million from approximately $ 2.8 million at september 30 , 2017. at september 30 , 2018 , the company had working capital of $ 13.1 million compared to $ 9.5 million of working capital at september 30 , 2017. the increase in net cash provided by operating activities for fiscal 2018 as compared with fiscal 2017 , corresponds with the increase in income from operations before depreciation and amortization offset by the increase in interest expense on the company 's senior debt during fiscal 2018 as compared with fiscal 2017. the primary uses of cash for investing activities were for the acquisition of property and equipment in fiscal 2018 and for the acquisition of sni in fiscal 2017. cash flow used in financing activities for fiscal 2018 was primarily for payments on our term loan offset by proceeds from the revolving credit facility . cash flow provided by financing activities for fiscal 2017 was primarily from the new term-loan and net borrowings of the revolving credit facility . minimum debt service payments ( principal ) for the twelve-month period commencing after the close of business on september 30 , 2018 , are approximately $ 3.1 million . all the company 's office facilities are leased . minimum lease payments under all the company 's lease agreements for the twelve-month period commencing after the close of business on september 30 , 2018 , are approximately $ 2.2 million . in recent years , the company has incurred significant net losses . management has implemented a strategy which includes cost reduction efforts as well as identifying strategic acquisitions , financed primarily through the issuance of equity and debt , to improve the overall profitability and cash flows of the company . management currently expects that the combination of future cash flow from operations and the availability of borrowings under the revolving credit facility will provide sufficient liquidity for the next 12 months . 18 revolving credit facility and term loan on march 31 , 2017 , the company and its subsidiaries , as borrowers , entered into a revolving credit , term loan and security agreement ( the “ credit agreement ” ) with pnc bank national association ( “ pnc ” ) , and certain investment funds managed by mgg investment group lp ( “ mgg ” ) . initial funds were distributed on april 3 , 2017 , the closing date to repay the existing indebtedness , pay fees and expenses relating to the credit agreement , and to pay a portion of the purchase price for the acquisition of the sni companies . under the terms of the credit agreement , the company may borrow up to $ 73.8 million consisting of a four-year term loan in the principal amount of $ 48.8 million and revolving loans in a maximum amount up to the lesser of ( i ) $ 25.0 million or ( ii ) an amount determined pursuant to a borrowing base that is calculated based on the outstanding amount of the company 's eligible accounts receivable , as described in the credit agreement . the loans under the credit agreement mature on march 31 , 2021. on the closing date of the credit agreement , the company borrowed $ 48.8 million from term loans and borrowed approximately $ 7.5 million from the revolving credit facility for a total of $ 56.2 million , which was used by the company to repay existing indebtedness , to pay fees and expenses relating to the credit agreement , and to pay a portion of the purchase price for the acquisition of all of the outstanding stock of sni holdco inc. pursuant to the merger agreement . amounts borrowed under the credit agreement also may be used by the company to partially fund capital expenditures , provide for on-going working capital needs and general corporate needs , and to fund future acquisitions subject to certain customary conditions of the lenders . story_separator_special_tag the credit agreement contains certain covenants applicable to both the revolving credit facility and term loan . . in addition to the financial covenants , the credit agreement includes other restrictive covenants . the credit agreement permits capital expenditures up to a certain level and contains customary default and acceleration provisions . the credit agreement also restricts , above certain levels , acquisitions , incurrence of additional indebtedness , and payment of dividends . the company did not meet its financial loan covenants at september 30 , 2018 or at june 30 , 2018 or march 31 , 2018 , previously . on may 15 , 2018 , the company obtained a temporary waiver from its lenders for the missed financial covenants at march 31 , 2018. on august 10 , 2018 , the company and its subsidiaries , as borrowers , entered into a third amendment and waiver ( the “ third amendment and waiver ” ) to the credit agreement . pursuant to the third amendment and waiver , the lenders agreed to modify the definition of ebitda in the credit agreement to allow for the recognition and exclusion of certain additional acquisition , integration and restructuring expenses not previously specified and to provide a temporary waiver for any defaults and events of default under the credit agreement that have solely arisen by reason of the company failing to comply with the financial covenants of the credit agreement for the period ending june 30 , 2018. on december 27 , 2018 , the company and its subsidiaries , as borrowers , entered into a fourth amendment and waiver ( the “ fourth amendment and waiver ” ) to the revolving credit , term loan and security agreement , dated as of march 31 , 2017 ( the “ credit agreement ” ) . under the fourth amendment and waiver , the company and its lenders have negotiated and agreed to a temporary waiver for non-compliance with the financial covenants under the credit agreement as of september 30 , 2018 , and amendments to the financial covenants and to the remaining scheduled principal payments . management has taken definitive actions to improve operations , reduce costs and improve profitability , and position the company for future growth . the company also is seeking replacement financing with a view towards lowering its borrowing costs . based on its current projections , management expects that the company can meet its future debt service requirement and comply with its financial covenants and other commitments , as amended in the fourth amendment and waiver . however , the company 's projections are based on assumptions and estimates about future performance and events , which are subject to change or other unforeseen conditions or uncertainties . as such , there can be no assurance that the company will not fall into non-compliance with its loan covenants or that its lenders will continue to provide waivers or amendments to the company in the event of future non-compliance with debt covenants or other possible events of default that could happen in the future . subordinated debt – convertible and non-convertible on october 2 , 2015 , the company issued and sold a subordinated note in the aggregate principal amount of $ 4,185,000 to jax legacy – investment 1 , llc ( “ jax ” ) pursuant to a subscription agreement dated october 2 , 2015 between the company and jax . on april 3 , 2017 , the company and jax amended and restated the subordinated note in its entirety in the form of the 10 % convertible subordinated note ( the “ 10 % note ” ) in the aggregate principal amount of $ 4,185,000. the 10 % note matures on october 3 , 2021 . the 10 % note is convertible into shares of the company 's common stock at a conversion price equal to $ 5.83 per share ( subject to adjustment as provided in the 10 % note upon any stock dividend , stock combination or stock split or upon the consummation of certain fundamental transactions ) ( the “ conversion price ” ) . the 10 % note is subordinated in payment to the obligations of the company to the lenders parties to the credit agreement , pursuant to a subordination and intercreditor agreements , dated as of march 31 , 2017 by and among the company , the borrowers , the agent and jax . the 10 % note issued to jax is not registered under the securities act of 1933 , as amended ( the “ securities act ” ) . jax is an accredited investor . the issuance of the 10 % note to jax is exempt from the registration requirements of the act in reliance on an exemption from registration provided by section 4 ( 2 ) of the act . 19 on october 4 , 2015 , the company issued to the sellers of access data consulting corporation a promissory note . interest on the outstanding principal balance of the promissory note is payable at the rate of 5.5 % per annum . the principal and interest amount of the promissory note is payable as follows : ( i ) for the first twelve months commencing on november 4 , 2015 and ending on october 4 , 2016 , a monthly payment of approximately $ 57,000 in principal and interest , ( ii ) on october 4 , 2016 a balloon payment of principal of $ 1,000,000 , ( iii ) for the next twelve months commencing on november 4 , 2016 and ending on october 4 , 2017 , a monthly payment of approximately $ 28,000 in principal and interest , ( iv ) on october 4 , 2017 a balloon payment of principal of $ 1,202,000 and ( v ) on october 4 , 2017 any and all amounts of previously unpaid principal and accrued interest . the credit agreement requires this loan to be subordinated to pnc and mgg .
| although revenues are lower for fiscal 2018 than for fiscal 2017 , the company believes that the aforementioned actions coupled with new and expanded services offered to customers have also contributed to the increased gross margins relative to revenues from that segment for fiscal 2018 as compared with fiscal 2017. direct hire placement revenue for fiscal 2018 increased by $ 8.3 million over fiscal 2017 due to increased productivity from a smaller number of dedicated direct hire placement personnel . the company expects to selectively increase revenue producing headcount in key markets and industry verticals . the professional contract services revenue together with the direct hire placement revenue for the year includes business from staff augmentation , permanent placement , statement of work ( sow ) and other human resource solutions in the information technology , engineering , healthcare and finance and accounting higher margin staffing specialties . the company 's strategic plan contains both internal and acquisition growth objectives to increase revenue in the aforementioned higher margin and more profitable professional services sectors of staffing , which represents approximately 86.9 % ( comprised of professional contract services and direct hire placement services ) of total revenue for fiscal 2018 . 15 cost of contract services cost of contract services includes wages and related payroll taxes , employee benefits of the company 's contract services employees , and certain other employee-related costs , while they work on contract assignments . cost of contract services for fiscal 2018 increased by approximately 18.2 % to $ 106.4 million compared to fiscal 2017 of $ 90.0 million . the $ 16.4 million increase in cost of contract services for fiscal 2018 compared to fiscal 2017 was primarily attributable to the acquisition of sni and the associated increased billings noted above . replace_table_token_4_th _ ( 1 ) includes gross profit from direct hire placements , for which all associated costs are recorded as selling , general and administrative expenses . the company 's combined gross profit margin , including direct hire placement
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o on may 2 , 2016 , we purchased certain assets of fox brothers company , a distributor of roofing , siding , windows , doors , and related products with 4 branches operating in michigan with annual sales of approximately $ 35 million . o on june 1 , 2016 , we acquired 100 % of the equity interests of woodfeathers , inc. , a distributor of primarily residential roofing and related products with 4 branches operating in oregon and washington with annual sales of approximately $ 30 million . - in addition , we completed 3 strategic acquisitions in 2015 and 1 strategic acquisition in 2014 . · organic growth : - we have continued to promote organic greenfield growth with the opening of 1 new branch in 2016 , 6 new branches in 2015 , and 26 new branches in 2014. these 33 new branch locations have allowed us to penetrate deeper into many of our existing markets and establish a greater presence in new markets . in addition , rsg opened 9 new branches in 2015 and 9 new branches in 2014. although these new greenfield locations impact our operating cost structure slightly in the near-term , we believe that our greenfields are strategically located within markets with strong dynamics and opportunity to quickly establish our presence and gain local market share . general we sell all materials necessary to install , replace and repair residential and non-residential roofs , including : · shingles , standard and specialty ; · single-ply roofing ; · metal roofing and accessories ; · modified bitumen ; · built-up roofing ; · insulation ; · slate and tile roofing ; · fasteners , coatings and cements ; and · other roofing accessories . we also sell complementary building products such as : · vinyl , wood and fiber cement siding ; · doors , windows and millwork ; · decking and railing ; · building insulation ; and · waterproofing systems . we serve nearly 67,000 customers , none of which individually represents more than 2 % of our total net sales . many of our customers are small to mid-size contractors with relatively limited capital resources . we maintain strict credit review and approval policies , which has helped to keep losses from uncollectible customer receivables within our expectations . 24 our expenses consist primarily of the cost of products purchased for resale , labor , fleet , occupancy , and selling and administrative expenses . we compete for business and may respond to competitive pressures at times by lowering prices in order to maintain our market share . story_separator_special_tag primarily caused by short-term factors such as local market conditions , weather conditions , storm activity and foreign currency exchange rates . product group sales for our existing markets were as follows : replace_table_token_10_th for 2016 , our acquired markets recognized sales of $ 912.2 million , $ 492.4 million and $ 206.8 million in residential roofing products , non-residential roofing products and complementary building products , respectively . the combination of our 2016 existing market sales of $ 2.51 billion plus the sales from acquired markets of $ 1.61 billion equals our total 2016 sales of $ 4.13 billion . we believe the existing market information is useful to investors because it helps explain organic growth or decline . 26 gross profit gross profit and gross margin for consolidated and existing markets were as follows : replace_table_token_11_th 1 percentage changes for dollar amounts represents the ratable increase or decrease from period-to-period . percentage changes for percentages represent the net period-to-period change in basis points our existing market gross profit increased $ 76.2 million , or 14.0 % , to $ 619.7 million in 2016 , and gross profit within our acquired markets was $ 393.4 million for the same period . our overall gross margins improved to 24.5 % in 2016 , due to a favorable shift in sales mix to residential products . gross margins within our existing markets for 2016 increased to 24.6 % . during 2016 , we experienced an increase in the gross margins within our residential and non-residential product groups due to reduction in our net product costs which was greater than the decline in our average selling prices . in addition during 2016 , we experienced an overall increase in the gross margins over the prior year due to a shift in sales mix to higher-margin residential products . direct sales ( products shipped by our vendors directly to our customers ) , which typically have substantially lower gross margins ( and operating expense ) compared to our warehouse sales , represented 15.8 % and 16.3 % of our net sales in 2016 and 2015 , respectively . we believe variations in direct sales activity to be primarily caused by short-term factors such as local market conditions , weather conditions and storm activity . none of these variations were driven by material regional impacts from changes in the direct sales mix of our geographical regions . operating expense operating expense for consolidated and existing markets was as follows : replace_table_token_12_th 1 percentage changes for dollar amounts represents the ratable increase or decrease from period-to-period . percentage changes for percentages represent the net period-to-period change in basis points operating expense in our existing markets increased by $ 29.2 million , or 6.9 % in 2016 , to $ 455.7 million , as compared to $ 426.4 million in 2015 , while operating expense within our acquired markets was $ 352.4 million in 2016. the following factors were the leading causes of the increased operating expense in our existing markets : · an increase in payroll and employee benefits costs of $ 28.3 million due to an increase in variable incentive and volume-related compensation ; and · an increase in stock-based compensation of $ 4.3 million partially offset by : 27 · a decrease in general and administrative , selling , warehouse and other expenses of $ 4.1 million during 2016 and 2015 , we recorded amortization expense related to the intangible assets recorded under purchase accounting story_separator_special_tag within our existing markets of $ 10.8 million and $ 12.2 million , respectively . our existing markets operating expense as a percentage of the related net sales in 2016 was 17.7 % , compared to 18.6 % in 2015. interest expense , financing costs and other interest expense , financing costs and other expense was $ 58.5 million in 2016 , as compared to $ 11.0 million in 2015. the primary driver of the increase is the additional interest expense incurred related to acquisitions completed during 2016. income taxes income tax expense was $ 56.6 million in 2016 , compared to $ 43.8 million in 2015. the increase in expense was primarily due to an increase in pre-tax income . the effective tax rate decreased from 41.3 % in 2015 to 38.6 % in 2016 , a change was primarily driven by non-deductible professional fees incurred in 2015 related to the rsg acquisition and favorable tax adjustment items in 2016 . 2015 vs. 2014 the following table presents a summary of our results of operations for the periods presented , broken down by existing markets and acquired markets : replace_table_token_13_th ( 1 ) during 2015 and 2014 we recorded amortization expense for our acquired markets related to intangible assets recorded under purchase accounting of $ 16.2 million ( $ 4.5 from acquired markets ) and $ 14.1 million ( none from acquired markets ) . in addition , operating expense for 2015 included a non-recurring charge of $ 7.3 million ( $ 7.0 million , net of taxes ) for the recognition of certain charges related to the rsg acquisition . net sales consolidated net sales increased $ 188.3 million , or 8.1 % , to $ 2.52 billion in 2015 from $ 2.33 billion in 2014. existing market sales increased $ 103.2 million , or 4.4 % over the same comparative periods . we believe our 2015 existing market sales were influenced primarily by the following factors : · increased demand in our residential and complementary products groups ; · increased selling prices in our complementary products group ; and · 6 new greenfields branches opened in 2015 , combined with 26 additional greenfield branches opened in 2014 ; partially offset by : · lower direct sales activity ; and · lower residential roofing average selling prices . 28 net sales within our acquired markets were $ 85.7 million in 2015 , a significant increase from 2014 due to the sales impact from the acquisitions completed during 2014 and 2015. in 2015 , we acquired a total of 8 branches , opened 6 new branches , and closed 4 branches . closures were primarily a result of facility consolidations due to the acquisitions . we estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins ( discussed below ) . average overall selling prices in existing markets declined 1 % in 2015 compared to 2014 , driven primarily by declines in residential selling prices which were both down approximately 2-3 % year-over-year . these declines were partially offset by continued increases in the average selling prices of complementary products , which increased approximately 2 % to 3 % year over year . non-residential selling prices remained relatively flat ( less than 1 % movement ) . during the same period , net product costs of our residential roofing products decreased approximately 2 % to 3 % , non-residential product costs remained relatively flat ( less than 1 % movement ) and complementary net product costs increased approximately 2 % . existing markets net sales by geographical region increased ( decreased ) from 2014 to 2015 as follows : northeast 7.2 % ; mid-atlantic 3.7 % ; southeast 5.1 % ; southwest ( 3.3 % ) ; midwest 7.1 % ; west 14.1 % ; and canada ( 0.2 % ) . these variations were primarily caused by short-term factors such as local market conditions , weather conditions , storm activity , and foreign currency exchange rates . product group sales for our existing markets were as follows : replace_table_token_14_th for 2015 , our acquired markets recognized sales of $ 44.5 million , $ 3.2 million and $ 38.0 million in residential roofing products , non-residential roofing products and complementary building products , respectively . the combination of our 2015 existing market sales of $ 2.43 billion million plus the sales from acquired markets of $ 85.7 million equals our total 2015 sales of $ 2.52 billion . we believe the existing market information is useful to investors because it helps explain organic growth or decline . gross profit gross profit and gross margin for consolidated and existing markets were as follows : replace_table_token_15_th 1 percentage changes for dollar amounts represents the ratable increase or decrease from period-to-period . percentage changes for percentages represent the net period-to-period change in basis points our existing market gross profit increased $ 42.8 million , or 8.1 % , to $ 570.4 million in 2015 , and gross profit within our acquired markets was $ 24.9 million for the same period . our overall gross margins improved to 23.7 % in 2015 , due to pricing increases across our complementary products as a result of increased demand and the impact of acquisitions in 2015 , combined with a favorable shift in our sales mix during 2015 towards residential and complementary products , which generally have higher margins . gross margins within our existing markets for 2015 increased to 23.5 % . during 2015 , we experienced an increase in the gross margins within our residential and non-residential product group due to reduction in our net product costs which was greater than the decline in our average selling prices . in addition during 2015 , we experienced an overall increase in the gross margins over the prior year due to a shift in sales mix to higher-margin residential products .
| in addition , operating expense for 2016 and 2015 included non-recurring charges of $ 51.9 million ( $ 31.9 million , net of taxes ) and $ 7.3 million ( $ 7.0 million , net of taxes ) , respectively , for the recognition of certain charges related to acquisitions . net sales consolidated net sales increased $ 1.61 billion , or 64.1 % , to $ 4.13 billion in 2016 from $ 2.52 billion in 2015. existing market sales increased $ 226.6 million , or 9.9 % over the same comparative periods . we believe our 2016 existing market sales were influenced primarily by the following factors : · increased demand in our residential , non-residential , and complementary products groups ; · strong storm activity across the southwest region during 2016 ; and · 42 new beacon greenfield branches that opened in fiscal years 2013 , 2014 and 2015 ; partially offset by : · lower residential and non-residential roofing average selling prices . net sales within our acquired markets were $ 1.61 billion in 2016 , a significant increase from 2015 due to the impact of the acquisitions completed during 2016. in 2016 , we acquired a total of 127 branches and closed 34 branches . closures were primarily a result of facility consolidations due to the acquisitions . we estimate the impact of inflation or deflation on our sales and gross profit by looking at changes in our average selling prices and gross margins ( discussed below ) . average overall selling prices in existing markets declined 2-3 % in 2016 compared to 2015 , driven primarily by declines in residential and non-residential selling prices which were both down approximately 2-3 % year-over-year . the average selling prices of complementary products remained flat year-over-year . during the same period , net product costs for complementary products remained relatively flat , while residential and non-residential net product costs decreased approximately 2-3 % and 3-4 % , year-over-year , respectively . existing markets net sales by geographical region increased ( decreased ) from 2015 to 2016
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in determining life expectancy estimates , we generally use actuarial medical reviews from independent medical underwriters . these medical underwriters evaluate the health of the insured by reviewing historical and current medical records . this evaluation is performed to produce an estimate of the insured 's mortality—a life expectancy report . in the case of a small face policy ( $ 1.0 million face value of policy benefits or less ) , we may use one life expectancy report or estimate life expectancy based on a modified methodology which does not use actuarial medical reviews from independent medical underwriters . the life expectancy estimate represents a range of probabilities for the insured 's mortality against a group of cohorts with the same age , sex and smoking status . these mortality probabilities represent a mathematical curve known as a mortality curve , which is then used to generate a series of expected cash flows from the life insurance policy over the expected lifespan of the insured . a discount rate is used to calculate the net present value of the expected cash flows . the discount rate represents the internal rate of return we expect to earn on investments in a policy or in the portfolio as a whole at the stated fair value . the discount rate used to calculate fair value of our portfolio incorporates the guidance provided by asc 820 , fair value measurements and disclosures . many of our current underwriting review processes , including our policy of obtaining actuarial medical reviews from independent medical underwriters as described above , are undertaken in satisfaction of obligations under our revolving credit facility . as a result , we may in the future modify our underwriting review processes if permitted under our borrowing arrangements . the table below provides the discount rate used to estimate the fair value of our portfolio of life insurance policies for the period ending : december 31 , 2014 december 31 , 2013 11.43 % 11.69 % the change in the discount rate incorporates current information about discount rates applied by other reporting companies owning portfolios of life insurance policies , discount rates observed by us in the life insurance secondary market , market interest rates , the credit exposure to the issuing insurance companies , and our estimate of the risk premium a purchaser would require to receive the future cash flows derived from our portfolio of life insurance policies . because we use the discount rate to arrive at the fair value of our portfolio , the rate we choose necessarily assumes an orderly and arms-length transaction ( i.e. , a non-distressed transaction in which neither seller nor buyer is compelled to engage in the transaction ) . we engaged a third party , model actuarial pricing systems ( maps ) , to prepare a third-party valuation of our life settlement portfolio . maps owns and maintains the portfolio pricing software we use . maps processed policy data , future premium data , life expectancy estimate data , and other actuarial information we supplied to calculate a net present value for our portfolio using the specified discount rate of 11.43 % . maps independently calculated the net present value of our portfolio of 291 policies to be $ 282.9 million , which is the same fair value estimate we used on the balance sheet as of december 31 , 2014 , and furnished us with a letter documenting its calculation . a copy of such letter is filed as exhibit 99.1 to this report . jobs act on april 5 , 2012 , the jumpstart our business startups act of 2012 , or jobs act , was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 for complying with new or revised accounting standards . this means that an “ emerging growth company ” can make an election to delay the adoption of certain accounting standards until those standards would apply to private companies . we have elected to delay such adoption of new or revised accounting standards and , as a result , we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not “ emerging growth companies. ” this exemption will apply for a period of five years following our first sale of common equity securities under an effective registration statement or until we no longer qualify as an “ emerging growth company ” as defined under the jobs act , whichever is earlier . 32 deferred income taxes fasb asc 740 , income taxes , requires us to recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . a valuation allowance is established for any portion of deferred tax assets that is not considered more likely than not to be realized . we have provided a valuation allowance against the deferred tax asset related to a note receivable , which has been charged-off for financial reporting purposes , because we believe that , when realized for tax purposes , it will result in a capital loss that will not be utilized because we have no expectation of generating a capital gain within the applicable carryforward period . therefore , we do not believe that it is more likely than not that the deferred tax asset will be realized . we have also provided a valuation allowance against the deferred tax asset related to a tax basis capital loss generated with respect to our settlement and subsequent disposal of an earlier investment in athena structured funds plc ( see “ notes to consolidated financial statements ” note 9 ) . story_separator_special_tag as we have no expectation of generating capital gains with the applicable carry-forward period , we do not believe that it is more likely than not that the deferred asset will be realized . a valuation allowance is required to be recognized to reduce deferred tax assets to an amount that is more likely than not to be realized . realization of deferred tax assets depends upon having sufficient past or future taxable income in periods to which the deductible temporary differences are expected to be recovered or within any applicable carryback or carryforward periods . we believe that it is more likely than not that we will be able to realize all of our deferred tax assets other than those which are expected to result in a capital loss . deferred financing and issuance costs financing costs incurred to obtain financing under the revolving credit facility have been capitalized and are amortized using the straight-line method over the term of the revolving credit facility . the series i secured note obligations are reported net of issuance costs , sales commissions , and other direct expenses , which are amortized using the interest method over the term of each respective borrowing . the l bonds are reported net of issuance costs , sales commissions , and other direct expenses , which are amortized using the interest method over the term of each respective borrowing . the series a preferred stock is reported net of issuance costs , sales commissions , including the fair value of warrants issued , and other direct expenses , which are amortized using the interest method as interest expense over a three-year redemption period . as of december 31 , 2014 these costs have been fully amortized . risk relating to forward-looking statements certain matters discussed in this section of this report , and elsewhere in this report , are forward-looking statements . we have based these forward-looking statements on our current expectations and projections about future events . nevertheless , these forward-looking statements are subject to risks , uncertainties and assumptions about our operations and the investments we make , including , among other things , factors discussed in the “ risk factors ” section of this report and the following : ● changes in the secondary market for life insurance ; ● our limited operating history ; ● the valuation of assets reflected on our financial statements ; ● the reliability of assumptions underlying our actuarial models ; ● our reliance on debt financing ; ● risks relating to the validity and enforceability of the life insurance policies we purchase ; ● our reliance on information provided and obtained by third parties ; ● federal , state and finra regulatory matters ; ● competition in the secondary market of life insurance ; ● the relative illiquidity of life insurance policies ; ● our ability to satisfy our debt obligations if we were to sell our entire portfolio of life insurance policies ; ● life insurance company credit exposure ; 33 ● general economic outlook , including prevailing interest rates ; ● performance of our investments in life insurance policies ; ● financing requirements ; ● litigation risks ; and ● restrictive covenants contained in borrowing agreements . forward-looking statements can generally be identified by the use of words like “ believes , ” “ could , ” “ possibly , ” “ probably , ” “ anticipates , ” “ estimates , ” “ projects , ” “ expects , ” “ may , ” “ will , ” “ should , ” “ seek , ” “ intend , ” “ plan , ” “ expect ” or “ consider , ” or the negative of these expressions or other variations , or by discussions of strategy that involve risks and uncertainties . all forward-looking statements involve known and unknown risks , uncertainties and other factors that may cause our actual transactions , results , performance or achievements to be materially different from any future transactions , results , performance or achievements expressed or implied by such forward-looking statements . we caution you that the forward-looking statements in this report are only estimates and predictions , or statements of current intent . actual results or outcome or actions that we ultimately undertake , could differ materially from those anticipated in the forward-looking statements due to risks , uncertainties or actual events differing from the assumptions underlying these statements . principal revenue and expense items we earn revenues from the following three primary sources . ● policy benefits realized . we recognize the difference between the face value of the benefits and carrying values of the policy when an insured event has occurred and determine that settlement and collection of the policy benefits is realizable and reasonably assured . revenue from a transaction must meet both criteria in order to be recognized . we generally collect the face value of the life insurance policy from the insurance company within 45 days of the insured 's mortality . ● change in fair value of life insurance policies . we have elected to carry our investments in life insurance policies at fair value in accordance with asc 325-30 , investments in life insurance contracts . accordingly , we value our investments in our portfolio of life insurance policies each reporting period in accordance with the fair value principles discussed herein , which includes the expected payment of premiums for future periods . ● sale of a life insurance policy or a portfolio of life insurance policies . in an event of a sale of a policy , we recognize gain or loss as the difference between the price and the carrying value of the policy on the date of the receipt of payment on such sale . our main components of expense are summarized below . ● selling , general and administrative expenses . we recognize and record expenses incurred in our business operations , including operations related to the purchasing and servicing of life insurance policies .
| at december 31 , 2013 , the fair value of our investments in life insurance policies of $ 234.7 million plus our cash balance of $ 33.4 million and our restricted cash balance of $ 5.8 million , totaled $ 273.9 million , representing an excess of portfolio assets over secured indebtedness of $ 30.3 million . at december 31 , 2013 our weighted average cost of capital was approximately 7.20 % . the l bonds and series i secured notes are secured by all our assets and are subordinate to our revolving credit facility with autobahn/dz bank . the l bonds and series i secured notes are pari passu with respect to a security interest in our asset pursuant to an intercreditor agreement . 37 the following forward-looking table seeks to illustrate the impact of a hypothetical sale of our portfolio of life insurance assets at various discount rates in order to satisfy our debt obligations as of december 31 , 2014. in all cases , the sale of the life insurance assets owned by dlp ii will be used first to satisfy all amounts owing under the revolving credit facility with autobahn/ dz bank . the net sale proceeds remaining after satisfying all obligations under the revolving credit facility would be applied to l bonds and series i secured notes on a pari passu basis . replace_table_token_19_th the table illustrates that our ability to fully satisfy amounts owing under the l bonds and series i secured notes would likely be impaired upon the sale of all our life insurance assets at a price equivalent to a discount rate of approximately 14.09 % or higher . at december 31 , 2013 the impairment occurred at discount rate of approximately 14.41 % or higher . the discount rates used to calculate the fair value of our portfolio for mark-to-market accounting were 11.43 % and 11.69 % as of december 31 , 2014 and december 31 , 2013 , respectively . the table does not include any allowance for transactional fees and expenses associated with a portfolio sale ( which expenses and fees could be substantial ) , and is provided to demonstrate how various discount rates used to value our portfolio could affect our ability to satisfy
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since sales of almonds and walnuts comprise a significant percentage of our total net sales , we anticipate that lower selling prices could result in a reduction in total net sales and gross profit in future comparisons until the impact of lower retail prices ultimately drives increased consumer demand and sales volume for these products . we will continue to focus on seeking profitable business opportunities to further utilize our additional production capacity at our elgin site . we expect to maintain our recent level of promotional and advertising activity for our orchard valley harvest and fisher ( including fisher nut exactly ) brands . we continue to see domestic sales and volume growth in our orchard valley harvest and sunshine country brands and expect to continue to focus on this portion of our branded business . we will continue to face the ongoing challenges specific to our business such as food safety and regulatory issues and the maintenance and growth of our customer base . see the information referenced in part i , item 1a risk factors of this report for additional information about our risks , challenges and uncertainties . 22 annual highlights our net sales for fiscal 2016 increased by $ 64.8 million , or 7.3 % , to $ 952.1 million compared to fiscal 2015. gross profit increased by $ 5.4 million ; however our gross profit margin , as a percentage of net sales , decreased to 14.4 % in fiscal 2016 from 14.9 % in fiscal 2015. total operating expenses for fiscal 2016 increased by $ 6.0 million , and our operating expenses , as a percentage of net sales , were consistent with fiscal 2015 at 9.0 % of net sales . diluted earnings per share increased approximately 3 % compared to last fiscal year . our strong financial position allowed us to pay a special cash dividend of $ 22.5 million in december 2015. the total value of inventories on hand at the end of fiscal 2016 decreased by $ 41.4 million , or 20.9 % , in comparison to the total value of inventories on hand at the end of fiscal 2015. with the exception of pecans , we have seen acquisition costs for domestic tree nuts decrease in the 2015 crop year ( which falls into our current 2016 fiscal year ) . while we completed our procurement of the current year crop of inshell walnuts during the second quarter of fiscal 2016 , the total payments to our walnut growers were not determined until the third quarter of fiscal 2016 , which is typical . the final prices paid to the walnut growers were based upon current market prices and other factors , such as crop size and export demand . at june 30 , 2016 there are no amounts due to walnut growers . story_separator_special_tag $ 3.5 million for fiscal 2016 compared to $ 4.0 million for fiscal 2015. the decrease in interest expense was due primarily to lower debt levels . rental and miscellaneous expense , net net rental and miscellaneous expense was $ 1.4 million for fiscal 2016 compared to $ 3.0 million for fiscal 2015. the decrease was primarily due to repairs to the exterior of our office building located at the elgin site being completed during fiscal 2015 while no such repair expenses were incurred in fiscal 2016. income tax expense income tax expense was $ 16.1 million , or 34.6 % of income before income taxes , for fiscal 2016 compared to $ 15.6 million , or 34.7 % of income before income taxes , for fiscal 2015. net income net income was $ 30.4 million , or $ 2.71 basic and $ 2.68 diluted per common share , for fiscal 2016 , compared to $ 29.3 million , or $ 2.63 basic and $ 2.61 diluted per common share , for fiscal 2015 , due to the factors discussed above . fiscal 2015 compared to fiscal 2014 net sales our net sales increased 14.0 % to $ 887.2 million for fiscal 2015 from $ 778.6 million for fiscal 2014. sales volume ( measured as pounds sold to customers ) increased by 5.4 % for fiscal 2015 in comparison to sales volume for fiscal 2014. the increase in net sales was attributable to both an 8.1 % increase in the weighted average sales price per pound , driven by selling price increases due to higher commodity acquisition costs for most major tree nut types , as well as the aforementioned sales volume increase . approximately 78 % of the total sales volume increase occurred in the consumer distribution channel . the following summarizes sales by product type as a percentage of total gross sales . the information is based upon gross sales , rather than net sales , because certain adjustments from gross sales to net sales , such as promotional discounts , are not allocable to product type . replace_table_token_6_th 25 the following table shows a comparison of net sales by distribution channel ( dollars in thousands ) : replace_table_token_7_th ( 1 ) sales of branded products , primarily all fisher brand , were approximately 32 % and 31 % of total consumer channel sales during fiscal 2015 and 2014 , respectively . ( 2 ) export sales consist primarily of bulk products and consumer branded and private brand products . consumer branded and private brand products accounted for approximately 65 % and 60 % of total sales in the export channel during fiscal 2015 and fiscal 2014 , respectively . net sales in the consumer distribution channel increased by 16.7 % in dollars and 7.9 % in sales volume in fiscal 2015 compared to fiscal 2014. iri market data from june 2015 indicates that fisher recipe nuts continue to be the market share leader in the overall recipe nut category , excluding wholesale club sales . total fisher brand sales volume increased by 9.7 % in fiscal 2015 compared to fiscal 2014 due primarily to higher sales to existing customers . story_separator_special_tag fisher brand snack nut sales volume increased 14.0 % due largely to the distribution of inshell peanuts we regained at a major fisher snack customer . fisher recipe nut sales volume increased 4.7 % from fiscal 2014 , primarily as a result of increased sales to a significant customer . private brand consumer sales volume increased by 6.6 % in fiscal 2015 compared to fiscal 2014 due to an increase in sales of snack nut and trail mix products at two significant customers . net sales in the commercial ingredients distribution channel increased by 7.3 % in dollars for fiscal 2015 , though sales volume was relatively unchanged compared to fiscal 2014. an increase in almond and peanut sales volume to existing customers was nearly offset by lower bulk pecan sales volume as a result of a smaller pecan crop and lower sales volume of macadamia nuts and walnuts due to lost business with customers using these nuts in their products . net sales in the contract packaging distribution channel increased by 17.0 % in dollars and 8.0 % in sales volume in fiscal 2015 compared to fiscal 2014. the increase in sales volume primarily resulted from increased sales of peanut , cashew and mixed nut products to existing customers in this channel . net sales in the export distribution channel increased 6.0 % in dollars for fiscal 2015 , though sales volume decreased 4.6 % compared to fiscal 2014. the sales volume decrease was primarily due to a significantly lower supply of bulk inshell walnuts for the export market . the decrease in volume was offset by an 11.0 % increase in the weighted average sales price per pound . gross profit gross profit increased 7.5 % to $ 132.1 million in fiscal 2015 from $ 122.9 million in fiscal 2014. our gross profit margin decreased to 14.9 % of net sales for fiscal 2015 from 15.8 % for fiscal 2014. the increase in gross profit resulted primarily from increased sales volume . the decline in gross profit margin was primarily due to higher acquisition costs for pecans and almonds , combined with an increase in manufacturing cost mainly related to employee related costs and repair and maintenance expenses . operating expenses total operating expenses for fiscal 2015 increased by $ 4.3 million to $ 80.2 million due partially to the prior year 's $ 1.6 million pretax gain on the sale of an elgin , illinois site that was formerly owned by the company which did not recur this fiscal year . operating expenses for fiscal 2015 decreased to 9.0 % of net sales from 9.7 % of net sales for fiscal 2014 primarily due to a higher net sales base . selling expenses for fiscal 2015 were $ 49.6 million , an increase of $ 1.4 million , or 2.9 % , over the amount recorded for fiscal 2014 due primarily to a $ 0.7 million increase in marketing and advertising expense and a $ 0.6 million increase in compensation-related expenses . administrative expenses for fiscal 2015 were $ 30.5 million , an increase of $ 1.3 million , or 4.4 % , from the amount recorded for fiscal 2014 due primarily to a $ 2.0 million increase in compensation-related expenses , partially offset by , among other things , a decrease in professional expenses of $ 0.5 million . 26 income from operations due to the factors discussed above , our income from our operations was $ 51.9 million , or 5.8 % of net sales , for fiscal 2015 , compared to $ 47.0 million , or 6.0 % of net sales , for fiscal 2014. interest expense interest expense was $ 4.0 million for fiscal 2015 compared to $ 4.4 million for fiscal 2014. the decrease in interest expense was due primarily to lower interest rates for the short-term borrowing facility . rental and miscellaneous expense , net net rental and miscellaneous expense was $ 3.0 million for fiscal 2015 compared to $ 2.8 million for fiscal 2014. the increase was primarily due to increased maintenance expense on the exterior of the office building located on our elgin , illinois campus which was completed during the first half of fiscal 2015. income tax expense income tax expense was $ 15.6 million , or 34.7 % of income before income taxes , for fiscal 2015 compared to $ 13.5 million , or 34.0 % of income before income taxes for fiscal 2014. the increase in the effective tax rate of fiscal 2015 is primarily due to the fiscal 2014 tax benefit of losses realized when the company divested its equity investment in arma energy , inc. ( aei ) and cancelled a secured promissory note due from aei in fiscal 2014 which did not recur this fiscal year . net income net income was $ 29.3 million , or $ 2.63 basic and $ 2.61 diluted per common share , for fiscal 2015 , compared to $ 26.3 million , or $ 2.38 basic and $ 2.36 diluted per common share , for fiscal 2014 , due to the factors discussed above . 27 liquidity and capital resources general the primary uses of cash are to fund our current operations , fulfill contractual obligations , pursue our strategic plan and repay indebtedness . also , various uncertainties could result in additional uses of cash . the primary sources of cash are results of operations and availability under our credit agreement , dated february 7 , 2008 and subsequently amended most recently in july 2016 ( as amended , the credit facility ) , that provides a revolving loan commitment and letter of credit subfacility . we anticipate that expected net cash flow generated from operations and amounts available pursuant to the credit facility will be sufficient to fund our operations for the next twelve months .
| net sales in the consumer distribution channel increased by 6.1 % in dollars and 4.5 % in sales volume in fiscal 2016 compared to fiscal 2015. iri market data from june 2016 indicates that fisher recipe nuts continue to be the branded market share leader in the overall recipe nut category . total fisher brand sales volume increased by 12.0 % in fiscal 2016 compared to fiscal 2015 due primarily to new distribution gains and increased promotional activity . sales volume for fisher snack nuts and peanut butter increased a combined 21.0 % , primarily as a result of increased promotional activity and new distribution gains . fisher recipe nut sales volume increased 5.8 % from fiscal 2015 , primarily as a result of increased distribution to existing customers . a 41.0 % increase in combined sales volume of orchard valley harvest and sunshine country produce products due to new distribution gains also contributed to the sales volume increase . private brand sales volume increased by 1.4 % in fiscal 2016 compared to fiscal 2015. net sales in the commercial ingredients distribution channel increased by 7.3 % in dollars and 6.9 % in sales volume compared to fiscal 2015. the sales volume increase was primarily due to an increase in sales of peanuts to peanut oil stock crushers and to other peanut shellers and increased sales of cashew products to an existing customer . in august 2016 , we were notified by a significant customer in the commercial ingredients sales channel of its intent to move some or all of its almond butter requirements to a vertically integrated almond butter supplier during our second quarter of fiscal 2017. almond butter sales to this customer in fiscal 2016 were approximately $ 90.0 million while the gross profit margin on this business was substantially lower than our total gross profit margin for fiscal 2016. although demand for almond butter has increased considerably in recent years , net sales in our commercial ingredients sales channel
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net income before income taxes for the year ended december 31 , 2017 was $ 171.4 million , an increase of $ 57.7 million , or 50.8 % , over the year ended december 31 , 2016. our divisions contributed the following amounts and percentages of net income before income taxes during 2017 : central - $ 90.0 million or 52.5 % ; southwest - $ 28.0 million or 16.3 % ; florida - $ 25.7 million or 15.0 % ; southeast - $ 20.0 million or 11.6 % ; and northwest - $ 12.0 million of 7.0 % . net income for the year ended december 31 , 2017 was $ 113.3 million , an increase of $ 38.3 million , or 51.0 % , from $ 75.0 million for the year ended december 31 , 2016 . the increases are primarily attributed to a 40.4 % increase in homes closed , a higher average sales price and improved leverage realized during 2017 as compared to 2016 . year ended december 31 , 2016 compared to the year ended december 31 , 2015 homes sales . our home sales revenues , closings , average sales price ( asp ) , and ending community count by division for the years ended december 31 , 2016 and 2015 were as follows ( revenues in thousands ) : replace_table_token_9_th replace_table_token_10_th home sales revenues for the year ended december 31 , 2016 were $ 838.3 million , an increase of $ 208.1 million , or 33.0 % , from $ 630.2 million for the year ended december 31 , 2015. the increase in home sales revenues is primarily due to a 22.3 % increase in homes closed and an increase in the average selling price per home during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. we closed 4,163 homes during 2016 , as compared to 3,404 homes closed during 2015. this increase in home closings was largely due to the increase in the number of active communities in 2016. the average selling price per home closed during the year ended december 31 , 2016 was $ 201,374 , an increase of $ 16,228 , or 8.8 % , from the average selling price per home of $ 185,146 for the year ended december 31 , 2015. this increase in the average selling price per 34 home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . we continued to diversify our operations outside of our central division during 2016. we increased our home sales revenues in our divisions other than our central division by $ 129.3 million during the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 representing a 30.5 % increase in the number of homes closed in these divisions during 2016 as compared to 2015. our active selling communities at december 31 , 2016 increased to 63 from 52 at december 31 , 2015. all eleven active selling communities added during 2016 were outside of our central division , contributing to the further geographic diversification of our business . during 2016 , our southwest division added four communities , our florida and northwest divisions each added three communities , and our southeast division added one community . cost of sales and gross margin ( home sales revenues less cost of sales ) . cost of sales increased for the year ended december 31 , 2016 to $ 616.7 million , an increase of $ 153.4 million , or 33.1 % , from $ 463.3 million for the year ended december 31 , 2015. this increase is primarily due to a 22.3 % increase in homes closed during 2016 as compared to 2015 as well as changes in our product mix and higher price points in certain new markets . gross margin for the year ended december 31 , 2016 was $ 221.6 million , an increase of $ 54.7 million , or 32.8 % , from $ 166.9 million for the year ended december 31 , 2015. gross margin as a percentage of home sales revenues was 26.4 % for the year ended december 31 , 2016 and 26.5 % for the year ended december 31 , 2015. the gross margin as a percentage of home sales revenues remained relatively consistent year over year , decreasing slightly as a result of increased construction costs , overall higher lot costs and higher carrying costs ( including capitalized interest ) attributed to closed homes offset by higher average home sales prices for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015. selling expenses . selling expenses as a percentage of home sales revenues were 8.0 % and 8.4 % for the years ended december 31 , 2016 and 2015 , respectively . the decrease of selling expenses as a percentage of home sales revenues in 2016 was primarily due to leveraging our marketing spend and advertising during 2016 as compared to 2015. selling expenses for the year ended december 31 , 2016 were $ 67.0 million , an increase of $ 14.0 million , or 26.4 % , from $ 53.0 million for the year ended december 31 , 2015. sales commissions increased to $ 31.1 million for the year ended december 31 , 2016 from $ 25.1 million during 2015 largely due to a 22.3 % increase in homes closed during 2016 as compared to 2015. advertising and direct mail costs increased to $ 11.3 million during the year ended december 31 , 2016 from $ 9.3 million for year ended december 31 , 2015 primarily due to the increase in the number of active communities in 2016 as compared to 2015. general and administrative . general and administrative expenses as a percentage of home sales revenues were 5.1 % and 5.4 % for the years ended december 31 , 2016 and 2015 , respectively . story_separator_special_tag the decrease in general and administrative expenses as a percentage of home sales revenues in 2016 reflects improved leverage realized from the increase in home sales revenues in 2016. general and administrative expenses for the year ended december 31 , 2016 were $ 43.2 million , an increase of $ 8.9 million , or 26.0 % , from $ 34.3 million for the year ended december 31 , 2015. the increase in the amount of general and administrative expenses during 2016 as compared to 2015 is primarily attributable to additional employees added and expenses incurred to support the increased number of active communities and the higher number of home closings . other income . other income , net of other expenses , was $ 2.2 million for the year ended december 31 , 2016 , an increase of $ 1.6 million from $ 0.6 million for the year ended december 31 , 2015. other income includes $ 1.0 million and $ 0.2 million from the sales of lots in 2016 and 2015 , respectively . operating income , net income before income taxes , and net income . operating income for the year ended december 31 , 2016 was $ 111.5 million , an increase of $ 31.8 million , or 39.9 % , from $ 79.7 million for the year ended december 31 , 2015. net income before income taxes for the year ended december 31 , 2016 was $ 113.7 million , an increase of $ 33.4 million , or 41.6 % , over the year ended december 31 , 2015. our divisions contributed the following amounts and percentages of net income before income taxes during 2016 : central - $ 73.0 million or 64.2 % ; southwest - $ 13.9 million or 12.2 % ; florida - $ 14.5 million or 12.7 % ; southeast - $ 15.2 million or 13.4 % . net income for the year ended december 31 , 2016 was $ 75.0 million , an increase of $ 22.2 million , or 42.0 % , from $ 52.8 million for the year ended december 31 , 2015. the increases are primarily attributed to a 22.3 % increase in homes closed , a higher average sales price and improved leverage realized during 2016 as compared to 2015 . 35 non-gaap measures in addition to the results reported in accordance with u.s. gaap , we have provided information in this annual report on form 10-k relating to “ adjusted gross margin. ” adjusted gross margin is a non-gaap financial measure used by management as a supplemental measure in evaluating operating performance . we define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales . our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin . however , because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments , which have real economic effects and could impact our results , the utility of adjusted gross margin information as a measure of our operating performance may be limited . in addition , other companies may not calculate adjusted gross margin information in the same manner that we do . accordingly , adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance . the following table reconciles adjusted gross margin to gross margin , which is the gaap financial measure that our management believes to be most directly comparable ( dollars in thousands ) : replace_table_token_11_th ( a ) adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates . ( b ) calculated as a percentage of home sales revenues . 36 backlog we sell our homes under standard purchase contracts , which generally require a homebuyer to pay a deposit at the time of signing the purchase contract . the amount of the required deposit is minimal ( generally $ 1,000 or less ) . the deposits are refundable if the retail homebuyer is unable to obtain mortgage financing . we permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing can not be obtained within a certain period of time , as specified in their purchase contract . typically , our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed . if we determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home , we will terminate the purchase contract . if a purchase contract has not been cancelled or terminated within 14 days after the purchase contract has been signed , then the homebuyer has met the preliminary criteria to obtain mortgage financing . only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new ( gross ) orders . our “ backlog ” consists of homes that are under a purchase contract that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed . since our business model is generally based on building move-in ready homes before a purchase contract is signed , the majority of our homes in backlog are currently under construction or complete . ending backlog represents the number of homes in backlog from the previous period plus the number of net orders ( new orders for homes less cancellations ) generated during the current period minus the number of homes closed during the current period . our backlog at any given time will be affected by cancellations , the number of our active communities , and the timing of home closings .
| our home sales revenues , closings , average sales price ( asp ) , and ending community count by division for the years ended december 31 , 2017 and 2016 were as follows ( revenues in thousands ) : replace_table_token_7_th replace_table_token_8_th home sales revenues for the year ended december 31 , 2017 were $ 1,258.0 million , an increase of $ 419.6 million , or 50.1 % , from $ 838.3 million for the year ended december 31 , 2016 . the increase in home sales revenues is primarily due to a 40.4 % increase in homes closed and an increase in the average selling price per home during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 . we closed 5,845 homes during 2017 , as compared to 4,163 homes closed during 2016 . this increase in home closings was largely due to the increase in the number of active communities in 2017 . the average selling price per home closed during the year ended december 31 , 2017 was $ 215,220 , an increase of $ 13,846 , or 6.9 % , from the average selling price per home of $ 201,374 for the year ended december 31 , 2016 . this increase in the average selling price per home was primarily due to changes in product mix , higher price points in certain new markets and a favorable pricing environment . we continued to diversify our operations outside of our central division during 2017. we increased our home sales revenues in our divisions other than our central division by $ 316.7 million during the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 representing a 60.0 % increase in the number of homes closed in these divisions during 2017 as compared to 2016. our active selling communities at december 31 , 2017 increased to 78 from 63 at december 31 , 2016. eleven of the fifteen active selling communities added during 2017 were outside of our central division , contributing to the further geographic diversification of our business . during 2017 , our southeast division added six communities , our central division added four communities , our northwest division added two communities , and our southwest , florida and midwest divisions each added one community . cost of sales and gross margin ( home
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we previously completed a phase i clinical trial in infantile and late infantile neuronal ceroid lipofuscinosis ( ncl ) , which showed that our hucns-sc cells were well tolerated and non-tumorigenic , and that there was evidence of engraftment and long-term survival of the transplanted hucns-sc cells . in october 2013 , the results of a four-year , long-term follow up study of the patients from the initial phase i study showed there were no long-term safety or tolerability issues associated with the cells up to five years post-transplantation . in october 2012 , we published in science translational medicine , a peer-reviewed journal , the data from our four-patient phase i clinical trial in pmd , which showed preliminary evidence of durable and progressive donor-derived myelination in all four patients . in addition , there were measurable gains in neurological function in three of the four patients , with the fourth patient clinically stable . for a brief description of our significant therapeutic research and development programs see overview therapeutic product development programs in the business section of part i , item 1 of this form 10-k. in april 2013 , we entered into an agreement with the california institute for regenerative medicine ( cirm ) under which cirm will provide up to approximately $ 19.3 million as a forgivable loan , in accordance with mutually agreed upon terms and conditions and cirm regulations . the cirm loan was to help fund preclinical development of our hucns-sc cells for alzheimer 's disease . between july 2013 and august 2014 , we received in aggregate , approximately $ 9.6 million as disbursements of the loan provided under the cirm loan agreement . however in december 2014 , as findings under this pre-clinical study in alzheimer 's disease did not meet pre-determined criteria for ongoing funding for this program by cirm , we decided to wind down this pre-clinical study which had been funded in part by the cirm loan agreement . under the terms of the cirm loan agreement , principal amount of approximately $ 8,917,000 and accrued interest of approximately $ 243,000 were forgiven . however , authoritative accounting guidance requires certain conditions ( which includes a legal release from the creditor ) to be met before a liability can be extinguished and derecognized . in february 2015 , we repaid cirm approximately $ 679,000 of the aggregate loan proceeds received . as part of our strategy to focus on our clinical operations , we sold our sc proven reagent and cell culture business and wound-down our business operations at our subsidiary scs uk in cambridge , uk . the results of operations from these operations have been classified as discontinued operations for all periods presented ( see note 19 discontinued operations in the notes to consolidated financial statements of part ii , item 8 of this form 10-k for further information . 42 we have not derived any revenue or cash flows from the sale or commercialization of any products except for license revenue for certain of our patented technologies and sales of products for use in stem cell research . as a result , we have incurred annual operating losses since inception and expect to incur substantial operating losses in the future . therefore , we are dependent upon external financing , such as from equity and debt offerings , to finance our operations . before we can derive revenue or cash inflows from the commercialization of any of our therapeutic product candidates , we will need to : ( i ) conduct substantial in vitro testing and characterization of our proprietary cell types , ( ii ) undertake preclinical and clinical testing for specific disease indications ; ( iii ) develop , validate and scale-up manufacturing processes to produce these cell-based therapeutics , and ( iv ) obtain required regulatory approvals . these steps are risky , expensive and time consuming . overall , we expect our r & d expenses to be substantial and to increase for the foreseeable future as we continue the development and clinical investigation of our current and future product candidates . however , expenditures on r & d programs are subject to many uncertainties , including whether we develop our product candidates with a partner or independently . we can not forecast with any degree of certainty which of our current product candidates will be subject to future collaboration , when such collaboration agreements will be secured , if at all , and to what degree such arrangements would affect our development plans and capital requirements . in addition , there are numerous factors associated with the successful commercialization of any of our cell-based therapeutics , including future trial design and regulatory requirements , many of which can not be determined with accuracy at this time given the stage of our development and the novel nature of stem cell technologies . the regulatory pathways , both in the united states and internationally , are complex and fluid given the novel and , in general , clinically unproven nature of stem cell technologies . at this time , due to such uncertainties and inherent risks , we can not estimate in a meaningful way the duration of , or the costs to complete , our r & d programs or whether , when or to what extent we will generate revenues or cash inflows from the commercialization and sale of any of our therapeutic product candidates . while we are currently focused on advancing each of our product development programs , our future r & d expenses will depend on the determinations we make as to the scientific and clinical prospects of each product candidate , as well as our ongoing assessment of the regulatory requirements and each product candidate 's commercial potential . given the early stage of development of our therapeutic product candidates , any estimates of when we may be able to commercialize one or more of these products would not be meaningful . story_separator_special_tag moreover , any estimate of the time and investment required to develop potential products based upon our proprietary hucns-sc technologies will change depending on the ultimate approach or approaches we take to pursue them , the results of preclinical and clinical studies , and the content and timing of decisions made by the fda and other regulatory authorities . there can be no assurance that we will be able to develop any product successfully , or that we will be able to recover our development costs , whether upon commercialization of a developed product or otherwise . we can not provide assurance that any of these programs will result in products that can be marketed or marketed profitably . if certain of our development-stage programs do not result in commercially viable products , our results of operations could be materially adversely affected . significant events therapeutic product development in january 2014 , at the university of calgary , we enrolled and successfully transplanted our ninth subject in our phase i/ii clinical trial in chronic spinal cord injury , with our proprietary hucns-sc product candidate ( purified human neural stem cells ) . the ninth subject to enroll in the trial , which was initiated in switzerland , is the first spinal cord injury patient to have undergone transplantation in north america . this expansion from a single-site , single-country study to a multi-site , multi-country program accelerated enrollment of the remaining three patients , and paves the way for a controlled phase ii efficacy study that we plan to initiate mid-year to further investigate our hucns-sc product candidate as a treatment for spinal cord injury . in february 2014 , we completed enrollment of the first of two planned patient cohorts in our clinical trial of our proprietary hucns-sc product candidate for amd . this cohort consists of eight subjects , four of whom 43 each received 200,000 cells and four of whom each received 1,000,000 cells . the last patient in this cohort was transplanted at the byers eye institute at stanford . in april 2014 , we completed enrollment in our phase i/ii clinical trial in spinal cord injury . the multi-national , open-label , phase i/ii trial is evaluating both safety and preliminary efficacy of our proprietary hucns-sc platform technology as a treatment for chronic spinal cord injury . the trial enrolled twelve subjects with chest-level injury to the spinal cord . the trial enrolled seven patients with complete paralysis , no motor or sensory function below the point of injury , classified as complete ( ais a ) , according to the american spinal injury association impairment scale , and five patients with no motor function and limited sensory function below the point of injury , classified as incomplete ( ais b ) . final results are expected to be released mid-2015 in may 2014 , the principal investigator , from our phase i/ii trial in spinal cord injury presented an interim update from the trial at the annual meeting of the american spinal injury association in san antonio , texas . interim analysis of clinical data to date has shown that the significant post-transplant gains in sensory function first reported in two patients have now been observed in two additional patients . the presentation included the first data on ais b subjects to be transplanted in the phase i/ii chronic spinal cord injury trial with our proprietary hucns-sc cells . the interim results also continue to confirm the favorable safety profile of the cells and the surgical implant procedure . the presentation included data from a total of five new subjects with a minimum six month follow up . in total , we have now reported clinical updates on a total of eight of the twelve patients enrolled in our phase i/ii clinical trial using our proprietary hucns-sc cells . in june 2014 , we reported positive interim results from our 16-patient phase i/ii clinical trial for geographic atrophy of amd at the 12th annual meeting of the international society for stem cell research in vancouver , canada . based on positive interim results , we closed enrollment in this clinical trial in order to focus our efforts on a follow-on phase ii randomized , controlled proof-of-concept study , later this year . interim results for the phase i/ii trial based on twelve months of data , showed for all four subjects of cohort one , a 70 percent reduction in the rate of geographic atrophy as compared to the control eye and a 65 percent reduction in the rate of ga as compared to the expected natural history of the disease following a single dose of our proprietary hucns-sc cells . in addition to these initial efficacy findings , the phase i/ii trial has also demonstrated a favorable safety profile for our proprietary hucns-sc cells as a treatment for dry amd . final results from this landmark study are expected to be released mid-2015 . in october 2014 , we initiated our pathway study , a phase ii proof of concept clinical trial using our proprietary hucns-sc cells for the treatment of cervical spinal cord injury . the pathway study is the first clinical study designed to evaluate both the safety and efficacy of transplanting stem cells into patients with traumatic injury to the cervical spinal cord . the trial will be conducted as a randomized , controlled , single-blind study and efficacy will be primarily measured by assessing motor function according to the international standards for neurological classification of spinal cord injury ( isncsci ) . the primary efficacy outcome will focus on change in upper extremity strength as measured in the hands , arms , and shoulders . the trial will follow the patients for one year from the time of enrollment . in december 2014 , we transplanted the first subject in our phase ii pathway study assessing the efficacy of our proprietary hucns-sc cells for the treatment of cervical spinal cord injury . financing and other business-related activities in june 2014 , we strengthened our senior executive team .
| operating expenses operating expense from continuing operations totaled approximately $ 31,923,000 in 2014 , $ 28,265,000 in 2013 , and $ 22,398,000 in 2012. replace_table_token_5_th research and development expenses our r & d expenses consist primarily of salaries and related personnel expenses , costs associated with clinical trials and regulatory submissions , costs associated with preclinical activities such as toxicology studies , costs associated with cell processing and process development , certain patent-related costs such as licensing , facilities related costs such as depreciation , lab equipment , and supplies . clinical trial expenses include payments to vendors such as clinical research organizations , contract manufacturers , clinical trial sites , laboratories for testing clinical samples and consultants . cumulative r & d costs incurred since we refocused our activities on developing cell-based therapeutics ( fiscal years 2000 through 2014 ) were approximately $ 210 million . over this period , the majority of these cumulative costs were related to : ( i ) characterization of our proprietary hucns-sc cells , ( ii ) expenditures for toxicology and other preclinical studies , preparation and submission of applications to regulatory agencies to conduct clinical trials and obtaining regulatory clearance to initiate such trials , all with respect to our hucns-sc 49 cells , ( iii ) preclinical studies and development of our human liver engrafting cells , ( iv ) costs associated with cell processing and process development , and ( v ) costs associated with our clinical studies . we use and manage our r & d resources , including our employees and facilities , across various projects rather than on a project-by-project basis for the following reasons . the allocations of time and resources change as the needs and priorities of individual projects and programs change , and many of our researchers are assigned to more than one project at any given time . furthermore , we are exploring multiple possible uses for our proprietary hucns-sc cells , so much of our r & d effort is complementary to and supportive of each of these projects . lastly , much of our r & d effort is focused on manufacturing processes , which can result in process
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our efforts to identify a prospective target business will not be limited to any particular industry or geographic region , although we intend to focus on target businesses operating in the technology , media and telecommunications industries . we intend to utilize cash derived from the proceeds of our public offering in effecting our initial business combination . we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . we have relied upon the sale of our securities and loans from our officers and directors to fund our operations . on september 19 , 2016 , we consummated our ipo of 5,000,000 units . each unit consists of one share of common stock and one public warrant to purchase one share of common stock at an exercise price of $ 11.50 per share . the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 50,000,000. we granted the underwriters a 45-day option to purchase up to 750,000 additional units to cover over-allotments , if any . simultaneously with the consummation of the ipo , we consummated the private placement of 402,500 private units at a price of $ 10.00 per private unit , generating total proceeds of $ 4,025,000. the underwriters exercised the over-allotment option in part and , on october 14 , 2016 , the underwriters purchased 310,109 over-allotment option units , which were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 3,101,090. on october 14 , 2016 , simultaneously with the sale of the over-allotment units , we consummated the private sale of an additional 18,607 private units to one of the initial stockholders , generating gross proceeds of $ 186,070. the remainder of the over-allotment option expired unexercised . as of december 31 , 2016 , a total of $ 54,731,828 of the net proceeds from the offering ( including the partial exercise of the over-allotment option ) and the private placement were in a trust account established for the benefit of the company 's public shareholders . our management has broad discretion with respect to the specific application of the net proceeds of the initial public offering and the private placement , although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination . story_separator_special_tag initial business combination , if cash on hand is insufficient , we may need to obtain additional financing in order to meet our obligations . 22 off-balance sheet financing arrangements as of december 31 , 2016 , we did not have any off-balance sheet arrangements . we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements . we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or entered into any non-financial assets . contractual obligations at december 31 , 2016 , we did not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than a monthly fee of $ 10,000 for general and administrative services payable to magna management llc , an affiliate of our insiders , which will be paid for up to 21 months starting on the closing date of the ipo . critical accounting policies the preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the united states , or gaap , requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following as our critical accounting policies : common stock subject to possible conversion : we account for our common stock subject to possible conversion in accordance with the guidance enumerated in asc 480 “ distinguishing liabilities from equity ” . common stock subject to mandatory conversion are classified as a liability instrument and is measured at fair value . conditionally convertible common stock ( including common shares that feature conversion rights that are either within the control of the holder or subject to conversion upon the occurrence of uncertain events not solely within our control ) is classified as temporary equity . at all other times , common stock is classified as stockholders ' equity . our common stock features certain conversion rights that are considered by us to be outside of our control and subject to the occurrence of uncertain future events . accordingly , the common stock subject to possible conversion is presented as temporary equity , outside of the stockholders ' equity section of the balance sheet . going concern : the accompanying financial statements have been prepared assuming the company will continue as a going concern , which contemplates , among other things , the realization of assets and satisfaction of liabilities in the normal course of business . as of december 31 , 2016 , the company had approximately $ 363,000 in cash and cash equivalents held outside trust account , approximately $ 38,000 in interest income available from the company 's investments in the trust account to pay its income tax obligations , and a working capital of approximately $ 269,000. further , the company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans . the company 's plans to raise capital or to consummate story_separator_special_tag our efforts to identify a prospective target business will not be limited to any particular industry or geographic region , although we intend to focus on target businesses operating in the technology , media and telecommunications industries . we intend to utilize cash derived from the proceeds of our public offering in effecting our initial business combination . we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . we have relied upon the sale of our securities and loans from our officers and directors to fund our operations . on september 19 , 2016 , we consummated our ipo of 5,000,000 units . each unit consists of one share of common stock and one public warrant to purchase one share of common stock at an exercise price of $ 11.50 per share . the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 50,000,000. we granted the underwriters a 45-day option to purchase up to 750,000 additional units to cover over-allotments , if any . simultaneously with the consummation of the ipo , we consummated the private placement of 402,500 private units at a price of $ 10.00 per private unit , generating total proceeds of $ 4,025,000. the underwriters exercised the over-allotment option in part and , on october 14 , 2016 , the underwriters purchased 310,109 over-allotment option units , which were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 3,101,090. on october 14 , 2016 , simultaneously with the sale of the over-allotment units , we consummated the private sale of an additional 18,607 private units to one of the initial stockholders , generating gross proceeds of $ 186,070. the remainder of the over-allotment option expired unexercised . as of december 31 , 2016 , a total of $ 54,731,828 of the net proceeds from the offering ( including the partial exercise of the over-allotment option ) and the private placement were in a trust account established for the benefit of the company 's public shareholders . our management has broad discretion with respect to the specific application of the net proceeds of the initial public offering and the private placement , although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination . story_separator_special_tag initial business combination , if cash on hand is insufficient , we may need to obtain additional financing in order to meet our obligations . 22 off-balance sheet financing arrangements as of december 31 , 2016 , we did not have any off-balance sheet arrangements . we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements . we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or entered into any non-financial assets . contractual obligations at december 31 , 2016 , we did not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than a monthly fee of $ 10,000 for general and administrative services payable to magna management llc , an affiliate of our insiders , which will be paid for up to 21 months starting on the closing date of the ipo . critical accounting policies the preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the united states , or gaap , requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements , and income and expenses during the periods reported . actual results could materially differ from those estimates . we have identified the following as our critical accounting policies : common stock subject to possible conversion : we account for our common stock subject to possible conversion in accordance with the guidance enumerated in asc 480 “ distinguishing liabilities from equity ” . common stock subject to mandatory conversion are classified as a liability instrument and is measured at fair value . conditionally convertible common stock ( including common shares that feature conversion rights that are either within the control of the holder or subject to conversion upon the occurrence of uncertain events not solely within our control ) is classified as temporary equity . at all other times , common stock is classified as stockholders ' equity . our common stock features certain conversion rights that are considered by us to be outside of our control and subject to the occurrence of uncertain future events . accordingly , the common stock subject to possible conversion is presented as temporary equity , outside of the stockholders ' equity section of the balance sheet . going concern : the accompanying financial statements have been prepared assuming the company will continue as a going concern , which contemplates , among other things , the realization of assets and satisfaction of liabilities in the normal course of business . as of december 31 , 2016 , the company had approximately $ 363,000 in cash and cash equivalents held outside trust account , approximately $ 38,000 in interest income available from the company 's investments in the trust account to pay its income tax obligations , and a working capital of approximately $ 269,000. further , the company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans . the company 's plans to raise capital or to consummate
| 21 liquidity and capital resources as of december 31 , 2016 , we had cash outside our trust account of $ 362,535. our liquidity needs have been satisfied to date through receipt of $ 25,000 from the sale of the insider shares , loans and advances from insiders and a related party and an unrelated party in an aggregate amount of $ 241,921 that were repaid at the closing of the ipo , and the proceeds from the ipo and private placement . we intend to use substantially all of the net proceeds of the ipo , including the funds held in the trust account , in connection with our initial business combination and to pay our expenses relating thereto , including a deferred underwriting commission payable to chardan capital markets , llc in an amount equal to 2.0 % of the total gross proceeds raised in the offering upon consummation of our initial business combination . to the extent that our capital stock is used in whole or in part as consideration to effect our initial business combination , the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business . such working capital funds could be used in a variety of ways including continuing or expanding the target business ' operations , for strategic acquisitions and for marketing , research and development of existing or new products . such funds could also be used to repay any operating expenses or finders ' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses . we anticipate that the approximately $ 362,535 outside of our trust account will be sufficient to allow us to operate until june 19 , 2018 , assuming that a business combination is not consummated during that time . over this time period , we will be using these funds for identifying and evaluating prospective business combination candidates , performing business due diligence on prospective target businesses , traveling to and from the offices , plants or similar locations of prospective target businesses , reviewing corporate documents
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revenue related to the $ 200.0 million upfront payment is being recognized ratably on a straight-line basis from the date the amended and restated sublicense agreement became effective ( november 2009 ) through the expected life of the u.s. patent for fanapt ® which we expect to last until may 2017. this includes the hatch-waxman extension that extends patent protection for drug compounds for a period of five years to compensate for time spent in development and a six-month pediatric term extension . fanapt ® has qualified for the full five-year patent term hatch-waxman extension and we expect that fanapt ® will be eligible for six months of pediatric exclusivity . we recognize revenue from fanapt ® royalties and commercial and development milestones from novartis when realizable and product revenue upon delivery of our products to novartis . research and development expenses . research and development expenses consist primarily of fees for services provided by third parties in connection with the clinical trials , costs of contract manufacturing services , milestone payments , costs of materials used in clinical trials and research and development , costs for regulatory consultants and filings , depreciation of capital resources used to develop products , related facilities costs , and salaries , other employee-related costs and stock-based compensation for research and development personnel . we expense research and development costs as they are incurred for compounds in the development stage , including manufacturing costs and milestone payments made under license agreements prior to fda approval . upon and subsequent to fda approval , manufacturing and milestone payments are capitalized . milestone payments are accrued when it is deemed probable that the milestone event will be achieved . costs related to the acquisition of intellectual property are expensed as incurred if the underlying technology is developed in connection with our research and development efforts and has no alternative future use . we believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our products and product candidates and pharmacogenetics and pharmacogenomics expertise . we incurred research and development expenses in the aggregate of $ 45.4 million in 2012 including employee stock-based compensation expense of $ 1.4 million . we expect to incur significant research and development expenses as we continue to develop our products and product candidates . we expect to incur licensing costs in the future that could be substantial , as we continue our efforts to develop our products , product candidates and partnered products and to evaluate potential in-license product candidates or compounds . 45 the following table summarizes our product development initiatives for 2012 , 2011 and 2010 , respectively . included in this table are the research and development expenses recognized in connection with the clinical development of fanapt ® , tasimelteon and vly-686 . replace_table_token_5_th ( 1 ) many of our research and development costs are not attributable to any individual project because we share resources across several development projects . we record direct costs , including personnel costs and related benefits and stock-based compensation , on a project-by-project basis . we record indirect costs that support a number of our research and development activities in the aggregate . general and administrative expenses . general and administrative expenses consist primarily of salaries , other related costs for personnel , including employee stock-based compensation , related to executive , finance , accounting , information technology , marketing , and human resource functions . other costs include facility costs not otherwise included in research and development expenses and fees for legal , accounting and other professional services . general and administrative expenses also include third party expenses incurred to support business development , marketing and other business activities related to fanapt ® . we incurred general and administrative expenses of $ 13.9 million in 2012 , including employee stock-based compensation expense of $ 2.7 million . other income . other income consists of interest income earned on our cash and cash equivalents , marketable securities and restricted cash and non-recurring income ( expense ) transactions that are outside of our normal business operations . critical accounting policies the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements , as well as the reported revenues and expenses during the reported periods . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . a summary of our significant accounting policies appears in the notes to our audited consolidated financial statements for the year ended december 31 , 2012 included in this annual report on form 10-k. however , we believe that the following accounting policies are important to understanding and evaluating our reported financial results , and we have accordingly included them in this discussion . accrued liabilities . as part of the process of preparing financial statements we are required to estimate accrued liabilities . the estimation of accrued liabilities involves identifying services that have been performed on 46 our behalf , and then estimating the level of service performed and the associated cost incurred for such services as of each balance sheet date in the financial statements . accrued liabilities include professional service fees , such as lawyers and accountants , contract service fees , such as those under contracts with clinical monitors , data management organizations and investigators in conjunction with clinical trials , fees to contract manufacturers in conjunction with the production of clinical materials , and fees for marketing and other commercialization activities . story_separator_special_tag pursuant to our assessment of the services that have been performed on clinical trials and other contracts , we recognize these expenses as the services are provided . our assessments include , but are not limited to : ( i ) an evaluation by the project manager of the work that has been completed during the period , ( ii ) measurement of progress prepared internally and or provided by the third-party service provider , ( iii ) analyses of data that justify the progress , and ( iv ) our judgment . in the event that we do not identify certain costs that have begun to be incurred or we under- or over-estimate the level of services performed or the costs of such services , our reported expenses for such period would be too low or too high . milestone payments are accrued when it is deemed probable that the milestone event will be achieved . upon fda acceptance of an nda filing for tasimelteon , the company would be obligated to make milestone payments of $ 0.5 million under regulatory consulting agreements and $ 3.8 million under licensing agreements , respectively . revenue recognition . our revenues are derived primarily from our amended and restated sublicense agreement with novartis and include an upfront payment , product revenue and future milestone and royalty revenues . revenue related to the upfront payment is being recognized ratably from the date the amended and restated sublicense agreement became effective ( november 2009 ) through the expected life of the u.s. patent for fanapt ® , which we expect to last until may 2017. this includes the hatch-waxman extension that extends patent protection for drug compounds for a period of five years to compensate for time spent in development and a six-month pediatric term extension . fanapt ® has qualified for the full five-year patent term hatch-waxman extension and we expect that fanapt ® will be eligible for six months of pediatric exclusivity . we recognize revenue related to fanapt ® royalties and commercial and development milestones as they are realizable and earned , and product revenue upon delivery of our products to novartis . our revenues have also been derived from grant revenue which is recognized when it is received . employee stock-based compensation . we use the black-scholes-merton option pricing model to determine the fair value of stock options . the determination of the fair value of stock options 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 the expected stock price volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rate and expected dividends . expected volatility rates are based on the historical volatility of our publicly traded common stock and other factors . the weighted average expected term of stock options granted is based on the simplified method as the options meet the plain vanilla criteria required by authoritative guidance . significant changes in the market price of the company 's common stock in recent years has made historical data less reliable for the purpose of estimating future vesting , exercise , and employment behavior . the simplified method provided a more reasonable approach for estimating the weighted average expected term for options granted in 2012. the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected term of the option in effect at the time of the grant . we have not paid dividends to our stockholders since our inception ( other than a dividend of preferred share purchase rights which was declared in september 2008 ) and do not plan to pay dividends in the foreseeable future . employee stock-based compensation expense for a period is also affected by the expected forfeiture rate for the respective option grants . if our estimates of the fair value of these equity instruments or expected forfeitures are too high or too low , it would have the effect of overstating or understating expenses . 47 employee stock-based compensation expense related to stock-based awards for the years ended december 31 , 2012 , 2011 and 2010 , was comprised of the following : replace_table_token_6_th the research and development portion of employee stock-based compensation expense for 2012 was impacted by the termination of our chief medical officer in the third quarter of 2012 and the resulting reversal of employee stock-based compensation expense resulting from the cancellation of certain of his outstanding equity awards . income taxes . on a periodic basis , we evaluate the realizability of our deferred tax assets and liabilities and will adjust such amounts in light of changing facts and circumstances , including but not limited to future projections of taxable income , the reversal of deferred tax liabilities , tax legislation , rulings by relevant tax authorities and tax planning strategies . settlement of filing positions that may be challenged by tax authorities could impact our income taxes in the year of resolution . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences becomes deductible or the net operating losses ( nols ) and credit carryforwards can be utilized . when considering the reversal of the valuation allowance , we consider the level of past and future taxable income , the reversal of deferred tax liabilities , the utilization of the carryforwards and other factors . revisions to the estimated net realizable value of the deferred tax asset could cause our provision for income taxes to vary significantly from period to period .
| research and development expenses increased by $ 16.4 million , or 56.7 % , to $ 45.4 million for the year ended december 31 , 2012 compared to $ 29.0 million for the year ended december 31 , 2011. the following table discloses the components of research and development expenses reflecting all of our project expenses for the years ended december 31 , 2012 and 2011 : replace_table_token_7_th direct costs increased by $ 16.6 million , or 61.4 % , to $ 43.6 million for the year ended december 31 , 2012 compared to $ 27.0 million for the year ended december 31 , 2011 primarily as a result of increases in clinical trial costs , contract research and development , consulting , materials and other direct costs and salaries , benefits and related costs partially offset by lower stock-based compensation . clinical trials costs increased by $ 13.9 million , or 96.0 % , to $ 28.3 million for the year ended december 31 , 2012 compared to $ 14.4 million for the year ended december 31 , 2011 primarily due to costs related to the tasimelteon trials for the treatment of non-24 in blind individuals without light perception and the tasimelteon trial for the treatment of mdd . contract research and development , consulting , materials and other direct costs increased by $ 3.1 million , or 51.1 % , to $ 9.0 million for the year ended december 31 , 2012 compared to $ 6.0 million for the year ended december 31 , 2011 primarily due to costs related to the tasimelteon non-24 and mdd trials , costs related to the preparation of a future tasimelteon new drug application ( nda ) filing with the fda and the $ 1.0 initial license fee associated with vly-686 . salaries , benefits and related costs increased by $ 0.7 million , or 18.1 % , to $ 4.9 million for the year ended december 31 , 2012 compared to $ 4.1 million for the year ended december 31 , 2011 due to new employees hired in 2011 and 2012 and the termination of our chief medical officer in the third quarter of 2012 and the severance
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selling , general and administrative expenses were $ 330.5 million for the year ended december 31 , 2019 , an increase of $ 5.7 million , or 1.8 % , compared to $ 324.8 million for the year ended december 31 , 2018 . selling , general and administrative expenses were 23.6 % of net sales in 2019 compared to 23.9 % of net sales in 2018 . the decrease was the result of ongoing productivity improvements in the americas segment and savings from restructuring programs in the international segment , partially offset by higher costs associated with our smc acquisition . the following table presents a reconciliation of the year-over-year expense change for selling , general , and administrative expenses . selling , general , and administrative expenses year ended december 31 , 2019 versus december 31 , 2018 ( percent change ) consolidated gaap reported change 1.8 % currency translation effects 2.0 % constant currency change 3.8 % less : acquisitions and related strategic transaction costs ( 3.0 ) % organic constant currency change 0.8 % note : organic constant currency change is a non-gaap financial measure provided by the company to give a better understanding of the company 's underlying business performance . organic constant currency change in selling , general , and administrative expenses is calculated by removing the percentage impact from acquisitions and related strategic transaction costs as well as currency translation effects from the overall percentage change in gaap selling , general , and administrative expense . management believes excluding acquisitions and currency translation effects provide investors with a greater level of clarity into spending levels on a year-over-year basis . 22 research and development expense . research and development ( `` r & d '' ) expense was $ 57.8 million for the year ended december 31 , 2019 , an increase of $ 5.1 million , or 9.8 % , compared to $ 52.7 million for the year ended december 31 , 2018 . research and development expense was 4.1 % of net sales in 2019 , compared to 3.9 % of net sales in 2018 . we continue to develop new products for global safety markets , including the recently launched v-gard h1 safety helmet and v-series family of fall protection products . in 2020 , msa plans to launch its connected firefighter ecosystem powered by lunar as well as the altair io 360 gas detector , an area monitor that operates with the simplicity of a smart-home device . we capitalized approximately $ 5.0 million and $ 1.6 million of software development costs during the years ended december 31 , 2019 and 2018 , respectively . restructuring charges . during the year ended december 31 , 2019 , the company recorded restructuring charges of $ 13.8 million , primarily related to footprint rationalization and other restructuring programs associated with our ongoing initiatives to drive profitable growth in our international segment . included as part of restructuring charges in 2019 , we recognized a non-cash settlement charge of $ 2.5 million for the termination of our pension plan in the united kingdom . this compared to charges of $ 13.2 million during the year ended december 31 , 2018 , primarily related to severance costs for staff reductions associated with our ongoing initiatives to drive profitable growth in europe and the legal and operational realignment of our u.s. and canadian operations . currency exchange . currency exchange losses were $ 19.8 million during the year ended december 31 , 2019 , compared to $ 2.3 million during the year ended december 31 , 2018 . the increase in currency exchange losses was primarily due to the recognition of non-cash cumulative translation losses of approximately $ 15.3 million as a result of the approval of our plan to close our south africa affiliates during the first quarter of 2019. this charge is related to the historical translation of the elements of the financial statements for the business from the functional currency to the u.s. dollar . the translation impact has been historically recorded as currency translation adjustment , a separate component of accumulated other comprehensive loss within the shareholders ' equity section of the consolidated balance sheet . the remaining currency exchange losses in both periods were related to foreign currency exposure on unsettled inter-company balances . refer to note 17—derivative financial instruments of the consolidated financial statements in part ii item 8 of this form 10-k for information regarding our currency exchange rate risk management strategy . product liability and other operating expense . product liability and other operating expense during the year ended december 31 , 2019 was $ 28.4 million compared to $ 45.3 million for the year ended december 31 , 2018 . the expense in both periods primarily relates to an increase in our reserve for cumulative trauma product liability claims resulting from the company 's revision of its estimates of potential liability for cumulative trauma product liability claims as part of its annual review process , as well as defense costs incurred for uninsured asserted cumulative trauma product liability claims . please refer to note 19—contingencies of the consolidated financial statements in part ii item 8 of this form 10-k for additional information . gaap operating income . consolidated operating income for the year ended december 31 , 2019 was $ 186.2 million compared to $ 173.5 million for the year ended december 31 , 2018 . the increase in operating results was driven by higher sales volumes and lower product liability and other operating expense partially offset by higher currency exchange losses , as well as higher r & d costs related to new product launches . adjusted operating income . americas adjusted operating income for the year ended december 31 , 2019 was $ 226.6 million , an increase of $ 19.8 million , or 10 % , compared to $ 206.8 million for the year ended december 31 , 2018 . story_separator_special_tag the increase was related to the higher level of sales and margin expansion driven by new product launches and pricing initiatives as well as savings realized from previously executed restructuring programs . international adjusted operating income for the year ended december 31 , 2019 was $ 59.9 million , consistent with adjusted operating income of $ 59.9 million for the year ended december 31 , 2018 . despite realizing a lower level of sales , cost reduction programs helped to maintain adjusted operating income and improved adjusted operating margin . corporate segment adjusted operating loss for the year ended december 31 , 2019 was $ 35.6 million , an increase of $ 3.7 million , or 12 % , compared to an operating loss of $ 31.9 million for the year ended december 31 , 2018 , primarily due to higher professional service expenses partially offset by lower legal expenses . 23 the following tables represent a reconciliation from gaap operating income to adjusted operating income ( loss ) and adjusted ebitda . adjusted operating margin % is calculated as adjusted operating income ( loss ) divided by net sales and adjusted ebitda margin % is calculated as adjusted ebitda divided by net sales . replace_table_token_7_th replace_table_token_8_th note : adjusted operating income ( loss ) and adjusted ebitda are a non-gaap financial measures used by the chief operating decision maker to evaluate segment performance and allocate resources . adjusted operating income ( loss ) is reconciled above to the nearest gaap financial measure , operating income ( loss ) , and excludes restructuring , currency exchange , product liability expense and strategic transaction costs . adjusted ebitda is reconciled above to the nearest gaap financial measure , operating income ( loss ) and excludes depreciation and amortization expense . total other expense , net . other expense for the year ended december 31 , 2019 was $ 2.5 million , a decrease of $ 8.6 million , or 77.6 % , compared to $ 11.1 million for the year ended december 31 , 2018 due to lower interest expense primarily as a result of a favorable adjustment related to a foreign uncertain tax position for which the statute of limitations has expired , higher pension income and the absence of the loss on extinguishment of debt recognized in 2018. lower discount rates are expected to drive an $ 8 million unfavorable swing in pension expense in 2020 , compared to 2019. the majority of this impact will be reflected in the other income , net line on our consolidated statement of income . the increase in expense is non-cash . our u.s. qualified plan remains overfunded and our funding status is expected to improve in 2020 based on higher returns on our investments in 2019 . 24 income taxes . the reported effective tax rate for the year ended december 31 , 2019 was 25.1 % , which included a benefit of 2.6 % for share-based payments , an expense of 1.8 % due to non-deductible foreign currency exchange losses on entity closures , an expense of 1.9 % due to nondeductible compensation and expense related to an increase in profitability in higher tax jurisdictions . this compared to a reported effective tax rate for the year ended december 31 , 2018 , of 22.9 % , which included a benefit of 1.6 % for certain share-based payments and a charge of 1.1 % associated with exit taxes related to our u.s. , canadian , and european realignment . we are subject to regular review and audit by both foreign and domestic tax authorities . while we believe our tax positions will be sustained , the final outcome of tax audits and related litigation may differ materially from the tax amounts recorded in our consolidated financial statements . during 2018 , the company recorded $ 1.8 million of foreign income tax reserves related to legal and operational realignment of our u.s. , canadian and european operations . as of december 31 , 2018 , the company had completed its accounting for all of the enactment-date income tax effects of the tax cuts and jobs act of 2017 ( the `` act '' ) . accordingly , we reduced our estimate for the one-time transition tax by $ 2.0 million and increased our estimate for the revaluation of u.s. deferred tax assets and liabilities by $ 2.5 million and a $ 2.0 million increase associated with prepaid taxes for updated regulations related to the act . net income attributable to msa safety incorporated . net income was $ 136.4 million for the year ended december 31 , 2019 , or $ 3.48 per diluted share , compared to $ 124.2 million , or $ 3.18 per diluted share , for the year ended december 31 , 2018 , as a result of the factors described above . non-gaap financial information we may provide information regarding financial measures such as organic constant currency changes , financial measures excluding the impact of acquisitions and related strategic transaction costs , adjusted operating income , adjusted operating margin percentage , adjusted ebitda and adjusted ebitda margin percentage , which are not recognized terms under u.s. gaap and do not purport to be alternatives to net sales , selling , general and administrative expense , operating income or net income as a measure of operating performance . we believe that the use of these non-gaap financial measures provide investors with additional useful information and provide a more complete understanding of the underlying results . because not all companies use identical calculations , these presentations may not be comparable to similarly titled measures from other companies .
| our international segment includes companies in europe , middle east , and the asia pacific region . in our largest international affiliates ( in germany , france , united kingdom ( u.k. ) , ireland and china ) , we develop , manufacture and sell a wide variety of products . in china , the products manufactured are sold primarily in china as well as regional markets . operations in other international segment countries focus primarily on sales and distribution in their respective home country markets . although some of these companies may perform limited production , most of their sales are of products manufactured in our plants in germany , france , the u.s. , u.k. , ireland and china or are purchased from third party vendors . corporate . the corporate segment primarily consists of general and administrative expenses incurred in our corporate headquarters , costs associated with corporate development initiatives , legal expense , interest expense , foreign exchange gains or losses , and other centrally-managed costs . corporate general and administrative costs comprise the majority of the expense in the corporate segment . during the years ended december 31 , 2019 , 2018 and 2017 corporate general and administrative costs were $ 37.3 million , $ 31.2 million , and $ 37.6 million , respectively . year ended december 31 , 2019 compared to year ended december 31 , 2018 replace_table_token_5_th net sales . net sales for the year ended december 31 , 2019 , were $ 1.40 billion , an increase of $ 43.9 million , from $ 1.36 billion for the year ended december 31 , 2018 . constant currency sales increased by 5 % for the year ended december 31 , 2019 . please refer to the net sales table below for a reconciliation of the year over year sales change . 21 replace_table_token_6_th note : constant currency sales change is a non-gaap financial measure provided by the company to give a better understanding of the company 's underlying business performance . constant currency sales change is calculated by removing the percentage impact from currency translation effects from the
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actual results , performance , liquidity , financial condition and results of operations , prospects and opportunities could differ materially and perhaps substantially from those expressed in , or implied by , these forward-looking statements as a result of various risks , uncertainties and other factors , including those risks described in detail in the section of this annual report on form 10-k entitled “ risk factors ” as well as elsewhere in this annual report . forward-looking statements , which involve assumptions and describe our future plans , strategies , and expectations , are generally identifiable by use of the words “ may , ” “ should , ” “ would , ” “ will , ” “ could , ” “ scheduled , ” “ expect , ” “ anticipate , ” “ estimate , ” “ believe , ” “ intend , ” “ seek , ” or “ project ” or the negative of these words or other variations on these words or comparable terminology . in light of these risks and uncertainties , and especially given the nature of our existing and proposed business , there can be no assurance that the forward-looking statements contained in this section and elsewhere in this annual report on form 10-k will in fact occur . potential investors should not place undue reliance on any forward-looking statements . except as expressly required by the federal securities laws , there is no undertaking to publicly update or revise any forward-looking statements , whether as a result of new information , future events , changed circumstances or any other reason . 28 overview microbot is a pre-clinical medical device company specializing in the research , design and development of next generation micro-robotics assisted medical technologies targeting the minimally invasive surgery space . microbot is primarily focused on leveraging its micro-robotic technologies with the goal of improving surgical outcomes for patients . microbot is currently developing its first two product candidates : the self cleaning shunt , or scs , for the treatment of hydrocephalus and normal pressure hydrocephalus , or nph ; and tipcat , a self-propelling , semi-disposable endoscope that is being developed initially for use in colonoscopy procedures . microbot 's product candidates are being designed to bring greater functionality to conventional medical devices and to reduce the known risks associated with such devices . microbot is currently aiming to complete pre-clinical studies required for regulatory submission for both product candidates within the next 12 months . on january 4 , 2018 , we entered into an agreement to acquire a novel patent-protected technology from cardiosert ltd. , a privately-held medical device company based in israel . the acquisition is expected to close within 90 days of the agreement , at which time , with the addition of cardioserts ' issued u.s. patent and three patent applications pending worldwide , microbot would have a patent portfolio of 25 issued/allowed patents and 15 patent applications pending worldwide . microbot has no products approved for commercial sale and has not generated any revenues from product sales since its inception in 2010. from inception to december 31 , 2017 , microbot has raised cash proceeds of approximately $ 18,000,000 to fund operations , primarily from government grants , loans , and private placement offerings of debt and equity securities . microbot has never been profitable and has incurred significant operating losses in each year since inception . net losses for the years ended december 31 , 2017 and 2016 were approximately $ 7,589,000 and $ 9,663,000 , respectively . substantially all of microbot 's operating losses resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with its operations . as of december 31 , 2017 , microbot had a net working capital of approximately $ 10,402,000 , consisting primarily of cash and cash equivalents . microbot expects to continue to incur significant expenses and increasing operating losses for at least the next several years as it continues the clinical development of and seeks regulatory approval for its product candidates . accordingly , microbot will continue to require substantial additional capital to continue its clinical development and potential commercialization activities , however , at this time it believes that its net cash will be sufficient to fund its operations for at least 12 months and fund operations necessary to continue development activities of the scs and tipcat . the amount and timing of microbot 's future funding requirements will depend on many factors , including the timing and results of its clinical development efforts . estimated completion dates and costs for microbot 's clinical development and research programs can vary significantly for each current and future product candidate and are difficult to predict . as a result , microbot can not estimate with any degree of certainty the costs it will incur in connection with development of its product candidates at this point in time . microbot anticipates it will make determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs , results of ongoing and future clinical trials , its ability to enter into collaborative agreements with respect to programs or potential product candidates , as well as ongoing assessments as to each current or future product candidate 's commercial potential . financial operations overview research and development expenses research and development expenses consist primarily of salaries and related expenses and overhead for microbot 's research , development and engineering personnel , prototype materials and research studies , obtaining and maintaining microbot 's patent portfolio . microbot expenses its research and development costs as incurred . story_separator_special_tag general and administrative expenses general and administrative expenses consist primarily of the costs associated with management costs , professional fees for accounting , auditing , consulting and legal services , and allocated overhead expenses . microbot expects that its general and administrative expenses may increase in the future as it expands its operating activities , maintains and expands its patent portfolio and incurs additional costs associated with the merger , the preparation of becoming a public company and maintaining compliance with exchange listing and sec requirements . microbot expects these potential increases will likely include management costs , legal fees , accounting fees , directors ' and officers ' liability insurance premiums and expenses associated with investor relations . income taxes microbot has incurred net losses and has not recorded any income tax benefits for the losses . it is still in its development stage and has not yet generated revenues , therefore , it is more likely than not that sufficient taxable income will not be available for the tax losses to be fully utilized in the future . 29 critical accounting policies and significant judgments and estimates microbot 's management 's discussion and analysis of its financial condition and results of operations are based on its financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . the preparation of these financial statements requires microbot to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements . on an ongoing basis , microbot evaluates its estimates and judgments , including those related to accrued research and development expenses . microbot bases its estimates on historical experience , known trends and events , and 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 value of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . while microbot 's significant accounting policies are described in more detail in the notes to its financial statements , microbot believes the following accounting policies are the most critical for fully understanding and evaluating its financial condition and results of operations . fair value of financial instruments the company measures the fair value of certain of its financial instruments ( such as the derivative warrant liabilities ) on a recurring basis . a fair value hierarchy is used to rank the quality and reliability of the information used to determine fair values . financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories : ● level 1 - quoted prices ( unadjusted ) in active markets for identical assets and liabilities . ● level 2 - inputs other than level 1 that are observable , either directly or indirectly , such as unadjusted quoted prices for similar assets and liabilities , unadjusted quoted prices in the 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 . foreign currency translation microbot 's functional currency is the u.s. dollars , and its reporting currency is the u.s. dollar . government grant and input tax credit recoveries microbot from time to time has received , and may in the future continue to receive , grants from the israeli innovation authority to cover eligible company expenditures . these are presented as other income in the statement of operations and comprehensive loss as the grant funds are used for or applied towards a number of microbot 's operating expenses , such as salaries and benefits , research and development and professional and consulting fees . the recoveries are recognized in the corresponding period when such expenses are incurred . research and development expenses microbot recognizes research and development expenses as incurred , typically estimated based on an evaluation of the progress to completion of specific tasks using data such as clinical site activations , manufacturing steps completed , or information provided by vendors on their actual costs incurred . microbot determines the estimates by reviewing contracts , vendor agreements and purchase orders , and 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 . these estimates are made as of each balance sheet date based on facts and circumstances known to microbot at that time . if the actual timing of the performance of services or the level of effort varies from the estimate , microbot will adjust the estimate accordingly . nonrefundable advance payments for goods and services , including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities , are capitalized as prepaid expenses and recognized as expense in the period that the related goods are consumed or services are performed . microbot may pay fees to third-parties for manufacturing and other services that are based on contractual milestones that may result in uneven payment flows . there may be instances in which payments made to vendors will exceed the level of services provided and result in a prepayment of the research and development expense . 30 story_separator_special_tag font-size : 10pt '' > 31 as a result of such funding , microbot believes that its net cash will be sufficient to fund its operations for at least 12 months and fund operations necessary to continue development activities of the scs
| financing expenses were approximately $ 2,322,000 for the year ended december 31 , 2017 , compared to expenses of approximately $ 28,000 for the same period in 2016. the net increase in financial expenses was primarily due to revaluation and extinguishment of the convertible note and change in fair value of derivative warrant liabilities . as a result of the extinguishment of the convertible note and issuance of the series a preferred stock , the company recorded a financial loss in the amount of approximately $ 2,360,000 and $ 0 for the year ended december 31,2017 and 2016 , respectively . liquidity and capital resources microbot has incurred losses since inception and negative cash flows from operating activities for the years ended december 31 , 2017 and 2016. as of december 31 , 2017 , microbot had a net working capital of approximately $ 10,402,000 , consisting primarily of cash and cash equivalents . microbot anticipates that it will continue to incur net losses for the foreseeable future as it continues research and development efforts of its product candidates , hires additional staff , including clinical , scientific , operational , financial and management personnel , and incurs additional costs associated with being a public company . microbot has funded its operations through the issuance of capital stock , grants from the israeli innovation authority , and convertible debt . as of december 31 , 2017 , microbot raised total cash proceeds of approximately $ 18,000,000 , and incurred a total cumulative loss of approximately $ 20,624,000 from inception ( november 2010 ) to december 31 , 2017. as a result of the sale of certain of the assets of stemcells on november 29 , 2016 , microbot received aggregate net cash consideration of approximately $ 3.1 million . additionally , in january 2017 , we sold an aggregate of 700,000 shares of our common stock for net proceeds , after deducting placement agent fees and expenses , of approximately $ 3.25 million , and in june 2017 , we sold an aggregate of 3,750,000 shares of our common
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due to the potential limitation of the cap value , the economic factors of the contracts subject to a cap value differ from the economic factors of basic t & m and cost plus a margin contracts . the majority of our contracts are for consulting projects where we bill the client monthly at hourly billing rates . the hourly billing rates are determined by contract terms . under cost plus a margin contracts , we charge our clients for our costs , plus a fixed fee or rate . under t & m contracts with a cap value , we charge our clients for time and materials based upon the work performed , subject to a cap or a not to exceed value . there are often instances that a contract is modified to extend the contract value past the cap . as the consideration is variable depending on the outcome of the contract renegotiation , we estimate the total contract price in accordance with the variable consideration guidelines and only include consideration we expect to receive . when we expect to reach the cap value , we generally renegotiate the contract or cease work when the maximum contract value is reached . we continue to work if it is probable that the contract will be extended . we only include consideration on contract renegotiations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved . if we continue to work and are uncertain that a contract change order will be processed , the variable consideration will be constrained until it is probable that the contract will be renegotiated . we are only entitled to consideration for the work we have performed , and the cap value is not a guaranteed contract value . 20 fixed price contracts under fixed price contracts , our clients pay an agreed amount negotiated in advance for a specified scope of work . we are guaranteed to receive the consideration to the extent that we deliver under the contract . we recognize revenue over a period of time on fixed price contracts using the input method based upon direct costs incurred to date , which are compared to total projected direct costs . costs are the most relevant measure to determine the transfer of the service to the client . we assess contracts quarterly and will recognize any expected future loss before actually incurring the loss . when we expect to reach the total consideration under the contract , we begin to negotiate a change order . change orders and claims change orders are modifications of an original contract that effectively change the provisions of the contract without adding new provisions . either we or our client may initiate change orders . they may include changes in specifications or design , manner of performance , facilities , equipment , materials , sites and period of completion of the work . management evaluates when a change order is probable based upon its experience in negotiating change orders , the client 's written approval of such changes or separate documentation of change order costs that are identifiable . change orders may take time to be formally documented and terms of such change orders are agreed with the client before the work is performed . sometimes circumstances require that work progresses before an agreement is reached with the client . if we are having difficulties in renegotiating the change order , we will stop work if possible , record all costs incurred to date , and determine , on a project by project basis , the appropriate final revenue recognition . claims are amounts in excess of the agreed contract price that we seek to collect from clients or others for client-caused delays , errors in specifications and designs , contract terminations , change orders that are either in dispute or are unapproved as to both scope and price , or other causes of unanticipated additional contract costs . costs related to change orders and claims are recognized when they are incurred . allowance for doubtful accounts we make ongoing estimates relating to the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our clients to make required payments . estimates used in determining accounts receivable allowances are based on our evaluation of specific client accounts and contracts involved and the financial condition of our clients . the factors we consider in our evaluations include , but are not limited to , client type ( u.s. federal and other national governments , state and local governments or private sector ) , historical contract performance , historical collection and delinquency trends , client credit worthiness , and general economic and political conditions . at december 31 , 2019 and 2018 , the allowance for doubtful accounts was $ 59,131 and $ 71,277 , respectively . the allowance for doubtful accounts balance included approximately $ 32,864 and $ 42,092 related to our receivables in libya at december 31 , 2019 and 2018 , respectively . see note 5 accounts receivable of the company 's consolidated financial statements . goodwill and acquired intangible assets goodwill represents the excess of the consideration paid over the fair value of identifiable net assets acquired . goodwill is not amortized , but instead is subject to impairment testing on an annual basis , and between annual tests whenever events or changes in circumstances indicate that the fair value may be below its carrying amount . we test goodwill annually for impairment during the third fiscal quarter . to determine the fair value of our reporting unit , we use the discounted cash flow , the public company and the quoted price methods , weighting the results of each method . story_separator_special_tag application of the goodwill impairment test requires significant judgments including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth , the period over which cash flows will occur , and determination of the weighted average cost of capital , among other things . based on the valuation as of july 1 , 2019 , the fair value of the company exceeded its carrying value . changes in these estimates and assumptions could materially affect our determination of fair value and or goodwill impairment . changes in future market conditions , our business strategy , or other factors could impact upon the future value of our project management operations , which could result in future impairment charges . 21 we amortize acquired intangible assets over their estimated useful lives and review the long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable . determining whether impairment has occurred typically requires various estimates and assumptions , including determining which cash flows are directly related to the potentially impaired asset , the useful life over which cash flows will occur , their amount and the asset 's residual value , if any . in turn , measurement of an impairment loss requires a determination of fair value , which is based on the best information available . we use internal discounted cash flow estimates , quoted market prices when available and independent appraisals , as appropriate , to determine fair value . we derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate . income taxes we make judgments and interpretations based on enacted tax laws , published tax guidance , as well as estimates of future earnings . these judgments and interpretations affect the provision for income taxes , deferred tax assets and liabilities and the valuation allowance . we evaluate the deferred tax assets to determine on the basis of objective factors whether the net assets will be realized through future years ' taxable income . in the event that actual results differ from these estimates and assessments , additional valuation allowances may be required . we will recognize a tax benefit in the financial statements for an uncertain tax position only if management 's assessment is that the position is “ more likely than not ” ( i.e. , a likelihood greater than 50 percent ) to be allowed by the tax jurisdiction based solely on the technical merits of the position . the term “ tax position ” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods . share-based compensation we use the black-scholes option-pricing model to measure the estimated fair value of any share-based compensation award when the fair value of such award is not readily determinable , which generally applies to options issued to purchase the company 's common stock , but may also include restricted stock units , deferred stock units and common stock if the fair value can not be determined . option-pricing valuation models require the input of highly subjective assumptions . once the fair value of the award is determined , the value is recognized as share-based compensation expense and is recognized over the service period on a straight-line basis or when the conditions of the award have been met . any liability-classified awards are recorded at fair value based on the closing stock price of the company 's common stock and are re-measured each period until settlement of the award . contingencies estimates are inherent in the assessment of our exposure to insurance claims that fall below policy deductibles and to litigation and other legal claims and contingencies , as well as in determining our liabilities for incurred but not reported insurance claims . significant judgments by us and reliance on third-party experts are utilized in determining probable and or reasonably estimable amounts to be recorded or disclosed in our financial statements . the results of any changes in accounting estimates are reflected in the financial statements of the period in which the changes are determined . we do not believe that material changes to these estimates are reasonably likely to occur . 22 2019 business overview story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; '' > our primary cash obligations are our payroll and our project subcontractors . our primary source of cash is receipts from clients . we generally pay our employees semi-monthly in arrears and invoice our clients monthly in arrears . our clients generally remit payment approximately three months , on average , after invoice date . this creates a lag between the time we pay our employees and the time we receive payment from our clients . we bill our clients for any subcontractors used and pay those subcontractors after receiving payment from our clients , so no such timing lag exists for the payments we make to subcontractors . we utilize cash on hand and our revolving credit facilities to fund the working capital requirement caused by the lag discussed above and other operating needs . we believe our expected cash receipts from clients , together with current cash on hand and revolving credit facilities , are sufficient to support the reasonably anticipated cash needs of our operations over the next twelve months . at december 31 , 2019 and 2018 , our primary sources of liquidity consisted of $ 15,915 and $ 18,711 in cash and cash equivalents , respectively , of which $ 15,260 and $ 17,184 was on deposit in foreign locations , respectively , and $ 14,735 and $ 3,880 of available borrowing capacity under our various credit facilities , respectively .
| latin america the decrease in total revenue in latin america is primarily due to the completion of projects in brazil and mexico , without replacing them with new work , resulting in lower revenues of approximately $ 1,400 and $ 2,000 , respectively middle east : the decrease in revenue in the middle east is primarily due to a number of projects being completed and or winding down during 2019 in the united arab emirates , oman and qatar of approximately $ 28,800 in total . these decreases were partially offset by new work throughout the region , including an airport project in qatar , and increased fees due to additional positions on a project in the united arab emirates . 24 asia/pacific : the decrease in revenue in asia/pacific is primarily due to the completion of a major project in afghanistan , which was approximately $ 2,900. gross profit : replace_table_token_8_th the change in gross margin as a percentage of cfr for the twelve months ended december 31 , 2019 compared to the same period in 2018 was primarily due to the following : lain america the gross margin as a percent of cfr in latin america decreased due to direct labor decreasing less than the corresponding decrease in cfr as a result of the completion of higher margin projects . asia/pacific the gross margin as a percent of cfr in asia/pacific decreased due to the completion of work on a large project in afghanistan , which provided higher margins than the remaining projects in the region . selling , general and administrative expenses : the decrease in selling , general and administrative expenses from 2018 to 2019 was primarily due to 2018 containing significant costs related to our profit improvement plan and restatement of approximately $ 19,800. we believe these costs are largely behind us and will have a minimal impact going forward . our selling , general and administrative expense for 2018 excluding these items , on a pro-forma basis , would have been approximately $ 120 million . this estimate excludes any gain or loss on foreign exchange activity . we believe this level of selling , general and administrative costs is sustainable going forward . also , we received a payment during the fourth
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our effective tax rates differ from the u.s. statutory income tax rate primarily due to the effects of state income taxes . results for discontinued operations during june of 2012 , the company began marketing , with an intent to sell , all of its oil and gas properties in california . assets are classified as held for sale when the company commits to a plan to sell the assets and there is reasonable certainty that the sale will take place within one year . the company determined that our intent to sell out of an entire region qualified for discontinued operations accounting and these assets are presented as discontinued operations in the accompanying statements of operations and comprehensive income . the majority of these properties were sold in 2012 , and the operating results before income taxes for our california properties for the year ended december 31 , 2013 were net revenues of $ 1.7 million , and operating expenses of $ 2.3 million , as compared to net revenues of $ 5.4 million , and operating expenses of $ 6.3 million , of which , $ 1.6 million is due to impairments of proved properties , for the year ended december 31 , 2012. sales volumes for the years ended december 31 , 2013 and 2012 were 47 boe/d and 147 boe/d , respectively . the operating results before income taxes for our california properties for the year ended december 31 , 2011 were net revenues of $ 6.7 million , and operating expenses of $ 10.3 million . operating expenses for the year ended december 31 , 2011 included impairments in the amount of $ 3.4 million . sales volumes for the year ended december 31 , 2011 were 181 boe/d . please refer to note 3discontinued operations in item 8 , part ii of this annual report on form 10-k for additional discussion . liquidity and capital resources we fund our operations , capital expenditures and working capital requirements with cash flows from our operating activities and borrowings under our revolving credit facility . periodically , we access debt and capital markets and sell non-core properties to provide additional liquidity . we believe that our cash on hand , cash flow from operating activities and availability under our revolving credit facility will be sufficient to fund our planned capital expenditures and operating expenses and comply with our debt covenants for at least the next 12 months . to the extent actual operating results differ from our anticipated results ; our liquidity could be adversely affected . 65 on april 9 , 2013 , we sold $ 300 million of 6.75 % senior notes that mature on april 15 , 2021. interest on the senior notes began accruing on april 9 , 2013 , and we will pay interest on april 15 and october 15 of each year , which began on october 15 , 2013. on november 15 , 2013 , we sold an additional $ 200 million aggregate principal amount of 6.75 % senior notes , above par , as an additional issuance of our existing senior notes that mature on april 15 , 2021. the senior notes are fully and unconditionally guaranteed on a senior unsecured basis by our existing and future subsidiaries that incur or guarantee certain indebtedness , including indebtedness under our revolving credit facility . we may redeem the senior notes ( i ) at any time on or after april 15 , 2017 at the redemption price equal to 100 % together with accrued and unpaid interest , and ( ii ) prior to april 15 , 2017 at the `` make-whole '' redemption prices described in the indenture together with accrued and unpaid interest . the net proceeds from the sales of the senior notes were approximately $ 497.3 million after the premium and deduction of $ 11.7 million of expenses and underwriting discounts and commissions . the proceeds were used to repay all of the then outstanding balance under our revolving credit facility and for general corporate purposes including funding the company 's drilling and development program and other capital expenditures . on may 15 , 2013 , the borrowing base under our revolving credit facility was increased to $ 330 million . on november 6 , 2013 , the lenders completed their semi-annual borrowing base redetermination which resulted in an increase of the available borrowing base to $ 450 million . pursuant to the corresponding amendment , the company elected to limit bank commitments at $ 330 million while reserving the option to access , at the company 's request , the full $ 450 million prior to the next semi-annual redetermination . the maturity date of the credit facility was also extended by one year to september 15 , 2017. as of december 31 , 2013 , we had nil outstanding , $ 36 million of letters of credit issued , and $ 414 million of borrowing capacity available under our credit facility . our weighted-average interest rate on borrowings from our credit facility was 2.34 % and 1.94 % ( excluding amortization of deferred financing costs and the accretion of our contractual obligation for land acquisition ) during the years ended december 31 , 2013 and 2012 , respectively . see the credit facility section below for additional discussion . in the second quarter 2012 , we began the divestiture process of our non-core properties in california . the california properties were treated as assets held for sale , and production , revenue and expenses associated with these properties were removed from continuing operations and reported as discontinued operations . during 2012 , we sold a majority of our properties in california , for approximately $ 9.3 million in aggregate . as of december 31 , 2013 , we continued to own an immaterial operated working interest in the midway-sunset field , which is expected to be sold in the first half of 2014. on story_separator_special_tag our effective tax rates differ from the u.s. statutory income tax rate primarily due to the effects of state income taxes . results for discontinued operations during june of 2012 , the company began marketing , with an intent to sell , all of its oil and gas properties in california . assets are classified as held for sale when the company commits to a plan to sell the assets and there is reasonable certainty that the sale will take place within one year . the company determined that our intent to sell out of an entire region qualified for discontinued operations accounting and these assets are presented as discontinued operations in the accompanying statements of operations and comprehensive income . the majority of these properties were sold in 2012 , and the operating results before income taxes for our california properties for the year ended december 31 , 2013 were net revenues of $ 1.7 million , and operating expenses of $ 2.3 million , as compared to net revenues of $ 5.4 million , and operating expenses of $ 6.3 million , of which , $ 1.6 million is due to impairments of proved properties , for the year ended december 31 , 2012. sales volumes for the years ended december 31 , 2013 and 2012 were 47 boe/d and 147 boe/d , respectively . the operating results before income taxes for our california properties for the year ended december 31 , 2011 were net revenues of $ 6.7 million , and operating expenses of $ 10.3 million . operating expenses for the year ended december 31 , 2011 included impairments in the amount of $ 3.4 million . sales volumes for the year ended december 31 , 2011 were 181 boe/d . please refer to note 3discontinued operations in item 8 , part ii of this annual report on form 10-k for additional discussion . liquidity and capital resources we fund our operations , capital expenditures and working capital requirements with cash flows from our operating activities and borrowings under our revolving credit facility . periodically , we access debt and capital markets and sell non-core properties to provide additional liquidity . we believe that our cash on hand , cash flow from operating activities and availability under our revolving credit facility will be sufficient to fund our planned capital expenditures and operating expenses and comply with our debt covenants for at least the next 12 months . to the extent actual operating results differ from our anticipated results ; our liquidity could be adversely affected . 65 on april 9 , 2013 , we sold $ 300 million of 6.75 % senior notes that mature on april 15 , 2021. interest on the senior notes began accruing on april 9 , 2013 , and we will pay interest on april 15 and october 15 of each year , which began on october 15 , 2013. on november 15 , 2013 , we sold an additional $ 200 million aggregate principal amount of 6.75 % senior notes , above par , as an additional issuance of our existing senior notes that mature on april 15 , 2021. the senior notes are fully and unconditionally guaranteed on a senior unsecured basis by our existing and future subsidiaries that incur or guarantee certain indebtedness , including indebtedness under our revolving credit facility . we may redeem the senior notes ( i ) at any time on or after april 15 , 2017 at the redemption price equal to 100 % together with accrued and unpaid interest , and ( ii ) prior to april 15 , 2017 at the `` make-whole '' redemption prices described in the indenture together with accrued and unpaid interest . the net proceeds from the sales of the senior notes were approximately $ 497.3 million after the premium and deduction of $ 11.7 million of expenses and underwriting discounts and commissions . the proceeds were used to repay all of the then outstanding balance under our revolving credit facility and for general corporate purposes including funding the company 's drilling and development program and other capital expenditures . on may 15 , 2013 , the borrowing base under our revolving credit facility was increased to $ 330 million . on november 6 , 2013 , the lenders completed their semi-annual borrowing base redetermination which resulted in an increase of the available borrowing base to $ 450 million . pursuant to the corresponding amendment , the company elected to limit bank commitments at $ 330 million while reserving the option to access , at the company 's request , the full $ 450 million prior to the next semi-annual redetermination . the maturity date of the credit facility was also extended by one year to september 15 , 2017. as of december 31 , 2013 , we had nil outstanding , $ 36 million of letters of credit issued , and $ 414 million of borrowing capacity available under our credit facility . our weighted-average interest rate on borrowings from our credit facility was 2.34 % and 1.94 % ( excluding amortization of deferred financing costs and the accretion of our contractual obligation for land acquisition ) during the years ended december 31 , 2013 and 2012 , respectively . see the credit facility section below for additional discussion . in the second quarter 2012 , we began the divestiture process of our non-core properties in california . the california properties were treated as assets held for sale , and production , revenue and expenses associated with these properties were removed from continuing operations and reported as discontinued operations . during 2012 , we sold a majority of our properties in california , for approximately $ 9.3 million in aggregate . as of december 31 , 2013 , we continued to own an immaterial operated working interest in the midway-sunset field , which is expected to be sold in the first half of 2014. on
| the increased volumes are a direct result of the $ 447.1 million expended for drilling and completion during the year ended december 31 , 2013. oil volumes increased by 77 % in 2013 , and the sales price increased 3 % from $ 89.08 per barrel during the year ended december 31 , 59 2012 to $ 91.84 per barrel during the year ended december 31 , 2013 , which together accounted for the $ 161.8 million increase in revenues . natural gas volumes increased by 82 % in 2013 , and were aided by an increase in sales price of 29 % from $ 3.62 per mcf to $ 4.66 per mcf for these one year periods , which together accounted for an additional $ 26.7 million of the increase in revenues . natural gas liquid volumes increased by 24 % in 2013 , but were offset by a sales price decline of 7 % from $ 55.54 per bbl to $ 51.74 per bbl for the comparable period . our wattenberg field natural gas is sold without processing into dry gas and ngls , and therefore , sells at a premium due to its high btu content . the table below presents operating expenses and per boe data for the years ended december 31 , 2013 and 2012 : replace_table_token_21_th ( 1 ) amounts reflect results for continuing operations and exclude results for discontinued operations related to non-core properties in california sold or held for sale as of december 31 , 2013 and 2012. lease operating expense . our lease operating expenses increased $ 17.1 million , or 56 % , to $ 47.8 million for the year ended december 31 , 2013 from $ 30.7 million for the year ended december 31 , 2012 and decreased on an equivalent basis from $ 9.06 per boe to $ 8.09 per boe . the increase in lease operating expense was related to the increased production volumes attributable to our drilling program and the operation of an additional gas plant that was constructed during 2012 but did not come on line until february of 2013. during the year ended december 31 , 2013 , three of the largest components of lease operating expenses ; well servicing , compression , and pumping increased $ 6.8 million , $ 2.6 million , and $ 2.3 million , respectively , over the comparable period in 2012 .
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the tcja includes a number of changes to existing tax law , including , among other things , a permanent reduction in the federal corporate income tax rate from 35 % to 21 % , effective as of january 1 , 2018 , as well as limitation of the deduction for net operating losses to 80 % of current year taxable income and elimination of net operating loss carrybacks , in each case , for losses arising in taxable years beginning after december 31 , 2017 ( though any such net operating losses may be carried forward indefinitely ) . in connection with the tcja , we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future , which is generally 21 % . the remeasurement of our deferred tax balance was primarily offset by application of our valuation allowance . as of december 31 , 2018 , we had completed our accounting for all of the tax effects of the enactment of the tcja ; including the effects on our existing deferred tax balances . we had not recognized any material adjustment to the provisional estimate that was previously recorded related to the tcja . 95 story_separator_special_tag expense from equipment and software purchased in 2017. general and administrative expenses replace_table_token_8_th general and administrative expenses for the year ended december 31 , 2017 were $ 6.5 million , compared to $ 5.8 million for the year ended december 31 , 2016. the increase in general and administrative expenses was primarily due to an increase in professional and consultant fees , including those related to investor and public relations , business development and ongoing business activities . we also incurred increased legal fees for maintaining and enforcing our intellectual property rights and for ongoing business activities . facility-related and other expenses increased primarily due to increased rent from our lease extension that we entered into in september 2016 and product support costs for software and hardware purchased during 2017. other income ( expense ) interest income interest income was $ 0.2 million for the year ended december 31 , 2017 , compared to $ 0.1 million for year ended december 31 , 2016. the increase in interest income was primarily due to higher interest rates in 2017 as compared to 2016 . 98 interest expense interest expense was $ 0.9 million for the year ended december 31 , 2017 , compared to $ 1.3 million for the year ended december 31 , 2016. the decrease in interest expense was due to the lower outstanding balance of debt as a result of repayment of principal balance . change in fair value of preferred stock tranche liability the change in the fair value of our preferred stock tranche liability resulted in income of $ 4.4 million for the year ended december 31 , 2017 , compared to income of $ 0.4 for the year ended december 31 , 2016. the increase in income was a result of the decrease in fair value of the series e-1 tranche right ( liability ) as a result of its settlement in july 2017. liquidity and capital resources since our inception , we have incurred significant operating losses . through december 31 , 2018 , we have financed our operations primarily through our initial public offering , which closed on july 23 , 2018 , sales of our preferred stock , payments received in connection with our collaboration and research agreements and borrowings under loan agreements . as of december 31 , 2018 , we had cash and cash equivalents of $ 114.6 million . on july 3 , 2018 , we repaid the remaining outstanding principal balance and final payment of $ 1.2 million under the 2016 loan agreement . no amounts remain available for borrowing under the 2016 loan agreement . in march 2018 and april 2018 , we received gross proceeds of $ 99.8 million from the issuance and sale of our series f convertible preferred stock ( see note 8 ) . in july 2018 , we completed an ipo of our common stock and issued and sold 4,000,000 shares of common stock at a public offering price of $ 15.00 per share , resulting in net proceeds of $ 52.2 million after deducting underwriting discounts , commissions and offering costs . cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_9_th operating activities during the year ended december 31 , 2018 , operating activities used $ 48.8 million of cash , primarily resulting from our net loss of $ 59.9 million , partially offset by net non-cash expense of $ 4.7 million and net cash provided by changes in our operating assets and liabilities of $ 6.4 million . net cash provided by changes in our operating assets and liabilities for the year ended december 31 , 2018 consisted primarily of a $ 7.9 million increase in accounts payable and accrued expenses and other current liabilities , partially offset by a $ 1.5 million increase in prepaid expenses and other current assets . during the year ended december 31 , 2017 , operating activities used $ 37.6 million of cash , primarily resulting from our net loss of $ 35.4 million and net non-cash income of $ 2.5 million , partially offset by net cash provided by changes in our operating assets and liabilities of $ 0.3 million . net cash provided by changes in our operating assets and liabilities for the year ended december 31 , 2017 consisted primarily of a $ 1.0 million increase in accounts payable and accrued expenses and other current liabilities , partially offset by a $ 0.8 million increase in prepaid expenses and other current assets . during the year ended december 31 , 2016 , operating activities used $ 32.8 million of cash , primarily resulting from our net loss of $ 34.5 million story_separator_special_tag the tcja includes a number of changes to existing tax law , including , among other things , a permanent reduction in the federal corporate income tax rate from 35 % to 21 % , effective as of january 1 , 2018 , as well as limitation of the deduction for net operating losses to 80 % of current year taxable income and elimination of net operating loss carrybacks , in each case , for losses arising in taxable years beginning after december 31 , 2017 ( though any such net operating losses may be carried forward indefinitely ) . in connection with the tcja , we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future , which is generally 21 % . the remeasurement of our deferred tax balance was primarily offset by application of our valuation allowance . as of december 31 , 2018 , we had completed our accounting for all of the tax effects of the enactment of the tcja ; including the effects on our existing deferred tax balances . we had not recognized any material adjustment to the provisional estimate that was previously recorded related to the tcja . 95 story_separator_special_tag expense from equipment and software purchased in 2017. general and administrative expenses replace_table_token_8_th general and administrative expenses for the year ended december 31 , 2017 were $ 6.5 million , compared to $ 5.8 million for the year ended december 31 , 2016. the increase in general and administrative expenses was primarily due to an increase in professional and consultant fees , including those related to investor and public relations , business development and ongoing business activities . we also incurred increased legal fees for maintaining and enforcing our intellectual property rights and for ongoing business activities . facility-related and other expenses increased primarily due to increased rent from our lease extension that we entered into in september 2016 and product support costs for software and hardware purchased during 2017. other income ( expense ) interest income interest income was $ 0.2 million for the year ended december 31 , 2017 , compared to $ 0.1 million for year ended december 31 , 2016. the increase in interest income was primarily due to higher interest rates in 2017 as compared to 2016 . 98 interest expense interest expense was $ 0.9 million for the year ended december 31 , 2017 , compared to $ 1.3 million for the year ended december 31 , 2016. the decrease in interest expense was due to the lower outstanding balance of debt as a result of repayment of principal balance . change in fair value of preferred stock tranche liability the change in the fair value of our preferred stock tranche liability resulted in income of $ 4.4 million for the year ended december 31 , 2017 , compared to income of $ 0.4 for the year ended december 31 , 2016. the increase in income was a result of the decrease in fair value of the series e-1 tranche right ( liability ) as a result of its settlement in july 2017. liquidity and capital resources since our inception , we have incurred significant operating losses . through december 31 , 2018 , we have financed our operations primarily through our initial public offering , which closed on july 23 , 2018 , sales of our preferred stock , payments received in connection with our collaboration and research agreements and borrowings under loan agreements . as of december 31 , 2018 , we had cash and cash equivalents of $ 114.6 million . on july 3 , 2018 , we repaid the remaining outstanding principal balance and final payment of $ 1.2 million under the 2016 loan agreement . no amounts remain available for borrowing under the 2016 loan agreement . in march 2018 and april 2018 , we received gross proceeds of $ 99.8 million from the issuance and sale of our series f convertible preferred stock ( see note 8 ) . in july 2018 , we completed an ipo of our common stock and issued and sold 4,000,000 shares of common stock at a public offering price of $ 15.00 per share , resulting in net proceeds of $ 52.2 million after deducting underwriting discounts , commissions and offering costs . cash flows the following table summarizes our sources and uses of cash for each of the periods presented : replace_table_token_9_th operating activities during the year ended december 31 , 2018 , operating activities used $ 48.8 million of cash , primarily resulting from our net loss of $ 59.9 million , partially offset by net non-cash expense of $ 4.7 million and net cash provided by changes in our operating assets and liabilities of $ 6.4 million . net cash provided by changes in our operating assets and liabilities for the year ended december 31 , 2018 consisted primarily of a $ 7.9 million increase in accounts payable and accrued expenses and other current liabilities , partially offset by a $ 1.5 million increase in prepaid expenses and other current assets . during the year ended december 31 , 2017 , operating activities used $ 37.6 million of cash , primarily resulting from our net loss of $ 35.4 million and net non-cash income of $ 2.5 million , partially offset by net cash provided by changes in our operating assets and liabilities of $ 0.3 million . net cash provided by changes in our operating assets and liabilities for the year ended december 31 , 2017 consisted primarily of a $ 1.0 million increase in accounts payable and accrued expenses and other current liabilities , partially offset by a $ 0.8 million increase in prepaid expenses and other current assets . during the year ended december 31 , 2016 , operating activities used $ 32.8 million of cash , primarily resulting from our net loss of $ 34.5 million
| facility related and other costs increased by $ 1.2 million primarily due to franchise taxes , insurance expense and ongoing business activities , including increased costs to operate as a public company . other income ( expense ) interest income interest income increased to $ 1.5 million for the year ended december 31 , 2018 from $ 0.2 million for year ended december 31 , 2017 due to higher invested balances . interest expense interest expense was $ 0.2 million and $ 0.9 million for the years ended december 31 , 2018 and 2017 , respectively . the decrease in interest expense was due to the repayment of amounts owed under the 2016 loan agreement in july 2018. change in fair value of preferred stock tranche liability the change in the fair value of our preferred stock tranche liability resulted in income of $ 4.4 million for the year ended december 31 , 2017. the decrease in income was a result of the decrease in fair value of the series e-1 tranche right ( liability ) as a result of its settlement in july 2017. comparison of the years ended december 31 , 2017 and 2016 the following table summarizes our results of operations for the years ended december 31 , 2017 and 2016 : research and development expenses replace_table_token_6_th 97 replace_table_token_7_th research and development expenses were $ 32.6 million for the year ended december 31 , 2017 compared to $ 27.9 million for the year ended december 31 , 2016. the increase in costs related to our cpi-1205 program was primarily due to preparation for and commencement of our prostar trial , which we initiated in the fourth quarter of 2017 and preparation for our orion-e trial , which we initiated in the first quarter of 2018. the decrease in costs related to our cpi-0610 program was primarily due to having only one ongoing phase 2 clinical trial for cpi-0610 in 2017 as compared to three ongoing phase 1 clinical trials for cpi-0610 in 2016. costs related to our second-generation ezh2 inhibitor program in 2017 were primarily related to the identification
| 14,060 |
the current sagd project has : ● confirmed that the sagd process works in the bluesky formation at sawn lake ; ● established characteristics of ramp up through stabilization of sagd performance ; ● indicated the productive capability and sor of the reservoir ; and ● provided critical information required for well and facility design associated with future commercial development . 17 the following graph sets out the production levels that the sagd project achieved . these production numbers along with the corresponding sors compare favorably to analogous reservoirs in thermal recovery projects that we are monitoring and using as a basis of comparison . it is anticipated that a reactivation of the existing sagd project facility and current sagd well pair will be part of a potential commercial expansion . in early may of 2016 , an amended application was submitted to the aer for an expansion of the existing sagd project facility site which would potentially increase the operation for up to a total of eight sagd well pairs . this expansion application sought approval to expand the current sagd project facility site to 3,200 bopd ( 100 % basis ) . it is anticipated that only five sagd well pairs will need to be operating to achieve this production level . the expanded facility will be designed to handle up to 3,200 bopd . the aer approval for this expansion of our existing sagd project was granted in december of 2017. while the joint venture has not yet approved to expand the sagd project facility , currently the sagd project continues to move forward with engineering and identification of long lead time items towards potential expansion to 3,200 bopd and future commercial development at sawn lake . in august of 2017 , we jointly participated in drilling one well on our sawn lake properties . this well was drilled to a total depth of 681 meters . on february 15 , 2018 , we entered into a contribution agreement with a third-party , whereby we paid a cash contribution to drill and acquire cores and logs through the bluesky formation from a well drilled by a third-party on one of our oil sands leases . in august 2013 , we received approval from the aer for our horizontal cyclic steam stimulation project ( “ hcss project ” ) application . it is anticipated that we will develop a thermal demonstration project on our properties followed by a commercial expansion project on one half section of land located on section 10-92-13w5 of our sawn lake oil sands properties where we currently have a 90 % working interest . the final performance results and revised reservoir modeling studies from our sagd project are being used to fine-tune our hcss project facility design before we initiate start-up operations on the half of a section of land where we plan to drill two horizontal wells to test the use of hcss technology . we performed an environmental field study and surveyed the proposed location of our planned hcss project site and received aer approval for the surface wellsite and access road for this hcss project . our company 's oil sands acreage as of september 30 , 2018 , covers 37,322 gross acres ( 29,383 net acres ) of land under nine oil sands leases . until our company extends the leases “ into perpetuity ” based on the alberta governmental regulations , the lease expiration dates of our company 's nine oil sands leases are as follows : ( iv ) of our company 's acreage , 20,242 gross acres ( 13,284 net acres ) under five oil sands leases were set to expiry on july 10 , 2018. in november of 2017 , our company 's joint venture partner and operator of two of these five oil sands leases , submitted two continuation applications to the alberta oil sands tenure division to apply to continue 7,591 gross acres ( 1,898 net acres ) and on january 29 , 2018 , approval was received from alberta energy to continue 6,958 gross acres ( 1,740 net acres ) . in june of 2018 , our company as operator of three of these five oil sands leases , submitted three continuation applications to the alberta oil sands tenure division to apply to continue another 7,591 gross acres ( 6,832 net acres ) where resources were identified and on july 15 , 2018 , approval was received from alberta energy to continue 5,693 gross acres ( 5,124 net acres ) . our company has not yet received approval on one continuation application it submitted in june of 2018 to continue another 1,898 gross acres ( 1,708 net acres ) . as of september 30 , 2018 , a total of 5,693 gross acres ( 4,713 net acres ) on five oil sands leases expired without being continued . these expired lands were primarily areas where our company was unable to ascertain exploitable resources . continued leases have no future expiry dates but are subject to yearly escalating rental payments until they are deemed to be producing leases . 18 ( v ) of our company 's acreage , 19,610 gross acres ( 17,649 net acres ) under three northern oil sands leases are set to expire on august 19 , 2019. our company intends to apply for a term extension on these three northern oil sands leases , however it is not certain if an extension will be granted by alberta energy . ( vi ) of our company 's acreage , 3,163 gross acres ( 3,163 net acres ) under one oil sands lease are set to expire on april 9 , 2024. it is our company 's opinion that we have already met the governmental requirements for this lease and it will be applying to continue this lease beyond its expiry date . story_separator_special_tag the development progress of our properties is governed by several factors such as federal and provincial governmental regulations . long lead times in getting regulatory approval for thermal recovery projects are commonplace in our industry . road bans , winter access only roads and environmental regulations can , and often , do delay development of similar projects . because of these and other factors , our oil sands project could take significantly longer to complete than regular conventional drilling programs for lighter oil . liquidity and capital resources as of september 30 , 2018 , our total assets were $ 22,827,332 compared to $ 23,033,238 as of september 30 , 2017. this decrease of $ 205,906 is primarily due to a cash contribution of $ 395,500 ( $ 500,000 cdn ) we paid to a third-party , who was drilling into a deeper formation , to drill and acquire cores and logs through the bluesky formation on our oil sands leases . as of september 30 , 2018 , we had no long-term third-party debt other than our estimated asset retirement obligations on oil and gas properties . for the year ended september 30 , 2018 , we performed an assessment of our carrying costs of our unproven oil sands properties and determined that no write-down of our oil and gas properties as of september 30 , 2018 was necessary . no write-downs of our unproven oil sands properties were recorded in the year ended september 30 , 2017. however , our unproven oil sands properties may be at risk for future ceiling test write-downs . it is potentially possible that future declines in oil prices and possible changes to our company 's drilling plans in response to lower prices or increases in drilling or operating costs could result in other additional write-downs to our company 's unproven oil sands properties . as of september 30 , 2018 , our total liabilities were $ 538,604 compared to $ 659,563 as of september 30 , 2017. this decrease of $ 120,959 in our total liabilities was primarily due to a decrease of outstanding accounts payable to the operator of the sagd project for operating expenses , which was subsequently reimbursed to us by the farmee , in accordance with the terms of the farmout agreement . our working capital is as follows . replace_table_token_6_th as of september 30 , 2018 , our company had working capital of $ 318,754 compared to our working capital of $ 1,048,867 as of september 30 , 2017. this decrease is mainly due to cash used for general and administrative expenses , and the cash contribution of $ 395,500 ( $ 500,000 cdn ) we paid to a third-party operator as described above . on july 31 , 2013 , we entered into the farmout agreement to fund our share of the costs of our joint sagd project . as of september 30 , 2018 , we recorded $ 32,832 in accounts payable due to the operator for our working interest share of the outstanding monthly operating expenses of the sagd project , of which all is reimbursable by the farmee in accordance with the farmout agreement . therefore , this amount is also recorded in accounts receivable to be paid to us from the farmee to cover our share of the costs of the sagd project . as reported on our consolidated statement of cash flows under “ operating activities ” , for the year ending september 30 , 2018 , our net cash used in operating activities was $ 343,396 compared to $ 159,509 for the year ended september 30 , 2017. this increase of $ 183,887 was primarily the result of an increase in operating expenses , which included engineering fees and legal fees . as reported on our consolidated statement of cash flows under “ investing activities ” , we had an increase of $ 557,436 in the investment in our oil and gas properties for the year ended september 30 , 2018 , compared to the year ended september 30 , 2017. this increase is primarily due to the cash contribution of $ 395,500 ( $ 500,000 cdn ) we paid to a third-party operator as described above . 19 as reported on our consolidated statement of cash flows under “ financing activities ” , for the year ended september 30 , 2018 and september 30 , 2017 , we had an increase of $ 245,184 compared to the year ended september 30 , 2017. this increase is due to a $ 245,184 refund we received , which was related to a return of capital distribution our company issued in september of 2013. our cash and cash equivalents for the year ending september 30 , 2018 were $ 298,241 compared to $ 1,097,651 in the year ending september 30 , 2017. this decrease of $ 799,410 in cash was primarily due to general and administrative expenses , and the cash contribution of $ 395,500 ( $ 500,000 cdn ) paid to a third-party operator as described above , offset by the $ 245,184 distribution refund received as described above . as of september 30 , 2018 , we had no long-term debt other than our estimated asset retirement obligations on our oil and gas properties . our current sagd project operating costs are covered by the farmout agreement . for our long-term operations , we anticipate that , among other alternatives , we may raise funds during the next twenty-four months through sales of our equity securities , debt , or entering into another form of joint venture . we also note that if we issue more shares of our common stock , our stockholders will experience dilution in the percentage of their ownership of common stock .
| as required by the farmout agreement , as of september 30 , 2018 , the farmee has since reimbursed our company and or paid the operator in total approximately $ 20.8 million ( $ 27.0 million cdn ) for the farmee 's share and our share of the capital costs and operating expenses of the sagd project . these costs included the drilling and completion of one sagd well pair ; the purchase and transportation of equipment of which included the once through steam generator , production tanks , water treatment plant , and power generators ; installation and construction of the steam plant facility ; testing and commissioning ; the purchase of the water source and disposal wells ; construction of pipelines and expenditures to connect and tie-in the source and disposal water wells to the steam plant facility along with a fuel source tie-in pipeline ; equipment for processing and treating the bitumen production at the sagd facility site ; replacement of the electrical submersible pump ; front end costs for the expansion ; the operating expenses associated with the steaming and production of the one sagd well pair ; and the expenses associated the monthly shut-in operations of the sagd project facility . for the year ended september 30 , 2018 , our general and administrative expenses increased by $ 66,957 compared to the year ended september 30 , 2017. this was a 30.1 % increase from the 2017 fiscal year which was primarily due to an increase of $ 56,863 in engineering fees . we also received $ 360,000 during the current fiscal year from the farmee in accordance with a farmout agreement to offset some of our monthly expenses . for the year ended september 30 , 2018 , our share-based compensation expense was $ nil compared to $ 2,314 for the year ended september 30 , 2017. after adjusting out the non-cash items for share-based compensation and foreign exchange , and the funds we received from the farmee , our general
| 14,061 |
replace_table_token_27_th ( a ) represents operating losses for our insurance subsidiaries . during 2012 , we transitioned our remaining insurance business to run-off and recorded additional losses of $ 7 million primarily relating to adverse loss development and reserve increases . ( b ) for additional information , see table below . ( c ) includes certain costs incurred in connection with costs savings initiatives . see item 1. business — execution on strategy — efficiency improvements . ( d ) for additional information , see item 8. financial statements and supplementary information — note 16. employee benefit plans . ( e ) in 2013 , we recorded a $ 4 million gain related to a distribution received from an insurance subsidiary grantor trust . see item 8. financial statements and supplementary data — note 15. income taxes . ( f ) for additional information , see item 8. financial statements and supplementary information — note 11. consolidated debt . ( g ) in 2012 , we recorded a foreign exchange gain related to an intercompany loan . ( h ) for additional information , see item 8. financial statements and supplementary data — note 15. income taxes . 48 the components of net write-offs ( gains ) are as follows ( in millions ) : replace_table_token_28_th for additional information , see item 8. financial statements and supplementary information — note 14. supplementary information — net write-offs ( gains ) . supplementary financial information — adjusted ebitda ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of adjusted ebitda , which is a non-gaap financial measure as defined by the sec . this non-gaap financial measure is described below , and is not intended as a substitute and should not be considered in isolation from measures of financial performance prepared in accordance with gaap . in addition , our use of non-gaap financial measures may be different from non-gaap financial measures used by other companies , limiting their usefulness for comparison purposes . the presentation of adjusted ebitda is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use adjusted ebitda to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities of our most significant subsidiary , covanta energy , and as additional ways of viewing aspects of its operations that , when viewed with the gaap results and the accompanying reconciliations to corresponding gaap financial measures , provide a more complete understanding of our core business . the calculation of adjusted ebitda is based on the definition in covanta energy 's credit facilities ( as defined and described below under liquidity and capital resources ) , which we have guaranteed . adjusted ebitda is defined as earnings before interest , taxes , depreciation and amortization , as adjusted for additional items subtracted from or added to net income . because our business is substantially comprised of that of covanta energy , our financial performance is substantially similar to that of covanta energy . for this reason , and in order to avoid use of multiple financial measures which are not all from the same entity , the calculation of adjusted ebitda and other financial measures presented herein are measured on a consolidated basis , less the results of operations of our insurance subsidiaries . under the credit facilities , covanta energy is required to satisfy certain financial covenants , including certain ratios of which adjusted ebitda is an important component . compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business , including making certain investments , acquiring businesses and incurring additional debt . covanta energy was in compliance with these covenants as of december 31 , 2014 . failure to comply with such financial covenants could result in a default under the credit facilities , which default would have a material adverse effect on our financial condition and liquidity . adjusted ebitda should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with gaap . in order to provide a meaningful basis for comparison , we are providing information with respect to our adjusted ebitda for the twelve months ended december 31 , 2014 , 2013 and 2012 , respectively , reconciled for each such period to net income from continuing operations and cash flow provided by operating activities from continuing operations , which are believed to be the most directly comparable measures under gaap . the following is a reconciliation of net income to adjusted ebitda ( in millions ) : 49 replace_table_token_29_th ( a ) for additional information , see adjusted eps above . ( b ) includes certain non-cash items that are added back under the definition of adjusted ebitda in covanta energy 's credit agreement . the following is a reconciliation of cash flow provided by operating activities to adjusted ebitda ( in millions ) : replace_table_token_30_th ( a ) see adjusted eps above . for additional discussion related to management 's use of non-gaap measures , see liquidity and capital resources — supplementary financial information — free cash flow ( non-gaap discussion ) below . 50 business outlook in 2015 and beyond , we expect that our financial results will be affected by several factors , including : market prices , contract transitions , new contracts , organic growth and acquisitions , and our ability to manage facility production and operating costs . in 2015 , the following specific factors are expected to impact our story_separator_special_tag replace_table_token_27_th ( a ) represents operating losses for our insurance subsidiaries . during 2012 , we transitioned our remaining insurance business to run-off and recorded additional losses of $ 7 million primarily relating to adverse loss development and reserve increases . ( b ) for additional information , see table below . ( c ) includes certain costs incurred in connection with costs savings initiatives . see item 1. business — execution on strategy — efficiency improvements . ( d ) for additional information , see item 8. financial statements and supplementary information — note 16. employee benefit plans . ( e ) in 2013 , we recorded a $ 4 million gain related to a distribution received from an insurance subsidiary grantor trust . see item 8. financial statements and supplementary data — note 15. income taxes . ( f ) for additional information , see item 8. financial statements and supplementary information — note 11. consolidated debt . ( g ) in 2012 , we recorded a foreign exchange gain related to an intercompany loan . ( h ) for additional information , see item 8. financial statements and supplementary data — note 15. income taxes . 48 the components of net write-offs ( gains ) are as follows ( in millions ) : replace_table_token_28_th for additional information , see item 8. financial statements and supplementary information — note 14. supplementary information — net write-offs ( gains ) . supplementary financial information — adjusted ebitda ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of adjusted ebitda , which is a non-gaap financial measure as defined by the sec . this non-gaap financial measure is described below , and is not intended as a substitute and should not be considered in isolation from measures of financial performance prepared in accordance with gaap . in addition , our use of non-gaap financial measures may be different from non-gaap financial measures used by other companies , limiting their usefulness for comparison purposes . the presentation of adjusted ebitda is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use adjusted ebitda to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities of our most significant subsidiary , covanta energy , and as additional ways of viewing aspects of its operations that , when viewed with the gaap results and the accompanying reconciliations to corresponding gaap financial measures , provide a more complete understanding of our core business . the calculation of adjusted ebitda is based on the definition in covanta energy 's credit facilities ( as defined and described below under liquidity and capital resources ) , which we have guaranteed . adjusted ebitda is defined as earnings before interest , taxes , depreciation and amortization , as adjusted for additional items subtracted from or added to net income . because our business is substantially comprised of that of covanta energy , our financial performance is substantially similar to that of covanta energy . for this reason , and in order to avoid use of multiple financial measures which are not all from the same entity , the calculation of adjusted ebitda and other financial measures presented herein are measured on a consolidated basis , less the results of operations of our insurance subsidiaries . under the credit facilities , covanta energy is required to satisfy certain financial covenants , including certain ratios of which adjusted ebitda is an important component . compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business , including making certain investments , acquiring businesses and incurring additional debt . covanta energy was in compliance with these covenants as of december 31 , 2014 . failure to comply with such financial covenants could result in a default under the credit facilities , which default would have a material adverse effect on our financial condition and liquidity . adjusted ebitda should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with gaap . in order to provide a meaningful basis for comparison , we are providing information with respect to our adjusted ebitda for the twelve months ended december 31 , 2014 , 2013 and 2012 , respectively , reconciled for each such period to net income from continuing operations and cash flow provided by operating activities from continuing operations , which are believed to be the most directly comparable measures under gaap . the following is a reconciliation of net income to adjusted ebitda ( in millions ) : 49 replace_table_token_29_th ( a ) for additional information , see adjusted eps above . ( b ) includes certain non-cash items that are added back under the definition of adjusted ebitda in covanta energy 's credit agreement . the following is a reconciliation of cash flow provided by operating activities to adjusted ebitda ( in millions ) : replace_table_token_30_th ( a ) see adjusted eps above . for additional discussion related to management 's use of non-gaap measures , see liquidity and capital resources — supplementary financial information — free cash flow ( non-gaap discussion ) below . 50 business outlook in 2015 and beyond , we expect that our financial results will be affected by several factors , including : market prices , contract transitions , new contracts , organic growth and acquisitions , and our ability to manage facility production and operating costs . in 2015 , the following specific factors are expected to impact our
| “ transactions ” : includes the impacts of acquisitions , divestitures , and the addition or loss of operating contracts . 38 results of operations — operating income year ended december 31 , 2014 vs. year ended december 31 , 2013 replace_table_token_8_th operating revenues waste and service revenues waste and service revenues increased by $ 24 million on both a consolidated and north america segment basis . waste and service revenues from north america segment efw operations increased by $ 5 million year-over-year , driven by the following : same store revenues increased by $ 14 million , or 1.5 % , primarily driven by $ 11 million in price improvement , primarily due to contract escalation and special waste growth , and $ 6 million in higher volume , offset by a decrease of $ 2 million in other revenues ; contract transitions reduced revenue by $ 17 million , of which $ 13 million related to revenue earned explicitly to service project debt ; and transactions increased revenue by $ 7 million . waste and service revenue from non-efw operations in the north america segment increased by $ 18 million , primarily due to transfer stations acquired in the fourth quarter of 2013. replace_table_token_9_th 39 replace_table_token_10_th ( 1 ) includes solid tons only . certain amounts may not total due to rounding . recycled metal revenues for the twelve month comparative period , recycled metal revenues on both a consolidated and north america segment basis increased by $ 20 million . this increase was almost entirely driven by higher same store revenues in north america segment efw operations as follows : $ 13 million from higher volume of recovered metals , primarily as a result of improvements to existing recovery systems and installation of new recovery systems ; and $ 5 million from higher recycled metal pricing , due to both higher market prices and selling product at a higher percentage of underlying market indices . revenue from non-efw operations increased by $ 3 million . replace_table_token_11_th
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costs associated with our emulation and prototyping hardware products include components , assembly , testing , applicable reserves and overhead . these costs make our cost of emulation and prototyping hardware products higher , as a percentage of revenue , than our cost of software and ip products . a summary of cost of product and maintenance for fiscal 2018 , 2017 and 2016 is as follows : replace_table_token_11_th cost of product and maintenance depends primarily on our hardware product sales in any given period . cost of product and maintenance is also affected by employee salary and benefits and other employee-related costs , reserves for inventory , as well as the timing and extent to which we acquire intangible assets , acquire or license third-parties ' intellectual property or technology and sell our products that include such acquired or licensed intellectual property or technology . the changes in product and maintenance-related costs were due to the following : replace_table_token_12_th costs of emulation and prototyping increased during fiscal 2018 , as compared to fiscal 2017 , primarily due to increased sales volume for emulation and prototyping hardware and related costs . costs of emulation and prototyping hardware decreased during fiscal 2017 , as compared to fiscal 2016 , primarily due to decreased sales volume for emulation and prototyping hardware . gross margins on our hardware products will fluctuate based on product life cycle , product competition , product mix and pricing strategies . cost of services cost of services primarily includes employee salary , benefits and other employee-related costs to perform work on revenue-generating projects , costs to maintain the infrastructure necessary to manage a services organization , and provisions for contract losses , if any . cost of services will fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects or on internal development projects . cost of services increased during fiscal 2018 , as compared to fiscal 2017 , and during fiscal 2017 , as compared to fiscal 2016 , primarily due to variation in the number of personnel dedicated to deliver and support our services and custom ip offerings . operating expenses our operating expenses include marketing and sales , research and development , and general and administrative expenses . factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions , restructuring activities , foreign exchange rate movements , stock-based compensation and the impact of our variable compensation programs that are driven by operating results . stock-based compensation included in our operating expenses increased during fiscal 2018 , as compared to fiscal 2017 , and fiscal 2017 , as compared to fiscal 2016 , primarily because successive increases in the price of our common stock between grant dates have resulted in higher grant date fair values for the mix of stock awards expensed in each period . we expect stock-based compensation to increase operating expenses during fiscal 2019 , as compared to fiscal 2018. for further discussion regarding stock-based compensation , see note 10 in the notes to consolidated financial statements . 27 many of our operating expenses are transacted in various foreign currencies . we recognize lower expenses in periods when the united states dollar strengthens in value against other currencies and we recognize higher expenses when the united states dollar weakens against other currencies . for an additional description of how changes in foreign exchange rates affect our consolidated financial statements , see the discussion in item 7a , “ quantitative and qualitative disclosures about market risk – foreign currency risk. ” our operating expenses for fiscal 2018 , 2017 and 2016 were as follows : replace_table_token_13_th our operating expenses , as a percentage of total revenue , for fiscal 2018 , 2017 and 2016 were as follows : replace_table_token_14_th marketing and sales the changes in marketing and sales expense were due to the following : replace_table_token_15_th costs included in marketing and sales increased during fiscal 2018 , as compared to fiscal 2017 , and during fiscal 2017 , as compared to fiscal 2016 , primarily due to additional headcount in fiscal 2018 and an increase in incentive compensation . 28 research and development the changes in research and development expense were due to the following : replace_table_token_16_th we must invest significantly in product research and development to keep pace with the latest manufacturing technology . the demand for new ic manufacturing technology directly impacts the demand for our newest products and we must keep pace with our customers ' technical developments , satisfy industry standards and meet our customers ' increasingly demanding performance , productivity , quality and predictability requirements . costs included in research and development increased during fiscal 2018 , as compared to fiscal 2017 , and during fiscal 2017 , as compared to fiscal 2016 , primarily due to incremental investments in research and development as a result of additional hiring and incremental costs resulting from our fiscal 2017 acquisitions . general and administrative the changes in general and administrative expense were due to the following : replace_table_token_17_th general and administrative costs decreased during fiscal 2018 , as compared to fiscal 2017 , primarily due to decreases in expense related to our nonqualified deferred compensation plan that are included in salary , benefits and other employee-related costs , partially offset by increases in reserves on receivables from our customers . general and administrative costs increased during fiscal 2017 , as compared to fiscal 2016 , primarily due to an increase in accounting and tax services and an increase in employee salaries and benefits . amortization of acquired intangibles replace_table_token_18_th 29 the changes in amortization of acquired intangibles were due to the following : replace_table_token_19_th restructuring and other charges we have initiated restructuring plans in recent years to better align our resources with our business strategy . story_separator_special_tag because the restructuring charges and related benefits are derived from management 's estimates made during the formulation of the restructuring plans , based on then-currently available information , our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated . additional actions , including further restructuring of our operations , may be required in the future . the following table presents restructuring and other charges , net for our restructuring plans : replace_table_token_20_th for an additional description of our restructuring plans , see note 12 in the notes to consolidated financial statements . interest expense interest expense for fiscal 2018 , 2017 and 2016 was comprised of the following : replace_table_token_21_th during fiscal 2018 , we prepaid the outstanding principal balance and accrued interest on our $ 300.0 million 2019 term loan . for an additional description of our debt arrangements , see note 3 in the notes to consolidated financial statements . income taxes the following table presents the provision for income taxes and the effective tax rate for fiscal 2018 , 2017 and 2016 : replace_table_token_22_th our provision for income taxes for fiscal 2018 primarily resulted from the federal income tax effects of the tax act and state and foreign income taxes on fiscal 2018 income , partially offset by $ 21.3 million of tax benefit related to stock-based compensation that vested or was exercised during the year . 30 during fiscal 2018 , we finalized our fiscal 2017 deemed repatriation transition tax calculation and reduced our estimate from $ 67.2 million to $ 65.8 million . we finalized our other fiscal 2017 provisional estimates without change . for further discussion regarding our accounting for the tax act , see note 6 in the notes to the consolidated financial statements . our provision for income taxes for fiscal 2017 is primarily attributable to income tax effects of the tax act . the provisional amount related to the transition tax was $ 67.2 million and the provisional amount related to the re-measurement of our u.s. deferred tax assets and liabilities for the u.s. tax rate reduction was $ 25.2 million . our provision for income taxes for fiscal 2017 included $ 32.0 million of tax benefit related to stock-based compensation that vested or settled during the period . our provision for income taxes for fiscal 2016 is primarily attributable to federal , state and foreign income taxes on our fiscal 2016 income and includes the tax benefit resulting from the permanent reinstatement of the united states research tax credit in december 2015. during fiscal 2016 , we adopted a new accounting standard related to the accounting for stock-based compensation that required all income tax effects of stock-based awards to be recognized in our consolidated income statement as the awards vest or are settled . our provision for income taxes for fiscal 2016 includes $ 17.2 million of tax benefit related to stock-based compensation that vested or settled during the period . our future effective tax rates may be materially impacted by tax amounts associated with our foreign earnings at rates different from the united states federal statutory rate , research credits , the tax impact of stock-based compensation , accounting for uncertain tax positions , business combinations , closure of statutes of limitations or settlement of tax audits , changes in valuation allowance and changes in tax law . a significant amount of our foreign earnings is generated by our subsidiaries organized in ireland and hungary . our future effective tax rates may be adversely affected if our earnings were to be lower in countries where we have lower statutory tax rates . we currently expect that our fiscal 2019 effective tax rate will be approximately 10 % . we expect that our quarterly effective tax rates will vary from our fiscal 2019 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we can not anticipate . we may also revise our fiscal 2019 effective tax rate as a result of further analyzing the implications of the tax act , including future guidance issued by the u.s. department of treasury and the irs . for additional discussion about how our effective tax rate could be affected by various risks , see part i , item 1a , “ risk factors. ” for further discussion regarding our income taxes , see note 6 in the notes to consolidated financial statements . liquidity and capital resources replace_table_token_23_th cash and cash equivalents as of december 29 , 2018 , our principal sources of liquidity consisted of $ 533.3 million of cash and cash equivalents as compared to $ 688.1 million as of december 30 , 2017 . our primary sources of cash and cash equivalents during fiscal 2018 were cash generated from operations , proceeds from borrowings under our revolving credit facility , proceeds from the exercise of stock options and proceeds from stock purchases under our employee stock purchase plan . our primary uses of cash and cash equivalents during fiscal 2018 were payments related to salaries and benefits , operating expenses , principal payments on the 2019 term loan , repurchases of our common stock , purchases of non-marketable investments , payments on our revolving credit facility , tax payments and purchases of property , plant and equipment . approximately 75 % of our cash and cash equivalents were held by our foreign subsidiaries as of december 29 , 2018 . we expect that current cash and cash equivalent balances , cash flows that are generated from operations and cash borrowings available under our revolving credit facility will be sufficient to meet our domestic and international working capital needs , and other capital and liquidity requirements , including acquisitions and share repurchases for at least the next 12 months . net working capital net working capital is comprised of current assets less current liabilities , as shown on our consolidated balance sheets .
| revenue recognized over time includes revenue from our software arrangements , services , royalties from certain ip arrangements , maintenance on ip licenses and hardware , and operating leases of hardware . revenue recognized at a point in time is primarily generated by our sales of emulation and prototyping hardware and ip licenses . our ability to maintain this mix in any single fiscal period may be impacted primarily by delivery of hardware and ip products to our customers . 24 during fiscal 2018 , we recognized revenue based on asu 2014-09 , “ revenue from contracts with customers ( topic 606 ) , ” whereas during fiscal 2017 and fiscal 2016 , we recognized revenue based on “ revenue recognition ( topic 605 ) . ” therefore , the periods are not directly comparable . for additional information on the impact of the new accounting standard on our revenue , see note 2 in the notes to consolidated financial statements under the heading “ recently adopted accounting standards. ” revenue by year the following table shows our revenue for fiscal 2018 , 2017 and 2016 and the change in revenue between years : replace_table_token_5_th product and maintenance revenue increased during fiscal 2018 , as compared to fiscal 2017 , primarily because of increased investments by our customers in new , complex designs for their products resulting in revenue growth in each of our five product categories . product and maintenance revenue may fluctuate from period to period and by geography based on demand for our hardware and ip offerings . product and maintenance revenue increased during fiscal 2017 , as compared to fiscal 2016 , primarily because of growth in our software and ip businesses , partially offset by lower revenue from emulation and prototyping hardware . services revenue may fluctuate from period to period based on the timing of fulfillment of our services and ip performance obligations . no one customer accounted for 10 % or more of total revenue during fiscal 2018 , 2017 or 2016 .
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however , we can provide no assurance that the negative historical correlation between the aum of etfs and the aum of our two largest etfs will continue in the future . our financial results have fluctuated along with the changes in our aum . revenues were $ 298.9 million , $ 219.4 million and $ 237.4 million in 2015 , 2016 and 2017 , respectively . in addition to effectively integrating etfs , if the acquisition is completed , our strategic focus remains diversifying and stabilizing our asset base by fostering deeper relationships through technology-driven solutions , increasing penetration within existing distribution channels and expanding into new distribution channels , continuing to grow our international business and offering innovative products . 37 other business highlights for 2017 include the following : in october 2017 , we launched our advisor solutions program , which is focused on providing technology-enabled solutions to help financial advisors address technology challenges and grow and scale their businesses . the advisor solutions program includes : wealth investment research and etf education ; portfolio construction services such as the digital portfolio developer , or dpd , an enhanced portfolio construction tool that assists financial advisors in analyzing an existing investment portfolio by analyzing the data and providing alternative portfolio approaches to consider in seeking to improve outcomes based on different measures ; access to etf model portfolios , which are currently available on several platforms . our model portfolios are a natural extension of our research capabilities and provide advisors access to an open-architecture approach , a tenured team and a firm dedicated to innovation and value creation ; practice management resources , including access to thought leaders in retirement planning , leadership and behavioral finance ; and wealth management technology through advisorengine , a customized end-to-end platform for financial advisors . advisorengine offers an array of distinct product offerings that provide advisors with new client prospecting tools , online client onboarding , institutional grade analytics , trading , performance reporting and billing . its technology is distinctive in that it provides these features from an advisor-centric point of view , allowing advisors to deepen their engagement with clients and demonstrate the value of the advisory relationship . in october 2017 , 72 of our u.s. listed etfs were added to td ameritrade 's expanded and enhanced commission-free etf program , which allows for investors using the td ameritrade platform to purchase these etfs without incurring the costs of trading commission fees . this commission-free access spans asset classes including equities , fixed income and alternatives , and includes a variety of investment categories in which we are a smart beta etf provider . in january 2018 our commission free etf model portfolios became available on the td ameritrade institutional model market center which offers financial advisors the ability to subscribe to third-party models and personalize portfolios according to their clients ' unique needs . during june 2017 , we collaborated with ibm 's advanced analytics practice and global consulting agency bluewolf , an ibm company , to develop a cognitive customer-focused lead prioritization system leveraging ibm watson to enhance our distribution efforts . the system evaluates data across structured and unstructured sources such as historical investment data , market data and investor activity history , extracting behavioral insights , and is designed to enable our sales and marketing teams to optimize outreach to our potential investor base . in november 2017 , we acquired a suite of eight canadian listed etfs from questrade , which represented approximately $ 77.4 million in aum at closing . as part of the transaction , we became a premier provider of etfs available for purchase on a commission-free basis on questrade 's self-directed platform , including all of our canadian listed etfs . we launched 5 new u.s. listed etfs , 6 new canadian listed etfs , 2 new boost etps and 1 new wisdomtree ucits etf . we returned approximately $ 51.7 million to our stockholders largely through our ongoing quarterly cash dividend and to a lesser extent , through stock repurchases . business segments we operate as an etp sponsor and asset manager providing investment advisory services in the u.s. , europe , canada and japan . these activities are reported in our u.s. business and international business segments , as follows : u.s. business segment : our u.s. business and japan sales office , which primarily engages in selling our u.s. listed etfs to japanese institutional clients ; and international business segment : our european business , which commenced in april 2014 in connection with our acquisition of boost and our canadian business , which launched its first six etfs in july 2016. this segment will also include etfs if the acquisition is completed . 38 background market environment the following chart reflects the annual returns of the broad-based equity indexes over the last three years . as the chart reflects , the broad-based equity market indexes have been volatile since 2014. source : factset the vast majority of our global aum is currently in u.s. listed etfs . our international aum should increase substantially following the completion of our acquisition of etfs , if the acquisition is completed . the aum of etfs at december 31 , 2017 was $ 17.8 billion . the u.s. etf industry also has been experiencing generally higher flows as the charts below reflect . in 2017 , domestic equities gathered the majority of net inflows for the year : source : investment company institute . industry developments the etf industry is becoming significantly more competitive . there has been increased price competition in not only commoditized product categories such as traditional , market capitalization weighted index exposures , but also in fundamental or other non-market cap weighted or factor-based exposures . story_separator_special_tag certain etf sponsors have been reducing fees , which has been a trend over the last few years that accelerated meaningfully in 2017. funds are being offered with fees of 20 bps or less , which attracted approximately 70 % of the net flows into u.s. listed etfs during the year ended december 31 , 2017. in addition , existing players have broadened their suite of products to offering strategies that are , in some cases , similar to ours . large traditional asset managers are also launching etfs , some with similar strategies as well . 39 while low cost etfs have accumulated a significant amount of aum recently , these same funds have captured only 34 % of the revenues associated with the net flows into u.s. listed etfs during 2017. in addition , in the etf industry , being a first mover , or one of the first providers of etfs in a particular asset class , can be a significant advantage , as the first etf in a category to attract scale in aum and trading liquidity is generally viewed as the most attractive etf . we believe that our early launch of etfs in a number of asset classes or strategies , including fundamental weighting and currency hedging , positions us well to maintain our position as one of the leaders of the etf industry . additionally , we believe our affiliated indexing or self-indexing model enables us to launch proprietary products which do not have exact competition . in april 2016 , the dol published the fiduciary rule to address conflicts of interest in retirement advice , and full compliance with the rule is required by july 1 , 2019. in response to the fiduciary rule , the shift from commission- to fee-based advisory models has accelerated as several large asset management firms have announced and implemented changes to their platforms and policies that favor fee based account structures . also in response to the fiduciary rule , several fund sponsors have implemented further fee reductions which have occurred primarily in commoditized exposures based upon third-party indexes . we believe that etfs ' competitiveness generally will increase as a result of the fiduciary rule due to the inherent benefits of etfs transparency and liquidity ; and while we are not immune to fee pressure , we believe our self-indexing capabilities and regulatory exemptive relief provides a strategic advantage . components of revenue advisory fees the majority of our revenues are comprised of advisory fees we earn from our u.s. listed etfs . we earn this revenue based on a percentage of the average daily value of aum . our average daily value of aum is the average of the daily aggregate aum of our etfs as determined by the then current net asset value ( as defined under investment company act rule 2a-4 ) of such etfs as of the close of business each day . our fee percentages for individual u.s. listed etfs , net of fee waivers , range from 0.12 % to 0.88 % . we determine the appropriate advisory fee to charge for our etfs based on the cost of operating each particular etf taking into account the types of securities the etfs will hold , fees third-party service providers will charge us for operating the etfs and our competitors ' fees for similar etfs . generally , our actively managed etfs , along with our emerging markets etfs , are priced higher than our other index based etfs . each of our etfs has a fixed advisory fee . to increase the advisory fee , we would need to obtain approval from a majority of the etf shareholders , which may be difficult or not possible to achieve . there also may be a significant cost in obtaining such etf shareholder approval . we do not need etf shareholder approval to lower our advisory fee . from time to time , we implement voluntary waivers of a portion of our advisory fee . these waivers may expire without shareholder approval needing to be obtained . in addition , we earn a fee based on daily aggregate aum of our etfs in exchange for bearing certain fund expenses . our etf advisory fee revenues may fluctuate based on general stock market trends , which include market value appreciation or depreciation , currency fluctuations against the u.s. dollar and level of inflows or outflows from our etfs . in addition , these revenues may fluctuate due to increased competition or a determination by the independent trustees of the wisdomtree etfs to terminate or significantly alter the funds ' investment management agreements with us . settlement gain a settlement gain of $ 6.9 million was recorded during the second quarter of 2017 representing the fair value of the preferred stock of thesys group , inc. ( formerly known as tradeworx , inc. ) ( thesys ) that we received in connection with the resolution of a dispute regarding our ownership stake in thesys . other income other income includes interest income from investing our corporate cash and fees from licensing our indexes to third parties . the licensing fees are immaterial to our financial results and we do not expect them to be material in the near term . components of expenses our operating expenses consist primarily of costs related to selling , operating and marketing our etfs as well as the infrastructure needed to run our business . compensation and benefits employee compensation and benefits expenses are expensed when incurred and include salaries , incentive compensation , and related benefit costs . virtually all our employees receive incentive compensation that is based on our operating results as well as their individual performance . therefore , a portion of this expense will fluctuate with our business results . to attract and retain qualified personnel , we must maintain competitive employee compensation and benefit plans . we would expect changes in employee compensation and benefits expense to be correlated with changes in our revenues and net inflows .
| the pool was also increased to recognize the achievement of certain milestones involving several important strategic initiatives , as well as the addition of a key executive and average higher headcount . these increases were partly offset by lower marketing expenses . international business segment revenues of the international business segment increased 51.2 % from $ 7.0 million during the year ended december 31 , 2016 to $ 10.5 million during the year ended december 31 , 2017. this increase was attributable to higher average aum which increased 64.5 % from $ 1.0 billion during the year ended december 31 , 2016 to $ 1.7 billion during the year ended december 31 , 2017 primarily due to net inflows , and to a lesser extent market appreciation . 56 operating expenses of the international business segment decreased 12.4 % from $ 26.1 million during the year ended december 31 , 2016 to $ 22.9 million during the year ended december 31 , 2017. included in operating expenses for the year ended december 31 , 2016 was acquisition payment expense of $ 6.7 million associated with the acceleration of the buyout of the remaining minority interest in our european business during the second quarter of 2016 and a goodwill impairment charge of $ 1.7 million . partly offsetting these items was an increase in compensation expense associated with higher average headcount , higher fund management and administration expenses due to higher average aum and higher spending on sales related activities . year ended december 31 , 2016 compared to year ended december 31 , 2015 u.s. business segment revenues of the u.s. business segment decreased 27.9 % from $ 294.7 million during the year ended december 31 , 2015 to $ 212.5 million during the year ended december 31 , 2016. the decrease was attributable to lower average aum which decreased 26.7 % , primarily resulting from net outflows from hedj and dxj , our two largest u.s. listed etfs . our average u.s. advisory fee decreased to 0.51 % from 0.53 % during the year ended december 31 , 2016 due to changes in product mix . operating expenses of
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story_separator_special_tag no proprietary software sales were sold through the remarketing agreement with ge in fiscal 2011. in fiscal 2011 , two clients ended their direct relationship with ge healthcare , however these clients were retained as direct clients to the company . the company no longer shares revenue or pays any royalties on these revenues to ge healthcare . revenues from these clients are as follows ( in thousands ) : fiscal 2011 revenue third party hardware and software $ 52 proprietary software 37 professional services 82 maintenance and support 644 software as a service total $ 815 13 index to financial statements the company relies on ge healthcare for a significant amount of its revenues , the loss of which would have a material adverse effect on future results of operations . during the fourth quarter of fiscal 2010 , the company learned that ge healthcare was shifting its organizational focus to upgrading its current clients to their latest version software to assist its clients in meeting meaningful use criteria under the hitech act . this understanding continues through january 31 , 2012. the company 's remarketing agreement with ge healthcare remains in effect , however the company did not obtain any net new clients from the relationship in fiscal 2011. the opportunity to sell into ge healthcare 's current client base that does not have the company 's products remains , as well as the continuing ability to sell additional products and services into the existing jointly owned client base through the remarketing agreement . all signed contracts or purchase orders with ge healthcare to purchase proprietary software , saas , professional services , and maintenance , are expected to be fully honored . total revenues from telus health were $ 1,151,000 in fiscal year 2011 , or 7 % of total revenues as compared to $ 1,073,000 in fiscal year 2010 , or 6 % of total revenues . revenue by type and source is as follows ( in thousands ) : replace_table_token_7_th cost of sales replace_table_token_8_th cost of systems sales includes amortization and impairment of capitalized software expenditures , royalties , and the cost of third-party hardware and software . cost of systems sales , as a percentage of systems sales , varies from period-to-period depending on hardware and software configurations of the systems sold . the relatively fixed cost of the capitalized software amortization , without the addition of any impairment charges , compared to the variable nature of system sales causes these percentages to vary dramatically . the decrease in fiscal 2011 cost of sales is primarily the result of the fiscal 2010 impairment charge of $ 755,000 on capitalized software development costs on certain workflows . the remaining decrease is the result of a $ 506,000 decrease in amortization expense , as well as reduced hardware and third party software sales , which reduces the associated direct costs . the cost of professional services includes compensation and benefits for personnel , and related expenses . the decrease in expense is primarily due to a significant reduction in staffing which took place in the second 14 index to financial statements quarter of fiscal 2011 , and significant other cost cutting measures implemented by management . this was partially offset by an incremental increase in expense of $ 126,000 attributable to the inclusion of interpoint operations . the cost of maintenance and support includes compensation and benefits for client support personnel and the cost of third party maintenance contracts . these decreases are primarily due to a significant reduction in staffing which took place in the second quarter of fiscal 2011 , and consolidation or renegotiation of third party maintenance contract associated with supporting the client base . this was partially offset by incremental increase in expense of $ 9,000 attributable to the inclusion of interpoint operations . the cost of software as a service is relatively fixed , but subject to inflation for the goods and services it requires . the decrease is primarily attributable to decreased depreciation due to older assets becoming fully depreciated and a decrease in third party license and maintenance expenses due to consolidation and renegotiation of contracts with vendors . these decreases are partially offset by depreciation of new equipment and new third party maintenance contracts from infrastructure spending as the company added new or add-on saas contracts in the third and fourth quarters of fiscal 2011. this decrease was partially offset by incremental increase in expense of $ 40,000 attributable to the inclusion of interpoint operations . selling , general and administrative expense replace_table_token_9_th general and administrative expenses consist primarily of compensation and related benefits and reimbursable travel and living expenses related to the company 's executive and administrative staff , general corporate expenses , amortization of intangible assets , and occupancy costs . the increase over the prior year is primarily due to increases in professional fees , equity awards expense , accrued vacation expense , and is partially offset by reductions in severance costs , and reductions in use of third party contractors . amortization of intangible assets added incremental expense to fiscal 2011 due to the amortization of assets acquired as part of the acquisition of interpoint . excluding the impact of the interpoint acquisition , general and administrative expenses would be $ 4,095,000 or 24 % of total revenue for fiscal 2011. sales and marketing expenses consist primarily of compensation and related benefits and reimbursable travel and living expenses related to the company 's sales and marketing staff ; advertising and marketing expenses , including trade shows and similar type sales and marketing expenses . sales and marketing expense decreased due to reduced commissions expense , reduced severance costs , and was offset by increased equity awards expense , and performance and inducement bonus expenses . story_separator_special_tag excluding the impact of the interpoint acquisition , sales and marketing expenses would be $ 2,197,000 or 13 % of total revenue for fiscal 2011. product research and development replace_table_token_10_th ( 1 ) total cash spend on research and development 15 index to financial statements product research and development expenses consist primarily of compensation and related benefits ; the use of independent contractors for specific near-term development projects ; and an allocated portion of general overhead costs , including occupancy . research and development expense decreased due to a reduction in staffing , and an increase to the number of hours available to be capitalized which is reflected in the capitalized research and development costs . research and development expenses in fiscal 2011 and 2010 , as a percentage of revenues , were 8 % and 10 % , respectively . excluding the impact of the interpoint acquisition , research and development expense would be $ 1,315,000 or 8 % of total fiscal 2011 revenue . other income ( expense ) interest expense in fiscal 2011 was $ 179,000 compared to $ 116,000 in fiscal 2010. interest expense consists of interest and commitment fees on the line of credit , interest on the term loan entered into in conjuction with the interpoint acquisition , interest on the convertible note entered into in conjuction with the interpoint acquisition , and remaining interest on a capital lease for computer equipment which expired in january 2012. interest expense increased during 2011 primarily because of the increase from the term loan and convertible note . losses on foreign currency recognized on canadian receivables were $ 9,000 , as compared to $ 34,000 in gains in fiscal 2010. provision for income taxes the company recorded a tax provision of $ 24,000 at january 31 , 2012 which is comprised of state and local taxes and alternative minimum tax . the tax provision of $ 1,017,000 for fiscal 2010 consists of state and local taxes , alternative minimum tax , and an increase to the valuation allowance on deferred tax assets in the amount of $ 997,000. the company determined it was more likely than not that the deferred tax amount will be realized . at january 31 , 2012 and 2010 the net realizable value of deferred tax assets was $ 878,000. backlog replace_table_token_11_th at january 31 , 2012 the company had master agreements and purchase orders from clients and remarketing partners for systems and related services which have not been delivered or installed which , if fully performed , would generate future revenues of approximately $ 27,366,000 compared with $ 17,604,000 at january 31 , 2011. the company 's proprietary software backlog consists of signed agreements to purchase software licenses . typically , this is software that is not yet generally available , or the software is generally available and the client has not taken possession of the software . third party hardware and software consists of signed agreements to purchase third party hardware or third party software licenses that have not been delivered to the client . these are products that the company resells as components of the solution a client purchases . the increase in backlog is primarily due to three clients which have made purchases for future systems implementations . these items are expected to be delivered in the next twelve months as implementations commence . 16 index to financial statements professional services backlog consists of signed contracts for services that have yet to be performed . typically backlog is recognized within twelve months of the contract signing . the increase in backlog is due to several clients that signed contracts during fiscal 2011 for add-on solutions , upgrades , or expansion of services at additional locations for which contracted services have not yet been performed . maintenance and support backlog consists of maintenance agreements for licenses of the company 's proprietary software and third party hardware and software with clients and remarketing partners for which either an agreement has been signed , a purchase order under a master agreement has been received , or payment has been received . the company includes in backlog the signed agreements through their respective renewal dates . typical maintenance contracts are for a one year term and are renewed annually . clients typically prepay maintenance and support which is billed 30-60 days prior to the beginning of the maintenance period . the company does not expect any significant client attrition over the next 12 months . maintenance and support backlog at january 31 , 2012 was $ 10,504,000 as compared to $ 5,384,000 at january 31 , 2011. the company expects to recognize approximately $ 6,600,000 out of january 31 , 2012 backlog in fiscal 2012. a significant portion of the increase in maintenance and support backlog is due to one client which signed an extended maintenance contract for five years . this five year agreement added approximately $ 4,600,000 to backlog at january 31 , 2012 , for which the company expects to recognize approximately $ 1,100,000 in fiscal 2012 , and the remaining $ 3,500,000 in fiscal 2013 through fiscal 2016. other factors which increased backlog are add-on solutions sold in fiscal 2011 and those sold in late fiscal 2010 for which maintenance revenue was recognized for a full year in fiscal 2011. additionally , as part of renewals contracts are typically subject to an annual increase in fees based on market rates and inflationary metrics . at january 31 , 2012 , the company had entered into software as a service agreements , which are expected to generate revenues of $ 10,542,000 through their respective renewal dates in fiscal years 2012 through 2018. typical saas terms are one to seven years in length .
| 11 index to financial statements the following table sets forth , for each fiscal year indicated , certain operating data as percentages : statement of operations ( 1 ) replace_table_token_4_th ( 1 ) because a significant percentage of the operating costs are incurred at levels that are not necessarily correlated with revenue levels , a variation in the timing of systems sales and installations and the resulting revenue recognition can cause significant variations in operating results . as a result , period-to-period comparisons may not be meaningful with respect to the past operations nor are they necessarily indicative of the future operations of the company in the near or long-term . the data in the table is presented solely for the purpose of reflecting the relationship of various operating elements to revenues for the periods indicated . comparison of fiscal year 2011 with 2010 revenues revenues consisted of the following ( in thousands ) : replace_table_token_5_th ( 1 ) includes $ 287,000 of revenue earned from the acquired interpoint operations subsequent to the acquisition . 12 index to financial statements proprietary software revenues recognized from licensed software sales in fiscal 2011 were $ 227,000 , as compared to $ 1,674,000 in fiscal 2010 , a decrease of $ 1,447,000 , or 86 % from fiscal 2010. this decrease is attributable to the market demand shift towards saas , as well as the previously announced decrease in net new client opportunities from ge healthcare . hardware and third party software revenues from hardware and third party software sales in fiscal 2011 were $ 495,000 , a decrease of $ 389,000 , or 44 % from fiscal 2010. the decrease in hardware and third party software revenue in fiscal 2011 is primarily attributable to a decrease in hardware and third-party upgrades from the existing client base as well as the decrease in new licensed sales , as compared to fiscal 2010. professional services revenues from professional services in fiscal year 2011 were $ 3,370,000 , a decrease of $ 271,000 , or 7 % , from fiscal 2010. the decrease is primarily
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as a percentage of revenue , depreciation expense was 1 % for each of the year s ended december 31 , 20 20 and 201 9 . amortization amortization expense consists of amortization of identifiable intangibles related to our acquisitions of evolving systems labs , evolving systems nc , evol bls , and the lumata entities . amortization expense rema i ned stable at $ 0 .9 million for the year s ended december 31 , 20 20 and 201 9 . as a percentage of revenue , amortization expense was 4 % for each of the year s ended december 31 , 20 20 and 201 9 . 31 goodwill impairment loss no goodwill impairment was recorded for the year ended december 31 , 2020. a g oodwill impairment loss w as recorded as a result of goodwill impairment analysis conducted since our market capitalization declined to a level that was less than the net book value of our stockholders ' equity . based on the results of that analysis , the company recorded a $ 6.7 million write-off of the remaining goodwill in the fiscal year ended december 31 , 2019 . interest expense interest expense includes the amortization of debt issuance costs and interest expense from our term loans . interest expense for the year ended december 31 , 20 20 de creased 78 % , or $ 0 . 2 million , to less than $ 0 . 1 million as compared to $ 0 . 3 million for the year ended december 31 , 201 9 . the decrease was due to the one loan payable reaching maturity at the end of the prior year and the second loan reaching maturity at the end of the current year . the decrease in interest expense as a percentage of revenue is primarily due to the aforementioned lower costs . other income for the year ended december 31 , 20 20 , we had $ 0 . 2 million in other income , net , primarily related to research and development grants in the uk . this was an increase of $ 0.1 million in other income from year ended december 31 , 2019 which consisted of mostly of the net proceeds from settlement of insurance claim after legal fees regarding coverage on the dispute settled with a former ssm contractor . foreign currency exchange income resulting from transactions denominated in a currency other than the functional currency of the respective subs idiary increased 181 % , or $ 0.8 million , to $ 0.4 million in income for the year ended december 31 , 2020 compared to a $ 0.5 million loss for the year ended december 31 , 2019 t hat was generated primarily through the re-measurement of certain non-functional currency denominated financial assets and liabilities of our foreign subsidiaries . income tax expense we recorded net income tax expense of $ 0.8 million and $ 1.1 million for the years ended december 31 , 2020 and 2019 , respectively . the net expense for the year ended december 31 , 2020 consisted of current tax expense of $ 0.9 million related to $ 0.2 million in the us , $ 0.3 million income tax expense incurred by our indian based operations , $ 0.2 million income tax expense from one uk subsidiary , and $ 0.8 million of foreign taxes paid for with holdings of local taxes that could not be used as a tax credit offset by research and development credits from our u.k. based operations of $ 0.3 million . also offset by the amt refund of $ 0.4 million . deferred tax benefit of $ 0.1 million related to us tax company 's utilization of foreign tax credits and $ 0.3 million deferred tax benefit from losses incurred by our other uk and european subsidiaries , partially offset by tax refund of amt credits of $ 0.4 million . the net expense during the year ended december 31 , 2019 consisted of current tax expense of $ 0.8 million primarily related to $ 0.3 million income tax expense incurred by our indian based operations and $ 1.3 million of foreign taxes paid for with holdings of local taxes that could not be used as a tax credit offset by research and development credits from our u.k. based operations of $ 0.5 million . we use a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return . for those benefits to be recognized , a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities . as of december 31 , 20 20 , and 201 9 , we had no liability for unrecognized tax benefits . we do not believe there will be any material changes to our unrecognized tax positions over the next twelve months . financial condition our working capital position in creased 4 5 % , or $ 1 . 7 million to $ 5 . 5 million at december 31 , 20 20 from $ 3.8 million at december 31 , 20 19 . the in crease in working capital is related to the in crease in unbilled work in progress and the reduction in the short term portion of term loan , partially offset by the collection of customer accounts receivable of tax refunds as well as an increase to accounts payable and accrued liabilities . liquidity and capital resources we have historically financed operations through cash flows from operations as well as debt and equity transactions . at december 31 , 20 20 , our principal sources of liquidity were $ 2.8 million in cash and cash equivalents and $ 5 . 7 million in contract receivables , net of allowances . we provide software solutions and services throughout the world . story_separator_special_tag the covid-19 global outbreak has caused instability and volatility in multiple markets where our clients conduct business . at this time , we have seen only limited disruptions to our ability to continue delivery to our clients . our anticipated uses of cash in the future will be to fund the expansion of 32 our business through both organic growth as well as possible acquisition activities , the expansion of our customer base internationally , and term loan payments . other uses of cash may include capital expenditures and technology expansion . during 2017 , in connection with the acquisition of the lumata entities , we entered into a term loan facility agreement with east west bank as lender in the amount of $ 4.7 million ( the “ lumata facility ” ) . we used the full amount of the lumata facility to fund the acquisition of the lumata companies . the lumata facility is secured by all of the assets of evol holdings and the original guarantors in accordance with the terms of a debenture entered into by evol holdings and the original guarantors in favor of east west bank . evol holdings , evol inc. and the original guarantors also entered into a subordination deed whereby each of the parties agreed to subordinate all loans by and among each other to east west bank . lumata france sas and lumata uk ltd are also bound to adhere to the finance documents as additional obligors . o n september 24 , 2019 the company agreed in principle to the terms of a new amendment and on october 4 , 2019 , we entered into the first amendment ( “ first amendment ” ) to the lumata facility . the purpose of the first amendment was to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements . the first amendment also required evolving systems to make an advance payment of principal of $ 666,666.66. the remaining terms and conditions of the lumata facility and payment schedule remain unchanged . the company also agreed to pay east west bank 's legal fees in connection with the transaction . on july 1 , 2020 , we entered into the amendment and waiver letter ( “ second amendment ” ) to the lumata facility . the purpose of the second amendment is to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements . the second amendment adjusted the loan amortization to be paid in full on december 31 , 2020 and fixed the interest rate at 5 % on the remaining principal . the company also made an advance payment of $ 44,000 on june 1 , 2020. the last payment of principal and interest was made january 11 , 2021 . on february 29 , 2016 , we retired our previous revolving credit facility and we entered into a term loan agreement with east west bank ( “ term loan ” ) for $ 6.0 million . the term loan bore interest at a floating rate equal to the u.s. prime rate plus 1.0 % and was secured by substantially all of the company 's assets , including a pledge , subject to certain limitations with respect to stock of foreign subsidiaries , of the stock of the existing and future direct subsidiaries of the company . interest accrued and was payable monthly . we were required to repay the term loan in 36 equal monthly installments , commencing on january 1 , 2017. we were required to use the $ 6 million term loan proceeds , plus $ 4.0 million from our cash reserves , to pay off the revolving facility . the term loan was scheduled to mature on january 1 , 2020 . on september 24 , 2019 , the company agreed in princip le to the terms of a new amendment and on october 4 , 2019 , we entered into the sixth amendment to the loan and security agreement ( “ sixth amendment ” ) with east west bank to the term loan . the purpose of the sixth amendment wa s to waive certain events of non-compliance with respect to covenants not achieved in prior periods and to amend future covenant requirements . the sixth amendment also required evolving systems to make an advance payment of principal of $ 333,333.33. in addition , the sixth amendment added any default under the l umata facility discussed above as an event of default under the term loan . the remaining terms and conditions of the term loan and payment schedule remain ed unchanged . the company also agreed to pay east west bank 's legal fees in connection with the transaction . the last payment of principal and interest was made november 1 , 2019 . both the lumata facility and the term loan ( collectively , “ loans ” ) include d negative covenants that place restrictions on the company 's ability to , among other things : incur additional indebtedness ; create liens or other encumbrances on assets ; make loans , enter into letters of credit , guarantees , investments and acquisitions ; sell or otherwise dispose of assets ; cause or permit a change of control ; merge or consolidate with another entity ; make negative pledges ; enter into affiliate transactions ; make cash distributions to our s tock holders in excess of specified limits ; and change the nature of our business materially . financial covenants previously included in the credit facilities were ultimately replaced by a minimum consolidated cash balance of no less than the $ 1.5 million and a quarterly consolidated ebitda fixed dollar amount mutually agreed to by the company and east west bank in the amendments . on april 15 , 2020 , the company received loan proceeds in the amount of $ 318,900 under the paycheck protection program ( “ ppp ” ) .
| 30 costs of revenue , e xcluding d epreciation and a mortization costs of revenue , excluding depreciation and amortization , consist primarily of personnel costs and other direct costs associated with these personnel , facilities costs , costs of third-party software and partner commissions . costs of revenue includes product development expenses related to certain software features requested for deployment by the customer and are funded by customers as part of a managed service offering . costs of revenue , excluding depreciation and amortization in creased by $ 0.1 million , or 2 % , to $ 8 . 8 million for the year ended december 31 , 20 20 from $ 8.7 million for the year ended december 31 , 201 9 . t he in crease was primarily related to increase in internal staff costs of $ 1.1 million as we increased delivery staff and work performed on internal projects , p artially offset by a decrease in third party consultant costs of $ 0.6 million as these were converted to internal staff or terminated . also , a decrease in travel costs of $ 0.4 million due to travel restrictions caused by the global pandemic . as a percentage of revenue , cost of revenue , excluding depreciation and amortization was 34 % for each of the year s ended december 31 , 20 20 and 201 9 . sales and marketing sales and marketing expenses primarily consist of compensation costs , including incentive compensation and commissions , travel expenses , advertising , marketing and facilities expenses . sales and marketing expenses de creased 20 % , or $ 1.5 million , to $ 6 . 0 million for the year ended december 31 , 20 20 from $ 7.5 million for the year ended december 31 , 201 9 . the decrease is related to the reduction of $ 0.6 million in lower travel and entertainment costs , a
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the increase in revenue was attributable mainly to increases from our middle east programs of $ 50.0 million , our u.s. programs of $ 35.2 million ( which includes $ 22.7 million from our acquisition of advantor ) , and our european programs of $ 18.1 million . operating income for the year ended december 31 , 2019 was $ 51.6 million , an increase of $ 3.3 million or 6.8 % , compared to the year ended december 31 , 2018 . this increase was primarily due to increases of $ 3.2 million from our middle east programs and $ 1.1 million from our u.s. programs , offset by a $ 1.0 million decrease in our european programs . during the performance of our long-term contracts , we periodically review estimated final contract prices and costs and make revisions as required , which are recorded as changes in revenue and cost of revenue in the periods in which they are determined . additionally , the fees under certain contracts may be increased or decreased in accordance with cost or performance incentive provisions which measure actual performance against established targets or other criteria . such incentive fee awards or penalties are included in revenue when there is sufficient information to reasonably assess anticipated contract performance . amounts representing contract change orders or limitations in funding on contracts are recorded only if it is probable the claim will result in additional contract revenue and the amounts can be reliably estimated . changes in estimated revenue , cost of revenue and the related effect to operating income are recognized using cumulative adjustments , which recognize in the current period the cumulative effect of the changes on current and prior periods based on a contract 's percentage of completion . cumulative adjustments are driven by changes in contract terms , program performance , customer scope changes and changes to estimates in the reported period . these changes can increase or decrease operating income depending on the dynamics of each contract . we recorded an income tax expense of $ 10.4 million and $ 8.0 million for the years ended december 31 , 2019 and 2018 , respectively , which represent effective income tax rates of 23.1 % and 18.4 % , respectively . see note 4 , “ income taxes , ” in the notes to consolidated financial statements included in this annual report on form 10-k for further information . further details related to the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , are contained in the discussion of financial results section . details related to the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 may be found in the discussion of financial results section of our annual report on form 10-k for the fiscal year ended december 31 , 2018 , electronically filed with the sec on edgar on february 26 , 2018. recent developments on february 28 , 2020 , vectrus systems corporation ( vsc ) , our wholly-owned subsidiary , received notice of a $ 121.8 million modification of the omdac-swaca contract for enterprise network capabilities and services support of the u.s. central command . work will be based in kuwait with additional locations throughout southwest asia . the estimated completion date is august 28,2020. on april 12 , 2019 , the u.s. army contracting command-rock island ( acc-ri ) awarded four idiq , multiple award task order contracts ( matoc ) for the logcap v support services in support of the u.s. military worldwide . the services are to support the geographical combatant commands ( gccs ) and army service component commands ( asccs ) throughout the full range of military operations . each basic idiq contract ordering period will be an initial five-year ordering period and options for five additional one-year ordering periods . 31 vectrus is one of the four award recipients of the basic idiq contract and received the following task orders : indopacom setting the theater task order and associated performance task order ; and centcom setting the theater task order and associated performance task order . each task order has its own period of performance . four of the logcap v offerors filed protests of the awards with the u.s. government accountability office ( gao ) and , after the gao denied two of the protests , those four offerors filed protests at the u.s. court of federal claims ( the court ) . at the court 's request , the gao issued advisory opinions that rejected the two remaining protests . on february 5 , 2020 , the army completed its corrective action review of the logcap v award and affirmed its initial decision . on february 21 , 2020 , the court of federal claims dismissed three of the four protests , and set a briefing schedule for the remaining offeror 's protest . on march 2 , 2020 , the court dismissed the remaining offeror 's request for a temporary restraining order through march 11 , 2020. on july 8 , 2019 , we acquired advantor from infrasafe . advantor is a leading provider of integrated electronic security systems to the u.s. government . the total net consideration paid for the acquisition was $ 45.1 million , consisting of the purchase price of $ 44.0 million , net of cash acquired , and $ 1.1 million for working capital in excess of the working capital requirement agreed upon in the stock purchase agreement . see note 5 , `` acquisitions , '' in the notes to consolidated financial statements included in this annual report on form 10-k for additional information related to our acquisition of advantor . information regarding certain other significant contracts is provided in `` significant contracts '' below . story_separator_special_tag significant contracts the following table reflects contracts that accounted for more than 10 % of our total revenue for one or more of the years ended december 31 , 2019 , 2018 and 2017 : replace_table_token_3_th revenue associated with a contract will fluctuate based on increases or decreases in the work being performed on the contract , award fee payments , and other contract modifications within the term of the contract resulting in changes to the total contract value . u.s. government contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year ( or less ) option periods for the remaining contract period . the number of option periods vary by contract , and there is no guarantee that an option period will be exercised by the u.s. government . the right to exercise an option period is at the sole discretion of the u.s. government . the u.s. government may also extend the term of a program by issuing extensions or bridge contracts , typically for periods of one year or less . the k-bosss contract currently is exercised through march 28 , 2020 , with an additional six-month option through september 28 , 2020. k-bosss , our largest base operations support services contract , supports geographically-dispersed locations within the state of kuwait , including several camps and a range training complex . the k-bosss contract was re-competed as a task order under the logcap v contract vehicle , which was awarded april 12 , 2019 ( see `` recent developments '' above ) . the k-bosss contract contributed $ 495 million and $ 517 million of revenue for the years ended december 31 , 2019 and 2018 , respectively . the omdac-swaca contract is currently exercised through august 20 , 2020. the contract provides for enterprise network capabilities and services support of the u.s. central command . work is based in kuwait with additional locations throughout southwest asia . the omdac-swaca contract contributed $ 216 million and $ 181 million of revenue for the years ended december 31 , 2019 and 2018 , respectively . backlog total backlog includes remaining performance obligations , consisting of both funded backlog ( firm orders for which funding is contractually authorized and appropriated by the customer ) and unfunded backlog ( firm orders for which funding is not currently contractually obligated by the customer and unexercised contract options ) . total backlog excludes potential orders under idiq contracts and contracts awarded to us that are being protested by competitors with the gao or in the u.s. court of federal claims . the value of the backlog is based on anticipated revenue levels over the anticipated life of the contract . actual values may be greater or less than anticipated . total backlog is converted into revenue as work is performed . the level of order activity related to programs can be affected by the timing of government funding authorizations and their project evaluation cycles . year-over-year comparisons could , at times , be impacted by these factors , among others . our contracts are multi-year contracts and typically include an initial period of one year or less with annual one-year ( or less ) option periods for the remaining contract period . the number of option periods vary by contract , and there is no guarantee that an option period will be exercised . the right to exercise an option period is at the sole discretion of the u.s. government 32 when we are the prime contractor or of the prime contractor when we are a subcontractor . the u.s. government may also extend the term of a program by issuing extensions of bridge contracts , typically for periods of one year or less . we expect to recognize a substantial portion of our funded backlog as revenue within the next 12 months . however , the u.s. government or the prime contractor may cancel any contract at any time through a termination for convenience . most of our contracts have terms that would permit us to recover all or a portion of our incurred costs and fees for work performed in the event of a termination for convenience . total backlog decreased by $ 260.8 million in the year ended december 31 , 2019 . as of december 31 , 2019 , total backlog ( funded and unfunded ) was $ 2.8 billion as set forth in the following table : replace_table_token_4_th funded orders ( different from funded backlog ) represent orders for which funding was received during the period . we received funded orders of $ 1.2 billion during the year ended december 31 , 2019 , which was a decrease of $ 139.3 million compared to the year ended december 31 , 2018 . economic opportunities , challenges and risks the u.s. government 's investment in services and capabilities in response to changing security challenges creates a complex and fluid business environment for vectrus and other firms in this market segment . the pace and depth of u.s. government acquisition reform and cost savings initiatives , combined with increased industry competitiveness to win long-term positions on key programs , could add pressure to revenue levels and profit margins going forward . however , we expect the u.s. government will continue to place a high priority on national security and will continue to invest in affordable solutions for its facilities , logistics , equipment , operational technology , and communication needs , which aligns with our services and strengths . further , the dod budget remains the largest in the world and management believes our addressable portion of the dod budget offers substantial opportunity for growth . over the past several years , u.s. defense spending has been mandated by the budget control act . the budget control act establishes spending caps over a 10-year period through 2021 , including a sequester mechanism that would impose additional defense cuts if an annual defense appropriations bill is enacted above the spending cap .
| operating income as a percentage of revenue was 3.7 % for the year ended december 31 , 2019 , compared to 3.8 % for the year ended december 31 , 2018 . aggregate cumulative adjustments increased operating income by $ 3.1 million and $ 1.6 million for the years ended december 31 , 2019 and december 31 , 2018 , respectively . the aggregate cumulative adjustments for the year ended december 31 , 2019 relate to favorable finalization of contract cost recoveries on contracts closed out with customers and higher margins associated with efficient labor cost management on active contracts . the aggregate cumulative adjustments for the year ended december 31 , 2018 relate to higher margins associated with efficient internal labor and subcontractor cost management . 35 interest ( expense ) income , net interest ( expense ) income , net for the years ended december 31 , 2019 and 2018 was as follows : replace_table_token_6_th interest income is directly related to interest earned on our cash . interest expense is directly related to borrowings under our senior secured credit facilities , the amortization of debt issuance costs , and derivative instruments used to hedge a portion of our exposure to interest rate risk . the increase in interest expense of $ 1.5 million for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was due primarily to increased use of our revolving credit facility in 2019 to finance short-term working capital requirements and the acquisition of advantor . income tax expense we recorded income tax expense of $ 10.4 million and $ 8.0 million for the years ended december 31 , 2019 and 2018 , respectively , which represented effective income tax expense rates of 23.1 % and 18.4 % , for the respective years . the increase in the effective income tax rate for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 was due to revaluation of deferred tax
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we are in the process of designing and developing a new enterprise resource planning ( “ erp ” ) system that is intended to be used globally and provide operational efficiencies . we have recently received a project assessment from a third party service provider , which indicates that the project will take longer to implement and exceed our previously disclosed cost estimates . during the year , we have consolidated the warehousing function of our german communications business into our belgian operations . this consolidation gives us logistical efficiencies and service level advantages such as greater flexibility and scalability . we have committed funds to brazil to provide for a portion of future contingent consideration payments owed to the former shareholders of cdc and are continuously working to add new vendors and grow existing vendors in our various geographies . this is our first full year of results with our most recent acquisition , cdc , brazil 's leading distributor of aidc and pos solutions . also , we continue to evaluate strategic acquisitions to enhance our technological and geographic portfolios . cost control/profitability our operating income growth is driven not only by gross profits but by a disciplined control of operating expenses . our operations feature a scalable information system , streamlined management , and centralized distribution , enabling us to achieve the economies of scale necessary for cost-effective order fulfillment . from inception , we have managed our general and administrative expenses by maintaining strong cost controls . however , in order to continue to grow in our markets , we have invested in new initiatives , including investments in new geographic markets such as europe and latin america ; increased marketing efforts to recruit resellers ; and enhanced employee benefit plans to retain employees . evaluating financial condition and operating performance we place a significant emphasis on operating income and return on invested capital ( “ roic ” ) in evaluating and monitoring financial condition and operating performance . we use roic , a non-gaap measure , to assess efficiency at allocating capital under our control to generate returns . we compute roic as earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) divided by invested capital . invested capital is defined as average equity plus daily average funded debt for the period . the following table summarizes our return on invested capital ratio for the fiscal years ended june 30 , 2012 , 2011 , and 2010 , respectively : replace_table_token_5_th 20 index to financial statements management uses roic as a performance measurement because we believe this metric best balances the company 's operating results with asset and liability management , excludes the results of capitalization decisions , is easily computed and understand , and drives changes in shareholder value . the components of this calculation and reconciliation to the company 's financial statements are shown , as follows : replace_table_token_6_th replace_table_token_7_th ( 1 ) average funded debt is calculated as the daily average amounts outstanding on our short-term and long-term interest-bearing debt . our return on invested capital was 17.2 % for the year , down from 20.6 % in the prior year , but up from 16.7 % in fiscal 2010 . the decrease from the prior year is largely due to lower margins arising from mix and competitive pricing pressures and increased headcount and investment in our international segment to sustain market share and existing volumes throughout the current european economic downturn . 21 index to financial statements story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-weight : bold ; text-decoration : underline ; '' > international distribution for the international distribution segment , operating income decreased 47.9 % or $ 8.7 million from the prior year . the decrease is attributable to weaker operating results in fiscal year 2012 . operating margin percentage decreased 1.6 % from the prior year . in the current year , gross margins are down in europe because of increased inventory reserves and changes to vendor programs , as mentioned above . additionally , operating expenses are higher as we continue to invest in international markets . results from cdc have partially offset the decreased operating income generated in europe . total other ( income ) expense the following table summarizes the company 's total other ( income ) expense for the fiscal years ended june 30th : replace_table_token_14_th interest expense reflects interest paid on borrowings on the company 's revolving credit facility and long-term debt . interest expense for the fiscal year ended june 30 , 2012 was $ 1.6 million compared to $ 1.7 million for the comparative prior year period . interest income for the period ended june 30 , 2012 increased $ 1.7 million from the comparative prior year . the company generates interest income on cash invested in brazil to fund a portion of future earnout payments and to supplement local working capital needs , in addition to longer-term interest bearing receivables and , to a lesser extent , interest earned on cash and cash equivalent balances . net foreign exchange gains and losses consist of foreign currency transactional and functional currency re-measurements , offset by net foreign currency exchange contract gains and losses . foreign exchange gains and losses are generated as the result of fluctuations in the value of the british pound versus the euro , the u.s. dollar versus the euro , the u.s. dollar versus the brazilian real and other currencies versus u.s. dollar . for fiscal 2012 , the majority of losses were associated with exposures between the u.s. dollar and brazilian real . in september 2011 , we incurred a $ 2.5 million non-recurring loss in conjunction with an unfavorable forward exchange contract to purchase brazilian reais . in august 2011 , the company decided to pre-fund a portion of the estimated earnout payments associated with the cdc acquisition . this contract was designed to preserve the currency exchange for the few weeks required to transfer the cash to brazil . story_separator_special_tag from the time that we entered into the contract through settlement , the real devalued from the contractual rate by 11.8 % , ultimately resulting in a $ 2.5 million loss . further contributing to the fiscal year foreign exchange loss , the brazilian business incurred significant losses on u.s. dollar denominated exposures in the first quarter that were not hedged at the time . subsequently , we have been including these exposures in our hedging activities . provision for income taxes income tax expense was $ 36.9 million and $ 38.4 million for the fiscal years ended june 30 , 2012 and 2011 , respectively , reflecting an effective tax rate of 33.2 % and 34.3 % , respectively . this decrease reflects the benefit of changes in geographic mix to tax jurisdictions with lower corporate income tax rates , the recognition of various tax credits in multiple jurisdictions and the reversal of certain tax reserves . the company expects the fiscal year 2013 effective tax rate to be more consistent with fiscal year 2011 . 25 index to financial statements net income the following table summarizes the company 's net income for the fiscal year ended june 30th : replace_table_token_15_th net income for the fiscal year ended june 30 , 2012 was $ 74.3 million , a $ 0.8 million or 1.0 % increase over the prior fiscal year . the increase in net income is attributable to the changes in operating profit and income tax expense previously discussed . comparison of fiscal years ended june 30 , 2011 and 2010 net sales the company has two reporting segments , which are based on geographic location . the following table summarizes the company 's net sales results ( net of inter-segment sales ) for each of these product categories and reporting segments for the comparable fiscal years ending june 30th : product category replace_table_token_16_th geographic segments replace_table_token_17_th consolidated net sales for the fiscal year ended june 30 , 2011 increased 26.1 % to $ 2.7 billion in comparison to prior fiscal year net sales of $ 2.1 billion . north american distribution the north american distribution segment includes sales to technology resellers in the united states and canada that originate from our centralized distribution facility located in southaven , mississippi . sales to technology resellers in canada accounted for less than 4 % of total net sales for both fiscal years presented . as north american macro-economic conditions improved in fiscal 2011 , net sales for this segment increased by approximately $ 356.7 million , or 21.4 % , as compared to the prior fiscal year . the company 's north american pos , barcoding , and security product categories saw revenues increase by 17.6 % in comparison to the prior fiscal year . during the fiscal year ended june 30 , 2011 , these product lines experienced stronger demand as economic conditions improved from the 2010 fiscal year . the company had its strongest percentage growth in its security product lines from the prior year , driven by increased demand and market penetration in its video surveillance and wireless networking lines . 26 index to financial statements the company has two north american sales units that sell communications products to our customers – the catalyst telecom and scan source communications sales units . the combined sales of these units were 25.8 % higher for the fiscal year ended june 30 , 2011 versus the prior fiscal year . both of these sales units also experienced strong sales growth due to continued improvement of economic conditions and increased market share and big deals over the prior year . international distribution the international distribution segment includes sales in latin america and europe from the scan source pos and barcoding sales unit and in europe through the scan source communications sales unit . sales for the overall international segment increased $ 194.9 million or 43.4 % over the prior fiscal year . the year-to-date sales growth was partially offset by a weaker average euro to u.s. dollar exchange rate from the prior year . on a constant exchange rate basis , the sales increase was 44.7 % . changes in foreign exchange had an unfavorable impact of $ 5.7 million on our international distribution net sales for the year ended june 30 , 2011. the constant currency increase in sales for both geographies was driven primarily by strong volumes in europe and latin america in conjunction with the acquisition of cdc brasil , s.a and a full twelve months of results from algol europe in fiscal 2011. the addition of cdc generated $ 29.6 million in net sales in 2011. excluding cdc 's net sales , international distribution segment net sales increased $ 165.2 million or 36.8 % in fiscal year 2011 from the prior year . gross profit the following table summarizes the company 's gross profit for the fiscal years ended june 30th : replace_table_token_18_th north american distribution gross profit for the north american distribution segment increased $ 34.2 million , or 20.4 % , for the fiscal year ended june 30 , 2011 , as compared to the prior fiscal year . the increase in gross profit was primarily the result of higher sales volume in all of our sales units , as previously discussed . gross profit as a percentage of sales remained consistent with the prior year , only decreasing 0.1 % . international distribution gross profit in our international distribution segment increased $ 21.2 million or 41.3 % for the fiscal year ended june 30 , 2011 , from the prior fiscal year . the increase in gross profit was primarily the result of higher sales volume in all of our sales units , as previously discussed . gross profit as a percentage of sales remained consistent with the prior year , only decreasing 0.1 % . compared to the prior year , we saw slightly lower margins from competitive pricing pressure in the current year , coupled with favorable upfront discounts in europe from the prior year .
| scan source security continues to deliver strong double-digit growth over the prior year , primarily from video surveillance and wireless networking products from vendors such as axis communications and ruckus wireless . the company has two north american sales units that sell communications products to our customers – the catalyst telecom and scan source communications sales units . the combined sales of these units were 14.1 % higher for the fiscal year ended june 30 , 2012 versus the prior fiscal year . we have had strong performance with several of our key vendors , including aruba , polycom and shoretel . international distribution the international distribution segment markets pos , aidc , communications and security products in latin america and pos , aidc and communications products in europe . sales for the international segment increased $ 135 million or 21.0 % over the prior year , attributable primarily to the first full year of results in brazil from the cdc acquisition completed in april 2011. aside from incremental business in brazil , revenues in our international segment remained flat over the prior year due to competitive pressures , coupled with the eurozone economic downturn . additionally , our fiscal year sales growth was partially offset by weaker average euro to u.s. dollar and brazilian real to u.s. dollar exchange rates over the prior year . changes in foreign exchange had an unfavorable impact of $ 28.4 million to our international segment 's net sales for the year ended june 30 , 2012 . excluding the impact of foreign exchange rate fluctuation , the net sales increase was 25.4 % . gross profit the following table summarizes the company 's gross profit for the fiscal years ended june 30th : replace_table_token_11_th north american distribution gross profit for the north american distribution segment increased $ 16.9 million , or 8.4 % , for the fiscal year ended june 30 , 2012 . the increase in gross profit was primarily the result of higher sales volume in all of our sales units . however , due to unfavorable vendor programs , partially offset by favorable product mix ,
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significant projects in fiscal 2011 included upgrades to the company 's four-high steckel rolling mill including a charging crane , automatic gauge controls and installation of an edger . the target for capital spending in fiscal 2012 is approximately $ 27.1 million , which includes approximately $ 5.0 million for additional remelting capacity , $ 5.0 million for continued four-high steckel rolling mill upgrades , approximately $ 10.0 million over the course of fiscal 2012 and 2013 for restructuring of the company 's service centers and spending for the upgrade of the company 's information technology systems of $ 9.1 million , also split equally between fiscal 2012 and 2013. the company expects to spend approximately $ 20.0 million of the forecasted $ 27.1 million for fiscal 2012 on these items , with the remaining balance of $ 7.0 million expected to be spent on a number of maintenance capital projects and upgrades . capital investments of almost $ 110.0 million over the last seven years have allowed the company to increase capacity , reduce unplanned equipment outages , produce higher quality products at reduced costs and improve working capital management . this significant investment was necessitated by low levels of investment in prior years as well as increasing customer demand for volume and quality improvements . management does not currently anticipate any prolonged equipment outages as a result of upgrades for any of its planned future projects . global information systems upgrade in fiscal 2011 , the board of directors approved management 's plan to upgrade the company 's information technology system . the project is expected to cost approximately $ 9.1 million and take 24 months to complete . the intended result is that all the company 's locations will be on a centralized information technology system housed at the kokomo office . the project is expected to eliminate a significant number of separate entity systems currently in use . a few subsystems will be retained and interfaced , including certain manufacturing systems and payroll . the financial and european distribution systems are expected to be completed in one year . this project will include financial consolidation tools that will enable the company to accelerate the closing process and significantly enhance the financial analysis process for every location . the systems upgrade for the domestic distribution ( service centers ) and foreign sales offices is expected to be complete by january 1 , 2013. the manufacturing operating system is expected to be completed by october 1 , 2013. in addition to enhanced analysis capability , the company expects this system to lead to improvements in capacity planning , cost analysis and reduction , inventory management and customer service . extension of u.s. revolving credit facility on july 14 , 2011 , the company entered into a third amended and restated loan and security agreement ( the `` amended credit agreement '' ) , by and among the company , haynes wire company ( `` haynes wire '' and together with the company , the `` borrowers '' ) , and certain lenders who are parties to the amended credit agreement . among other items , the amended credit agreement ( a ) extends the 35 maturity date of the u.s. revolving credit facility to july 14 , 2016 , ( b ) decreases the applicable margin used to determine the interest rate by 100 basis points ( from 250 to 150 ) for libor-based loans and by 150-175 basis points for prime rate loans , ( c ) increases the advance rates with respect to certain working capital items included in the borrowing base , ( d ) increases the sublimit for equipment purchase loans , ( e ) permits an increase in the maximum credit from $ 120.0 million up to an aggregate amount of $ 170.0 million at the request of the borrowers , ( f ) reduces the fee the company must pay on all issued letters of credit , ( g ) reduces the commitment fee to 0.25 % per annum on the unused amount of the u.s. revolving credit facility total commitment , and ( h ) modifies the financial metrics required to be met in order to pay dividends and repurchase common stock by decreasing the required excess availability from at least $ 50.0 million to at least 15 % of the maximum credit and improving the fixed charge coverage ratio requirement which must be not less than 1.0 to 1.0 for the twelve months ending the month immediately prior to the payment or repurchase date . dividends declared on november 17 , 2011 , the company announced that the board of directors declared a regular quarterly cash dividend of $ 0.22 per outstanding share of the company 's common stock . this quarterly dividend amount of $ 0.22 per share represents a ten percent increase from previous quarterly per share dividend amounts . the dividend is payable december 15 , 2011 to stockholders of record at the close of business on december 1 , 2011. the aggregate cash payout based on current shares outstanding will be approximately $ 2.7 million , or approximately $ 10.7 million on an annualized basis . gross profit margin trend performance gross profit margin and gross profit margin percentage continued the trend of improvement that started in the fourth quarter of fiscal 2009. replace_table_token_11_th replace_table_token_12_th the gross profit margin and gross profit margin percentage have both improved for each quarter of fiscal 2011 compared to the comparable period of fiscal 2010 due to a combination of higher volume and prices , improved product mix , improved cost structure and an improving market environment . service center transactional business volumes and prices are most representative of this improvement , particularly in the aerospace market , due to the end of inventory destocking by the company 's customers and an increase in the commercial aircraft build rate . story_separator_special_tag when comparing the trend of gross profit margins and gross profit margin percentages from the third quarter to the fourth quarter of fiscal 2011 , the gross profit margin increased by $ 4.7 million and the gross 36 profit margin percentage increased by 1.7 % . these increases are due to the continued improved pricing of transactional business in the fourth quarter resulting from the price increase initiatives started in the second and third quarters of fiscal 2011. these price increases were initiated in order to recover both the rising cost of raw material and non-raw material items . the average product selling price per pound has remained consistent with the third quarter and has increased 5.8 % from the second quarter to the fourth quarter of fiscal 2011. the improved pricing also reflects our continued emphasis on service centers , offering value-added services , focusing on delivery lead-times and improving reliability . also contributing to the additional margin dollars and improved percentages was the higher volumes reflective of the strong backlog . due to the excess capacity in the metals industry , the company continues to experience price competition in the marketplace , especially with the mill-direct project business . however , the company experienced some success in raising prices in the third and fourth quarters of fiscal 2011 due to the increases to base prices initiated during the second and third quarters . however , due to the current economic uncertainty , which has contributed to the volatility in material prices , the company has not yet experienced the full benefit of these price initiatives and the ability to raise prices further has significantly diminished for the short term . backlog backlog dollars were $ 273.4 million at september 30 , 2011 , a decrease of approximately 5.3 % from $ 288.6 million at june 30 , 2011. this decrease was the result of a decrease in backlog pounds of 12.7 % partially offset by an 8.5 % increase in the backlog average selling price . the backlog dollars declined in the fourth quarter due to the combination of the highest shipment quarter of the fiscal year in conjunction with a reduced level of order entry in the fourth quarter as compared to the previous two quarters . this slow down in order entry was the result of the typical summer slowdown due to the reduced activity in europe , which was exacerbated by the uncertain economic conditions during our fourth fiscal quarter , particularly associated with the european banks and their holdings of sovereign debt . however , the backlog continues to reflect a significant amount of higher value alloys and forms compared to previous quarters which is resulting in the continued increase in backlog average selling price . outlook background net revenues , gross margins , net income and volumes have improved over the last eight fiscal quarters , culminating with fourth quarter fiscal 2011 net income of $ 11.3 million . the trend of improving performance for the company over the last two years has been supported by the improving markets and economic conditions . however , the improvement in performance also reflects the efforts over the past seven years to position the company to be able to participate to a greater extent in the global expansion of the high-performance alloy market . beginning in fiscal 2004 , these efforts have included restructuring the balance sheet by exchanging debt for equity , strengthening the liquidity of the company with the timet transaction , accessing the public markets through the 2007 public stock offering and expanding the company 's working capital facility . in addition , the company has invested almost $ 110.0 million over the past seven years in equipment upgrades in order to improve quality , increase reliability , reduce product cost and increase capacity together with making selective acquisitions . these investments have also enabled the company to expand both its global footprint and its product portfolio , which includes expanding into china with a service center and marketing company , the opening of sales offices in italy and india and the acquisition of a wire company in north carolina . this has enabled the company to expand its product portfolio in support of the sheet and plate business and expand the value-added products in its service centers by offering to customers laser cut part programs versus purchasing full size 37 sheet product . in addition , the company has continued to develop new alloys and find additional applications for its current alloy portfolio . the aggregate impact of these efforts , plus improving economic conditions and the expanding demand for high-performance alloys , which the company invents and produces , has made it possible for the company to deliver improved performance over the past two fiscal years . first and second quarters of fiscal 2012 as with past first quarter periods , the first quarter performance of fiscal 2012 is expected to be impacted by a reduced number of production and shipment days available due to holidays , vacations , maintenance projects and capital projects . the reduced number of production and ship days correspondingly reduces the level of net income that can be achieved . management anticipates that pounds shipped in the first quarter of fiscal 2012 will be approximately 10 % to 15 % lower than the fourth quarter of fiscal 2011. the reduction in volume as compared to the fourth quarter of fiscal 2011 , and the corresponding reduction in absorption of fixed costs and gross margin dollars , is expected to unfavorably impact net income in the first quarter of fiscal 2012 by 10 % to 20 % as compared to the fourth quarter of fiscal 2011. management also anticipates that net income in the second quarter of fiscal 2012 will improve from the first quarter to equal or possibly slightly exceed the net income of the fourth quarter of fiscal 2011. management expects net income for fiscal 2012 to exceed the net income of fiscal 2011. however , due to the continued competitive environment and the current
| year ended september 30 , 2010 2011 reconciliation of non-gaap net income : net income excluding non-cash tax charge $ 8,875 $ 31,860 tax charge to reduce deferred tax asset due to an enacted state income tax rate reduction 732 net income as reported $ 8,875 $ 31,128 reconciliation of non-gaap eps : diluted earnings per share excluding non-cash tax charge $ 0.73 $ 2.60 tax charge to reduce deferred tax asset due to an enacted state income tax rate reduction 0.06 diluted earnings per share as reported $ 0.73 $ 2.54 the following table includes a breakdown of net revenues , shipments , and average selling prices to the markets served by haynes for the periods shown . 42 by market replace_table_token_15_th net revenues . net revenues were $ 542.9 million in fiscal 2011 , an increase of 42.3 % from $ 381.5 million in fiscal 2010 , due to increases in volume and average selling price per pound . volume was 23.6 million pounds in fiscal 2011 , an increase of 32.6 % from 17.8 million pounds in fiscal 2010. the total average selling price was $ 22.97 per pound in fiscal 2011 , an increase of 7.3 % from $ 21.41 per pound in fiscal 2010. average selling price increased due to improved customer demand , improved product mix and rising raw material costs , while volume increased due to improved customer demand . the company 's consolidated backlog was $ 273.4 million at september 30 , 2011 , an increase of 84.8 % from $ 148.0 million at september 30 , 2010. this increase reflects the combination of a 50.7 % increase in backlog pounds and a 22.6 % increase in backlog average selling price . sales to the aerospace market were $ 203.6 million in fiscal 2011 , an increase of 47.1 % from $ 138.4 million in fiscal 2010 , due to a 35.9 % increase in volume combined with an 8.2 % increase in the average selling price per pound . the increase in the average selling price per pound is due to increased customer demand driven from restocking of the aero engine supply chain and higher raw material costs , while the increase in volume is due to improved customer demand . sales to the chemical processing market were $ 150.0 million in fiscal 2011 , an increase of 71.0 % from $ 87.7 million in fiscal 2010 , due to
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also in december 2011 , we announced phase 3 clinical trial results showing that elvitegravir , an integrase inhibitor being evaluated for the treatment of hiv-1 infection , was non-inferior to the integrase inhibitor raltegravir after two years of therapy in treatment-experienced patients . the results of the study indicate that elvitegravir has the potential to become a new once-daily treatment option for those with hiv who have developed resistance to other therapies . acquisitions in january 2011 , we completed the acquisition of arresto for $ 225 million plus potential future payments based on achievement of certain sales levels . arresto was a privately-held , development-stage biotechnology company based in palo alto , california , focused on developing antibodies for the potential treatment of fibrotic diseases and cancer . the lead product from this acquisition was gs-6624 , a humanized monoclonal antibody ( mab ) targeting the human lysyl oxidase-like-2 ( loxl2 ) protein . in addition to ongoing phase 2 studies of gs-6624 in liver fibrosis , myelofibrosis , colorectal cancer and pancreatic cancer , a phase 1 study is being conducted to evaluate gs-6624 in patients with idiopathic pulmonary fibrosis . in april 2011 , we acquired calistoga for $ 375 million plus potential payments of up to $ 225 million based on the achievement of certain milestones . calistoga was a privately-held , biotechnology company based in seattle , washington , focused on the development of medicines to treat cancer and inflammatory diseases . the 57 portfolio of proprietary compounds from this acquisition selectively targeted isoforms of phosphoinositide-3 kinase ( pi3k ) . calistoga 's lead product candidate , gs-1101 , was a first-in-class specific inhibitor of the pi3k delta isoform . pi3k delta is preferentially expressed in leukocytes involved in a variety of inflammatory and autoimmune diseases and hematological cancers . in november 2011 , we entered into an agreement to acquire pharmasset for $ 11.1 billion . the acquisition was financed with cash on hand , bank debt and senior unsecured notes . the acquisition was completed in january 2012. pharmasset was a clinical-stage pharmaceutical company located in princeton , new jersey , committed to discovering , developing and commercializing novel drugs to treat viral infections . pharmasset 's primary focus was the development of oral therapeutics for the treatment of hcv . pharmasset 's research and development ( r & d ) efforts were focused on nucleoside/tide analogs , a class of compounds that act as alternative substrates for the viral polymerase , thus inhibiting viral replication . in-licensing and collaborations in june 2011 , we entered into an agreement with tibotec for the development and commercialization of a new fixed-dose combination product containing our cobicistat and tibotec 's protease inhibitor prezista ® ( darunavir ) , indicated for the treatment of hiv . prezista is currently co-administered with ritonavir in combination with other antiretroviral agents . in october 2011 , we entered into an agreement with boehringer ingelheim ( bi ) for worldwide rights for the research , development and commercialization of bi 's novel non-catalytic site integrase inhibitors for hiv . this includes the lead compound bi 224436 , which has been evaluated in a phase 1a dose-escalation study to assess bioavailability and pharmacokinetics in healthy volunteers . also in october 2011 , we entered into an agreement with globeimmune , inc. for the license , development and commercialization of therapeutic vaccine products for use in conjunction with viread and other oral therapies for the treatment of the chronic hbv infection . also in october 2011 , we entered into an agreement with bristol-myers squibb company ( bms ) for the licensing , development and commercialization of a fixed-dose combination containing bms 's protease inhibitor reyataz ® ( atazanavir sulfate ) and our cobicistat . we are currently studying atazanavir and cobicistat in phase 2 and 3 studies in hiv-1 treatment-naïve patients . in november 2011 , we entered into an agreement with tibotec for the development and commercialization of a single-tablet regimen combining tibotec 's prezista with our emtriva , gs-7340 and cobicistat . story_separator_special_tag risks to our business . we believe the successes we experienced in 2011 have enabled us to continue to build a financially sound business model that will allow us to continue to further expand our commercial and r & d activities and to maintain quality and compliance . as we continue to grow our business , we remain focused on profitable revenue growth and prudent expense management that we believe will enable solid execution of our operating objectives for 2012. critical accounting policies , estimates and judgments 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 the reported amounts of assets , liabilities , revenues and expenses and related disclosures . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , intangible assets , allowance for doubtful accounts , prepaid royalties , clinical trial accruals , our tax provision and stock-based compensation . we base our estimates on historical experience and on various other market specific and other relevant assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ significantly from these estimates . we believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements . 60 revenue recognition product sales we recognize revenues from product sales when there is persuasive evidence that an arrangement exists , delivery to the customer has occurred , the price is fixed or determinable and collectability is reasonably assured . story_separator_special_tag we record estimated reductions to revenues for government rebates such as medicaid reimbursements , customer incentives such as cash discounts for prompt payment , distributor fees and expected returns of expired products . these estimates are deducted from gross product sales at the time such revenues are recognized . of these reductions from gross product sales , government rebates significantly impact our reported net product sales and are based upon certain estimates that require complex and significant judgment by management . government rebates we estimate reductions to our revenues for government-managed medicaid programs as well as to certain other qualifying federal , state and foreign government programs for the reimbursement of portions of the retail price of prescriptions filled that are covered by these programs . these reductions are settled either by us being invoiced directly or through charge-backs from our wholesalers . government rebates that are invoiced directly to us are recorded in accrued government rebates on our consolidated balance sheets . for qualified programs that can purchase our products through wholesalers at a lower contractual government price , the wholesalers charge back to us the difference between their acquisition cost and the lower contractual government price , which we record as allowances against accounts receivable . although we may pay rebates in countries outside of the united states , to date , payments made to foreign governments have not represented a significant portion of our total government rebates . for government programs in the united states , we estimate these sales allowances based on contractual terms , historical utilization rates , new information regarding changes in these programs ' regulations and guidelines that would impact the amount of the actual rebates , our expectations regarding future utilization rates for these programs and channel inventory data obtained from our major u.s. wholesalers in accordance with our inventory management agreements . during 2011 , 2010 , and 2009 , u.s government rebates of $ 1.85 billion , $ 1.38 billion and $ 885.5 million , respectively , representing 17 % , 15 % and 12 % of total gross product sales , respectively , were deducted from gross product sales . we believe that the methodology that we use to estimate our sales allowances for government price reductions is reasonable and appropriate given the current facts and circumstances . however , actual results may differ . based on the current information available to us , actual government rebates claimed for these periods have varied by approximately 3 % from our estimates recorded in those periods . as of december 31 , 2011 and 2010 , we had accrued u.s. government rebates of $ 494.2 million and $ 318.3 million , respectively , in accrued government rebates and had an allowance for government chargebacks of $ 72.1 million and $ 53.5 million , respectively , recorded against accounts receivable . the following table summarizes the aggregate activity in our u.s. government rebates allowance and accrued liabilities accounts : replace_table_token_9_th 61 intangible assets in conjunction with business combinations that we have completed , we have recorded intangible assets primarily related to marketed products , ipr & d projects and goodwill as part of our recognition and measurement of assets acquired and liabilities assumed in a business combination . identifiable intangible assets , such as those related to marketed products or ipr & d projects , are measured at their respective fair values as of the acquisition date . we believe the fair values assigned to our acquired intangible assets are based on reasonable estimates and assumptions given the available facts and circumstances as of the acquisition dates . discounted cash flow models are used in valuing these intangible assets , and these models require the use of significant estimates and assumptions including but not limited to : estimates of revenues and operating profits related to the products or product candidates ; the probability of success for unapproved product candidates considering their stages of development ; the time and resources needed to complete the development and approval of product candidates ; the life of the potential commercialized products and associated risks , including the inherent difficulties and uncertainties in developing a product candidate such as obtaining fda and other regulatory approvals ; and risks related to the viability of and potential alternative treatments in any future target markets . goodwill represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed in a business combination . goodwill and intangible assets determined to have indefinite useful lives are not amortized , but are required to be tested for impairment at least annually . we test goodwill and other indefinite-lived intangible assets for impairment on an annual basis and in between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair values of the assets below their carrying amounts . as of december 31 , 2011 , we had $ 1.27 billion of indefinite-lived intangible assets consisting of $ 1.00 billion of goodwill resulting from various business combinations and $ 266.2 million of intangible assets related to the ipr & d projects that we acquired from arresto and calistoga . intangible assets with finite useful lives are amortized over their estimated useful lives and are reviewed for impairment when facts or circumstances suggest that the carrying value of these assets may not be recoverable . we are amortizing the intangible asset related to the ranexa product , which we acquired from cv therapeutics , over its estimated useful life using an amortization rate derived from our forecasted future product sales for ranexa . our product sales forecasts are prepared annually and determined using our best estimates of future activity upon considering such factors as historical and expected future patient usage or uptake of our products , the introduction of complimentary or combination therapies or products and future product launch plans .
| the increase was due primarily to the increased expenses associated with the ongoing growth of our business , the pharmaceutical excise tax resulting from u.s. healthcare reform and increased bad debt provision due to slower collections in certain southern european countries . net income for 2011 was $ 2.80 billion , a 3 % decrease from $ 2.90 billion in 2010 due primarily to the investments we made in our existing clinical programs and through acquisitions , in-licensing and collaboration agreements and lower tamiflu royalties from roche as a result of declining pandemic planning initiatives worldwide . our diluted earnings per share increased by 7 % to $ 3.55 in 2011 from $ 3.32 in 2010 , which incorporates the impact of our share repurchases throughout the year . financing activity cash , cash equivalents and marketable securities increased by $ 4.65 billion during 2011 to a total of $ 9.96 billion at december 31 , 2011. the primary sources of cash , cash equivalents and marketable securities during 2011 were operating cash flows of $ 3.64 billion and $ 4.66 billion in proceeds from the issuance of senior unsecured notes , of which $ 3.67 billion was raised in december of 2011 to partially fund the pharmasset acquisition . key uses of cash during the year included $ 2.38 billion for repurchases of our common stock under our stock repurchase programs , $ 650.0 million for the repayment of our convertible senior notes due in 2011 and $ 588.6 million for acquisition activities in 2011. during 2011 , we completed our may 2010 , $ 5.00 billion stock repurchase program and commenced share repurchases under a three-year , $ 5.00 billion stock repurchase program authorized by our board of directors in january 2011. in 2011 , we spent a total of $ 2.38 billion of cash to repurchase and retire 59.9 million shares of our common stock at an average purchase price of $ 39.80 per share . subsequent events in january 2012 , we raised $ 2.15 billion in bank debt to partially fund the acquisition of pharmasset . we acquired pharmasset for $ 11.1 billion through a cash tender offer and subsequent merger , which closed in
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impairment of long-lived assets in accordance with us gaap , long-lived assets , such as property , plant , and equipment , and purchased intangible assets subject to amortization , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of 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 . the assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet . 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 exceeds the asset 's fair value . 16 for goodwill , the impairment determination is made at the reporting unit level . the implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation . the residual fair value after this allocation is the implied fair value of the reporting unit goodwill . the company 's annual evaluation for goodwill and indefinite-lived intangible assets was performed as of september 30 , 2015. the company recognized intangible asset impairments in the years ended september 30 , 2015 and 2014 related to specific reporting units . see note o , impairment of assets . the company did not recognize impairment for the year ended september 30 , 2013. all of the company 's goodwill and intangible assets relate to the nightclubs , except for $ 567,000 related to the acquisition of the media division and $ 9,805,000 in drink robust . definite lived intangible assets are amortized on a straight-line basis over their estimated lives . fully amortized assets are written-off against accumulated amortization . revenue recognition the company recognizes revenue from the sale of alcoholic beverages , energy drinks , food and merchandise , other revenues and services at the point-of-sale upon receipt of cash , check , or credit card charge . revenues from the sale of magazines and advertising content are recognized when the issue is published and shipped . revenues and external expenses related to the company 's annual expo convention are recognized upon the completion of the convention in august . revenues from sale of energy drinks are recongnized when shipped . income taxes deferred income taxes are determined using the liability method in accordance with fasb us gaap . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . 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 . in addition , a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized . us gaap creates a single model to address accounting for uncertainty in tax positions by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements . there are no unrecognized tax benefits to be recorded or disclosed in the notes to the consolidated financial statements . stock-based compensation the company recognizes all employee stock-based compensation as a cost in the consolidated financial statements . equity-classified awards are measured at the grant date fair value of the award . the company estimates grant date fair value using the black-scholes option-pricing model . the critical estimates are volatility , expected life and risk-free rate . the compensation cost recognized for the years ended september 30 , 2015 , 2014 and 2013 was $ 480,048 from restricted stock , $ 282,305 ( $ 159,370 from options and $ 122,935 from restricted stock ) and $ 847,183 ( from options ) , respectively . there were 10,000 , 369,665 and zero stock options exercises for the years ended september 30 , 2015 and 2014 and 2013 , respectively . story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify '' > see note j , commitments and contingencies of notes to consolidated financial statements for an explanation of the gain on settlement of patron tax issue . other expenses increased due to the new units acquired and opened . see note p , gain on contractual debt reduction , of notes to consolidated financial statements , for an explanation of the $ 5.6 million contractual debt reduction item . interest expense decreased 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 from acquisitions while we paid off debt as we amortize the loans . story_separator_special_tag as of september 30 , 2015 , the balance of long-term debt was $ 94.9 million compared to $ 70.4 million a year earlier . segment information the company is engaged in two significant segments , nightclubs and bombshells restaurants and bars . the company has identified such segments based on management responsibility and the nature of the company 's products , services and costs . there are no major distinctions in geographical areas served as all operations are in the united states . the company measures segment profit ( loss ) as income ( loss ) from operations . the other category below consists of our media and energy drink businesses that are not significant to the consolidated financial statements . the following table sets forth certain information about each segment 's financial information for the years ended september 30 : replace_table_token_5_th 19 general corporate expenses include corporate salaries , health insurance and social security taxes for officers , legal , accounting and information technology employees , corporate taxes and insurance , legal and accounting fees , depreciation and other corporate costs such as automobile and travel costs . management considers these to be non-allocable costs for segment purposes . 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 charges 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 , pre-opening costs , gains and losses from asset sales , gain on settlement of patron tax issue , impairment of assets , pre-opening costs , stock-based compensation charges , litigation and other one-time legal settlements and acquisition costs . 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 basic share and per diluted share . we exclude from non-gaap net income and non-gaap net income per diluted share and per basic share amortization of intangibles , gain on settlement of patron tax case , pre-opening costs , income tax expense , impairment charges , gains and losses from asset sales , stock-based compensation , litigation and other one-time legal settlements , gain on contractual debt reduction and acquisition costs , and include the non-gaap provision for income taxes , calculated as the tax-effect at 35 % effective tax rate of the pre-tax non-gaap income before taxes less stock-based compensation , 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 . 20 adjusted ebitda . we exclude from adjusted ebitda depreciation expense , amortization of intangibles , income tax , interest expense , interest income , gains and losses from asset sales , pre-opening costs , acquisition costs , litigation and other one-time legal settlements , gain on settlement of patron tax case , 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 . also , we exclude interest cost in our calculation of adjusted ebitda . 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 . the following tables present our non-gaap measures for the periods indicated ( in thousands , except per share amounts ) : replace_table_token_6_th 21 results of operations for the fiscal year ended september 30 , 2014 as compared to the fiscal year ended september 30 , 2013 for the fiscal year ended september 30 , 2014 , we had consolidated total revenues of $ 129.2 million , compared to consolidated total revenues of $ 112.2 million for the year ended september 30 , 2013. this was an increase of $ 17.0 million or 15.1 % . the increase in total revenues was primarily due to revenues generated in our new units acquired in 2014 , a full year of revenues from units purchased in 2013 and increases in revenues from certain of our existing units , especially from our jaguars odessa , xtc austin and dallas and rick 's new york , san antonio and minnesota locations . revenues from nightclub operations for same-location same-period increased by 4.5 % .
| the company recognizes revenue from other revenues and services at the point-of-sale upon receipt of cash , check , or credit card charge . cost of goods sold includes cost of alcoholic and non-alcoholic beverages , food , cigars and cigarettes , merchandise , media printing/binding and media . the cost of goods sold percentage increase is due to the increase in revenues of the restaurant/bar segment which has higher cost of goods sold than the nightclub segment . our cost of goods sold for the nightclub operations for the year ended september 30 , 2015 was 12.0 % of our total revenues from club operations compared to 11.9 % for the year ended september 30 , 2014. cost of goods sold for same-location-same-period was 12.4 % for the year ended september 30 , 2015 compared to 12.2 % for the year ended september 30 , 2014. we continued our efforts to achieve reductions in cost of goods sold of the club operations through improved inventory management . we are continuing a program to improve margins from liquor and food sales and food service efficiency . the increase in payroll and related costs , stated as “ salaries & wages ” above , was primarily due to the addition of the new units in 2015 and 2014. payroll for same-location-same-period of club operations increased to $ 20.1 million for the year ended september 30 , 2015 from $ 19.5 million for the previous year . management currently believes that its labor and management staff levels are appropriate . the increase in stock-based compensation in 2015 results from the issuance of restricted shares to two employees in july 2014. these shares are vesting over a two-year period and , thus , the cost of these shares were being expensed in the 2015 fiscal year over the vesting period . taxes and permits consists principally of payroll taxes , property taxes , sales and alcohol taxes , licenses and permits and the patron tax in our nightclubs in texas . the increase in 2015 results principally from the new units acquired . patron taxes
| 14,071 |
however , our net income per diluted share only decreased 3.4 % compared with the prior year , due to the decrease in weighted average shares outstanding during 2016 compared to 2015. the decrease in weighted average shares outstanding is primarily due to the repurchase of our common stock pursuant to stock repurchase programs ( see “ liquidity and capital resources of the company , share repurchases ” ) , partially offset by net issuances of shares pursuant to stock-based compensation programs . 29 income before income taxes for the year ended december 31 , 2015 increased $ 117.0 million compared to the year ended december 31 , 2014. the primary reasons for the improvement and references to discussions following in md & a are summarized as follows : replace_table_token_7_th significant known events , trends or uncertainties impacting or expected to impact comparisons of reported or future results applebee 's domestic same-restaurant sales declined 5.0 % in 2016. while this performance should be assessed in the context that 2016 was the worst year in terms of sales growth for both the overall restaurant industry and the casual dining segment of the restaurant industry since 2009 , applebee 's 2016 performance with respect to domestic same-restaurant sales and customer traffic was differentially worse than that of the overall casual dining segment , based on data from black box intelligence , a restaurant sales reporting firm ( “ black box ” ) . the decline in applebee 's domestic same-restaurant sales had an adverse impact on our 2016 franchise revenues , gross profit and net income . in 2016 , we experienced a slowdown in cash collections of receivables from a few applebee 's franchisees , an increase in bad debt expense and an increase in the number of closures of applebee 's restaurants , each of which we believe can be attributed , in part , to the progressive decline in applebee 's domestic same-restaurant sales over the past six quarters . we incorporated applebee 's recent performance with respect to domestic same-restaurant sales and restaurant closures into the long-term assumptions underlying discounted cash flow models used to quantitatively assess goodwill and the applebee 's tradename for impairment . we noted no impairments as the result of performing these quantitative assessments in 2016. a reporting unit is considered at risk when its fair value is not higher than its carrying amount by more than 10 % . based on the amount by which the fair value of the applebee 's franchise reporting unit exceeded the carrying value of the unit , the goodwill of the applebee 's franchise reporting unit is at risk . in accordance with u.s. gaap , we assess goodwill and intangible assets for impairment annually , at a minimum , and more frequently if circumstances warrant . downward revisions of long-term performance assumptions or changes in the assumed long-term discount rate could result in impairment charges in the future . key performance indicators in evaluating the performance of each restaurant concept , we consider the key performance indicators to be net franchise restaurant development and the percentage change in domestic system-wide same-restaurant sales . since all but 10 of our restaurants are franchised , expanding the number of franchise restaurants is an important driver of revenue growth because we currently do not plan to open any new applebee 's or ihop company-operated restaurants or expand our rental and financing operations , legacies from the previous ihop business model we operated under prior to 2003. growth in both the number of franchise restaurants and in sales at those restaurants will drive franchise revenues in the form of higher royalty revenues , additional franchise fees and , in the case of ihop restaurants , sales of proprietary pancake and waffle dry mix . an overview of our key performance indicators for the years ended december 31 , 2016 , 2015 and 2014 is as follows : replace_table_token_8_th ( 1 ) franchise and area license restaurant openings , net of closings 30 net franchise restaurant development after two years of growth , the number of applebee 's franchise restaurants declined in 2016 as franchisees opened 29 new restaurants but closed 46 restaurants . restaurant closures can occur for a variety of reasons that may differ for each restaurant and for each franchisee . however , we believe the increase in applebee 's restaurant closures in 2016 was related in part to the sustained decline in applebee 's domestic same-restaurant sales over the past 18 months . while 10 of the restaurants were closed by a single franchisee , no other franchisee had more than four net closures ( closures less new restaurants opened ) . ihop franchisees and area licensees opened 66 restaurants in 2016 and closed 16 restaurants , resulting in net development of 50 restaurants , the highest net development since 2009. the opening of 66 restaurants was the highest annual total of franchise restaurant openings for ihop since 2008. internationally , franchisees of both brands opened 30 restaurants and closed 10 , for net development of 20 restaurants , progressive improvement on net international development of 16 restaurants and 12 restaurants , respectively , in 2015 and 2014. this international activity is included in the total activity for each brand cited above . the following tables summarize applebee 's and ihop restaurant development and franchising activity over the past three years : replace_table_token_9_th 31 replace_table_token_10_th during 2017 , we expect applebee 's franchisees to develop between 20 and 30 new restaurants globally , the majority of which are expected to be international openings . ihop franchisees are projected to develop between 75 and 90 new ihop restaurants globally , the majority of which are expected to be domestic openings . we anticipate the closing of between 40 to 60 applebee 's restaurants in 2017 as part of a detailed system-wide analysis to optimize the health of the franchisee system . we believe closures of ihop restaurants from natural attrition in 2017 will be in a range similar to that experienced over the past several years . story_separator_special_tag the actual number of openings may differ from both our expectations and development commitments . historically , the actual number of restaurants developed in a particular year has been less than the total number committed to be developed due to various factors , including economic conditions and franchisee noncompliance with development agreements . the timing of new restaurant openings also may be affected by various factors including weather-related and other construction delays , difficulties in obtaining timely regulatory approvals and the impact of currency fluctuations on our international franchisees . the actual number of closures also may differ from our expectations . our franchisees are independent businesses and decisions to close restaurants can be impacted by numerous factors in addition to changes in applebee 's domestic same-restaurant sales that are outside of our control , including but not limited to , franchisees ' agreements with landlords and lenders . domestic same-restaurant sales the following table sets forth for each of the past three years the number of “ effective restaurants ” in the applebee 's and ihop systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior two years . sales at restaurants that are owned by franchisees and area licensees are not attributable to the company and , as such , the percentage changes in sales presented below are based on non-gaap sales data . however , we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales , and , where applicable , rental payments under leases that partially may be based on a percentage of their sales . management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations . 32 replace_table_token_11_th replace_table_token_12_th _ ( a ) “ effective restaurants ” are the weighted average number of restaurants open in a given fiscal period , adjusted to account for restaurants open for only a portion of the period . information is presented for all effective restaurants in the applebee 's and ihop systems , which includes restaurants owned by franchisees and area licensees as well as those owned by the company . ( b ) “ system-wide sales ” are retail sales at applebee 's restaurants operated by franchisees and ihop restaurants operated by franchisees and area licensees , as reported to the company , in addition to retail sales at company-operated restaurants . sales at restaurants that are owned by franchisees and area licensees are not attributable to the company . an increase in franchisees ' reported sales will result in a corresponding increase in our royalty revenue , while a decrease in franchisees ' reported sales will result in a corresponding decrease in our royalty revenue . unaudited reported sales for applebee 's domestic franchise restaurants , ihop franchise restaurants and ihop area license restaurants for the years ended december 31 , 2016 , 2015 and 2014 were as follows : replace_table_token_13_th ( c ) “ sales percentage change ” reflects , for each category of restaurants , the percentage change in sales in any given fiscal year compared to the prior fiscal year for all restaurants in that category . the sales percentage change for the year ended december 31 , 2015 was impacted by a 53rd calendar week in fiscal year 2015 . ( d ) “ domestic same-restaurant sales percentage change ” reflects the percentage change in sales in any given fiscal year , compared to the same weeks in the prior year , for domestic restaurants that have been operated throughout both fiscal years that are being compared and have been open for at least 18 months . because of new unit openings and restaurant closures , the domestic restaurants open throughout the fiscal years being compared may be different from year to year . domestic same-restaurant sales percentage change does not include data on ihop area license restaurants . ( e ) the 2015 sales percentage change was impacted by the refranchising of 23 applebee 's company-operated restaurants during 2015 . 33 domestic same-restaurant sales trends applebee 's domestic system-wide same-restaurant sales decreased 7.2 % for the three months ended december 31 , 2016 from the same period in 2015. the decrease in the fourth quarter of 2016 was primarily due to a decline in customer traffic that was slightly offset by an increase in average customer check . applebee 's customer traffic has declined for eight consecutive quarters , with the decline growing progressively larger from the first quarter of 2015 to the fourth quarter of 2016. we believe the continued decline of guest traffic in 2016 was due in part to changes in consumer preferences that have adversely impacted the overall casual dining segment of the restaurant industry and due in part to initiatives we implemented during 2016 that did not drive repeat traffic as expected . for the full year ended december 31 , 2016 , applebee 's domestic system-wide same-restaurant sales decreased 5.0 % . the decrease for the full year 2016 was due to a decrease in customer traffic that was partially offset by an increase in average customer check . applebee 's performance for both the fourth quarter and full year of 2016 lagged that of the casual dining segment of the restaurant industry . based on data from black box , the casual dining segment of the restaurant industry also experienced a decrease in same-restaurant sales during the fourth quarter and full year of 2016 due to decreases in customer traffic that were partially offset by increases in average customer check . however , the casual dining segment decreases in customer traffic as reported by black box were smaller than the applebee 's decreases in customer traffic and the casual dining segment increases in average customer check as reported by black box were larger than applebee 's increases in average customer check .
| we recognized a loss on extinguishment of $ 64.9 million , comprised of the $ 36.1 million make-whole premium on the senior notes and the write-off of the unamortized debt discount and the issuance costs associated with the extinguished debt of $ 16.9 million and $ 11.9 million , respectively . the primary impacts of this transaction on our liquidity during 2014 were cash payments of $ 36.1 million for the make-whole premium on the senior notes and $ 24.2 million for issuance costs of the new debt . additionally , we were required to fund various reserve accounts required by the indenture under which the new debt was issued totaling approximately $ 66.7 million . these reserve accounts are considered to be restricted cash . partially offsetting these cash outflows were proceeds of approximately $ 75 million received from issuance of the new debt in excess of the cash required to retire the old debt . 43 one of the reserve accounts required by the indenture under which the new debt was issued was a short-term interest reserve account equal to five months of interest on the class a-2 notes . after this interest payment was made in march 2015 , the reserve requirement automatically decreased to three months of interest on the class a-2 notes . this change reduced our required restricted cash by $ 10.1 million . the primary impacts of this transaction on our liquidity over the term of the notes are ( i ) lower annual cash interest payments on long-term debt than if the credit facility and the senior notes were still in place , ( ii ) elimination of interest rate risk on the variable-rate credit facility and ( iii ) the extension of the maturity of our long-term debt to 2021. the retired credit facility would have expired in october 2017 and the senior notes were to be repaid in october 2018. class a-2 notes the notes were issued under a base indenture , dated september 30 , 2014 ( the “ base indenture ” ) and the related
| 14,072 |
we offer cloud based and on-premises solutions using both open standards and proprietary technologies . some of our proprietary technologies are patented . our products and services are used for authentication , fraud mitigation , e-signing transactions and documents , and identity management in business-to-business ( “ b2b ” ) , business-to-employee ( “ b2e ” ) and business-to-consumer ( “ b2c ” ) environments . our target market is business processes using an electronic interface , particularly the internet , where there is risk of account takeover or new account fraud . our products can increase security associated with accessing business processes , reduce losses from unauthorized access , help customers comply with regulations , enhance the end-user experience , and reduce the cost of business processes by automating activities previously performed manually . online and mobile application owners and publishers benefit from our expertise in multi-factor authentication , document signing , transaction signing , application security , remote customer onboarding , and in mitigating hacking attacks . our convenient and proven security solutions enable low friction and trusted interactions between businesses , employees , and consumers across a variety of online and mobile platforms . 34 our primary growth strategy is to make digital banking more accessible , secure , easy and valuable . our key growth objectives include : ● expanding our portfolio of services that enable institutions to mitigate fraud , reduce operational costs , comply with regulations , easily on-board customers , and adaptively authenticate transactions and reduce time to deploy ; ● automating and securing digital customer journeys to remotely verify identities , mitigate application fraud and secure account opening and transactions ; ● increasing sales to existing customers and acquiring new customers ; ● driving increased demand for our products in new applications , new markets , and new territories ; ● expanding our channel partner ecosystem ; and ● strategically acquiring companies that expand our technology portfolio or customer base and increase our recurring revenue . our business model we offer our products through a product sales and licensing model or through our services platform , which includes our cloud-based service offerings . our solutions are sold worldwide through our direct sales force , as well as through distributors , resellers , systems integrators , and original equipment manufacturers . our sales force is able to offer customers a choice of an on-site implementation using our traditional on-premises model or a cloud implementation for some solutions using our services platform . industry growth economic instability related to the covid-19 pandemic impacted our results for the year ended december 31 , 2020. as economic conditions recover , we believe the global markets for authentication , fraud mitigation , agreement automation , and electronic signature solutions will continue to grow driven by dynamic and growing threat environments , increased focus on the digital experience for mobile and online users , new government regulations , and continued growth in electronic commerce . the rate of growth in each country around the world may vary significantly based on local culture , competitive position , economic conditions , and the use of technology . economic conditions our revenue may vary significantly with changes in the economic conditions in the countries in which we currently sell products . with our current concentration of revenue in europe and specifically in the banking and finance vertical market , significant changes in the economic outlook for the european banking market may have a significant effect on our revenue . the covid-19 pandemic and the various responses of governments around the world have caused significant and widespread uncertainty , volatility and disruptions in the u.s. and global economies , including in the regions in which we operate . see part i , item 1a – risk factors of this form 10-k for additional information regarding the potential impact of covid-19 on the company . 35 cybersecurity risks our use of technology is increasing and is critical in three primary areas of our business : 1. software and information systems that we use to help us run our business more efficiently and cost effectively ; 2. the products we have traditionally sold and continue to sell to our customers for integration into their software applications contain technology that incorporates the use of secret numbers and encryption technology ; and 3. new products and services that we introduced to the market are focused on processing information through our servers or in the cloud . we believe that the risks and consequences of potential incidents in each of the above areas are different . in the case of the information systems we use to help us run our business , we believe that an incident could disrupt our ability to take orders or deliver product to our customers , but such a delay in these activities would not have a material impact on our overall results . to minimize this risk , we actively use various forms of security and monitor the use of our systems regularly to detect potential incidents as soon as possible . in the case of products that we have traditionally sold , we believe that the risk of a potential cyber incident is minimal . we offer our customers the ability to either create the secret numbers themselves or have us create the numbers on their behalf . when asked to create the numbers , we do so in a secure environment with limited physical access and store the numbers on a system that is not connected to any other network , including other onespan networks , and similarly , is not connected to the internet . in the case of our cloud-based solutions , which involve the processing of customer information , we believe a cyber incident could have a material impact on our business . while our revenue from cloud-based solutions comprises a minority of our revenue today , we believe that these solutions will provide substantial future growth . story_separator_special_tag a cyber incident involving these solutions in the future could substantially impair our ability to grow the business and we could suffer significant monetary and other losses and significant reputational harm . to minimize the risk , we review our product security and procedures on a regular basis . our reviews include the processes and software code we are currently using as well as the hosting platforms and procedures that we employ . we mitigate the risk of cyber incidents through a series of reviews , tests , tools and training . certain insurance coverages may apply to certain cyber incidents . overall , we expect the cost of securing our networks will increase in future periods , whether through increased staff , systems or insurance coverage . while we are not aware of any cyber incidents during the year ended december 31 , 2020 that had a significant impact on our business , it is possible that we could experience an incident in future years , which could result in unanticipated costs . currency fluctuations in 2020 , approximately 88 % of our revenue and approximately 73 % of our operating expenses were generated/incurred outside of the u.s. in 2019 , approximately 89 % of our revenue and approximately 72 % of our operating expenses were generated/incurred outside of the u.s. in 2018 , approximately 91 % of our revenue and approximately 71 % of our operating expenses were generated/incurred outside of the u.s. as a result , changes in currency exchange rates , especially the euro exchange rate and the canadian dollar exchange rate , can have a significant impact on revenue and expenses . while the majority of our revenue is generated outside of the u.s. , a significant amount of our revenue earned during the year ended december 31 , 2020 was denominated in u.s. dollars . in 2020 , approximately 44 % of our revenue was denominated in u.s. dollars , 51 % was denominated in euros and 5 % was denominated in other currencies . in 2019 , 36 approximately 47 % of our revenue was denominated in u.s. dollars , 49 % was denominated in euros and 9 % was denominated in other currencies . in 2018 , approximately 58 % of our revenue was denominated in u.s. dollars , 30 % was denominated in euros , and 12 % was denominated in other currencies . in general , to minimize the net impact of currency fluctuations on operating income , we attempt to denominate an amount of billings in a currency such that it would provide a hedge against the operating expenses being incurred in that currency . we expect that changes in currency rates may also impact our future results if we are unable to match amounts of revenue with our operating expenses in the same currency . if the amount of our revenue in europe denominated in euros continues as it is now or declines , we may not be able to balance fully the exposures of currency exchange rates on revenue and operating expenses . the financial position and the results of operations of our foreign subsidiaries , with the exception of our subsidiaries in switzerland , singapore and canada , are measured using the local currency as the functional currency . accordingly , assets and liabilities are translated into u.s. dollars using current exchange rates as of the balance sheet date . revenues and expenses are translated at average exchange rates prevailing during the year . translation adjustments arising from differences in exchange rates generated comprehensive gain of $ 4.5 million in 2020 , comprehensive gain of $ 1.5 million in 2019 and comprehensive loss of $ 5.5 million in 2018. these amounts are included as a separate component of stockholders ' equity . the functional currency for our subsidiaries in switzerland , singapore and canada is the u.s. dollar . gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations in other income ( expense ) . foreign exchange transaction gains aggregated less than $ 0.1 million for the year ended december 31 , 2020. we reported foreign exchange transaction losses of $ 1.5 million and $ 0.2 million during the years ended december 31 , 2019 and 2018 , respectively . components of operating results revenue we generate revenue from the sale of our hardware products , software licenses , subscriptions , maintenance and support , and professional services . we believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments reflecting the transactional nature of significant parts of our business . ● product and license revenue . product and license revenue includes hardware products and software licenses , which can be provided on a perpetual or term basis . ● service and other revenue . service and other revenue includes subscription solutions ( which is our definition of software-as-a-service solutions ) , maintenance and support , and professional services . cost of goods sold our total cost of goods sold consists of cost of product and license revenue and cost of service and other revenue . we expect our cost of goods sold to increase in absolute dollars as our business grows , although it may fluctuate as a percentage of total revenue from period to period . ● cost of product and license revenue . cost of product and license revenue primarily consists of direct product and license costs . ● cost of service and other revenue . cost of service and other revenue primarily consists of costs related to subscription solutions , including personnel and equipment costs , and personnel costs of employees providing professional services and maintenance and support . 37 gross profit gross profit as a percentage of total revenue , or gross margin , has been and will continue to be affected by a variety of factors , including our average selling price , manufacturing costs , the mix of products sold , and the mix of revenue among products , subscriptions and services .
| the decrease in hardware sales in 2020 is attributed to a reduction in demand following the psd2 deadline , increased adoption of digital alternatives , and reduced demand due to the pandemic . perpetual software license sales also decreased during the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , which we attribute to our strategy focused on growing recurring software revenue over perpetual licenses combined with softened demand as a result of the pandemic . services and other revenue increased by $ 12.5 million , or 18 % during the year ended december 31 , 2020 compared to the year ended december 31 , 2020. the increase for the year ended december 31 , 2020 compared to the same period in 2019 was driven by higher subscription and maintenance revenue . we believe comparison of revenues between periods is heavily influenced by the timing of orders and shipments reflecting the transactional nature of significant parts of our business . as a result of the volatility in our business , we believe that the overall strength of our business is best evaluated over a longer term where the impact of transactions in any given period is not as significant as in a quarter-over-quarter comparison . 40 revenue by geographic regions : we classify our sales by customer location in three geographic regions : 1 ) emea , which includes europe , middle east and africa ; 2 ) the americas , which includes sales in north , central , and south america ; and 3 ) asia pacific ( apac ) , which also includes australia , new zealand , and india . the breakdown of revenue in each of our major geographic areas was as follows : replace_table_token_3_th for the year ended december 31 , 2020 , revenue generated in emea was $ 28.9 million or 20 % lower than the same period in 2019 , driven by lower hardware sales , partially offset by higher maintenance and professional services revenue . hardware revenue comparisons were affected by the one-time positive impact on 2019 revenue from the psd2 regulation deadline . for the year ended december
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we believe that the policies described below represent our critical accounting policies , as they have the greatest potential impact on our consolidated financial statements . however , you should also review our summary of significant accounting policies beginning on page f-8 of the notes to our consolidated financial statements contained elsewhere in this annual report on form 10-k. 21 revenue recognition dlh 's revenue is derived from professional and other specialized service offerings to us government agencies through a variety of contracts , some of which are fixed-price in nature and or sourced through federal supply schedules administered by the general services administration ( “ gsa ” ) at fixed unit rates or hourly arrangements . we generally operate as a prime contractor , but have also entered into contracts as a subcontractor . the recognition of revenue from fixed rates is based upon objective criteria that generally do not require significant estimates that may change over time . dlh recognizes and records revenue on government contracts when it is realized , or realizable , and earned . dlh considers these requirements met when : ( a ) persuasive evidence of an arrangement exists ; ( b ) the services have been delivered to the customer ; ( c ) the sales price is fixed or determinable and free of contingencies or significant uncertainties ; and ( d ) collectibility is reasonably assured . revenues related to retroactive billings in 2008 from an agency of the federal government were recognized when : ( 1 ) the company developed and calculated an amount for such prior period services and had a contractual right to bill for such amounts under its arrangements , ( 2 ) there were no remaining unfulfilled conditions for approval of such billings and ( 3 ) collectibility was reasonably assured based on historical practices with the dva . the related direct costs , principally comprised of salaries and benefits , were accrued to match the recognized reimbursements from the federal agency ; upon approval , wages will be processed for payment to the employees . during the year ended september 30 , 2008 , dlh recognized revenues of $ 10.8 million and direct costs of $ 10.1 million related to these non-recurring arrangements . at september 30 , 2013 and september 30 , 2012 , the amount of the remaining accounts receivable with the dva approximated $ 9.3 million and accrued liabilities for salaries to employees and related benefits totaled $ 8.7 million . the $ 9.3 million in accounts receivable was unbilled to the dva at september 30 , 2013 and september 30 , 2012 . although the timing can not be guaranteed , at present the company expects to bill and collect such amounts during fiscal 2014 , based on current discussions with the dva and collection efforts . as described in greater detail in note 7 to the consolidated financial statements , dlh has accrued the revenue and costs associated with certain government contracts covered by the service contract act . these adjustments were due to changes in the contracted wage determination rates for certain employees . a wage determination is the listing of wage rates and fringe benefit rates for each classification of laborers which the administrator of the wage and hour division of the u.s. department of labor ( `` dol '' ) has determined to be prevailing in a given locality . an audit by the dol in 2008 at one of the facilities revealed that notification , as required by contract , was not provided to dlh solutions in order to effectuate the wage increases in a timely manner . wages for contract employees on assignment at the time have been adjusted prospectively to the prevailing rate and hourly billing rates to the dva have been increased accordingly . in april 2012 , the company received formal contract modifications from the dva concerning the retroactive billing matter . the contract modifications from the dva incorporate relevant wage determinations covering largely 2006 and 2007 applying to the company 's historical contracts with dva during those periods . these government modifications initiate the procedures whereby the company may invoice the dva in accordance with the modified wage determinations and subsequently make timely retroactive payments to employees ( active and inactive ) covering work performed at the certain locations . the company expects to follow the same process implemented as directed by and in conjunction with the department of labor and the dva when similar wage determination-related contract modifications were made to cover other sites ( also for the periods of 2006 and 2007 ) in 2008. during fiscal year 2013 , the company continued to support the government 's review of the detailed supporting calculations for the retroactive billings and to negotiate an incremental final amount related to indirect costs and fees applied to these retroactive billings . as such , there may be additional revenues recognized in future periods once the final approval for such additional amounts is obtained . the additional indirect costs and fees are estimated to be between $ 0.4 million and $ 0.6 million . the company has developed these estimates under the same contractual provisions applied to the sites that were settled in 2008. however , because these amounts remain subject to government review , no assurances can be given that any amounts we may receive will be the amount specified above . goodwill in accordance with applicable accounting standards , dlh reviews its goodwill for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit 's carrying amount is greater than its fair value . at september 30 , 2013 , we performed a goodwill impairment evaluation . we performed both a qualitative and quantitative assessment of factors to determine whether it was necessary to perform the goodwill impairment test . based on the results of the work performed , the company has concluded that no impairment loss was warranted at september 30 , 2013 . story_separator_special_tag additional impairment analyses at future dates may be performed to determine if indicators of impairment are present , and if so , such amount will be determined and the associated charge will be recorded to the consolidated statement of operations . 22 as described in greater detail in note 2 and note 11 to the consolidated financial statements , factors including non-renewal of a major contract or other substantial changes in business conditions could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to future periods ' results of operations . if an impairment write off of all the goodwill became necessary in future periods , a charge of up to $ 8.6 million would be expensed in the consolidated statement of operations . prepaid workers ' compensation as part of the company 's discontinued peo operations , dlh had a workers ' compensation program with zurich american insurance company ( `` zurich '' ) which covered the period from march 22 , 2002 through november 16 , 2003 , inclusive . payments for the policy were made to a trust monthly based on projected claims for the policy period . interest on all assets held in the trust is credited to dlh . payments for claims and claims expenses are made from the trust . from time-to-time , trust assets have been refunded to the company based on zurich 's and managers ' overall assessment of claims experience and historical and projected settlements . the final amount of trust funds that could be refunded to the company is subject to a number of uncertainties ( e.g . claim settlements and experience , health care costs , the extended statutory filing periods for such claims ) ; however , based on a third party 's study of claims experience and after giving effect to agreed-upon adjustments , dlh estimates that at september 30 , 2013 , the remaining prepaid asset of approximately $ 0.4 million will be received within the next twelve months . this amount is reflected on dlh 's balance sheet as of september 30 , 2013 as a current asset . workers ' compensation insurance from november 17 , 2003 through april 14 , 2009 , inclusive , dlh 's workers ' compensation insurance program was provided by zurich . this program covered dlh 's temporary , contract and corporate employees . this program was a fully insured , guaranteed cost program that contained no deductible or retention feature . the premium for the program was paid monthly based upon actual payroll and is subject to a policy year-end audit . effective april 15 , 2009 , dlh entered into a partially self-funded workers ' compensation insurance program with a national insurance carrier for the premium year april 15 , 2009 through april 14 , 2010 which has been renewed through april 14 , 2014. the company pays a base premium plus actual losses incurred , not to exceed certain stop-loss limits . the company is insured for losses above these limits , both per occurrence and in the aggregate . as of september 30 , 2013 and 2012 , the adequacy of the workers ' compensation reserves ( including those periods ' amounts that are offset against the trust fund balances in prepaid assets ) was determined , in management 's opinion , to be reasonable . in determining our reserves , we rely in part upon information regarding loss data received from our workers ' compensation insurance carriers that may include loss data for claims incurred during prior policy periods . in addition , these reserves are for claims that have not been sufficiently developed and such variables as timing of payments and investment returns thereon are uncertain or unknown ; therefore , actual results may vary from current estimates . dlh will continue to monitor the development of these reserves , the actual payments made against the claims incurred , the timing of these payments , the interest accumulated in dlh 's prepayments and adjust the related reserves as deemed appropriate . fair value dlh has financial instruments , principally accounts receivable , accounts payable , loan payable , notes payable and accrued expenses . dlh estimates that the fair value of these financial instruments at september 30 , 2013 and 2012 does not differ materially from the aggregate carrying values of these financial instruments recorded in the accompanying consolidated balance sheets . however , because the company presents certain common stock warrants and embedded conversion features ( associated with convertible debentures—see note 5 ) and accounts for such derivative financial instruments at fair value , such derivatives are materially impacted by the market value of the company 's stock and therefore subject to a high degree of volatility . the payment of the entire $ 350,000 principal amount of the convertible debentures is contractually due in the fiscal year ending september 30 , 2014. as further discussed in note 13 , the convertible debentures were fully satisfied at maturity on october 28 , 2013. income taxes dlh accounts for income taxes in accordance with the `` liability '' method , whereby deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities , using enacted tax rates in effect for the year in which the differences are expected to reverse . deferred tax assets are reflected on the consolidated balance sheet when it is determined that it is more likely than not that the asset will be realized . this guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized . at september 30 , 2013 and 2012 , the company did not record a tax benefit for nols and other deferred tax assets . ( see note 4 to consolidated financial statements contained in this annual report on form 10-k ) .
| our fiscal 2013 gross profit benefited from increased revenue and improved contract performance . general and administrative expenses general and administrative ( `` g & a '' ) primarily relates to functions such as corporate and functional management , legal , finance , accounting , contracts administration , human resources , management information systems , and business development . g & a expenses , including severance , for the fiscal years ended september 30 , 2013 and 2012 were $ 7.1 million and $ 7.6 million , respectively , representing a favorable reduction of $ 0.5 million in fiscal 2013. as a percentage of revenue , g & a expenses , including severance , were 13.3 % and 15.5 % for fiscal years ended september 30 , 2013 and 2012 , respectively . this represents a favorable reduction of 2.2 % and reflects greater leverage of administrative resources as revenues grew . reduction of g & a costs in 2013 reflects the company having continued to successfully seek elimination of overhead costs deemed to be non-essential to growth or infrastructure in order to permit reinvestment in areas considered important to support the strategic direction of the company . the company has also continued its cost savings and reallocation initiatives , 26 which have resulted in reduced headcount in non-revenue generating departments and within sg & a costs , with significantly increased emphasis on building a strong and sustainable pipeline of new business opportunities . depreciation and amortization depreciation and amortization expense on tangible assets was approximately $ 0.1 million for both of the fiscal years ended september 30 , 2013 and 2012 . income ( loss ) from operations income from operations for the fiscal year ended september 30 , 2013 was $ 0.2 million as compared to loss from operations for the fiscal year ended september 30 , 2012 of $ 2.2 million . this represents an improvement of $ 2.4 million in results from operations for fiscal 2013 . this improvement is primarily due to increased revenue , improved contract performance , and stringent g & a cost control measures . other income ( expense )
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the company has a 50.1 % ownership in the newly formed entity . this new arrangement did not have a material impact on our 2014 operations . key performance indicators and statistics the following measurements are among the key business indicators reviewed by various members of management to measure consolidated and segment results of the company : net sales gross profit margin operating expenses income from operations adjusted ebitda adjusted ebit same store sales inventory turnover accounts receivable average collection days cash flow and liquidity determined by the company 's working capital and free cash flow store metrics such as sales per square foot , average unit retail , conversion , average units per transaction , and contribution margin . while not all of these metrics are disclosed due to the proprietary nature of the information , many of these metrics are disclosed and discussed in this management 's discussion and analysis of financial condition and results of operations . non-gaap measures the company 's reported results are presented in accordance with gaap . the company uses adjusted earnings before interest and taxes ( `` adjusted ebit '' ) and adjusted earnings before interest , taxes , depreciation and amortization ( `` adjusted ebitda '' ) , as calculated in the table below , as non-gaap measures , in internal management reporting and planning processes as well as in evaluating the performance of the company . management believes these measures are useful to investors in evaluating the company 's ongoing operating and financial results . by providing these non-gaap measures , as a supplement to gaap information , we believe we are enhancing investors ' understanding of our business and our results of operations . the non-gaap financial measures are limited in their usefulness and should be considered in addition to , and not in lieu of , u.s. gaap financial measures . further , these non-gaap measures may be unique to the company , as they may be different from non-gaap measures used by other companies . the table below reconciles these metrics to net income as presented in the consolidated statement of income . 22 replace_table_token_6_th executive summary net sales for 2014 increased 2 % to $ 1,334,951 from $ 1,314,223 in 2013. net sales growth was driven by our acquisition of dolce vita which had net sales of $ 28,948. excluding dolce vita net sales decreased by 1 % primarily as a result of lack of fashion trends on which to capitalize . net income decreased 15 % to $ 111,880 in 2014 compared to $ 132,007 in 2013. the company 's effective tax rate for 2014 decreased to 34.3 % compared to 36.2 % recorded in 2013 due primarily to reinvestment of foreign earnings in foreign locations and due to a discrete benefit related to prior years state taxes . diluted earnings per share in 2014 decreased to $ 1.76 per share on 63,676,000 diluted weighted average shares outstanding compared to $ 1.98 per share on 66,836,000 diluted weighted average shares outstanding in the prior year . in our retail segment , same store sales ( sales of those stores , including the e-commerce websites , that were in operation throughout 2014 and 2013 ) decreased 8.1 % , and sales per square foot decreased to $ 676 in 2014 compared to sales per square foot of $ 823 in 2013 . as of december 31 , 2014 , we had 160 stores in operation , compared to 121 stores as of december 31 , 2013 . our store increase was primarily related to the addition of 21 stores from our acquisition of sm mexico as well as an increase of 15 outlet store locations . our total inventory turnover was 10.4 times compared to 10.3 times in the comparable period of last year . our accounts receivable average collection days were 68 days in 2014 compared to 66 days in 2013 . as of december 31 , 2014 , we had $ 203,094 in cash , cash equivalents and marketable securities , no short or long-term debt and total stockholders ' equity of $ 669,529 . working capital decreased to $ 264,635 as of december 31 , 2014 , compared to $ 342,142 on december 31 , 2013 . our products are manufactured overseas and a majority of our products filling domestic orders are shipped via ocean freight carriers to ports in california , new jersey and texas with the greatest reliance on california ports . in 2014 , port workers ' union disputes causing work slow downs and stoppages have adversely impacted ocean freight transportation and caused severe delays in the flow of shipments through ports in california . as a result , in the fourth quarter of 2014 , the company experienced transportation delays of products to customers . to mitigate the risk of losing customer orders , the company incurred incremental costs to deliver products to customers via air freight . the california port workers ' union disputes have continued into 2015 though current reports indicate that a tentative contract was reached between the port workers and their employers on february 20 , 2015. while the slow downs and stoppages have adversely impacted the fourth quarter of 2014 and will likely adversely impact the first quarter of 2015 , assuming the definitive resolution of the disputes and the commencement of normal port operations , the adverse impact of the union dispute on the company should gradually be reduced for the remainder of 2015 . 23 the following tables set forth information on operations for the periods indicated : replace_table_token_7_th 24 replace_table_token_8_th story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > superga store and four e-commerce websites . comparable store sales ( sales of those stores , including the e-commerce websites , that were open for all of 2014 and 2013 ) for the year ended december 31 , 2014 decreased 8.1 % when compared to the prior year . the company excludes new locations from the comparable store base for the first year of operations . story_separator_special_tag stores that are closed for renovations are removed from the comparable store base . during the year ended december 31 , 2014 , gross margin decreased to 60.1 % from 61.6 % in 2013 primarily due to increased promotional activity . in 2014 , operating expenses increased to $ 115,003 from $ 104,479 in 2013 primarily due to the incremental cost associated with new store openings . as a percentage of sales , operating expenses increased to 55.8 % in 2014 from 49.8 % in the prior year due to deleverage from negative comparable store sales . for the year ended december 31 , 2014 , income from operations for the retail segment decreased to $ 8,856 compared to $ 24,726 in the prior year . first cost segment : the first cost segment generated income from operations of $ 6,438 for the year ended december 31 , 2014 , compared to $ 7,988 in 2013 . the decrease relates to a decline in sales with certain private label customers . licensing segment : during the year ended december 31 , 2014 , licensing income of $ 7,285 was down slightly compared to the prior year income of $ 7,644 . year ended december 31 , 2013 vs. year ended december 31 , 2012 consolidated : total net sales for the year ended december 31 , 2013 increased by 7 % to $ 1,314,223 from $ 1,227,072 for fiscal year 2012 . for the year ended december 31 , 2013 , gross margin as a percentage of net sales was 36.7 % compared to 37.1 % in the prior year . operating expenses increased in 2013 to $ 295,223 from $ 283,689 in 2012 . as a percentage of sales , operating expenses decreased to 22.5 % in the year ended december 31 , 2013 compared to 23.1 % in the previous year . commission and licensing fee income slightly increased to $ 15,632 in 2013 compared to $ 15,395 in 2012 . during the year ended december 31 , 2013 , income from operations increased to $ 203,768 and net income attributable to steven madden , ltd. increased to $ 132,007 compared to income from operations of $ 178,976 and net income of $ 119,626 in 2012 . wholesale footwear segment : net sales generated by the wholesale footwear segment was $ 860,448 , or 65 % , and $ 794,486 , or 65 % , of our total net sales for the years ended december 31 , 2013 and 2012 , respectively . this represents a $ 65,962 , or 8.3 % increase year over year . excluding sales attributable to sm canada business in each year , organic net sales growth was 7.8 % . organic net sales growth was driven by a $ 50,087 or 17.9 % increase in net sales in our wholesale private label business , as well as a $ 8,595 or 15.3 % net sales increase in our international business . in addition , our steve madden women 's , madden girl , steve madden kids , steve madden men 's brands realized increased sales revenue in 2013 . finally , our new freebird by steven brand , which began shipping in the fourth quarter of 2012 contributed to the net sales increase . these increases were partially offset by a decline in our topline business reflecting the loss of two private label customers that are competitors of steve madden and elected not to go forward with the company following the topline acquisition . gross profit margin decreased to 30.7 % in 2013 from 31.4 % in the prior year , primarily due to sales increase in the lower-margin private label and international businesses . in the year ended december 31 , 2013 , operating expenses was $ 146,175 compared to $ 145,221 in the same period of 2012 . as a percentage of sales , operating expenses improved to 17.0 % in 2013 from 26 18.3 % in 2012 , reflecting cost control and operating expense leverage from increased sales . income from operations for the wholesale footwear segment increased to $ 117,689 for the year ended december 31 , 2013 compared to $ 104,326 for the year ended december 31 , 2012 . wholesale accessories segment : net sales generated by the wholesale accessories segment accounted for $ 244,163 or 19 % , and $ 241,339 or 20 % of total company net sales for the years ended december 31 , 2013 and 2012 , respectively . this represents a $ 2,824 , or 1 % increase year over year primarily driven by double digit sales growth in steve madden® and betsey johnson® handbags , partially offset by declines in belts and cold weather accessories . gross profit margin in the wholesale accessories segment increased to 36.6 % in 2013 from 36.1 % in the prior year primarily due to improvements in sales of cold weather accessories as well as significant sales growth of our steve madden® and betsey johnson® handbag businesses , which achieve higher gross margins . in the year ended december 31 , 2013 , operating expenses decreased to $ 44,569 compared to $ 45,679 in the year ended december 31 , 2012 , primarily reflecting lower payroll related costs in addition to cost control . as a percentage of sales , operating expenses improved to 18.3 % in 2013 from 18.9 % in 2012 . income from operations for the wholesale accessories segment increased 8 % to $ 44,738 in 2013 compared to $ 41,376 in 2012 . retail segment : net sales generated by the retail segment accounted for $ 209,612 , or 16 % , and $ 191,247 , or 16 % , of total company net sales for the years ended december 31 , 2013 and 2012 , respectively , which represents a $ 18,365 or 10 % increase , year over year . this increase is primarily due to the addition of retail stores since the fourth quarter of 2012 , partially offset by a decline of 2.1 % in comparable store sales .
| the decrease in steve madden women 's was driven by a lack of fashion footwear trends while olsenboye decreased as a result of discontinuation of sales under the olsenboye brand in 2014. organic wholesale private label business was down 2.2 % . gross profit margin decreased to 29.5 % in 2014 from 30.7 % in the prior year , primarily due to the impact of increased product markdown allowances and the dolce vita acquisition . excluding the impact of acquisitions gross profit margin was 29.9 % in 2014 . in the year ended december 31 , 2014 , operating expenses were $ 154,211 compared to $ 146,175 in the same period of 2013 . as a percentage of sales , operating expenses increased to 17.5 % in 2014 from 17.0 % in 2013 , due to the acquisition of dolce vita and deleverage from the organic sales decrease . excluding the impact of acquisitions , operating expenses as a percentage of sales was 17.2 % in 2014 . income from operations for the wholesale footwear segment decreased to $ 106,290 for the year ended december 31 , 2014 compared to $ 117,689 for the year ended december 31 , 2013 . excluding acquisitions , income from operations for the wholesale footwear segment was $ 108,578 in 2014. wholesale accessories segment : net sales generated by the wholesale accessories segment accounted for $ 246,608 , or 18 % , and $ 244,163 , or 19 % , of total company net sales for the years ended december 31 , 2014 and 2013 , respectively . this represents a $ 2,445 , or 1 % increase year over year with double digit increases in private label and betsey johnson handbags almost fully offset by decreases in steve madden and big buddha handbags , cold weather accessories and belts . gross profit margin in the wholesale accessories segment decreased to 34.3 % in 2014 from 36.6 % in the prior year primarily due to increased sales in lower margin private label handbags and margin
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new customer acquisition has become harder as some potential customers have been less apt to spend on new products or services . additionally , we noted a shift to our digital offerings 35 among our international customers as they were more reliant on face to face events . revenues from our priority engine product increased 5 % to $ 52.4 million in 2020 compared to 2019 . longer-term deals amounted to 34 % of our revenue in the fourth quarter of 2020 , which is consistent with 34 % in the fourth quarter of 2019. the amount of revenue that we derived from longer-term contracts in the fourth quarter of 2020 increased by approximately $ 2.7 million , an increase of 22 % compared to the amount that we recognized in the fourth quarter of 2019. gross profit percentage of 75 % for 2020 was consistent with 2019 and 2018 gross profit percentage of 76 % . business trends the following discussion highlights key trends affecting our business . macro-economic conditions and industry trends . because most of our customers are b2b technology companies , the success of our business is intrinsically linked to the health , and subject to the market conditions , of the it industry . despite the current uncertainty in the economy , there are several factors indicating positive it spending over the next few years is likely . there are several it catalysts such as ai , security , data analytics , and cloud migrations , to name a few . our growth continues to be driven in large part by the return on the investments we made in our data analytics suite of products , it deal alert , which continues to drive market share gains for us . while we will continue to invest in this growth area , management will also continue to carefully control discretionary spending such as travel and entertainment , and the filling of new and replacement positions , in an effort to maintain profit margins and cash flows . covid-19 . throughout 2020 , we have been impacted by covid-19 in multiple ways ; we noted an acceleration of our international revenue as customers in those regions moved from face-to-face events to online platforms ; we noted a reticence among certain of our customers to enter into longer-term contractual relationships which had a negative impact on the percentage of revenue under longer term-contracts ; we noted our ability to expand our new logo acquisition with our priority engine express offering was negatively impacted . we anticipate certain of these trends to continue throughout 2021. brexit . the united kingdom 's june 2016 referendum , in which voters approved an exit of the united kingdom from the european union , commonly referred to as “ brexit , ” resulted in significant general economic uncertainty as well as volatility in global stock markets and currency exchange rate fluctuations . in march 2017 , the united kingdom served notice to the european council under article 50 of the lisbon treaty of its intention to withdraw from the european union . as of january 30 , 2020 , the united kingdom 's membership in the european union was terminated and an eleven-month transition period began . in december 2020 , the united kingdom and the european union agreed on a trade and cooperation agreement , under which the united kingdom and the european union will now form two separate markets governed by two distinct regulatory and legal regimes . the trade and cooperation agreement covers the general objectives and framework of the relationship between the united kingdom and the european union , including as it relates to trade , transport and visas . notably , under the trade and cooperation agreement , united kingdom service suppliers no longer benefit from automatic access to the entire european union single market , united kingdom goods no longer benefit from the free movement of goods and there is no longer the free movement of people between the united kingdom and the european union . depending on the application of the terms of the trade and cooperation agreement , we could face new regulatory costs and challenges . the full effect of brexit remains uncertain and depends on the application of the terms of the trade and cooperation agreement . our revenue generated from customers who have billing addresses within the united kingdom was approximately 12 % of our total revenues for the years ended december 31 , 2020. customer demographics . in the year ended december 31 , 2020 , revenues from our legacy global customers ( a static cohort comprising of our 10 historically largest on premises hardware technology companies ) , decreased by approximately 9 % compared to the prior year . revenues from our largest 100 customers , excluding the legacy global customers described above , increased by approximately 17 % compared to the prior year . revenues attributable to our remaining customers , which includes venture capital-backed start-ups that primarily operate in north america , increased by approximately 14 % over the prior year . our key strategic initiatives include : geographic – during 2020 , approximately 39 % of our revenues were derived from international campaigns . product –purchase intent data continues to drive our product road strategy . during 2021 , we intend to improve upon our sales use case by expanding our sales alerts and inbound converter features among other strategic objectives . we will also incorporate the purchase intent data from brighttalk into priority engine . 36 our revenues were up 11 % in 2020 compared to 2019 , which was primarily driven by the increases noted above . we have looked extensively at the dynamics between it deal alert and other offerings and have evaluated whether our growth in it deal alert customers is taking away from other products for those same accounts . story_separator_special_tag however , o ur data indicates that this is not the case , and while our sales team is leading with it deal alert , our sales team continues to emphasize the benefits of integration across our product offerings . sources of revenues sources of revenues revenue for the twelve-month periods ended december 31 , 2020 , 2019 and 2018 by geo-target were as follows ( in thousands ) : replace_table_token_2_th we sell customized marketing programs to b2b technology companies targeting a specific audience within a particular enterprise technology or business sector or sub-sector . we maintain multiple points of contact with our customers to provide support throughout their organizations and their customers ' it sales cycles . as a result , our customers often run multiple advertising programs with us in order to target their desired audience of enterprise technology and business professionals more effectively . there are multiple factors that can impact our customers ' marketing and advertising objectives and spending with us , including but not limited to , it product launches , increases or decreases to their advertising budgets , the timing of key industry marketing events , responses to competitor activities and efforts to address specific marketing objectives such as creating brand awareness or generating sales leads . our products and services are generally delivered under short-term contracts that run for the length of a given program , typically less than nine months . in 2016 , we began to enter into longer-term contracts with certain customers , and in the quarter ended december 31 , 2020 approximately 34 % of our revenues were from contracts in excess of 270 or more days ( “ longer-term contracts ” ) . product and service offerings we use our offerings to provide b2b technology companies with numerous touch points to identify , reach and influence key enterprise technology decision makers . the following is a description of the products and services we offer : it deal alert . it deal alert is a suite of products and services for b2b technology companies that leverages the detailed purchase intent data that we collect about end-user enterprise technology organizations . through proprietary scoring methodologies , we use this insight to help our customers identify and prioritize accounts whose content consumption around specific enterprise technology topics indicates that they are “ in-market ” for a particular product or service . we also use the data directly to identify and further profile accounts ' upcoming purchase plans . it deal alert tm . a suite of data and services for b2b technology companies that leverages the detailed purchase intent data that we collect on enterprise technology organizations and professionals researching it purchases on our network of websites . through proprietary scoring methodologies , we use this insight to help our customers identify and prioritize accounts and contacts whose content consumption around specific enterprise technology topics indicates that they are “ in-market ” for a particular product or service . the suite of products and services includes priority engine , qualified sales opportunities , and deal data . priority engine is a subscription service powered by our activity intelligence platform , which integrates with customer relationship management and marketing automation platforms from salesforce.com , marketo , eloqua , pardot , and integrate . the service delivers lead generation workflow solutions that enable marketers and sales forces to identify and understand accounts and individuals actively researching new technology purchases and then to engage those active prospects . qualified sales opportunities is a product that profiles specific in-progress purchase projects , including information on scope and purchase considerations . deal data is a customized solution aimed at sales intelligence and data scientist functions within our customer organizations . it renders our activity intelligence data into one-time offerings directly consumable by the customer 's internal applications . 37 channel offerings . our offering allows our customers to deliver unlimited live webinars and videos to an unlimited audience . demand solutions . our offerings enable our customers to reach and influence prospective buyers through content marketing programs , such as white papers , webcasts , podcasts , videocasts , virtual trade shows , and content sponsorships , designed to generate demand for their solutions , and through display advertising and other brand programs that influence consideration by prospective buyers . we believe this allows b2b technology companies to maximize roi on marketing and sales expenditures by capturing sales leads from the distribution and promotion of content to our audience of enterprise technology and business professionals . brand solutions . our suite of brand solutions offerings provides b2b technology companies with direct exposure to targeted audiences of enterprise technology and business professionals actively researching information related to their products and services . we leverage our activity intelligence platform to enable significant segmentation and targeting of specific audiences that can be accessed through these programs . components of brand programs may include on-network branding , off-network branding , and microsites and related formats . custom content creation . we also at times create white papers , case studies , webcasts or videos to our customers ' specifications . these customized content assets are then promoted to our audience within both demand solutions and brand solutions programs . as a result of our recent acquisition of brighttalk we are now able to provide a platform that allows our customers to create , host and promote webinar , virtual event and video content . cost of revenues , operating expenses and other expenses consist of cost of revenues , selling and marketing , product development , general and administrative , depreciation , amortization , and interest and other expense , net . personnel-related costs are a significant component of each of these expense categories except for depreciation , amortization and interest and other expense , net .
| product development costs decreased by $ 0.3 million in fiscal 2020 as compared to fiscal 2019. pay and benefit costs decreased by $ 0.5 million , primarily due to an increase in the amount of labor costs capitalized as internal use software . decrease was offset by stock-based compensation costs increasing by $ 0.1 million primarily due to increase in stock price and costs of services and software increasing by $ 0.1 million . general and administrative . general and administrative costs increased by $ 4.9 million in fiscal 2020 as compared to fiscal 2019 primarily due to higher legal and professional fees relating to our acquisitions and other matters of approximately $ 4.3 million and an increase in stock-based compensation costs of $ 0.6 million . depreciation and amortization . depreciation expense in fiscal 2020 increased by $ 1.2 million as compared to fiscal 2019 primarily due to depreciation relating to new additions placed in service during 2020 and an increase in amortization expense relating to acquired intangibles . interest and other expense , net . interest and other expense , net in fiscal 2020 decreased by $ 0.4 million as compared to fiscal 2019. primarily due to the increase in interest expense of $ 0.2 million from our issuance of convertible notes and the related amortization of costs associated with the offering and the amortization of the amount of the convertible note categorized into equity offset by foreign currency-related gains of $ 0.7 million in fiscal 2020 as compared to $ 51 thousand in fiscal 2019. the foreign currency-related gains and losses were due to changes in exchange rates in currencies where we record accounts receivable and accounts payable in the normal course of business , largely the united kingdom and australia . 42 provision for income taxes . our effective tax rate was 24.2 % and 23.5 % for the years ended december 31 , 2020 and 2019 , respectively . the higher rate in 2020 as compared to 2019 was primarily due to higher income and increase in non-deductible expenses and offset by increase in excess tax benefits of stock-based compensation . the effective tax
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operating margin our consolidated operating margin increased by 1.8 percentage points in fiscal 2012. our retail segment 's operating margin continued to improve in fiscal 2012 as compared to the prior year and our upholstery segment 's operating margin also increased compared to the prior year . these improvements were partially offset by our casegoods segment , whose operating margin declined in fiscal 2012 as compared to fiscal 2011 . 23 · our gross margin increased 1.0 percentage point in the fiscal 2012 as compared to fiscal 2011. ongoing cost reductions , primarily in our upholstery segment related to our mexican operations , along with improvements in our retail segment 's gross margin , drove this improvement . partially offsetting these items were raw material price increases in our upholstery and casegoods segments . · selling , general , and administrative ( “ sg & a ” ) expenses increased in dollars in fiscal 2012 as compared to fiscal 2011 , but as a percent of sales , sg & a decreased by 0.5 percentage points . the improvement as a percentage of sales was driven by our increased sales volume and greater leverage of sg & a expenses . the increase in dollars was driven by an increase in employee incentive and compensation expense , primarily in the upholstery segment and in corporate and other , as well as increased advertising spend in the upholstery segment . · our fiscal 2011 operating margin was impacted by 0.4 percentage points for the write-down of long-lived assets . upholstery segment replace_table_token_10_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . our upholstery segment 's sales increased $ 58.2 million in fiscal 2012 as compared to fiscal 2011 despite the extra week in fiscal 2011. increased volume drove the majority of the 6.4 % increase in sales , which we believe was the result of an effective promotional plan , combined with new product introductions and accelerated sales in our stationary upholstery business , which drove increased volume for our la-z-boy branded business , as well as the improved performance of our network of retail stores , which includes our company-owned and independent-licensed stores . operating margin our upholstery segment 's operating margin increased by 0.5 percentage points in fiscal 2012 mainly due to the following : · the segment 's gross margin increased 1.0 percentage point during fiscal 2012 due to a combination of factors , the most significant of which were : o ongoing cost reductions and efficiencies , including the favorable operating impact of our mexican operations , resulting in a 2.0 percentage point increase in gross margin . o raw material cost increases resulting in a 1.6 percentage point decrease in gross margin . · offsetting the increase in gross margin were higher warranty costs of $ 1.0 million in fiscal 2012 as compared to fiscal 2011 , due to a reduction in the warranty reserve recorded in fiscal 2011 related to the redesign of a mechanism that had historically experienced high claims activity . also offsetting the increase in gross margin was higher advertising spend and increased employee incentive and compensation expenses in fiscal 2012 . 24 casegoods segment replace_table_token_11_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . our casegoods segment 's sales decreased $ 12.9 million in fiscal 2012 as compared to fiscal 2011. the decline in sales volume was driven by our new product introductions in fiscal 2012 which were not as well-received as our new product introductions in fiscal 2011. operating margin our casegoods segment 's operating margin decreased 0.4 percentage points in fiscal 2012 mainly due to the de-leverage of fixed costs caused by the decline in sales volume . retail segment replace_table_token_12_th sales fiscal 2012 includes results for a 52 week period , while fiscal 2011 includes results for a 53 week period . our retail segment 's sales increased $ 38.5 million in fiscal 2012 even though fiscal 2011 included an extra week . of this increase , $ 29.2 million was primarily due to the acquisition of our southern california vie in the fourth quarter of fiscal 2011. the remaining increase of $ 9.3 million related mainly to sales increases at stores that were open in both fiscal 2012 and fiscal 2011. this increase was the result of increased average ticket sales on customer traffic that was slightly down . we believe the increase in average ticket sales was the result of an effective advertising campaign bringing in a more qualified consumer . operating margin our retail segment 's operating margin increased 4.9 percentage points in fiscal 2012 compared to fiscal 2011. while our retail segment improved its operating margin for the third year in a row , the segment continued to experience negative operating profit due to its high lease expense to sales volume ratio . · the segment 's gross margin during the fiscal 2012 increased 2.5 percentage points compared to fiscal 2011 . · the improved operating margin for this segment was primarily a result of the increased sales volume which resulted in a greater leverage of sg & a expenses as a percentage of sales . · the stores acquired from our southern california vie were essentially break-even on an operating margin basis for fiscal 2012 , a substantial improvement over fiscal 2011 when these stores generated an operating loss of $ 3.5 million when they were a consolidated vie and not reported as part of the retail segment . 25 vies/other replace_table_token_13_th during the third quarter of fiscal 2012 , we deconsolidated our last vie due to the expiration of the operating agreement that previously caused us to be considered its primary beneficiary . story_separator_special_tag our vies ' sales decreased $ 20.3 million ( net of intercompany eliminations ) in fiscal 2012 compared to fiscal 2011. this was mainly the result of acquiring our southern california vie in the fourth quarter of fiscal 2011. prior to deconsolidation , our remaining vie had operating income of $ 1.0 million in fiscal 2012 , compared to an operating loss of $ 4.9 million in fiscal 2011 for the two vies we had at that time . eliminations increased in fiscal 2012 as compared to fiscal 2011 due to higher sales from our upholstery and casegoods segments to our retail segment as a result of the increased volume in the retail segment . our corporate and other operating loss increased $ 1.8 million in fiscal 2012 compared to fiscal 2011 due to higher costs for incentive compensation expenses of $ 6.2 million as a result of improved operating performance , partially offset by lower consulting costs of $ 1.8 million , a gain recognized on the deconsolidation of our last vie of $ 1.1 million and a $ 1.0 million reduction of an environmental reserve recorded in the first quarter of fiscal 2012 related to a previously sold division . interest expense interest expense decreased $ 1.0 million in fiscal 2012 as compared to fiscal 2011 , mainly due to a 2.1 percentage point decrease in our weighted average interest rate as a result of the may 2011 expiration of our interest rate swap . our average debt level decreased by $ 5.7 million in fiscal 2012 compared to fiscal 2011. income from continued dumping and subsidy offset act the continued dumping and subsidy offset act of 2000 ( “ cdsoa ” ) provides for distribution of duties collected by u.s. customs and border protection from antidumping cases to domestic producers that supported the antidumping petition . we received $ 18.0 million during fiscal 2012 and $ 1.1 million during fiscal 2011 in cdsoa distributions related to the antidumping order on wooden bedroom furniture from china . certain domestic producers who did not support the antidumping petition ( “ non-supporting producers ” ) filed actions in the u.s. court of international trade challenging the cdsoa 's “ support requirement ” and seeking a share of the distributions . as a result , customs withheld a portion of those distributions pending resolution of the non-supporting producers ' actions . between october 2011 and february 2012 , the court of international trade entered judgments against the non-supporting producers and dismissed their actions . on january 1 , 2012 , customs announced that it would distribute the withheld distributions . the non-supporting producers then filed motions in the court of international trade and , later , in the u.s. court of appeals for the federal circuit to enjoin such distributions pending their appeal of the court of international trade 's judgments . on march 5 , 2012 , the federal circuit denied the non-supporting producers ' motions for injunction “ without prejudicing the ultimate disposition of these cases. ” if the federal circuit were to reverse the judgments of the court of international trade and determine that the non-supporting producers are entitled to cdsoa distributions , it is possible that customs may seek to have us return all or a portion of our company 's share of the distributions . based on what we know today , we do not expect this will occur . included in the $ 18.0 million received in fiscal 2012 are $ 16.3 million of previously withheld distributions received in the fourth quarter of fiscal 2012. in view of the uncertainties associated with this program , we are unable to predict the amounts , if any , we may receive in the future under the cdsoa . 26 income taxes our effective tax rate for fiscal 2012 was a net tax benefit of ( 33.0 ) % . during fiscal 2012 , we reduced by $ 46.2 million the valuation allowances associated with certain u.s. federal , state and foreign deferred tax assets , in addition to recording other minor discrete items that together reduced our tax expense by an additional $ 0.9 million . these adjustments increased diluted earnings per share by $ 0.88. the reduction in the valuation allowance was the result of the following factors at the point we reduced the allowance , including primarily ( i ) our cumulative pretax income position , ( ii ) our most recent operating results which had exceeded both our operating plan and prior year results , and ( iii ) our then-current forecasts , all of which caused us to temper our concerns at that time regarding the economic environment . absent these adjustments , our effective tax rate for fiscal 2012 would have been 37.5 % . the effective tax rate was 33.1 % for fiscal 2011. changes in the valuation reserve for deferred taxes due to temporary timing differences increased our fiscal 2011 effective tax rate by 13.5 percentage points . offsetting this rate increase was a tax benefit associated with our southern california vie that resulted in a rate reduction of 17.6 percentage points . this tax benefit related primarily to the amount of accounts receivable written off in excess of the fair value of the assets received from this vie . story_separator_special_tag of leasehold improvements at that location . liquidity and capital resources our sources of cash liquidity include cash and equivalents , cash from operations and amounts available under our credit facility . we believe these sources remain adequate to meet our short-term and long-term liquidity requirements , finance our long-term growth plans , meet debt service , and fulfill other cash requirements for day-to-day operations and capital expenditures . we had cash and equivalents of $ 152.4 million at april 28 , 2012 , compared to $ 115.3 million at april 30 , 2011 .
| · increased advertising expense as a result of the focus on our brand platform resulted in a 0.3 percentage point decrease in the segment 's operating margin . · somewhat offsetting the negative impacts to this segment 's operating margin were ongoing cost reductions and a decrease in warranty expense due to the redesign of a mechanism that had historically experienced high claims activity , which resulted in a 0.2 percentage point , improvement in the segment 's operating margin . casegoods segment replace_table_token_16_th sales our casegoods segment 's sales increased $ 5.8 million compared to fiscal 2010. in addition to the extra week during fiscal 2011 , the increase in sales was a result of broader placement of our various product lines at independent dealers . changes in discounting during fiscal 2011 also generated an improvement in sales for this segment . operating margin our casegoods segment 's operating margin increased 4.6 percentage points in fiscal 2011 mainly due to the following : · the segment 's gross margin increased 2.4 percentage points in fiscal 2011 mainly due to our decision to vacate a leased warehouse and convert an owned facility to a warehouse , as well as efficiencies realized in its manufacturing facility due to the changes completed at the end of fiscal 2010 . 28 · a decrease in employee expenses for this segment resulted in a 1.5 percentage point increase in operating margin . the combining of our hammary operations with our american drew/lea operations resulted in a reduction in headcount and elimination of duplicate selling , general and administrative functions . retail segment replace_table_token_17_th sales our retail segment 's sales increased $ 23.4 million in fiscal 2011. we believe the increase in sales was a result of an effective promotional plan , which led to improved conversion on the customer traffic in our stores , as well as the additional week in fiscal 2011. the segment 's sales were
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in april 2018 , our board of directors approved a certificate of amendment to the certificate of incorporation in order to : ( i ) increase the authorized number of capital stock from 25,000 to 350,000,000 shares , ( ii ) authorize the issuance of non-voting common stock , and ( iii ) effect a forward stock split of shares of our common stock , such that each share be subdivided and reclassified into 37,212 shares of voting common stock . in july 2018 , our board of directors approved a certificate of amendment to the certificate of incorporation in order to affect a reverse stock split of shares of our common stock at a ratio of 1 for 12.34. for purposes of our consolidated financial statements , the stock splits have been presented as if each had occurred on january 1 , 2018. at the consummation of our initial public offering in july 2018 , our shares held by apl were distributed to the holders of interests in apl in exchange for such interests , and apl was subsequently liquidated . on july 27 , 2018 we closed the initial public offering ( “ ipo ” ) of 4,500,000 shares of common stock at an offering price of $ 15.00 per share . on july 25 , 2018 the company began trading on the nasdaq global market under ticker symbol “ aqst ” . the offering resulted in aggregate gross proceeds of $ 67,500 before underwriting discounts and other costs and expenses of the offering . in august 2018 , the underwriters exercised the over-allotment option granted to them in connection with the offering , and on august 15 , 2018 the company completed the sale of 425,727 additional shares of common stock resulting in additional gross proceeds of $ 6,386 before underwriting discounts and other costs and expenses of the offering . total net proceeds to aquestive after underwriters ' discounts and other costs and expenses of the offering totaled $ 63,482. we generated revenue of $ 67,430 and $ 66,918 in 2018 and 2017 , respectively , largely from commercial products licensed to our collaboration or commercialization licensees in addition to manufacturing and supply revenue . total revenues also included licensing , royalty and co-development and research fees . our licensed revenue is subject to the normally uneven nature of the timing of co-development and licensing milestone payments , and to the volumes of product our licensees sell on the market from which we receive royalties and manufacturing revenues . suboxone , which was launched in 2010 , was our first licensed pharmaceutical product to be commercialized , and we have other licensing relationships that contribute to our revenue and future revenue opportunities . sympazan , which was launched in december 2018 , is the first proprietary pharmaceutical product commercialized directly by the company in 2013 , we made a strategic decision to develop our own pipeline of proprietary pharmaceutical products and to pursue commercialization of these products . revenues from these development efforts began being realized in late 2018 , with sympazan , following applicable regulatory approval . substantial investments have been made since 2013 in the development of our proprietary pipeline . we expect to continue these investments for sympazan and through the pre-launch and commercialization phases we are undertaking throughout 2019 , in advance of the planned commercial launches of the additional cns products in our late-stage pipeline , subject to fda approval . these development and commercialization expenses in addition to utilizing the proceeds from the company 's recent ipo will also utilize funds generated from licensing related revenue . as of december 31 , 2018 , we had $ 60,599 in cash and cash equivalents . as a result of our investments in product development and recent investments in pre-launch commercialization initiatives , as well as the settlement of obligations related to our monosol rx , llc performance unit plan through the issuance of non-voting common stock , as of december 31 , 2018 , we had net shareholders ' equity of $ 10,080. for the years ended december 31 , 2018 and 2017 , we incurred net losses of $ 61,376 and $ 8,943 , respectively . we expect to continue to incur net losses for at least the next few years as we pursue the development , commercialization and marketing of our proprietary product candidates . our net losses may fluctuate significantly from period to period , depending on the timing of our planned clinical trials and expenditures on our other research and development , as well as our commercialization activities . we expect our expenses will increase substantially over time as we : · fund commercialization investments for sympazan ( launched in december 2018 ) and libervant , our epilepsy products , and als product , exservan ; · continue clinical development of our complex molecules , aqst-108 and aqst-305 ; · identify and evaluate new pipeline candidates in cns diseases and other indications ; and · fund working capital requirements and expected capital expenditures as a result of the launch of proprietary products and related growth . our business has been financed through a combination of revenue from licensed product activities , equity investments from our stockholders and debt proceeds from our credit facilities . in addition , we may require additional financing to execute our business strategy . 73 we believe our existing cash and cash equivalents and expected revenue from our licensed product activities will be sufficient to fund our operations at least through the next 12 months of operations , including our planned investments in the commercialization of our late stage cns product candidates , expected research and development investments in our complex molecule product pipeline candidates , capital expenditures and investments in new product candidates in epilepsy and other cns diseases . we have based this expectation on assumptions that could change , or prove to be inaccurate , and we could utilize our available financial resources sooner than we currently expect . story_separator_special_tag the key assumptions underlying this expectation include : · the costs necessary to successfully complete our development efforts of our proprietary product candidates ; · continued revenue from our licensed products ; · the levels and timing of revenues and costs of commercialization of our late stage cns product candidates ; and · the infrastructure costs to support a public company . we have no committed sources of additional capital . we may attempt to raise additional capital during favorable market conditions even if we have sufficient funds for planned operations . until we become profitable , if ever , we expect to need to raise additional capital in the future to further the development , commercialization and marketing of our epilepsy products , sympazan and libervant , our als product , exservan , and our other product candidates , and to conduct our business , there can be no assurance that such needed capital or debt financing will be available on favorable terms , or at all . we may seek to obtain additional financing in the future through the issuance of our common stock , through other public or private equity or debt financings , through non-dilutive capital raising events that may result from royalty streams that may be realizable from our licensed products , and through collaborations or licensing arrangements with other companies or other means , if available . we may not be able to raise additional capital on terms acceptable to us , or at all , and any failure to raise capital as and when needed could compromise our ability to execute on our business plan and cause us to delay or curtail our operations until such funding is received . to the extent that we raise additional funds by issuance of equity securities , our stockholders may experience dilution , and debt financings , if available , may involve restrictive covenants or may otherwise constrain our financial flexibility . to the extent that we raise additional funds through collaborative or licensing arrangements , it may be necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorable to us . in addition , payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones . failure to achieve these milestones may harm our future capital position . financial operations overview revenues our revenues to date have been earned from our product development pipeline , marketed product activities and self-developed medicines . these activities generate revenues in four primary categories : manufacturing and supply revenue , co-development and research fees , license and royalty revenue , and proprietary product sales , net . manufacture and supply revenue currently , we produce two licensed pharmaceutical products : suboxone and zuplenz . we are the exclusive manufacturer for these products . we manufacture based on receipt of purchase orders from our licensees , and our licensees accept delivery of these orders at shipping point . as a result , under asc 605 , we record revenues when product is shipped , and title passes to the customers . our licensees are responsible for all other aspects of commercialization of these products . we expect future revenue from licensed activities to be based on volume demand for licensed products , new collaborations for product development , and additional licensing of our intellectual property . co-development and research fees we work with our licensees to co-develop pharmaceutical products . in this regard , we earn fees through performance of specific tasks , activities , or completion of stages of development defined within a contractual arrangement with the relevant licensee . the nature and extent of these performance obligations , broadly referred to as milestones or deliverables , are usually dependent on the scope and structure of the project as contracted , as well as the complexity of the product and the specific regulatory approval path necessary for that product . 74 license and royalty revenue once a viable product opportunity is identified from our co-development and research activities with our licensees , we may out-license to our licensees the rights to utilize our intellectual property related to their marketing of such products globally . as a result , we earn revenue from license fees received under such license , development and supply agreements . we also may earn royalties based on our licensees ' sales of products that use our intellectual property that are marketed and sold in the countries where we patented technology rights . proprietary product sales as we commercialize our proprietary cns product candidates , beginning with sympazan , as well as libervant , subject to regulatory approval , we expect to directly sell our products to consumers in the united states , resulting in an additional source of revenue which we refer to as proprietary product sales . we commercialized our first proprietary cns product , sympazan , in december 2018. we currently sell sympazan through wholesalers for distribution through retail pharmacies and hospitals . additionally , we may choose to select a collaborator to commercialize our product candidates in certain markets outside of the united states . to date , the only revenue generated from our self-developed and self-commercialized pharmaceutical products is from the sale of sympazan . costs and expenses our costs and expenses are primarily the result of the following activities : generation of manufacture and supply revenues ; development of our pipeline of proprietary product candidates ; selling , general and administrative expenses , including pre-launch commercialization efforts related to our cns product candidates , intellectual property procurement , protection , prosecution and litigation expenses , corporate management functions and interest on our corporate borrowings .
| royalty revenues earned on suboxone and zuplenz increased modestly year-over-year on similar product sales volumes flowing through our licensees ' sales and distribution channels . license fees are generally driven by transfer of rights , patent performance contingencies , specific fda or other regulatory achievements , sales levels achievements or other contingencies and milestones , and will likely fluctuate significantly from quarter-to-quarter . co-development and research fees increased 40 % or $ 1,491 in 2018 to $ 5,184 compared to $ 3,693 in 2017. the increase was driven by the timing of the achievement of research and development performance obligations on licensed products , related milestones and are normally expected to fluctuate significantly one reporting period to the next . product sales , net increased $ 228 or 100 % due to the launch of our first proprietary self-developed medicine , sympazan , in december 2018. we can give no assurance as to the level of anticipated sales of sympazan due to its recent commercial launch . expenses : the following table sets forth our expense data for the periods indicated : replace_table_token_4_th manufacturing and supply costs and expenses increased 6 % or $ 1,168 to $ 20,988 in 2018 compared to $ 19,820 in 2017 driven primarily by $ 940 in higher production costs and $ 363 in higher scrap costs period over period . adding to this increase in 2018 was $ 345 of compensation cost attributable to manufacturing operations and associated with the issuance of the non-voting common shares and related withholding taxes , which the company elected to pay on behalf of the former performance unit holders and share-based compensation of $ 69. these increases were offset in part by a $ 550 decrease in costs attributable to lower volume due to timing of indivior purchase orders period over period . research and development expenses increased 4 % or $ 979 to $ 23,112 in 2018 as compared to $ 22,133 in 2017 primarily due to $ 2,186 of compensation costs allocable to
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for more information , see “ corporate conversion ” in note 1. following the corporate conversion , legacy housing corporation continues to hold all of the property and assets of legacy housing , ltd. and all of the debts and obligations of legacy housing , ltd. continue as the debts and obligations of legacy housing corporation . the purpose of the corporate conversion was to reorganize our corporate structure so that the top-tier entity in our corporate structure is a corporation rather than a limited partnership and so that our existing owners own shares of our common stock rather than partnership interests in a limited partnership . except as otherwise noted , the financial statements included in this form 10-k are those of legacy housing corporation . factors affecting our performance we believe that the growth of our business and our future success depend on various opportunities , challenges , trends and other factors , including the following : ● consistent with our long-term strategy of conservatively deploying our capital to achieve above average rates of return , we intend to expand our retail presence in the geographic markets we now serve , particularly in the southern united states . each retail center requires between $ 500,000 and $ 1,500,000 to acquire the location , situate an office , provide inventory , and provide the initial working capital . we initially anticipated opening 2 to 4 additional retail centers by the end of 2020 , but we delayed those plans due to the covid-19 pandemic 's impact on the retail business.we expect to open 1 to 2 additional retail centers by the end of 2021 . ● we have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions . as of december 31 , 2020 , these properties include the following : replace_table_token_4_th ● we also expect to provide financing solutions to a select group of our manufactured housing community-owner customers in a manner that includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products . these solutions will be structured to give us an attractive return on investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities . ● our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers . currently , our two texas manufacturing facilities are operating at or near peak capacity , with limited ability to increase the volume of homes produced at those plants . our georgia manufacturing facility has unutilized square footage available and with additional investment can 22 add capacity to increase the number of homes that can be manufactured . we intend to increase production at the georgia facility over time , particularly in response to orders increasingly being generated from new markets in florida and the carolinas . in order to maintain our growth , we will need to be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept , the mix of products that we intend to manufacture , the timing of production schedules and the levels and utilization of inventory , equipment and personnel . ● the coronavirus pandemic is an evolving threat to the economy and all businesses . at this time both the duration of the pandemic and the magnitude of the economic consequences are unknown . risks to the company include but are not limited to : o increased loan losses or deferred loan payments as loan obligors suffer cash flow issues resulting from reduced employment , reduced rental income or unit sales , or other factors ; o reduced sales volume as potential customers are unable to shop for new homes or can not qualify for a home purchase , retail dealers or company stores reduce or stop operations , or mhp owners reduce their future home purchases ; o reduced production resulting from factors such as the spread of the illness through the company 's workforce , reduced product demand , or government-mandated closures of our factories , company-owned stores , or retail lots of independent dealers who carry our products ; o delays in development projects as zoning , regulatory , and permitting decisions are likely to be postponed and the expected negative impact of the pandemic on the construction industry ; o reduced raw material availability related to global supply chain disruption from the pandemic , including possible border closures ; o decreased cash flow from operations which could negatively affect our liquidity ; o an outbreak of illness among our management and accounting staff could negatively affect our ability to maintain operations , operate our financial systems , delay our statutory reporting , and reduce our internal control of financial reporting . we continue to monitor government responses to support the economy and evaluate how those actions might mitigate the risks noted above . at this time , we believe that the pandemic will have a negative effect on our financial results that could range from minor to material . management has taken a number of actions in recent months , including stimulating demand by offering discounts and modified purchase terms , reducing production labor , suspending overtime , and reducing rates of pay for non-production workers . additionally , the company negotiated a new credit agreement with its primary bank that will expand and extend our credit facility . the new credit agreement closed on march 30 , 2020. critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based upon our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . story_separator_special_tag the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . 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 these estimates under different assumptions or conditions . 23 management believes the following accounting policies are critical to our operating results or may affect significant judgments and estimates used in the preparation of our financial statements . allowance for loan losses—consumer loan receivable the allowance for loan losses reflects management 's estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet . a reserve is calculated after considering , among other things , the loan characteristics , including the financial condition of borrowers , the value and liquidity of collateral , delinquency and historical loss experience . the allowance for loan losses is comprised of two components : the general reserve and specific reserves . our calculation of the general reserve considers the historical loss rate for the last three years , adjusted for the estimated loss discovery period and any qualitative factors both internal and external to our company . specific reserves are determined based on probable losses on specific classified impaired loans . our policy is to place a loan on nonaccrual status when there is a clear indication that the borrower 's cash flow may not be sufficient to meet payments as they become due , which is normally when either principal or interest is past due and remains unpaid for more than 90 days . management implemented this policy based on an analysis of historical data and performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days . payments received on nonaccrual loans are accounted for on a cash basis , first to interest and then to principal , as long as the remaining book balance of the asset is deemed to be collectible . the accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current . impaired loans are those loans where it is probable we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . impaired loans , or portions thereof , are charged-off when deemed uncollectible . a loan is generally deemed impaired if it is more than 90 days past due on principal or interest , is in bankruptcy proceedings , or is in the process of repossession . a specific reserve is created for impaired loans based on fair value of underlying collateral value , less estimated selling costs . we used certain factors to determine the value of the underlying collateral for impaired loans . these factors were : ( 1 ) the length of time the unit was unsold after construction ; ( 2 ) the amount of time the house was occupied ; ( 3 ) the cooperation level of the borrowers , i.e. , loans requiring legal action or extensive field collection efforts will reduce the value ; ( 4 ) units located on private property present additional value loss because it tends to be more expensive to remove units from private property as opposed to a manufactured home park ; ( 5 ) the length of time the borrower has lived in the house without making payments ; ( 6 ) location and size , including market conditions ; and ( 7 ) the experience and expertise of the particular dealer assisting in collection efforts . collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home , less the costs to sell . at repossession , the fair value of the collateral is computed based on the historical recovery rates of previously charged-off loans ; the loan is charged off and the loss is charged to the allowance for loan losses . at each reporting period , the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell , based on current information . allowance for loan losses—mhp notes mhp notes are stated at amounts due from customers net of allowance for loan losses . we determine the allowance by considering several factors including the aging of the past due balance , the customer 's payment history , and our previous loss history . we establish an allowance reserve composed of specific and general reserve amounts that are deemed to be uncollectible . historically we have not experienced material losses on the mhp notes . inventories inventories consist of raw materials , work-in-process , and finished goods and are stated at the lower of cost or net realizable value . raw materials cost approximates the first-in first-out method . finished goods and work-in-process are based on a standard cost system that approximates actual costs using the specific identification method . 24 estimates of the lower of cost and net realizable value of inventory are determined by comparing the actual cost of the product to the estimated selling prices in the ordinary course of business based on current market and economic conditions , less reasonably predictable costs of completion , disposal , and transportation of the inventory . we evaluate inventory based on historical experience to estimate our inventory not expected to be sold in less than a year . we classify our inventory not expected to be sold in one year as non-current .
| sales through our company-owned retail stores and sales to manufactured home communities have higher margins than our direct sales and consignment sales . in addition , there were price increases during 2020 to our product prices due to rising material and labor costs , which resulted in higher home sales prices and more revenue generated per home sold . consumer and mhp loans interest income grew $ 3.2 million , or 14.3 % , in 2020 as compared to 2019 and is related to our increase in outstanding mhp note portfolio and consumer loan portfolio . between december 31 , 2020 and december 31 , 2019 our mhp note portfolio increased by $ 44.2 million and the consumer loan portfolio increased by $ 6.7 million . other revenue primarily consists of service fees and consignment fees . other revenue decreased $ 0.2 million or 6.7 % due to a $ 0.3 million decrease in other income and a $ 0.1 decrease in consignment fees revenue offset by a $ 0.2 million increase in service fee revenue . the cost of product sales increased $ 4.8 million , or 4.6 % , in 2020 as compared to 2019. the increase in costs is primarily related to increases in the cost of materials and labor in 2020. selling , general and administrative expenses decreased $ 6.4 million , or 25.6 % , in 2020 as compared to 2019. this decrease was primarily due to $ 1.2 million of retail store expenses recorded as sg & a in the first quarter of 2019 that were subsequently recorded in cost of sales later in 2019 , a $ 1.7 million decrease in warranty costs , a $ 1.9 decrease in loan losses , a $ 0.5 million decrease in consulting and professional fees , a $ 0.8 million decrease in salaries and incentive costs and a $ 0.2 million expense in the first quarter of 2019 for settlement of a lawsuit
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