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net sales consists primarily of product sales less cost of promotional activities , slotting fees and other sales credits and adjustments , including product returns . the company also includes licensing revenue from the frozen meals business in net sales . cost of goods sold . cost of goods sold consists primarily of the costs we pay to our contract manufacturing partners to produce the products sold . these costs include the purchase of raw ingredients , packaging and a tolling charge for the contract manufacturer . cost of goods sold includes products provided at no charge as part of promotions and the non-food materials provided with customer orders . operating expenses . operating expenses consist primarily of selling , marketing , distribution , general and administrative , depreciation and amortization , and other expenses . the following is a brief description of the components of operating expenses : distribution . distribution is principally freight associated with shipping and handling of products to the customer . selling . selling expenses are comprised of broker commissions and customer marketing . marketing . marketing expenses are comprised of media and other marketing costs . general and administrative . general and administrative expenses are comprised of expenses associated with corporate and administrative functions that support our business , including fees for employee salaries , professional services , insurance and other general corporate expenses . depreciation and amortization . depreciation and amortization costs consist of costs associated with the depreciation of fixed assets and capitalized leasehold improvements and amortization of intangible assets . business transaction costs . business transaction costs are comprised of legal , due diligence and accounting firm expenses associated with the process of actively pursuing a potential business combination . gain in fair value change of contingent consideration - tra liability . gain in fair value change of contingent consideration - tra liability charges relate to fair value adjustments of the tra liability . other expense . other expense is principally costs of restructuring consisting of severance and related expenses . story_separator_special_tag combinations ( “ asc 805 ” ) . the historical financial information has been adjusted to give pro forma effect to events that are related and or directly attributable to the business combination , are factually supportable and are expected to have a continuing impact on the results of the combined company . the adjustments presented on the unaudited pro forma financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the business combination . the unaudited pro forma combined financial information contains a variety of adjustments , assumptions and estimates , is subject to numerous other uncertainties and the assumptions and adjustments as described in the accompanying notes hereto and should not be relied upon as being indicative of our results of operations had the business combination occurred on august 28 , 2016. the unaudited pro forma combined financial information also does not project our results of operations for any future period or date . the unaudited pro forma combined financial information for the fifty-two weeks ended august 26 , 2017 includes results of the successor and predecessor entities . the pro forma combined adjustments give effect to the items identified in the pro forma combined table below in connection with the business combination . 36 pro forma combined statement of operations for the pro forma combined fifty-two week period ended august 26 , 2017 replace_table_token_4_th _ i. the amounts presented represent the predecessor 's historical gaap results of operations . ii . the adjustment represents a non-cash , one time inventory fair value adjustment recorded in conjunction with the business combination and was recognized in the successor period , and is not indicative of future cost of goods sold . iii . the adjustment represents the incremental stock-based compensation expense under the simply good foods omnibus incentive plan . iv . the adjustment reflects the difference in the intangible asset amortization expense associated with the allocation of purchase price to intangible assets due to the business combination . the amortization expense decreased as additional indefinite lived intangible assets were identified for the successor entity than the predecessor entity . the amount of amortizable intangible assets identified in the business combination decreased from $ 125.8 million to $ 88.0 million . v. business combination transaction expenses primarily consist of fees related to the business combination and the company 's acquisition activities . refer to note 3 , business combination , of the consolidated financial statements for additional details . vi . predecessor warrants were accounted for as warrant liabilities , which were exercised and settled with the business combination . vii . represents the adjustment necessary to arrive at interest expense associated with the term loan and revolving debt facilities of simply good foods . the predecessor entity had $ 337.2 million outstanding as of august 27 , 2016 while the successor entity had $ 200.0 million outstanding . the long term debt of the predecessor entity accrued interest at 6.25 % on the first lien and 9.75 % on the second lien while the successor debt accrues interest at 3 month libor plus 4 % . the significant reduction in outstanding principal , and lower interest rates , drive significant expense savings . refer to note 7 , long-term debt and line of credit , of the consolidated financial statements for additional details on long-term debt . viii . represents the adjustment necessary to arrive at an effective income tax rate of 39.6 % . ix . adjusted ebitda is a non-gaap financial measure . for a reconciliation to its most directly comparable gaap measure , see “ reconciliation of adjusted ebitda ” within this section . story_separator_special_tag 37 comparison of results for the fifty-two weeks ended august 25 , 2018 and the pro forma combined fifty-two weeks ended august 26 , 2017 for comparative purposes , we are presenting a statement of operations for the fifty-two week period ended august 25 , 2018 , compared to unaudited pro forma combined statement of operations for the fifty-two week period ended august 26 , 2017 . the following table presents , for the periods indicated , selected information from our unaudited pro forma combined financial results , including information presented as a percentage of net sales : replace_table_token_5_th net sales . net sales of $ 431.4 million represented an increase of $ 35.3 million , or 8.9 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the increase in net sales is primarily due to organic sales growth of 8.3 % , driven by increased sales of our products in the u.s. , offset by 0.3 % from the prior year recall receivable . in addition , the acquisition of wellness foods drove a 0.9 % increase in net sales compared to the prior year . in the third-quarter 10-q the company disclosed that it had historically recorded revenue on a “ fob shipping point ” basis despite the fact that a significant portion of customer contracts indicated `` fob destination '' terms . as such , in the fourth quarter revenue was recorded on an `` fob destination '' basis , which resulted in a reduction to net sales of $ 7.8 million as of august 25 , 2018 . cost of goods sold . cost of goods sold increased $ 13.9 million , or 6.6 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the increase is primarily due to sales volume growth of $ 16.5 million offset by an improvement in supply chain costs of $ 2.6 million . 38 gross profit . gross profit increased $ 21.3 million , or 11.5 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . gross profit of $ 207.6 million , or 48.1 % of net sales , for the fifty-two weeks ended august 25 , 2018 increased 110 basis points from 47.0 % of net sales for the fifty-two weeks ended august 26 , 2017 . the increase is primarily due to favorable changes in trade allowances and favorable supply chain costs , offset in part by the aforementioned recall reimbursement which had a 20 basis point benefit to gross margin in the previous year . operating expenses . operating expenses increased $ 15.1 million , or 11.9 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 due to the following : distribution . distribution expenses increased $ 1.9 million , or 10.9 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the increase is primarily driven by volume increases . selling . selling expenses increased $ 1.6 million , or 9.7 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the increase was primarily driven by a $ 2.1 million increase in customer-specific advertising activity , offset by broker savings of $ 0.5 million . marketing . marketing expenses increased $ 3.1 million , or 8.1 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the increase in expense is primarily driven by an increase in media spending and production . general and administrative . general and administrative expenses increased $ 8.6 million , or 18.0 % , for the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the increase is related to higher professional fees of $ 3.0 million , employee related cost of $ 2.3 million , expansion of our distribution center of $ 1.6 million , the acquisition of wellness foods of $ 0.7 million and other increases in general and administrative expense of $ 1.0 million . depreciation and amortization . depreciation and amortization expenses remained consistent between the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the fifty-two weeks ended august 26 , 2017 has been adjusted to change the depreciable basis of intangible assets as if the business combination occurred at the beginning of the year . business transaction costs . the company recorded $ 2.3 million in transaction costs for the fifty-two weeks ended august 25 , 2018 primarily related to the equity offering by one of our stockholders in february and due diligence costs associated with acquisition efforts . the company did not incur any transaction costs in the comparable period . gain in fair value change of contingent consideration - tra liability . the company recorded a $ 2.8 million gain in contingent consideration for the fifty-two weeks ended august 25 , 2018 . the gain is due to the change in the fair value of the tra from the beneficial impact of the change in tax law offset by routine incremental fair value amortization changes . the tra was entered into as part of the business combination in the prior year . the tra is discussed in note 9 , income taxes , of the consolidated financial statements included in this report . interest expense . interest expense remained consistent between the fifty-two weeks ended august 25 , 2018 compared to the fifty-two weeks ended august 26 , 2017 . the fifty-two weeks ended august 26 , 2017 has been adjusted based on the long-term debt of the company as if the business combination occurred at the beginning of the year . gain on foreign currency transactions .
| operating expenses for the successor fifty-two week period ended august 25 , 2018 were $ 142.8 million , or 33.1 % of net sales , compared to $ 18.5 million , or 32.9 % of net sales , for the successor period from july 7 , 2017 through august 26 , 2017. interest expense . interest expense for the successor fifty-two week period ended august 25 , 2018 was $ 12.6 million , or 2.9 % of net sales , compared to $ 1.7 million , or 3.0 % of net sales , for the successor period from july 7 , 2017 through august 26 , 2017. income tax ( benefit ) expense . income tax benefit for the successor fifty-two week period ended august 25 , 2018 was $ 17.4 million compared to income tax expense of $ 0.3 million for the successor period from july 7 , 2017 through august 26 , 2017. adjusted ebitda . adjusted ebitda for the successor fifty-two week period ended august 25 , 2018 was $ 78.6 million compared to $ 8.7 million for the successor period from july 7 , 2017 through august 26 , 2017. comparison of results for the successor period from july 7 , 2017 through august 26 , 2017 and the predecessor period from august 28 , 2016 through july 6 , 2017. net sales . net sales for the successor period from july 7 , 2017 through august 26 , 2017 were $ 56.3 million compared to $ 339.8 million for the predecessor period from august 28 , 2016 through july 6 , 2017. there was no impact to net sales as a result of the business combination . cost of goods sold . cost of goods sold for the successor period from july 7 , 2017 through august 26 , 2017 were $ 35.9 million compared to $ 180.0 million for the predecessor period from august 28 , 2016 through july 6 , 2017. as a result of the business combination , there was a one-time inventory fair value step-up of $ 6.0 million
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in october 2011 , we formed a wholly-owned subsidiary to focus on both the therapeutic and research tool applications of our hlec technologies and to serve as an investment vehicle for those interested in a pure play liver cell company . for a brief description of our significant therapeutic research and development programs see overview research and development programs in the business section of part i , item 1 of this form 10-k. we have also conducted research on several other cell types and in other areas , which could lead to other possible product candidates , process improvements or further research activities . we are also engaged in developing and commercializing applications of our technologies to enable research , which we believe represent current and nearer-term commercial opportunities . our portfolio of technologies includes cell technologies relating to embryonic stem cells , induced pluripotent stem ( ips ) cells , and tissue-derived ( adult ) stem cells ; expertise and infrastructure for providing cell-based assays for drug discovery ; a cell culture products and antibody reagents business ; and an intellectual property portfolio with claims relevant to cell processing , reprogramming and manipulation , as well as to gene targeting and insertion . many of these enabling technologies were acquired in april 2009 as part of our acquisition of the operations of stem cell sciences plc ( scs ) . see note 5 , acquisition of scs operations , in the notes to consolidated financial statements in part ii , item 8 of this form 10-k for further information . 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 cells and sales of cell culture products for use in 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 from equity and debt offerings and revenue from collaborative research arrangements with corporate sponsors to finance our operations . we have no such collaborative research arrangements at this time and there can be no assurance that such financing or partnering revenue will be available when needed or on terms acceptable to us . 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 . moreover , any estimate of the 44 time and investment required to develop potential products based upon our proprietary hucns-sc and hlec 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 , swissmedic 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 . the research markets served by our tools and technologies products are highly competitive , complex and dynamic . technological advances and scientific discoveries have accelerated the pace of change in biological research , and stem cell technologies have been evolving particularly fast . story_separator_special_tag we compete mainly by focusing on specialty media and antibody reagent products and cell-based assays , which are custom designed for use in stem cell-based research , where we believe our expertise , intellectual property and reputation give us competitive advantage . we believe that , in this particular market niche , our products and technologies offer customers specific advantages over those offered by our competitors . we compete by offering innovative , quality-controlled products , consistently made and designed to produce reproducible results . we continue to make investments in research and development , quality management , quality improvement , and product innovation . we can not assure you that we will have sufficient resources to continue to make such investments . for the year ended december 31 , 2011 , we generated revenues from the sale of specialty cell culture products of approximately $ 663,000. we can give no assurances that we will be able to continue to generate such revenues in the future . significant events therapeutic product development in february 2011 , the fourth and final patient in our phase i clinical trial in pelizaeus-merzbacher disease , was enrolled and transplanted with our hucns-sc human neural stem cells . this trial , which is being conducted at ucsf benioff children 's hospital , is the first to evaluate neural stem cells as a potential treatment for a myelination disorder . in march 2011 , we initiated a phase i/ii clinical trial of our hucns-sc human neural stem cells in chronic spinal cord injury . the trial is expected to enroll a total of 12 patients who are three to 12 months post-injury , and will include patients with both complete and incomplete injuries as classified by the american spinal injury association impairment scale ( ais ) . the trial was authorized by swissmedic and is being conducted in switzerland at the balgrist university hospital , university of zurich , a world leading medical center for spinal cord injury and rehabilitation . in april 2011 , we entered into a collaboration with a world renowned leader in alzheimer 's disease research , to study the therapeutic potential of our hucns-sc human neural stem cells in alzheimer 's disease . published research has shown that mouse neural stem cells enhance memory in a mouse model of alzheimer 's disease , and the goal of this collaboration is to replicate these results using our human neural stem cells . in june 2011 , at the international society for stem cell research ( isscr ) 9th annual meeting , we presented evidence of engraftment , migration and the long-term survival of our hucns-sc neural stem cells following transplantation into patients with a severe neurological disorder . importantly , the results show that the cells can persist following the cessation of immunosuppression . the data supports our premise regarding the viability and utility of neural stem cell therapy as a potential treatment for a wide range of cns disorders . in september 2011 , the first patient in our phase i/ii clinical trial in chronic spinal cord injury was enrolled and successfully transplanted with our hucns-sc cells . this landmark clinical trial has a unique design , in which patients with progressively decreasing severity of injury will be treated in three sequential cohorts . the first patient has an injury classified as ais a , with complete loss of sensation and mobility from the waist down . 45 in november 2011 , we reported that an interim review of one patient 's mris from our phase i pmd trial showed changes consistent with the development of new myelin in the regions in which the hucns-sc cells were transplanted , and that the safety data suggest the procedure and cells have been well tolerated . in december 2011 , we successfully completed the enrollment and dosing of the first cohort of patients in our phase i/ii clinical trial in chronic spinal cord injury . the first cohort of patients all have spinal cord injury classified as ais a , the most severe level identified by the ais . we also announced that enrollment for the remainder of the trial , which will include patients classified as ais b and ais c , would be open to patients living in the united states and canada . in january 2012 , we published preclinical data demonstrating that our proprietary hucns-sc cells protect host photoreceptors and preserve vision in a well-established animal model of retinal disease . moreover , the number of cone photoreceptors , which are responsible for central vision , remained constant over an extended period . the preclinical results are highly relevant to human disorders of vision loss , the most notable of which is dry age-related macular degeneration ( amd ) . the data was featured as the cover article in the international peer-reviewed european journal of neuroscience . in january 2012 , the fda authorized the initiation of a phase i/ii clinical trial of our proprietary hucns-sc cells in amd , the most common form of amd . amd is the leading cause of vision loss and blindness in people over 55 years of age , and approximately 30 million people worldwide are afflicted with the disease . there are no approved treatments for dry amd . in february 2012 , the fourth and final patient in our phase i pmd trial completed the twelve-month follow up and evaluations required by the trial protocol . results of the trial will be reported at the european leukodystrophy association meeting to be held in paris , france , march 31-april 1 , 2012. tools and technologies programs in january , 2011 we launched stem24 and stem133 ® , two new antibody reagents that has utility for the isolation and detection of a range of different human cell types . in march 2011 , we launched nine new products and three related kits to facilitate stem cell research .
| total revenue in 2010 was approximately $ 1,427,000 , which was 44 % higher than total revenue in 2009. in 2010 , revenue from product sales were 30 % higher in 2010 compared to 2009. revenue from product sales were approximately $ 499,000 in 2010 , compared to approximately $ 385,000 in 2009. the increase in 2010 was primarily attributable to the consolidation of four quarters of product sales from our acquired operations in the u.k. compared to three quarters in 2009. in 2010 , approximately 61 % of our product sales were in europe , 12 % were in the united states , and 27 % were in asia . licensing and grant revenue for 2010 were 53 % , or approximately $ 320,000 , higher compared to 2009. the increase was primarily attributable to a milestone payment of approximately $ 438,000 , net of royalty due to neurospheres ( see note 2 , financial instruments in the notes to consolidated financial statements of part ii , item 8 of this form 10-k for further information ) . operating expenses operating expense totaled approximately $ 29,082,000 in 2011 , $ 30,618,000 in 2010 , and $ 30,110,000 in 2009. replace_table_token_5_th * calculation is not meaningful . 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 2011 ) were approximately $ 152 million . over this period , the majority of these cumulative costs were related
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guest amenities we continually upgrade the quality of our theatre circuit through substantial renovations featuring our seating concepts , acquisitions , new builds ( including expansions ) , expansion of food and beverage offerings ( including dine-in theatres ) , and by disposing of older screens through closures and sales . we believe we are an industry leader in the development and operation of theatres . typically , our theatres have 12 or more screens and offer amenities to enhance the movie-going experience , such as stadium seating providing unobstructed viewing , digital sound and premium seat design . recliner seating is the key feature of theatre renovations . we believe that maximizing comfort and convenience for our customers will be increasingly necessary to maintain and improve our relevance . these renovations , in conjunction with capital contributions from our landlords , involve stripping theatres to their basic structure in order to replace finishes throughout , upgrade the sight and sound experience , install modernized points of sale and , most importantly , replace traditional theatre seats with plush , electric recliners that allow customers to deploy a leg rest and fully recline at the push of a button . the renovation process typically involves losing up to two-thirds of a given auditorium 's seating capacity . for an industry historically focused on quantity , this reduction in seating capacity could be viewed as counter-intuitive and harmful to revenues . however , the quality improvement in the customer experience is 45 driving a 33 % increase in attendance at these locations in their first-year post renovation . our customers have responded favorably to the significant personal space gains from ample row depths , ability to recline or stretch their legs , extra-wide pillowed chaise and oversized armrests . the reseated theatres attract more midweek audiences than normal theatres and tend to draw more adults who pay higher ticket prices than teens or young children . we typically do not change ticket prices in the first year after construction , however , in subsequent years we typically increase our ticket prices at our reseated theatres by amounts well in excess of price adjustments for our non-renovated theatres . as of december 31 , 2017 , we now feature recliner seating in approximately 268 theatres , including dine-in-theatres , totaling approximately 2,631 screens . by the end of 2018 , we expect to convert an additional 665 screens to recliner seating . open-source internet ticketing makes our amc seats ( over 1.2 million ) in all our u.s. theatres and auditoriums for all our showtimes as available as possible , on as many websites as possible . this is a significant departure from the years prior to 2012 , when tickets to any one of our theatres were only available on one website . our tickets are currently on sale over the internet , directly or through mobile apps , at our own website and app and fandango , movietickets.com , and atom tickets . we believe increased online access is important because it captures customers ' purchase intent more immediately and directly than if we wait for their arrival at the theatre box office to make a purchase . carefully monitoring internet pre-sales also lets us adjust capacity in real time , moving movies that are poised to over perform to larger capacity auditoriums or adding additional auditoriums , thereby maximizing yield . food and beverage sales are our second largest source of revenue after box office admissions . food and beverage items traditionally include popcorn , soft drinks , candy and hot dogs . different varieties of food and beverage items are offered at our theatres based on preferences in the particular geographic region . our traditional food and beverage strategy emphasizes prominent and appealing food and beverage offerings designed for rapid service and efficiency , including a customer friendly self-serve experience . we design our theatres to have more food and beverage capacity to make it easier to serve larger numbers of customers . strategic placement of large food and beverage operations within theatres increases their visibility , aids in reducing the length of lines , allows flexibility to introduce new concepts and improves traffic flow around the food and beverage stands . to address recent consumer trends , we are expanding our menu of enhanced food and beverage products to include made-to-order drinks and meals , customized coffee , healthy snacks , premium beers , wine and mixed drinks , flatbread pizzas , more varieties of hot dogs , four flavors of popcorn and other menu items . we plan to invest across a spectrum of enhanced food and beverage formats , ranging from simple , less capital-intensive food and beverage design improvements to the development of new dine-in theatre options . the costs of these conversions in some cases are partially covered by investments from the theatre landlord . we currently operate 28 dine-in theatres that deliver chef-inspired menus with seat-side or delivery service to luxury recliners with tables . our recent dine-in theatre concepts are designed to capitalize on the latest food service trend , the fast casual eating experience . amc stubs ® amc stubs ® is a customer loyalty program for our u.s. markets which allows members to earn rewards , receive discounts and participate in exclusive members-only offerings and services . in july 2016 , we completed a national relaunch of our amc stubs ® loyalty program featuring both a traditional paid tier called amc stubs premiere tm and a new non-paid tier called amc stubs insider tm . both programs reward loyal guests for their patronage of amc theatres . the amc stubs insider tm tier rewards guests for simply coming to the movies and benefits include free refills on certain food items , discount ticket offers , a birthday gift and 20 reward points earned for every dollar spent . story_separator_special_tag for a $ 15 annual membership fee , amc stubs premiere tm members enjoy express service with specially marked shorter lines at the box office and concession stand , free size upgrades on certain food and beverage items , discount ticket offers , a birthday gift , discounted online ticketing fees and 100 points for every dollar spent . some of the rewards earned are redeemable on future purchases at amc locations . once an amc stubs premiere tm or amc stubs insider tm member accumulates 5,000 points they will earn a $ 5 virtual reward . as of december 31 , 2017 , we had 11.4 million active member households in the amc stubs ® program . our amc stubs ® members represented approximately 26 % of our attendance during 2017 with an average ticket price 8 % lower than our non-members and food and beverage expenditures per patron 12 % lower than non-members . we believe movie-goers want to be recognized and rewarded for attending our theatres and as a result , our new amc stubs ® program is designed to strengthen guest loyalty , attract new guests and drive additional return visits . our much larger 46 database of identified movie-goers also provides us with additional insight into our customers ' movie preferences , and this enables us to have both a larger and a more targeted marketing effort to support our hollywood studio partners . the portion of the admissions and food and beverage revenues attributed to the rewards is deferred as a reduction of admissions and food and beverage revenues and is allocated between admissions and food and beverage revenues based on expected member redemptions . upon redemption , deferred rewards are recognized as revenues along with associated cost of goods . points are forfeited upon expiration and recognized as admissions or food and beverage revenues . for the paid tier of the program ( amc stubs premiere tm ) , the program 's annual membership fee is deferred , net of estimated refunds , and is recognized ratably over the one-year membership period . the following table reflects amc stubs ® activity for the year ended december 31 , 2017 : replace_table_token_14_th the following table reflects amc stubs ® activity for the year ended december 31 , 2016 : replace_table_token_15_th 47 the following table reflects amc stubs ® activity for the year ended december 31 , 2015 : replace_table_token_16_th significant events critical accounting policies – income taxes . in the fourth quarter of calendar 2017 , we recorded the impact of the change in the u.s. enacted federal income tax rate from 35 % to 21 % which reduced our deferred tax assets . during the fourth quarter and in connection with the preparation of our 2017 financial statements , we also determined that realization of our deferred tax assets in the u.s. tax jurisdictions was not more likely than not , primarily as a result of cumulative net losses recorded for three years and we recorded a full valuation allowance for our deferred tax assets in u.s. tax jurisdictions . as a result of the change in enacted tax rate and recording a full valuation allowance for our deferred tax assets in u.s. tax jurisdictions , we recorded a charge to income tax provision in the fourth quarter of approximately $ 310 million . see note 9 – income taxes in the notes to consolidated financial statements under part ii , item 8 , hereof for further information . critical accounting policies – impairments . during the fourth quarter of 2017 , we recorded impairment charges of $ 43.6 million on 12 theatres in the u.s. markets with 179 screens ( in illinois , texas , virginia , michigan , oklahoma , new york and maryland ) . critical accounting policies – goodwill . we evaluate goodwill for impairment annually as of the beginning of the fourth fiscal quarter or more frequently as specific events or circumstances dictate . a decline in our common stock price and the resulting impact on market capitalization is one of several qualitative factors we consider when making this evaluation . based on recent declines in the trading price of our class a common stock , we performed an interim goodwill impairment test during the third quarter of 2017 and again as of december 31 , 2017. we believe the decline in market capitalization was precipitated by poor box office performance during 2017 and other uncertainties affecting the outlook for performance by us and the industry . for further information see note 4 – goodwill and intangible assets in the notes to the consolidated financial statements in item 8. hereof . 48 the following table sets forth the historical closing prices per share of our class a common stock for the calendar periods indicated : replace_table_token_17_th as described in note 1—the company and significant accounting policies in the notes to the consolidated financial statements in item 8 hereof , we elected to early adopt the new accounting guidance , asu 2017-04 , that simplifies the test for goodwill impairment and asu 2017-07 , business combinations ( topic 805 ) –that clarifies the definition of a business . the impairment test for goodwill involves estimating the fair value of each reporting unit and comparing that value to its carrying value . if the estimated fair value of the reporting unit is less than its carrying value , the difference is recorded as a goodwill impairment charge , not to exceed the total amount of goodwill allocated to that reporting unit . we determined the fair value of our three reporting units ( domestic theatres , odeon theatres and nordic theatres ) by using an enterprise valuation methodology and an equally weighted combination of the income approach which utilizes discounted cash flows and the market approach which utilizes market comparable multiples of cash flows .
| total food and beverage revenues were increased ( decreased ) by rewards redeemed , net of deferrals , of $ 2.7 million and $ ( 0.8 ) million during the years ended december 31 , 2017 and december 31 , 2016 , respectively . total other theatre revenues increased 80.0 % , or $ 133.9 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to increases from the odeon , carmike , and nordic acquisitions . operating costs and expenses . operating costs and expenses increased 64.7 % , or $ 1,954.4 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. film exhibition costs increased 47.3 % , or $ 514.8 million , during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , primarily due to the increase in admissions revenues as a result of the acquisitions . as a percentage of admissions revenues , film exhibition costs were 49.7 % for the year ended december 31 , 2017 and 53.2 % for the year ended december 31 , 2016. film exhibition costs as a percentage of admissions revenues in our international markets are much lower than in our u.s. markets . food and beverage costs increased 77.3 % , or $ 109.9 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016. as a percentage of food and beverage revenues , food and beverage costs were 16.3 % for the year ended december 31 , 2017 and 14.0 % for the year ended december 31 , 2016 due to the acquisition of odeon and nordic where food and beverage costs as a percentage of food and beverage revenues are much higher in our international markets than in our u.s. markets . the increase in food and beverage costs was primarily due to the increase in food and beverage revenues . food and beverage gross profit per patron decreased 8.3 % , and is calculated as food and beverage revenues less food and beverage costs divided by attendance . the decrease is primarily due to lower gross profit per patron in our international markets . as a
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these disclosures of net sales growth provide the reader with sales results on a comparable basis between periods . management believes that the presentation of net sales , excluding precious metal content , provides useful information to investors because a significant portion of dentsply 's net sales is comprised of sales of precious metals generated through sales of the company 's precious metal dental alloy products , which are used by third parties to construct crown and bridge materials . due to the fluctuations of precious metal prices and because the precious metal content of the company 's sales is largely a pass-through to customers and has minimal effect on earnings , dentsply reports net sales both with and without precious metal content to show the company 's performance independent of precious metal price volatility and to enhance comparability of performance between periods . the company uses its cost of precious metal purchased as a proxy for the precious metal content of sales , as the precious metal content of sales is not separately tracked and invoiced to customers . the company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal dental alloy sale prices are typically adjusted when the prices of underlying precious metals change . the presentation of net sales , excluding precious metal content , is considered a measure not calculated in accordance with us gaap , and is therefore considered a non-us gaap measure . the company provides the following reconciliation of net sales to net sales , excluding precious metal content . the company 's definitions and calculations of net sales , excluding precious metal content , and other operating measures derived using net sales , excluding precious metal content , may not necessarily be the same as those used by other companies . replace_table_token_5_th - 26 - the 2.1 % increase in net sales , excluding precious metal content , included constant currency growth of 2.6 % , offset by currency translation , which reduced net sales , excluding precious metal content , by 0.5 % . the constant currency sales growth was comprised of internal growth of 2.1 % and acquisition growth of 0.5 % . constant currency sales growth the following table includes growth rates for net sales , excluding precious metal content . replace_table_token_6_th replace_table_token_7_th united states during 2010 , net sales , excluding precious metal content , were slightly positive , at 0.1 % in the u. s. on a constant currency and internal growth basis . growth in dental specialty and dental consumable sundry products , along with a strong recovery in non-dental sales were offset by lower sales in dental laboratory and dental consumable small equipment products . europe during 2010 , net sales , excluding precious metal content , increased 3.7 % in europe on a constant currency basis , including 2.9 % internal growth and acquisition growth of 0.8 % . internal sales growth was primarily driven by growth in the dental consumables , dental specialty and non-dental products and a business recovery in the cis markets , which experienced customer liquidity constraints during 2009. these gains were partially offset by lower sales in the dental laboratory products . all other regions during 2010 , net sales , excluding precious metal content , increased 4.7 % across all other regions on a constant currency basis , including 4.1 % internal growth and acquisition growth of 0.6 % . internal sales growth was driven primarily by growth in dental specialty products , as well as increases for dental consumable and non-dental products . gross profit replace_table_token_8_th - 27 - gross profit as a percentage of net sales , excluding precious metal content , was flat during 2010 compared to 2009. product price increases and cost containment across the company 's product distribution function were offset by unfavorable product mix and negative foreign currency movements . expenses selling , general and administrative ( “ sg & a ” ) expenses replace_table_token_9_th the increase in sg & a expenses as a percentage of net sales , excluding precious metal content , from 2009 to 2010 was primarily due to new investments in certain businesses , increased spending in support of new product introductions , reinstatement of annual salary increases and increases in certain discretionary spending categories , such as travel expenses , partially offset by benefits from expense reductions in other areas of the business . the company continues to maintain its focus on reducing costs and achieving operational efficiencies through the consolidation of operations or functions where opportunities exist . restructuring and other costs year ended december 31 , ( in millions ) 2010 2009 $ change % change restructuring and other costs $ 11.0 $ 6.9 $ 4.1 nm nm- not meaningful the company recorded net restructuring and other costs of $ 11.0 million in 2010 compared to $ 6.9 million in 2009. the company incurred $ 5.8 million of costs related to several restructuring plans . these costs consist of employee severance benefits , payments due under operating contracts and other restructuring costs . the restructuring plans related to the continued effort to streamline the company 's operations to better leverage the company 's resources by reducing costs and obtaining operational efficiencies . additionally the company recorded certain other costs of $ 5.2 million of which $ 3.7 million was related to legal matters . in 2009 , the company incurred $ 5.9 million of costs related to several restructuring plans in response to the worldwide economic crisis that began in late 2008. the restructuring plans related to the closure and or consolidation of certain production and selling facilities in the united states , europe and south america to better leverage the company 's resources by reducing costs and obtaining operational efficiencies . additionally , the company executed targeted reductions in workforce both in the manufacturing and non-manufacturing business functions in certain locations . also , the company recorded certain other costs related to legal matters and an impairment of an intangible asset . story_separator_special_tag other income and expenses replace_table_token_10_th - 28 - net interest expense the change in net interest expense in 2010 compared to 2009 , for the year ended december 31 , was mainly the result of higher average debt levels in the u.s. , and lower cash levels due as a result of stock repurchases and investments in acquisitions combined with weaker average euro exchange and lower average euro interest rates on higher average euro cash balances . interest income decreased $ 0.7 million on lower average interest rates on euro investment balances which were 50 basis points lower in the current year than the prior year and the u.s. dollar was 7 % stronger against the euro . interest expense increased $ 3.2 million on higher average debt partially offset by lower interest rate difference on net investment hedges . the impact of the company 's net investment hedges typically move in the opposite direction of currency movements , reducing some of the volatility caused by movement in exchange rates on the company 's income and equity . other expense , net other expense in the 2010 period included approximately $ 3.3 million of currency transaction losses and $ 1.5 million of other non-operating income . the 2009 period included $ 0.3 million of currency transaction losses and $ 0.7 million of other non-operating costs . income taxes and net income replace_table_token_11_th income taxes the company 's effective income tax rates for 2010 and 2009 were 25.0 % and 24.5 % , respectively . in 2010 , the company 's effective income tax rate included the impact of restructuring and other costs , acquisition related activity , provisions for a credit risk adjustment to outstanding derivatives and various income tax adjustments , which impacted income before income taxes and the provision for income taxes by $ 14.9 million and $ 3.3 million , respectively . in 2009 , the company 's effective income tax rate included the impact of restructuring and other costs , acquisition related activity and various income tax adjustments , which impacted income before income taxes and the provision for income taxes by $ 11.0 million and $ 8.8 million , respectively . in 2009 , various income tax adjustments included the impact of settlements with taxing authorities and statutes closures . equity in net loss of unconsolidated affiliated company the company 's 16 % ownership investment of dio corporation on december 9 , 2010 resulted in a net loss of $ 1.1 million on an after-tax basis for 2010. the net loss of dio was the result of mark-to-market charges related to the derivative accounting for the convertible bonds issued by dio to dentsply . the company 's portion of the mark-to-market net loss incurred by dio was approximately $ 1.1 million . net income ( loss ) attributable to noncontrolling interests the portion of consolidated net income attributable to noncontrolling interests increased $ 1.4 million from 2009 to 2010. the increase is primarily attributable to the strengthening performance of the company 's zhermack division , where the company has had a 60 % ownership investment since december 2008 . - 29 - net income attributable to dentsply international in addition to the results reported in accordance with us gaap , the company provides adjusted net income attributable to dentsply international and adjusted earnings per diluted common share . these adjusted amounts consist of us gaap amounts excluding ( 1 ) restructuring and other costs , ( 2 ) acquisition related charges , ( 3 ) loss on a derivative at an unconsolidated affiliated company , ( 4 ) income tax related adjustments , and ( 5 ) credit risk adjustment to outstanding derivatives . adjusted earnings per diluted common share is calculated by dividing adjusted net income attributable to dentsply international by diluted weighted-average common shares outstanding . adjusted net income attributable to dentsply international and adjusted earnings per diluted common share are considered measures not calculated in accordance with us gaap , and therefore are non-us gaap measures . these non-us gaap measures may differ from other companies . the company believes that the presentation of adjusted net income attributable to dentsply international and adjusted earnings per diluted common share provides important supplemental information to management and investors seeking to understand the company 's financial condition and results of operations . the non-us gaap financial information should not be considered in isolation from , or as a substitute for , measures of financial performance prepared in accordance with us gaap . year ended december 31 , 2010 income per diluted ( in thousands , except per share amounts ) ( expense ) common share net income attributable to dentsply international $ 265,708 $ 1.82 restructuring and other costs , net of tax and noncontrolling interests 7,139 0.05 acquisition related activities , net of tax and noncontrolling interests 2,152 0.01 loss on derivative at an unconsolidated affiliated company 1,131 0.01 income tax related adjustments 1,073 0.01 credit risk adjustment to outstanding derivatives , net of tax 732 0.01 rounding - ( 0.01 ) adjusted non-us gaap earnings $ 277,935 $ 1.90 replace_table_token_12_th story_separator_special_tag style= '' display : inline ; font-weight : bold ; font-size : 10pt ; font-family : times new roman '' > gross profit replace_table_token_16_th gross profit as a percentage of net sales , excluding precious metal content , decreased 2.0 percentage points in 2009 compared to 2008. the decrease is the result of unfavorable product and geographic sales mix , unfavorable manufacturing overhead absorption and movements in foreign currencies . additionally , acquisitions completed in 2008 negatively impacted gross profit as a percentage of net sales . expenses selling , general and administrative expenses replace_table_token_17_th the reduction in sg & a expenses as a percentage of net sales , excluding precious metal content , was largely the result of the company 's focus on cost containment in response to the recessionary economic conditions that occurred in late 2008 through 2009. in early 2009 , the company undertook action on discretionary expense categories , such as travel , and addressed non-discretionary expense categories where appropriate .
| additionally , the 2009 results included a roll-off of inventory step-up related to acquisitions of $ 4 million . operating income was further helped by a $ 6 million decrease in selling , general and administrative expenses for 2010 , of which half was due to foreign currency translation . france , u.k. , italy and certain other european countries , cis , middle east , africa , pacific rim businesses net sales , excluding precious metal content , increased $ 8.8 million , or 2.0 % , during the year ended december 31 , 2010 compared to 2009. on a constant currency basis , net sales , excluding precious metal content , increased $ 8.6 million , or 2.0 % . this increase is primarily related to the continuing business recovery in the cis markets . - 31 - operating income decreased $ 2.5 million during the year ended december 31 , 2010 compared to 2009. the decrease was driven primarily attributable to $ 4 million higher expenses for certain investments in emerging markets partially offset by an increase of $ 1.5 million in gross profit , primarily due to foreign currency translation . canada/latin america/endodontics/orthodontics net sales , excluding precious metal content , increased $ 44.2 million , or 7.1 % , during the year ended december 31 , 2010 compared to 2009. on a constant currency basis , net sales , excluding precious metal content , increased by 5.5 % primarily driven by dental specialty and non-dental products . in addition , the 5.5 % of constant currency growth included 1.1 % of acquisition growth . operating income increased $ 10.0 million during the year ended december 31 , 2010 compared to 2009. the increase was driven by a $ 25 million increase in gross profit which was primarily from the endodontics business , as well as favorable impacts from foreign currency translation . offsetting this increase in gross profit was a $ 15 million increase in selling , general and administrative costs , which included incremental investments to promote certain dental specialty products , the negative impact of foreign currency translation and increased
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effective june 1 , 2016 , we entered into multiple reinsurance agreements comprising our 2016-2017 reinsurance program . see “ item 8—note 4 ( reinsurance ) . ” reinsurance generally we use reinsurance to reduce our exposure to catastrophic losses primarily through excess of loss reinsurance . we believe that the overall terms of the 2016-2017 reinsurance program are more favorable than the 2015-2016 reinsurance program . we eliminated our quota share reinsurance arrangements effective june 1 , 2015 ; purchased additional excess of loss catastrophe cover ; converted the exposure of all upcic states from a two-tower reinsurance program to a single tower reinsurance program ; purchased a stand-alone non-florida supplemental catastrophe reinsurance program ; realized cost reductions in part due to market conditions and our preparation and efforts to manage risk exposure ; and further enhanced our reinsurance coverage terms and conditions we believe that restructuring our reinsurance program and re-evaluating that structure on an ongoing basis has allowed us to take advantage of attractive reinsurance pricing , while still maintaining reinsurance coverage that we believe is sufficient to protect our policyholders and shareholders . while we believe the changes to the current reinsurance program are beneficial , there can be no assurance that our actual results of operations or financial condition will be positively affected . the insurance entities remain responsible for insured losses notwithstanding the failure of any reinsurer to make payments otherwise due to the insurance entities . below is a description of our 2016-2017 reinsurance program for each of the insurance entities . upcic reinsurance program upcic 's reinsurance program , runs from june 1 through may 31 of the following year , consists of various forms of catastrophe coverage . under the 2016-2017 reinsurance program , upcic has a net retention of $ 35 million per catastrophe event for all losses incurred up to a first event loss of $ 2.487 billion . upcic purchases a separate supplemental underlying cover to further reduce its retention for all losses occurring in states outside of florida . with this cover , upcic retains only $ 5 million under its program in its non-florida states . in certain circumstances involving a catastrophic event affecting both florida and other states , upcic 's retention could result in pre-tax net liability as low as $ 5 million – the $ 35 million net retention under the all states reinsurance program could 42 be offset by as much as $ 30 million in coverage under the other states ( non-florida ) reinsurance program . these retention amounts are gross of any potential tax benefit we would receive in paying such losses . upcic has mandat ory catastrophe coverage through the fhcf plus voluntary catastrophe coverage with private reinsurers . upcic structures its reinsurance coverage into layers and utilizes a cascading feature such that the second , third , fourth and fifth reinsurance layers all attach at $ 90 million . any layers above the $ 90 million attachment point are excess of loss over the immediately preceding layer . if the aggregate limit of the preceding layer is exhausted , the next layer cascades down in its place for future events . further , upcic buys four dedicated limits of $ 55 million in excess of $ 35 million for the first four catastrophe events . this means that , unless losses exhaust the top layer of our coverage , we are exposed to only $ 35 million in losses , pre-tax , per catastrophe for each of the first four events . the estimated total net cost of upcic 's fhcf and catastrophe related coverage , including reinstatement premium protection coverage , is $ 295.6 million . the largest private participants in upcic 's program include allianz risk transfer ag , bermuda branch ( nephila capital ) , everest re , renaissance re , chubb tempest re , and various lloyd 's of london syndicates . the table below provides the a.m. best and standard and poor 's ( “ s & p ” ) financial strength ratings for each of the largest third party reinsurers in upcic 's 2016-2017 reinsurance program . reinsurer a.m. best s & p allianz risk transfer ag , bermuda branch ( nephila capital ) a+ aa- everest re a+ a+ renaissance re a+ aa- chubb tempest re a++ aa various lloyd 's of london syndicates a a+ appcic reinsurance program appcic 's reinsurance program , which runs from june 1 through may 31 of the following year , consists of various forms of catastrophe and multiple line excess of loss coverage . under the 2016-2017 reinsurance program , appcic has a net retention on its catastrophe program of $ 2 million for all losses per catastrophe event for losses incurred up to a first event loss of $ 30.9 million . the retention amount is gross of any potential tax benefit we would receive in paying such losses . appcic has mandatory catastrophe coverage through the fhcf plus voluntary catastrophe coverage with private reinsurers . appcic structures its catastrophe reinsurance coverage into layers and utilizes a cascading feature such that the second and third reinsurance layers all attach at $ 2 million . any layers above the $ 2 million attachment point are excess of loss over the immediately preceding layer . if the aggregate limit of the preceding layer is exhausted , the next layer cascades down in its place for future events . this means that , unless losses exhaust the top layer of our coverage , we are only exposed to $ 2 million in losses , pre-tax , per catastrophe for each of the first two events . story_separator_special_tag appcic 's multiple line excess of loss reinsurance program has a property retention of $ 0.5 million with coverage up to $ 9.0 million per individual property loss and a casualty retention of $ 0.3 million with coverage up to $ 1.3 million per individual casualty loss . the estimated total net cost of appcic 's fhcf , per risk and catastrophe related coverage , including reinstatement premium protection coverage is $ 2.9 million . the largest private participants in appcic 's program include everest re , chubb tempest re , hiscox , hannover ruck and lloyd 's of london syndicates . the table below provides the a.m. best and standard and poor 's ( “ s & p ” ) financial strength ratings for each of the largest third party reinsurers in appcic 's 2016-2017 reinsurance program . reinsurer a.m. best s & p everest re a+ a+ chubb tempest re a++ aa hiscox insurance co ( bermuda ) a aa- hannover re a+ aa- various lloyd 's of london syndicates a a+ 43 critical accounting policies and estimates use of estimates the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . our primary areas of estimates are described below . recognition of premium revenues property and liability premiums are recognized as revenue on a pro rata basis over the policy term . the portion of premiums that will be earned in the future are deferred and reported as unearned premiums . liability for unpaid losses and lae a liability is established to provide for the estimated costs of paying losses and lae under insurance policies the insurance entities have issued . underwriting results are significantly influenced by an estimate of a liability for unpaid losses and lae . the liability is an estimate of amounts necessary to settle all outstanding claims , including claims that have been incurred , but not yet reported as of the financial statement date . see “ item 8 — note 17 ( liability for unpaid losses and loss adjustment expenses ) ” for a discussion of the company 's basis and methodologies used to establish its liability for unpaid losses and loss adjustment expenses along with the following quantitative disclosures : five year accident year table on incurred claim and allocated claim adjustment expenses , net of reinsurance including columns of : o ibnr-total of incurred-but-not-reported liabilities plus expected development on reported claims by accident year and o claim counts-cumulative number of reported claims by accident year five year accident year table on cumulative paid claims and allocated claim adjustment expenses , net of reinsurance reconciliation of tables to the financial statements- reconciliation of net incurred and paid claims development table to the liability for claims and claim adjustment expenses in the consolidated balance sheet . duration- a table of the average historical claims duration for the past 5 years in establishing the liability for unpaid losses and lae , actuarial judgment is relied upon in order to make appropriate assumptions to estimate a best estimate of ultimate losses . there are inherent uncertainties associated with this estimation process , especially when a company is undergoing changes in its claims settlement practices , or when a company has limited experience in a certain area . claims reported in 2013 and 2014 , for example , benefited from several initiatives designed to expedite claim closure rates and reduce settlement costs introduced in our claims department during those 24 months . a more dramatic change occurred during calendar year 2015 when we realigned our adjusting teams as well as launched our fast track initiative , reducing settlement costs and strengthening case reserve adequacy for claims reported during the year . these changes have had a meaningful influence on development pattern selections applied to 2012 through 2016 accident year claims in the reserving estimates for each of the methods described in “ item 8 — note 17 ( liability for unpaid losses and loss adjustment expenses ) ” . most recently , in 2016 there has been a significant increase in efforts to pursue subrogation against third parties responsible for property damage losses to our insureds . as a result , anticipated subrogation recoveries are reviewed and estimated on a stand-alone basis in the company 's reserve analysis . however , with the passing of each year , our own trends become more reliable for use in predicting future results , and the confidence in prior accident year estimates grows . factors affecting reserve estimates reserve estimates are developed based on the processes and historical development trends discussed in “ item 8 — note 17 ( liability for unpaid losses and loss adjustment expenses ) ” to the consolidated financial statements . these estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our experience with similar cases , actual claims paid , differing payment patterns and pending levels of unpaid claims , loss management programs , product mix and contractual terms , changes in law and regulation , judicial decisions , and economic conditions . when these types of changes are experienced , actuarial judgment is applied in the determination and selection of development factors in order to better reflect new trends or expectations . for example , if a change in law is expected to have a significant impact on the development of claim severity , actuarial judgment is applied to determine appropriate development factors that will most accurately reflect the expected impact on that specific estimate .
| the increase in direct earned premium includes organic growth in all states during 2016 as well as rate changes that took effect over the past twelve months . direct written premiums increased $ 71.2 million or 8.1 % which was made up of an increase in florida business of $ 42.9 million or 5.3 % over the prior year and direct written premiums in other states increased $ 28.3 million or 43.0 % over the prior year . our reinsurance programs run from june 1 to may 31 of the following year . in june 2015 , we eliminated quota share reinsurance on a cut off basis . ceded earned quota share premiums in 2015 were $ 97.5 million and none in 2016 as a result of the termination of the quota share . ceded earned premiums relating to our catastrophe reinsurance program were $ 235.3 million in 2015 compared to $ 288.8 million in 2016. the increase in the ceded earned premiums relating to our catastrophe reinsurance program relate to coverage and limit improvements over 2015. net investment income was $ 9.5 million for the year ended december 31 , 2016 , an increase of 85.1 % , compared to $ 5.2 million for the year ended december 31 , 2015. the increase in net investment income of $ 4.4 million is principally the result of increases in our fixed income investment portfolio fueled by cash flows generated from operations and actions taken to increase yield by investing 48 these new funds along with maturities in higher yield securities while maintaining high credit quality . total average investments were $ 592.6 million during the year ended december 31 , 2016 compared to $ 470.4 mi llion in the same period in 2015. we sold investment securities available for sale during the year ended december 31 , 2016 resulting in a net realized gain of $ 2.3 million compared to a net realized gain of $ 1.1 million during the year
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the acquisition is expected to significantly reduce our cost by producing the goods in-house and should allow us to further access and develop other markets and support what we believe to be good growth potential in markets we currently serve . additionally , during 2012 , we made a change in our manufacturing management in connection with the realignment of the tufting equipment relocations and brought in new leadership for our commercial business in an effort to strengthen our performance in our commercial sector . these actions resulted in incremental costs of approximately $ 600 thousand in 2012 . 13 we remain optimistic about conditions that affect the higher-end residential markets we serve and continue to address initiatives in our commercial offerings related to our products , manufacturing processes and distribution alternatives . story_separator_special_tag an improvement of $ 202 thousand . the change was primarily the result of a gain recognized on the sale of a non-operating asset in 2012. refinancing expenses . expenses of $ 317 thousand were recorded in the third quarter of 2011 related to refinancing our senior credit and term loan facility and included the costs associated with the extinguishment or modification of existing debt and the addition of new debt arrangements . income tax provision ( benefit ) . our effective income tax benefit rate was 38.0 % in 2012 , compared with an effective income tax provision rate of 35.0 % in 2011. the effective tax rate varied from statutory rates in 2012 primarily as a result of adjustments to estimates used in the 2011 estimated tax calculations versus amounts used in the subsequent tax return filing for the 2011 period ; net of the effects of permanent differences on the lower level of pre-tax earnings in the 2012 tax calculations . net income ( loss ) . continuing operations reflected a loss of $ 653 thousand , or $ 0.05 per diluted share in 2012 , compared with income from continuing operations of $ 1.3 million , or $ 0.10 per diluted share in 2011. our discontinued operations reflected a loss of $ 274 thousand , or $ 0.02 per diluted share in 2012 , compared with a loss of $ 286 thousand , or $ 0.02 per diluted share in 2011. including discontinued operations , our net loss was $ 927 thousand , or $ 0.07 per diluted share , in 2012 compared with net income of $ 986 thousand , or $ 0.08 per diluted share , in 2011. fiscal year ended december 31 , 2011 compared with fiscal year ended december 25 , 2010 net sales . net sales for the year ended december 31 , 2011 were $ 270.1 million compared with $ 231.3 million in the year-earlier period , an increase of 16.8 % , or 14.7 % on a `` net sales as adjusted '' basis . the carpet industry reported a percentage increase in the low single digits in net sales in 2011. our 2011 year-over-year carpet sales comparison reflected a 16.9 % increase in net sales , or 14.9 % on a `` net sales as adjusted '' basis . sales of residential carpet are up 18.4 % , or 16.5 % on a `` net sales as adjusted '' basis and sales of commercial carpet are up 13.2 % , or 11.2 % on a `` net sales as adjusted '' basis . revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 768 thousand in 2011 , compared with 2010. cost of sales . cost of sales , as a percentage of net sales , was basically unchanged ; an increase of 0.2 percentage points in 2011 compared with 2010. this was principally attributable to an increase in several lower margin , higher volume sales initiatives in both our residential and commercial markets that resulted in improved fixed cost absorption and other manufacturing efficiencies . gross profit . gross profit increased $ 8.9 million in 2011 compared with 2010 due primarily to the incremental contribution from the higher sales volume . selling and administrative expenses . selling and administrative expenses reflected a reduction of 2.3 percentage points as a percentage of sales in 2011 compared with 2010. the incremental improvement in the percentage comparison in these expenses was primarily a result of the cost reduction initiatives , organizational realignment , lower variable selling expenses associated with certain sales and greater absorption of the fixed component of these expenses as a result of the increased sales volume . 15 other operating ( income ) expense , net . net other operating was income of $ 266 thousand in 2011 compared with net other operating expense of $ 303 thousand in 2010. the change was due primarily to a settlement gain of $ 492 recognized in 2011 related to a company-owned insurance policy . facility consolidation and severance ( benefit ) expense , impairment of assets and goodwill . facility consolidation and severance expenses reflected a cost reduction of $ 563 thousand in 2011 compared with expense of $ 1.6 million in 2010. the gain in 2011 was a result of the favorable settlement of a lease obligation in 2011 compared with the amount previously reserved under our restructuring plan . operating income ( loss ) . operating income was $ 5.7 million in 2011 compared with an operating loss of $ 2.6 million in 2010 , an improvement of $ 8.2 million . excluding the facility consolidation and severance effects in 2011 and 2010 , operating income improved $ 6.1 million in 2011 compared with 2010. interest expense . interest expense decreased $ 654 thousand in 2011 principally due to lower interest rates in 2011 compared with 2010. other ( income ) expense , net . other income was $ 75 thousand in 2011 compared with other expense of $ 283 in 2011 , an improvement of $ 358 thousand . story_separator_special_tag the change was primarily the result of a loss recognized on the termination of an interest rate swap agreement in 2010. refinancing expenses . expenses of $ 317 thousand were recorded in the third quarter of 2011 related to refinancing our senior credit and term loan facility and included the costs associated with the extinguishment or modification of existing debt and the addition of new debt arrangements . income tax provision ( benefit ) . our effective income tax provision rate was 35.0 % in 2011 , compared with an effective income tax benefit rate of 37.3 % in 2010. effective tax rates did not vary from statutory rates significantly in either period . net income ( loss ) . continuing operations reflected income of $ 1.3 million , or $ 0.10 per diluted share in 2011 , compared with a loss from continuing operations of $ 4.4 million , or $ 0.35 per diluted share in 2010. our discontinued operations reflected a loss of $ 286 thousand , or $ 0.02 per diluted share in 2011 , compared with a loss of $ 281 thousand , or $ 0.02 per diluted share in 2010. including discontinued operations , net income was $ 986 thousand , or $ 0.08 per diluted share , in 2011 , compared with a net loss of $ 4.7 million , or $ 0.37 per diluted share , in 2010. liquidity and capital resources we believe our operating cash flows , credit availability under our senior loan and security agreement and other sources of financing are adequate to finance our normal foreseeable liquidity requirements . we will continue to aggressively manage all elements of our business affecting cash including working capital and capital expenditures . however , deterioration in our markets or significant additional cash expenditures above our normal liquidity requirements could require supplemental financing or other funding sources . there can be no assurance that such supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to us . cash sources and uses . during the year ended december 29 , 2012 , cash provided from financing activities was $ 9.3 million and was supplemented by $ 187 thousand of proceeds related to fixed asset sales resulting in cash inflows of $ 9.5 million . $ 4.7 million was used to fund our operating activities , $ 3.4 million to invest in property , plant and equipment and $ 1.2 million for the cash component of two acquisitions . working capital increased $ 10.5 million in 2012 , primarily as a result of an increase in inventories of $ 8.3 million to support higher levels of business activity and an opportunistic purchase of certain inventories from a carpet industry competitor to incorporate the products into our product line going forward . additionally , our receivables increased $ 3.3 million primarily associated with a higher level of sales while other current assets increased $ 2.5 million primarily related to funds that were placed in escrow in advance of a pending machinery lease transaction in progress . accrued expenses increased in 2012 primarily as a result in the timing of payroll disbursements in the comparative periods and the current portion of debt reflected an increase of $ 1.3 million as of the 2012 balance sheet date compared with the 2011 comparative period . during the year ended december 31 , 2011 , cash generated from operating activities was $ 5.1 million and was supplemented by an increase in the senior indebtedness of $ 12.6 million and $ 366 thousand from an increase in outstanding checks in excess of cash utilized . these funds were used to finance our operations , fund the early redemption of $ 9.7 million of convertible subordinated debentures , purchase $ 6.7 million of property , plant and equipment , fund $ 1.4 million of debt issuance costs and acquire treasury stock for $ 131 thousand . working capital increased $ 9.9 million in 2011 principally as a result of an increase of $ 5.6 million in inventories to support higher levels of business activity and $ 4.4 million to reduce the current portion of long-term debt . trade receivables decreased $ 1.5 million in 2011 primarily as a result of customer mix . during the year ended december 25 , 2010 , cash generated from operating activities was $ 3.9 million . these funds were supplemented by $ 784 thousand from an increase in outstanding checks in excess of cash utilized . these funds were used to support our operations , purchase $ 1.8 million of property , plant and equipment and retire $ 2.6 million of debt and capital leases . working capital increased $ 3.9 million in 2010 principally due to higher current deferred tax assets and a reduction in the current 16 portion of long-term debt . the level of inventories increased $ 3.1 million to support higher business activity . trade receivables increased $ 8.8 million commensurate with increased sales activity while taxes receivable decreased $ 6.8 million . accounts payable and accrued expenses increased $ 5.3 million principally associated with the increase in inventories and certain accrued expenses associated with the increase in sales . capital expenditures , excluding assets acquired under business acquisitions , were $ 4.1 million in 2012 ; $ 3.4 million through funded debt and $ 666 thousand of equipment acquired under a capitalized lease , $ 6.7 million in 2011 and $ 1.8 million in 2010. depreciation and amortization were $ 9.4 million in 2012 , $ 9.6 million in 2011 and $ 11.6 million in 2010. a significant portion of capital expenditures in 2012 and 2011 were directed toward new and more efficient manufacturing capabilities and , to a lesser extent , computer software enhancements . capital expenditures in 2010 primarily related to facilities and existing equipment .
| % on a `` net sales as adjusted '' basis and sales of commercial carpet declined 12.7 % , or 11.1 % on a `` net sales as adjusted '' basis . revenue from carpet yarn processing and carpet dyeing and finishing services increased $ 1.1 million in 2012 compared with 2011. cost of sales . cost of sales , as a percentage of net sales , was basically unchanged ; a decrease of 0.2 percentage points in 2012 compared with 2011. cost of sales included incremental costs of approximately $ 926 thousand in 2012 related to the tufting equipment relocations . other manufacturing efficiencies and cost improvements more than offset these relocation costs . gross profit . gross profit was basically unchanged in both total dollars and as a percentage of net sales in 2012 compared with 2011. gross profit on lower sales in 2012 included incremental costs of approximately $ 926 thousand in 2012 related to the tufting equipment relocations . however ; we experienced more favorable product mix in our residential products in 2012 compared with 2011 . 14 selling and administrative expenses . selling and administrative expenses reflected an increase of $ 2.8 million , or 1.3 percentage points as a percentage of sales in 2012 compared with 2011. the increase is primarily a result of an increase of $ 1.7 million related to investment in the development and sampling of new product initiatives , $ 409 thousand for incremental costs related to the two acquisitions and $ 600 thousand of costs related to management changes . other operating ( income ) expense , net . net other operating expense was $ 68 thousand in 2012 compared with net other operating income of $ 266 thousand in 2011. the change was due to a settlement gain of $ 492 thousand recognized in 2011 related to a company-owned insurance policy , net of a decrease in certain retirement related expenses of $ 170 thousand in 2012 compared
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story_separator_special_tag previously paid $ 135 million in indian income taxes , which we believe are all the applicable taxes owed for this transaction under indian law . the itd is asserting that we owe an additional 33 billion indian rupees ( $ 475 million at the december 31 , 2018 exchange rate ) related to the 2016 india cash remittance . in addition to the dispute on the 2016 india cash remittance , we are involved in another ongoing dispute with the itd relating to a 2013 transaction undertaken by cts india to repurchase shares from its shareholders valued at $ 523 million ( the two disputes collectively referred to as the `` itd dispute '' ) , for which we also believe we have paid all applicable taxes owed . accordingly , we have not recorded any reserves for these matters as of december 31 , 2018. the itd dispute is currently pending before the madras high court , and no final decision has been reached . while we believe that we have paid all applicable taxes related to the transactions underlying the itd dispute , if it is ultimately determined that we are liable for the full amount of additional taxes the itd alleges we owe , there could be a material adverse effect on our results of operations , cash flows and financial condition . in march 2018 , the itd placed an attachment on certain of our india bank accounts , relating to the 2016 india cash remittance . in april 2018 , the madras high court granted our application for a stay of the actions of the itd and lifted the itd 's attachment of our bank accounts . as part of the interim stay order , we have deposited 5 billion indian rupees ( $ 71 million at the december 31 , 2018 exchange rate ) , representing 15 % of the disputed tax amount related to the 2016 india cash remittance , with the itd . this amount is presented in `` other current assets '' on our consolidated statement of financial position . in addition , the court has placed a lien on certain time deposits of cts india in the amount of 28 billion indian rupees ( $ 404 million at the december 31 , 2018 exchange rate ) , which is the remainder of the disputed tax amount related to the 2016 india cash remittance . the affected time deposits are considered restricted assets and we have reported them in “ short-term investments ” on our consolidated statement of financial position . as of december 31 , 2018 , the restricted time deposits balance was $ 423 million , including accumulated interest . in february 2019 , we completed our internal investigation focused on whether certain payments relating to company-owned facilities in india were made improperly and in violation of the u.s. foreign corrupt practices act ( `` fcpa '' ) and other applicable laws . the investigation was conducted under the oversight of the audit committee , with the assistance of outside counsel . during the year ended december 31 , 2016 , we recorded out-of-period corrections related to $ 4 million of potentially improper payments between 2009 and 2016 that had been previously capitalized when they should have been expensed . these out-of-period corrections were not material to any previously issued financial statements . there were no adjustments recorded during 2018 or 2017 related to the amounts then under investigation . on february 15 , 2019 , we announced a resolution of the previously disclosed investigations by the u.s. department of justice ( `` doj '' ) and the u.s. securities and exchange commission ( `` sec '' ) into the matters that were the subject of our internal investigation . the resolution required the company to pay approximately $ 28 million to the doj and sec , an amount consistent with the company 's accrual ( `` fcpa accrual '' ) recorded during the quarter ended september 30 , 2018. during the years ended december 31 , 2018 , 2017 and 2016 , we incurred $ 16 million ( not including the fcpa accrual ) , $ 36 million and $ 27 million , respectively , in costs related to the above investigations and the legal matters described in note 15 to our consolidated financial statements . we expect to continue to incur legal fees and other expenses , including indemnification and expense advancement obligations , related to stockholder litigation and other legal proceedings pertaining to the matters that were the focus of the now completed fcpa investigations described above . 2019 business considerations during 2019 , barring any unforeseen events , we expect the following factors to affect our business and our operating results : demand from our customers for digital services and industry-specific changes driven by evolving digital technologies ; our customers ' dual mandate of simultaneously achieving cost savings while investing in transformation and innovation ; continued focus by customers on directing technology spending towards cost containment projects ; discretionary spending by our customers may be negatively affected by international trade policies as well as other macroeconomic factors ; uncertainty related to the potential economic and regulatory impacts of the 2016 united kingdom referendum to exit the european union ( the `` brexit referendum '' ) ; 21 demand from certain banking customers may continue to be negatively affected by their ongoing efforts to optimize the cost of supporting their legacy systems and operations , including moving a portion of their services to captives , as they shift their spend to transformation and digital services ; demand from our healthcare customers may continue to be affected by the uncertainty in the regulatory environment and industry-specific trends , including industry consolidation and convergence ; demand among our technology customers may be affected by uncertainty in the regulatory environment while significant merger and acquisition activity continues to impact our customers in the communications and media industry ; uncertainty regarding regulatory changes , including potential regulatory changes with respect to immigration and taxes ; legal fees and other expenses , story_separator_special_tag including indemnification and expense advancement obligations , related to stockholder litigation and other legal proceedings pertaining to the matters that were the focus of now completed fcpa investigations described above ; and volatility in foreign currency rates . in response to this environment , we plan to : continue to invest in our digital capabilities across industries and geographies ; continue to invest in our talent base , including through local hiring and re-skilling , and new service offerings , including digital technologies and new delivery models ; partner with our existing customers to garner an increased portion of our customers ' overall spend by providing innovative solutions ; focus on growing our business in europe , the middle east , asia pacific and latin america , where we believe there are opportunities to gain market share ; pursue strategic acquisitions that we believe add new technologies , including digital technologies , or platforms that complement our existing services , improve our overall service delivery capabilities , or expand our geographic presence ; and focus on operating discipline in order to appropriately manage our cost structure . business segments our reportable segments are : financial services , which consists of our banking and insurance operating segments ; healthcare , which consists of our healthcare and life sciences operating segments ; products and resources , which consists of our retail and consumer goods , manufacturing and logistics , travel and hospitality , and energy and utilities operating segments ; and communications , media and technology , which includes our communications and media operating segment and our technology operating segment . our chief operating decision maker evaluates the company 's performance and allocates resources based on segment revenues and operating profit . segment operating profit is defined as income from operations before unallocated costs . generally , operating expenses for each operating segment have similar characteristics and are subject to the same factors , pressures and challenges . however , the economic environment and its effects on industries served by our operating segments may affect revenues and operating expenses to differing degrees . we provide a significant volume of services to many customers in each of our business segments . therefore , a loss of a significant customer or a few significant customers in a particular segment could materially reduce revenues for that segment . however , the services we provide to our larger customers are often critical to the operations of such customers and we believe that a termination of our services would require an extended transition period with gradually declining revenues . see note 19 to our consolidated financial statements for additional information on our business segments . 22 results of operations for the three years ended december 31 , 2018 the following table sets forth certain financial data for the three years ended december 31 , 2018 : replace_table_token_8_th _ ( 1 ) results for 2018 are presented under the new revenue standard , while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies . see note 3 to our consolidated financial statements for additional information . ( 2 ) exclusive of depreciation and amortization expense . ( 3 ) non-gaap income from operations , adjusted income from operations , non-gaap operating margin , adjusted operating margin , non-gaap diluted eps and adjusted diluted eps are not measurements of financial performance prepared in accordance with gaap . see “ non-gaap financial measures ” for more information and reconciliations to the most directly comparable gaap financial measures . revenues - overall our revenue growth in 2018 and 2017 was primarily attributed to services related to the integration of digital technologies that are reshaping our customers ' business and operating models , increased customer spending on discretionary projects , continued interest in using our global delivery model as a means to reduce overall technology and operations costs and continued penetration in all our geographic markets . revenues from new customers contributed $ 305 million and $ 208 million , representing 23.2 % and 15.7 % of the year-over-year revenue growth for 2018 and 2017 , respectively . on january 1 , 2018 , we adopted the new revenue standard using the modified retrospective method . for the year ended december 31 , 2018 , adoption of the new revenue standard had a positive impact on revenue of $ 96 million . see note 3 to our consolidated financial statements for additional information . 23 revenues from our top customers as a percentage of total revenues were as follows : replace_table_token_9_th as we continue to add new customers and increase our penetration at existing customers , we expect the percentage of revenues from our top five and top ten customers to decline over time . revenues - reportable business segments revenues by reportable business segment were as follows : replace_table_token_10_th _ ( 1 ) results for 2018 are presented under the new revenue standard , while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting policies . see note 3 to our consolidated financial statements for additional information . financial services revenues from our financial services segment grew 3.7 % in 2018 . in 2018 , growth was stronger among our insurance customers , where revenues increased by $ 163 million as compared to an increase of $ 46 million from our banking customers . in this segment , revenues from customers added during 2018 were $ 40 million and represented 19.1 % of the year-over-year revenues increase in this segment . demand in this segment was driven by our customers ' focus on cost optimization in the face of profitability pressures , the need to be compliant with significant regulatory requirements and adaptable to regulatory change , and their adoption and integration of digital technologies that are reshaping our customers ' business and operating models , including customer experience enhancement , robotic process automation and analytics and artificial intelligence .
| 19 the following factors impacted our revenue growth during the year ended december 31 , 2018 as compared to the year ended december 31 , 2017 : solid performance in our communications , media and technology , products and resources and healthcare segments ; revenues in our financial services segment grew below company average as certain banking customers continue to optimize the cost of supporting their legacy systems and operations , including moving a portion of their services to captives , as they shift their spend to transformation and digital services ; sustained strength in the north american market ; revenues from our customers in europe grew 18.3 % , or 15.2 % on a constant currency 3 basis ; ◦ revenues from our rest of europe customers increased 25.2 % , or 22.2 % on a constant currency basis 3 ; ◦ revenues from our united kingdom customers increased 10.8 % , or 7.6 % on a constant currency basis 3 . revenue growth in the united kingdom continues to be negatively affected by weakness in the banking sector in that region ; revenues from our customers in our rest of world region grew 3.4 % , or 6.1 % on a constant currency basis 3 ; increased customer spending on discretionary projects ; expansion of our service offerings , including consulting and digital services , next-generation it solutions and platform-based solutions ; continued expansion of the market for global delivery of technology and business process services ; and increased penetration of existing customers . the following chart sets forth our gaap operating margin , adjusted operating margin 3 and non-gaap operating margin 3 for the years ended december 31 , 2017 and 2018 : the increases in our gaap operating margin , adjusted operating margin 3 and non-gaap operating margin 3 were attributable to our margin enhancement initiatives , which targeted the optimization of our resource pyramid , improvement of utilization and the containment of our corporate spend , as well as the depreciation of the indian rupee against the u.s. dollar , net of lower gains on settlement of our cash flow hedges in 2018 compared to 2017. our gaap operating margin was negatively impacted by the initial funding of the cognizant u.s. foundation . our gaap operating margin and our adjusted operating margin were both negatively impacted by the increase in amortization expense due to recent acquisitions . in 2017 , the united states enacted the tax cuts and jobs act ( `` tax reform act '' ) which significantly revised the u.s. corporate income tax law for
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in fiscal 2014 , we expect total sales to increase driven by the opening of approximately 55 new stores , including approximately five stores in europe . we will make further investments in people and infrastructure in fiscal 2014 , building on the progress we have made through fiscal 2013 , primarily focused on the development of our omni-channel sales strategies and our international growth . we anticipate inventory levels per square foot to be flat or grow slightly . we expect our cash , short-term investments and working capital to increase , and do not anticipate any new borrowings during the year . general net sales constitute gross sales ( net of actual and estimated returns and deductions for promotions ) and shipping revenue . net sales include our in-store sales and our ecommerce sales . net sales are allocated between in-store and ecommerce based on the location where the sale is fulfilled , which does not always represent where the customer originated the sale . we record the sale of gift cards as a current liability and recognize revenue when a customer redeems a gift card . additionally , the portion of gift cards that will not be redeemed ( gift card breakage ) is recognized in net sales after 24 months , at which time the likelihood of redemption is considered remote based on our historical redemption data . we report comparable store sales based on net sales beginning on the first anniversary of the first day of operation of a new store or ecommerce business . we operate a sales strategy that integrates our stores with our ecommerce platform . there is significant interaction between our in-store sales and our ecommerce sales channels and we believe that they are utilized in tandem to serve our customers . therefore , our comparable store sales also include our ecommerce sales . changes in our comparable store sales between two periods are based on net sales of in-store or ecommerce businesses which were in operation during both of the two periods being compared and , if an in-store or ecommerce business is included in the calculation of comparable store sales for only a portion of one of the two periods being compared , then that in-store or ecommerce business is included in the calculation for only the comparable portion of the other period . any change in square footage of an existing comparable store , including remodels and relocations , does not eliminate that store from inclusion in the calculation of comparable store sales . any store or ecommerce business that we acquire will be included in the calculation of comparable store sales after the first anniversary of the acquisition date . as such , blue tomato results are included in the calculation of comparable store sales beginning in july 2013. current year foreign exchange rates are applied to both current year and prior year comparable store sales to achieve a consistent basis for comparison . there may be variations in the way in which some of our competitors and other apparel retailers calculate comparable or same store sales . as a result , data herein regarding our comparable store sales may not be comparable to similar data made available by our competitors or other retailers . 28 cost of goods sold consists of branded merchandise costs and our private label merchandise costs including design , sourcing , importing and inbound freight costs . our cost of goods sold also includes shrinkage , buying , occupancy , ecommerce fulfillment , distribution and warehousing costs ( including associated depreciation ) and freight costs for store merchandise transfers . this may not be comparable to the way in which our competitors or other retailers compute their cost of goods sold . cash consideration received from vendors is reported as a reduction of cost of goods sold if the inventory has sold , a reduction of the carrying value of the inventory if the inventory is still on hand , or a reduction of selling , general and administrative expense if the amounts are reimbursements of specific , incremental and identifiable costs of selling the vendors ' products . with respect to the freight component of our ecommerce sales , amounts billed to our customers are included in net sales and the related freight cost is charged to cost of goods sold . selling , general and administrative expenses consist primarily of store personnel wages and benefits , administrative staff and infrastructure expenses , freight costs for merchandise shipments from the distribution centers to the stores , store supplies , depreciation on fixed assets at our home office and stores , facility expenses , training expenses and advertising and marketing costs . credit card fees , insurance , public company expenses , legal expenses , amortization of intangibles and other miscellaneous operating costs are also included in selling , general and administrative expenses . this may not be comparable to the way in which our competitors or other retailers compute their selling , general and administrative expenses . key performance indicators our management evaluates the following items , which we consider key performance indicators , in assessing our performance : comparable store sales . as previously described in detail under the caption general , comparable store sales provide a measure of sales growth for stores and ecommerce businesses open at least one year over the comparable prior year period . we consider comparable store sales to be an important indicator of our current performance . comparable store sales results are important to achieve leveraging of our costs , including store payroll and store occupancy . comparable store sales also have a direct impact on our total net sales , operating profit , cash and working capital . gross profit . gross profit measures whether we are optimizing the price and inventory levels of our merchandise . gross profit is the difference between net sales and cost of goods sold . story_separator_special_tag any inability to obtain acceptable levels of initial markups or any significant increase in our use of markdowns could have an adverse effect on our gross profit and results of operations . operating profit . we view operating profit as a key indicator of our success . operating profit is the difference between gross profit and selling , general and administrative expenses . the key drivers of operating profit are comparable store sales , gross profit , our ability to control selling , general and administrative expenses and our level of capital expenditures affecting depreciation expense . 29 story_separator_special_tag href= '' https : //www.sec.gov/archives/edgar/data/0001318008/000119312514103495/ # toc '' > conjunction with our acquisition of blue tomato . these decreases were partially offset by a 70 basis points impact from leveraging our store occupancy costs on a 20.4 % net sales increase and 30 basis points in distribution center efficiencies . selling , general and administrative expenses sg & a expenses were $ 172.7 million for fiscal 2012 compared to $ 141.4 million for fiscal 2011 , an increase of $ 31.3 million , or 22.1 % . sg & a expenses as a percent of net sales increased by 30 basis points in fiscal 2012 to 25.8 % . the increase was primarily due to a 60 basis points increase in ecommerce corporate costs due to the growth in our ecommerce business , a 30 basis points impact of a $ 2.3 million charge incurred during fiscal 2012 related to the estimated future incentive payments to be paid in conjunction with our acquisition of blue tomato , a 30 basis points impact of the $ 1.9 million in transaction costs incurred during fiscal 2012 in conjunction with our acquisition of blue tomato and a 20 basis points impact of $ 1.3 million in amortization of intangible assets acquired as part of our blue tomato acquisition . these increases were partially offset by 90 basis points in store operating efficiencies and a 30 basis points decrease in incentive compensation . net income net income for fiscal 2012 was $ 42.2 million , or $ 1.35 per diluted share , compared with net income of $ 37.4 million , or $ 1.20 per diluted share , for fiscal 2011. our effective income tax rate for fiscal 2012 was 40.0 % compared to 39.5 % for fiscal 2011. our effective tax rate for fiscal 2012 was adversely impacted by the tax effects of the acquisition of blue tomato . seasonality and quarterly results as is the case with many retailers of apparel and related merchandise , our business is subject to seasonal influences . as a result , we have historically experienced , and expect to continue to experience , seasonal and quarterly fluctuations in our net sales and operating results . our net sales and operating results are typically lower in the first and second quarters of our fiscal year , while the back-to-school and winter holiday periods in our third and fourth fiscal quarters historically have accounted for the largest percentage of our annual net sales . quarterly results of operations may also fluctuate significantly as a result of a variety of factors , including the timing of store openings and the relative proportion of our new stores to mature stores , fashion trends and changes in consumer preferences , calendar shifts of holiday or seasonal periods , changes in merchandise mix , timing of promotional events , general economic conditions , competition and weather conditions . 32 the following table sets forth selected unaudited quarterly consolidated statements of income data . the unaudited quarterly information has been prepared on a basis consistent with the audited consolidated financial statements included elsewhere herein and includes all adjustments that we consider necessary for a fair presentation of the information shown . this information should be read in conjunction with our audited consolidated financial statements and the notes thereto . the operating results for any fiscal quarter are not indicative of the operating results for a full fiscal year or for any future period and there can be no assurance that any trend reflected in such results will continue in the future . replace_table_token_9_th ( 1 ) all quarters in fiscal 2013 are 13 week periods ended may 4 , 2013 , august 3 , 2013 , november 2 , 2013 and february 1 , 2014 . ( 2 ) included in the results for the fourth quarter of fiscal 2013 are the following : a ) a benefit of $ 5.8 million , of which $ 2.6 million related to prior fiscal years , for the reversal of the previously recorded expense associated with the future incentive payments to be paid in conjunction with our acquisition of blue tomato and b ) a benefit of $ 3.3 million , of which $ 2.7 million related to prior fiscal years , representing the correction of an error related to our calculation to account for rent expense on a straight-line basis . ( 3 ) the quarters in fiscal 2012 are 13 week periods ended april 28 , 2012 , july 28 , 2012 and october 27 , 2012 and a 14 week period ended february 2 , 2013. liquidity and capital resources our primary uses of cash are for operational expenditures , inventory purchases and capital investments , including new stores , store remodels , store relocations , store fixtures and ongoing infrastructure improvements . additionally , we may use cash for the repurchase of our common stock . historically , our main source of liquidity has been cash flows from operations . the significant components of our working capital are inventories and liquid assets such as cash , cash equivalents , current marketable securities and receivables , reduced by accounts payable and accrued expenses . our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or within several days of the related sale , while we typically have longer payment terms with our vendors .
| for information as to how we define comparable store sales , see general above . gross profit gross profit was $ 261.8 million for fiscal 2013 compared to $ 241.3 million for fiscal 2012 , an increase of $ 20.5 million , or 8.5 % . as a percentage of net sales , gross profit increased 10 basis points in fiscal 2013 to 36.1 % . the increase was primarily driven by a 40 basis points benefit due to prior year costs related to a step-up in inventory to estimated fair value in conjunction with our acquisition of blue tomato and a 40 basis points impact of the correction of an error related to our calculation to account for rent expense on a straight-line basis . these increases were partially offset by a 50 basis points impact due to the deleveraging of our store occupancy costs and a 50 basis points impact of the increase in ecommerce related costs due to ecommerce sales increasing as a percent of total sales . 30 selling , general and administrative expenses selling , general and administrative ( sg & a ) expenses were $ 188.9 million for fiscal 2013 compared to $ 172.7 million for fiscal 2012 , an increase of $ 16.2 million , or 9.4 % . sg & a expenses as a percent of net sales increased by 20 basis points in fiscal 2013 to 26.0 % . the increase was primarily driven by a 60 basis points impact of the increase in ecommerce corporate costs due to the growth and investments in our ecommerce business as a percent of total sales , a 40 basis points impact due to the deleveraging of our store operating expenses , a 20 basis points impact due to the deleveraging of our corporate costs and a 20 basis points impact of a litigation settlement charge incurred in fiscal 2013. these increases were partially offset by a 70 basis points impact of
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however , on april 30 , 2013 , the fda issued a complete response letter to our nda stating that it can not approve the application in its present form and outlining the fda 's request for additional clinical data demonstrating adequate clinical benefit to patients from this treatment , data from human factors testing of the training program for insertion and removal of the implants , as well as recommendations regarding product labeling , rems and non-clinical safety data . our efforts since receipt of the crl have focused on working with braeburn , a team of expert clinical and regulatory advisors and the fda to establish a path forward for potential resubmission of the nda with the additional information requested by the fda . following a meeting with the fda on november 19 , 2013 and subsequent discussions we and braeburn have agreed in principle with the fda on a path forward , which along with other steps includes conducting an additional clinical study that is designed to provide a non-inferiority comparison of treatment with a dose of four probuphine implants in stable patients undergoing maintenance treatment with 8mg or less per day of an fda approved sublingual formulation of buprenorphine . the clinical study protocol has been submitted for fda review and further details of the study and implementation plans will be available after completion of the fda review . pursuant to our agreement with braeburn , as amended to date , we are entitled to receive a $ 15 million milestone payment upon fda approval of the nda and royalties on net sales ranging 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 low single digit royalties on sales by braeburn , if any , of future products in the addiction market . probuphine is the first product to utilize proneura , our novel , proprietary , continuous drug delivery technology . our proneura technology has the potential to be used in developing products for the treatment of other chronic conditions , such as parkinson 's disease , where maintaining stable , around the clock blood levels of a dopamine agonist may benefit the patient and improve medical outcomes . we are currently evaluating drugs and disease settings for opportunities to develop this 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 do not currently have the financial resources to pursue these research and development programs beyond an initial stage and are dependent on our ability to secure the requisite financing , either through payments from braeburn under the agreement in the event the probuphine nda is ultimately approved or through other arrangements . we operate in only one business segment , the development of pharmaceutical products . 20 critical accounting policies and the 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 , 2013 and 2012 to be applicable : revenue recognition we generate revenue principally from royalty payments , 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 : 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 . pursuant to certain license agreements , we earn royalties on the sale of fanapt by novartis in the u.s. as described in note 4 , agreement with sanofi-aventis sa and note 8 , royalty liability , we are obligated to pay royalties on such sales to sanofi-aventis and deerfield . as we have no performance obligations under the license agreements , we have recorded the royalties earned , net of royalties we are obligated to pay , as revenue in our statement of operations . 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 . 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 . story_separator_special_tag 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 . 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 . 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 . 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 . 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 , 2013 , 2012 and 2011 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 . 21 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 accrual 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 ) . liquidity and capital resources replace_table_token_3_th we have funded our operations since inception primarily through sales of our debt and equity securities , as well as with proceeds from warrant and option exercises , corporate licensing and collaborative agreements , and government-sponsored research .
| as a result of the risks and uncertainties inherently associated with pharmaceutical research and development activities described elsewhere in this report , 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 . general and administrative expenses for 2013 were approximately $ 3.1 million , compared to approximately $ 4.9 million in 2012 , a decrease of approximately $ 1.8 million , or 37 % . the decrease in general and administrative expenses was primarily related to decreases in non-cash stock compensation costs of approximately $ 1.3 million , employee-related costs of approximately $ 0.2 million and consulting and professional fees of approximately $ 0.3 million . net other income for the year ended december 31 , 2013 was approximately $ 10.6 million , compared to net other expense of approximately $ 6.8 million in the comparable period in 2012. the increase in net other income during the year ended december 31 , 2013 was primarily related to approximately $ 9.0 million of other income generated by the termination of our royalty repurchase agreement with deerfield , an approximately $ 1.9 million gain resulting from the $ 7.5 million settlement of our indebtedness to deerfield as a result of deerfield 's exercise of all of the deerfield warrants , a decrease in interest expense of approximately $ 3.3 million related to the deerfield loans and approximately $ 3.5 million related to non-cash gains on changes in the fair value of warrants . this was offset in part by approximately $ 0.5 million of other expense related to unamortized transaction fees related to the initial deerfield debt transaction . our net income applicable to common stockholders for the year ended december 31 , 2013 was approximately $ 9.7 million , or approximately $ 0.12 per share , compared to our net loss applicable to common stockholders of approximately $ 15.2 million , or approximately $ 0.23 per share , for
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seven year old or older vehicles new vehicles sales declined 1.5 % during 2018 as compared to the prior year , which is the first year-over-year decrease since 2009. we estimate vehicles are driven an average of approximately 12,500 miles each year . in seven years , the average miles driven equates to approximately 87,500 miles . our experience is that at this point in a vehicle 's life , most vehicles are not covered by warranties and increased maintenance is needed to keep the vehicle operating . 25 according to the latest data provided by the auto care association , as of january 1 , 2018 , the average age of vehicles on the road was 11.7 years . for the seventh consecutive year , the average age of vehicles has exceeded 11 years . we expect the aging vehicle population to continue to increase as consumers keep their cars longer in an effort to save money . as the number of seven year old or older vehicles on the road increases , we expect an increase in demand for the products we sell . story_separator_special_tag style= '' white-space : nowrap '' > year-end , the impact of the lower rate will be blended resulting in a u.s. statutory federal tax rate of approximately 25.9 % for the fiscal year ending august 25 , 2018 , and a 21 % u.s. statutory federal rate for fiscal years thereafter . other enacted provisions which may impact the company beginning in fiscal 2019 include : eliminating u.s. federal taxation of future remitted foreign earnings ; other new international provisions requiring current inclusion of certain earnings of controlled foreign corporations ; immediate expensing of capital assets ; and limitations on other tax deductions such as deductibility of executive compensation , interest expense , lobbying expenses , meals and entertainment expenses , and the domestic production activities deduction . 27 the company has withdrawn its assertion regarding the permanent reinvestment of current and accumulated earnings of non-u.s. subsidiaries , but maintained its permanent reinvestment assertion on other basis differences related to non-u.s. subsidiaries . the securities and exchange commission ( sec ) staff issued staff accounting bulletin no . 118 ( sab 118 ) to address the application of u.s. gaap in situations where 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 tax reform . to the extent that a company 's accounting for certain income tax effects of tax reform is incomplete but it is able to determine a reasonable estimate , it must record a provisional estimate in the financial statements . if a company can not determine a provisional estimate to be included in the financial statements , it should continue to apply asc 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of tax reform . the ultimate impact may differ from provisional amounts recorded , possibly materially , due to , among other things , additional analysis , changes in interpretations and assumptions the company has made , and additional regulatory guidance that may be issued . the accounting is expected to be completed within one year from the enactment date of tax reform . based on our current analysis , we recorded a provisional income tax benefit of $ 131.5 million in our consolidated financial statements for the year ended august 25 , 2018. we were able to determine a reasonable estimate for the mandatory one-time transition tax as an increase tax expense of $ 25.8 million and for the re-measurement of our net u.s. federal deferred tax liability at the lower rate , a reduction to tax expense of $ 157.3 million . our analysis of these items is incomplete at this time . we will complete the accounting for these items during the measurement period , which will not extend beyond one year from the enactment date . our effective income tax rate was 18.3 % of pre-tax income for fiscal 2018 compared to 33.5 % for fiscal 2017. the lower tax rate resulted from the $ 131.5 million provisional amount discussed above , $ 31.3 million of excess tax benefits from option exercises , and a $ 119.2 million benefit from the reduction of the u.s. statutory rate from 35 % to approximately 25.9 % . liquidity and capital resources the primary source of our liquidity is our cash flows realized through the sale of automotive parts , products and accessories . net cash provided by operating activities was $ 2.080 billion in 2018 , $ 1.571 billion in 2017 , and $ 1.641 billion in fiscal 2016. cash flows from operations are favorable compared to last year primarily due to the timing of payment of accounts payable and growth in net income due to the benefits of tax reform . our primary capital requirement has been the funding of our continued new-location development program and the building of new distribution centers . from the beginning of fiscal 2016 to august 25 , 2018 , we have opened 621 new locations . we opened two distribution centers in fiscal 2017 and one in fiscal 2018. net cash flows used in investing activities were $ 521.9 million in fiscal 2018 , compared to $ 553.6 million in fiscal 2017 and $ 505.8 million in fiscal 2016. we invested $ 521.8 million in capital assets in fiscal 2018 , compared to $ 553.8 million in fiscal 2017 and $ 488.8 million in fiscal 2016. the decrease in capital expenditures from fiscal 2017 was primarily attributable to the construction of the one distribution center in fiscal 2018 compared to two distribution centers in fiscal 2017. we had new location openings of 201 for fiscal 2018 , 215 for fiscal 2017 , and 205 for fiscal 2016. cash flows were also used in the purchase of other intangibles for $ 10 million in fiscal 2016. we invest a portion of our assets held by our wholly owned story_separator_special_tag insurance captive in marketable securities . we purchased $ 104.5 million in marketable securities in fiscal 2018 , $ 85.7 million in fiscal 2017 and $ 130.2 million in fiscal 2016. we had proceeds from the sale of marketable securities of $ 69.6 million in fiscal 2018 , $ 83.0 million in fiscal 2017 and $ 120.5 million in fiscal 2016. net cash used in financing activities was $ 1.632 billion in 2018 , $ 914.3 million in 2017 and $ 1.117 billion in fiscal 2016. the net cash used in financing activities reflected purchases of treasury stock which totaled $ 1.592 billion for fiscal 2018 , $ 1.072 billion for fiscal 2017 and $ 1.452 billion for fiscal 2016. the treasury stock purchases in fiscal 2018 , 2017 and 2016 were primarily funded by cash flows from operations . the company did not issue any new debt in fiscal 2018 compared to $ 600 million for fiscal 2017 and $ 650 million for fiscal 2016. in fiscal 2018 , we used commercial paper borrowings to repay the $ 250 million senior notes due in august 2018. in fiscal 2017 , the proceeds from the issuance of debt were used for the repayment of a portion of our outstanding commercial paper borrowings , which were used to repay the $ 400 million senior notes due in january 2017 . 28 in fiscal 2016 , the proceeds from the issuance of debt were used for general corporate purposes , including for working capital requirements , capital expenditures , store openings and stock repurchases . in fiscal 2016 , we used commercial paper borrowings to repay the $ 300 million senior notes due in november 2015 and the $ 200 million senior notes due in june 2016. net proceeds from the issuance of commercial paper and short-term borrowings for fiscal 2018 were $ 170.2 million . in 2017 , we made net repayments of commercial paper and short-term borrowings in the amount of $ 42.4 million . net proceeds from the issuance of commercial paper and short-term borrowings for fiscal 2016 were $ 149.9 million . during fiscal 2019 , we expect to increase the investment in our business as compared to fiscal 2018. our investments are expected to be directed primarily to new locations , supply chain infrastructure , enhancements to existing locations and investments in technology . the amount of investments in our new locations is impacted by different factors , including such factors as whether the building and land are purchased ( requiring higher investment ) or leased ( generally lower investment ) , located in the united states , mexico or brazil , or located in urban or rural areas . during fiscal 2018 , our capital expenditures decreased by approximately 6 % compared to the prior year period . in 2017 and 2016 , our capital expenditures increased by approximately 13 % and 2 % , respectively , as compared to the prior year . in addition to the building and land costs , our new locations require working capital , predominantly for inventories . historically , we have negotiated extended payment terms from suppliers , reducing the working capital required and resulting in a high accounts payable to inventory ratio . we plan to continue leveraging our inventory purchases ; however , our ability to do so may be limited by our vendors ' capacity to factor their receivables from us . certain vendors participate in financing arrangements with financial institutions whereby they factor their receivables from us , allowing them to receive payment on our invoices at a discounted rate . in recent years , we initiated a variety of strategic tests focused on increasing inventory availability , which increased our inventory per location . many of our vendors have supported our initiative to update our product assortments by providing extended payment terms . these extended payment terms have allowed us to continue our high accounts payable to inventory ratio . we had an accounts payable to inventory ratio of 111.8 % at august 25 , 2018 , 107.4 % at august 26 , 2017 , and 112.8 % at august 27 , 2016. the increase from fiscal 2017 to fiscal 2018 was primarily due to more favorable vendor terms . depending on the timing and magnitude of our future investments ( either in the form of leased or purchased properties or acquisitions ) , we anticipate that we will rely primarily on internally generated funds and available borrowing capacity to support a majority of our capital expenditures , working capital requirements and stock repurchases . the balance may be funded through new borrowings . we anticipate that we will be able to obtain such financing in view of our credit ratings and favorable experiences in the debt markets in the past . our cash balances are held in various locations around the world . as of august 25 , 2018 , and august 26 , 2017 , cash and cash equivalents of $ 98.8 million and $ 148.4 million , respectively , were held outside of the u.s. and were generally utilized to support liquidity needs in our foreign operations . for the fiscal year ended august 25 , 2018 , our after-tax return on invested capital ( roic ) was 32.1 % as compared to 29.9 % for the comparable prior year period . roic is calculated as after-tax operating profit ( excluding rent charges ) divided by invested capital ( which includes a factor to capitalize operating leases ) . for fiscal 2018 , after-tax operating profit was adjusted for impairment charges , pension termination charges and tax reform 's impact on the revaluation of deferred tax liabilities , net of the repatriation tax . the increase in roic is primarily due to the decrease in average debt , along with increased net income due to tax reform . we use roic to evaluate whether we are effectively using our capital resources and believe it is an important indicator of our overall operating performance .
| interest expense , net for fiscal 2018 was $ 174.5 million compared with $ 154.6 million during fiscal 2017. this increase was primarily due to higher borrowing rates . average borrowings for fiscal 2018 were $ 4.997 billion , compared with $ 5.070 billion for fiscal 2017 , and weighted average borrowing rates were 3.2 % for fiscal 2018 , compared to 2.8 % for fiscal 2017. our effective income tax rate was 18.3 % of pre-tax income for fiscal 2018 compared to 33.5 % for fiscal 2017. the lower tax rate resulted primarily from the enactment of tax reform during the second quarter ended february 10 , 2018 ( see note dincome taxes in the notes to consolidated financial statements ) . net income for fiscal 2018 increased by 4.4 % to $ 1.338 billion , and diluted earnings per share increased 10.7 % to $ 48.77 from $ 44.07 in fiscal 2017. the impact on the fiscal 2018 diluted earnings per share from stock repurchases was an increase of $ 1.36. fiscal 2017 compared with fiscal 2016 for the fiscal year ended august 26 , 2017 , we reported net sales of $ 10.889 billion compared with $ 10.636 billion for the year ended august 27 , 2016 , a 2.4 % increase from fiscal 2016. this growth was driven primarily by net sales of $ 172.5 million from new domestic autozone stores and domestic same store sales increase of 0.5 % . domestic commercial sales increased $ 110.9 million , or 5.7 % , over domestic commercial sales for fiscal 2016. at august 26 , 2017 , we operated 5,465 domestic autozone stores , 524 in mexico , 14 in brazil , and 26 imc branches compared with 5,297 domestic autozone stores , 483 in mexico , eight in brazil and 26 imc branches at august 27 , 2016. we reported a total auto parts ( domestic , mexico , brazil and imc ) sales increase of 2.6 % for fiscal 2017 . 26 gross profit for fiscal 2017 was $ 5.740 billion ,
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, an auditor discussion and analysis ) ; submit certain executive compensation matters to shareholder advisory votes , such as `` say-on-pay '' and `` say-on-frequency ; '' and disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also 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 for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . the company is in the early stages of its operations , and many of its plans and objectives are aspirational in nature , and thus might never come to fruition . at this time , the company plans to retain engineering and architectural firms based in the united states who have extensive experience in developing modular structures in the united states , china and other foreign locations based on market demand , which has not been thoroughly researched to date . the company has been focused on obtaining quotes , negotiating formal engagements and researching all aspects of the modular construction industry . while the infrastructure is still in the developmental stage , the company is confident that it has the experience , or access to those with experience , in the modular construction field . the company plans on engaging in onsite placement and delivery of modular structures . mr. perkins has extensive experience in operating business in china . one of the reasons that mr. perkins was sought out and invited to participate in developing the modular industry in china is that he was the co-chairman of a construction company in china - yilaime foreign partnership in henghsui china . his experience with yilaime foreign partnership allows ati modular to call on local companies in china as well as modular companies and experts in the united states to help provide on-site services . yilaime foreign partnership is not a related party to the company , ati , yilaime or axp . - 15 - [ ] in addition , the company recently joined the modular building institute in charlottesville , virginia . in september of 2016 , mr. perkins attended the institute 's annual exposition in order to line up available suppliers , and experts in the modular construction field . we intend on offering support services in all phases of modular construction . our approach will be to focus on exporting united states based technology , services and equipment , and general “ know-how. ” exporters in our related company , americatowne , are experienced in the modular field and we plan on allowing those experienced exporters to participate in various levels of our program . the company currently does not have a principal supplier of raw materials . the company has identified potential sources of raw materials in the united states through its membership in the modular building institute . one of our primary challenges will be pricing the source of raw materials and delivery to china . we are also looking to potential raw material sources in china . to operate within china , the company requires approval of government officials in china . in both cases where the company has signed cooperative agreements ( and in the case of the shexian agreement ) , and at the invitation of the local government , we have the approval to register and conduct business . fiscal year our fiscal year ends on december 31. story_separator_special_tag serif ; margin : 0 ; text-align : justify ; text-indent : -0.5pt '' > plan of operation and cash requirements the company anticipates that its expenses over the next twelve months will be approximately $ 5,000,000 as described in the table below . these estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources . replace_table_token_5_th - 18 - [ ] our other administrative expenses for the year will consist primarily of transfer agent fees , bank and interest charges and general office expenses . the professional fees are related to our regulatory filings throughout the year and include legal , accounting and auditing fees . the equipment purchases and plant set-up are related to the materially definitive agreement with jiangnan . based on our planned expenditures , we will require approximately $ 5,000,000 to proceed with our business plan over the next twelve months . if we secure less than the full amount of financing that we require , we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources . we intend to raise the balance of our cash requirements for the next twelve months pursuant to our agreement with jiangnan by accessing upon request bank loans , bank guarantees and equity funding . additionally , we may have private placements , shareholder loans or possibly a registered public offering ( either self-underwritten or through a broker-dealer ) . if we are unsuccessful in raising enough money through such efforts , we may review other financing possibilities such as bank loans . at this time , other than our agreement with jiangnan we do not have a commitment from any third-party to provide us with financing . there is no assurance that any financing will be available to us or if available , on terms story_separator_special_tag , an auditor discussion and analysis ) ; submit certain executive compensation matters to shareholder advisory votes , such as `` say-on-pay '' and `` say-on-frequency ; '' and disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the ceo 's compensation to median employee compensation . in addition , section 107 of the jobs act also 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 for complying with new or revised accounting standards . in other words , an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we have elected to take advantage of the benefits of this extended transition period . our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards . the company is in the early stages of its operations , and many of its plans and objectives are aspirational in nature , and thus might never come to fruition . at this time , the company plans to retain engineering and architectural firms based in the united states who have extensive experience in developing modular structures in the united states , china and other foreign locations based on market demand , which has not been thoroughly researched to date . the company has been focused on obtaining quotes , negotiating formal engagements and researching all aspects of the modular construction industry . while the infrastructure is still in the developmental stage , the company is confident that it has the experience , or access to those with experience , in the modular construction field . the company plans on engaging in onsite placement and delivery of modular structures . mr. perkins has extensive experience in operating business in china . one of the reasons that mr. perkins was sought out and invited to participate in developing the modular industry in china is that he was the co-chairman of a construction company in china - yilaime foreign partnership in henghsui china . his experience with yilaime foreign partnership allows ati modular to call on local companies in china as well as modular companies and experts in the united states to help provide on-site services . yilaime foreign partnership is not a related party to the company , ati , yilaime or axp . - 15 - [ ] in addition , the company recently joined the modular building institute in charlottesville , virginia . in september of 2016 , mr. perkins attended the institute 's annual exposition in order to line up available suppliers , and experts in the modular construction field . we intend on offering support services in all phases of modular construction . our approach will be to focus on exporting united states based technology , services and equipment , and general “ know-how. ” exporters in our related company , americatowne , are experienced in the modular field and we plan on allowing those experienced exporters to participate in various levels of our program . the company currently does not have a principal supplier of raw materials . the company has identified potential sources of raw materials in the united states through its membership in the modular building institute . one of our primary challenges will be pricing the source of raw materials and delivery to china . we are also looking to potential raw material sources in china . to operate within china , the company requires approval of government officials in china . in both cases where the company has signed cooperative agreements ( and in the case of the shexian agreement ) , and at the invitation of the local government , we have the approval to register and conduct business . fiscal year our fiscal year ends on december 31. story_separator_special_tag serif ; margin : 0 ; text-align : justify ; text-indent : -0.5pt '' > plan of operation and cash requirements the company anticipates that its expenses over the next twelve months will be approximately $ 5,000,000 as described in the table below . these estimates may change significantly depending on the nature of our business activities and our ability to raise capital from our shareholders or other sources . replace_table_token_5_th - 18 - [ ] our other administrative expenses for the year will consist primarily of transfer agent fees , bank and interest charges and general office expenses . the professional fees are related to our regulatory filings throughout the year and include legal , accounting and auditing fees . the equipment purchases and plant set-up are related to the materially definitive agreement with jiangnan . based on our planned expenditures , we will require approximately $ 5,000,000 to proceed with our business plan over the next twelve months . if we secure less than the full amount of financing that we require , we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources . we intend to raise the balance of our cash requirements for the next twelve months pursuant to our agreement with jiangnan by accessing upon request bank loans , bank guarantees and equity funding . additionally , we may have private placements , shareholder loans or possibly a registered public offering ( either self-underwritten or through a broker-dealer ) . if we are unsuccessful in raising enough money through such efforts , we may review other financing possibilities such as bank loans . at this time , other than our agreement with jiangnan we do not have a commitment from any third-party to provide us with financing . there is no assurance that any financing will be available to us or if available , on terms
| the operations fee is noted in the costs of revenues . we can make no assurances that we will find commercial success in any of our revenue producing contracts . we are a new company and thus have very limited experience in sales expectations and forecasting . we also have not fully discovered any seasonality to our business as we began operations in the first quarter of 2017. operating expenses our expenses for the period through december 31 , 2016 are outlined in the table below : replace_table_token_3_th our operating expenses are largely attributable to office , rent and professional fees related to our reporting requirements as a public company and implementation of our business plan . in 2016 our operating expenses were $ 588,488 and 2015 $ 3,859. net income as a result of our operations , for 2016 , the company reported net income after provision for income tax of $ 84,423 compared to 2015 , our net income was ( $ 3,859 ) . the increase is due to starting our business plan . liquidity and capital resources working capital december 31 , 2016 december 31 , 2015 current assets $ 601,855 $ current liabilities $ 209,699 $ 3,859 working capital $ 392,156 $ 0 we have working capital of $ 392,156 on december 31 , 2016. compared to december 31 , 2015 , working capital of $ 0. the increase is due to effectively implementing our initial business plans . cash flow replace_table_token_4_th - 17 - [ ] cash provided by operating activities compared to 2015 , increase in cash used in operating activities in 2016 is mainly due to increase in accounts receivable . cash used in investing activities we spent $ 2,540 on fixed assets for 2016 compared to $ 0 in 2015. cash provided by financing activities compared to 2015 , our cash used in financing activities increased $ 145,049. the increase is due to proceeds from issuance of common stock
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these operational efficiencies become more important in times of lower crude oil prices as operators become more focused on minimizing costs . further , we believe that operators in all of our target markets are under intense pressure to meet current and proposed federal , state and local emissions standards . we believe that our duplex technology can provide a unique , cost-effective pollution control solution for operators . 19 historically , we have funded our operations through the sale of our common stock , including the following sales of common stock in the public market : - in april and may 2012 , we completed an initial public offering ( ipo ) of our common stock whereby we sold 3,450,000 shares of common stock at $ 4.00 per share , which included the exercise of the underwriter 's overallotment option , resulting in gross proceeds of $ 13.8 million and , after deducting certain costs paid with common stock , net proceeds of $ 11.6 million . - in march 2014 , we completed a registered direct offering of our common stock whereby we sold 812,500 shares of common stock at $ 8.00 per share resulting in gross proceeds of $ 6.5 million and net proceeds of approximately $ 5.8 million . - in february 2015 , we completed an underwritten public offering of our common stock whereby we sold 2,990,000 shares of common stock at $ 5.85 per share resulting in gross proceeds of $ 17.5 million and net proceeds of approximately $ 16.3 million . our anticipated costs include employee salaries and benefits , compensation paid to consultants , materials and supplies for research , costs associated with development activities including materials , sub-contractors , travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we currently have 18 full-time employees and 1 part-time employee . we anticipate increasing the number of employees required to support our activities in the areas of research and development , sales and marketing , and general and administrative functions . we expect to incur consulting expenses related to technology development commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property . the amount that we spend for any specific purpose may vary significantly , and could depend on a number of factors including , but not limited to , the pace of progress of our commercialization and development efforts , actual needs with respect to product testing , development and research , market conditions , and changes in or revisions to our marketing strategies . research , development , and commercial acceptance of new technologies are , by their nature , unpredictable . although we will undertake development and commercialization efforts with reasonable diligence , there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations . if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to : additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . we can not assure that our technology will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts or to otherwise severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our audited financial statements for a more complete description of our significant accounting policies . revenue recognition and cost of revenue . revenues from design and installation of the company 's products are recognized on the completed contract method . revenues from contracts and related costs of goods sold are recognized once the contract is completed or substantially completed . contract costs include all direct material and labor costs and those indirect costs related to contract performance , such as indirect labor , supplies , and depreciation costs . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . 20 research and development . the cost of research and development is expensed as incurred . research and development costs story_separator_special_tag these operational efficiencies become more important in times of lower crude oil prices as operators become more focused on minimizing costs . further , we believe that operators in all of our target markets are under intense pressure to meet current and proposed federal , state and local emissions standards . we believe that our duplex technology can provide a unique , cost-effective pollution control solution for operators . 19 historically , we have funded our operations through the sale of our common stock , including the following sales of common stock in the public market : - in april and may 2012 , we completed an initial public offering ( ipo ) of our common stock whereby we sold 3,450,000 shares of common stock at $ 4.00 per share , which included the exercise of the underwriter 's overallotment option , resulting in gross proceeds of $ 13.8 million and , after deducting certain costs paid with common stock , net proceeds of $ 11.6 million . - in march 2014 , we completed a registered direct offering of our common stock whereby we sold 812,500 shares of common stock at $ 8.00 per share resulting in gross proceeds of $ 6.5 million and net proceeds of approximately $ 5.8 million . - in february 2015 , we completed an underwritten public offering of our common stock whereby we sold 2,990,000 shares of common stock at $ 5.85 per share resulting in gross proceeds of $ 17.5 million and net proceeds of approximately $ 16.3 million . our anticipated costs include employee salaries and benefits , compensation paid to consultants , materials and supplies for research , costs associated with development activities including materials , sub-contractors , travel and administration , legal expenses , sales and marketing costs , general and administrative expenses , and other costs associated with an early stage , publicly-traded technology company . we currently have 18 full-time employees and 1 part-time employee . we anticipate increasing the number of employees required to support our activities in the areas of research and development , sales and marketing , and general and administrative functions . we expect to incur consulting expenses related to technology development commensurate with our current levels and we expect to incur increasing expenses to protect our intellectual property . the amount that we spend for any specific purpose may vary significantly , and could depend on a number of factors including , but not limited to , the pace of progress of our commercialization and development efforts , actual needs with respect to product testing , development and research , market conditions , and changes in or revisions to our marketing strategies . research , development , and commercial acceptance of new technologies are , by their nature , unpredictable . although we will undertake development and commercialization efforts with reasonable diligence , there can be no assurance that the net proceeds from our securities offerings will be sufficient to enable us to develop our technology to the extent needed to create future sales to sustain operations . if the net proceeds from these offerings are insufficient for this purpose , we will consider other options to continue our path to commercialization , including , but not limited to : additional financing through follow-on equity offerings , debt financing , co-development agreements , sale or licensing of developed intellectual or other property , or other alternatives . we can not assure that our technology will be accepted , that we will ever earn revenues sufficient to support our operations , or that we will ever be profitable . furthermore , we have no committed source of financing and we can not assure that we will be able to raise money as and when we need it to continue our operations . if we can not raise funds as and when we need them , we may be required to scale back our development plans by reducing expenditures for employees , consultants , business development and marketing efforts or to otherwise severely curtail , or even to cease , our operations . critical accounting policies the following discussion and analysis of financial condition and results of operations is based upon our financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states of america . certain accounting policies and estimates are particularly important to the understanding of our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside of our control . as a result , they are subject to an inherent degree of uncertainty . in applying these policies , our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates . those estimates are based on our historical operations , our future business plans and projected financial results , the terms of existing contracts , our observance of trends in the industry , information provided by our customers and information available from other outside sources , as appropriate . see note 2 to our audited financial statements for a more complete description of our significant accounting policies . revenue recognition and cost of revenue . revenues from design and installation of the company 's products are recognized on the completed contract method . revenues from contracts and related costs of goods sold are recognized once the contract is completed or substantially completed . contract costs include all direct material and labor costs and those indirect costs related to contract performance , such as indirect labor , supplies , and depreciation costs . provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined . 20 research and development . the cost of research and development is expensed as incurred . research and development costs
| also , as a result of the company 's regular review of its capitalized patent and other intangible asset costs made in connection with the preparation of the financial statements included in this report , the impairment loss was increased by $ 331,000 in 2015 , to $ 593,000 , due to the conclusion that it was not cost beneficial to continue to pursue certain ecc patents pending . loss from operations . due to the increase in operating expenses , our loss from operations increased during 2015 by $ 641,000 , to $ 7,942,000 compared to $ 7,301,000 during 2014 , an increase of approximately 9 % . net loss . primarily as a result of the increase in operating expenses , our net loss for 2015 was $ 7,898,000 as compared to a net loss of $ 7,296,000 for 2014 , resulting in a $ 602,000 increase in the net loss or approximately 8 % . 21 liquidity and capital resources at december 31 , 2015 , our cash and cash equivalent balance totaled $ 10,985,000 compared to $ 1,845,000 at december 31 , 2014 , which we believe will be adequate to support our operations for at least the next 18 months . this increase resulted primarily from our underwritten public offering of 2,990,000 shares of common stock in february 2015 which resulted in net proceeds of approximately $ 16.3 million . this was offset by the operating costs for the year ended december 31 , 2015. although we are pursuing sales and co-development agreements , there is no assurance that they will be adequate to fund our operations and to commercialize our technology . to the extent sales and co-development agreement funding is insufficient for these purposes , we may undertake offerings of our securities , debt financing , selling or licensing our developed intellectual or other property , or other alternatives . the company filed a form s-3 shelf registration statement with the securities and exchange commission on december 29 , 2015 that was declared effective on january 7 , 2016. the registration statement allows the company
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in 2017 , sales-based commission revenue increased approximately $ 3.7 million , primarily due to increased activity in mutual funds , insurance and general securities resulting from overall market performance , portfolio rebalancings , product availability and segment refocusing . general securities include equities , exchange-traded funds , bonds and alternative investments . in 2017 , trailing commission revenue increased approximately $ 6.4 million and reflects an increase in the market value of the underlying assets and the impact of new investments . advisory revenue : advisory revenue primarily includes fees charged to clients in advisory accounts where hd vest is the registered investment adviser ( “ ria ” ) and is based on the value of advisory assets . advisory fees are typically billed to clients quarterly , in advance , and are recognized as revenue ratably during the quarter . the value of the assets in an advisory account on the billing date determines the amount billed and , accordingly , the revenues earned in the following three-month period . the majority of our accounts are billed in advance using values as of the last business day of the prior calendar quarter . the activity within our advisory assets was as follows : replace_table_token_7_th increases or decreases in advisory assets have a limited impact on advisory fee revenue in the period in which they occur . rather , increases or decreases in advisory assets are a primary driver of future advisory fee revenue due to advisory fees being billed in advance . advisory revenue for a particular quarter is predominately driven by the prior quarter-end advisory assets . 36 in 2018 , the increase in advisory revenue of approximately $ 18.7 million was primarily due to the increase in the beginning-of-period advisory assets for 2018 compared with 2017. in 2017 , the increase in advisory revenue of approximately $ 16.3 million was consistent with the increase in the beginning-of-period advisory assets for 2017 compared with 2016. asset-based revenue : asset-based revenue primarily includes fees from financial product manufacturer sponsorship programs , cash sweep programs and other asset-based revenues , primarily including margin revenues . in 2018 , asset-based revenue increased $ 5.2 million , primarily from increased revenues from financial product manufacturer sponsorship programs , higher cash sweep revenues following increases in interest rates and impacts from our transition to our new clearing firm in the third quarter of 2018. in 2017 , asset-based revenue increased $ 3.6 million , primarily from higher cash sweep revenues following increases in interest rates . transaction and fee revenue : transaction and fee revenue primarily includes support fees charged to advisors , fees charged for executing certain transactions in client accounts , and other fees related to services provided and other account charges as generally outlined in agreements with financial advisors , clients , and financial institutions . in 2018 , transaction and fee revenue decreased approximately $ 3.2 million primarily due to the impact of the adoption of new revenue recognition standards in the first quarter of 2018 and lower technology fees . see `` note 2 : summary of significant accounting policies '' of the notes to consolidated financial statements in part ii item 8 of this report for additional information concerning the impact of the new revenue recognition standards on our operating results . in 2017 , transaction and fee revenue increased approximately $ 2.0 million primarily related to advisor fee increases . tax preparation replace_table_token_8_th tax preparation revenue is derived primarily from the sale of tax preparation digital services , ancillary services , packaged tax preparation software , and arrangements that may include a combination of these items . ancillary services include tax preparation support services , e-filing services , bank or reloadable pre-paid debit card services , and other value-added services , including tax and wealth management services through our wealth management business . revenue by category was as follows : replace_table_token_9_th we measure our consumer tax preparation customers using the number of accepted federal tax e-files made through our software and digital services . we consider the volume of e-files to be an important non-financial metric in measuring the performance of the consumer side of the tax preparation business . e-file metrics were as follows : 37 replace_table_token_10_th we participate in the free file alliance that is part of an irs partnership that provides free electronic tax filing services to taxpayers meeting certain income-based guidelines . free file alliance e-files are included within digital e-files above . we measure our professional tax preparer customers using three metrics : the number of accepted federal tax e-files made through our software , the number of units sold , and the number of e-files per unit sold . we consider growth in these areas to be important non-financial metrics in measuring the performance of the professional tax preparer side of the tax preparation business . those metrics were as follows : replace_table_token_11_th year ended december 31 , 2018 compared with year ended december 31 , 2017 tax preparation revenue increase d approximately $ 26.3 million , primarily due to growth in revenue earned from digital consumer users and increased sales of our professional tax preparer software . digital consumer revenue grew , despite a decrease in e-files , due to growth in average revenue per user , primarily resulting from price increases , which are expected to continue to be the primary driver of growth in the near future . the decrease in e-files was consistent with our expectations as we continued our multi-year pivot toward more profitable customers . revenue derived from professional tax preparers increased , despite a minor decrease in the number of professional preparer units sold , primarily due to growth in average revenue per user , primarily resulting from price increases . revenue from ancillary services , primarily tax refund payment transfer , also grew primarily resulting from price increases . tax preparation operating income increase d approximately $ 14.3 million , consisting of the $ 26.3 million increase in revenue and offset by a $ 12.0 million increase in operating expenses . story_separator_special_tag the increase in tax preparation segment operating expenses was primarily due to higher spend on marketing , particularly offline media and digital marketing efforts , an increase in engineering development projects , and an increase in consulting expenses primarily related to strategic initiatives . year ended december 31 , 2017 compared with year ended december 31 , 2016 tax preparation revenue increased approximately $ 21.6 million primarily due to growth in revenue earned from digital consumer users and , to a lesser extent , increased sales of our professional tax preparer software . digital consumer revenue grew , despite a decrease in e-files , due to growth in average revenue per user , primarily resulting from price increases . revenue derived from professional tax preparers increased primarily due to an increase in the number of professional preparer units sold . tax preparation operating income increased approximately $ 6.0 million , consisting of the $ 21.6 million increase in revenue and offset by a $ 15.5 million increase in operating expenses . the increase in tax preparation segment operating expenses was primarily due to higher spending on marketing , higher professional services fees mostly related to marketing and development projects , higher data center costs related to software support and maintenance fees , increases in growth initiative investments , and higher personnel expenses . 38 corporate-level activity replace_table_token_12_th certain corporate-level activity is not allocated to our segments , including certain general and administrative costs ( including personnel and overhead costs ) , stock-based compensation , acquisition-related costs , depreciation , amortization of acquired intangible assets , and restructuring . for further detail , refer to segment information appearing in `` note 3 : segment information and revenues `` of the notes to consolidated financial statements in part ii item 8 of this report . year ended december 31 , 2018 compared with year ended december 31 , 2017 operating expenses included in corporate-level activity decreased primarily due to lower strategic transformation costs , which primarily consisted of severance and other personnel-related costs . stock-based compensation increased primarily due to activity within our wealth management business related to stock options granted to certain hd vest financial advisors and a decrease in forfeitures from the prior period , partially offset by lower expenses related to the impact of equity award modifications associated with certain individuals impacted by the relocation of our corporate headquarters in 2017. depreciation expense increased primarily due to the abandonment of certain internally-developed software fixed assets . restructuring expense relates to non-recurring expenses incurred due to the relocation of our corporate headquarters during 2017 from bellevue , washington to irving , texas . further detail is provided under the `` operating expenses - restructuring '' section below . year ended december 31 , 2017 compared with year ended december 31 , 2016 operating expenses included in corporate-level activity increased primarily due to strategic transformation costs and costs associated with leadership changes at hd vest . strategic transformation costs primarily related to the relocation cost of our corporate headquarters and are not classified as restructuring . these costs are associated with transitioning of roles such as overlap in staffing and recruiting search fees . stock-based compensation decreased primarily due to fewer grants in the current year and higher expense recognized in 2016 related to grants made to hd vest employees in 2016 that were made in connection with the hd vest acquisition , partially offset by activity within our tax preparation business due to prior forfeitures . acquisition-related costs , depreciation and amortization of acquired intangible assets were comparable to 2016. restructuring relates to expenses incurred in connection with the relocation of our corporate headquarters in 2017. further detail is provided under the `` operating expenses - restructuring '' section of the management 's discussion and analysis of financial condition and results of operations below . 39 operating expenses cost of revenue replace_table_token_13_th we record the cost of revenue for sales of services when the related revenue is recognized . services cost of revenue consists of costs related to our wealth management and tax preparation businesses , which include commissions to financial advisors , third-party costs , and costs associated with the technical support team and the operation of our data centers . data center costs include personnel expenses ( salaries , stock-based compensation , benefits , and other employee-related costs ) , the cost of temporary help and contractors , professional services fees ( which include technology project consulting fees ) , software support and maintenance , bandwidth and hosting costs , and depreciation . cost of revenue also includes the amortization of acquired technology . year ended december 31 , 2018 compared with year ended december 31 , 2017 wealth management services cost of revenue increased primarily due to higher commissions paid to our financial advisors , which fluctuated in proportion to the change in underlying commission and advisory revenues earned on client accounts . tax preparation services cost of revenue was comparable to 2017 as the cost of maintaining our tax preparation platform is somewhat fixed , and does not necessarily vary with revenues . year ended december 31 , 2017 compared with year ended december 31 , 2016 wealth management services cost of revenue increased primarily due to an increase in commissions paid to our financial advisors , which fluctuated in proportion to the change in underlying commission and advisory revenues earned on client accounts , and higher stock-based compensation costs related to grants to certain hd vest financial advisors made during 2017 because no comparable grants were made in 2016. tax preparation services cost of revenue increased primarily due to an increase in data center costs related to software support and maintenance fees .
| year ended december 31 , 2017 compared with year ended december 31 , 2016 revenue increase d approximately $ 53.6 million due to increases of $ 32.1 million and $ 21.6 million in revenue related to our wealth management and tax preparation businesses , respectively , as discussed in the following `` segment revenue/operating income '' section . operating income increase d approximately $ 10.9 million , consisting of the $ 53.6 million increase in revenue and offset by a $ 42.7 million increase in operating expenses . key changes in operating expenses were : $ 27.5 million increase in the wealth management segment 's operating expenses , primarily due to higher commissions paid to our financial advisors , which fluctuated in proportion to the change in underlying commission and advisory revenues earned on client accounts , and higher net personnel expenses as we continued to standardize employee benefits across our businesses . $ 15.5 million increase in the tax preparation segment 's operating expenses , primarily due to higher spending on marketing , higher professional services fees mostly related to marketing and development projects , higher data center costs related to software support and maintenance fees , increases in growth initiative investments , and higher personnel expenses . $ 0.3 million decrease in corporate-level expense activity , primarily due to lower stock-based compensation costs due to fewer grants in 2017 compared to 2016 and higher expense recognized in 2016 related to grants made to hd vest employees in 2016 in connection with the hd vest acquisition , partially offset by decreases within our tax preparation business due to prior forfeitures , and lower personnel costs , both offset by strategic transformation costs . segment revenue/operating income the revenue and operating income amounts in this section are presented on a basis consistent with accounting principles generally accepted in the u.s. ( “ gaap ” ) and include certain reconciling items attributable to our segments . segment information appearing in `` note 3 : segment information and revenues `` of the notes to consolidated financial statements in part ii item 8 of this report is presented on a basis consistent with our current internal
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the average spending per customer for each of the years ended december 31 , 2016 , 2015 and 2014 was approximately $ 65,000 , $ 59,000 and $ 58,000 , respectively . we believe there is a significant long term growth opportunity in both domestic and foreign markets , which could include any organization that uses file shares , intranets and email for collaboration , regardless of region . for the year ended december 31 , 2016 , approximately 61 % of our revenues were derived from the united states , while europe , the middle east and africa accounted for approximately 32 % of our revenues and rest of world ( “ row ” ) accounted for approximately 7 % of our revenues . growth in the us was particularly strong , increasing 37 % for both the three months and year ended december 31 , 2016 as compared to the comparable periods in the prior year . in emea , growth for the three months and year ended december 31 , 2016 was 4 % and 16 % , respectively , as compared to the comparable periods in the prior year . for the last couple of quarters , our business in emea ( and particularly in europe ) was weaker than expected , as we experienced a more difficult selling environment . we expect both continued sales growth in the united states and international expansion to be key components of our growth strategy , and we will continue to market our products and services in international markets . we plan to continue to expand our international operations as part of our growth strategy . the expansion of our international operations depends in particular on our ability to hire , integrate and retain local sales and marketing personnel in these international markets , acquire new channel partners and implement an effective marketing strategy . given the nominal amount of our row revenues , our row revenue growth rates have fluctuated in the past and may fluctuate in the future based on the timing of deal closures . in addition , the further expansion of our international operations will increase our sales and marketing and general and administrative expenses and will subject us to a variety of risks and challenges , including those related to economic and political conditions in each region , compliance with foreign laws and regulations , and compliance with domestic laws and regulations applicable to our international operations . 29 we derive revenues from license sales of our products , services , including initial maintenance contracts and professional services , and renewals . substantially all of our license sales are derived from a platform of products , consisting of datadvantage , dataprivilege , idu classification framework and data transport engine . as of december 31 , 2016 , 2015 and 2014 , 92.8 % , 92.5 % and 94.1 % of our customers , respectively , had purchased datadvantage ; 16.0 % , 17.2 % and 19.0 % of our customers , respectively , had purchased dataprivilege ; 35.2 % , 30.5 % and 26.9 % of our customers , respectively , had purchased idu classification framework ; and 5.5 % , 4.5 % and 3.2 % of our customers , respectively , had purchased data transport engine . as of december 31 , 2016 , 2015 and 2014 , 44.7 % , 47.4 % and 51.9 % of our customers , respectively , made standalone purchases of datadvantage , and less than 0.4 % of our customers made standalone purchases of dataprivilege . as of december 31 , 2016 , our customers made no standalone purchases of idu classification framework or data transport engine . licenses sales accounted for 56.5 % , 56.0 % and 57.6 % of our total revenues for the years ended december 31 , 2016 , 2015 and 2014 , respectively . we have achieved significant growth and scale in recent periods utilizing our business model . for the years ended december 31 , 2016 , 2015 and 2014 , our revenues were $ 164.5 million , $ 127.2 million and $ 101.3 million , respectively , representing year-over-year growth of 29 % and 26 % . for the years ended december 31 , 2016 , 2015 and 2014 , we had operating losses of $ 15.7 million , $ 19.1 million and $ 17.3 million and net losses of $ 17.7 million , $ 21.3 million and $ 19.4 million , respectively . components of operating results revenues our revenues consist of licenses and maintenance and services revenues . license revenues . license revenues reflect the revenues recognized from sales of software licenses to new customers and additional licenses to existing customers . substantially all of our license revenues consist of revenues from perpetual licenses , under which we generally recognize the license fee portion of the arrangement upon delivery , assuming all revenue recognition criteria are satisfied . customers may also purchase term license agreements , under which we recognize the license fee ratably , on a straight-line basis , over the term of the underlying maintenance contract , which is typically up to one year . we are focused on acquiring new customers and increasing revenues from our existing customers . maintenance and services revenues . maintenance and services revenues consist of revenues from maintenance agreements and , to a lesser extent , professional services . typically , when purchasing a perpetual license , a customer also purchases a one year maintenance contract for which we charge a percentage of the license fee . customers may renew , and generally have renewed , their maintenance agreements for a fee that is based upon a percentage of the initial license fee paid . customers with maintenance agreements are entitled to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period . we have experienced growth in maintenance revenues primarily due to increased license sales to new customers and high annual retention of existing customers . story_separator_special_tag we recognize the revenues associated with maintenance ratably , on a straight-line basis , over the associated maintenance period . we measure the perpetual license maintenance renewal rate for our customers over a 12-month period , based on a dollar renewal rate for contracts expiring during that time period . our maintenance renewal rate for each of the years ended december 31 , 2016 , 2015 and 2014 has been over 90 % . we also offer professional services focused on both deployment and training our customers to fully leverage the use of our products . we recognize the revenues associated with these professional services on a time and materials basis as we deliver the services , provide the training or when the service term has expired . the following table sets forth the percentage of our revenues that have been derived from licenses and maintenance and services revenues for the periods presented . replace_table_token_6_th our products are used by a wide range of enterprises , including fortune 500 corporations and small and medium-sized businesses . as of december 31 , 2016 , we had approximately 5,350 customers across a broad array of company sizes and industries located in over 70 countries . 30 cost of revenues , gross profit and gross margin our cost of revenues consists of cost of maintenance and services revenues . cost of maintenance and services revenues consist primarily of salaries ( including payroll tax expense related to stock-based compensation ) , employee benefits ( including commissions and bonuses ) and stock-based compensation for our maintenance and services employees ; travel expenses ; and allocated overhead costs for facilities , it and depreciation of equipment . we recognize expenses related to maintenance and services as they are incurred . we expect that our cost of maintenance and services revenues will increase in absolute dollars as we increase our headcount to support revenue growth . gross profit is total revenues less total cost of revenues . gross margin is gross profit expressed as a percentage of total revenues . our gross margin has historically fluctuated slightly from period to period as a result of changes in the mix of license and maintenance and services revenues . due to the seasonality of our business , the first quarter typically results in the lowest gross margin as our first quarter revenues have historically been the lowest for the year and the majority of our expenses are relatively fixed quarter over quarter . operating costs and expenses our operating costs and expenses are classified into three categories : research and development , sales and marketing and general and administrative . for each category , the largest component is personnel costs , which consists of salaries ( including payroll tax expense related to stock-based compensation ) , employee benefits ( including commissions and bonuses ) and stock-based compensation . operating costs and expenses also include allocated overhead costs for depreciation of equipment . allocated costs for facilities primarily consist of rent and office maintenance . operating costs and expenses are generally recognized as incurred . we expect personnel costs to continue to increase in absolute dollars as we hire new employees to continue to grow our business . research and development . research and development expenses primarily consist of personnel costs attributable to our research and development personnel , as well as allocated overhead costs . we expense research and development costs as incurred . we expect that our research and development expenses will continue to increase in absolute dollars as we increase our research and development headcount to further strengthen our technology platform and invest in the development of both existing and new products . sales and marketing . sales and marketing expenses are the largest component of our operating costs and expenses and consist primarily of personnel costs , as well as marketing and business development costs , travel expenses , training and education and allocated overhead costs . we expect that sales and marketing expenses will continue to increase in absolute dollars , as we plan to expand our sales and marketing efforts , both domestically and internationally . we expect sales and marketing expenses to be our largest category of operating costs and expenses as we continue to expand our business worldwide . general and administrativ e. general and administrative expenses mostly consist of personnel and facility-related costs for our executive , finance , legal , human resources and administrative personnel . other expenses are comprised of legal , accounting and other consultant fees and other corporate expenses and allocated overhead . we expect that general and administrative expense will increase in absolute dollars as we grow and expand our operations and once we no longer qualify as an “ emerging growth company , ” including higher legal , corporate insurance and accounting expenses , and the additional costs of achieving and maintaining compliance with the sarbanes-oxley act and related regulations . financial income ( expenses ) , net financial income ( expenses ) , net consist primarily of foreign exchange gains or losses and net interest . foreign exchange gains or losses relate to our business activities in foreign countries with different operational reporting currencies . as a result of our business activities in foreign countries , we expect that foreign exchange gains or losses will continue to occur due to fluctuations in exchange rates in the countries where we do business . brexit , as well as other member countries public discussions about the possibility of withdrawing from the european union , could also contribute to instability and volatility in the global financial and foreign exchange markets , including volatility in the value of pounds sterling , euros and other currencies . net interest represents interest income received on our cash , cash equivalents and short-term deposits . 31 income taxes we operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business . earnings from our non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax .
| cost of revenues and gross margin year ended december 31 , 2016 2015 % change ( in thousands ) cost of revenues $ 15,843 $ 12,019 31.8 % replace_table_token_11_th the increase in cost of revenues was primarily related to an increase of $ 3.7 million in salaries and benefits and stock based compensation expense due to increased headcount for support . 34 operating costs and expenses replace_table_token_12_th replace_table_token_13_th the increase in research and development expenses was primarily related to an increase of $ 4.7 million in salaries and stock based compensation resulting from increased headcount as part of our focus on enhancing and developing our existing and new products . the increase in sales and marketing expenses was primarily related to a $ 19.6 million increase in salaries and benefits and stock based compensation due to increased headcount to expand our sales force , and commissions on increased customer orders . the remainder of the increase was attributable to a $ 1.3 million increase in marketing related expenses . the increase in general and administrative expenses was primarily related to an increase of $ 3.3 million in salaries and benefits and stock based compensation due to increased headcount to support the overall growth of our business and an increase of $ 0.4 million of other expenses predominately relating to it . financial expenses , net replace_table_token_14_th for the years ended december 31 , 2016 and 2015 , financial expenses , net was primarily comprised of foreign exchange losses . income taxes replace_table_token_15_th income taxes for the years ended december 31 , 2016 and 2015 were comprised primarily of foreign income taxes and state taxes . 35 comparison of years ended december 31 , 2015 and 2014 revenues replace_table_token_16_th replace_table_token_17_th total revenue growth was achieved due to increased demand for our services and products from new and existing customers , mostly in the domestic market , as well as in international markets . the increase in license revenues was driven by sales to 1,065 new customers in 2015 compared to 950 new customers in 2014 , sales to existing customers and sales of new products . as of december 31 , 2015
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future cash needed to finance ongoing capital expenditures and the redesign and upgrade of the black hawk property , is expected to be available from operating cash flow , the new credit facility ( see the credit facility below ) and , if necessary , additional borrowings . critical accounting policies and estimates we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states . certain of our policies , including the estimated useful lives assigned to our assets , the determination of the allowance for doubtful accounts , self-insurance reserves , the calculation of income tax liabilities and the calculation of share-based compensation , require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . our judgments are based on historical experience , terms of existing contracts , observation of trends in the industry , information provided by customers and information available from other outside sources , as appropriate . there can be no assurance that actual results will not differ from our estimates . to provide an understanding of the methodologies applied , our significant accounting policies are discussed where appropriate in this discussion and analysis and in the notes to consolidated financial statements . the consolidated financial statements include the accounts of monarch and its subsidiaries . intercompany balances and transactions are eliminated . allowance for doubtful accounts the company extends short-term credit to its gaming customers . such credit is non-interest bearing and is due on demand . in addition , the company also has receivables due from hotel guests which are primarily secured with a credit card at the time a customer checks in . an allowance for doubtful accounts is set up for all company receivables based upon the company 's historical collection and write-off experience , unless situations warrant a specific identification of a necessary reserve related to certain receivables . the company charges off its uncollectible receivables once all efforts have been made to collect such receivables . the book value of receivables approximates fair value due to the short-term nature of the receivables . 35 self-insurance reserves we are currently self-insured up to certain stop loss amounts for atlantis workers ' compensation and certain medical benefit costs provided to all of our employees . as required by the state of colorado , we are fully-insured for black hawk workers ' compensation costs . the company reviews self-insurance reserves at least quarterly . the reserve is determined by reviewing the actual expenditures for the previous twelve-month period and reports prepared by the third party plan administrator for any significant unpaid claims . the reserve is an amount estimated to pay both reported and unreported claims as of the balance sheet date . we believe changes in medical costs , trends in claims of our employee base , accident frequency and severity and other factors could materially affect the estimate for this reserve . unforeseen developments in existing claims , or the possibility that our estimate of unreported claims differs materially from the actual amount of unreported claims , could result in the over or under estimation of our self-insurance reserve . capitalized interest the company capitalizes interest costs associated with debt incurred in connection with major construction projects . when no debt is specifically identified as being incurred in connection with a construction project , the company capitalizes interest on amounts expended on the project at the company 's average borrowing cost . interest capitalization is ceased when the project is substantially complete . the company did not capitalize interest during the years ended december 31 , 2012 , 2011 and 2010. casino revenues casino revenues represent the net win from gaming activity , which is the difference between wins and losses . additionally , net win is reduced by a provision for anticipated payouts on slot participation fees , progressive jackpots and any pre-arranged marker discounts . progressive jackpot provisions are recognized in two components : 1 ) as wagers are made for the share of player 's wagers that are contributed to the progressive jackpot award and 2 ) as jackpots are won for the portion of the progressive jackpot award contributed the company . promotional allowances our frequent player program allows members , through the frequency of their play at the casino , to earn and accumulate points which may be redeemed for a variety of goods and services ( complimentaries ) . points may be applied toward hotel room stays , food and beverage consumption at the food outlets , gift shop items as well as goods and services at the spa and beauty salon and for cash in our black hawk property . points earned may also be applied toward off-property events such as concerts , shows and sporting events . we recognize complimentaries expense at the time points are earned , which occurs commensurate with casino patron play . the amount of expense recognized is based on the estimated cost of the complimentaries expected to be redeemed . the retail value of hotel , food and beverage services provided to customers without charge is included in gross revenue and deducted as promotional allowances . the cost of the products and services earned is reported as casino operating expense . 36 income taxes income taxes are recorded in accordance with the liability method pursuant to authoritative guidance . story_separator_special_tag under the asset and liability approach for financial accounting and reporting for income taxes , the following basic principles are applied in accounting for income taxes at the date of the financial statements : ( a ) a current liability or asset is recognized for the estimated taxes payable or refundable on taxes for the current year ; ( b ) a deferred income tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards ; ( c ) the measurement of current and deferred tax liabilities and assets is based on the provisions of the enacted tax law ; the effects of future changes in tax laws or rates are not anticipated ; and ( d ) the measurement of deferred income taxes is reduced , if necessary , by the amount of any tax benefits that , based upon available evidence , are not expected to be realized . our income tax returns are subject to examination by tax authorities . we assess potentially unfavorable outcomes of such examinations based on accounting standards for uncertain income taxes . under the accounting guidance , we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position . the tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50.0 % likelihood of being realized upon ultimate settlement . it also provides guidance on derecognition , measurement , classification , interest and penalties , accounting in interim periods and disclosure . the liability for unrecognized tax benefits is included in current and noncurrent tax liabilities , based on when expected to be recognized , within the consolidated balance sheets at december 31 , 2012 and 2011. stock-based compensation we account for stock-based compensation in accordance with authoritative guidance which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services or incurs a liability in exchange for goods and services that are based on the fair value of the entity 's equity instruments or that may be settled by the issuance of those equity instruments . it requires an entity to measure the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period . we calculate the grant-date fair value using the black-scholes valuation model . the black-scholes valuation model requires the input of highly subjective assumptions which include the expected term of options granted , risk-free interest rates , expected volatility , and expected rates of dividends . we estimate an expected term for each stock option grant based on the weighted-average time between grant date and exercise date and the risk-free interest rate assumption was based on u.s. treasury rates appropriate for the expected term . we use historical data and projections to estimate expected volatility and expected employee behaviors related to option exercises and forfeitures . changes in the assumptions used can materially affect the estimate of the stock options ' fair value . in our judgment , the most volatile input for our company has been the expected volatility assumption which has fluctuated significantly from 42.9 % to 54.1 % and then again to 34.6 % for the years ended december 31 , 2010 , 2011 and 2012 , respectively . 37 fair value of financial instruments the estimated fair value of the company 's financial instruments has been determined by the company , using available market information and valuation methodologies . however , considerable judgment is required to develop the estimates of fair value ; thus , the estimates provided herein are not necessarily indicative of the amounts that the company could realize in a current market exchange . the carrying amounts of cash , receivables , accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments . goodwill and other intangible assets the company accounts for goodwill and other intangible assets in accordance with asc topic 350 , intangibles-goodwill and other ( asc topic 350 ) . the company tests its goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter of each year , or whenever events or circumstances make it more likely than not that impairment may have occurred . impairment testing for goodwill is performed at the reporting unit level , and each of the company 's casino properties is considered to be a reporting unit . the company 's annual goodwill impairment testing utilizes a two-step process . in the first step , the estimated fair value of each reporting unit is compared with its carrying amount , including goodwill . if the carrying value of the reporting unit exceeds its estimated fair value , then the goodwill of the reporting unit is considered to be impaired , and impairment is measured in the second step of the process . in the second step , the company estimates the implied fair value of the reporting unit 's goodwill by allocating the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit , as if the reporting unit had been acquired in a business combination . if the carrying value of the reporting unit 's goodwill exceeds its implied fair value , an impairment loss is recognized in an amount equal to that excess . asu no . 2011-08 , intangibles- goodwill and other ( topic 250 ) : testing goodwill for impairment ( asu 2011-08 ) gives companies the option to perform a qualitative assessment that may allow them to skip the annual two-step test as appropriate . goodwill consists of the excess of the acquisition cost over the fair value of the net assets acquired in business combinations .
| hotel operating expenses as a percent of hotel revenues increased slightly to 27.3 % in 2012 as compared to 27.2 % for the comparable prior year period due to lower revenues partially offset by lower miscellaneous operating expenses . promotional allowances as a percentage of gross revenues increased to 18.3 % during 2012 from 17.2 % during 2011. this increase was primarily the result of increased promotional and discount programs in response to the challenging economic environment and ongoing competitor promotional and discount programs . 32 riviera black hawk operations : we acquired the riviera black hawk on april 26 , 2012 , and therefore , no information is given for the year ended december 30 , 2011. the amounts of net revenue and operating income of riviera black hawk included in the company 's consolidated statement of income , after elimination of intercompany transactions , for the year ended december 31 , 2012 are as follows ( in thousands ) : net revenues $ 29,429 income from operations $ 6,350 net income $ 3,953 corporate and other expenses : depreciation and amortization expense increased to $ 16.7 million in the year ended december 31 , 2012 as compared to $ 13.4 million for the year ended december 31 , 2011 primarily due to depreciation and amortization expense related to the addition of riviera black hawk . selling , general and administrative expense ( sg & a expense ) for 2012 increased by $ 9.1 million over the prior year , $ 6.6 million of which represents sg & a expense from the black hawk operation for which the prior year reflects no expense . the primary drivers of the remaining $ 2.5 million of increased atlantis and monarch corporate sg & a expense are : higher marketing expense of $ 1.7 million and higher salaries and benefits of $ 655 thousand , higher use tax expense of $ 670 thousand partially offset by lower license fees of $ 200 thousand , lower repairs and maintenance expense of $ 145 thousand , lower bad
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the strength of our balance sheet and operating cash flow provides us the ability to invest in our businesses , as indicated by our planned construction of a state-of-the-art , automated 200mm capable sic and gan fabrication facility and a large materials factory to expand our sic capacity which was announced in may 2019. we are focused on the following priorities to support our goals of delivering higher revenue and shareholder returns over time : wolfspeed - invest in the business to expand the scale , further develop the technologies , and accelerate the growth opportunities of sic materials , sic power devices and modules , and gan and si rf devices . led products - focus our efforts where our best-in-class technology and application-optimized solutions are differentiated and valued . improve the customer experience and service levels in all of our businesses . 26 story_separator_special_tag adjustment which does not provide comparability 29 to the corresponding prior and subsequent period and therefore were not reviewed by our codm when evaluating segment performance and allocating resources . research and development research and development expenses include costs associated with the development of new products , enhancements of existing products and general technology research . these costs consisted primarily of employee salaries and related compensation costs , occupancy costs , consulting costs and the cost of development equipment and supplies . research and development expenses were as follows : replace_table_token_7_th the increase in research and development expenses for fiscal 2019 compared to fiscal 2018 was primarily due to the inclusion of the acquired rf power business research and development spend for a full year . the increase in research and development expenses for fiscal 2018 compared to fiscal 2017 was primarily due to an increase in wolfspeed research and development to accelerate 150mm substrate development , next generation power and rf device research and development and the inclusion of the acquired rf power business research and development spend for the last four months of fiscal 2018. our research and development expenses vary significantly from year to year based on a number of factors , including the timing of new product introductions and the number and nature of our ongoing research and development activities . sales , general and administrative sales , general and administrative expenses were comprised primarily of costs associated with our sales and marketing personnel and our executive and administrative personnel ( for example , finance , human resources , information technology and legal ) and consisted of salaries and related compensation costs ; consulting and other professional services ( such as litigation and other outside legal counsel fees , audit and other compliance costs ) ; marketing and advertising expenses ; facilities and insurance costs ; and travel and other costs . sales , general and administrative expenses were as follows : replace_table_token_8_th the increase in sales , general and administrative expenses in fiscal 2019 compared to fiscal 2018 was primarily due to an increase in stock-based compensation and profit sharing . the increase in sales , general and administrative expenses in fiscal 2018 compared to fiscal 2017 was primarily due to the additional costs assumed in running the business and operations acquired in the rf power acquisition , which closed in march 2018 , and the additional non-recurring costs associated with completing and integrating the rf power acquisition , partially offset by the decrease in wolfspeed transaction expenses associated with the terminated sale to infineon in fiscal 2017. amortization or impairment of acquisition-related intangibles as a result of our acquisitions , we have recognized various amortizable intangible assets , including customer relationships , developed technology , non-compete agreements and trade names . 30 amortization of intangible assets related to our acquisitions was as follows : replace_table_token_9_th amortization of acquisition-related intangibles increased in fiscal 2019 compared to fiscal 2018 due to the inclusion of a full year of the rf power business intangible asset amortization . amortization of acquisition-related intangibles increased in fiscal 2018 compared to fiscal 2017 due to the acquisition of the rf power business that was purchased during the third quarter of fiscal 2018. loss on disposal or impairment of other assets we operate a capital-intensive business . as such , we dispose of a certain level of our equipment in the normal course of business as our production processes change due to production improvement initiatives or product mix changes . due to the risk of technological obsolescence or changes in our production process , we regularly review our long-lived assets and capitalized patent costs for possible impairment . loss on disposal or impairment of other assets were as follows : replace_table_token_10_th the decrease in loss in fiscal 2019 compared to fiscal 2018 was primarily due to the higher than usual loss recognized in fiscal 2018 as a result of a fair value market write-down for a sold aircraft in fiscal 2018. the increase in loss in fiscal 2018 compared to fiscal 2017 was primarily due to the closure of certain manufacturing facilities and a fair value market write-down for a sold aircraft . other operating expense ( income ) other operating expense ( income ) was as follows : replace_table_token_11_th * percentage change not meaningful 31 the increase in other operating expense in fiscal 2019 compared to fiscal 2018 was primarily due to expenses for a new factory optimization plan implemented in may 2019 , costs relating to restructuring our geographical sales team to realign our skills and experience needed to execute on our business objectives and transaction costs relating to the sale of our lighting products business unit . other operating income in fiscal 2017 relates to a termination fee of $ 12.5 million in cash in march 2017 as a result the termination of an agreement to sell the wolfspeed business to infineon , offset by transaction costs related to the terminated agreement , and various executive severance payments . non-operating expense ( income ) , net non-operating expense ( income ) , net was comprised of the following : replace_table_token_12_th loss ( gain ) on equity investment . story_separator_special_tag we had a loss on equity investment in fiscal 2019 due to the decrease in the fair value of our lextar investment . we had a gain on equity investment in fiscal 2018 and fiscal 2017 due to the increase in the fair value of our lextar investment . lextar 's stock is publicly traded on the taiwan stock exchange and its share price increased from 18.40 new taiwanese dollars ( twd ) per share at june 25 , 2017 to 21.00 twd per share at june 24 , 2018 before decreasing to 14.75 twd per share at june 30 , 2019. this volatile stock price trend may continue in the future given the risks inherent in lextar 's business and trends affecting the taiwan and global equity markets . we have a 16 % common stock ownership interest in lextar and utilize the fair value option in accounting for the ownership interest . any future stock price changes will be recorded as further gains or losses on equity investment based on the increase or decrease , respectively , in the fair value of the investment during the applicable fiscal period . further losses could have a material adverse effect on our results of operations . interest expense ( income ) , net . interest expense , net in fiscal 2019 was primarily due to the accretion of the equity portion and interest expense related to the notes issued during the first quarter of fiscal 2019. interest income , net decreased in fiscal 2018 compared to fiscal 2017 primarily due to lower invested balances and higher interest expense due to overall higher borrowings associated with our line of credit , partially offset by higher investment yields . foreign currency loss ( gain ) , net . foreign currency loss ( gain ) , net primarily consists of remeasurement adjustments resulting from our lextar investment and from our international subsidiaries . income tax expense ( benefit ) income tax expense ( benefit ) and our effective tax rate was as follows : replace_table_token_13_th we recognized income tax expense of $ 12.7 million in fiscal 2019 as compared to an income tax benefit of $ 1.2 million in fiscal 2018 . the decrease in the effective tax rate from 7 % in fiscal 2018 to ( 28 ) % in fiscal 2019 was primarily due to the tax benefit of remeasuring our u.s. deferred taxes as a result of the tax legislation enacted on december 22 , 2017. the increase in the effective tax rate from ( 1,141 ) % in fiscal 2017 to 7 % in fiscal 2018 was primarily attributable to the tax expense on the establishment of a valuation allowance against our u.s. deferred tax assets during the fiscal 2017 . 32 in general , the variation between our effective income tax rate and the current u.s. statutory rate of 21.0 % is primarily due to : ( i ) changes in our valuation allowances against deferred tax assets in the u.s. and luxembourg , ( ii ) income derived from international locations with lower tax rates than the u.s. , and ( iii ) tax credits generated . net loss from discontinued operations we recorded a net loss from discontinued operations of $ 317.2 million , $ 263.5 million and $ 10.0 million in fiscal 2019 , 2018 and 2017 , respectively . the net loss from discontinued operations in each period relates to operational results of the discontinued operations of the lighting products business unit , with the addition of a $ 66.2 million loss on the sale of the lighting products business unit included in the net loss from discontinued operations for fiscal 2019. the net loss from discontinued operations for fiscal 2019 and 2018 includes $ 90.3 million and $ 247.5 million of goodwill impairment , respectively . liquidity and capital resources overview we require cash to fund our operating expenses and working capital requirements , including outlays for research and development , capital expenditures , strategic acquisitions and investments . our principal sources of liquidity are cash on hand , marketable securities , cash generated from operations and availability under our line of credit . our ability to generate cash from operations has been one of our fundamental strengths and has provided us with substantial flexibility in meeting our operating , financing and investing needs . we have a $ 500.0 million line of credit as discussed in note 11 , “ long-term debt , ” in our consolidated financial statements included in item 8 of this annual report . the purpose of this facility is to provide short term flexibility to optimize returns on our cash and investment portfolio while funding share repurchases , capital expenditures and other general business needs . based on past performance and current expectations , we believe our current working capital , availability under our line of credit , proceeds from our note offering completed in august 2018 ( see note 11 , `` long-term debt , '' in our consolidated financial statements included in item 8 of this annual report ) and anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations and capital expenditures for at least the next 12 months . with our strong working capital position , we believe that we have the ability to continue to invest in further development of our products and , when necessary or appropriate , make selective acquisitions or other strategic investments to strengthen our product portfolio , secure key intellectual properties or expand our production capacity . from time to time , we evaluate strategic opportunities , including potential acquisitions , joint ventures , divestitures , spin-offs or investments in complementary businesses , and we anticipate continuing to make such evaluations . we may also access capital markets through the issuance of debt or additional shares of common stock in connection with the acquisition of complementary businesses or other significant assets or for other strategic opportunities .
| million in fiscal 2018 from $ 550.3 million in fiscal 2017 . the number of units sold increased 11 % which was partially offset by 2 % decrease in asp . the increase in the units sold was primarily the result of higher demand in component product sales for the following applications : high power general lighting , video screen and specialty lighting applications . the decrease in asp was due to competitive pricing pressures , which was partially offset by favorable product mix . 28 gross profit and gross margin gross profit and gross margin were as follows : replace_table_token_6_th wolfspeed segment gross profit and gross margin wolfspeed gross profit increased 63 % to $ 258.7 million in fiscal 2019 from $ 158.5 million in fiscal 2018 . wolfspeed gross margin remained flat at 48 % . wolfspeed gross profit increased primarily due to higher revenues and wolfspeed gross margin remained flat primarily due to changes in product mix . wolfspeed gross profit increased 53 % to $ 158.5 million in fiscal 2018 from $ 103.5 million in fiscal 2017 . wolfspeed gross margin increased to 48 % in fiscal 2018 from 47 % in fiscal 2017 . wolfspeed gross profit increased primarily due to higher revenues , a more favorable product mix , higher factory utilization , and improved production yields . wolfspeed gross margin increased primarily due to changes in product mix and improved production yields . led products segment gross profit and gross margin led products gross profit decreased 5 % to $ 150.0 million in fiscal 2019 from $ 157.9 million in fiscal 2018 . led products gross margin increased to 28 % in fiscal 2019 from 26 % in fiscal 2018 . led products gross profit decreased due to lower revenue and tariff costs . led products gross margin increased due to more favorable product mix , higher license and royalty revenue , and better factory costs for the first half of
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the revenue that we derive from interest and fees is largely driven by the balance of loans that we originate and purchase . we originated or purchased approximately 127.9 thousand , 143.5 thousand , and 172.9 thousand new borrower loan accounts during 2015 , 2014 , and 2013 , respectively . average finance receivables grew 32.2 % from $ 361.1 million in 2012 to $ 477.4 million in 2013 , grew 10.9 % to $ 529.5 million in 2014 , and grew 8.2 % to $ 572.8 million in 2015. we source our loans through our branches and our direct mail program , as well as through automobile dealerships , retail partners , and our website . our loans are made almost exclusively in geographic markets served by our network of branches . increasing the number of loans per branch , the average size of each loan , and the number of branches we operate allows us to increase the number of loans that we are able to service . we opened or acquired 31 , 36 , and 43 new branches in 2015 , 2014 , and 2013 , respectively . we believe we have the opportunity to add as many as 700 additional branches in states where it is currently favorable for us to conduct business , and we have plans to continue to grow our branch network . product mix . we charge different interest rates and fees and are exposed to different credit risks with respect to the various types of loans we offer . our product mix also varies to some extent by state , and we may further diversify our product mix in the future . asset quality and allowance for credit losses . our results of operations are highly dependent upon the quality of our loan portfolio . we recorded a $ 47.3 million provision for credit losses during 2015 ( or 8.3 % of average finance receivables ) , a $ 69.1 million provision for credit losses during 2014 ( or 13.0 % as a percentage of average finance receivables ) , and a $ 39.2 million provision for credit losses during 2013 ( or 8.2 % of average finance receivables ) . the quality of our loan portfolio is the result of our ability to enforce sound underwriting standards , maintain diligent servicing of the portfolio , and respond to changing economic conditions as we grow our loan portfolio . in 2014 , due to branch staffing issues and convenience check credit quality deterioration in our mail campaigns , we experienced an unusually high net charge-off rate . in late 2014 and 2015 , we created a 52 new credit risk function and have been making changes to improve our credit underwriting guidelines . we believe that these changes have impacted , and will continue to impact , our business and results of operations , including through lower refinancing volumes , lower delinquency levels , and improved credit quality in our portfolio . we will continue to monitor how these changes impact our business and results of operations , and will make further revisions to our credit underwriting guidelines when appropriate . we evaluate losses in each of our loan categories in establishing the allowance for credit losses . the following table sets forth our allowance for credit losses compared to the related finance receivables : replace_table_token_15_th the allowance for credit losses calculation uses the net charge-off rate for the most recent six months ( branch small loans and convenience checks ) , ten months ( retail loans ) , and twelve months ( large loans and automobile loans ) as a percentage of the most recent month-end balance of loans as a key data point in estimating the allowance . in 2015 , large loans were updated to use a twelve month effective life rather than ten . as we continue to grow our large loan portfolio , we are originating longer term loans , thus increasing the effective life of large loans . we believe that the primary underlying factors driving the provision for credit losses for each of these loan types are our underwriting standards , the general economic conditions in the areas in which we conduct business , portfolio growth , and the effectiveness of our collection efforts . in addition , the market for repossessed automobiles at auction is another underlying factor that we believe influences the provision for credit losses for automobile purchase loans and , to a lesser extent , large loans . we monitor these factors , the amount and past due status of delinquencies , and the slow file ( which consists of all loans one or more days past due ) to identify trends that might require us to modify the allowance for credit losses . our provision was impacted in 2014 by a charge to augment our allowance for credit losses , necessitated by a higher-than-normal proportion of lower credit quality convenience check loans originated in our summer convenience check campaigns . interest rates . our costs of funds are affected by changes in interest rates , and the interest rate that we pay on our senior revolving credit facility is a variable rate . a previous interest rate cap matured unused in march 2014. in april 2015 , we entered into new interest rate cap contracts to replace the matured interest rate cap . the interest rate cap contracts have an aggregate notional principal amount of $ 150.0 million with a 2.5 % strike rate against one-month libor and mature in april 2018. operating costs . our financial results are impacted by the costs of operating our branch offices and corporate functions . those costs are included in general and administrative expenses on our consolidated statements of income . two of our operating metrics are our efficiency ratios , which are calculated by dividing the sum of general and administrative expenses by total revenue ( our revenue efficiency ratio ) or average finance receivables ( our receivable efficiency ratio ) . story_separator_special_tag our revenue efficiency ratio was 53.2 % in 2015 compared to 47.3 % in 2014 , and our receivable efficiency ratio was 20.2 % in 2015 , compared to 18.3 % in 2014. while these ratios are relatively in line with industry standards , we have a number of initiatives underway that we believe will improve our operating leverage over the next couple of years , including acceptance of electronic payments , reducing the amount of time it takes to originate a loan , and increasing our average loans outstanding per branch . 53 components of results of operations interest and fee income . our interest and fee income consists primarily of interest earned on outstanding loans . we cease accruing interest on a loan when the customer is contractually past due 90 days . interest accrual resumes when the customer makes at least one full payment and the account is less than 90 days contractually past due . if the account is charged off , the interest accrual is reversed as a reduction of interest and fee income during the period the charge-off occurs . most states allow certain fees in connection with lending activities , such as loan origination fees , acquisition fees , and maintenance fees . some states allow for higher fees while keeping interest rates lower . loan fees are additional charges to the customer and are included in the truth in lending disclosure we make to our customers . the fees may or may not be refundable to the customer in the event of an early payoff , depending on state law . fees are accrued to income over the life of the loan on the constant yield method . insurance income . our insurance income consists of revenue from the sale of various optional credit insurance products and other payment protection products offered to customers who obtain loans directly from us . we do not sell insurance to non-borrowers . we offer optional credit life insurance , credit accident and health insurance , and involuntary unemployment insurance . the type and terms of our optional credit insurance products vary from state to state based on applicable laws and regulations . in addition , we require property insurance on any personal property securing loans and offer customers the option of providing proof of such insurance purchased from a third party in lieu of purchasing property insurance from us . we also collect a fee for collateral protection and purchase non-recording insurance in lieu of recording and perfecting our security interest in the assets pledged on certain loans . we also require proof of insurance for any vehicles securing loans , and we have the option to obtain automobile collision insurance on behalf of customers who permit their insurance coverage to lapse . we also offer , in select markets , vehicle single interest insurance , which provides coverage on automobiles used as collateral on small and large loans . this affords the borrower flexibility with regards to the requirement of maintaining full coverage on the vehicle while also protecting the collateral used to secure the loan . we issue insurance certificates as agents on behalf of an unaffiliated insurance company and then remit to the unaffiliated insurance company the premiums we collect ( net of refunds on prepaid loans and net of commission on new business ) . the unaffiliated insurance company cedes life insurance premiums to our wholly-owned insurance subsidiary , rmc reinsurance , ltd. ( rmc reinsurance ) , as written and non-life premiums as earned . we maintain a cash reserve for life insurance claims in an amount determined by the unaffiliated insurance company . as of december 31 , 2015 , we had pledged a $ 2.9 million letter of credit to the unaffiliated insurance company to secure payment of life insurance claims and unearned premium refunds . the unaffiliated insurance company maintains the reserves for non-life claims . insurance income includes all of the above-described insurance premiums , claims , and expenses . other income . our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment . in addition , fees for extending the due date of a loan and returned check charges are also included in other income . provision for credit losses . provisions for credit losses are charged to income in amounts that we judge as sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses on the related finance receivable portfolio . credit loss experience , delinquency of finance receivables , portfolio growth , the value of underlying collateral , and management 's judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses . our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects our estimate of losses over the effective life of our loan portfolios . therefore , changes in our charge-off rates may result in changes to our provision for credit losses . future adjustments to the allowance may be necessary if there are significant changes in economic conditions or portfolio performance . 54 general and administrative expenses . our general and administrative expenses are comprised of four categories : personnel , occupancy , marketing , and other . we measure our general and administrative expenses as a percentage of total revenue , which we refer to as our revenue efficiency ratio , and as a percentage of average finance receivables , which we refer to as our receivable efficiency ratio . our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries , bonuses , benefits , and related payroll taxes associated with all of our branch , field , and home office employees .
| in august 2014 , our autocredit source branches were re-branded as regional finance branches , and we began to offer all loan products in these branches with less focus on indirect automobile loans . we anticipate that the automobile loan portfolio will remain relatively flat in the short-term as we refine our business practices in this product category . retail loans retail loans outstanding increased $ 1.5 million , or 5.7 % , to $ 27.6 million at december 31 , 2015 , from $ 26.1 million at december 31 , 2014. the increase in retail loans outstanding resulted from the additional relationships we established with new retailers , as well as an expansion of volume through our existing relationships . replace_table_token_18_th comparison of the year ended december 31 , 2015 , versus the year ended december 31 , 2014 net income . net income increased $ 8.6 million , or 57.9 % , to $ 23.4 million in 2015 , from $ 14.8 million in 2014. the increase in net income in 2015 was primarily due to a decrease in provision for credit losses of $ 21.7 million and an increase in revenue of $ 12.6 million . these increases were partially offset by an increase in general and administrative expenses of $ 18.8 million , an increase of $ 5.6 million in income taxes , and an increase of $ 1.3 million in interest expense . 57 revenue . total revenue increased $ 12.6 million , or 6.1 % , to $ 217.3 million in 2015 , from $ 204.7 million in 2014. the components of revenue are explained in greater detail below . interest and fee income . interest and fee income increased $ 11.0 million , or 6.0 % , to $ 195.8 million in 2015 , from $ 184.8 million in 2014. the increase in interest and fee income was primarily due to an 8.2 % increase in average finance receivables offset by a 0.7 % yield decrease since 2014. the following table sets forth the average finance receivables balance and average yield for each of our loan product categories : replace_table_token_19_th branch small
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water meter replacement and the adoption and deployment of new technology comprise the majority of water meter product sales , including radio products . to a much lesser extent , housing starts also contribute to the new product sales base . over the last decade , there has been a growing trend in the conversion from manually read water meters to radio technology . this conversion rate is accelerating and contributes to an increased water meter and radio solutions base of business . the company estimates that approximately 55 % of water meters installed in the united states have been converted to a radio solutions technology . the company 's strategy is to fulfill customers ' metering expectations and requirements with its proprietary meter reading systems or other systems available through its alliance partners in the marketplace . flow instrumentation products serve flow measurement and control applications across a broad industrial spectrum , occasionally leveraging the same technologies used in the municipal water category . specialized communication protocols that control the entire flow measurement process and mandatory certifications drive these markets . the company 's specific flow measurement and control applications and technologies serve the flow measurement market through both customized and standard flow instrumentation solutions . industries today face accelerating demands to contain costs , reduce product variability , and meet ever-changing safety , regulatory and sustainability requirements . to address these challenges , customers must reap more value from every component in their systems . this system-wide scrutiny has heightened the focus on flow instrumentation in industrial process , manufacturing , commercial fluid , building automation , and precision engineering applications where flow measurement and control are critical . an industry leader in both mechanical and electrical flow metering technologies , the company offers one of the broadest flow measurement , control and communication portfolios in the market . the portfolio carries respected brand names including recordall , e-series , orion , hedland , dynasonics , blancett , and research control , and includes eight of the ten major flow meter technologies . customers rely on the company for application-specific solutions that deliver accurate , timely and dependable flow data and control essential for product quality , cost control , safer operations , regulatory compliance , and more sustainable operations . business trends increasingly , the electric utility industry relies on ami technology for two-way communication to monitor and control electrical devices at the customer 's site . although the company does not sell products for electric market applications , the trend toward ami affects the markets in which the company does participate , particularly for those customers in the water utility market that are interested in more frequent and diverse data collection . specifically , ami and ama technologies enable water utilities to capture readings from each meter at more frequent and variable intervals . similar to the electric utility industry 's conversion to solid-state meters in recent years , the water utility industry is beginning the conversion from mechanical to ultrasonic meters . ultrasonic water metering has lower barriers to entry , which could affect the competitive landscape for the water meter market in north america . 15 the company sells its technology solutions to meet customer requirements . since the technology products have comparable margins , any change in the mix between amr , ami or ama is not expected to have a significant impact on the company 's net sales related to meter reading technology . there are approximately 52,000 water utilities in the united states and the company estimates that approximately 55 % of them have converted to a radio solutions technology . with the beacon ama managed solution and its wide breadth of water meters , the company believes it is well positioned to meet customers ' future needs . in the global market , companies need to comply with increasing regulations requiring companies to better manage critical resources , monitor their use of hazardous materials , and reduce exhaust gases . some customers measure fluids to identify leaks and or misappropriation for cost control or add measurement points to help automate manufacturing . other customers employ measurement to comply with government mandates and laws . the company provides technology to measure water , hydrocarbon-based fluids , chemicals , gases and steams . flow measurements are critical to provide a baseline and quantify reductions as customers attempt to reduce consumption . once water usage is better understood , a strategy for water-use reduction can be developed with specific water-reduction initiatives targeted to those areas where water reduction is most viable . with the company 's technology , customers have found costly leaks , pinpointed equipment in need of repair , and identified areas for process improvements . acquisitions on october 20 , 2016 , the company acquired certain assets of precision flow measurement , inc. , doing business as nice instruments , of manalapan township , new jersey . the acquisition adds a new technology for the measurement of steam to the company 's hvac line of products . the total purchase consideration for the nice instruments assets was $ 2.0 million , which included a $ 0.2 million payment after the first production run that occurred in january 2017. the company 's preliminary allocation of the purchase price at december 31 , 2016 included approximately $ 15,000 of inventory and equipment , $ 0.7 million of intangibles and $ 1.3 million of goodwill . as of december 31 , 2016 , the company had not completed its analysis for estimating the fair value of the assets acquired . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on august 17 , 2015 , the company 's wholly-owned subsidiary , national meter and automation , inc. ( “ national meter ” ) , acquired certain assets of united utilities , inc. of smyrna , tennessee , which was one of the company 's distributors serving tennessee and georgia . story_separator_special_tag the total purchase consideration for the united utilities assets was $ 3.3 million , which included $ 0.4 million in cash and settlement of $ 2.9 million of pre-existing company receivables . the company 's preliminary allocation of the purchase price at december 31 , 2015 included $ 0.8 million of receivables , $ 0.4 million of inventory , $ 0.1 million of property , plant and equipment , $ 1.7 million of intangibles and $ 0.3 million of goodwill . the preliminary allocation of the purchase price to the assets acquired was based upon the estimated fair value at the date of acquisition . in 2016 , the company completed its analysis for estimating the fair value of the assets acquired with no additional adjustments . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . on october 1 , 2014 , the company acquired 100 % of the outstanding common stock of national meter and automation , inc. of centennial , colorado . the purchase was estimated to add approximately $ 15 million of incremental annual revenues to badger meter , after eliminating what would be intercompany sales . national meter was a major distributor of badger meter products for the municipal water utility market , serving customers in arizona , california , colorado , nevada and southern wyoming . national meter has become a regional distribution center for badger meter . in addition to its primary product line of water meters and meter reading systems , national meter provides services including meter testing , leak detection , water audits , and meter and meter reading system installation . the total purchase consideration for national meter was $ 22.9 million , which included $ 20.3 million in cash , a working capital adjustment and settlement of pre-existing company receivables . the consolidated balance sheets at december 31 , 2014 included $ 2.5 million of deferred payments , of which $ 2.0 million was paid in late 2015 and early 2016 , and $ 0.5 million is payable in early 2017 and is recorded in payables at december 31 , 2016. the company finalized the valuation for estimating the fair value of the assets acquired and liabilities assumed at september 30 , 2015 with a small change from the preliminary december 31 , 2014 estimate . this acquisition is further described in note 3 “ acquisitions ” in the notes to consolidated financial statements . 16 revenue and product mix as the industry continues to evolve , the company has been vigilant in anticipating and exceeding customer expectations . in 2011 , the company introduced ama as a hardware and software solution for water and gas utilities , and then in early 2014 launched its new beacon ama system , as a managed solution , which it believes will help maintain the company 's position as a market leader . since its inception , sales of beacon ama have continued to grow with large cities and private water utilities selecting beacon ama and the company 's industry-leading water meters . the company continues to seek opportunities for additional revenue enhancement . for instance , the company is periodically asked to oversee and perform field installation of its products for certain customers . the company assumes the role of general contractor , hiring installation subcontractors and supervising their work . the company also supports its product and technology sales with the sale of extended service programs that provide additional services beyond the standard warranty . in recent years , the company has sold orion radio technology to natural gas utilities for installation on their gas meters . and most recently , the introduction of the beacon ama system opens the door to “ software as a service ” revenues . with the exception of a large sale of gas radios to one particular customer several years ago , revenues from such products and services are not yet significant and the company is uncertain of the potential growth achievable for such products and services in future periods . story_separator_special_tag included in the 2014 expense were charges totaling $ 1.7 million ( approximately $ 0.07 per diluted share ) for due diligence and other transaction costs related to a potential acquisition that ultimately was not pursued . the remainder of the increase was due to higher software amortization expenses and higher health care costs , offset somewhat by lower employee incentive compensation . operating earnings operating earnings in 2016 increased $ 8.4 million , or 19.8 % , to $ 50.8 million from $ 42.4 million in 2015. the increase was the result of higher sales and gross margin , offset somewhat by higher selling , engineering and administration expenses . operating earnings in 2015 declined $ 3.6 million or 7.8 % to $ 46.0 million in 2014. the decline was the result of higher operating costs that were partially offset by a modest increase in sales . interest expense , net interest expense , net was $ 0.9 million in 2016 compared to $ 1.2 million in 2015 and $ 1.1 million in 2014. the decline in 2016 over 2015 was due to lower average debt balances . for 2015 compared to 2014 , relatively stable interest rates and similar average borrowing levels resulted in no significant variations in expenses . income taxes income taxes as a percentage of earnings before income taxes were 35.2 % , 37.0 % , and 33.9 % for 2016 , 2015 and 2014 , respectively . the variances in all three years presented were due primarily to the changes in both state taxes , which depend on each year 's sales mix , as well as the relationship between foreign and domestic incomes which are taxed at different rates . particularly in 2015 , the relationship between foreign and domestic incomes resulted in more domestic income taxed at higher rates , while 2016 and 2014 had higher foreign income which was taxed at lower rates .
| sales of residential meters and technology increased 12.5 % driven by higher sales volumes of the company 's orion products for both mechanical meters as well as the recently introduced e-series ultrasonic meters . these were offset somewhat by lower volumes of itron-related products . commercial meter sales declined 6.7 % for the year due to lower volumes of products sold . flow instrumentation sales represented 25.0 % of total net sales in 2015 compared to 28.7 % in 2014. these sales declined $ 10.1 million , or 9.6 % , to $ 94.6 million from $ 104.7 million in 2014. the decline was due to the strengthening u.s dollar 's effect on sales of products sold in euros , lower volumes of products sold to oil and natural gas customers related to weak conditions in these markets , weather conditions for a portion of the year and general softness in the overall economy . international sales for municipal water meters and related technologies are generally made to customers in canada and mexico , which use similar mechanical technology and standards as customers in the u.s. the recent introduction of ultrasonic meters allows the company greater opportunities in other parts of the world , particularly in the middle east . international sales for flow instrumentation and specialty products are generally made throughout the world . in europe , sales are made primarily in euros . other international sales are made in u.s. dollars or local currencies . 17 international sales decreased 16.8 % to $ 45.9 million in 2016 from $ 55.2 million in 2015 due primarily to lower sales in mexico and the middle east , the latter of which tends to be sporadic . international sales increased 0.2 % to $ 55.2 million in 2015 from $ 55.1 million in 2014. this was the net effect of increased sales of ultrasonic meters into the middle east , offset by the strengthening u.s. dollar 's effect on sales made in foreign currencies , particularly the euro . gross margins gross margins as
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if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable market prices and parameters are not fully available , management judgment is necessary to estimate fair value . in addition , changes in the market conditions may reduce the availability of quoted prices or observable data . for example , reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable . when significant adjustments are required to available observable inputs , it may be appropriate to utilize an estimate based primarily on unobservable inputs . when an active market for a security does not exist , the use of management estimates that incorporate current market participant expectations of future cash flows , and include appropriate risk premiums , is acceptable . significant judgment may be required to determine whether certain assets measured at fair value are included in level 2 or level 3. if fair value measurement is based upon recent observable market activity of such assets or comparable assets ( other than 32 forced or distressed transactions ) that occur in sufficient volume and do not require significant adjustment using unobservable inputs , those assets are classified as level 2. if not , they are classified as level 3. making this assessment requires significant judgment . real estate acquired in settlement of loans real estate acquired through foreclosure is initially recorded at the lower of cost or estimated fair value . subsequent to the date of acquisition , it is carried at the lower of cost or fair value , adjusted for net selling costs . fair values of real estate owned are reviewed regularly and writedowns are recorded when it is determined that the carrying value of real estate exceeds the fair value less estimated costs to sell . costs relating to the development and improvement of such property are capitalized , whereas those costs relating to holding the property are expensed . general we were incorporated in march 1999 to organize and serve as the holding company for greenville first bank , n.a . on july 2 , 2007 , we changed the name of our company and bank to southern first bancshares , inc. and southern first bank , n.a . our primary reason for the name change was related to our expansion into the columbia , south carolina market . since we opened our bank in january 2000 , we have experienced consistent growth in total assets , loans , deposits , and shareholders ' equity . like most community banks , we derive the majority of our income from interest received on our loans and investments . our primary source of funds for making these loans and investments is our deposits , on which we pay interest . consequently , one of the key measures of our success is our amount of net interest income , or the difference between the income on our interest-earning assets , such as loans and investments , and the expense on our interest-bearing liabilities , such as deposits and borrowings . another key measure is the difference between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities , which is called our net interest spread . there are risks inherent in all loans , so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible . we maintain this allowance by charging a provision for loan losses against our operating earnings for each period . we have included a detailed discussion of this process , as well as several tables describing our allowance for loan losses . in addition to earning interest on our loans and investments , we earn income through fees and other charges to our clients . we have also included a discussion of the various components of this noninterest income , as well as of our noninterest expense . the efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue . we compute our efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income . for the year ended december 31 , 2010 , we spent $ 0.70 on average to earn each $ 1.00 of revenue . the following discussion and analysis also identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements . we encourage you to read this discussion and analysis in conjunction with our financial statements and the other statistical information included in this report . in response to financial conditions affecting the banking system and financial markets and the potential threats to the solvency of investment banks and other financial institutions , the united states government has taken unprecedented actions . on october 3 , 2008 , president bush signed into law eesa . pursuant to the eesa , the treasury department has the authority to , among other things , purchase mortgages , mortgage-backed securities , and other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the u.s. financial markets . story_separator_special_tag on october 14 , 2008 , the treasury department announced the capital purchase program under the eesa , pursuant to which the treasury has made senior preferred stock investments in participating financial institutions . as a result of this program , we have received $ 17.3 million in capital as of february 27 , 2009. however , governmental intervention and new regulations under these programs could materially and adversely affect our business , financial condition and results of operations . effect of economic trends the twelve months ended december 31 , 2010 continue to reflect the tumultuous economic conditions which have negatively impacted the liquidity and credit quality of financial institutions in the united states . concerns regarding increased credit losses from the weakening economy have negatively affected capital and earnings of most financial institutions . financial institutions have experienced significant declines in the value of collateral for real estate loans , heightened credit losses , which have resulted in record levels of non-performing assets , charge-offs and foreclosures . in addition , hundreds of financial institutions failed or 33 merged with other institutions during 2008 , 2009 , and 2010 , and two of the government sponsored housing enterprises were placed into conservatorship with the u.s. government in 2008. liquidity in the debt markets remains low in spite of efforts by treasury and the federal reserve to inject capital into financial institutions . the federal funds rate set by the federal reserve has remained at 0.25 % since december 2008 , following a decline from 4.25 % to 0.25 % during 2008 through a series of seven rate reductions . the treasury department , the fdic and other governmental agencies continue to enact rules and regulations to implement the eesa , the tarp , the recovery act and related economic recovery programs , many of which contain limitations on the ability of financial institutions to take certain actions or to engage in certain activities if the financial institution is a participant in the cpp or related programs . future regulations , or enforcement of the terms of programs already in place , may require financial institutions to raise additional capital and result in the conversion of preferred equity issued under tarp or other programs to common equity . there can be no assurance as to the actual impact of the eesa , the sblf , the dodd-frank act or any other governmental program on the financial markets . the weak economic conditions are expected to continue into 2011. financial institutions likely will continue to experience heightened credit losses and higher levels of non-performing assets , charge-offs and foreclosures . in light of these conditions , financial institutions also face heightened levels of scrutiny from federal and state regulators . these factors negatively influenced , and likely will continue to negatively influence , earning asset yields at a time when the market for deposits is intensely competitive . as a result , financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . story_separator_special_tag padding-top : 2px ; line-height : 1.3 ; `` > rate/volume analysis net interest income can be analyzed in terms of the impact of changing interest rates and changing volume . the following tables set forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented ( dollars in thousands ) . replace_table_token_4_th net interest income , the largest component of our income , was $ 20.2 million , $ 19.3 million , and $ 18.4 million , for the years ended december 31 , 2010 , 2009 , and 2008 , respectively . the increases in 2010 and 2009 related primarily to the net effect of higher levels of both average interest-earning assets and interest-bearing liabilities . average interest-earning assets increased $ 17.7 million and $ 27.0 million during the years ended december 31 , 2010 and 2009 , respectively , compared to the prior years . during the same periods of 2010 and 2009 , average interest-bearing liabilities increased $ 12.6 million and $ 14.1 million , respectively , compared to the prior years . the higher average balances resulted in $ 535,000 and $ 1.1 million of additional net interest income during the years ended 2010 and 2009 , respectively , compared to the same periods in 2009 and 2008. in addition , lower rates on the average balances , especially on our interest-bearing deposits , produced additional net interest income of $ 180,000 for the 2010 period while the lower rates reduced net interest income by $ 190,000 in 2009. interest income for the year ended december 31 , 2010 was $ 35.5 million , consisting of $ 32.6 million on loans , $ 2.9 million on investments , and $ 59,000 on federal funds sold . interest income for the same period ended december 31 , 2009 was $ 36.2 million , consisting of $ 31.7 million on loans , $ 4.4 million on investments , and $ 31,000 on federal funds sold . interest income for 2008 was $ 40.2 million , consisting of $ 35.1 million on loans , $ 4.9 million on investments , and $ 261,000 on federal funds sold . interest on loans for the years ended december 31 , 2010 , 2009 and 2008 represented 91.7 % , 87.7 % and 87.2 % , respectively , of total interest income , while income from investments and federal funds sold represented 8.3 % , 12.3 % and 12.8 % of total interest income for the years ended december 31 , 2010 , 2009 and 2008 , respectively . the high percentage of interest income from loans related to our strategy to maintain a significant portion of our assets in higher earning loans compared to lower yielding investments .
| the increase in average earning assets is primarily related to a $ 10.8 million increase in our average loans , while the increase in average interest-bearing liabilities is related to a $ 37.0 million increase in our interest-bearing deposits , partially offset by a $ 24.4 million decrease in notes payable and other debt . we have included a number of tables to assist in our description of various measures of our financial performance . for example , the `` average balances , income and expenses , yields and rates '' table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during 2010 , 2009 , and 2008. a review of these tables shows that our loans typically provide higher interest yields than do other types of interest-earning assets , which is why we direct a substantial percentage of our earning assets into our loan portfolio . similarly , the `` rate/volume analysis '' table demonstrates the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown . a review of these tables shows that if short-term rates begin to rise , our net interest income is expected to be positively impacted . we also track the sensitivity of our various categories of assets and liabilities to changes in interest rates , and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning and interest-bearing accounts . finally , we have included various tables that provide detail about our investment securities , our loans , our deposits , and borrowings . 34 the following table sets forth information related to our average balance sheet , average yields on assets , and average costs of liabilities ( dollars in thousands ) . we derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities . we derived average balances from the daily balances throughout the periods indicated . at december 31 , 2010 , we had investments of $ 849,000 in certificates of deposit at other banks and investments of $ 99,000 at december 31 , 2009 and
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other income ( expense ) other income was $ 0.9 million for the year ended december 31 , 2019. the $ 0.9 million was related to a deferred insurance reimbursement from the first quarter of 2016. the company collected $ 0.9 million from an insurance company for accounts receivable . subsequent to march 31 , 2016 , the insurance company verbally communicated to the company that this payment was made in error and requested it be refunded to the insurance company . the company recorded this $ 0.9 million as a deferred insurance liability . during the first quarter of 2019 , the company recognized $ 0.9 million as other income and released the liability . the company has included this amount in other income in order to ensure comparability of the company 's operating income results for the years ended december 31 , 2019 and 2018. management 's legal determination that any refund obligation is remote was based on the facts and circumstances related to the dispute , which included reviewing the legal statutes within the jurisdictions the company operates . other expense was $ 0.2 million for the year ended december 31 , 2018. the $ 0.2 million other expense relates to debt discount amortization and interest expense related to the private placement completed during the first quarter of 2017 , which was paid off early in 2018. income tax expense we recorded income tax expense of $ 2.4 million and $ 0.7 million for the years ended december 31 , 2019 and 2018 , respectively . the effective income tax rate for the years ended december 31 , 2019 and 2018 was 20 % and 7 % , respectively . the increase in expense and effective rate during 2019 is due to the increase in the company 's profitability and the release of the valuation allowance against all remaining net operating losses during 2018. financial condition as of december 31 , 2019 , we had working capital of $ 17.4 million , compared to $ 7.3 million as of december 31 , 2018. the increase in working capital is primarily due to the company 's increase in orders and profit during 2019. we generated $ 6.3 million in operating cash flows during 2019 . 16 liquidity and capital resources we have historically financed operations through cash flows from operations , debt and equity transactions . as of december 31 , 2019 , our principal source of liquidity was $ 14.0 million in cash and $ 5.8 million in accounts receivables . the increased cash balance at december 31 , 2019 was due to cash flows from operations of $ 6.3 million during 2019 which was partially offset by a $ 2.3 million payment for a $ 0.07 dividend declared in november 2018 and paid in january 2019. our anticipated uses of cash in the future will be to fund the expansion of our business . the company does not anticipate any large expenditures for capital resources over the next 12 months . net cash provided by operating activities for the years ended december 31 , 2019 and 2018 was $ 6.3 million and $ 9.4 million , respectively . the decrease in cash provided by operating activities for the year ended december 31 , 2019 was primarily due to the increase in income taxes paid during 2019 as the company utilized all remaining net operating losses during 2018 , increased accounts receivable due to revenue growth and increases in inventory to support our increased order volumes . net cash used in investing activities for the years ended december 31 , 2019 and 2018 was $ 0.2 million and $ 1.1 million , respectively . cash used in investing activities for the years ended december 31 , 2019 was primarily related to the purchase of computer and office equipment . cash used in investing activities for the year ended december 31 , 2018 was related to the buildout of our new corporate headquarters and increased levels of capitalized inventory which is out on lease to customers . net cash used in financing activities for the years ended december 31 , 2019 and 2018 was $ 2.2 million and $ 3.8 million , respectively . the cash used in financing activities for the year ended december 31 , 2019 was primarily due to the payment of a $ 2.3 million dividend in january 2019. the cash used in financing activities for the year ended december 31 , 2018 was primarily due to the share buyback program and payments related to our promissory notes from our private placement partially offset by cash received on option exercises . we believe our cash and cash equivalents , together with anticipated cash flow from operations will be sufficient to meet our working capital , and capital expenditure requirements for at least the next twelve months . in making this assessment , we considered the following : · our cash and cash equivalents balance at december 31 , 2019 of $ 14.0 million ; · our working capital balance of $ 17.4 million ; · our accounts receivable balance of $ 5.8 million : · our profitability during the last 14 quarters ; and · our planned capital expenditures of less than $ 1.0 million during 2020. contractual obligations the following table summarizes the future cash disbursements to which we are contractually committed as of december 31 , 2019 ( in thousands ) . replace_table_token_3_th we lease office facilities and equipment under non-cancelable operating leases . the current office facility leases include our headquarters in englewood , colorado and a small warehouse/office in denmark . rent expense was $ 1.0 million and $ 0.9 million for the years ended december 31 , 2019 and 2018 , respectively . story_separator_special_tag in the fourth quarter of 2012 , zeu entered into an annual rental agreement for a small office/warehouse space ( approximately 250 square feet ) in denmark , which can be terminated within 120 days ' notice . annual rent totals 45,000 danish kroner ( approximately $ 6,750 usd using 2019 year-end exchange rates ) . the company entered into a five-year non-cancelable operating lease agreement for business equipment during the third quarter of 2019. the annual expense is $ 45,000. off – balance sheet arrangements as of december 31 , 2019 , and 2018 , we had no off-balance sheet arrangements or obligations . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . we have identified the policies below as critical to our business operations and the understanding of our results of operations . 17 revenue recognition and accounts receivable revenue is generated primarily from sales and leases of our electrotherapy devices and related supplies and complimentary products . sales are primarily made with , and shipped , direct to the patient with a small amount of revenue generated from sales to distributors . in the healthcare industry there is often a third party involved that will pay on the patients ' behalf for purchased or leased devices and supplies . the terms of the separate arrangement impact certain aspects of the contract with patients covered by third party payers , such as contract type , performance obligations and transaction price , but for purposes of revenue recognition the contract with the customer refers to the arrangement between the company and the patient . the company does not have any material deferred revenue in the normal course of business as each performance obligation is met upon delivery of goods to the patient . device sales device sales can be in the form of a purchase or a lease . revenue for purchased devices is recognized in accordance with asc 606 – “ revenue from contracts with customers ” ( “ asc 606 ) when the device is delivered to the patient . revenue related to devices out on lease is recognized in accordance with asc 842 , leases . using the guidance in asc 842 , we concluded our transactions should be accounted for as operating leases based on the following criteria below : · the lease does not transfer ownership of the underlying asset to the lessee by the end of the lease term . · the lease does not grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise . · the lease term is month to month , which does not meet the major part of the remaining economic life of the underlying asset . however , if the commencement date falls at or near the end of the economic life of the underlying asset , this criterion shall not be used for purposes of classifying the lease . · there is no residual value guaranteed and the present value of the sum of the lease payments does not equal or exceed substantially all of the fair value of the underlying asset · the underlying asset is expected to have alternative uses to the lessor at the end of the lease term . lease commencement occurs upon delivery of the device to the patient . the company retains title to the leased device and those devices are classified as property and equipment on the balance sheet . since our leases are month-to-month and can be returned by the patient at any time , revenue is recognized monthly for the duration of the period in which the patient retains the device . supplies supplies revenue is recognized once delivered to the patient . supplies needed for the device can be set up as a recurring shipment or ordered through the customer support team or online store as needed . variable consideration a significant portion of the company 's revenues are derived , and the related receivables are due , from patients with commercial or government health plans . revenues are estimated using the portfolio approach by third party payer type based upon historical rates of collection , the aging of receivables , trends in the historical reimbursement rates by third-party payer types and current relationships and experience with the third-party payers , which includes estimated constraints for third-party payer refund requests , deductions and adjustments . inherent in these estimates is the risk that they will have to be revised as additional information becomes available and constraints are released . specifically , the complexity of third-party billing arrangements and the uncertainty of reimbursement amounts for certain products from third-party payers or unanticipated requirements to refund payments previously received may result in adjustments to amounts originally recorded . due to continuing changes in the health care industry and third-party payer reimbursement , it is possible our forecasting model to estimate collections could change , which could have an impact on our results of operations and cash flows . any differences between estimated settlements and final determinations are reflected as an increase or a reduction to revenue in the period when such final determinations are known . historically these differences have been immaterial and the company has not had to go back and reassess the adjustments of future periods for past billing adjustments . the company monitors the variability and uncertain timing over third-party payer types in our portfolios . if there is a change in our third-party payer mix over time , it could affect our net revenue and related receivables . we believe we have a sufficient history of collection experience to estimate the net collectible amounts by third-party payer type . however , changes to constraints related to billing adjustments have historically fluctuated and may continue to
| the deductions are known throughout the health care industry as billing adjustments whereby the healthcare insurers unilaterally reduce the amount they reimburse for our products as compared to the sales prices charged by us . the deductions from gross revenue also take into account the estimated denials , net of resubmitted billings of claims for products placed with patients which may affect collectability . see our significant accounting policies in note 2 to the consolidated financial statements for a more complete explanation of our revenue recognition policies . we occasionally receive , and expect to continue to receive , refund requests from insurance providers relating to specific patients and dates of service . billing and reimbursement disputes are very common in our industry . these requests are sometimes related to a few patients and other times include a significant number of refund claims in a single request . we review and evaluate these requests and determine if any refund is appropriate . we also review claims that have been resubmitted or where we are pursuing additional reimbursement from that insurance provider . we frequently have significant offsets against such refund requests which may result in amounts that are due to us in excess of the amounts of refunds requested by the insurance providers . therefore , at the time of receipt of such refund requests we are generally unable to determine if a refund request is valid . net revenue increased $ 13.6 million or 42 % to $ 45.5 million for the year ended december 31 , 2019 , from $ 31.9 million for the year ended december 31 , 2018. the growth in net revenue is primarily related to the 83 % growth in device orders which led to an increased customer base and drove higher sales of consumable supplies . 15 device revenue device revenue is related to the purchase or lease of our electrotherapy products as well as complimentary products including cervical traction , lumbar support and hot/cold therapy products . device revenue increased $ 3.9 million or 57 % to
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we generally price our digital banking platform solutions based on the number of solutions purchased by our customers and the number of registered users utilizing our solutions . we generally earn additional revenues from our digital banking platform customers based on the number of transactions that registered users perform on our solutions in excess of the levels included in our standard 48 subscription fee . as a result , our revenues from digital banking platform customers grow as our customers buy more solutions from us and increase the number of registered users utilizing our solutions and as those users increase their number of transactions on our solutions . the structure and terms of the arrangements for our newer lending and leasing and baas solutions are varied , but we generally sell these solutions on a subscription basis through our direct sales organization , and the related revenues are recognized over the terms of the customer agreements . we have achieved significant growth since our inception . during each of the past seven years , our average number of registered users per installed customer on our digital banking platform , or installed customer , has grown , and we have been able to sell additional solutions to existing customers . our revenues per installed customer and per registered user vary period-to-period based on the length and timing of customer implementations , changes in the average number of registered users per customer , sales of additional solutions to existing customers , changes in the number of transactions on our solutions by registered users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing . please see `` management 's discussion and analysis of financial condition and results of operations—key operation measures '' for additional detail on how we define `` installed customers '' and `` registered users . '' we believe we have a significant opportunity to continue to grow our business , and we continue to invest across our organization to increase our revenues and improve our operating efficiencies . these investments will increase our costs on an absolute dollar basis , but the timing and amount of these investments will vary based on the rate at which we expect to add new customers , the implementation and support needs of our customers , our software development plans , our technology infrastructure requirements and the internal needs of our organization . many of these investments will occur in advance of our realizing any resultant benefit which may make it difficult to determine if we are effectively allocating our resources . if we are successful in growing our revenues by increasing the number and scope of our customer relationships , we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term . we also anticipate that increases in the number of registered users for existing digital banking platform customers will improve our margins . however , we do not have any control or influence over whether end users of our digital banking platform elect to become registered users of our customers ' digital banking services . we sell our solutions primarily through our professional sales organization . while the financial institution market is well-defined due to the regulatory classifications of those financial institutions , the alt-fi and fintech markets are broader and more difficult to define due to the changing number of providers in each market . we intend to add sales representatives to identify and address the financial institution , alt-fi and fintech markets across the u.s. and internationally . we also expect to increase our number of sales support and marketing personnel , as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities . we have continuously invested in expanding and improving our digital banking platform since its introduction in 2005 , and we intend to continue investing both organically and inorganically through acquisitions to expand our portfolio . in addition , over the past three years we have acquired or developed new solutions and additional functions that serve a broader range of needs of financial institutions as well as the needs of alt-fis and fintechs . in addition to our acquisitions of cloud lending inc. , or cloud lending , and gro solutions , inc. , or gro , in 2018 and our acquisitions of centrix and social money in 2015 , we completed our acquisition of lender performance group , llc , or precisionlender , on october 31 , 2019. precisionlender is a provider of data-driven sales enablement , pricing and portfolio management solutions for financial institutions globally . our solutions now include a broad range of services and experiences including commercial banking , regulatory and compliance , digital lending and leasing , baas , digital account opening and data-driven sales enablement and portfolio management solutions both in the u.s. and internationally . we believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid , flexible and comprehensive integration with internal and third-party systems allowing them to provide modern , intuitive digital financial services in a secure , regulatory-compliant manner . we also believe that the breadth and depth of our solution offerings across the financial institution , alt-fi and fintech markets , our open and flexible platform approach , our position as a leading provider of digital banking solutions to a large network of rcfis , and our expertise in delivering new , innovative , secure and regulatory-compliant digital solutions uniquely position us in the market for digital financial services solutions . we intend to increase investments in technology innovation and software development as we enhance our solutions and platforms and increase or expand the number of solutions that we offer . we believe that delivery of consistent , high-quality customer support is a significant driver of purchasing and renewal decisions of our prospects and customers . story_separator_special_tag to develop and maintain a reputation for high-quality service , we seek to build deep relationships with our customers through our customer service organization , which we staff with personnel who are motivated by our common mission of using technology to help our customers succeed and who are knowledgeable with respect to the regulated and complex nature of the financial services industry . as we grow our business , we must continue to invest in and grow our services organization to support our customers ' needs and maintain our reputation . 49 recent events on june 10 , 2019 , we completed a private placement to qualified institutional buyers of $ 316.3 million in aggregate principal amount of 0.75 % convertible senior notes due june 1 , 2026 , or the 2026 notes , including $ 41.3 million in aggregate principal amount of 2026 notes purchased pursuant to an option to purchase additional notes . the 2026 notes bear interest at 0.75 % per annum , payable semiannually on june 1 and december 1 of each year , beginning on december 1 , 2019. in connection with the june 2019 convertible note offering , we entered into capped call transactions with one or more counterparties , or the capped calls , with the intention of using the capped calls to offset the potential dilution to the common stock upon any conversion of the 2026 notes and or offset any cash payments we are required to make in excess of the principal amount of the 2026 notes in the event the market price per share of common stock is greater than the strike price of the capped calls , with such offset subject to a cap . the june 2019 convertible note offering generated net proceeds to us of approximately $ 266.3 million , after deducting $ 9.3 million in offering costs , including $ 40.8 million to purchase the capped calls . on june 10 , 2019 , we completed a registered public offering of 2,637,986 shares of our common stock at a price of $ 69.50 per share , and on june 12 , 2019 , we completed the sale of an additional 395,698 shares of common stock at $ 69.50 per share when the underwriters exercised their option to purchase additional shares . the total shares sold in the june 2019 common stock offering and shares sold when underwriters exercised their option included 120,000 shares sold by a selling stockholder and 2,913,684 shares sold by us . the june 2019 common stock offering generated net proceeds to us of approximately $ 195.3 million , after deducting $ 8.2 million in underwriting discounts and commissions and offering costs , which have been recorded against the proceeds received from the offering . we did not receive any proceeds from the sale of shares by the selling stockholder in the june 2019 common stock offering . on september 30 , 2019 , we entered into an agreement and plan of merger , or merger agreement , pursuant to which we agreed to acquire precisionlender , a saas provider of data-driven sales enablement , pricing and portfolio management solutions for financial institutions , for cash consideration of $ 510 million , and on october 31 , 2019 , we consummated the acquisition of precisionlender . upon consummation , $ 4.8 million of the cash consideration was placed into escrow to secure certain post-closing indemnification obligations in the merger agreement . key operating measures in addition to the united states generally accepted accounting principles , or gaap , measures described below in `` management 's discussion and analysis of financial condition and results of operations—components of operating results , '' we monitor the following operating measures to evaluate growth trends , plan investments and measure the effectiveness of our sales and marketing efforts : installed customers we define installed customers as the number of customers on our digital banking platform from which we are currently recognizing revenues . the average size of our installed customers , measured in both registered users per installed customer and revenues per installed customer , has increased over time as our existing installed customers continue to add registered users and buy more solutions from us , and as we add larger rcfis to our installed customer base . the net rate at which we add installed customers varies based on our implementation capacity , the size and unique needs of our customers , the readiness of our customers to implement our solutions , and customer attrition , including as a result of merger and acquisition activity among financial institutions . we had 414 , 401 and 382 installed customers on our digital banking platform as of december 31 , 2019 , 2018 and 2017 , respectively . registered users we define a registered user as an individual related to an account holder of an installed customer on our digital banking platform who has registered to use one or more of our solutions and has current access to use those solutions as of the last day of the reporting period presented . we price our digital banking platform solutions based on the number of registered users , so as the number of registered users of our solutions increases , our revenues grow . our average number of registered users per installed customer grows as our existing digital banking platform customers add more registered users and as we add larger rcfis to our installed customer base . we anticipate that the number of registered users will grow at a faster rate than our number of installed customers . the rate at which our customers add registered users and the incremental revenues we recognize from new registered users vary significantly period-to-period based on the timing of our implementations of new customers and the timing of registration of new end users . our installed customers had approximately 14.6 million , 12.8 million and 10.4 million registered users as of december 31 , 2019 , 2018 and 2017 , respectively .
| 64 comparison of year ended december 31 , 2019 and 2018 , and the year ended december 31 , 2018 and 2017 revenues the following table presents our revenues for each of the periods indicated ( dollars in thousands ) : replace_table_token_13_th year ended december 31 , 2019 compared to the year ended december 31 , 2018 . revenues increased by $ 74.4 million , or 30.9 % , from $ 241.1 million for the year ended december 31 , 2018 to $ 315.5 million for the year ended december 31 , 2019 . this increase was primarily attributable to a $ 43.2 million increase from the sale of additional solutions to new and existing customers and the growth in registered users from new and existing customers . in addition , $ 19.4 million of the increase was generated from the businesses acquired in the fourth quarter of 2018 , $ 9.2 million of the increase was generated from increases in the number of transactions processed using our solutions , and $ 2.6 million of the increase was generated from the precisionlender acquisition in the fourth quarter of 2019. the number of registered users on our online banking platform increased from 12.8 million at december 31 , 2018 to 14.6 million at december 31 , 2019 . year ended december 31 , 2018 compared to the year ended december 31 , 2017. revenues increased by $ 47.1 million , or 24.3 % , from $ 194.0 million for the year ended december 31 , 2017 to $ 241.1 million for the year ended december 31 , 2018. this increase was primarily attributable to a $ 36.5 million increase from the sale of additional solutions to new and existing customers and the growth in registered users from new and existing customers . in addition , $ 8.5 million of the increase was generated from increases in the number of transactions processed using our solutions , and $ 2.1 million of the increase was generated from the businesses acquired in the fourth quarter of 2018. the number of registered users on
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garner , north carolina ( the `` garner accident '' ) , and incremental income tax expense of $ 18.3 million , principally from the income tax consequences of certain costs incurred in association with the ralcorp acquisition . items of note impacting comparability for fiscal 2012 included the following : a charge of $ 396.9 million ( $ 251.2 million after-tax ) reflecting the year-end write-off of actuarial losses in excess of 10 % of our pension liability , charges totaling $ 65.5 million ( $ 40.1 million after-tax ) under our restructuring plans , a gain of $ 58.6 million ( $ 58.6 million after-tax ) , resulting from the remeasurement to fair value of our previously held noncontrolling equity interest in agro tech foods limited ( “ atfl ” ) , in connection with our acquisition of a majority interest in that company , a charge of $ 17.5 million ( $ 17.5 million after-tax ) in connection with legal matters associated with the 2007 peanut butter recall , a benefit of $ 11.8 million ( $ 7.4 million after-tax ) resulting from insurance settlements for matters associated with peanut butter , charges of $ 2.0 million ( $ 1.2 million after-tax ) of acquisition-related costs , and a charge of $ 4.6 million ( $ 2.9 million after-tax ) in connection with the write-off of an insurance claim receivable . acquisitions in january 2013 , we acquired ralcorp . the total amount of consideration paid in connection with the acquisition was approximately $ 5.07 billion ( $ 4.75 billion , net of cash acquired ) . we funded the acquisition consideration with existing cash on hand , borrowings under our new term loan facility , and net proceeds from the issuance of new senior notes and common stock . ralcorp manufactures private branded products including cereal products ; snacks , sauces , and spreads ; pasta ; frozen griddle products , including pancakes , waffles , and french toast ; frozen biscuits and other frozen pre-baked products such as breads and rolls ; and frozen and refrigerated dough products . we present the results of operations of the acquired ralcorp business in two segments : ralcorp food group and ralcorp frozen bakery products . in august 2012 , we acquired the p.f . chang 's ® and bertolli ® brands frozen meal business from unilever for $ 266.9 million in cash . this business is included in the consumer foods segment . in may 2012 , we acquired kangaroo brands ' pita chip operations for $ 47.9 million in cash . the business , which manufactures private brand and kangaroo ® brand pita chip snacks , is included in the consumer foods segment . 19 in may 2012 , we acquired odom 's tennessee pride for $ 96.6 million in cash , plus assumed liabilities . the business manufactures odom 's tennessee pride ® branded frozen breakfast products and other sausage products . this business is included in the consumer foods segment . in march 2012 , we acquired del monte canada for $ 185.6 million in cash , plus assumed liabilities . the acquisition includes all del monte ® branded packaged fruit , fruit snacks , and vegetable products in canada , as well as aylmer ® brand tomato products . this business is included in the consumer foods segment . in november 2011 , we acquired national pretzel company for $ 301.9 million in cash , net of cash acquired , plus assumed liabilities . national pretzel company is a private brand supplier and branded producer of pretzels and related products . this business is included in the consumer foods segment . in november 2011 , we acquired an additional equity interest in atfl for $ 4.9 million in cash , net of cash acquired , plus assumed liabilities . atfl is a publicly traded company in india that markets food and food ingredients to consumers and institutional customers in india . as a result of this investment , we now own a majority interest ( approximately 52 % ) in atfl . consolidated financial results of atfl are included in the consumer foods segment . in june 2011 , we purchased various marie callender 's ® brand trademarks from marie callender pie shops , inc. for $ 57.5 million in cash . restructuring plans in may 2013 , our board of directors authorized a restructuring and integration plan related to the ongoing integration of the recently acquired operations of ralcorp ( the `` ralcorp related restructuring plan '' ) . the plan is expected to include steps to , among other things , improve operational effectiveness and reduce costs , integrate headquarter functions across the organization , and optimize manufacturing assets and distribution networks , as a result of which we expect to incur material charges for exit and disposal activities under generally accepted accounting principles . at the time of the acquisition of ralcorp , we anticipated that we would need to take restructuring actions in integrating ralcorp and since that time have been evaluating , and continue to evaluate , such actions . we are currently unable , in good faith , to make a determination of an estimate of the total amount or range of amounts for each major type of cost expected to be incurred in connection with the ralcorp related restructuring plan , an estimate of the total amount or range of amounts expected to be incurred in connection with the ralcorp related restructuring plan , or an estimate of the amount or range of amounts of the charges that will result in future cash expenditures . we are also currently unable to determine the duration of the ralcorp related restructuring plan , but expect that the ralcorp related restructuring plan will be implemented over a multi-year period . in fiscal 2013 , we recognized charges of $ 28.4 million in relation to the ralcorp related restructuring plan , all of which will be cash charges . story_separator_special_tag we are incurring costs in connection with actions we take to attain synergies when integrating businesses acquired prior to the third quarter of fiscal 2013. these costs , collectively referred to as `` acquisition-related exit costs '' , include severance and other costs associated with consolidating facilities and administrative functions . we expect to incur $ 14.3 million of charges associated with fiscal 2013 and 2012 acquisitions ( $ 10.2 million of which are cash charges ) . in fiscal 2013 and 2012 , we recognized charges of $ 9.5 million and $ 4.5 million , respectively , in relation to acquisition-related exit costs . in august 2011 , we made a decision to reorganize our consumer foods sales function and certain other administrative functions within our commercial foods and corporate reporting segments . these actions , collectively referred to as the `` administrative efficiency plan '' , are intended to improve the efficiency and effectiveness of the affected sales and administrative functions . in connection with the administrative efficiency plan , we incurred $ 18.7 million of charges ( $ 16.8 million of which are cash charges ) , primarily for severance and costs of employee relocation . in fiscal 2013 and 2012 , we recognized charges of $ 2.0 million and $ 16.7 million , respectively , in relation to the administrative efficiency plan . at the end of fiscal 2013 , the administrative efficiency plan was substantially complete . in february 2011 , our board of directors approved a plan designed to optimize our manufacturing and distribution networks ( the `` network optimization plan '' ) . the network optimization plan consists of projects that involve , among other things , the exit of certain manufacturing facilities , the disposal of underutilized manufacturing assets , and actions designed to optimize our distribution network . in connection with the network optimization plan , we have incurred aggregate pre-tax costs of $ 76.7 million , including approximately $ 17.9 million of cash charges . in fiscal 2013 , 2012 , and 2011 , we recognized charges of $ 4.3 million , $ 41.8 million and $ 30.6 million , respectively , in relation to the network optimization plan . at the end of fiscal 2013 , the network optimization plan was substantially complete . prior to our acquisition of ralcorp , the management of ralcorp had initiated certain activities designed to optimize ralcorp 's manufacturing and distribution networks . we refer to these actions and the related costs as the `` ralcorp pre-acquisition restructuring plans '' . these plans involve , among other things , the exit of certain manufacturing facilities , the disposal of underutilized 20 manufacturing assets , and actions designed to optimize the ralcorp distribution network . we expect to incur $ 3.2 million of charges that have resulted or will result in cash outflows associated with the ralcorp pre-acquistion restructuring plans . in fiscal 2013 , we recognized charges of $ 1.3 million in relation to the ralcorp pre-acquisition restructuring plans . for activities initiated after our acquisition of ralcorp , refer to the ralcorp related restructuring plan . in march 2010 , we announced a plan , authorized by our board of directors , related to the long-term production of our meat snack products . the plan provided for the closure of our meat snacks production facility in garner , north carolina , and the movement of production to our existing facility in troy , ohio . in may 2010 , we made a decision to consolidate certain administrative functions from edina , minnesota to naperville , illinois . the transition of these functions was completed in fiscal 2011. this plan , together with the plan to move production of our meat snacks from garner , north carolina to troy , ohio , are collectively referred to as the 2010 restructuring plan ( the “ 2010 plan ” ) . we incurred pre-tax charges of $ 67.3 million , including $ 28.3 million in cash charges in relation to the 2010 plan . in fiscal 2012 , we recognized charges of approximately $ 2.6 million in relation to the 2010 plan . by the end of fiscal 2012 , the 2010 plan was complete . segment review we report our operations in four reporting segments : consumer foods , commercial foods , ralcorp food group , and ralcorp frozen bakery products . in the first quarter of fiscal 2013 , we revised the manner in which sales of grain within our commercial foods segment are recognized . as a result , segment results of the prior periods have been revised to reflect the changes . consumer foods the consumer foods reporting segment includes branded and private brand food products that are sold in various retail and foodservice channels , principally in north america . the products include a variety of categories ( meals , entrees , condiments , sides , snacks , and desserts ) across frozen , refrigerated , and shelf-stable temperature classes . commercial foods the commercial foods reporting segment principally includes commercially branded foods and ingredients , which are sold primarily to foodservice , food manufacturing , and industrial customers . the segment 's primary products include : specialty potato products , milled grain ingredients , and a variety of vegetable products , seasonings , blends , and flavors , which are sold under brands such as conagra mills ® , lamb weston ® , and spicetec flavors & seasonings ® . ralcorp food group the ralcorp food group reporting segment principally includes private brand food products that are sold in various retail and foodservice channels , primarily in north america . the products include a variety of categories including cereal products ; snacks , sauces , and spreads ; and pasta . ralcorp frozen bakery products the ralcorp frozen bakery products reporting segment principally includes private brand frozen bakery products that are sold in various retail and foodservice channels , primarily in north america .
| the facility requires that our consolidated funded debt not exceed 75 % of our consolidated capital base in the first four quarters commencing on january 29 , 2013 , 70 % in the second four quarters , and 65 % thereafter , and that our fixed charges coverage ratio be greater than 1.75 to 1.0. as of may 26 , 2013 , we were in compliance with these financial covenants . as of may 26 , 2013 , we had $ 185.0 million outstanding under our commercial paper program . the highest level of borrowings during fiscal 2013 was $ 392.0 million , which occurred at the end of the first quarter of fiscal 2013 in association with the acquisition of the p.f . chang 's ® and bertolli ® brands frozen meal business . this balance was repaid in the second quarter of fiscal 2013 upon the issuance of $ 750.0 million of senior unsecured notes . during the third quarter of fiscal 2013 , in order to finance a portion of our acquisition of ralcorp , we ( i ) issued new senior unsecured notes in an aggregate principal amount of $ 3.975 billion , ( ii ) issued new senior unsecured notes in an aggregate principal amount of $ 716.0 million in exchange for senior notes issued by ralcorp , ( iii ) assumed senior notes issued by ralcorp in an aggregate principal amount of $ 460.7 million , which were prepaid in the fourth quarter of fiscal 2013 , and ( iv ) borrowed $ 1.5 billion under our new term loan facility . details related to these transactions are noted below . on january 25 , 2013 , we issued senior unsecured notes in the aggregate principal amount of $ 3.975 billion . these notes were issued in four tranches : $ 750.0 million , maturing in 3 years with a coupon rate of 1.3 % , $ 1.0 billion , maturing in 5 years with a coupon rate of 1.9 % , $ 1.225 billion , maturing in 10 years with a coupon rate
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million or 14.3 % for fiscal 2019 as compared to fiscal 2018. the increase in research and development expenses during fiscal 2019 was due to $ 13.4 million related to third-party design and engineering collaboration charges , a $ 10.8 million increase in personnel costs , $ 5.5 million in increased facility and information technology costs and $ 0.9 million in increased supplies and equipment costs offset by a $ 3.3 million decrease in contract labor and a $ 1.0 million decrease in travel , recruiting and other costs . research and development expenses increased by $ 90.2 million or 96.2 % for fiscal 2018 as compared to fiscal 2017. the increase in research and development expenses during fiscal 2018 was due to higher personnel costs of $ 67.0 million due to increased headcount related to the acquisitions of the campus fabric and data center businesses , $ 12.5 million in increased facility and information technology costs , $ 7.4 million in increased supplies and equipment costs and $ 3.2 million in increased travel and other costs . sales and marketing expenses sales and marketing expenses consist of personnel costs ( which consists of compensation , benefits and stock-based compensation ) and related expenses for personnel engaged in marketing and sales functions , as well as trade shows and promotional expenses . sales and marketing expenses increased by $ 18.2 million or 6.8 % for the year ended june 30 , 2019 , as compared to the corresponding period of fiscal 2018. the increase in sales and marketing expenses during fiscal 2019 consisted of higher personnel costs of $ 15.2 million , $ 2.5 million in increased software , supplies and equipment costs , $ 1.1 million in increased travel , marketing , meeting and conference costs offset by a $ 0.6 million decrease in facility and information technology costs . sales and marketing expenses increased by $ 104.5 million or 64.2 % for the year ended june 30 , 2018 , as compared to the corresponding period of fiscal 2017. the increase in sales and marketing expenses during fiscal 2018 was primarily a result of the acquisitions of the campus fabric and data center businesses . the increase consisted of higher personnel costs of $ 74.7 million , $ 10.8 million in additional professional fees , $ 7.2 million in increased facility and information technology costs , $ 6.4 million in increased travel , meeting and conference costs and $ 5.4 million in supplies and equipment costs . general and administrative expenses general and administrative expense consists primarily of personnel costs ( which consists of compensation , benefits and stock-based compensation ) , legal and professional service costs , travel and facilities and information technology costs . general and administrative expenses increased by $ 4.6 million or 9.1 % for the year ended june 30 , 2019 , as compared to the corresponding period of fiscal 2018. the increase in general and administrative expenses during fiscal 2019 was primarily due to $ 2.4 million in higher personnel costs , $ 1.3 million in higher facility and information technology costs , a $ 1.3 million increase in lease termination costs and a $ 0.6 million increase in supplier contract termination costs partially offset by a $ 1.0 million reduction in travel , professional fees and other costs . general and administrative expenses increased by $ 13.1 million or 34.7 % for the year ended june 30 , 2018 , as compared to the corresponding period of fiscal 2017. the increase in general and administrative expenses during fiscal 2018 was primarily due to $ 8.4 million in higher personnel costs , $ 3.2 million in higher professional fees , $ 1.4 million in higher bad debts provision and $ 0.8 million in higher travel and other costs , partially offset by $ 0.7 million in reduced facility and information technology costs . 39 acquisition and integration costs , net of bargain purchase gain as a result of our acquisitions of the campus fabric , data center and capital financing businesses in fiscal 2018 and the wlan business in fiscal 2017 , we incurred $ 3.4 million , $ 53.9 million and $ 13.1 million of acquisition and integration costs , net of bargain purchase gain in fiscal years ended 2019 , 2018 and 2017 , respectively . for fiscal 2019 , we incurred $ 3.4 million of operating integration costs related to the acquisitions of the campus fabric and data center businesses along with initial costs of the aerohive acquisition . on august 9 , 2019 we completed our acquisition of aerohive for approximately $ 264 million in cash consideration and the assumption of certain employee equity awards . see note 17 – subsequent events . for fiscal 2018 , we incurred $ 12.4 million of acquisition and $ 6.3 million of integration costs related to the acquisition of the campus fabric business and $ 36.0 million of acquisition and $ 4.2 million of integration costs related to the acquisition of the data center business . the data center business acquisition costs includes a $ 25.0 million consent fee paid to broadcom , to terminate a previous asset purchase agreement entered into by the company to purchase the data center business from broadcom , in anticipation of broadcom 's acquisition of brocade . the fee was paid to broadcom to allow the company to buy the data center business directly from brocade . we also recorded a gain on bargain purchase of $ 5.0 million related to the acquisition of the capital financing business . for fiscal 2017 , we incurred $ 2.1 million of acquisition and $ 6.6 million of integration costs related to the wlan business acquisition . we also incurred acquisition costs of $ 2.2 million related to our anticipated acquisition of the campus fabric business and $ 2.2 million for the anticipated acquisition of the data center business . story_separator_special_tag restructuring and related charges , net of reversals as of june 30 , 2019 , restructuring liabilities were $ 5.3 million and consisted primarily of severance and benefits payments and estimated future obligations for non-cancelable lease payments for excess facilities . the restructuring liability is recorded in “ other accrued liabilities ” and “ other long-term liabilities ” on the consolidated balance sheets . during fiscal years ended 2019 , 2018 and 2017 , we recorded restructuring charges and related charges , net of reversals , of $ 5.1 million , $ 8.1 million and $ 8.9 million , respectively . fiscal year ended 2019 on june 25 , 2019 , we began executing a reduction-in-force plan ( the 2019 plan ) to better align our work force and operating expenses . we recorded $ 3.7 million related to employee severance and benefits expenses during the year ended june 30 , 2019 under the 2019 plan . we also incurred $ 1.1 million in additional charges related to continuation of earlier actions associated with a reduction-in-force in the fourth quarter of fiscal 2018. we also incurred charges of $ 0.3 million for changes to estimates for accrued lease costs pertaining to the estimated future obligations for non-cancelable lease payments of excess facilities . we estimate we will incur additional charges beginning in the fourth quarter of fiscal 2019 through the second quarter of fiscal 2020 , inclusive . costs associated with the 2019 plan are primarily comprised of employee severance and benefits expenses , relocation of personnel and equipment and exit of excess facilities . the amount and timing of the actual charges are uncertain due to required consultation activities with certain employees as well as compliance with statutory severance requirements in local jurisdictions . fiscal year ended 2018 during fiscal 2018 , we announced and began executing a reduction-in-force in our third and fourth fiscal quarters as a result of the acquisitions of the campus fabric and the data center businesses . w e recorded restructuring charges of $ 7.9 million related to employee severance and benefits expenses during fiscal 2018. we also incurred charges of $ 0.2 million for changes to our estimates for accrued lease costs pertaining to the estimated future obligations for non-cancelable lease payments of our excess facilities . fiscal year ended 2017 pursuant to the wlan business acquisition from zebra , we assumed a facility lease located at 6480 via del oro in san jose , california ( “ via del oro ” ) and transferred our headquarters from rio robles drive in san jose , california ( “ rio robles ” ) to via del oro . we consolidated our existing workforce from our previous headquarters with employees assumed from zebra to the via del oro site and exited the rio robles site on january 31 , 2017. due to our move from the rio robles facility and abandonment of all leasehold improvements , we accelerated the amortization of the remaining leasehold improvements for this site over the shortened service period such that the leasehold improvements were fully amortized on the cease-use date . we recorded accelerated amortization expense for the year ended june 30 , 2017 of $ 2.6 million which is reflected in “ restructuring and related charges , net of reversals ” in the consolidated statements of operations . we entered into a sublease agreement related to our rio robles facility during the third quarter of fiscal 2017 for the remaining duration of the lease . the sublease resulted in adjustments to the prior estimates for the amount of sublease payments , timing of sublease activities and real estate commissions associated with the sublease . the net adjustments , including modifications to our future obligations for non-cancellable lease payments and related future subleasing income resulted in additional charges of $ 2.0 million during fiscal 2017. the excess facilities payments will continue through fiscal year 2023 . 40 in anticipation of the acquisitions of campus fabric business and data center business in fiscal 2018 , we reoccupied the majority of the previously exited space at our salem , new hampshire location during our fiscal fourth quarter to accommodate the growth in headcount and lab facility requirements . this action resulted in a reversal of prior restructuring expense accruals of $ 1.3 million . we also implemented a reduction-in-force which affected 90 employees . we recorded severance and benefits charges of $ 5.6 million during the year ended june 30 , 2017. cash payments of $ 3.8 million were made by june 30 , 2017 with the remainder paid in fiscal 2018. amortization of intangibles during fiscal years ended 2019 , 2018 and 2017 , we recorded $ 6.3 million , $ 8.7 million and $ 8.7 million , respectively , of amortization expenses in operating expenses primarily for certain intangibles related to the acquisitions of the campus fabric , data center and wlan businesses and enterasys . the decrease in amortization expense of $ 2.4 million in fiscal 2019 from fiscal 2018 was mainly due to the acquired intangibles from the enterasys acquisition becoming fully amortized . interest income interest income was $ 2.2 million , $ 2.8 million and $ 0.7 million in fiscal years ended 2019 , 2018 and 2017 , respectively , representing a decrease of $ 0.6 million in fiscal 2019 from fiscal 2018 and an increase of $ 2.2 million in fiscal 2018 from fiscal 2017. the decrease in fiscal 2019 was due to a $ 1.6 million decrease in interest income from a long-term note receivable , offset by higher invested funds balances . the increase in fiscal 2018 was due to accretion of interest on a long-term note receivable acquired from the wlan business as well as increased interest income on cash balances due to rising market interest rates . interest expense we incurred $ 12.6 million , $ 13.9 million and $ 4.1 million of interest expense for fiscal 2019 , 2018 and 2017 , respectively .
| product revenue increased $ 304.0 million or 66.0 % for the year ended june 30 , 2018 , compared to the corresponding period of fiscal 2017. the increase in product revenues was attributable to growth related to the acquisitions of the wlan , the campus fabric and the data center businesses and to a lesser extent , organic growth of legacy revenues . service revenue increased $ 29.5 million or 13.5 % for the year ended june 30 , 2019 , compared to the corresponding period of fiscal 2018. the increase in service revenue was driven primarily by growth across all regions owing to a higher number of maintenance contracts related to the data center business acquisition . service revenue increased $ 72.0 million or 49.1 % for the year ended june 30 , 2018 , compared to the corresponding period of fiscal 2017. the increase in service revenue was due to the increased number of service contracts acquired as a result of the acquisitions of the wlan , the campus fabric and the data center businesses . we operate in three regions : americas , which includes the united states , canada , mexico , central america and south america ; emea , which includes europe , russia , middle east , and africa ; and apac which includes asia pacific , south asia , japan and australia . the following table presents the total net revenue geographically for the fiscal years 2019 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_7_th we rely upon multiple channels of distribution , including distributors , direct resellers , oems and direct sales . revenue through our distributor channel was 70 % of total product revenue in fiscal 2019 , 69 % of total product revenue in fiscal 2018 and 66 % in fiscal 2017. the level of sales to any one customer , including a distributor , may vary from period to period . 37 cost of revenues and gross profit the following table presents the gross profit on product and service revenue and the gross profit percentage of net revenues for
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on october 31 , 2017 , we acquired the remaining 75 % interest in slc pipeline and the remaining 50 % interest in frontier aspen from subsidiaries of plains , for cash consideration of $ 250 million . prior to this acquisition , we held noncontrolling interests of 25 % of slc pipeline and 50 % of frontier aspen . as a result of the acquisitions , slc pipeline and frontier aspen are wholly-owned subsidiaries of hep . this acquisition was accounted for as a business combination achieved in stages with the consideration allocated to the acquisition date fair value of assets and liabilities acquired . the preexisting equity interests in slc pipeline and frontier aspen were remeasured at acquisition date fair value since we will have a controlling interest , and we recognized a gain on the remeasurement in the fourth quarter of 2017 of $ 36.3 million . slc pipeline is the owner of a 95-mile crude pipeline that transports crude oil into the salt lake city area from the utah terminal of the frontier pipeline and from wahsatch station . frontier aspen is the owner of a 289-mile crude pipeline from casper , wyoming to frontier station , utah that supplies canadian and rocky mountain crudes to salt lake city area refiners through a connection to the slc pipeline . agreements with hfc and delek we serve hfc 's refineries under long-term pipeline , terminal , tankage and refinery processing unit throughput agreements expiring from 2019 to 2036. under these agreements , hfc agrees to transport , store , and process throughput volumes of refined product , crude oil and feedstocks on our pipelines , terminal , tankage , loading rack facilities and refinery processing units that result in minimum annual payments to us . these minimum annual payments or revenues are subject to annual rate adjustments on july 1st each year based on the ppi or the ferc index . as of december 31 , 2018 , these agreements with hfc require minimum annualized payments to us of $ 314 million . if hfc fails to meet its minimum volume commitments under the agreements in any quarter , it will be required to pay us the amount of any shortfall in cash by the last day of the month following the end of the quarter . under certain of the agreements , a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met . we have a pipelines and terminals agreement with delek expiring in 2020 under which delek has agreed to transport on our pipelines and throughput through our terminals volumes of refined products that result in a minimum level of annual revenue that is also subject to annual tariff rate adjustments . we also have a capacity lease agreement under which we lease delek space on our orla to el paso pipeline for the shipment of refined product . the terms for a portion of the capacity under this lease agreement expired in 2018 and were not renewed , and the remaining portions of capacity expire in 2020 and 2022. as of december 31 , 2018 , these agreements with delek require minimum annualized payments to us of $ 32 million . a significant reduction in revenues under these agreements could have a material adverse effect on our results of operations . under certain provisions of an omnibus agreement that we have with hfc ( “ omnibus agreement ” ) , we pay hfc an annual administrative fee ( $ 2.5 million in 2018 ) , for the provision by hfc or its affiliates of various general and administrative services to us . this fee does not include the salaries of personnel employed by hfc who perform services for us on behalf of hls or the cost of their employee benefits , which are separately charged to us by hfc . we also reimburse hfc and its affiliates for direct expenses they incur on our behalf . under hls 's secondment agreement with hfc , certain employees of hfc are seconded to hls to provide operational and maintenance services for certain of our processing , refining , pipeline and tankage assets , and hls reimburses hfc for its prorated portion of the wages , benefits , and other costs of these employees for our benefit . we have a long-term strategic relationship with hfc . our current growth plan is to continue to pursue purchases of logistic and other assets at hfc 's existing refining locations in new mexico , utah , oklahoma , kansas and wyoming . we also expect to work with hfc on logistic asset acquisitions in conjunction with hfc 's refinery acquisition strategies . furthermore , we plan to continue to pursue third-party logistic asset acquisitions that are accretive to our unitholders and increase the diversity of our revenues . - 46 - story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; background-color : # ffffff ; '' > ( exclusive of depreciation and amortiz ation ) expense for the year ended december 31 , 2018 , increased by $ 8.8 million compared to the year ended december 31 , 2017 . the increase was primarily due to new operating expenses related to our acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of 2017 . depreciation and amortization depreciation and amortization for the year ended december 31 , 2018 , increased by $ 19.2 million compared to the year ended december 31 , 2017 . the increase was primarily due to depreciation and amortization related to our acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of 2017. general and administrative general and administrative costs for the year ended december 31 , 2018 , decreased by $ 3.3 million compared to the year ended december 31 , 2017 , mainly due to higher legal and consulting costs incurred in the year ended december 31 , 2017 , associated with the idr restructuring transaction . story_separator_special_tag equity in earnings of equity method investments see the summary chart below for a description of our equity in earnings of equity method investments : replace_table_token_11_th interest expense interest expense for the year ended december 31 , 2018 , totaled $ 71.9 million , an increase of $ 13.5 million compared to the year ended december 31 , 2017 . the increase was mainly due to interest expense associated with the private placement of an additional $ 100 million in aggregate principal amount of our 6 % senior notes due 2024 completed in the third quarter of 2017 , higher average balances outstanding under the credit agreement , and market interest rate increases under the credit agreement . our aggregate weighted-average interest rates were 5.1 % and 4.4 % for the years ended december 31 , 2018 and 2017 , respectively . state income tax we recorded state income tax expense of $ 26,000 and $ 249,000 for the years ended december 31 , 2018 and 2017 , respectively . all state income tax expense is solely attributable to the texas margin tax . - 51 - results of operations— year ended december 31 , 2017 compared with year ended december 31 , 2016 summary net income attributable to the partners for the year ended december 31 , 2017 , was $ 195.0 million , a $ 36.8 million million increase compared to the year ended december 31 , 2016 . the increase in earnings is primarily due to ( a ) the woods cross refinery processing units acquired in the fourth quarter of 2016 , ( b ) the gain recognized on the acquisition of slc pipeline and frontier aspen for the remeasurement of preexisting equity interests , offset by ( c ) a charge of $ 12.2 million related to the early redemption of our previously outstanding $ 300 million of 6.5 % senior notes due 2020 ( the `` 6.5 % senior notes '' ) and ( d ) higher interest expense of $ 5.9 million . our major shippers are obligated to make deficiency payments to us if they do not meet their minimum volume shipping obligations . revenues for the year ended december 31 , 2017 , include the recognition of $ 5.6 million of prior shortfalls billed to shippers in 2016 . as of december 31 , 2017 , deferred revenue on our consolidated balance sheet related to shortfalls billed was $ 4.0 million . revenues revenues for the year ended december 31 , 2017 , were $ 454.4 million , a $ 52.3 million increase compared to the same period of 2016 . the increase is primarily due to the $ 43.5 million of revenue recorded for the woods cross processing units acquired in the fourth quarter of 2016 as well as revenues from slc pipeline and frontier aspen acquired in the fourth quarter of 2017 .. revenues from our refined product pipelines were $ 132.4 million , a decrease of $ 2.9 million , on shipments averaging 211.8 mbpd compared to 204.0 mbpd for the year ended december 31 , 2016 . the decrease in revenue is primarily due to lower volumes on product pipelines due to the turnaround at hfc 's navajo refinery in the first quarter of 2017 as well as a decrease in previously deferred revenues realized . the increase in volumes is primarily due to higher volumes on relatively short pipelines with lower tariff rates . revenues from our intermediate pipelines were $ 28.7 million , an increase of $ 1.7 million , on shipments averaging 141.6 mbpd compared to 137.4 mbpd for the year ended december 31 , 2016 . the increase in revenue is mainly due to higher volumes from pipelines servicing hfc 's navajo refinery after its turnaround in the first quarter of 2017 as well as an increase of $ 1.5 million in previously deferred revenue realized . revenues from our crude pipelines were $ 73.9 million , an increase of $ 3.6 million , on shipments averaging 302.9 mbpd compared to 277.2 mbpd for the year ended december 31 , 2016 . revenues and volumes increased primarily due to revenues received from the acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of 2017 , offset by lower throughput due to hfc 's navajo refinery turnaround in the first quarter of 2017. revenues from terminal , tankage and loading rack fees were $ 142.4 million , an increase of $ 6.1 million compared to the year ended december 31 , 2016 . refined products and crude terminalled in our facilities increased to an average of 496.7 mbpd compared to 485.8 mbpd for the year ended december 31 , 2016 . the volume and revenue increases are mainly due to our tulsa crude tanks acquired on the last day of the first quarter of 2016 , higher throughput on the unev terminals , and higher reimbursable revenue related to tank inspections and repairs , offset by the transfer of the el paso terminal to hfc in the first quarter of 2016. revenues from refinery processing units were $ 76.9 million , an increase of $ 43.9 million million on throughputs averaging 63.6 mbpd compared to 51.8 mbpd for 2016 . the increase in revenues and volumes is primarily due to the woods cross refinery processing units acquired in the fourth quarter of 2016. operations expense operations ( exclusive of depreciation and amortization ) expense for the year ended december 31 , 2017 , increased by $ 13.6 million compared to the year ended december 31 , 2016 . the increase was primarily due to operating expenses for the woods cross refinery processing units acquired in the fourth quarter of 2016. depreciation and amortization depreciation and amortization for the year ended december 31 , 2017 , increased by $ 8.9 million compared to the year ended december 31 , 2016 .
| ebitda is not necessarily comparable to similarly titled measures of other companies . ebitda is presented here because it is a widely used financial indicator used by investors and analysts to measure performance . ebitda is also used by our management for internal analysis and as a basis for compliance with financial covenants . see our calculation of ebitda under item 6 , “ selected financial data. ” ( 3 ) distributable cash flow is not a calculation based upon gaap . however , the amounts included in the calculation are derived from amounts presented in our consolidated financial statements , with the general exception of maintenance capital expenditures . distributable cash flow should not be considered in isolation or as an alternative to net income or operating income as an indication of our operating performance or as an alternative to operating cash flow as a measure of liquidity . distributable cash flow is not necessarily comparable to similarly titled measures of other companies . distributable cash flow is presented here because it is a widely accepted financial indicator used by investors to compare partnership performance . it is also used by management for internal analysis and for our performance units . we believe that this measure provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating . see our calculation of distributable cash flow under item 6 , “ selected financial data. ” results of operations — year ended december 31 , 2018 compared with year ended december 31 , 2017 summary net income attributable to the partners for the year ended december 31 , 2018 , was $ 178.8 million , a $ 16.2 million decrease compared to the year ended december 31 , 2017 . the decrease in earnings was primarily due to the recognition of a $ 36.3 million remeasurement gain related to our acquisition of the remaining interests in slc pipeline and frontier aspen in the fourth quarter of
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34 how we assess the performance of our business in assessing the performance of our business , we consider a variety of financial and operating measures that affect our operating results . net sales net sales reflect our sale of merchandise plus shipping and handling revenue collected from our customers , less returns and discounts . direct sales are recognized upon customer receipt of the product , while retail sales are recognized at the point of sale . we also use net sales as one of the key financial metrics we measured against in determining our annual bonus compensation for our employees . gross profit gross profit is equal to our net sales less cost of goods sold . gross profit as a percentage of our net sales is referred to as gross margin . cost of goods sold includes the direct cost of p urchased merchandise ; inventory shrinkage ; inventory adjustments due to obsolescence , including excess and slo w-moving inventory and lower of cost or market reserves ; inbound freight ; and freight from our distribution ce nters to our retail stores . depreciation and amortization is excluded from gross profit . the primary drivers of the costs of individual goods are raw material costs . we expect gross profit to increase to the extent that we successfully grow our net sales . given the size of our direct segment sales relative to our total net sales , shipping and handling revenue has had a significant impact on our gross profit and gross profit margin . historically , this revenue has partially offset shipping and handling expense included in selling , general and administrative expenses . we have experience d declines in shipping and handling revenues , and this trend is expected to continue . declines in shipping and handling revenues may have a material adverse effect on our gross profit and gross profit margin , as well as adjusted ebitda to the ex tent there are not commensurate declines , or if there are increases , in our shipping and handling expense . our gro ss profit may not be comparable to other retailers , as we do not include distribution network and store occupanc y expenses in calculating gross profit , but instead we include them in selling , general and administrative expenses . selling , general and administrative expenses selling , general and administrative expenses include all operating costs not included in cost of goods sold . these expenses include all payroll and payroll-related expenses and occupancy exp enses related to our stores and to our operations at our headquarters , including utilities , depreciation and amortization . they also include marketing expense , which primarily includes television advertising , catalo g production , mailing and print advertising costs , as well as all logistics costs associated with shipping product to our customers , consulting and software expenses and professional services fees . selling , general and administrative expenses as a percentage of net sales is usually higher in lower-volume quarters and lower in higher-volume qu arters because a portion of the costs are relatively fixed . our historical sales growth has been accompanied by increased selling , gener al and administrative expenses . the most significant components of these increases are advertising , market ing , occupancy , depreciation , and payroll expenses . while we expect these expenses to increase as we continue to open new stores , increa se brand awareness and grow our organization to support our growing business , we believe these expenses will de crease as a percentage of sales over time . adjusted ebitda we believe adjusted ebitda is a useful measure of operating performance , as it provides a clearer picture of operating results by excluding the effects of financing and investing activities by eliminating the effects of interest and depreciation costs and eliminating expenses that are not reflective of underlying business performance . we use adjusted ebitda to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business . we define adjusted ebitda as consolidated net income ( loss ) before depreciation and amortization , interest expense and provision for income taxes adjusted for the impact of certain items , including non-cash and other items we do not consider representative of our ongoing opera ting performance . we believe adjusted ebitda is less susceptible to variances in actual performance resulting from depreciation , amortization and other items . 35 story_separator_special_tag operating income as a percentage of net sales increased 3 0 basis points to 17 . 3 % in fiscal 201 8 , compar ed to 17.0 % in fi scal 201 7 . the 3 0 basis points increase in retail segment operating income was primarily due to a decrease of 50 basis points in selling , general and administrative expenses due to leverage gained from higher retail net sales partially offset by a n increase in store labor due to the increase in store count coupled with a decline in gross margin of 1 0 basis point s due to the factors discussed above in gross profit . interest expense interest expense increased $ 4.0 million to $ 6.0 million in fiscal 20 1 8 compared to $ 2.0 million in fiscal 201 7 . the in crease in in terest expense was primarily attributable to an increase in our build-to-suit retail stores , an increase in borrowings on our revolving line of credit during fiscal 201 8 as compared to the prior year and interest on tri 's s enior s ecured debt , due to the consolidation of tri . income taxes income tax expense was $ 8 . 4 million in fiscal 201 8 compared to $ 11.9 million in fiscal 201 7 . our effective tax rate related to controlling interest was 26 .7 % and 33.7 % in fiscal 201 8 and fiscal 201 7 , respectively . story_separator_special_tag the decrease in the year-over-year effective tax rate is due to the enactment of “ an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal year 2018 ” ( the “ tax act ” ) that became effective january 1 , 2018. net income net income was $ 2 3 . 2 million in fiscal 201 8 compared to $ 23.4 million in fiscal 201 7 , primarily due to the factors discussed above . 37 fiscal 2017 compared to fiscal 2016 net sales net sales increased $ 95.3 million , or 25.3 % , to $ 471.4 million in fiscal 2017 compared to $ 376.1 million in fiscal 2016 , driven by gains in both direct and retail segments of $ 21.3 million , or 6.9 % , and $ 74.1 million , or 111.5 % , respectively , across all product categories and in both our men 's and women 's business . the $ 74.1 million increase in retail net sales was primarily attributable to the opening of 15 new stores during fiscal 2017 , coupled with an entire full year of net sales from our seven stores we opened in fiscal 2016. gross profit gross profit increased $ 46.9 million , or 21.9 % , to $ 261.0 million in fiscal 2017 compared to $ 214.1 million in fiscal 2016. as a percentage of net sales , gross margin decreased 150 basis points to 55.4 % of net sales in fiscal 2017 compared to 56.9 % of net sales in fiscal 2016. the decrease in gross margin rate was primarily due to a decline in shipping revenues , a slight increase in global promotions , including flash sales during our fiscal fourth quarter , and an increase in freight cost for transporting inventory from our belleville distribution center to our stores . selling , general and administrative expenses selling , general and administrative expenses increased $ 44.8 million , or 25.0 % , to $ 223.9 million in fiscal 2017 compared to $ 179.1 million in fiscal 2016. selling , general and administrative expenses as percentage of net sales decreased 10 basis points to 47.5 % in fiscal 2017 , compared to 47.6 % in fiscal 2016. the increase in selling , general and administrative expenses of $ 44.8 million was primarily attributable to increases of $ 10.1 million in advertising and marketing costs , $ 16.0 million in selling expenses and $ 18.7 million in general and administrative expenses . as a percentage of net sales , advertising and marketing costs decreased 210 basis points to 18.8 % in fiscal 2017 , compared to 20.9 % in fiscal 2016. the 210 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to a decrease of 140 basis points in catalog costs , a decrease of 40 basis points in digital advertising , and a decrease of 30 basis points in national television advertising as a result of leverage gained from the increase in retail net sales as discussed above . as a percentage of net sales , selling expenses increased 60 basis points to 14.5 % in fiscal 2017 , compared to 13.9 % in fiscal 2016. the increase in selling expenses as a percentage of net sales was primarily due an increase of 100 basis points in customer service due to the growth in retail , partially offset by a decline in shipping expenses attributable to the leverage gained from an increase in the proportion of retail net sales . as a percentage of net sales , general and administrative expenses increased 140 basis points to 14.2 % in fiscal 2017 , compared to 12.8 % in fiscal 2016. the 140 basis point increase in general and administrative expenses as a percentage of net sales was primarily due to an increase of 80 basis points in occupancy and equipment cost due to retail growth , an increase of 30 basis points in depreciation expense primarily due to the increase in stores and infrastructure and technology investments , coupled with an increase of 20 basis points in personnel due to an increase in headcount to support the growth of the business . segment operating income direct segment operating income decreased $ 11.2 million , or 45.8 % , to $ 13.2 million in fiscal 2017 compared to $ 24.5 million in fiscal 2016. direct segment operating income as a percentage of net sales decreased 390 basis points to 4.0 % in fiscal 2017 , compared to 7.9 % in fiscal 2016. the 390 basis point decrease in direct segment operating income was primarily due to a decline of 160 basis points in direct gross margins , based on the factors discussed above in gross profit , coupled with a decline of 70 basis points due to an increase in headcount to support the growth of the business , a decline of 30 basis points in advertising and marketing , and a decline of 30 basis points due to hosting fees . retail segment operating income increased $ 13.3 million , or 126.0 % , to $ 23.8 million in fiscal 2017 compared to $ 10.5 million in fiscal 2016. retail segment operating income as a percentage of net sales increased 110 basis points to 17.0 % in fiscal 2017 , compared to 15.9 % in fiscal 2016. the 110 basis points increased in retail segment operating income was primarily due to a decline of 30 basis point in advertising and marketing costs , and a 140 basis point decline in personnel expenses primarily due to leveraged gained from higher retail sales , which was partially offset by a decline in gross margin of 80 basis point s due to the factors discussed above in gross profit .
| 3 million , or 2 2 . 0 % , to $ 2 7 3 . 2 million in fiscal 201 8 compared to $ 223.9 million in fiscal 201 7 . selling , general and administrative expens es as a percentage of net sales increased 6 0 basis points to 4 8.1 % in fiscal 201 8 , compared to 47 . 5 % in fiscal 201 7 . the increase in selling , general and administrative 36 expenses of $ 4 9 . 3 million compared to last year was primarily at tributable to increases of $ 6.6 million in advertising and marketing costs , $ 2 2.0 milli on in selling expenses and $ 20 . 7 million in gener al and administrative expenses . as a percentage of net sales , advertising and marketing costs decreased 20 0 basis points to 16.8 % in fiscal 201 8 , compared to 18.8 % in fiscal 201 7 . the 2 0 0 basis point decrease in advertising and marketing costs as a percentage of net sales was primarily attributable to a decrease of 1 7 0 basis points in catalog costs due to the adoption of the new revenue standard which provides for catalog costs to be expensed upon customer receipt and a planned decrease in catalog spend as a percentage of net sales , coupled with advertising leverage gained from a higher mix of retail net sales as discussed above . as a percentage o f net sales , selling expenses increased 1 4 0 basis points to 1 5 . 9 % in fiscal 201 8 , compared to 14.5 % in fiscal 201 7 . the in crease in selling expenses as a percentage of net sales was primarily due an increase of 1 1 0 basis points in customer service due to the growth in retail , partially offset by a decline in shipping
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we have considered the following factors that mitigate the potential impact of brexit on the import and export of goods to and from the uk : helios locations outside of the uk do not source raw materials or parts from uk suppliers ; parts and raw materials sourced by our uk locations from eu suppliers can also be sourced from local uk suppliers ; eu customers served by our uk entities can be serviced by any of our global subsidiaries ; customers who relocate outside of the uk can be serviced by any of our global subsidiaries ; and the level and type of business conducted at our uk entities limits our exposure to new regulatory risk resulting from brexit . the ultimate impact of brexit on the company 's financial results is uncertain . however , based on the above noted mitigating factors , we do not expect the effects of brexit to have a material impact on our results of operations or financial position . we are not aware of any material contracts that may require renegotiation or termination due to the impact of brexit . additionally , international trade disputes with china could result in tariffs and other measures that could adversely affect the company 's business . we have multiple entities in china , including our first manufacturing facility which opened in 2019. we also source components from chinese suppliers in both of our segments . while these are not in significant quantities , increased costs of these components or inability to receive them could cause damage to our business . our sales to chinese customers are growing more rapidly than any other geography . revenues and cost reduction efforts associated with our china business are important to our success . therefore , our business , financial condition and results of operations may be materially adversely affected by economic , political , legal , regulatory , competitive and other factors in china . 31 industry conditions market demand for our products is dependent on demand for the industrial goods in which the products are incorporated . the capital goods industries in general , and the hydraulics and electronics segments specifically , are subject to economic cycles . we utilize industry trend reports from various sources , as well as feedback from customers and distributors , to evaluate economic trends . we also rely on global government statistics such as gross domestic product and purchasing managers index to understand higher level economic conditions . hydraulics according to the national fluid power association ( the fluid power industry 's trade association in the u.s. ) , the u.s. index of shipments of hydraulic products decreased 7 % in 2019 , after increasing 13 % and 11 % in 2018 and 2017 , respectively . during 2019 , we did not experience this magnitude of decline in our north american hydraulics shipments as our growth out-paced market demand . in europe , the cema business barometer reports the european agricultural machinery industry has been in a recession phase , however incoming orders from europe showed an average increase in january 2020 after several months of decline . the cece ( committee for european construction equipment ) business climate index indicates the downturn in european construction equipment business is losing pace and a soft landing seems to be expected . electronics institute of printed circuits association reports that slowing growth continues for the north american electronics industry , but most growth rates remain positive . sales growth for printed circuit boards ( pcb ) strengthened to 3.5 % and sales growth for electronics manufacturing services ( ems ) slowed to 0.8 % , compared to the prior year . semiconductor sales growth has remained in negative territory . indicators suggest that sales growth is likely to continue but remain slow in the coming months for the north american ems and pbc industry segments . in our electronics segment , we are experiencing sales declining in excess of the overall market , primarily due to a strategic change we made to our customer base . for additional information , refer to the discussion of 2019 results of our electronics segment below . 2019 results and comparison of years ended december 28 , 2019 and december 29 , 2018 faster and custom fluidpower were acquired on april 5 , 2018 and august 1 , 2018 , respectively . their results are included in our consolidated financials subsequent to their respective acquisition dates . to analyze the results on a comparable basis we refer to organic and acquisition-related results . the results of faster are included in acquisition results for the first quarter of 2019 and the results of custom fluidpower are included in acquisition results for the first seven months of 2019. the following table sets forth our consolidated results of operations : replace_table_token_3_th 32 consolidated sales for the 201 9 year improved to $ 554.7 million ; a 9 .2 % increase over the prior year . organic sales declined $ 18.8 million , 3.7 % , compared to 2018 , of which $ 8.1 million is attributable to a negative impact from c hanges in foreign currency exchange rates during the year . price increases positively impacted sales for the year by $ 5 .4 million . in 2019 we experienced softening in certain end markets leading to a decline in order intake across both segments . the agriculture market in europe and the oil and gas market in the u.s. ha ve weakened . we have also seen a decline in both the construction equipment market in the apac region and the recreational market in the americas . during the year , we maintain ed an elevated order backlog of cvt and systems products that has softened the impact of the slowdown of incoming orders . gross profit margin increased 0.4 percentage points during 2019 from 37.9 % to 38.3 % . gross margin for the 2018 year was affected by $ 4.4 million of amortization of acquisition-related inventory step up costs resulting from the faster and custom fluidpower acquisitions . story_separator_special_tag changes in foreign currency exchange rates negatively impacted gross profit during 2019 by $ 3.4 million . production efficiencies , price increases and successful cost management efforts positively impacted 2019 gross margin . these gains were somewhat offset by decreased sales volume which resulted in reduced leverage of fixed costs as well as increased material costs and an unfavorable change in the margin profile of products sold . operating income margin improved 1.3 percentage points compared to the prior year , primarily due to acquisition-related impacts during the 2018 year : inventory step-up amortization referred to above , an additional $ 5.1 million in acquisition-related amortization of intangible assets compared to 2019 and $ 5.5 million in transaction costs for the faster and custom fluidpower acquisitions . comparability of operating income results was further impacted by one-time costs incurred in 2019 for organizational restructuring of $ 1.7 million and a loss on the disposal of our licensing agreement intangible asset totaling $ 2.7 million . 2020 outlook consolidated revenue for the full year 2020 is expected to be between $ 520 million and $ 555 million , with the hydraulics segment contributing between $ 415 million and $ 443 million and the electronics segment contributing between $ 105 million and $ 112 million . consolidated u.s. gaap eps is expected to be $ 1.55 to $ 1.88 for the full year 2020. consolidated non-gaap cash eps , which excludes amortization expense and certain one-time costs , is expected to be between $ 2.00 and $ 2.30. the full year adjusted ebitda margin , prior to certain one-time costs , is anticipated to be 22.0 % to 23.0 % . given the economic backdrop including uncertainty surrounding the impact of coronavirus , we are approaching 2020 guidance cautiously , with wider ranges than we have historically provided . while our current end markets continue to be challenging globally , with limited pockets of growth , the economic indicators that we track signal optimism that growth will resume in other markets in the second half of the year . story_separator_special_tag light ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > material cost reductions and cost management efforts which resulted in production efficiencies . sea expenses fell $ 1.5 million , 4.9 % , to $ 28.9 million in 2019 compared to $ 30.4 million during 2018 primarily due to a reorganization of global administrative functions , reduced performance-based incentive compensation and various other cost savings initiatives , partially offset by an increase in corporate operating costs allocated to the segment compared to the prior year . as a result of the impacts to full year gross profit and sea costs noted above , operating income declined $ 3.0 million , 12.0 % , over the 2018 year while operating margin remained fairly consistent , decreasing 0.1 percentage point , to 19.7 % from 19.8 % in 2018. corporate and other certain costs are excluded from business segment results as they are not used in evaluating the results of , or in allocating resources to , our operating segments . corporate and other costs decreased from 2018 by $ 15.5 million , which was due to a reduction of faster and custom fluidpower acquisition-related charges . for the year ended december 28 , 2019 , these costs totaled $ 17.9 million and primarily included amortization of acquisition-related intangible assets . for the year ended december 29 , 2018 , these costs totaled $ 33.4 million for acquisition-related items such as faster and custom fluidpower transaction costs of $ 5.5 million , charges related to inventory step-up to fair value of $ 4.4 million , amortization of acquisition-related intangible assets of $ 23.0 million and $ 0.5 million related to other acquisition activities and corporate projects and initiatives . interest expense , net net interest expense increased $ 1.5 million during 2019 to $ 15.4 million compared to $ 13.9 million in 2018. the increase is attributable to a full year of the 2018 borrowings on our credit facility to fund acquisition activity , offset by debt repayments during the year . average net debt for the year ended december 28 , 2019 , totaled $ 303.8 million compared to $ 190.7 million for the year ended december 29 , 2018. income taxes the provision for income taxes for the year ended december 28 , 2019 , was 20.0 % of pretax income compared to 17.1 % for the year ended december 29 , 2018. these effective rates typically fluctuate relative to the levels of income and different tax rates in effect among the countries in which we sell our products . as of december 2018 , the company has recorded $ 0.6 million of expense related to the one-time transition tax on mandatory deemed repatriation of foreign earnings . the company elected to pay the transition tax in full . 36 i n accordance with sab 118 , we continued evaluating our permanent reinvestment assertion as further consideration is given to how the tax cuts and jobs act of 2017 ( the “ act ” ) impacts the future cash flow position of the company . our foreign subsidiaries generate earnings that are not subject to u.s. income taxes so long as they are permanently reinvested in our operations outside of the u.s. pursuant to asc topic no . 740-30 ( formerly apb 23 ) , undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under u.s. tax law .
| acquisition related 2019 sales totaled $ 11.6 million , $ 21.7 million and $ 32.2 million to the americas , emea and apac regions , respectively . faster sales for the first quarter of 2019 and custom fluidpower sales for the first seven months of 2019 are referred to as acquisition related . shipments continued to grow in the americas region during 2019 with organic sales increasing $ 2.0 million , 1.3 % , compared to the prior year . organic sales to the emea region decreased $ 9.7 million , 7.5 % . exchange rate fluctuations had an unfavorable impact on organic sales to the emea region of $ 5.0 million during 2019 , compared to 2018. emea region sales were impacted by softening end market demand in the european agriculture market . organic sales to the apac region during 2019 were up $ 3.1 million , 3.0 % , over 2018 , due to increased shipments to china . exchange rate fluctuations had a negative impact on organic sales to the apac region during 2019 of $ 2.6 million , compared to 2018. hydraulics segment gross profit grew $ 19.7 million , 13.9 % , in 2019 while gross profit margin declined 0.7 percentage points . organic gross profit declined $ 2.3 million , 0.2 percentage points . price increases , net of related material cost increases , positively influenced organic gross profit by $ 2.1 million during 2019 while changes in foreign currency exchange rates had a negative effect on gross profit of $ 3.2 million compared to the prior year . production efficiency improved over the prior year , however gross profit margin was reduced by higher material costs and an overall unfavorable sales mix . 34 selling , engineering and administrative expenses ( “ sea ” ) were up $ 13.2 million , 22.8 % , to $ 71.0 million in 201 9 , compared to $ 57.8 million in the prior year . organic sea costs increas ed $ 1.9 million , 3 .3 % . during the 2019 year we realized increases in corporate operating costs allocated to
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the holders of other secured claims , other priority claims and general unsecured claims received payment in full in cash upon emergence or through the ordinary course of business after the emergence date . we adopted the 2020 ltip effective on the emergence date and reserved 2,402,402 shares of our successor 's common stock for distribution under the 2020 ltip . no shares were issued under the 2020 ltip as of the emergence date . in addition , on the emergence date , the conditions were satisfied for the waiver , discharge and forgiveness of the omp specified default interest ( as defined in “ item 8. financial statements and supplementary data—note 15—long-term debt ” ) related to the revolving credit facility among omp , as parent , omp operating llc , a subsidiary of omp , as borrower , wells fargo , as administrative agent , and the lenders party thereto ( the “ omp credit facility ” ) , and payment of the omp specified default interest was permanently waived by the lenders party to the omp credit facility . as of the emergence date , by operation of and in accordance with the plan , the board of directors consisted of seven members , comprised of our chief executive officer , thomas b. nusz , and six new members , douglas e. brooks , samantha holroyd , john jacobi , robert mcnally , cynthia l. walker and john lancaster . change in chief executive officer on december 22 , 2020 , thomas b. nusz retired as chief executive officer and as a director of oasis petroleum inc. in light of mr. nusz 's retirement , the board of directors appointed douglas e. brooks to serve as chief executive officer during the period that it conducts a search for a new chief executive officer . mr. brooks will continue to serve as board chair , in addition to his role as chief executive officer . market conditions and covid-19 on march 13 , 2020 , the united states declared the covid-19 pandemic a national emergency , and most states , including texas , north dakota and montana , and many municipalities have declared public health emergencies . along with these declarations , there have been extraordinary and wide-ranging actions taken by international , federal , state and local public health and governmental authorities to contain and combat the outbreak and spread of covid-19 in regions across the united states and the world , including mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations . these containment measures , while aiding in the prevention of further outbreak of covid-19 , have resulted in a severe drop in energy demand and general economic activity . to the extent covid-19 continues or worsens , governments may impose additional similar restrictions . we have taken , and continue to take , proactive steps to manage any disruption in our business caused by covid-19 . for instance , even though our operations were not required to close , we were early adopters in employing a work-from-home system and have deployed additional safety protocols at our operating sites in order to keep our employees and contractors safe and to keep our operations running without material disruption . the rapid and unprecedented decreases in energy demand have impacted certain elements of our distribution channels . we are also experiencing impacts from downstream markets , as certain pipelines no longer have the ability to transport production as refineries reduce activity or exercise force majeure clauses . additionally , inventory surpluses have overwhelmed u.s. storage capacity , leading to a further strain on the supply chain . we elected to shut in production of certain wells , primarily during the second quarter of 2020 , and the constraints on the supply chain could force us to shut in production in the future . in march 2020 , opec and non-opec , oil-producing countries , including russia , failed to agree to production cuts which were intended to stabilize and support global crude oil commodity prices . with no agreement in place , certain large international crude oil producers , including saudi arabia and russia , began to deeply discount sales of their crude oil and committed to ramping up production in an attempt to protect , or increase , their global market share . the impact of this increased production was coupled with significant demand declines caused by the global response to covid-19 . these extreme supply and demand dynamics contributed to significant crude oil price declines , which have and will continue to negatively impact u.s. producers , including us . although in april 2020 , opec and other non-opec oil-producing countries , including russia , came to an agreement to cut limited amounts of production , we can not predict future impacts to crude oil production and global economic activities . 56 t able of contents in response to the foregoing market conditions , we suspended our drilling and completion operations in the second quarter of 2020 and significantly reduced our planned capital expenditures for 2020. in addition , as a result of the low commodity price environment coupled with uncertainty related to the continuing economic impact of the covid-19 pandemic , we reduced our workforce during the second quarter of 2020 to adjust to a lower level of activity and operate in a cost-efficient manner in the current environment . dakota access pipeline our ability to market our production depends , in substantial part , on the availability and capacity of gathering systems , pipelines and processing facilities owned and operated by midstream operators . the impact of pending and future legal proceedings on these systems , pipelines and facilities can affect our ability to market our products and have a negative impact on realized pricing . on july 6 , 2020 , the operator of dapl was ordered by a u.s. district court to halt oil flow and empty the pipeline within 30 days while an eis is completed . on july 15 , 2020 , the u.s. story_separator_special_tag court of appeals for the district of columbia circuit issued a temporary administrative stay while the court considers the merits of a longer-term emergency stay order through the appeals process . on january 26 , 2021 , the u.s. court of appeals for the district of columbia circuit upheld the u.s. district court 's ruling that an eis is needed and also reaffirmed its earlier decision which allows dapl to operate through the eis process . we regularly use dapl in addition to other outlets to market our crude oil in the williston basin to end markets . to mitigate the risks associated with a potential shutdown of dapl , we have proactively arranged for portions of our williston basin crude oil volumes to be sold at alternative outlets at fixed differentials to nymex wti . in the event dapl were to cease operating , we would anticipate williston basin crude oil prices to weaken materially before improving as the market adapts to rail transportation . commodity prices our revenue , profitability and future growth rate depend substantially on factors beyond our control , such as economic , political and regulatory developments as well as competition from other sources of energy . prices for crude oil and natural gas can fluctuate widely in response to relatively minor changes in the global and regional supply of and demand for crude oil and natural gas , as well as market uncertainty , economic conditions and a variety of additional factors . since the inception of our crude oil and natural gas activities , commodity prices have experienced significant fluctuations and may fluctuate widely in the future . due to a combination of the foregoing covid-19 pandemic-related pressures and geopolitical pressures on the global supply and demand balance for crude oil and related products , commodity prices sharply declined in the first half of 2020. while crude oil prices have increased since hitting historic lows in early 2020 , prices remain at depressed levels . the commodity price environment is expected to continue to remain depressed for some time based on oversupply , the global economic recession , and uncertainties related to the covid-19 , including the impact new virus strains , the risk of renewed restrictions and the pace of deployment of vaccines . if prices for crude oil , natural gas and ngls decline or for an extended period of time remain at depressed levels , such commodity price environment could materially and adversely affect our financial position , our results of operations , the quantities of crude oil and natural gas reserves that we can economically produce and our access to capital . in an effort to improve price realizations from the sale of our crude oil , natural gas and ngls , we manage our commodities marketing activities in-house , which enables us to market and sell our crude oil , natural gas and ngls to a broad array of potential purchasers . we enter into crude oil , natural gas and ngl sales contracts with purchasers who have access to transportation capacity , utilize derivative financial instruments to manage our commodity price risk and enter into physical delivery contracts to manage our price differentials . due to the availability of other markets and pipeline connections , we do not believe that the loss of any single crude oil , natural gas or ngl customer would have a material adverse effect on our results of operations or cash flows . please see “ part i , item 1. business—exploration and production operations—marketing and major customers. ” our average net realized crude oil prices and average price differentials are shown in the tables below for the periods presented : replace_table_token_9_th 57 t able of contents replace_table_token_10_th replace_table_token_11_th ( 1 ) realized crude oil prices do not include the effect of derivative contract settlements . ( 2 ) price differential reflects the difference between our realized crude oil prices and nymex wti crude oil index prices . we sell a significant amount of our crude oil production through gathering systems connected to multiple pipeline and rail facilities . as of december 31 , 2020 , 92 % of our gross operated crude oil production was connected to gathering systems , which originate at the wellhead and reduce the need to transport barrels by truck from the wellhead . our market optionality on these crude oil gathering systems allows us to shift volumes between pipeline and rail markets in order to optimize price realizations . expansions of both rail and pipeline facilities in both the williston and permian basins have reduced prior constraints on crude oil takeaway capacity in the areas and improved our price differentials received at the lease . expected future commodity prices play a significant role in determining impairment of proved oil and gas properties . as a result of the significant decline in commodity prices in the first quarter of 2020 , we recorded impairment charges of $ 3.8 billion and $ 637.3 million on our proved oil and gas properties in the williston basin and in the permian basin , respectively , as of march 31 , 2020 ( predecessor ) . upon adoption of fresh start accounting , our proved oil and gas properties were recorded at their estimated fair values as of the emergence date . nymex wti forward strip prices increased between the emergence date and december 31 , 2020. however , commodity prices remain volatile , and if expected future commodity prices decline , we may record impairment charges in the future . results of operations upon emergence from bankruptcy , we adopted fresh start accounting , which resulted in us becoming a new entity for financial reporting purposes . accordingly , the consolidated financial statements on or after november 19 , 2020 are not comparable to the consolidated financial statements prior to that date . references to “ successor ” relate to our financial position and results of operations as of and subsequent to the emergence date .
| our midstream revenues are primarily derived from natural gas services ( gathering , compression , processing and gas lift supply , as well as sales of residue gas and ngls related to third-party natural gas purchase arrangements ) , crude oil services ( gathering , terminaling and transportation ) and water services ( gathering and disposal of produced and flowback water and freshwater distribution ) . our other services revenues are derived from equipment rentals , and also included revenues for well completion services and product sales prior to our transition of our well fracturing services from oasis well services llc ( “ ows ” ) , a wholly-owned subsidiary , to a third-party provider during the first quarter of 2020 ( the “ well services exit ” ) . a portion of our midstream revenues and substantially all of our other services revenues are from services provided to our operated wells . intercompany revenues for work performed for our ownership interests are eliminated in consolidation , and only the revenues related to non-affiliated interest owners and other third-party customers are included in midstream and other services revenues . the following table summarizes our revenues for the periods presented ( in thousands ) : replace_table_token_12_th crude oil and natural gas revenues . crude oil and natural gas revenues decreased $ 718.7 million , or 51 % , from $ 1,408.8 million during the year ended december 31 , 2019. this decrease was attributable to a $ 438.4 million decrease due to lower crude oil and natural gas sales prices coupled with a $ 280.2 million decrease due to lower crude oil and natural gas production sold year over year . during the year ended december 31 , 2020 , our crude oil and natural gas revenues were negatively impacted by recent market conditions , which caused a significant decline in our realized prices for crude oil , natural gas and ngls . excluding the effect of derivative settlements , average crude oil sales prices decreased 32 % , and average natural gas sales prices , which include the value for natural gas and ngls , decreased 21 % year over year . due to the depressed
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branch operating expenses consist primarily of branch office staff payroll and personnel related costs , advertising , rent , office supplies , professional and legal fees and branch incentive compensation . corporate-level operating expenses consist primarily of executive and office staff payroll and personnel related costs , professional and legal fees , travel , occupancy costs , information systems costs , and executive and corporate staff incentive compensation . depreciation and amortization represent depreciation of property and equipment , leasehold improvements and capitalized software costs . property , equipment and software are depreciated using the straight-line method over their estimated useful lives , which range from 3 to 39 years . leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life . critical accounting policies and estimates we have identified the following policies as critical to our business and the understanding of our results of operations . for a detailed discussion of the application of these and other accounting policies , see “ note 1. summary of operations and significant accounting policies ” to the consolidated financial statements incorporated into item 8 of part ii of this report . the preparation of this annual report on form 10-k requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements , and the reported amounts of revenue and expenses during the reporting period . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates . workers ' compensation reserves . the estimated liability for unsettled workers ' compensation claims represents our best estimate , utilizing actuarial expertise and projection techniques , at a given reporting date . our estimate is based on an evaluation of information provided by our internal claims adjusters and tpa , coupled with management 's use of an independent actuary to provide an actuarial estimate of ibnr costs . these elements serve as the basis for our overall estimate of workers ' compensation claims liabilities . these estimates - 31 - are reviewed at least quarterly and adjustments to estimated liabilities are reflected in current operati ng results as they become known . ibnr is based on an estimate of future claim payments beyond those considered in the specific case reserve estimates and claims arising from injuries that occurred during a particular time period on or prior to the balance sheet date . therefore , ibnr is the compilation of the estimated ultimate losses for each accident year less amounts that have been paid and specific case reserves . ibnr reserves , unlike specific case reserves , do not apply to a specific claim but rather apply to the entire body of claims arising from a specific time period . ibnr primarily covers costs relating to : future claim payments in excess of case reserves on recorded open claims ; additional claim payments on closed claims ; and claims that have occurred but have not yet been reported to us . the process of estimating unpaid claims and claims adjustment expense involves a high degree of judgment and is affected by both internal and external events , including changes in claims handling practices , modifications in reserve estimation procedures , changes in individuals involved in the reserve estimation process , inflation , trends in the litigation and settlement of pending claims , and legislative changes . our estimates are based on informed judgment , derived from individual experiences and expertise applied to multiple sets of data and analyses . we consider significant facts and circumstances known both at the time that loss reserves are initially established and as new facts and circumstances become known . due to the inherent uncertainty underlying loss reserve estimates , the expenses incurred through final resolution of our liability for our workers ' compensation claims will likely vary from the related loss reserves at the reporting date . therefore , as specific claims are paid out in the future , actual paid losses may be materially different from our current loss reserves . a basic premise in most actuarial analyses is that historical data and past patterns demonstrated in the incurred and paid historical data form a reasonable basis upon which to project future outcomes , absent a material change . significant structural changes to the available data can materially impact the reserve estimation process . to the extent a material change affecting the ultimate claim liability becomes known , such change is quantified to the extent possible through an analysis of internal company data and , if available and when appropriate , external data . actuaries exercise a considerable degree of judgment in the evaluation of these factors and the need for such actuarial judgment is more pronounced when faced with material uncertainties . we believe that the amounts recorded for our estimated liabilities for workers ' compensation claims , which are based on informed judgement , analysis of data , actuarial estimates , and analysis of other trends associated with the company 's historical universe of claims data , are reasonable . nevertheless , adjustments to such estimates will be required in future periods if the development of claim costs varies materially from our estimates and such future adjustments may be material to our results of operations . safety incentives liability . our accrued safety incentives represent cash incentives paid to certain peo clients under our client services agreement for maintaining safe-work practices and minimizing workplace injuries . the incentive is based on a percentage of annual payroll and is - 32 - paid annually to customers who meet predetermined workers ' compensation claims cost objectives . safety incentive pay ments are made only after closure of all workers ' compensation claims incurred during the customer 's contract period . story_separator_special_tag the safety incentive liability is estimated and accrued each month based upon contract year-to-date payroll and the then current amount of the customer 's estimated workers ' compensation claims reserves as established by us and our tpa . safety incentive costs are netted against peo service revenue in our consolidated statements of operations . because the safety incentive liability is dependen t on estimated claims costs , the amount accrued will vary based on the factors described above with regard to estimating our workers ' compensation reserves . allowance for doubtful accounts . the company had an allowance for doubtful accounts of $ 78,000 and $ 268,000 at december 31 , 2016 and 2015 , respectively . we make estimates of the collectability of our accounts receivable for services provided to our customers . management analyzes historical bad debts , customer concentrations , customer credit-worthiness , current economic trends and changes in customers ' payment trends when evaluating the adequacy of the allowance for doubtful accounts . if the financial condition of our customers deteriorates , resulting in an impairment of their ability to make payments , additional allowances may be required . goodwill . we assess the recoverability of goodwill annually for potential impairment for the company 's one reporting unit . management uses the traditional two step approach to determine if the fair value of the reporting unit does not exceed its carrying value , thus resulting in impairment . management defines the fair value of the reporting unit as the market value of common shares outstanding as of the reporting period end date . management defines the reporting unit 's carrying value as the value of its net assets . management 's current assessment of the carrying value of goodwill indicates there was no impairment as of december 31 , 2016. investments . we classify our investments as trading or available-for-sale . the company had no trading securities at december 31 , 2016 and december 31 , 2015. the company classifies money market funds , municipal bonds , and corporate bonds as available for sale . they are reported at fair value with unrealized gains and losses , net of taxes , shown as a component of accumulated other comprehensive income ( loss ) in stockholders ' equity . management considers available evidence in evaluating potential impairment of investments , including the duration and extent to which fair value is less than cost . realized gains and losses on sales of investments are included in other income ( expense ) as other , net in our consolidated statements of operations . in the event a loss is determined to be other-than-temporary , the loss will be recognized in the consolidated statements of operations . restricted cash and investments . at december 31 , 2016 , restricted cash and investments consisted of money market funds , certificates of deposit , u.s. treasuries , corporate bonds , and municipal bonds with maturities generally from 180 days to two years . at december 31 , 2016 , the approximate fair value of restricted cash and investments equaled their approximate amortized cost . restricted investments have been categorized as available-for-sale . they are reported at fair value with unrealized gains and losses , net of taxes , shown as a component of accumulated other comprehensive income ( loss ) in stockholders ' equity . management considers available evidence in evaluating potential impairment of investments , including the duration and extent to which fair value is less than cost . realized gains and losses on sales of restricted investments are included in other income ( expense ) as other , net in our consolidated statements of operations . in the event a loss is determined to be other-than-temporary , the loss will be recognized in the consolidated statements of operations . - 33 - income taxes . our income taxes are accounted for using an asset and liability approach . this requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable tax rates . the determination of our provision for income taxes requires significant judgment , the use of estimates , and the interpretation and application of complex tax laws . significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions . the impact of uncertain tax positions would be recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions would withstand challenge , if any , from taxing authorities . at december 31 , 2016 , we had deferred income tax assets of $ 25.2 million and deferred income tax liabilities of $ 15.9 million for net deferred income tax assets of $ 9.3 million . we assess our ability to realize deferred income tax assets at each reporting period , as significant changes in circumstances may require adjustments . the amount of the deferred income tax assets actually realized could vary if there are differences in the timing or amount of future reversals of existing deferred income tax assets or changes in the actual amounts of future taxable income as compared to operating forecasts . if our operating forecast is determined to no longer be reliable due to uncertain market conditions , our long-term forecast may require reassessment . as a result , in the future a valuation allowance may be required to be established for all or a portion of our deferred income tax assets . such a valuation allowance could have a significant effect on our results of operations and financial condition . recent accounting pronouncements for a discussion of recent accounting pronouncements and their potential effect on the company 's results of operations and financial condition , see “ note 1. summary of operations and significant accounting policies ” to the consolidated financial statements incorporated into item 8 of part ii of this report .
| while staffing relationships typically have higher margins than pr ofessional employer service relationships , an increase in staffing revenues and related costs increases the impact of the net professional employer services revenue on gross margin percentage . replace_table_token_6_th a reconciliation of net revenue to non-gaap gross revenues is as follows for the years ended december 31 , 2016 , 2015 , and 2014 ( in thousands ) : replace_table_token_7_th the non-gaap adjustments comprise direct payroll costs and safety incentives attributable to our professional employer services client companies . years ended december 31 , 2016 and 2015 net income for 2016 amounted to $ 18.8 million compared to net income of $ 25.5 million for 2015. net income in 2016 was primarily driven by a 13.5 % increase in revenues and a 12.4 % increase in gross margin . the increase in gross margin in 2016 is primarily due to the large increase in professional employer service fee revenue from 2015 to 2016. diluted income per share for 2016 was $ 2.55 compared to diluted income per share of $ 3.47 for 2015. revenues for 2016 totaled $ 840.6 million , an increase of $ 99.7 million or 13.5 % over 2015 , which reflects an increase in the company 's professional employer service fee revenue of $ 101.6 million or 17.8 % . staffing services revenue decreased $ 1.9 million or 1.1 % . - 37 - our growth in professional employer service revenues was attributable to both new and existing customers . due to continued strength in our referral channels , business from new customers during 201 6 nearly doubled business lost from former customers . profes sional employer service revenue from continuing customers grew 6.8 % on a year-over-year basis , primarily resulting from increases in employee headcount and hours worked . the decrease in staffing services revenue was due primarily to a decrease in revenue f rom continuing customers , partially
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in addition , companies acquired in 2016 and 2015 , which are reported in our united states electrical construction and facilities services segment , our united states mechanical construction and facilities services segment and our united states building services segment , generated incremental revenues of $ 250.8 million for the year ended december 31 , 2016. the increase in operating income was attributable to improved operating performance within all of our reportable segments , except for our united states mechanical construction and facilities services segment . our operating income was favorably impacted by : ( a ) our united states industrial services segment , as a result of large project activity within our field services operations , ( b ) our united states electrical construction and facilities services segment , primarily attributable to an increase in gross profit from commercial , transportation and hospitality construction projects , and ( c ) our united states building services segment , as a result of increased gross profit within our mobile mechanical services operations . in addition , companies acquired in 2016 and 2015 generated incremental operating income of $ 14.3 million , net of $ 4.1 million of amortization expense associated with identifiable intangible assets . our 2016 operating results were negatively impacted by : ( a ) $ 27.9 million of aggregate losses incurred on two construction projects reported within our united states mechanical construction and facilities services segment and ( b ) $ 19.4 million of losses incurred on a transportation construction project in the northeastern region of the united states reported within our united states electrical construction and facilities services segment . these three projects were substantially complete at the end of 2016 , and we will seek recovery for our losses . corporate administration operating loss increased as a result of : ( a ) an increase in employment costs , such as incentive compensation and salaries , ( b ) $ 3.8 million of transaction costs associated with the acquisition of ardent in april 2016 , ( c ) an increase in certain non-income related taxes and ( d ) an increase in software licensing costs and legal costs . our operating margin ( operating income as a percentage of revenues ) was 4.1 % and 4.3 % for 2016 and 2015 , respectively . the decrease in operating margin was attributable to the cumulative impact of the three construction projects referenced above , which incurred losses of $ 47.3 million . these three projects resulted in a 0.7 % negative impact on the company 's operating margin for 2016 . 22 story_separator_special_tag style= '' line-height:120 % ; padding-top:10px ; text-align : justify ; padding-left:6px ; text-indent:0px ; font-size:10pt ; '' > cost of sales and gross profit the following table presents cost of sales , gross profit ( revenues less cost of sales ) , and gross profit margin ( gross profit as a percentage of revenues ) for the years ended december 31 , 2016 and 2015 ( in thousands , except for percentages ) : replace_table_token_9_th our gross profit for the year ended december 31 , 2016 was $ 1,037.9 million , a $ 93.4 million increase compared to gross profit of $ 944.5 million for the year ended december 31 , 2015. our gross profit margin was 13.7 % and 14.1 % for 2016 and 2015 , respectively . the increase in gross profit was attributable to increases in gross profit within all of our reportable segments , except for our united kingdom building services segment . the decrease in gross profit margin was attributable to the cumulative impact of the three construction projects referenced above , which incurred losses of $ 47.3 million . these three projects resulted in a 0.8 % negative impact on the company 's gross profit margin for 2016 . 24 selling , general and administrative expenses the following table presents selling , general and administrative expenses and sg & a margin ( selling , general and administrative expenses as a percentage of revenues ) for the years ended december 31 , 2016 and 2015 ( in thousands , except for percentages ) : replace_table_token_10_th our selling , general and administrative expenses for the year ended december 31 , 2016 were $ 725.5 million , a $ 69.0 million increase compared to selling , general and administrative expenses of $ 656.6 million for the year ended december 31 , 2015. selling , general and administrative expenses as a percentage of revenues were 9.6 % and 9.8 % for 2016 and 2015 , respectively . the increase in selling , general and administrative expenses for the year ended december 31 , 2016 included $ 30.3 million of incremental expenses directly related to companies acquired in 2016 and 2015 , including amortization expense attributable to identifiable intangible assets of $ 3.4 million . additionally , selling , general and administrative expenses included $ 3.8 million of transaction costs associated with the acquisition of ardent in april 2016. excluding the impact of acquisitions , the increase in selling , general and administrative expenses was primarily due to higher employee related costs such as incentive compensation , salaries and commissions . increased incentive compensation was principally due to higher annual operating results than in the same prior year period , which resulted in increased accruals for certain of our incentive compensation plans . the increase in salaries was attributable to an increase in headcount due to higher revenues than in the same prior year period , as well as cost of living adjustments and merit pay increases . the increase in selling , general and administrative expenses was also due to increases in the provision for doubtful accounts , information technology costs and certain non-income related taxes . the decrease in sg & a margin was partially attributable to an increase in revenues without commensurate increases in our overhead cost structure . restructuring expenses restructuring expenses , primarily relating to severance obligations , were $ 1.4 million and $ 0.8 million for 2016 and 2015 , respectively . story_separator_special_tag as of december 31 , 2016 and 2015 , the balance of restructuring related obligations yet to be paid was $ 0.2 million and $ 0.1 million , respectively . the majority of obligations outstanding as of december 31 , 2015 was paid during 2016. the obligations outstanding as of december 31 , 2016 will be paid during the first half of 2017. no material expenses in connection with restructuring from continuing operations are expected to be incurred during 2017. impairment loss on goodwill and identifiable intangible assets in conjunction with our 2016 annual impairment test on october 1 , we recognized a $ 2.4 million non-cash impairment charge related to a subsidiary trade name within the united states mechanical construction and facilities services segment . the 2016 impairment resulted from a decrease in the hypothetical royalty rate and lower forecasted revenues from a company within this segment . no impairment of our identifiable intangible assets was recognized for the year ended december 31 , 2015. additionally , no impairment of our goodwill was recognized for the years ended december 31 , 2016 and 2015 . 25 operating income ( loss ) the following table presents by segment our operating income ( loss ) and each segment 's operating income ( loss ) as a percentage of such segment 's revenues from unrelated entities for the years ended december 31 , 2016 and 2015 ( in thousands , except for percentages ) : replace_table_token_11_th as described in more detail below , we had operating income of $ 308.5 million for 2016 compared to operating income of $ 287.1 million for 2015. operating margin was 4.1 % and 4.3 % for 2016 and 2015 , respectively . the decrease in operating margin was attributable to the cumulative impact of three construction projects , which incurred losses of $ 47.3 million . these projects resulted in a 0.7 % negative impact on the company 's operating margin for 2016. operating income of our united states electrical construction and facilities services segment for the year ended december 31 , 2016 was $ 101.8 million compared to operating income of $ 82.2 million for the year ended december 31 , 2015. the increase in operating income was partially attributable to an increase in gross profit from commercial , transportation and hospitality construction contracts . the increase in operating income was also partially attributable to the acquisition of ardent , which contributed operating income of $ 8.1 million , net of $ 2.1 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2016. operating income was negatively impacted by a transportation construction project in the northeastern region of the united states , which incurred losses of $ 19.4 million as a result of productivity issues attributable to unfavorable job-site conditions , for which we will seek recovery . this project resulted in a 1.2 % negative impact on the segment 's operating margin for the year ended december 31 , 2016. this project was substantially complete at the end of 2016. our united states mechanical construction and facilities services segment operating income for the year ended december 31 , 2016 was $ 133.7 million , a $ 4.9 million decrease compared to operating income of $ 138.7 million for the year ended december 31 , 2015. this segment 's operating results were negatively impacted by : ( a ) $ 18.3 million of losses incurred on a project at a process facility in the western region of the united states , as a result of a contract dispute with our customer , and ( b ) $ 9.6 million of losses incurred throughout 2016 on an institutional construction project in the southern region of the united states , due to project delays and unfavorable job-site conditions . these projects were substantially complete at the end of 2016 , and we will seek recovery for our losses . additionally , the results for 2015 included revenues of $ 12.1 million recognized as a result of the settlement of a claim on an institutional project located in the southeastern region of the united states . the decrease in operating income was partially offset by an increase in gross profit from commercial and hospitality construction projects . additionally , the results for the year ended december 31 , 2016 included the receipt of $ 2.0 million from the former owner of a company we had previously acquired as a result of a settlement of a claim by us under the acquisition agreement . companies acquired in 2015 generated incremental operating income of $ 3.4 million , net of $ 0.6 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2016. the decrease in operating margin was attributable to the cumulative impact of the two projects referenced above , which resulted in a 1.2 % negative impact on this segment 's operating margin for 2016 . 26 operating income of our united states building services segment was $ 75.8 million and $ 70.5 million in 2016 and 2015 , respectively . the increase in operating income was primarily attributable to an increase in gross profit from project , service and controls activities within our mobile mechanical services operations . additionally , a company acquired during the second quarter of 2016 , within our mobile mechanical services operations , generated operating income of $ 2.8 million , net of $ 1.4 million of amortization expense associated with identifiable intangible assets , for the year ended december 31 , 2016. the increase in operating margin for the year ended december 31 , 2016 was attributable to an increase in gross profit margin . operating income of our united states industrial services segment for the year ended december 31 , 2016 increased by $ 21.4 million compared to operating income for the year ended december 31 , 2015. the increase in operating income was primarily attributable to an increase in gross profit from specialty services offerings within our field services operations , including large project activity .
| the increase in revenues was primarily attributable to increased revenues from : ( a ) our mobile mechanical services operations as a result of greater project , service and controls activities and ( b ) our energy services operations , as a result of an increase in large project activity . the results for the year ended december 31 , 2016 included $ 46.4 million of revenues generated by a company acquired in 2016. these increases were partially offset by a decrease in revenues from our government and commercial site-based services operations as a result of the loss of certain contracts not renewed pursuant to rebid , and in the case of our government site-based services operations , the result of certain scope reductions within their current contract portfolio . revenues of our united states industrial services segment for the year ended december 31 , 2016 increased by $ 145.2 million compared to the year ended december 31 , 2015. the increase in revenues was primarily due to increased demand for specialty services offerings within our field services operations , including large project activity . the increase in revenues from our field services operations was partially offset by a decrease in revenues from our shop services operations due to lower demand for new heat exchangers as a result of the continued curtailment in capital spending by many large integrated oil companies . in addition , revenues for the first half of 2015 were negatively impacted by a nationwide strike by union employees of certain major oil refineries which led to the cancellation of certain turnaround projects . our united kingdom building services segment revenues were $ 326.3 million in 2016 compared to $ 377.5 million in 2015. this segment 's revenues decreased by $ 41.0 million for the year ended december 31 , 2016 related to the effect of unfavorable exchange rates for the british pound versus the united states dollar resulting , in part , from the decision by the united kingdom to exit the european union . in addition , the decrease in this segment 's revenues was partially attributable to a decrease in small project activity within the institutional market
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our general and administrativ e expenses consist primarily of allocated employee s alaries , incentives and benefits , office expenses , professional fees for accounting , legal , and consultin g services , and other costs allocated by our parent . our general and administrative expenses include direct monthly charges for the management of our assets and certain expenses allocated by our parent under our omnibus agreement for general corporate services , such as treasury , accounting , human resources and legal services . these expenses are charged or allocated to us based on the nature of the expense and our proportionate share of employee time or capital expenditures . for more information about fees we reimburse our parent for services received , please read note 1 6 – related party transactions to the consolidated financial statements in this report . 49 other income ( expense ) . other income ( expense ) includes interest earned , interest expense and other non-operating items . equity investment earnings ( loss ) . equity investment earnings ( loss ) consists of the income or loss associated with our 50 % ownership interest in nlr energy logistics llc . f or the commercial agreements , operational services and secondment agreement and the omnibus agreement in their entirety and any subsequent amendments required to be filed , p lease refer to i tem 15 – exhibits , financial statement schedules . results of operations comparability of our financial results for the years ended december 31 , 2017 and 2016 the following discussion reflects the results of the partnership , including the results related to assets we acquired from our sponsor in a transfer of assets betwee n entities under com mon control . for the year ended december 31 , 2015 , the following discussion reflects the results of the mlp predecessor for the first six months of 2015 and the results of the partnership post-ipo for second half of 2015. the discussion for the year ended december 31 , 2015 , also includes the results related to assets we obtained from our sponsor since the ipo in a transfer between entities under common control . under gaap , when accounting for transfers of assets between entities under common control , the entity that receives the net assets initially recognizes the assets and liabiliti es transferred at their carrying amounts at the date of transfer . prior period financial statements of the transferee are recast for all periods in which the transferred operations were part of the ultimate parent 's consolidated financial statements . on july 1 , 2015 , in addition to the interests of blendstar , we obtained the assets and liabilities of certain ethanol storage and railcar assets contributed by our parent in a transfer between entities under common control . we recognized the assets and liabilities transferred at our parent 's historical cost basis , which are reflected retroactively in the consolidated financial statements presented in this report . expenses related to these contributed assets , such as depreciation , amortization and railcar lease expenses , are also reflected retroactively in the consolidated financial statements . no revenues related to the operation of the ethanol storage and railcar contributed assets were reflected in the consolidated financial statements for periods before july 1 , 2015 , the date the related commercial agreements became effective . on january 1 , 2016 , we acquired the ethanol storage and leased railcar assets of the hereford , texas and hopewell , virginia ethanol production facilities from our sponsor in a transfer between entities under common control . the assets were recognized at historical cost and reflected retroactively along with related expenses for periods prior to the effective date of the acquisition , subsequent to the initial dates the assets were acquired by our sponsor , on october 23 , 2015 , and november 12 , 2015 , for hopewell and hereford , respectively . there were no revenues related to these assets for periods before january 1 , 2016 , when amendments to our commercial agreements related to the drop down became effective . on september 23 , 2016 , we acquired the ethanol storage assets located in madison , illinois ; mount vernon , indiana and york , nebraska related to three ethanol plants , which occurred concurrently with the acquisition of these facilities by green plains from subsidiaries of abengoa s.a. the transaction was accounted for as a transfer between entities under common control and the assets were recognized at the preliminary value recorded in green plains ' purchase accounting . no retroactive adjustments were required . 50 selected financial information and operating data the following table reflects selected financial information ( in thousands ) : replace_table_token_6_th * recast to include historical results of operations related to net assets acquired in a transfer between entities under common control . t he following table reflects selected operating data ( in mmg , except railcar capacity billed ) : replace_table_token_7_th ( 1 ) volumetric data for the year ended december 31 , 2015 , includes data since july 1 , 2015 , when related commercial agreements became effective . year ended december 31 , 2017 , compare d with the year ended december 31 , 2016 revenues consolidated revenues increased $ 3.2 million for the year ended december 31 , 2017 compared with the year ended december 31 , 2016. revenues generated from our storage and throughput agreement increased $ 4.6 milli on primarily due to higher throughput volumes related to ethanol storage assets acquired in september 2016. other revenue increased $ 0.6 million primarily due to the expansion of our truck fleet . these increases were partially offset by a reduction in revenues generated from our rail transportation services agreement with green plains trade , which decreased $ 1.4 million due to lower average story_separator_special_tag our general and administrativ e expenses consist primarily of allocated employee s alaries , incentives and benefits , office expenses , professional fees for accounting , legal , and consultin g services , and other costs allocated by our parent . our general and administrative expenses include direct monthly charges for the management of our assets and certain expenses allocated by our parent under our omnibus agreement for general corporate services , such as treasury , accounting , human resources and legal services . these expenses are charged or allocated to us based on the nature of the expense and our proportionate share of employee time or capital expenditures . for more information about fees we reimburse our parent for services received , please read note 1 6 – related party transactions to the consolidated financial statements in this report . 49 other income ( expense ) . other income ( expense ) includes interest earned , interest expense and other non-operating items . equity investment earnings ( loss ) . equity investment earnings ( loss ) consists of the income or loss associated with our 50 % ownership interest in nlr energy logistics llc . f or the commercial agreements , operational services and secondment agreement and the omnibus agreement in their entirety and any subsequent amendments required to be filed , p lease refer to i tem 15 – exhibits , financial statement schedules . results of operations comparability of our financial results for the years ended december 31 , 2017 and 2016 the following discussion reflects the results of the partnership , including the results related to assets we acquired from our sponsor in a transfer of assets betwee n entities under com mon control . for the year ended december 31 , 2015 , the following discussion reflects the results of the mlp predecessor for the first six months of 2015 and the results of the partnership post-ipo for second half of 2015. the discussion for the year ended december 31 , 2015 , also includes the results related to assets we obtained from our sponsor since the ipo in a transfer between entities under common control . under gaap , when accounting for transfers of assets between entities under common control , the entity that receives the net assets initially recognizes the assets and liabiliti es transferred at their carrying amounts at the date of transfer . prior period financial statements of the transferee are recast for all periods in which the transferred operations were part of the ultimate parent 's consolidated financial statements . on july 1 , 2015 , in addition to the interests of blendstar , we obtained the assets and liabilities of certain ethanol storage and railcar assets contributed by our parent in a transfer between entities under common control . we recognized the assets and liabilities transferred at our parent 's historical cost basis , which are reflected retroactively in the consolidated financial statements presented in this report . expenses related to these contributed assets , such as depreciation , amortization and railcar lease expenses , are also reflected retroactively in the consolidated financial statements . no revenues related to the operation of the ethanol storage and railcar contributed assets were reflected in the consolidated financial statements for periods before july 1 , 2015 , the date the related commercial agreements became effective . on january 1 , 2016 , we acquired the ethanol storage and leased railcar assets of the hereford , texas and hopewell , virginia ethanol production facilities from our sponsor in a transfer between entities under common control . the assets were recognized at historical cost and reflected retroactively along with related expenses for periods prior to the effective date of the acquisition , subsequent to the initial dates the assets were acquired by our sponsor , on october 23 , 2015 , and november 12 , 2015 , for hopewell and hereford , respectively . there were no revenues related to these assets for periods before january 1 , 2016 , when amendments to our commercial agreements related to the drop down became effective . on september 23 , 2016 , we acquired the ethanol storage assets located in madison , illinois ; mount vernon , indiana and york , nebraska related to three ethanol plants , which occurred concurrently with the acquisition of these facilities by green plains from subsidiaries of abengoa s.a. the transaction was accounted for as a transfer between entities under common control and the assets were recognized at the preliminary value recorded in green plains ' purchase accounting . no retroactive adjustments were required . 50 selected financial information and operating data the following table reflects selected financial information ( in thousands ) : replace_table_token_6_th * recast to include historical results of operations related to net assets acquired in a transfer between entities under common control . t he following table reflects selected operating data ( in mmg , except railcar capacity billed ) : replace_table_token_7_th ( 1 ) volumetric data for the year ended december 31 , 2015 , includes data since july 1 , 2015 , when related commercial agreements became effective . year ended december 31 , 2017 , compare d with the year ended december 31 , 2016 revenues consolidated revenues increased $ 3.2 million for the year ended december 31 , 2017 compared with the year ended december 31 , 2016. revenues generated from our storage and throughput agreement increased $ 4.6 milli on primarily due to higher throughput volumes related to ethanol storage assets acquired in september 2016. other revenue increased $ 0.6 million primarily due to the expansion of our truck fleet . these increases were partially offset by a reduction in revenues generated from our rail transportation services agreement with green plains trade , which decreased $ 1.4 million due to lower average
| ethanol continues to account for approximately 10 % of the u.s. gasoline market in 2017 , or an estimated 14.3 billion gallons , up from 14.2 billion gallons in 2016. in 2017 , ethanol futures traded at an average discount of $ 0.14 per gallon to gasoline , positioning ethanol as the most economical oxygenate over gulf coast alkylate and reformate substitutes , and the most affordable source of octanes over gulf coast 93 and toluene substitutes . increased automaker approval , consumer acceptance and availability of higher ethanol blends continue to support domestic demand . automakers have explicitly approved the use of e15 in nearly 90 % of 2018 model year vehicles sold in the united states . in addition , the number of retail stations selling higher ethanol blends tripled in 2017 due to investments in the retail gasoline infrastructure provided by private and public funding . global ethanol supply and demand the united states and brazil produce 86 % of the world 's ethanol supply , according to the usda foreign agriculture service . global production increased slightly to 26.7 billion gallons in 2017 from approximately 26.6 billion gallons in 2016 due to increased u.s. production , which made up for reduced volumes from brazil , according to the eia . the united states has been the world 's largest producer and consumer of ethanol since 2010. in 2017 , a pproximately 8 % of the ethanol produced domestically competed globally with other sources of octane and oxygenates and was marketed and sold worldwide . global production is expected to increase 10 % in the next five years . demand for cleaner , more sustainable transportation fuel is growing worldwide . ethanol has become a crucial component of the global fuel supply as an economical oxygenate and source of octanes . according to the global renewable fuels alliance , 35 countries , including the eu which is regulated by a single policy with specific national targets for each country , have mandates or planned targets in place for blending ethanol and biodiesel with transportation fuels to reduce harmful emissions . as countries establish mandates or raise their required blend percentages , new export opportunities for u.s. producers are likely to emerge . overall , the u.s. ethanol industry is producing at levels to meet current domestic and export demand . according to the
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· net income for 2013 included a non-cash charge for an unrealized loss on financial contracts of approximately $ 0.1 million as compared to 2012 which included a non-cash charge for an unrealized loss on financial contracts of $ 0.2 million ; 17 · trade receivables increased approximately $ 6.3 million in 2013 ( due to a 40.1 % increase in volume sold during fourth quarter 2013 ) as compared to a decrease of approximately $ 7.4 million ( due to a 2.4 % decrease in price per gallon and a 16.8 % decrease in volume sold during the fourth quarter ) in 2012 ; · notes receivable increased approximately $ 0.9 million ( due to additional notes receivable from tolling customers for unit improvements ) as compared to an increase of approximately $ 0.1 million in 2012 ; and · inventory increased approximately $ 2.2 million in 2013 ( due to a 58.8 % increase in deferred sales at the end of 2013 ) as compared to an increase of approximately $ 0.4 million ( due to a 4.8 % increase in volume partially offset by a 1.8 % decrease in cost per gallon ) in 2012. these sources of cash were partially offset by the following increases in cash provided by operations : · net income for 2013 included a non-cash depreciation charge of $ 4.0 million as compared to 2012 which included a non-cash depreciation charge of $ 3.6 million ; · net income for 2013 included a non-cash share based compensation charge of $ 1.2 million ( due to options being awarded to a new director and a new officer ) as compared to 2012 which included a non-cash share based compensation charge of $ 0.5 million ; · net income for 2013 included a non-cash charge for deferred income taxes of $ 1.5 million as compared to 2012 which included a non-cash charge for deferred income taxes of $ 0.5 million ; · prepaid expenses and other assets increased $ 0.3 million in 2013 ( primarily due to an increase in prepaid insurance ) as compared to an increase of $ 0.9 million in 2012 ( also primarily due to an increase in prepaid insurance ) ; · income tax receivable decreased approximately $ 0.6 million in 2013 ( due to the overpayment of 2012 estimated taxes being applied to 2013 ) as compared to an increase of $ 1.2 million in 2012 ( due to overpayment of 2012 estimated taxes ) ; · other liabilities increased $ 3.0 million in 2013 as compared to an increase of $ 0.4 million in 2012 ( both years due to the receipt of funds from toll processing customers for modifications of toll processing facilities within the plant ) ; and · accounts payable and accrued liabilities increased approximately $ 1.4 million in 2013 ( primarily due to an increase in the accrual for raw materials ) while in 2012 the same accounts increased by $ 0.2 million ( primarily due to decreases in accruals for freight and utilities partially offset by an increase in the accrual for derivative settlements and raw material purchases ) . operating activities generated cash of $ 21.4 million during fiscal 2012 as compared with $ 4.1 million of cash provided during fiscal 2011. although the company 's net income decreased by $ 3.6 million from 2011 to 2012 , the cash provided by operations increased by $ 17.3 million due primarily to the following factors : · net income for 2012 included a non-cash equity in loss from amak of $ 0.9 million and gain on equity issued in amak of $ 0.7 million as compared to equity in loss from amak $ 1.0 million and gain on equity issued in amak of $ 8.9 million in 2011 ; · net income for 2012 included a non-cash depreciation charge of $ 3.6 million as compared to 2011 which included a non-cash depreciation charge of $ 3.2 million ; · net income for 2012 included a non-cash charge for an unrealized loss on financial contracts of approximately $ 0.2 million as compared to 2011 which included a non-cash charge for an unrealized gain on financial contracts of $ 0.2 million ; · trade receivables decreased approximately $ 7.4 million in 2012 ( due to a 2.4 % decrease in price per gallon and a 16.8 % decrease in volume sold during the fourth quarter ) as compared to an increase of approximately $ 12.0 18 · million ( due to a 63.3 % increase in volume and a 13.8 % increase in price per gallon in the fourth quarter ) in 2011 ; and · inventory increased approximately $ 0.4 million in 2012 ( due to a 4.8 % increase in volume partially offset by a 1.8 % decrease in cost per gallon ) as compared to an increase of approximately $ 3.5 million ( due to a 27.5 % increase in volume and a 12.4 % increase in cost per gallon ) in 2011. these sources of cash were partially offset by the following decreases in cash provided by operations : · net income for 2012 included non-cash compensation charges of $ 0.5 million as compared to $ 0.9 million in 2011 ; · prepaid expenses and other assets increased $ 0.9 million in 2012 ( primarily due to an increase in prepaid insurance ) as compared to a decrease of $ 0.1 million in 2011 ( due to expensing of prepaid pipeline services , marketing and insurance ) ; · income tax receivable increased approximately $ 1.2 million in 2012 ( due to an overpayment of estimated taxes ) as compared to a decrease of $ 0.2 million in 2011 ; · other liabilities increased $ 0.4 million in 2012 ( due to the receipt of funds from toll processing customers for modifications of toll processing facilities within the plant ) as compared to an increase of $ 1.6 million in 2011 ( due to the receipt of funds from a toll processing customer for construction of a pilot plant ) ; and story_separator_special_tag · accounts payable and accrued liabilities decreased approximately $ 0.2 million in 2012 ( primarily due to decreases in accruals for freight and utilities partially offset by an increase in the accrual for derivative settlements and raw material purchases ) while in 2011 the same accounts increased by $ 4.2 million ( primarily due to an increase in accruals for raw material purchases , freight , and compensation ) . investing activities cash used by investing activities during fiscal 2013 was approximately $ 12.7 million , representing an increase of approximately $ 2.5 million over the corresponding period of 2012. during 2013 we purchased an additional $ 7.5 million of stock in amak as discussed in note 8 , expended $ 0.3 million to debottleneck our penhex unit , $ 1.6 million for expansion of the sales loading rack facility , $ 0.9 million for construction of a new control room and lab , $ 0.4 million for transport trucks , and approximately $ 2.1 million for a new tolling unit ( which will be reimbursed by the customer ) . these uses of cash were partially offset by the return of approximately $ 2.0 million from amak which was previously advanced . cash used by investing activities during fiscal 2012 was approximately $ 10.2 million , representing an increase of approximately $ 3.5 million over the corresponding period of 2011. during 2012 we advanced $ 2.0 million to amak for interim , short-term funding which was subsequently repaid in 2013. in may and june 2011 we advanced $ 0.8 million for the same purpose which was subsequently repaid in august 2011. during fiscal 2012 we purchased transport trucks and trailers for $ 1.0 million , land surrounding the facility for $ 0.2 million , increased/improved tankage for $ 0.4 million , made various facility improvements for $ 0.8 million , converted a processing tower for $ 0.5 million , made purchases for expansion of the pipeline of $ 4.2 million and purchased other equipment for $ 1.0 million . financing activities cash used by financing activities during fiscal 2013 was approximately $ 2.4 million versus cash used of $ 8.4 million during the corresponding period of 2012. during 2013 we drew $ 6.0 million on our line of credit for working capital purposes and to fund the capital contribution to amak . we also made principal payments of $ 1.5 million on our term debt and $ 7.0 million on our line of credit . cash used by financing activities during fiscal 2012 was approximately $ 8.4 million versus cash provided of $ 1.6 million during the corresponding period of 2011. during 2012 we drew $ 2.0 million on our line of credit for working capital purposes and made principal payments of $ 10.5 million on our line of credit and term debt . 19 credit agreement on may 25 , 2006 , south hampton entered into a credit agreement , as amended , with bank of america . all of our obligations under the credit agreement are fully and unconditionally secured pursuant to a perfected first priority security interest on all of south hampton 's assets . as of december 31 , 2013 , the credit agreement provided for an aggregate principal amount of up to $ 32 million available through the following facilities : ( i ) $ 18 million revolving credit facility which includes a $ 3 million sublimit for use in the hedging program and a $ 9 million sublimit for the issuance of standby or commercial letters of credit ; and ( ii ) $ 14 million term loan ( advanced as a $ 10 million loan and a $ 4 million loan ) obtained in 2007 to finance the expansion of south hampton 's petrochemical facility . the revolving credit facility matures on june 30 , 2015 , and the term loan matures on october 31 , 2018. under the terms of the credit agreement , accrued and unpaid interest is due and payable in arrears on the first business day of each month on any outstanding borrowings at the lower of : ( i ) the higher of the federal funds rate plus 0.50 % or the prime rate plus applicable margin , or ( ii ) the rate equal to the british bankers association libor plus the applicable margin . the applicable margin is determined from tocco 's most recent compliance certificate and current financials based on the following : replace_table_token_7_th in march 2008 we entered into a pay-fixed , receive-variable interest rate swap agreement with respect to the $ 10.0 million floating rate term loan under the credit facility . the notional amount of the interest rate swap was $ 4,250,000 at december 31 , 2013. we receive credit for payments of variable rate interest made on the term loan at the loan 's variable rates which are based upon the london interbank offered rate ( libor ) , and pays bank of america an interest rate of 5.83 % less the credit on the interest rate swap . the swap agreement terminates on december 15 , 2017. we designated the interest rate swap agreement as a cash flow hedge according to asc topic 815 , derivatives and hedging . the derivative instrument is reported at fair value with any changes in fair value reported within other comprehensive income ( loss ) in our statement of stockholders ' equity . at december 31 , 2013 , accumulated other comprehensive loss net of $ 197,148 tax was $ 366,131 related to this transaction . our average floating interest rate on debt outstanding under our credit facility at december 31 , 2013 , was 3.25 % . the credit agreement includes customary representations and warranties made by us to bank of america . the credit agreement contains customary , affirmative and negative covenants requiring us to take certain actions and restricting us from taking others .
| 2011-2012 petrochemical product sales increased 12.3 % from 2011 to 2012 due to an increase in total sales volume of 17.1 % as noted above offset by a decrease in the average selling price of 4.1 % . processing 2012-2013 processing revenues increased 28.5 % from 2012 to 2013 due to renegotiation of our tolling contracts . we remain dedicated to maintaining a certain level of toll processing business in the facility and continue to pursue opportunities . 22 2011-2012 processing revenues decreased 11.3 % from 2011 to 2012 due to one of our tolling customer 's inability to obtain raw material which impacted their run rates . cost of sales ( includes but is not limited to raw materials , total operating expense , natural gas , operating labor and transportation ) 2012-2013 cost of sales increased 4.7 % from 2012 to 2013 due in part to a 38.6 % increase in volumes processed partially offset by a 2.3 % decrease in the average cost per gallon of feedstock . we use natural gasoline as feedstock which is the heavier liquid remaining after butane and propane are removed from liquids produced by natural gas wells . the material is a commodity product in the oil/petrochemical markets and generally is readily available . we are investigating alternative feedstock sources which contain lower percentages of less desirable components in an effort to reduce the amount of byproduct sold into secondary markets at lower margins , thereby increasing overall profitability . 2011-2012 cost of sales increased 10.7 % from 2011 to 2012 due in part to a 13.3 % increase in volumes processed and hedging losses of $ 1.8 million partially offset by a 6.8 % decrease in the average cost per gallon of feedstock . changes in other components of cost of sales are detailed below . see note 19 of notes to the consolidated financial statements . total operating expense ( includes but is not limited to natural gas , operating labor and transportation ) 2012-2013 total operating expense increased 11.7 % from 2012 to 2013. natural gas , labor and transportation are the largest individual expenses in this category . the
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if estimated total costs on any contract indicate a loss , we charge the entire estimated loss to operations in the period the loss becomes known . the cumulative effect of revisions to revenue , estimated costs to complete contracts , including penalties , incentive awards , change orders , claims , anticipated losses , and other effects are recorded in the accounting period in which the events indicating a loss are known and the loss can be reasonably estimated . such revisions could occur at any time and the effects may be material . the majority of our contracts are for work where we bill the client monthly at hourly billing rates . the hourly billing rates are determined by contract terms . for governmental clients , the hourly rates are generally calculated as either ( i ) a negotiated multiplier of our direct labor costs or ( ii ) as direct labor costs plus overhead costs plus a negotiated profit percentage . for commercial clients , the hourly rates are generally taken from a standard fee schedule by staff classification or they can be at a negotiated discount from this schedule . in some cases , primarily for foreign work , a fixed monthly staff rate is negotiated rather than an hourly rate . this monthly rate is determined based upon a buildup of direct labor costs plus overhead and profit . we account for these contracts on a time-and-expenses method , recognizing revenue as costs are incurred . we account for fixed-price contracts on the percentage-of-completion method , wherein revenue is recognized as costs are incurred . under the percentage-of-completion method for revenue recognition , we estimate the progress towards completion to determine the amount of revenue and profit to be recognized . we generally utilize a cost-to-cost approach in applying the percentage-of-completion method , where revenue is earned in proportion to total costs incurred divided by total costs expected to be incurred . under the percentage-of-completion method , recognition of profit is dependent upon the accuracy of estimates . we have a history of making reasonably dependable estimates of contract revenue , the extent of 31 progress towards completion and contract completion costs on our long-term construction management contracts . however , due to uncertainties inherent in the estimation process , it is possible that actual completion costs may vary from estimates . allowance for doubtful accounts we make ongoing estimates relating to the collectibility 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 specific client account reviews and historical experience of credit losses . we also apply judgment including assessments about changes in economic conditions , concentration of receivables among clients and industries , recent write-off trends , rates of bankruptcy , and credit quality of specific clients . unanticipated changes in the financial condition of clients , the resolution of various disputes , or significant changes in the economy could impact the reserves required . at december 31 , 2011 and 2010 , the allowance for doubtful accounts was $ 9,181,000 and $ 9,457,000 , respectively . goodwill and other intangible assets goodwill is tested annually for impairment in our third fiscal quarter or more frequently if events or circumstances indicate that there may be an impairment . we have determined that we have two reporting units , the project management unit and the construction claims unit . we made that determination based on the similarity of the services provided , the methodologies in delivering our services and the similarity of the client base in each of these units . 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 for hill , the period over which cash flows will occur , and determination of the weighted average cost of capital . changes in these estimates and assumptions could materially affect the determination of fair value and or goodwill impairment for each reporting unit . changes in future market conditions , our business strategy , or other factors could impact upon the future values of hill 's reporting units , which could result in future impairment charges . on july 1 , 2011 , the company performed its annual impairment test . based on the results , the company determined that there was no impairment . during 2011 , as one of our assumptions , we utilized a control premium which is in addition to those used in prior years . we believe that this new assumption is an important element in determining the fair value of our reporting units . including the use of the control premium , the fair values of our reporting units significantly exceeded their carrying values . we amortize other 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 . story_separator_special_tag these judgments and interpretations affect the provision for income taxes , deferred tax assets and liabilities and the valuation allowance . we evaluated the deferred tax assets and determined on the basis of objective factors that 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 . 32 stock options we recognize compensation expense for all stock-based awards . the awards include stock options and restricted stock grants . while fair value may be readily determinable for awards of stock , market quotes are not available for long-term , nontransferable stock options because these instruments are not traded . we currently use the black-scholes option pricing model to estimate the fair value of options . option valuation models require the input of highly subjective assumptions , including but not limited to stock price volatility , expected life and stock option exercise behavior . 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 . story_separator_special_tag style= '' border-collapse : collapse '' width= '' 100 % '' > an increase in bad debt expense of $ 944,000 due primarily to a reserve of $ 1,600,000 related to a saudi arabia joint venture . equity in earnings of affiliates our share of the earnings of affiliates decreased $ 1,313,000 from $ 1,503,000 in 2010 to $ 190,000 in 2011 , primarily due to the termination of work in iraq by sbh where our contract was completed at the end of 2010 and a decrease from hill tmg where work was completed in 2010. our share of the earnings of sbh decreased by $ 1,171,000 in 2011 , because the assignment was completed in the fourth quarter of 2010. sbh was a joint venture between stanley consultants , inc. , michael baker , jr. , inc. and us . sbh is currently going through the liquidation process . our share of the earnings of hill tmg decreased by $ 300,000 in 2011. hill tmg was a joint venture formed in may 2008 between talaat moustafa group holding co. ( tmg ) and hill . hill tmg managed the construction of several of tmg 's largest developments in egypt and elsewhere in the middle east . our share of the earnings of hill petrol was $ 210,000 in 2011. hill petrol was a joint stock company formed on november 20 , 2007 between us , the egyptian national gas holding company ( egas ) and the egyptian natural gas company ( gasco ) . the ownership interests of the company are 50 % hill , 40 % egas and 10 % gasco . the company was formed to jointly participate in the field of project management for oil and gas projects . hill petrol is currently going through the liquidation and dissolution process . 35 operating ( loss ) profit : replace_table_token_14_th the operating profit decrease was due primarily to the loss in revenue and profit from disrupted operations in libya , the completion of the iraq project at the end of 2010 and a decrease in work in the united kingdom construction claims business . this was partially offset by increases in profit from the acquired companies , the middle east and domestic operations . the decrease in project management operating profit primarily included a decrease of $ 21,377,000 in libya due to work stoppage caused by the political unrest and a decrease of $ 5,055,000 in iraq where work concluded at the end of 2010. these decreases were partially offset by an increase in operating profit of $ 3,687,000 in the middle east as a result of several new projects in saudi arabia and abu dhabi , the contribution from engineering s.a. of $ 1,712,000 and an increase of $ 1,717,000 from tcm and dck . the decrease in operating profit for the construction claims group was primarily due to a decrease of $ 3,136,000 in the united kingdom where work slowed down during the early part of 2011 partially due to the settlement of a client 's case on a large assignment . this was partially offset by increased profits from mll and the united states . corporate expense was held to an increase of $ 3,747,000 over the prior year with $ 1,240,000 in increased labor and travel cost primarily in support of real estate development efforts and a reserve of $ 1,600,000 related to a saudi arabia joint venture .
| 33 reimbursable expenses replace_table_token_10_th reimbursable expenses consist of amounts paid to subcontractors and other third parties and travel and other job-related expenses that are contractually reimbursable from clients . these items are reflected as separate line items in both our revenue and cost of services captions in our consolidated statements of operations . the increase in project management reimbursable expenses was due primarily to increased use of subcontractors of $ 29,959,000 in our new york office . cost of services replace_table_token_11_th cost of services consists of labor expenses for time charged directly to contracts and non-reimbursable job related travel and out-of-pocket expenses . the increase in project management cost of services is primarily due to increases in the middle east and the acquisitions of tcm and engineering s.a. , partially offset by decreases in iraq and libya . the increase in the cost of services for construction claims was due primarily to increases in direct labor in the middle east and australia in support of the increases in cfr . gross profit replace_table_token_12_th the decrease in project management gross profit included a decrease of $ 7,400,000 from foreign operations and an increase of $ 4,509,000 in domestic operations . the decrease in foreign operations included decreases of $ 27,844,000 in libya and iraq , partially offset by increases of $ 14,400,000 from engineering s.a. and $ 4,355,000 in the middle east . the increase in domestic operations includes increases of $ 5,400,000 from tcm and dck which were acquired in 2010. the decrease in the project management gross profit percentage is due to the effect of a lower gross profit percentage at engineering s.a. and the reduced work in libya where percentages were higher than average for the company . the increase in construction claims gross profit of $ 5,404,000 was driven by increases of $ 3,496,000 from a full year of mll and $ 1,848,000 from the middle east , due to new work in saudi arabia . 34 selling , general and administrative ( sg & a ) expenses replace_table_token_13_th the increase in sg & a included increases of $
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ou r employment and housing assumptions are consistent with consensus forecasts and reflect that our markets are growing faster than the rest of the u nited s tates . part i i 29 public construction continues to realize steady growth due mostly to strong awards for new projects in 2013 and early in 2014 as well as large transportation-related projects funded through the federal government 's tifia program . we currently expect these trends in demand in each of the major end markets to continue in 2015. we believe demand from public end-uses will increase 3 % to 5 % during 2015. construction award momentum remains positive and stable in our markets . the s outh and w est continue to see more growth than other areas of the u nited s tates . state and local tax revenue growth has mirrored the economic recovery . as tax revenues approach all time high levels , they will supply the support for new public funding . reconciliation of non-gaap financial measures gross profit margin excluding freight and delivery revenues is not a generally accepted accounting principle ( gaap ) measure . we present this metric as it is consistent with the basis by which we review our operating results . likewise , we believe that this presentation is consistent with the basis by which investors analyze our operating results considering that freight and delivery services represent pass-through activities . reconciliation of this metric to its nearest gaap measure is presented below : gross profit margin in accordance with gaap replace_table_token_8_th gross profit margin excluding freight and delivery revenues replace_table_token_9_th 1 includes freight to remote distribution sites . part i i 30 aggregates segment gross profit as a percentage of freight-adjusted revenues is not a gaap measure . we present this metric as it is consistent with the basis by which we review our operating results . we believe that this presentation is more meaningful to our investors as it exclude s freight , delivery and transportation revenues which are p ass-through activit ies . it also excludes immaterial other revenues related to services , such as landfill tipping fees , that are derived from our aggregates business . incremental gross profit as a percentage of freight-adjusted revenues represents the year-over-year change in gross profit divided by the year-over-year change in freight-adjusted revenues . reconciliation of th ese metric s to their nearest gaap measure is presented below : aggregates segment gross profit margin in accordance with gaap replace_table_token_10_th aggregates segment gross profit as a percentage of freight-adjusted revenues replace_table_token_11_th 1 at the segment level , freight , delivery and transportation revenues include intersegment freight & delivery revenues , w hich are eliminated at the consolidated level . part i i 31 gaap does not define `` free cash flow , `` `` cash gross profit '' and `` earnings before interest , taxes , depreciation and amortization ” ( ebitda ) . thus , free cash flow should not be considered as an alternative to net cash provided by operating activities or any other liquidity measure defined by gaap . likewise , cash gross profit and ebitda should not be considered as alternatives to earnings measures defined by gaap . we present these metrics for the convenience of investment professionals who use such metrics in their analyse s a nd for shareholders who need to understand the metrics we use to assess performance and to monitor our cash and liquidity positions . the investment community often uses these metrics as indicators of a company 's ability to incur and service debt and to assess the operating performance of a company 's businesses . we use free cash flow , cash gross profit , ebitda and other such measures to assess liquidity and the operating performance of our various business units and the consolidated company . additionally , we adjust ebitda for certain items to provide a more consistent comparison of performance from period to period . we do not use these metrics as a measure to allocate resources . reconciliations of these metrics to their nearest gaap measures are presented below : free cash flow free cash flow is calculated by deduct ing purchases of property , plant & equipment from net cash provided by operating activities . replace_table_token_12_th cash gross profit c ash gross profit adds back noncash charges for depreciation , depletion , accretion and amortization to gross profit . cash gross profit per ton is computed by dividing cash gross profit by tons shipped . replace_table_token_13_th part i i 32 ebitda and adjusted ebitda ebitda is an acronym for earnings before interest , taxes , depreciation and amortization and excludes discontinued operations . we adjust ebitda for certain items to provide a more consistent comparison of performance from period to period . replace_table_token_14_th part i i 33 story_separator_special_tag inline ; color : # 000000 ; '' > — and by growth in construction activity along the gulf coast where w e are uniquely positioned . in the public sector , shipments for highways has remained solid due to strong contract awards in 2013 , increases in state highway funding , a growing number of tifia-funded projects in key states , and the extension of map-21 ( the federal highway bill ) . our year-over- year freight -adjusted selling price 1 for aggregates : § increased 2 % in 2014 § increased 3 % in 2013 § increased 2 % in 201 2 1 we routinely arrange the delivery of our aggregates to the customer . additionally , we incur transportation costs to move aggregates from the production site to remote distribution sites . these costs are passed on to our customers in the aggregates price . we remove these pass-through freight and transportation revenues ( and any other aggregates-derived revenues , such as landfill tipping fees ) from the freight-adjusted selling price for aggregates . see the reconciliation of non-gaap financial measures within this item 7 for a reconciliation of freight-adjusted revenues . story_separator_special_tag part i i 36 our pricing environment continues to improve with the gradual improvement in demand . during 2014 , we realized modest price improvements in all but one of our management reporting units across our 20-state geographic footprint . pricing decisions are made locally and outcomes will vary significantly by geography . aggregates freight-adjusted revenues aggregates gross profit and cash gross profit in millions in millions aggregates unit shipments aggregates selling price and cash gross profit per ton t ons 1 , in millions freight-adjusted average sales price per ton 2 1 includes tons marketed and sold on behalf of a third-party pursuant to volumetric production payment ( vpp ) agreements 2 freight-adjust ed sales price is calculated as freight-adjusted revenues divided by aggregates unit shipments aggregates segment gross profit increased $ 13 0.8 million from the prior year and gross profit as a percentage of freight-adjusted revenues increased 4.1 percentage points ( 410 basis points ) . the increase in aggregates segment gross profit resulted from higher volumes and better unit margins . aggregates segment cash gross profit per ton increased 9 % to $ 4.75 in 2014. this measure continues to improve , reflecting our effective management of the three major profit drivers ( price for service ; sales and production mix ; operating efficiency and leverage ) . these efforts resulted in a record level of unit profitability that exceeds the level achieved in 2005 ( $ 3.28 per ton – our peak year for volume ) and in 2008 ( $ 4.69 per ton – our previous high ) . this trend further highlights the earnings potential of our aggregates business as volumes recover . part i i 37 2 . asphalt mix our year-over-year asphalt mix shipments : § increased 8 % in 2014 § increased 3 % in 2013 § declined 7 % in 201 2 asphalt mix segment gross profit of $ 38.1 million was up $ 5.4 million from the prior year due to higher margins in california and the earnings contribution from recently completed acquisitions in arizona and new mexico . on a same-store basis , asphalt volumes increased 4 % from the prior year and unit profitability increased 6 % . asphalt mix segment sales asphalt mix gross profit and cash gross profit in millions in millions part i i 38 3 . concrete our year-over-year ready-mixed concrete shipments : § decreased 22 % in 2014 § increased 14 % in 2013 § increased 9 % in 201 2 c oncrete segment gross profit was $ 2.2 million in 2014 compared to a loss of $ 24.8 million in 2013. adjusted for the sale of our concrete business in the florida area , concrete segment gross profit was $ 5.9 million compared to a loss of $ 0.3 million in 2013. ready-mixed concrete shipments declined in 2014 as a result of the sale of our florida concrete business in the first quarter of 2014. adjusted for the sale of our concrete business in the florida area , ready-mix ed concrete shipments increased 10 % in 2014 . concrete segment sales 1 concrete gross profit and cash gross profit 1 in millions in millions 1 the financial data above excludes the florida area concrete businesses sold in march 2014. see the adjusted concrete and calcium ( formerly cement ) segment financial data table on page 35 . part i i 39 4. calcium ( fomerly cement ) c alcium segment gross profit of $ 3.2 million was down $ 2.5 million from the prior year . our cement business was sold in the first quarter of 2014 along with the florida concrete assets . adjusted for the sale of our cement business in the florida area , calcium segment gross profit was $ 3.5 million compared to $ 3.0 million in 2013. calcium segment sales 1 calcium gross profit and cash gross profit 1 in millions in millions 1 the financial data above excludes the cement businesses sold in march 2014. see the adjusted concrete and calcium ( formerly cement ) segment financial data table on page 35 . selling , administrative and general expenses in millions sag expenses were up $ 12.9 million , or 5 % , due primarily to increased performance based incentives and business development expenses . as a percentage of total revenues , sag expenses declined from 9.4 % in 2013 to 9.1 % in 2014 . we remain focused on leveraging sag to revenues as volumes recover . our comparative total company employment levels at year end : § declined 3 % in 2014 § increased 5 % in 2013 § declined 5 % in 2012 severance charges included in sag expenses were as follows : 201 4 — $ 1.0 million , 201 3 — $ 1.2 million and 201 2 — $ 0.9 million . severance and other related restructuring charges not included in sag expenses were as follows : 201 4 — $ 1.3 million , 201 3 — $ 1.5 million and 2012 — $ 9.6 million . part i i 40 ga in on sale of property , plant & equipment and businesses , net in millions the 2014 gain includes a $ 227.9 million pretax gain from the sale of our cement and concrete business es in florida to cementos argos and a $ 6.0 million pretax gain from the sale of two reclaimed operating site s. t he 2013 gain includes a $ 24.0 million pretax gain from the sale of five non-strategic aggregates production facilities and a $ 9.0 million pretax gain from the sale of reclaimed and surplus real estate . the 2012 gain includes a $ 41.2 million pretax gain from the sale of reclaimed and surplus real estate , a $ 5.6 million pretax gain from the sale of a non-strategic aggregates production facility , a $ 12.3 million pretax gain from the sale of mitigation credits and a $ 6.0 million pretax gain on the sale of developed real estate .
| 3 million ( net of $ 0.5 million of disposition related charges ) related to the sale of reclaimed real estate and businesses § the 2012 results include a $ 65.1 million pretax gain on sale of real estate and businesses , a pretax charge of $ 9.6 million related to our restructuring and a pretax charge of $ 43.4 million related to the unsolicited exchange offer part i i 34 the following table compares our concrete and calcium ( formerly cement ) segments financial data adjusted for the march 2014 sale of our florida area concrete and cement businesses . adjusted concrete and calcium segment financial data replace_table_token_16_th as previously noted , in january 2015 we exchanged our california ready-mixed concrete operations for 13 asphalt mix plants , primarily in arizona . a djusting our concrete segment financial data f or this transaction as well as the march 2014 sale of our florida area concrete business results in the following : § segment sales and segment revenues § 2014 — $ 272.7 million , 2013 — $ 244.9 million and 2012 — $ 2 19.2 million § gross profit § 2014 — $ 11.8 million , 2013 — $ 5.8 million and 2012 — $ 1.1 million § depreciation , depletion , accretion and amortization § 2014 — $ 16.5 million , 2013 — $ 15.5 million and 2012 — $ 18.5 million § shipments - cubic yards § 2014 — 2.7 million , 2013 — 2.5 million and 2012 — 2.2 million part i i 35 year-over-year changes in earnings from continuing operations before income taxes are summarized below : replace_table_token_17_th operating results by segment we present our results of operations by segment at the gross profit level . we have four operating ( and report able ) segments organized around our principal product lines : 1 ) aggregates , 2 ) asphalt mi x , 3 ) concrete and 4 ) calcium ( formerly cement ) . management reviews earnings for the product line segments principally at the gross profit level . 1. aggregates our year-over-year aggregates shipments : § i ncreased 11 % in 2014 § increased 4 % in 2013 § declined 1 % in 201 2 sales volume momentum improved across most of our 20-state geographic footprint . this growing momentum is driven by strengthening construction activity across
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our operating expenses consist primarily of ( i ) general and administrative expenses ; ( ii ) sales and marketing expenses ; ( iii ) general engineering and research and development expenses ; and ( iv ) handling costs incurred in conjunction with distribution activities . personnel related costs are our largest operating expense . our general and administrative expenses consist primarily of costs for ( i ) salaries , benefits and other personnel expenses related to our executive , finance , human resource , information technology , legal and operations functions ; ( ii ) occupancy expenses ; ( iii ) technology related costs ; ( iv ) depreciation and amortization ; and ( v ) corporate-related travel . the majority of our general and administrative costs are for salaries and related personnel expenses . these costs can vary by business given the location of our different manufacturing operations . our sales and marketing expenses consist primarily of costs for ( i ) salaries , benefits and other personnel expenses related to our sales and marketing function ; ( ii ) internal and external sales commissions and bonuses ; ( iii ) travel , lodging and other out-of-pocket expenses associated with our selling efforts ; and ( iv ) other related overhead . our general engineering and research and development expenses consist primarily of costs for ( i ) salaries , benefits and other personnel expenses ; ( ii ) the design and development of new energy efficiency products and enhancements ; ( iii ) quality assurance and testing ; and ( iv ) other related overhead . our research and development efforts tend to be targeted toward developing new products that would allow us to maintain or gain additional market share , whether in new or existing applications . while these costs make up an insignificant portion of our operating expenses in the power transmission solutions segment , they are more substantial in our commercial and industrial systems and climate solutions segments . in particular , a large driver of our research and development efforts in those two segments is energy efficiency , which generally means using less electrical power to produce more mechanical power . goodwill & other asset impairments . on july 31 , 2018 , we received notification from a customer of our hermetic climate business that it would wind down operations . as a result of this notification , we accelerated our plans to exit the hermetic climate business . we will be winding down our operations over the next few months and as a result , we recognized exit and exit related charges of $ 34.9 million during fiscal 2018 . the charges included goodwill impairment of $ 9.5 million , customer relationship intangible asset impairment of $ 5.5 million , technology intangible asset impairment of $ 2.1 million and fixed asset impairment of $ 1.1 million . in addition to the asset impairments , the company took charges on accounts receivable and inventory along with recognizing other expenses related to exiting the business . we did not record any goodwill or other asset impairments in fiscal 2017 or fiscal 2016 . see also note 3 of notes to the consolidated financial statements . 26 replace_table_token_6_th operating profit . our operating profit consists of the segment gross profit less the segment operating expenses . in addition , there are shared operating costs that cover corporate , engineering and it expenses that are consistently allocated to the operating segments and are included in the segment operating expenses . operating profit is a key metric used to measure year over year improvement of the segments . outlook in fiscal 2019 , we are forecasting low to mid-single digit organic sales growth , and we expect to improve our operating margin . we expect to see positive impact from our new products targeted for the upcoming energy efficiency regulations . in fiscal 2019 , we expect diluted earnings per share to be $ 6.59 to $ 6.99. our fiscal 2019 diluted earnings per share guidance is based on an effective tax rate of 21 % . story_separator_special_tag 29 net sales for the climate solutions segment for fiscal 2017 were $ 990.6 million , a 3.2 % increase compared to fiscal 2016 net sales of $ 960.0 million . the increase consisted of an organic sales increase of 4.6 % , and a positive foreign currency translation impact of 0.1 % . organic sales increase was primarily driven by growth in north american residential hvac , europe and asia . gross profit increased $ 10.1 million or 4.1 % primarily due to higher volumes and a $ 4.9 million benefit due to a reduction in the lifo reserve . the prior year included a benefit of $ 6.3 million due to an increase in the lifo reserve . operating expenses for fiscal 2017 decreased $ 0.6 million as compared to the prior year due to leveraging of costs on the higher sales volume and lower discretionary spending . net sales for the power transmission solutions segment for fiscal 2017 were $ 765.4 million , a 4.3 % increase compared to fiscal 2016 net sales of $ 733.6 million . the increase consisted of an organic sales increase of 5.3 % and a positive foreign currency translation impact of 0.2 % that was offset by a negative impact from sales of the divested mastergear business of 1.2 % . the organic sales increase was primarily driven by increased north american industrial demand for power transmission products including improved oil and gas and renewable energy end market demand . gross profit for fiscal 2017 increased $ 10.4 million or 4.3 % primarily due to higher volumes and a benefit of $ 2.4 million due to a reduction in the lifo reserve . the prior year included a benefit of $ 0.2 million due to a reduction in the lifo reserve . story_separator_special_tag operating expenses for fiscal 2017 increased $ 9.0 million due to increased variable expenses to support the higher sales volume and increased compensation and benefits expenses resulting from both wage inflation and investments in the company 's commercial sales teams that was partially offset by a $ 2.8 million gain on the sale of assets . the prior year operating expenses included a $ 11.6 million gain on the sale of the mastergear business . the effective tax rate for fiscal 2017 was 21.3 % compared to 21.4 % for fiscal 2016 . the decrease in the effective rate was due to the act that was offset by other discrete items . the lower effective tax rate in fiscal 2017 as compared to the 35 % statutory us federal income tax rate is driven by the mix of earnings and lower foreign tax rates . liquidity and capital resources general our principal source of liquidity is cash flow provided by operating activities . in addition to operating income , other significant factors affecting our cash flows include working capital levels , capital expenditures , dividends , share repurchases , acquisitions , and divestitures , availability of debt financing , and the ability to attract long-term capital at acceptable terms . cash flow provided by operating activities was $ 362.7 million for fiscal 2018 , a $ 70.8 million increase from fiscal 2017 . the increase was primarily the result of the higher net income year over year and the increase in accounts payable in fiscal 2018 . cash flow provided by operating activities was $ 291.9 million for fiscal 2017 , a $ 150.4 million decrease from fiscal 2016 . the decrease was primarily the result of the higher investment in inventory in fiscal 2017 . cash flow used in investing activities was $ 227.9 million for fiscal 2018 , compared to $ 57.8 million used in fiscal 2017 . the change was driven primarily by the acquisition of ng . capital expenditures were $ 77.6 million in fiscal 2018 , compared to $ 65.2 million in fiscal 2017 . cash flow used in investing activities was $ 57.8 million for fiscal 2017 , compared to $ 19.6 million used in fiscal 2016 . the change was driven primarily by the $ 24.6 million received for the sale of our mastergear business in fiscal 2016 . the proceeds from the sale of mastergear were used to reduce debt obligations . capital expenditures were $ 65.2 million in both fiscal 2017 and fiscal 2016 . our commitments for property , plant and equipment as of december 29 , 2018 were approximately $ 3.3 million . in fiscal 2019 , we anticipate capital spending to be approximately $ 90.0 million . we believe that our present manufacturing facilities will be sufficient to provide adequate capacity for our operations in fiscal 2019 . we anticipate funding fiscal 2019 capital spending with operating cash flows . cash flow used in financing activities was $ 17.7 million for fiscal 2018 , compared to $ 390.6 million in fiscal 2017 . net debt borrowings totaled $ 166.7 million in fiscal 2018 , compared to net debt repayments of $ 274.7 million in fiscal 2017 . we paid $ 47.2 million in dividends to shareholders in fiscal 2018 compared to $ 44.5 million in fiscal 2017 . in fiscal 2018 we paid distributions of $ 1.6 million to noncontrolling interests compared to $ 17.4 million in fiscal 2017 . we also repurchased $ 127.8 million of our common stock during fiscal 2018 compared to $ 45.1 million in fiscal 2017. cash flow used in financing activities was $ 390.6 million for fiscal 2017 , compared to $ 379.5 million for fiscal 2016 . net debt repayments totaled $ 274.7 million in fiscal 2017 , compared to net debt repayments of $ 315.3 million in fiscal 2016 . we paid $ 44.5 30 million in dividends to shareholders in fiscal 2017 compared to $ 42.1 million in fiscal 2016 . in fiscal 2017 we paid distributions of $ 17.4 million to noncontrolling interests compared to $ 0.3 million in fiscal 2016 . we also repurchased $ 45.1 million of our common stock during fiscal 2017 . cash used to purchase additional interest in a joint venture was $ 19.6 million in fiscal 2016 . our working capital was $ 1,134.2 million and $ 862.4 million as of december 29 , 2018 and december 30 , 2017 , respectively . as of december 29 , 2018 and december 30 , 2017 , our current ratio ( which is the ratio of our current assets to current liabilities ) was 2.7 :1 and 2.2 :1 , respectively . we intend to use operating cash flow to meet our current debt repayment obligations . the following table presents selected financial information and statistics as of december 29 , 2018 and december 30 , 2017 ( in millions ) : replace_table_token_8_th as of december 29 , 2018 , our cash and cash equivalents totaled $ 248.6 million . as of december 29 , 2018 , $ 243.8 million of our cash was held by foreign subsidiaries and could be used in our domestic operations if necessary . we periodically evaluate our cash held outside the us and may pursue opportunities to repatriate certain foreign cash amounts . we repatriated $ 14.4 million of foreign cash in fiscal 2018 . as a result of the act , dividends to the us no longer incur us tax however a one-time tax on the mandatory deemed repatriation of foreign earnings payable over eight years was included in the act . we recognized a charge of $ 29.8 million related to the historical unremitted earnings as a result of the act and elected to pay over eight years .
| gross profit increased $ 46.6 million or 12.4 % primarily due to higher sales volumes , incremental price realization , lower restructuring charges and productivity gains offset by purchase accounting charges attributable to acquired inventory . operating expenses for fiscal 2018 increased $ 19.4 million as compared to fiscal 2017 . the increase was primarily due to increased compensation and benefit costs , the inclusion of ng , variable selling related costs and acquisition related costs . operating expenses as a percentage of sales decreased 70 basis points as compared to fiscal 2017 . net sales for the climate solutions segment for fiscal 2018 were $ 1,024.8 million , a 3.5 % increase compared to fiscal 2017 net sales of $ 990.6 million . the increase consisted of an organic sales increase of 4.6 % partially offset by a decrease of 1.1 % from hermetic climate . the organic sales increase was primarily driven by growth in north american residential hvac . gross profit increased $ 7.3 million or 2.9 % primarily due to higher sales volumes and incremental price realization . operating expenses for fiscal 2018 increased $ 15.0 million as compared to the prior year primarily due to the costs associated with the exit of the hermetic climate business and higher compensation and benefit costs . net sales for the power transmission solutions segment for fiscal 2018 were $ 838.8 million , a 9.6 % increase compared to fiscal 2017 net sales of $ 765.4 million . the increase consisted of an organic sales increase of 9.1 % and a positive foreign currency translation impact of 0.5 % . the organic sales increase was primarily driven by north american oil and gas , renewable energy and material handling . gross profit for fiscal 2018 increased $ 27.1 million or 10.8 % primarily due to higher sales volumes and productivity gains . operating expenses for fiscal 2018 increased $ 12.5 million due to increased variable expenses to support the higher sales volume , increased compensation and benefits expenses resulting
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net interest income the following table summarizes interest income , interest expense and net interest income for the year ended december 31 , 2013 , the nine months ended december 31 , 2012 and the year ended march 31 , 2012 ( in thousands ) : replace_table_token_22_th due to the payment dependent feature of notes and certificates for payments on related loans , interest income earned on loans equals the interest expense on the notes and certificates associated with such loans . differences between reported interest income earned on loans and interest expense on notes and certificates is due to interest earned on loans in which lc has invested in for which there is no corresponding note or certificate . we had net interest income of $ 0.06 million and $ 0.22 million for the year ended december 31 , 2013 and the nine months ended december 31 , 2012 , respectively . the decrease in net interest income was primarily due to the reduction in loans financed by us . 55 we had net interest income of $ 0.22 million and $ 0.63 million for the nine months ended december 31 , 2012 and year ended march 31 , 2012 , respectively . the decrease in net interest income was primarily due to the reduction in loans financed by us . interest income on loans for the year ended december 31 , 2013 and the nine months ended december 31 , 2012 , interest income from loans was $ 187.5 million and $ 56.8 million , respectively . the increase in interest income is primarily due to the increase in the outstanding balances of loans . the average balance of loans outstanding during the year ended december 31 , 2013 , was $ 1,262.6 million as compared to an average balance of $ 551.0 million during the nine months ended december 31 , 2012 , an increase of 129 % . the increase was also due to the fiscal year 2013 including 12 months compared to nine months during the period ended december 31 , 2012. for the nine months ended december 31 , 2012 and the fiscal year ended march 31 , 2012 , interest income from loans at fair value was $ 56.8 million and $ 32.6 million , respectively . the increase in interest income in the nine months ended december 31 , 2012 , compared to the prior fiscal year is primarily due to the increase in the outstanding balances of loans . the average balance of loans outstanding during the nine months ended december 31 , 2012 , was $ 551.0 million as compared to an average balance of $ 249.3 million during the fiscal year ended march 31 , 2012 , an increase of 121 % . the increase was partially offset by the december 31 , 2012 period including nine months versus the march 31 , 2012 period including twelve months . interest expense on notes and certificates for the year ended december 31 , 2013 and the nine month period ended december 31 , 2012 , we recorded interest expense for notes and certificates of $ 187.4 million and $ 56.6 million , respectively . the increase in interest expense was primarily due to the increase in the outstanding balances of notes and certificates . the average balance of notes and certificates outstanding during the twelve months ended december 31 , 2013 , was $ 1,269.8 million as compared to the average balance of $ 552.5 million during the nine months ended december 31 , 2012 , an increase of 130 % . for the nine months ended december 31 , 2012 and year ended march 31 , 2012 , we recorded interest expense for notes and certificates of $ 56.6 million and $ 31.8 million , respectively . the increase in interest expense was primarily due to the increase in the outstanding balances of notes and certificates . the average balance of notes and certificates outstanding during the nine months ended december 31 , 2012 , was $ 552.5 million as compared to the average balance of $ 247.7 million during the year ended march 31 , 2012 , an increase of 123 % . interest expense on loans payable we did not incur any interest expense for loans payable for the year ended december 31 , 2013. all loans payable balances were paid in full as of july 2012. we recorded interest expense for loans payable of $ 0.01 million and $ 0.25 million , for the nine months ended december 31 , 2012 and the year ended march 31 , 2012 , respectively . fair value adjustments on loans and notes and certificates at december 31 , 2013 , we estimated the fair value of loans and their related notes and certificates using a discounted cash flow valuation methodology . the discounted cash flow valuation methodology uses the historical actual defaults and losses and recoveries on our loans over the past several years to project future losses and net cash flows on loans . the fair value adjustments for loans were largely offset by the fair value adjustments of the notes and certificates at fair value due to the member payment dependent design of the notes and certificates , and because the principal balances of the loans are similar to the combined principal balances of the notes and certificates . accordingly , the net fair value adjustment losses for loans and notes and certificates were $ 0.033 million , $ 0.595 million and $ 0.001 million for the year ended december 31 , 2013 , the nine months ended december 31 , 2012 and the year ended march 31 , 2012 , respectively . story_separator_special_tag 56 operating expenses the following table summarizes our operating expenses for the year ended december 31 , 2013 , the nine months ended december 31 , 2012 and the year ended march 31 , 2012 ( in thousands ) : replace_table_token_23_th sales and marketing sales and marketing expense consists primarily of borrower and investor acquisition costs and salaries , benefits and stock-based compensation expense related to our sales and marketing staff . sales and marketing expenses for the year ended december 31 , 2013 and nine months ended december 31 , 2012 were $ 39.0 million and $ 14.7 million , respectively , an increase of 165 % . the increase was primarily due to an increase in acquisition costs related to expansion of direct mail and other borrower and investor acquisition programs and an increase in personnel related expenses . sales and marketing expenses for the nine months ended december 31 , 2012 and year ended march 31 , 2012 were $ 14.7 million and $ 12.6 million , respectively , an increase of 17 % . the increase was primarily due to an acquisition costs related to expansion of direct mail programs and an increase in personnel related expenses . origination and servicing origination and servicing expense consists primarily of salaries , benefits and stock-based compensation expense related to our credit , collections , customer support and payment processing staff and vendor costs associated with facilitating and servicing loans . origination and servicing expenses for the year ended december 31 , 2013 and nine months ended december 31 , 2012 were $ 17.2 million and $ 6.1 million , respectively , an increase of 181 % . the increase was primarily due to an increase in personnel related expenses as we expanded our credit and customer support teams to keep pace with increased loan application and processing volume and an increase in consumer reporting agency and loan processing costs which was also driven by higher loan volumes . origination and servicing expenses for the nine months ended december 31 , 2012 and year ended march 31 , 2012 were $ 6.1 million and $ 5.1 million , respectively , an increase of 20 % . the increase was primarily due to an increase in personnel related expenses as we expanded our credit and customer support teams to keep pace with increased loan application and processing volume . general and administrative : technology technology expense consists primarily of salaries , benefits and stock-based compensation expense for our technology team and the cost of subcontractors who work on the development and maintenance of our platform . technology expense also includes non-capitalized hardware and software costs and depreciation and amortization expense on technology assets . technology expenses for the year ended december 31 , 2013 and the nine months ended december 31 , 2012 were $ 13.9 million and $ 4.0 million , respectively , an increase of 249 % . the increase was primarily due to an increase in personnel related expenses resulting from increased headcount and contract labor expense as we enhanced our website tools and functionality , an increase in expensed equipment and software and an increase in depreciation expense reflecting our continued investment in technology infrastructure . technology expenses for the nine months ended december 31 , 2012 and year ended march 31 , 2012 were $ 4.0 million and $ 2.7 million , respectively , an increase of 47 % . the increase was primarily due to an increase in personnel related expenses resulting from increased headcount and contract labor expense as we enhanced our website tools and functionality . we began capitalizing website and internally developed software costs in october 2012. for the year ended december 31 , 2013 and the nine months ended december 31 , 2012 , we capitalized $ 3.8 million and $ 0.4 million in software development costs , respectively . 57 general and administrative : other other general and administrative expense consists primarily of salaries , benefits and stock-based compensation expense for our accounting and finance , business development , legal , human resources and facilities staff , professional fees related to legal and accounting and facilities expense . other general and administrative expenses for the year ended december 31 , 2013 and the nine months ended december 31 , 2012 , were $ 20.5 million and $ 8.0 million , respectively , an increase of 157 % . the increase was primarily due to an increase in personnel related expenses from increased headcount and an increase in rent and facilities expenses . other general and administrative expenses for the nine months ended december 31 , 2012 and year ended march 31 , 2012 , were $ 8.0 million and $ 7.4 million , respectively , an increase of 8 % . the increase was primarily due to an increase in personnel related expenses from increased headcount . income taxes we recorded no provision for income taxes related to the pre-tax income for the year ended december 31 , 2013 due to the availability of deferred tax assets subject to a full valuation to offset current year income . the company recorded no tax benefits related to our pre-tax losses for the nine month period ended december 31 , 2012 and the year ended march 31 , 2012 as the tax benefits on such losses were offset by increases in the valuation allowance . deferred tax assets , such as the future benefit of net operating loss deductions against future taxable income , can be recognized if realization of such tax-related assets is more likely than not . given our history of operating losses , it is difficult to accurately forecast when and in what amounts future results will be affected by the realization , if any , of the tax benefits of future deductions for our net operating loss carry forwards . based upon the weight of available evidence , which includes our historical operating performance and the reported cumulative net losses in all prior years , we have provided a full valuation allowance against our net deferred tax assets .
| the following table summarizes our revenue for the year ended december 31 , 2013 , the nine months ended december 31 , 2012 and the year ended march 31 , 2012 ( in thousands ) : replace_table_token_20_th 53 origination fees this fee is determined by the term and loan grade of the consumer loan and as of december 31 , 2013 ranged from 1.11 % to 5.00 % of the issued principal balances . the fee is deducted from the loan proceeds at the time of issuance . consumer loan origination fees received on loans are recognized as a component of non-interest revenue at the time of loan acquisition and were $ 90.8 million ( including $ 4.9 million in origination fees related to loan sales to unrelated third party purchasers that is recorded in other revenuesee note 2 summary of significant accounting policies whole loan sales ) and $ 26.0 million for the year ended december 31 , 2013 and the nine months ended december 31 , 2012 , respectively , an increase of 249 % . the increase in these fees was primarily due to an increase in consumer loan origination volumes from $ 608.2 million for the nine months ended december 31 , 2012 to $ 2,064.6 million for the year ended december 31 , 2013 , an increase of 239 % . average consumer loan origination fees were 4.4 % and 4.3 % of the principal amount of loan for the year ended december 31 , 2013 and nine months ended december 31 , 2012 , respectively . the increase in the average consumer loan origination fee was primarily due to a higher percentage of both 60 month consumer loans and c-g grade consumer loans being originated that have higher origination fees . consumer loan origination fees were $ 26.0 million and $ 13.7 million for the nine months ended december 31 , 2012 and year ended march 31 , 2012 respectively , an increase of 90 % . the increase in these fees was primarily due to an increase in consumer loan origination volumes from $ 321.1 million for the year ended march 31 , 2012 to $ 608.2 million for the nine months ended december 31 , 2012 , an increase of 90 % . average consumer
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in october 2016 , we entered into a sales agreement with cowen and company , llc ( “ cowen ” ) , under which we offered and sold our common stock , having aggregate gross proceeds of up to $ 100.0 million , from time to time through cowen as our sales agent ( the “ atm offering program ” ) . in the first quarter of 2019 , we sold 761,130 shares of common stock at a weighted average price of $ 11.17 per share under the atm offering program for aggregate net proceeds of $ 8.2 million . following such sales , the atm offering program terminated as all shares authorized thereunder had been sold . on january 7 , 2019 ( the “ term loan closing date ” ) , we entered into a credit agreement ( the “ term loan ” ) with affiliates of healthcare royalty partners ( together , the “ lender ” ) . the term loan consists of a six-year term loan facility for an aggregate principal amount of $ 75.0 million ( the “ borrowings ” ) . our obligations under the loan documents are guaranteed by our material domestic u.s. subsidiaries . the borrowings under the term loan bear interest through maturity at 7.00 % per annum plus libor ( customarily defined ) . pursuant to the terms of the term loan , the interest rate was reduced to 6.75 % per annum plus libor as of january 1 , 2020 as the consolidated net sales ( customarily defined ) for udenyca® for the fiscal year ending december 31 , 2019 , were in excess of $ 250.0 million . interest is payable quarterly in arrears . we are required to pay principal on the borrowings in equal quarterly installments beginning on the four year anniversary of the term loan closing date ( or , if consolidated net sales of udenyca® in the fiscal year ending december 31 , 2021 are less than $ 375.0 million , beginning on the three year anniversary of the term loan closing date ) , with the outstanding balance to be repaid on january 7 , 2025 , the maturity date . we are also required to make mandatory prepayments of the borrowings under the term loan , subject to specified exceptions , with the proceeds of asset sales , extraordinary receipts , debt issuances and specified other events including the occurrence of a change in control . if all or any of the borrowings are prepaid or required to be prepaid under the term loan , then we shall pay , in addition to such prepayment , a prepayment premium equal to ( i ) with respect to any prepayment paid or required to be paid on or prior to the three year anniversary of the term loan closing date , 5.00 % of the borrowings prepaid or required to be prepaid , plus all required interest payments that would have been due on the borrowings prepaid or required to be prepaid through and including the three year anniversary of the term loan closing date , ( ii ) with respect to any prepayment paid or required to be paid after the three year anniversary of the term loan closing date but on or prior to the four year anniversary of the term loan closing date , 5.00 % of the borrowings prepaid or required to be prepaid , ( iii ) with respect to any prepayment paid or required to be paid after the four year anniversary of the term loan closing date but on or prior to the five year anniversary of the term loan closing date , 2.50 % of the borrowings prepaid or required to be prepaid , and ( iv ) with respect to any prepayment paid or required to be prepaid thereafter , 1.25 % of the borrowings prepaid or required to be prepaid . in connection with the term loan , we paid a fee to the lender of approximately $ 1.1 million at closing in the form of an original issue discount . upon the prepayment or maturity of the borrowings ( or upon the date such prepayment or repayment is required to be paid ) , we are required to pay an additional exit fee in an amount equal to 4.00 % of the total principal amount of the borrowings . the obligations under the term loan are secured by a lien on substantially all of our and our guarantors ' tangible and intangible property , including intellectual property . the term loan contains certain affirmative covenants , negative covenants and events of default , including , covenants and restrictions that among other things , restrict our ability and our subsidiaries to , incur liens , incur additional indebtedness , make loans and investments , engage in mergers and acquisitions , in asset sales , and declare dividends or redeem or repurchase capital stock . additionally , the consolidated net sales for udenyca® must not be lower than $ 70.0 million for the fiscal year ending december 31 , 2019 , ( b ) $ 125.0 million for the fiscal year ending december 31 , 2020 , and ( c ) $ 150.0 million for each fiscal year thereafter . a failure to comply with these covenants could permit the lender under the term loan to declare the borrowings , together with accrued interest and fees , to be immediately due and payable . in april 2020 , we amended the term loan in connection with the issuance and sale of our 2026 convertible notes ( as defined below ) . 68 in april 2020 , we issued and sold $ 230.0 million aggregate principal amount of 1.5 % convertible senior subordinated notes due in 2026 ( the “ 2026 convertible notes ” ) in a private offering to qualified institutional buyers pursuant to rule 144a under the securities act . story_separator_special_tag in connection with the pricing of the 2026 convertible notes , we entered into privately negotiated capped call transactions with one or more of the initial purchasers or their respective affiliates and or other financial institutions ( the “ option counterparties ” ) . the cap price of the capped call transactions will initially be $ 25.9263 per share , which represents a premium of approximately 75.0 % over the last reported sale price of our common stock of $ 14.815 per share on april 14 , 2020 , and is subject to certain adjustments under the terms of the capped call transactions . the 2026 convertible notes are general unsecured obligations and will be subordinated to our designated senior indebtedness . the 2026 convertible notes accrue interest at a rate of 1.5 % per annum , payable semi-annually in arrears on april 15 and october 15 of each year , beginning on october 15 , 2020 , and will mature on april 15 , 2026 , unless earlier repurchased or converted . at any time before the close of business on the second scheduled trading day immediately before the maturity date , holders may convert their 2026 convertible notes at their option into shares of our common stock , together , if applicable , with cash in lieu of any fractional share , at the then-applicable conversion rate . the initial conversion rate is 51.9224 shares of common stock per $ 1,000 principal amount of 2026 convertible notes , which represents an initial conversion price of approximately $ 19.26 per share of common stock . the initial conversion price represents a premium of approximately 30.0 % over the last reported sale of $ 14.815 per share of our common stock on the nasdaq global market on april 14 , 2020. the conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events . if a “ make-whole fundamental change ” ( as defined in the indenture for the 2026 convertible notes ) occurs , we will , in certain circumstances , increase the conversion rate for a specified period of time for holders who convert their 2026 convertible notes in connection with that make-whole fundamental change . the 2026 convertible notes are not redeemable at our election before maturity . if a “ fundamental change ” ( as defined in the indenture for the 2026 convertible notes ) occurs , then , subject to a limited exception , holders may require us to repurchase their 2026 convertible notes for cash . the repurchase price will be equal to the principal amount of the 2026 convertible notes to be repurchased , plus accrued and unpaid interest , if any , to , but excluding , the applicable repurchase date . the net proceeds from the offering were $ 222.2 million , net of the initial purchasers ' fees and the offering expenses . we used approximately $ 18.2 million of the net proceeds to fund the cost of entering into the capped call transactions . covid-19 update as a result of the covid-19 outbreak , we have experienced and may continue to experience disruptions that could severely impact our business , clinical trials and preclinical studies . see “ risk factors ” . these and other factors arising from the covid-19 pandemic could result in us not being able to maintain udenyca® 's market position or increase its penetration against all neulasta 's dosage forms , and could result in our inability to meet development milestones for our product candidates , each of which would harm our business , financial condition , results of operations and growth . we expect the covid-19 pandemic to have some adverse impact on our sales growth on a year-over-year basis . while the long-term economic impact and the duration of the covid-19 pandemic may be difficult to assess or predict , the widespread pandemic has resulted in , and may continue to result in , significant disruption of global financial markets , which could reduce our ability to access capital and could negatively affect our liquidity and the liquidity and stability of markets for our common stock and our convertible notes . in addition , a recession , further market correction or depression resulting from the spread of covid-19 could materially affect our business and the value of our notes and our common stock . financial operations overview revenue our first fda approved product , udenyca® , was approved in november 2018 , and we initiated u.s. sales of udenyca® on january 3 , 2019. we recorded net product revenue of $ 475.8 million and $ 356.1 million for the years ended december 31 , 2020 and 2019 , respectively . cost of goods sold cost of goods sold consists primarily of third-party manufacturing , distribution , and overhead costs associated with udenyca® . a portion of the costs of producing udenyca® sold to date was expensed as research and development prior to the fda approval of udenyca® and therefore it is not reflected in the cost of goods sold . 69 on may 2 , 2019 , we settled a trade secret action brought by amgen inc. and amgen usa inc. ( collectively “ amgen ” ) . as a result , the cost of goods sold reflects a mid-single digit royalty on net product revenue , which began on july 1 , 2019. the royalty cost will continue for five years per the terms of the settlement agreement . research and development expense research and development expense represents costs incurred to conduct research , such as the discovery and development of our product candidates . we recognize all research and development costs as they are incurred . we currently track research and development costs incurred on a product candidate basis only for external research and development expenses .
| the costs associated with this inventory were approximately $ 3.3 million and $ 24.9 million at december 31 , 2020 and december 31 , 2019 , respectively , with estimated associated sales value of approximately $ 44.8 million and $ 367.5 million , respectively , based on our current average net selling price for the three months ended december 31 , 2020. the cost basis of product sold that was expensed prior to approval , was approximately $ 21.1 million and $ 17.0 million for the year ended december 31 , 2020 and 2019 , respectively . had such inventories been valued at acquisition cost , it would have resulted in a corresponding increase in cost of goods sold and a corresponding decrease in gross margin during such period . we expect to utilize the inventory expensed prior to approval of udenyca® by the first quarter of 2021. subsequent to using our entire zero cost inventory , we estimate cost of goods sold as a percentage of net product revenue will be in the range of a high single digit to low double digit percentage , including the mid-single digit royalty cost on net product revenue . cost of goods sold for the year ended december 31 , 2019 included a write-down of manufacturing costs of $ 1.3 million due to the cancellation of certain manufacturing reservations and $ 0.4 million due to the write-off of excess and obsolete inventory . we expect our gross margin to decrease during 2021 as a result of decreasing net revenue per unit sold . research and development expense replace_table_token_5_th research and development expense for the year ended december 31 , 2020 was $ 142.8 million compared to $ 94.2 million for the same period in 2019 , an increase of $ 48.6 million . the increase in research and development expense was primarily due to : ● an increase of $ 16.0 million in costs for chs-1420 related to
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as our financial advisory revenues are primarily dependent on the successful completion of merger , acquisition , restructuring , capital raising or similar transactions , and our asset management revenues are primarily driven by the levels of assets under management ( aum ) , weak economic and global financial market conditions can result in a challenging business environment for m & a and capital-raising activity as well as our asset management business , but may provide opportunities for our restructuring business . equity market indices for developed markets at december 31 , 2013 increased when compared to such indices at december 31 , 2012 , while equity market indices for emerging markets decreased as compared to december 31 , 2012. on an industry-wide basis , during 2013 , the number of completed and announced m & a transactions decreased , compared to the prior year . global restructuring activity , as measured by the number of corporate defaults , was slightly lower in 2013 as compared to the prior year , and the aggregate value of debt defaults remained low , consistent with the last several years . entering 2014 , interest rates remain low and corporate cash balances remain high . macroeconomic conditions appear to be improving in the developed countries , particularly in north america , ceo and board confidence appears to be returning and , as such , companies based in these regions may be better positioned to make acquisitions for future growth and investors may be increasingly interested in deploying capital for investment purposes . in our asset management business , we entered 2014 with a record level of assets under management . although market volatility may continue , we believe the long term trends appear positive . we intend to leverage our existing infrastructure to capitalize on any global macroeconomic recovery , any upturn in the m & a cycle , and any momentum in the global equity markets . we expect to generate revenue growth by remaining adequately staffed to capitalize on any macroeconomic recovery and deploying our intellectual capital to generate new revenue streams . the cost saving initiatives that we began in 2012 are effectively complete , and 38 through 2013 , more than two-thirds of these savings were realized , with the full impact of all the savings expected to be reflected in our 2014 results . see cost saving initiatives below and note 16 of notes to consolidated financial statements . our outlook with respect to our financial advisory and asset management businesses is described below . financial advisory in the near- to mid-term , we expect that the u.s. macroeconomic environment will likely be the strongest of the developed economies . certain legal decisions in the u.s. reinforce the importance of independent advice , and the global scale and breadth of our financial advisory business allows us to advise on large , complex cross-border transactions across a variety of industries . we continue to develop our range of advisory capabilities , in particular in europe , with our sovereign advisory , restructuring and capital advisory businesses . in addition , we believe our businesses throughout the emerging markets , japan and australia position us for growth in these markets , while enhancing our relationships with , and the services that we can provide to , clients in developed economies . we have also established the lazard africa initiative , to leverage our sovereign and corporate expertise in this rapidly growing region , for our clients in both developed and developing countries . asset management generally , we have seen increased investor demand across regions and investment platforms . in the short to intermediate term , we expect most of our growth will come from defined benefit and defined contribution plans in the developed economies because of their sheer scope and size . over the longer term , we expect an increasing share of our aum to come from the developing economies in asia , latin america and the middle east , as their retirement systems evolve and individual wealth is increasingly deployed in the financial markets . our global footprint is already well established in the developed economies and we expect our business in the developing economies will continue to expand . given our globally diversified platform and our ability to provide investment solutions for a global mix of clients , we believe we are positioned to benefit from growth that may occur in the asset management industry . we recently extended the global footprint of our asset management business by opening new offices in zurich and singapore . we also announced plans to open an office in dubai . we are continually developing and seeding new investment strategies that extend our existing platforms . recent examples of growth initiatives include the following investment strategies : emerging markets debt , core emerging markets equity , emerging markets small cap equity , real estate , managed volatility strategies and asian equities . we operate in a very competitive and rapidly changing environment . new risks and uncertainties emerge continuously , and it is not possible for our management to predict all risks and uncertainties , nor can we assess the impact of all potentially applicable factors on our business or the extent to which any factor , or combination of factors , may cause actual results to differ materially from those contained in any forward-looking statements . see item 1a , risk factors in this form 10-k. furthermore , net income and revenue in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . overall , we continue to focus on the development of our business , including the generation of stable revenue and earnings growth and stockholder returns , the prudent management of our costs and expenses , the efficient use of our assets and the return of capital to our stockholders . certain data with respect to our financial advisory and asset management businesses is included below . story_separator_special_tag 39 financial advisory as reflected in the following table , which sets forth global m & a industry statistics , the value of all completed and announced m & a transactions increased in 2013 compared to 2012 , while the number of such transactions decreased as compared to 2012. with respect to the value of announced transactions , the 2013 increase was partially driven by one large transaction . both the value and number of announced transactions involving deal values greater than $ 500 million increased in 2013 as compared to 2012. replace_table_token_5_th source : dealogic as of january 6 , 2014. global restructuring activity during 2013 , as measured by the number of corporate defaults , decreased as compared to 2012 , and the aggregate value of debt defaults remained low , consistent with the last several years . the number of defaulting issuers decreased slightly to 62 in 2013 , according to moody 's investors service , inc. , as compared to 63 in 2012. in the u.s. , the number of corporate defaults decreased 30 % in 2013 as compared to 2012 , while the value of such defaults decreased 17 % during the same period . asset management the percentage change in major equity market indices at december 31 , 2013 , as compared to such indices at december 31 , 2012 , and at december 31 , 2012 , as compared to such indices at december 31 , 2011 , is shown in the table below . replace_table_token_6_th the fees that we receive for providing investment management and advisory services are primarily driven by the level of aum and the nature of the aum product mix . accordingly , market movements , foreign currency volatility and changes in our aum product mix will impact the level of revenues we receive from our asset management business when comparing periodic results . a substantial portion of our aum is invested in equities . 40 movements in aum during the period generally reflect the changes in equity market indices . our aum at december 31 , 2013 increased 12 % versus aum at december 31 , 2012 , primarily due to market appreciation . average aum for 2013 also increased 12 % as compared to average aum in 2012. cost saving initiatives in october 2012 , we announced cost saving initiatives which , at that time , were expected to result in approximately $ 125 million in annual savings from our compensation and non-compensation cost base . we currently expect total annual savings related to the cost saving initiatives to be approximately $ 160 million , partially offset by investment in our business . approximately $ 120 million of the expected annual savings relate to compensation expense associated with our headcount , and approximately $ 40 million to non-compensation expense . through 2013 , more than two-thirds of these savings were realized , with the full impact of all the savings expected to be reflected in our 2014 results . expenses associated with implementation of the cost saving initiatives were completed in the second quarter of 2013 and were reflected in our financial results . these implementation expenses were approximately : $ 38 million in the second quarter of 2013 ; $ 26 million in the first quarter of 2013 ; and $ 103 million in the fourth quarter of 2012 , for a total of approximately $ 167 million . the cost saving initiatives are intended to improve our profitability with minimal impact on revenue growth . the initiatives include : streamlining our corporate structure and consolidating support functions ; realigning our investments into areas with potential for the greatest long-term return ; the settlement of certain contractual obligations ; reducing occupancy costs ; and creating greater flexibility to retain and attract the best people and invest in new growth areas . see note 16 of notes to consolidated financial statements . financial statement overview net revenue the majority of lazard 's financial advisory net revenue historically has been earned from the successful completion of m & a transactions , strategic advisory matters , restructuring and capital structure advisory services , capital raising and similar transactions . the main drivers of financial advisory net revenue are overall m & a activity , the level of corporate debt defaults and the environment for capital raising activities , particularly in the industries and geographic markets in which lazard focuses . in some client engagements , often those involving financially distressed companies , revenue is earned in the form of retainers and similar fees that are contractually agreed upon with each client for each assignment and are not necessarily linked to the completion of a transaction . in addition , lazard also earns fees from providing strategic advice to clients , with such fees not being dependent on a specific transaction , and may also earn fees in connection with public and private securities offerings and for referring opportunities to lfcm holdings for underwriting , distribution and placement of securities . the referral fees received from lfcm holdings are generally one-half of the revenue recorded by lfcm holdings in respect of such activities . significant fluctuations in financial advisory net revenue can occur over the course of any given year , because a significant portion of such net revenue is earned upon the successful completion of a transaction , restructuring or capital raising activity , the timing of which is uncertain and is not subject to lazard 's control . lazard 's asset management segment principally includes lazard asset management llc ( together with its subsidiaries , lam ) , lfg and edgewater . asset management net revenue is derived from fees for investment management and advisory services provided to clients . as noted above , the main driver of asset management net revenue is the level and product mix of aum , which is generally influenced by the performance of the global equity 41 markets and , to a lesser extent , fixed income markets as well as lazard 's investment performance , which impacts its ability to successfully attract and retain assets .
| $ 12 million , or 1 % , as compared to 2011 , primarily driven by a change in the product mix of average aum , partially offset by a 2 % increase in average aum . incentive fees increased $ 17 million , or 66 % , as compared to 2011 , primarily due to fees related to alternative investment products . other revenue decreased $ 7 million , or 12 % , as compared to 2011 , primarily due to a decline in commissions from an unusually strong 2011. operating expenses increased $ 31 million , or 5 % , as compared to 2011 , due to a fourth quarter 2012 charge aggregating $ 13 million related to the cost saving initiatives , as well as an increase in compensation and benefits expense ( see the discussion regarding compensation and benefits expense described above under operating resultsyear ended december 31 , 2012 versus december 31 , 2011 ) and higher occupancy costs in 2012 associated with our amended lease and build-out costs of our rockefeller center facility . these increases were partially offset by lower professional fees and fees for fund administration . asset management operating income in 2012 was $ 237 million ( including the impact of the $ 13 million charge related to the cost saving initiatives ) , a decrease of $ 31 million , or 12 % , as compared to operating income of $ 268 million in 2011 and , as a percentage of net revenue , was 26.4 % as compared to 29.9 % in 2011. excluding the impact of such charge in 2012 , operating income in 2012 was $ 250 million , a decrease of $ 18 million , or 7 % , as compared to operating income of $ 268 million in 2011 . 57 corporate the following table summarizes the reported operating results attributable to the corporate segment : replace_table_token_23_th ( a ) includes ( i ) in 2013 and 2012 , $ 16,689 and 12,255 , respectively , associated with the implementation of the cost saving initiatives ,
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we believe the addition of industry-experienced sales representatives allowed us to increase our market presence and increase orders during 2011. orders for our products lead to ( 1 ) rental income , which we anticipate receiving on a recurring basis over the time patients use our products , ( 2 ) direct sales of our products , and ( 3 ) corresponding recurring sales of electrodes and other supplies for our products , all of which are subject to our ability to collect payment due to contractual adjustments by insurers . our products are subject to the reimbursement policies of third-party payors , which we may not be able to determine with any certainty . these third-party payor policies typically dictate whether our products will be purchased or rented . therefore , our revenue mix of net rental and net sales revenue may fluctuate from time to time , and may not be an indicator of the overall demand for our products . during 2011 , we continued to see a change in the trend for insurance reimbursements , towards a greater number of products being sold , rather than rented . we are unable to determine if the reimbursement policy trend towards purchasing or renting our products will continue or change in the future , as it is based on many market and third party payor factors . however , we believe that based on the current demand for our products and the next generation electrotherapy device ( nexwave ) , a change in reimbursement policy should not have a significant impact on our total revenue , as we believe it will only shift our revenue mix . shifts in our revenue mix may have a material impact on our overall gross margin , as product sales result in a lower gross profit because their cost of sales is higher than that from rentals ( cost of sales associated with rentals is primarily depreciation ) . net rental revenue net rental revenue increased $ 1,359 or 16 % to $ 9,892 for the year ended december 31 , 2011 , from $ 8,533 for the year ended december 31 , 2010. net rental revenue for the year ended december 31 , 2011 represented 29 % of total net revenue compared to 36 % for the year ended december 31 , 2010. the increase in net rental revenue for the year ended december 31 , 2011 , is primarily due to the 38 % increase in orders , subject to the varying reimbursement policies of third party payors for our products , that determine if a unit will be purchased or rented ( on a patient by patient basis ) . 27 net sales revenue net sales revenue increased $ 8,704 or 56 % to $ 24,256 for the year ended december 31 , 2011 from $ 15,552 for the year ended december 31 , 2010. net sales revenue for the year ended december 31 , 2011 represented 71 % of total net revenue compared to 65 % for the year ended december 31 , 2010. net sales revenue is comprised of two primary components ; sale of electrotherapy devices and private labeled distributed products , representing 33 % of total net revenue for 2011 , and sale of recurring device consumables ( batteries and electrodes ) , representing 38 % of total net revenue for 2011. this compares to the sale of electrotherapy devices and private labeled distributed products representing 27 % of total net revenue for 2010 and sale of device consumables representing 37 % of total net revenue for 2010. the increase in net sales revenue for the year ended december 31 , 2011 was primarily due to the 38 % increase in orders , the change in third party payor reimbursement trends and the increased number of units in the market ( previously sold or actively being rented ) . these additional units in the market resulted in a 45 % increase in sales of our recurring consumable supplies over 2010. gross profit gross profit for the year ended december 31 , 2011 was $ 26,777 or 78 % of total net revenue compared to $ 18,883 or 78 % of total net revenue in the year ended december 31 , 2010. our total gross profit percentage was impacted by two primary items in 2011 ; the increase in total net revenue and revenue mix . during 2011 we experienced a 42 % increase in total net revenue over 2010 , which positively impacted our gross profit percentage , as we had incremental net revenue that exceeded fixed costs in manufacturing . the positive effect on gross profit percentage from our increase in total net revenue was offset by the change in revenue mix from more products being sold than rented . product sales incur higher costs than those from rentals , as the major cost associated with rentals is depreciation . net product rentals for 2011 represented 29 % of total net revenue as compared to 35 % for 2010. selling , general and administrative ( sg & a ) total selling , general and administrative expenses increased $ 6,354 or 37 % to $ 23,676 for the year ended december 31 , 2011 from $ 17,322 for the year ended december 31 , 2010. a summary of selling , general and administrative expenses by department for the years ended december 31 , 2011 and 2010 is provided below : replace_table_token_3_th sales and marketing our sales and marketing expenses increased by $ 3,009 for 2011 over 2010 due to incremental commissions incurred in the current periods ( 2011 total orders increased 38 % over 2010 ) and the addition of direct field sales employees . reimbursement billing we incurred additional expenses in our reimbursement billing department of $ 1,708 for 2011 over 2010 , primarily because of additional personnel added to support the increase in total net revenue for 2011 and to further increase our cash collections from third party payors . story_separator_special_tag our reimbursement billing department relies on personnel , processes and systems to negotiate and collect from third-party payors . therefore , we continue to evaluate and invest in this department , as it is our primary function for cash collections . improvements in our reimbursement billing function may lead to higher revenues , as better negotiations and collection efforts with third-party payors could result in an increase to our aggregate accounts receivable collection percentage . we also incurred additional expense in our reimbursement and billing department for severance related to the retirement of our vice president of reimbursement billing in february 2011 . 28 story_separator_special_tag deferred financing fees . the primary financing sources of cash in the 2010 period were net borrowings under the credit agreement partially offset by payments on capital lease obligations and deferred financing fees . we have limited liquidity . our limited liquidity is primarily a result of ( a ) the high level of outstanding accounts receivable because of deferred payment practices of third-party health payors , ( b ) the required high levels of inventory kept with sales representatives that are standard in the electrotherapy industry , ( c ) the payment of commissions to salespersons based on sales or rental orders prior to payments for the corresponding product by insurers and whether or not there is a denial of any payment by an insurer , ( d ) the need for expenditures to continue to enhance the our internal billing processes , ( e ) the delayed cost recovery inherent in rental transactions ( f ) expenditures required for on-going product development and ( g ) increased commitments resulting from the premises lease signed in november 2009. as our business and sales grow , some of these liquidity strains will increase . limited liquidity may restrict our ability to carry out our current business plans and curtail our revenue growth . 30 our long-term business plan contemplates organic growth in revenues and potential acquisitions . therefore , in order to support a growth in revenue , we require , among other things , funds for the purchases of equipment , primarily for rental inventory , the payment of commissions to an increasing number of sales representatives , and the increase in office lease payments ( for our new , larger building ) to support the higher level of operations . on march 9 , 2012 , in an effort to diversify our product line and penetrate markets that our znd subsidiary serves , we acquired substantially all neurodyne medical corp 's assets . matters relating to the acquisition ( including integration , operation and sales ) have and will continue to require commitments of time and resources , which may detract and impede growth in other areas of our business . we believe that our cash flows from operating activities and borrowing available under the doral healthcare finance line of credit will fund our cash requirements for the year ending december 31 , 2012. the availability of the line of credit depends upon our ongoing compliance with covenants , representations and warranties in the doral agreement and borrowing base limitations . although the maximum amount of the line of credit is $ 7,000 , the amount available for borrowing under the line of credit is subject to a ceiling based upon eligible receivables and other limitations and may be less than the maximum amount . as of december 31 , 2011 , $ 3,289 was outstanding on the doral agreement and $ 3,669 was available for borrowing . there is no assurance that our operations and available borrowings will provide enough cash for operating requirements or for increases in our inventory of products , as needed , for growth . we may need to seek external financing through the sale of debt or equity , and we are not certain whether any such financing would be available to us on acceptable terms or at all . any additional debt would require the approval of doral healthcare finance . our dependence on operating cash flow means that risks involved in our business can significantly affect our liquidity . contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect our projected revenue , cash flows from operations and liquidity which may force us to curtail our operating plan or impede our growth . we frequently receive , and expect to continue to receive , refund requests from insurance providers relating to specific patients and dates of service . billing and reimbursement disputes are very common in our industry . for example , as previously disclosed , on april 26 , 2010 , we received a refund request from anthem blue cross blue shield ( anthem ) covering the period from october 1 , 2008 ( the date of the last retrospective audit by anthem ) through march 12 , 2010. these requests are sometimes related to a few patients and other times include a significant number of refund claims in a single request . we review and evaluate these requests and determine if any refund is appropriate . we also review claims where we are rebilling or pursuing additional reimbursement from that insurance provider . we frequently have significant offsets against such refund requests which may result in amounts that are due to us in excess of the amounts of refunds requested by the insurance providers . therefore , at the time of receipt of such refund requests we are generally unable to determine if a refund request is valid and should be accrued as a liability . although we can not predict whether or when a request for repayment or our subsequent request for reimbursement will be resolved , it is not unusual for such matters to be unresolved for a long period of time . on september 22 , 2011 , we reached a settlement with anthem resolving all issues , claims and disputes between us in the amount of $ 226 ( the settlement ) .
| the taxes on this taxable income cause the income tax expense to be at a higher effective tax rate than the statutory tax rate . income tax expense also includes penalties and interest related to income taxes . liquidity and capital resources ( dollars in thousands ) line of credit on march 19 , 2010 , we entered into a revolving credit and security agreement ( the credit agreement ) with capitalsource and we amended the credit agreement on february 11 , 2011. the credit agreement provided us with a revolving credit facility of up to $ 3,500 . 29 on december 19 , 2011 , we entered into a loan and security agreement ( the doral agreement ) with doral healthcare finance , a division of doral money , inc. ( the lender ) . the doral agreement provides for an asset-backed revolving credit facility of up to $ 7,000 , subject to reserves and reductions to the extent of changes in the our asset borrowing base . borrowings under the doral agreement may be used for fees and expenses related to the doral agreement and replaced credit agreement , working capital needs and permitted acquisitions . borrowings under the doral agreement bear interest at a variable rate equal to the greater of ( i ) the british bankers ' association libor rate as published in the wall street journal for dollar deposits in the amount of $ 1,000 with a maturity of one month and ( ii ) 3 % per annum plus , in each case , a margin of 3.75 % . the doral agreement requires monthly interest payments in arrears on the first day of each month . the doral agreement will mature on december 19 , 2014. we may terminate the doral agreement at any time prior to the maturity date upon thirty ( 30 ) days ' prior written notice and upon payment in full of all outstanding obligations under the doral agreement . if we terminate the
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revenue related to the $ 200.0 million upfront payment will be recognized ratably on a straight-line basis from the date the amended and restated sublicense agreement became effective ( november 27 , 2009 ) through the expected life of the u.s. patent for fanapt ® , which we expect 44 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 . our 2010 revenue also consisted of $ 0.5 million of grant revenue for qualified research and development investments under the internal revenue service 's therapeutic discovery project credit program which was received in the fourth quarter of 2010. research and development expenses . our research and development expenses consist primarily of fees paid to third-party professional service providers in connection with the services they provide for our clinical trials , costs of contract manufacturing services , costs of materials used in clinical trials and research and development , costs for regulatory consultants and filings , depreciation of capital resources used to develop our products , all related facilities costs , and salaries , benefits and stock-based compensation expenses related to our research and development personnel . we expense research and development costs as incurred for compounds in the development stage , including certain payments made under our license agreements prior to fda approval . prior to fda approval , all fanapt ® manufacturing-related and milestone costs were included in research and development expenses . subsequent to fda approval of fanapt ® , manufacturing and milestone costs related to this product are being capitalized . costs related to the acquisition of intellectual property have been expensed as incurred since the underlying technology associated with these acquisitions were made in connection with the company 's research and development efforts and have no alternative future use . milestone payments are accrued in accordance with the fasb guidance on accounting for contingencies which states that milestone payments be accrued when it is deemed probable that the milestone event will be achieved . 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 . for the year ended december 31 , 2011 , we incurred research and development expenses in the aggregate of $ 29.0 million , including stock-based compensation expenses of $ 2.5 million . we expect our research and development expenses to increase 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 the years ended december 31 , 2011 , 2010 and 2009. included in this table are the research and development expenses recognized in connection with the clinical development of fanapt ® and tasimelteon . included in other product candidates are the costs directly related to research initiatives for all other product candidates . replace_table_token_4_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 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 ® . for the year ended december 31 , 2011 , we incurred general and administrative expenses in the aggregate of $ 11.5 million , including stock-based compensation expenses of $ 3.0 million . interest income . interest income consists of interest income earned on our cash and cash equivalents , marketable securities and restricted cash . 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 . our significant accounting policies are described in the notes to our audited consolidated financial statements for the year ended december 31 , 2011 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 . intangible asset , net . story_separator_special_tag costs incurred for products or product candidates not yet approved by the fda and for which no alternative future use exists are recorded as expense . in the event a product or product candidate has been approved by the fda or an alternative future use exists for a product or product candidate , patent and 46 license costs are capitalized and amortized over the expected patent life of the related product or product candidate . milestone payments to our partners are recognized when it is deemed probable that the milestone event will occur . as a result of the fda 's approval of the new drug application ( nda ) for fanapt ® in may 2009 , we met a milestone under our original sublicense agreement with novartis which required us to make a payment of $ 12.0 million to novartis . the $ 12.0 million is being amortized on a straight line basis over the remaining 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 . this term is our best estimate of the life of the patent ; if , however , the pediatric extension is not granted , the intangible asset will be amortized over a shorter period . amortization of the intangible asset is recorded as intangible asset amortization . the carrying values of intangible assets are periodically reviewed to determine if the facts and circumstances suggest that a potential impairment may have occurred . we had no impairments of our intangible assets for the year ended december 31 , 2011. accrued expenses . as part of the process of preparing financial statements we are required to estimate accrued expenses . the estimation of accrued expenses involves identifying services that have been performed on 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 expenses 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 . 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 : ( 1 ) an evaluation by the project manager of the work that has been completed during the period , ( 2 ) measurement of progress prepared internally and or provided by the third-party service provider , ( 3 ) analyses of data that justify the progress , and ( 4 ) 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 . 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 will be recognized ratably from the date the amended and restated sublicense agreement became effective ( november 27 , 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 . stock-based compensation . we currently 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 . due to the limited historic information on our publicly traded common stock , expected volatility rates are based on the historical volatility of our publicly traded common stock blended with the historical volatility of the common stock of comparable entities and other factors . the expected term of options granted is based on the transition approach provided by fasb guidance as the options meet the plain vanilla criteria required by this method . the risk-free interest rates are based on the u.s. treasury yield for a period consistent with the expected 47 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 on september 25 , 2008 ) and do not plan to pay dividends in the foreseeable future .
| revenues were $ 31.3 million for the year ended december 31 , 2011 compared to revenues of $ 35.7 million for the year ended december 31 , 2010. revenues for the year ended december 31 , 2011 included $ 26.8 million recognized from novartis related to straight-line recognition of upfront license fees and $ 4.5 million in royalty revenue based on 2011 sales of fanapt ® . revenues for the year ended december 31 , 2010 included $ 26.8 million recognized from novartis related to straight-line recognition of upfront license fees , $ 3.1 million in royalty revenue based on 2010 sales of fanapt ® , $ 5.3 million for fanapt ® product sales to novartis and grant revenue of $ 0.5 million for qualified research and development investments under the internal revenue service 's therapeutic discovery project credit program . for the year ended december 31 , 2011 , there were no sales of products to novartis and no grant revenue . cost of sales . there were no sales of products to novartis for the year ended december 31 , 2011 compared to cost of sales of $ 2.9 million for the year ended december 31 , 2010. intangible asset amortization . intangible asset amortization for the year ended december 31 , 2011 was $ 1.5 million compared to $ 1.5 million for the year ended december 31 , 2010. the amortization is the result of the capitalized intangible asset related to the $ 12.0 million milestone payment to novartis in may 2009. research and development expenses . research and development expenses increased by $ 16.7 million , or 135.0 % , to $ 29.0 million for the year ended december 31 , 2011 compared to $ 12.3 million for the year ended december 31 , 2010. the following table discloses the components of research and development expenses reflecting all of our project expenses for the years ended december 31 , 2011 and 2010 : replace_table_token_6_th direct costs increased by $ 16.0 million primarily as a result of higher clinical trial expenses , manufacturing costs and salary and benefit expenses , partially offset by lower stock-based compensation expenses .
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we recognize revenue when products are shipped , title has transferred , collection of the receivable is probable , persuasive evidence of an arrangement exists , and the sales price to our customers is fixed or determinable ; shipping and handling fees : we include shipping and handling fees billed to customers in sales . net of : rebates : consists of incentives we provide to customers based on sales of eligible products ; and sales returns allowances : consists of an estimate of our sales returns . this allowance is based upon estimates of the projected returns in future periods based on our experience with returns recorded in previous periods . sales returns have not been significant to date . we attribute our past growth in sales predominantly to increases in the number of units sold to our oem customers in both our bike and powered vehicle product categories . cost of sales the cost of sales includes the cost of purchased parts and manufactured products ( raw materials consumed , the cost to procure materials , labor costs , including wages , and employee benefits , and factory overhead to produce finished good products ) , including : the cost to inspect and repair products ; shipping costs associated with inbound freight . these costs are capitalized as part of inventory and included in cost of sales as the inventory is sold ; royalty expenses , including payments to certain parties for our use of licensed technology incorporated into our products ; freight expense incurred for certain shipments to customers , excluding customers who pay for their own freight ; warranty costs associated with the repair or replacement of products under warranty ; and reductions in the cost of inventory to its net realizable value , if required , for estimated excess , obsolescence or impaired balances . gross profit/gross margin our gross profit equals our sales minus cost of sales . our gross margin measures our gross profit as a percentage of sales . our gross margins fluctuate based on production volumes , product , customer and channel mix and overall supply chain and manufacturing efficiencies . generally , we earn higher gross margins on our products sold to the aftermarket channel and we typically earn lower gross margins on the products we sell to oems . in the near term , we anticipate our gross margins will improve slightly when compared with our historical results . we anticipate that the improvements we are pursuing from our cost initiatives , which are designed to improve our operating efficiencies , will be offset in the short term by duplicative costs are incurring as a result our transition of a majority of the manufacturing of our bike suspension component products to our operations in taiwan . operating expenses our operating expenses consist of the following : sales and marketing ; research and development ; 31 general and administrative ; amortization of purchased intangibles ; and fair value adjustment of contingent consideration and acquisition related compensation . our sales and marketing expenses include costs related to our sales , customer service and marketing personnel , including their wages , employee benefits and related stock-based compensation , and occupancy related expenses . other significant sales and marketing expenses include race support and sponsorships of events and athletes , advertising and promotions related to trade shows , travel and entertainment , promotional materials and products and our sales office costs . our research and development expenses consist primarily of salaries and personnel costs , including wages , employee benefits and related stock-based compensation for our engineering , research and development teams , occupancy related expenses , fees for third party consultants , service fees , and expenses for prototype tooling and materials , travel , and supplies . we expense research and development costs as incurred and such costs are included as research and development expenses on our consolidated statements of income . our general and administrative expenses include costs related to our executive , finance , information technology , business development , human resources and administrative personnel , including wages , employee benefits and related stock-based compensation expenses . we record professional and contract service expenses , occupancy related expenses associated with corporate locations and equipment , and legal expenses in general and administrative expenses . our amortization of intangibles includes amortization over their respective useful lives of our purchased intangible assets , such as customer lists and our core technology . our intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable . no impairments of intangible assets were identified in the years ended december 31 , 2015 , 2014 and 2013 , respectively . our fair value adjustments of contingent consideration and acquisition related compensation relates primarily to our contingent consideration liability arising from the acquisition of sport truck as well as accruals for earn-outs related to our acquisition of race face/easton . the sport truck liability is measured at fair value at each balance sheet date by applying a black-scholes model to the company 's most recent financial projection . in the near term , we anticipate that our sales and marketing , general and administrative , and research and development expenses will increase in terms of absolute dollars , and also increase slightly when expressed as a percentage of sales , primarily due to our erp project and costs related to the integration of the marzocchi product line we acquired in the fourth quarter of 2015. in the long term we anticipate our operating expenses , in aggregate , to increase in terms of absolute dollars , but reduce slightly when expressed as a percent of sales . we can give no assurance that these expectations will be realized . income from operations we define income from operations as gross profit less our operating expenses . we use income from operations as an indicator of the profitability of our business and our ability to manage costs . story_separator_special_tag other expense , net other expense , net consists of interest expense and other ( income ) expense , net . interest expense consists of interest charged to us under our credit facilities . other ( income ) expense , net consists of foreign currency transaction gains and losses , gains and losses on the disposal of fixed assets , and other miscellaneous items . income taxes we are subject to income taxes in the united states and various other foreign jurisdictions in which we do business . these foreign jurisdictions have statutory tax rates than differ from those in the united states , and certain of our international earnings are also taxable in the united states . accordingly , our effective tax rates will vary depending on the relative proportion of foreign to u.s. income and the further apportionment of that income to state and local jurisdictions . we periodically evaluate opportunities to enhance tax efficiencies and to minimize tax liabilities through operating , legal and administrative strategies . effective in 2016 , we restructured certain of our international operations to allow for deferral of permanently reinvested international earnings . as a result , we expect a reduction in our effective tax rate in future periods . in 2014 , we recognized a tax benefit of $ 4.1 million related to the reapportionment of 2009 through 2013 income amongst the jurisdictions where we do business . additionally , in future periods , our effective tax rate may vary depending on the absorption of foreign tax credits , changes in the valuation of our deferred tax assets and liabilities and changes in tax laws . we are subject to examination of our income tax returns by the u.s. internal revenue service , or irs , and other tax authorities . we regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our income tax liabilities and expense . should actual events or results differ from our current expectations , charges or credits to our income 32 tax liabilities and income tax expense may become necessary . any such adjustments could have a significant impact on our results of operations . under u.s. generally accepted accounting principles , or gaap , an uncertain income tax position will not be recognized unless it has a greater than 50 % likelihood ( i.e. , more-likely-than-not ) of being sustained and then , measured only to the largest amount of benefit that is greater than 50 % likely to be realized upon ultimate settlement . we established liabilities for uncertain tax positions and deferred taxes associated with the deductibility of certain amortization and depreciation expenses . the liability for uncertain income tax positions represents the amount of tax we would be required to pay if certain tax deductions previously claimed on tax returns were not allowed upon examination by the taxing authorities . the liability for deferred taxes represents additional taxes that would be payable in future periods because of the potential non-deductibility of future amortization and depreciation expenses . as of december 31 , 2015 , our balance sheet reflected a liability for unrecognized tax benefits of $ 8.9 million . the unrecognized tax benefits are primarily due to the uncertainty of the deductibility of amortization and depreciation expenses which were incurred as a result of compass 's acquisition of us in 2008. we expect to decrease our liability for unrecognized tax benefits and recognize a reduction in income tax expense ( and an increase in net income ) because of the expiration of statutes of limitations in the amount of approximately $ 1.3 million in the third quarter of 2016. we generally expect to recognize a reduction in income tax expense ( and an increase in net income ) through the expiration of statutes of limitations in the amount of approximately $ 1.3 million in each third quarter from 2016 through 2026 , approximately $ 1.5 million in the fourth quarter of 2018 , and approximately $ 0.1 to $ 0.2 million in each fourth quarter from 2019 through 2028. these annual reductions in our income tax expense will cease if it is determined upon examination of the tax authorities that the deductions are not valid and the liabilities for the uncertain income tax position and the associated deferred tax liability will have to be settled for cash . if we subsequently determine that we have met the more-likely-than-not threshold that these deductions will be sustained , the balance of the liability for unrecognized tax benefits would be recognized as a reduction of income tax expense , except for approximately $ 0.7 million , which would increase the deferred tax liability for taxes associated with amortization of intangibles with indeterminate lives . the related unamortized deferred tax liabilities will be recognized as a one-time income tax benefit . income taxes are computed using the asset and liability method , under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . as of december 31 , 2015 , we did not have any valuation allowances recorded as we expect to fully utilize all of our deferred tax assets . as of december 31 , 2015 , we have $ 0.1 million in foreign net operating loss carry-forwards which begin to expire in 2034 and $ 0.4 million of state research tax credit carry-forwards which do not expire . for the years ended december 31 , 2015 , 2014 and 2013 , we had effective tax rates of 27.1 % , 19.3 % and 30.5 % , respectively . we anticipate that in the medium term our effective annual tax rates should be approximately 23 % to 25 % .
| the slight decline in our gross margin was attributable primarily to costs incurred in the first quarter of 2015 related to the west coast port slowdown and excess inventory write-downs associated with the strategic alignment of fox products with a newly acquired product line in the fourth quarter of 2015. operating expenses replace_table_token_9_th total operating expenses for the year ended december 31 , 2015 increase d approximately $ 16.9 million , or 28.3 % over 2014 . when expressed as a percentage of sales , operating expenses increased to 20.8 % of sales for the year ended december 31 , 2015 compared to 19.5 % of sales in 2014. approximately $ 14.1 million of the increase was due to the inclusion of race face/easton 's operating expenses which includes $ 6.9 million in higher acquisition related compensation . the remainder of the increase was largely due to our expanding global infrastructure and investments in our mountain bike and power vehicle product lines aimed at new products and technologies to maintain our premium position in the marketplace and pursue new markets . within operating expenses , our sales and marketing expense increases were primarily due to the inclusion of $ 3.0 million of sport truck 's and race face/easton 's expenses , with the balance attributable primarily to increases in race support , events , and sponsorships to promote our brand . our research and development expense increased in the year ended december 31 , 2015 due to $ 1.5 million of expense incurred at sport truck and race face/easton , as well as investments of $ 1.5 million in research and development for our existing mountain bike and power vehicle product lines . our general and administrative expense increased in the year ended december 31 , 2015 by $ 3.4 million compared to the previous year due to $ 2.5 million of expense incurred at sport truck and race face/easton , $ 1.7 million in payroll and related expenses to support our global growth , $ 0.6 million in higher stock compensation expense , $ 0.5 million related to our erp initiative , and nominal increases in various other general and 35 administrative expenses . the aforementioned increases were partially
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higher restaurant sales were attributable both to an increase in comparable company-owned restaurant sales and new or relocated restaurants .. after-tax income from continuing operations during fiscal year 2015 increased from fiscal year 2014 by $ 3.5 million to $ 30.2 million . fiscal year 2015 net income increased from fiscal year 2014 by $ 13.5 million to $ 30.0 million . net income for fiscal year 2014 was adversely impacted by a $ 10.3 million loss from discontinued operations . the fiscal year 2014 loss from discontinued operations was largely attributable to the impairment of the assets of the mitchell 's restaurants . operating income for fiscal year 2014 increased from fiscal year 2013 by $ 2.7 million to $ 39.7 million . operating income for fiscal year 2014 was favorably impacted by a $ 21.2 million increase in restaurant sales , which was somewhat offset by increased food and beverage costs and restaurant operating expenses . higher restaurant sales were attributable both to an increase in the number of customers , as measured by an increase in entrées , and an increase in average check . after-tax income from continuing operations during fiscal year 2014 increased from fiscal year 2013 by $ 2.2 million to $ 26.7 million . net income for fiscal year 2014 was adversely impacted by a $ 10.3 million loss from discontinued operations . the fiscal year 2014 loss from discontinued operations was largely attributable to the impairment of the assets of the mitchell 's restaurants . fiscal year 2014 net income decreased from fiscal year 2013 by $ 6.0 million to $ 16.5 million . key financial terms and metrics we evaluate our business using a variety of key financial measures : restaurant sales . restaurant sales consist of food and beverage sales by company-owned restaurants . restaurant sales are primarily influenced by total operating weeks in the relevant period and comparable restaurant sales growth . total operating weeks is the total number of company-owned restaurants multiplied by the number of weeks each is in operation during the relevant period . total operating weeks are impacted by restaurant openings and closings , as well as changes in the number of weeks included in the relevant period . comparable restaurant sales growth reflects the change in year-over-year or quarter-over-quarter , as applicable , sales for the comparable restaurant base . we define the comparable restaurant base to be those company-owned restaurants in operation for not less than fifteen months prior to the beginning of the fiscal quarter including the period being measured . comparable restaurant sales growth is primarily influenced by customer traffic , which is measured by the number of entrées sold , and the average guest check . customer traffic is influenced by the popularity of our menu items , our guest mix , our ability to deliver a high-quality dining experience and overall economic conditions . average guest check , a measure of total restaurant sales divided by the number of entrées , is driven by menu mix and pricing . 22 franchise income . franchise income includes ( 1 ) franchise and development option fees charged to franchisees and ( 2 ) royalty income . franchise royalties consist of 5.0 % of adjusted gross sales from each franchisee-owned restaurant . in addition , our more recent franchise agreements require up to a 1.0 % advertising fee to be paid by the franchisee , which is applied to national advertising expenditures . under our prior franchise agreements , the company would pay 1.0 % out of the 5.0 % royalty toward national advertising . we evaluate the performance of our franchisees by measuring franchisee-owned restaurant operating weeks , which is impacted by franchisee-owned restaurant openings and closings , and comparable franchisee-owned restaurant sales growth , which together with operating weeks , drives royalty income . other operating income . other operating income consists primarily of breakage income associated with gift cards , and also includes fees earned from a management agreement , banquet-related guarantee and services revenue and other incidental guest fees . food and beverage costs . food and beverage costs include all restaurant-level food and beverage costs of company-owned restaurants . we measure food and beverage costs by tracking cost of sales as a percentage of restaurant sales and cost per entrée . food and beverage costs are generally influenced by the cost of food and beverage items , distribution costs and menu mix . restaurant operating expenses . we measure restaurant operating expenses for company-owned restaurants as a percentage of restaurant sales . restaurant operating expenses include the following : labor costs , consisting of restaurant management salaries , hourly staff payroll and other payroll-related items , including taxes and fringe benefits . we measure our labor cost efficiency by tracking hourly and total labor costs as a percentage of restaurant sales ; operating costs , consisting of maintenance , utilities , bank and credit card charges , and any other restaurant-level expenses ; and occupancy costs , consisting of both fixed and variable portions of rent , common area maintenance charges , insurance premiums and real property taxes . marketing and advertising . marketing and advertising includes all media , production and related costs for both local restaurant advertising and national marketing . we measure the efficiency of our marketing and advertising expenditures by tracking these costs as a percentage of total revenues . we have historically spent approximately 2.5 % to 4.0 % of total revenues on marketing and advertising and expect to maintain this level in the near term . all franchise agreements executed based on our new form of franchise agreement include up to a 1.0 % advertising fee in addition to the 5.0 % royalty fee . we spend this designated advertising fee on national advertising and record these fees as liabilities against which specified advertising and marketing costs will be charged . general and administrative . story_separator_special_tag general and administrative costs include costs relating to all corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future company and franchisee growth . general and administrative costs are comprised of management , supervisory and staff salaries and employee benefits , travel , performance-based compensation , stock compensation , information systems , training , corporate rent , professional and consulting fees , technology and market research . we measure our general and administrative expense efficiency by tracking these costs as a percentage of total revenues . depreciation and amortization . depreciation and amortization includes depreciation of fixed assets and certain definite life intangible assets . we depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life . pre-opening costs . pre-opening costs consist of costs incurred prior to opening a company-owned restaurant , which are comprised principally of manager salaries and relocation costs , employee payroll and related training costs for new employees , including practice and rehearsal of service activities as well as lease costs incurred prior to opening . 23 story_separator_special_tag id= '' para866 '' style= '' text-align : left ; margin : 0pt ; line-height : 1.25 '' > income from continuing operations . income from continuing operations of $ 30.2 million during fiscal year 2015 increased by $ 3.5 million compared to fiscal year 2014 due to the factors noted above . loss from discontinued operations , net of income taxes . loss from discontinued operations , net of income taxes during fiscal year 2015 was a loss of $ 162 thousand compared with a loss of $ 10.3 million during fiscal year 2014. discontinued operations includes : the recurring revenues and expenses of restaurants closed or held for sale ; impairments and loss on assets of restaurants closed or held for sale ; impacts of remeasurement of lease liabilities associated with closed restaurants ; and related income taxes . for financial reporting purposes , the mitchell 's restaurants are classified as a discontinued operation for all periods presented and , as of december 28 , 2014 , the assets of the mitchell 's restaurants are classified as held for sale . 25 the fiscal year 2015 loss from discontinued operations is primarily attributable to a $ 1.0 million loss from mitchell 's restaurants , partially offset by an $ 869 thousand income tax benefit . the $ 869 thousand income tax benefit is primarily due to a tax loss recognized on the sale of mitchell 's restaurants . the fiscal year 2014 loss from discontinued operations is largely attributable to a $ 15.3 million impairment loss and a $ 1.8 million loss on the assets of the mitchell 's restaurants held for sale . net income . net income was $ 30.0 million during fiscal year 2015 compared to $ 16.5 million net income during fiscal year 2014. fiscal year 2014 compared to fiscal year 2013 restaurant sales . restaurant sales increased $ 21.2 million , or 7.0 % , to $ 325.4 million during fiscal year 2014 from fiscal year 2013. the increase was attributable to a $ 11.0 million increase in comparable company-owned restaurant sales and $ 10.2 million from new or relocated restaurants . excluding discontinued operations , total operating weeks during fiscal year 2014 increased to 3,283 from 3,169 during fiscal year 2013. comparable company-owned restaurant sales increased 3.7 % , which consisted of a traffic increase of 2.5 % and an average check increase of 1.2 % . franchise income . franchise income increased $ 751 thousand , or 5.0 % , to $ 15.8 million during fiscal year 2014 from fiscal year 2013. the increase was driven primarily by a $ 504 thousand increase from seven new locations which opened during fiscal years 2014 and 2013. the remaining increase is from an increase in comparable franchisee-owned restaurant sales of 3.4 % . other operating income . other operating income increased by $ 1.8 million to $ 4.9 million during fiscal year 2014 from fiscal year 2013. other operating income includes gift card breakage revenue , our share of income from a managed restaurant and miscellaneous restaurant income . fiscal year 2014 gift card breakage revenue increased $ 1.5 million from the fiscal year 2013 level . fiscal year 2013 gift card breakage revenue was reduced by the unfavorable impact of the $ 2.2 million adjustment for the change in accounting for gift card breakage revenue , which included a revision in expected redemptions based on consumer redemption patterns . our management fee and our share of income from the cherokee location was $ 801 thousand during fiscal year 2014 and $ 706 thousand during fiscal year 2013. food and beverage costs . food and beverage costs increased $ 9.9 million , or 10.6 % , to $ 103.3 million during fiscal year 2014 from fiscal year 2013. food and beverage costs , as a percentage of restaurant sales , increased 103 basis points to 31.7 % compared to fiscal year 2013 primarily due to 6.0 % higher beef costs , partially offset by a cumulative menu pricing increase of 2.6 % . restaurant operating expenses . restaurant operating expenses increased $ 10.6 million , or 7.3 % , to $ 156.2 million during fiscal year 2014 from fiscal year 2013. restaurant operating expenses as a percentage of restaurant sales for fiscal year 2014 was relatively unchanged from fiscal year 2013. marketing and advertising . marketing and advertising expenses increased $ 735 thousand to $ 10.1 million during fiscal year 2014 from fiscal year 2013. the increase in marketing and advertising expenses during fiscal year 2014 was attributable to planned spending . general and administrative . general and administrative expenses decreased $ 3.5 million to $ 24.3 million during fiscal year 2014 from fiscal year 2013 , primarily due to lower incentive-based compensation . depreciation and amortization expenses . depreciation and amortization expense increased $ 688 thousand to $ 10.9 million during fiscal year 2014 , primarily due to property additions . pre-opening costs .
| fiscal year 2015 gift card breakage revenue decreased $ 228 thousand from the fiscal year 2014 level due to a slight decrease in the rate of gift card redemptions . our management fee and our share of income from the cherokee location was $ 992 thousand during fiscal year 2015 and $ 801 thousand during fiscal year 2014. food and beverage costs . food and beverage costs increased $ 4.8 million , or 4.7 % , to $ 108.1 million during fiscal year 2015 from fiscal year 2014. food and beverage costs , as a percentage of restaurant sales , decreased 101 basis points to 30.7 % compared to fiscal year 2014 due to a 3.5 % increase in menu pricing and 8.0 % lower beef costs . restaurant operating expenses . restaurant operating expenses increased $ 9.6 million , or 6.1 % , to $ 165.8 million during fiscal year 2015 from fiscal year 2014. restaurant operating expenses , as a percentage of restaurant sales , decreased 88 basis points to 47.1 % compared to fiscal year 2014 primarily due to lower healthcare claims . marketing and advertising . marketing and advertising expenses increased $ 849 thousand to $ 10.9 million during fiscal year 2015 from fiscal year 2014. the increase in marketing and advertising expenses during fiscal year 2015 was attributable to a planned increase in advertising . marketing and advertising was 2.9 % of total revenues , which was relatively unchanged from fiscal year 2014. general and administrative . general and administrative expenses increased $ 5.9 million to $ 30.2 million during fiscal year 2015 from fiscal year 2014 , primarily due to an increase in incentive and stock-based compensation . depreciation and amortization expenses . depreciation and amortization expense increased $ 1.6 million to $ 12.5 million during fiscal year 2015 , primarily due to property additions related to new restaurants and remodel projects placed in service in fiscal years 2014 and 2015. pre-opening costs . pre-opening costs decreased $ 598 thousand to $ 1.0 million during fiscal year 2015 , primarily due to two new restaurant openings
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the company believes one of its more unique strengths is an understanding of the financial needs of coastal communities and the businesses vital to maine 's coastal economy , namely : tourism , hospitality , retail establishments and restaurants , seasonal lodging and campgrounds , biological research laboratories , lobster and other fishing , boat building , and marine services . operating under a community banking philosophy , the company 's key strategic focus is vigorous financial stewardship , by deploying investor capital safely yet efficiently for the best possible returns . the company strives to provide unmatched service to its customers , while maintaining strong asset quality and a focus toward improving operating efficiencies . in managing its earning asset portfolios , the company seeks to utilize funding and capital resources within well-defined credit , investment , interest-rate and liquidity guidelines . in managing its balance sheet , the company seeks to preserve the sensitivity of net interest income to changes in interest rates , and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk . the company is deliberate in its efforts to maintain adequate liquidity under prevailing and expected conditions , and strives to maintain a balanced and appropriate mix of loans , securities , core deposits , brokered deposits and borrowed funds . material risks and challenges in its normal course of business , the company faces many risks inherent with providing banking and financial services . among the more significant risks managed by the company are losses arising from loans not being repaid , commonly referred to as credit risk , and losses of income arising from movements in interest rates , commonly referred to as interest rate and market risk. the company is also exposed to national and local economic conditions , downturns in the economy , or adverse changes in real estate markets , which could negatively impact its business , financial condition , results of operations or liquidity . management has numerous policies and control processes in place that provide for the monitoring and mitigation of risks based upon and driven by a variety of assumptions and actions which , if changed or altered , could impact the company 's business , financial condition , results of operations or liquidity . the foregoing matters are more fully discussed in part i , item 1a , risk factors , and throughout this annual report on form 10-k. summary financial results on april 22 , 2014 , the company 's board of directors declared a three-for-two split of its common stock , payable as a large stock dividend , which was paid on may 19 , 2014 ( the payment date ) to all stockholders of record at the close of business on may 5 , 2014. as of april 22 , 2014 , the company had 3,944,290 shares of common stock outstanding . after the stock split effectuated as a large stock dividend , the number of shares of company common stock outstanding increased to 5,916,435. all previously reported share and per share data included in public filings subsequent to the payment date has been restated to reflect the retroactive effect of this three-for-two stock split . for the year ended december 31 , 2014 , the company reported net income of $ 14,613 , compared with $ 13,183 for the year ended december 31 , 2013 , representing an increase of $ 1,430 , or 10.8 % . the company 's 2014 diluted earnings per share amounted to $ 2.45 , compared with $ 2.22 in 2013 , representing an increase of $ 0.23 , or 10.4 % . the company 's 2014 return on average shareholders ' equity amounted to 10.69 % , up from 10.52 % in 2013. the company 's 2014 return on average assets amounted to 1.03 % , compared with 0.98 % in 2013. as more fully enumerated in the following management discussion and analysis , the company 's 2014 operating results were highlighted by a $ 4,850 or 11.9 % increase in tax-equivalent net interest income , continued loan and core deposit growth , relatively stable credit quality and higher levels of fee income . the company continued to focus on the management of its operating expenses , posting a 2014 efficiency ratio of 54.7 % compared with 55.6 % in 2013. application of critical accounting policies management 's discussion and analysis of the company 's financial condition and results of operations are based on the consolidated financial statements , which are prepared in accordance with u.s. generally accepted accounting principles . the preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . management evaluates its estimates , including those related to the allowance for loan losses , on an ongoing basis . management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources . actual results could differ from the amount derived from management 's estimates and assumptions under different assumptions or conditions . the company 's significant accounting policies are more fully enumerated in note 1 to the consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. the reader of the financial statements should review these policies to gain a greater understanding of how the company 's financial performance is reported . management believes the following critical accounting policies represent the more significant estimates and assumptions used in the preparation of the consolidated financial statements : allowance for loan losses : the allowance for loan losses ( allowance ) is a significant accounting estimate used in the preparation of the company 's consolidated financial statements . story_separator_special_tag the allowance , which is established through a provision for loan loss expense , is based on management 's evaluation of the level of allowance required in relation to the estimated inherent risk of probable loss in the loan portfolio . management regularly evaluates the allowance for adequacy by taking into consideration factors such as previous loss experience , the size and composition of the portfolio , current general economic and real estate market conditions and the performance of individual loans in relation to contract terms and estimated fair values of collateral . the use of different estimates or assumptions could produce different provisions for loan losses . a smaller provision for loan losses results in higher net income , and when a greater amount of provision for loan losses is necessary , the result is lower net income . refer to part ii , item 7 , allowance for loan losses and provision , and part ii , item 8 , note 5 , loans and allowance for loan losses , of the consolidated financial statements , in this annual report on form 10-k , for further discussion and analysis concerning the allowance . other-than-temporary impairments on securities : one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . securities that are in an unrealized loss position , are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . the primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include : ( a ) the cause of the impairment ; ( b ) the financial condition , credit rating and future prospects of the issuer ; ( c ) whether the debtor is current on contractually-obligated interest and principal payments ; ( d ) the volatility of the securities fair value ; ( e ) performance indicators of the underlying assets in the security including default rates , delinquency rates , percentage of non-performing assets , loan to collateral value ratios , third party guarantees , current levels of subordination , vintage , and geographic concentration and ; ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of the receipt of all principal and interest due . for securitized financial assets with contractual cash flows , such as private-label mortgage-backed securities , the company periodically updates its best estimate of cash flows over the life of the security . the company 's best estimate of cash flows is based upon assumptions consistent with an economic recession , similar to those the company believes market participants would use . if the fair value of a securitized financial asset is less than its cost or amortized cost and there has been an adverse change in timing or amount of anticipated future cash flows since the last revised estimate to the extent that the company does not expect to receive the entire amount of future contractual principal and interest , an other-than-temporary impairment charge is recognized in earnings representing the estimated credit loss if management does not intend to sell the security and believes it is more-likely-than-not the company will not be required to sell the security prior to recovery of cost or amortized cost . estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain assumptions and judgments regarding the future performance of the underlying collateral . in addition , projections of expected future cash flows may change based upon new information regarding the performance of the underlying collateral . refer to part ii , item 7 , impaired securities , and part ii , item 8 , notes 1 and 4 of the consolidated financial statements in this annual report on form 10-k , for further discussion and analysis concerning other-than-temporary impairments . income taxes : the company estimates its income taxes for each period for which a statement of income is presented . this involves estimating the company 's actual current tax liability , as well as assessing temporary differences resulting from differing timing of recognition of expenses , income and tax credits , for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included in the company 's consolidated balance sheets . the company must also assess the likelihood that any deferred tax assets will be recovered from historical taxes paid and future taxable income and , to the extent that the recovery is not likely , a valuation allowance must be established . significant management judgment is required in determining income tax expense , and deferred tax assets and liabilities . as of december 31 , 2014 and 2013 , there were no valuation allowances for deferred tax assets , which are included in other assets on the consolidated balance sheet . goodwill and identifiable intangible assets : in connection with acquisitions , the company generally records as assets on its consolidated financial statements both goodwill and identifiable intangible assets , such as core deposit intangibles . the company evaluates whether the carrying value of its goodwill has become impaired , in which case the value is reduced through a charge to its earnings . goodwill is evaluated for impairment at least annually , or upon a triggering event using certain fair value techniques . goodwill impairment testing is performed at the segment ( or reporting unit ) level . goodwill is assigned to reporting units at the date the goodwill is initially recorded .
| the cash surrender value of the boli is included on the company 's consolidated balance sheet . at december 31 , 2014 , the cash surrender value of boli amounted to $ 8,141 , compared with $ 7,879 at december 31 , 2013 , representing an increase of $ 262 , or 3.3 % . other assets the company 's other assets are principally comprised of accrued interest receivable , deferred income taxes and other real estate owned . at december 31 , 2014 total other assets amounted to $ 13,992 , compared with $ 18,812 at december 31 , 2013 , representing a decline of $ 4,820 , or 25.6 % . the decline in other assets was principally attributed to a decline in deferred income taxes , which resulted from unrealized gains in the bank 's securities portfolio at december 31 , 2014 compared with unrealized losses at december 31 , 2013. funding sources the bank utilizes various traditional sources of funding to support its earning asset portfolios . funding sources principally consist of retail deposits and , to a lesser extent , borrowings from the federal home loan bank of boston ( fhlb ) of which it is a member , and certificates of deposit obtained from the national market . 7 deposits historically , the banking business in the bank 's market area has been seasonal , with lower deposits in the winter and spring and higher deposits in the summer and autumn . these seasonal swings have been fairly predictable and have not had a materially adverse impact on the bank . seasonal swings in deposits have been typically absorbed by the bank 's strong liquidity position , including borrowing capacity from the fhlb , brokered certificates of deposit obtained from the national market and cash flows from its securities portfolio . total deposits : at december 31 , 2014 , total deposits amounted to $ 858,049 compared with $ 835,651 at december 31 , 2013 , representing an increase of $ 22,398 , or 2.7 % . demand now and money market accounts posted a combined increase of $
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in addition to our wholly-owned antibody programs , multiple anaptysbio-developed antibody programs have been advanced to preclinical and clinical milestones under our collaborations . we have received to date approximately $ 90.0 million in cash receipts from collaborations . our collaborations include an immuno-oncology-focused collaboration with tesaro , inc. and tesaro development , ltd. , or collectively tesaro , now a part of glaxosmithkline or “ gsk ” , and an inflammation-focused collaboration with celgene corporation , or celgene , now part of bristol-myers squibb . a bla for our most advanced partnered program , which is an anti-pd-1 antagonist antibody called dostarlimab , was recently submitted by glaxosmithkline , and we anticipate us approval in the near-term . for more information about these collaborations , see “ - collaboration revenue ” below . as of december 31 , 2019 , we had an accumulated deficit of $ 244.0 million , primarily as a result of losses incurred since our inception in 2005. we expect to continue to incur net operating losses for at least the next several years as we advance our products through clinical development , seek regulatory approval , prepare for and , if approved , proceed to , commercialization , expand our operations and facilities and grow in new and existing markets , territories and industries . for our discussion related to the results of our operations and liquidity and capital resources for fiscal year ended december 31 , 2018 compared to the year ended december 31 , 2017 , please refer to part ii , item 7 , `` management 's discussion and analysis of financial condition and results of operations '' in our annual report on form 10-k for the year ended december 31 , 2018. public offerings on january 31 , 2017 , we completed an initial public offering , or ipo , selling 5,750,000 shares of common stock at $ 15.00 per share , which included 750,000 shares sold pursuant to the exercise of the underwriters ' options to purchase additional shares . proceeds from our initial public offering net of underwriting discounts and commissions were $ 80.2 million . on october 17 , 2017 , we completed an underwritten public offering of 3,000,000 shares of common stock . all shares were offered by us at a price to the public of $ 68.50 per share . the aggregate net proceeds received by us from the offering were $ 194.7 million , net of underwriting discounts and commissions . as part of the underwritten public offering , on november 14 , 2017 , the underwriters exercised an additional 271,380 shares of common stock at a discounted price to the public of $ 68.50 per share for aggregate net proceeds of $ 17.6 million , net of underwriting discounts and commissions . on september 28 , 2018 , we completed an underwritten public offering of 2,530,000 shares of common stock , which included the exercise of the underwriters ' option to purchase an additional 330,000 shares of common stock . all shares were offered by us at a price to the public of $ 94.46 per share . the aggregate net proceeds received by us from the offering were $ 227.5 million , net of underwriting discounts and commissions . financial overview collaboration revenue we have not generated any revenue from product sales . our revenue has been derived from amortization of upfront license payments , research and development funding and milestone payments under collaboration and license agreements with our collaborators . from inception through december 31 , 2019 , we have received $ 89.6 million in cash in non-dilutive funding from our collaborators . collaboration and exclusive license agreement with tesaro in march 2014 , we entered into an exclusive worldwide license and collaboration agreement with tesaro , now a part of glaxosmithkline , for the development and commercialization of therapeutic monospecific and bispecific antibodies that antagonize pd-1 , tim-3 , lag-3 and or a fourth undisclosed checkpoint receptor . we received $ 17.0 million in upfront fees from tesaro in march 2014 , and in november 2014 , we amended the agreement with tesaro to include the development 64 and commercialization of bispecific antibodies to another undisclosed target , for an additional upfront fee of $ 2.0 million . both upfront fees were recognized over the same period that our research and development services for which we were reimbursed were performed , which was extended through december 31 , 2016 by amendment of the agreement in february 2016. from inception of the agreement through december 31 , 2019 , we have recognized $ 67.3 million in total revenue from tesaro . for each of the four targets under the tesaro agreement , we are eligible to receive up to $ 273.0 million in milestone payments , which are comprised of $ 18.0 million for preclinical and clinical development milestone payments , $ 90.0 million upon certain regulatory events and $ 165.0 million upon worldwide commercial sales thresholds . in addition , tesaro is obligated to pay us tiered royalties , ranging from 4 % to 8 % , on annualized net sales of each antibody commercialized from the collaboration . milestones achieved through december 31 , 2019 under the tesaro agreement are as follows : replace_table_token_3_th milestones achieved during the discovery period were recognized as revenue pro-rata through december 31 , 2016. milestones achieved during fiscal 2017 were recognized as revenue in the period earned , while milestones after december 31 , 2017 were recognized upon determination that a significant reversal of revenue would not be probable . cash is generally received within 30 days of milestone achievement . antibody generation agreement with celgene corporation in december 2011 , we entered into a license and collaboration agreement with celgene , now a part of bristol-myers squibb , to develop therapeutic antibodies against multiple targets . story_separator_special_tag we granted celgene the option to obtain worldwide commercial rights to antibodies generated against each of the targets under the agreement , which option was triggered on a target-by-target basis by our delivery of antibodies meeting certain pre-specified parameters pertaining to each target under the agreement . the agreement provided for an upfront payment of $ 6.0 million from celgene , which we received in 2011 , milestone payments of up to $ 53.0 million per target , low single-digit royalties on net sales of antibodies against each target , and reimbursement of specified research and development costs . from inception of the agreement through december 31 , 2019 , we have recognized $ 10.0 million in total revenue from celgene . anti-pd-1 ( cc-90006 ) milestone event amount quarter recognized completion of first in vivo toxicology studies using glps $ 0.5m q2'16 phase 1 clinical trial initiation $ 1.0m q4'16 milestones were recognized as revenue in the period earned . there was no revenue recognized under this agreement during the years ended december 31 , 2019 or 2018. research and development expense research and development expenses consist of costs associated with our research and development activities , including drug discovery efforts , preclinical and clinical development of our programs , and manufacturing . our research and development expenses include : 65 external research and development expenses incurred under arrangements with third-parties , such as contract research organizations , or cros , consultants , members of our scientific and therapeutic advisory boards , and contract manufacturing organizations , or cmos ; employee-related expenses , including salaries , benefits , travel and stock-based compensation ; facilities , depreciation and other allocated expenses , which include direct and allocated expenses for rent and maintenance of facilities , depreciation of leasehold improvements and equipment , and laboratory supplies ; and license and sub-license fees . we expense research and development costs as incurred . we account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received . we recognize the australian research and development tax incentive , or the tax incentive , as a reduction of research and development expense . the amounts are determined on a cost reimbursement basis based on our eligible research and development expenditures and are non-refundable , provided that in order to qualify for the australian benefits we must have revenue of less than aud $ 20.0 million during the reimbursable period and can not be controlled by income tax exempt entities . the tax incentive is recognized when there is reasonable assurance that the tax incentive will be received , the relevant expenditure has been incurred , and the amount can be reliably measured . we are conducting research and development activities primarily on inflammation programs . we have a research and development team that conducts antibody discovery , characterization , translational studies , ind-enabling preclinical studies and clinical development . we conduct some of our early research and preclinical activities internally and plan to rely on third parties , such as cros and cmos , for the execution of certain of our research and development activities , such as in vivo toxicology and pharmacology studies , drug product manufacturing and clinical trials . we have completed phase 1 and 2a trials for etokimab and phase 1 trials for anb019 and have ongoing phase 2 and 2b clinical trials as well . general and administrative expense general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation for our executive , finance , legal , business development , human resource and support functions . other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses , travel expenses and professional fees for auditing , tax and legal services . interest expense interest expense consists of floating interest payments and amortization of discounts on our outstanding notes payable relating to our loan and security agreement with oxford finance llc and silicon valley bank , as amended , which we refer to as the loan agreement . interest income interest income consists primarily of interest earned on our short-term and long-term investments , and is recognized when earned . net operating loss and research and development tax credit carryforwards since inception , we have accumulated net operating losses , or nols in all years except december 31 , 2015 and 2014 , in which we generated taxable income as a result of our collaboration agreement with tesaro as well as expenses incurred by our australian subsidiary which are not deductible for u.s. income tax purposes . while we utilized nols in 2015 and 2014 , we have since incurred losses and therefore continue to have a valuation allowance against our net deferred tax assets due to the uncertainty of the realization of such assets . at december 31 , 2019 , we had federal and state net operating loss carryforwards , or nols , of $ 239.4 million and $ 64.1 million , respectively . the federal and state nols generated prior to 2018 will both begin to expire in 2028 , unless previously utilized . the federal nols include $ 179.4 million of net operating losses generated in 2018 and after . federal net operating losses generated in 2018 and after carryover indefinitely and may generally be used to offset up to 80 % of future 66 taxable income . at december 31 , 2019 we had federal and california research tax credit carryforwards of approximately $ 11.1 million and $ 7.6 million , respectively . the federal research tax credit carryforwards will begin to expire in 2026 and the california state credits carryforward indefinitely . we also have foreign tax losses of $ 3.0 million , which will carry forward indefinitely , subject to a continuity of ownership test .
| the following table summarizes the external costs attributable to each program and internal costs : replace_table_token_5_th 69 general and administrative expenses general and administrative expenses were $ 16.1 million during the year ended december 31 , 2019 compared to $ 15.5 million during the year ended december 31 , 2018 , for an increase of approximately $ 0.6 million . the increase is primarily due to an increase in salaries and related expenses , which includes stock compensation expense , from the prior year . we expect that our general and administrative expenses will increase for the foreseeable future as we incur additional costs associated with being a publicly traded company , including legal , auditing and filing fees , additional insurance premiums , investor relations expenses and general compliance and consulting expenses . we also expect our intellectual property related legal expenses , including those related to preparing , filing , prosecuting and maintaining patent applications , to increase as our intellectual property portfolio expands . interest expense interest expense was $ 1.0 million during the year ended december 31 , 2019 and represents effective interest of approximately 12.67 % on our outstanding term loans , as defined in part ii item 8—5 . notes payable , which have a principal balance of $ 0.6 million as of december 31 , 2019 . interest expense was $ 1.7 million during the year ended december 31 , 2018 and primarily represents effective interest of approximately 13.32 % on an outstanding principal balance of $ 8.1 million . on january 1 , 2020 , the term loans were paid in full , without penalty or premium . interest income and other income ( expense ) , net interest income and other income ( expense ) , net was $ 11.0 million during the year ended december 31 , 2019 and primarily consisted of interest income from our short-term and long-term investments . interest income and other income ( expense ) , net was $ 6.5 million during the year ended december 31 , 2018 and primarily consisted of interest
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the patents for remicade ® ( infliximab ) in certain countries in europe expired in february 2015. biosimilar versions of remicade ® have been introduced in certain markets outside the united states , resulting in a reduction in sales of remicade ® in those markets . additional biosimilar competition will likely result in a further reduction in sales of remicade ® in markets outside the united states . in the united states , a biosimilar version of remicade ® was introduced in 2016 , and additional competitors continue to enter the market . continued infliximab biosimilar competition in the u.s. market will result in a further reduction in u.s. sales of remicade ® . infectious disease products sales were $ 3.6 billion in 2020 , representing an increase of 4.7 % as compared to the prior year primarily due to strong sales of symtuza ® and juluca ® . this was partially offset by lower sales of prezista ® and prezcobix ® /rezolsta ® due to increased competition and loss of exclusivity of prezista ® in certain countries outside the u.s. neuroscience products sales were $ 6.5 billion , representing an increase of 3.5 % as compared to the prior year . paliperidone long-acting injectables growth driven by sales of invega sustenna ® /xeplion ® ( paliperidone palmitate ) and invega trinza ® /trevicta ® from new patient starts and persistence . the growth was partially offset by migration from risperdal consta ® ( risperidone ) and declines in concerta ® ( methylphenidate ) due to competitive entrants . oncology products achieved sales of $ 12.4 billion in 2020 , representing an increase of 15.7 % as compared to the prior year . contributors to the growth were strong sales of darzalex ® ( daratumumab ) driven by patient uptake in all lines of therapy and the launch of a subcutaneous formulation in the u.s. and e.u . ; imbruvica ® ( ibrutinib ) due to market growth globally and maintaining strong share and the continued global launch uptake and share gains of erleada ® ( apalutamide ) . additionally , the growth was negatively impacted by declining sales of zytiga ® ( abiraterone acetate ) and velcade ® ( bortezomib ) due to generic competition . pulmonary hypertension products achieved sales of $ 3.1 billion , representing an increase of 20.0 % as compared to the prior year . sales growth of opsumit ® ( macitentan ) and uptravi ® ( selexipag ) were due to continued share gains and market growth . additionally , sales of tracleer ® ( bosentan ) were negatively impacted by generics and migration to opsumit ® . cardiovascular/metabolism/other products sales were $ 4.9 billion , a decline of 6.0 % as compared to the prior year . sales growth of invokana ® /invokamet ® ( canagliflozin ) were due to market growth and favorable channel mix dynamics in the u.s. and strength in the european region partially offset by u.s. share declines due to competitive pressures . the growth of xarelto ® ( rivaroxaban ) was due to demand growth partially offset by higher rebates . lower sales of procrit ® / eprex ® ( epoetin alfa ) were due to biosimilar competition . 23 during 2020 , the company advanced its pipeline with several regulatory submissions and approvals for new drugs and additional indications for existing drugs as follows : product name ( chemical name ) indication us approval eu approval us filing eu filing amivantamab treatment of patients with metastatic non-small cell lung cancer with egfr exon 20 insertion mutations darzalex ® ( daratumumab ) combination regimen for newly diagnosed , transplant-eligible patients with multiple myeloma darzalex ® ( daratumumab ) combination with carfilzomib and dexamethasone for patients with relapsed/refractory multiple myeloma darzalex ® faspro ( daratumumab and hyaluronidase ) subcutaneous formulation of daratumumab in the treatment of patients with multiple myeloma erleada ® ( apalutamide ) treatment of metastatic castration-sensitive prostate cancer imbruvica ® ( ibrutinib ) in combination with rituximab for treatment of chronic lymphocytic leukemia invokana ® ( canagliflozin ) treatment of diabetic kidney disease rilpivirine and cabotegravir for monthly , injectable , two drug regimen for treatment of hiv paliperidone pamitate 6-month treatment of schizophrenia ponesimod treatment of adults with relapsed multiple sclerosis simponi aria ® ( golimumab ) treatment of polyarticular juvenile idiopathic arthritis and juvenile psoriatic arthritis sirturo ® ( bedaquiline ) combination therapy to treat children with pulmonary multidrug-resistant tuberculosis spravato ® ( esketamine ) rapid reduction of depressive symptoms in adults with major depressive disorder who have active suicidal ideation with intent stelara ® ( ustekinumab ) treatment of pediatric patients with moderate to severe plaque psoriasis tremfya ® ( guselkumab ) treatment of adults with active psoriatic arthritis uptravi ® iv pulmonary arterial hypertension xarelto ® ( rivaroxaban ) new indication to expand use in patients with peripheral artery disease zabdeno ( ad26.zebov ) and mvabea ( mva-bn-filo ) preventive ebola vaccine 24 medical devices segment the medical devices segment sales in 2020 were $ 23.0 billion , a decrease of 11.6 % from 2019 , which included an operational decrease of 11.4 % and a negative currency impact of 0.2 % . u.s. sales were $ 11.0 billion , a decrease of 10.9 % as compared to the prior year . international sales were $ 11.9 billion , a decrease of 12.2 % as compared to the prior year , with an operational decrease of 11.8 % and a negative currency impact of 0.4 % . in 2020 , the net impact of acquisitions and divestitures on the medical devices segment worldwide operational sales growth was a negative 0.9 % of which , the divestiture of advanced sterilization products ( asp ) had an impact of approximately 0.8 % . growth was negatively impacted by covid-19 and associated deferral of medical procedures . story_separator_special_tag major medical devices franchise sales * : replace_table_token_7_th * certain prior year amounts have been reclassified to conform to current year presentation ( 1 ) includes specialty surgery which was previously disclosed separately ( 2 ) previously referred to as spine & other the surgery franchise sales were $ 8.2 billion in 2020 , a decrease of 13.4 % from 2019. the decline in advanced surgery was primarily driven by the negative impact of covid-19 and competitive pressures in the u.s. this was partially offset by the success of new products outside the u.s. and the recovery of an isolated supply disruption in the prior year related to surgiflo ® . the decline in general surgery was primarily driven by the negative impact of covid-19 and the asp divestiture . the orthopaedics franchise sales were $ 7.8 billion in 2020 , a decrease of 12.2 % from 2019. the decline in hips was driven by the negative impact of covid-19 partially offset by a leadership position in the anterior approach , strong market demand for the actis ® stem and enabling technologies – kincise and velys hip navigation . the decline in knees was driven by the negative impact of covid-19 . the decline in trauma was driven by the negative impact of covid-19 partially offset by strength from new products . the decline in spine , sports & other was driven by the negative impact of covid-19 partially offset by the uptake of new products . the vision franchise sales were of $ 3.9 billion in 2020 , a decrease of 15.2 % from 2019. the contact lenses/other operational decline was due to the negative impact of covid-19 . the surgical operational decline was primarily driven by the negative impact of covid-19 and competitive pressures in the u.s. the interventional solutions franchise achieved sales of $ 3.0 billion in 2020 , an increase of 1.6 % from 2019. growth in the electrophysiology business was driven by atrial fibrillation procedure growth coupled with strength from new products and market recovery offsetting negative impacts from covid-19 . 25 analysis of consolidated earnings before provision for taxes on income consolidated earnings before provision for taxes on income was $ 16.5 billion and $ 17.3 billion for the years 2020 and 2019 , respectively . as a percent to sales , consolidated earnings before provision for taxes on income was 20.0 % and 21.1 % , in 2020 and 2019 , respectively . ( dollars in billions . percentages in chart are as a percent to total sales ) cost of products sold and selling , marketing and administrative expenses : ( dollars in billions . percentages in chart are as a percent to total sales ) cost of products sold increased as a percent to sales driven by : medical device idle capacity costs associated with covid-19 related production slow downs establishment of obsolescence reserves and fixed cost deleveraging associated with the impact of covid-19 in the medical devices business supply chain costs associated with the development of the covid-19 vaccine in the pharmaceutical business partially offset by : favorable mix within the pharmaceutical business favorable product mix with a higher percentage of sales coming from the pharmaceutical business the intangible asset amortization expense included in cost of products sold was $ 4.7 billion and $ 4.5 billion , for the years 2020 and 2019 , respectively . selling , marketing and administrative expenses decreased as a percent to sales driven by : leveraging in the pharmaceutical and consumer health businesses portfolio and investment optimization including execution of the ongoing sku rationalization program in the consumer health business 26 favorable segment mix with a higher percentage of sales coming from the pharmaceutical business partially offset by : the negative impact on sales resulting from covid-19 in the medical devices business research and development expense : research and development expense by segment of business was as follows : replace_table_token_8_th research and development activities represent a significant part of the company 's business . these expenditures relate to the processes of discovering , testing and developing new products , upfront payments and developmental milestones , improving existing products , as well as ensuring product efficacy and regulatory compliance prior to launch . the company remains committed to investing in research and development with the aim of delivering high quality and innovative products . research and development increased as a percent to sales primarily driven by : segment mix driven by a higher percentage of sales generated by the pharmaceutical business versus the prior year the negative covid-19 impact on medical devices sales increased investment in the medical devices business related to robotics and digital programs portfolio progression including the covid-19 vaccine in the pharmaceutical business , net of governmental reimbursements research facilities are located in the u.s. , belgium , brazil , china , france , germany , india , israel , the netherlands , poland , singapore , sweden , switzerland and the united kingdom with additional r & d support in over 30 other countries . in-process research and development ( ipr & d ) : in fiscal year 2020 , the company recorded an ipr & d charge of $ 0.2 billion primarily related to a partial impairment due to timing and progression of one of the digital surgery platforms acquired with the auris health acquisition . in the fiscal year 2019 , the company recorded an ipr & d charge of $ 0.9 billion for the remaining intangible asset value related to the development program of al-8176 , an investigational drug for the treatment of respiratory syncytial virus ( rsv ) and human metapneumovirus ( hmpv ) acquired with the 2014 acquisition of alios biopharma inc. the impairment charge was based on additional information , including clinical data , which became available and led to the company 's decision to abandon the development of al-8176 .
| sales by companies in the asia-pacific , africa region experienced a sales decline of 2.7 % as compared to the prior year , including an operational decline of 3.1 % partially offset by a positive currency impact of 0.4 % . the 2020 results benefited from the inclusion of a 53rd week . ( see note 1 to the consolidated financial statements for annual closing date details ) . the company estimated that the fiscal year 2020 sales growth rate was enhanced by approximately 1.0 % . while the additional week added a few days to sales , it also added a full week 's worth of operating costs ; therefore , the net earnings impact was negligible . in 2020 , the company utilized three wholesalers distributing products for all three segments that represented approximately 16.0 % , 12.0 % and 12.0 % of the total consolidated revenues . in 2019 , the company had three wholesalers distributing products for all three segments that represented approximately 15.0 % , 12.0 % and 11.0 % of the total consolidated revenues . note : values may have been rounded 20 analysis of sales by business segments consumer health segment consumer health segment sales in 2020 were $ 14.1 billion , an increase of 1.1 % from 2019 , which included 3.0 % operational growth and a negative currency impact of 1.9 % . u.s. consumer health segment sales were $ 6.4 billion , an increase of 9.0 % . international sales were $ 7.7 billion , a decrease of 4.6 % , which included an operational decline of 1.3 % and a negative currency impact of 3.3 % . in 2020 , acquisitions and divestitures had a net negative impact of 0.1 % on the operational sales growth of the worldwide consumer health segment . major consumer health franchise sales * : replace_table_token_5_th the otc franchise sales of $ 4.8 billion increased 8.5 % as compared to the prior year . growth was primarily attributable to sales from tylenol ® driven by covid-19 stocking demand , zyrtec ® due to competitor product out of stock and pepcid ® due to competitive product withdrawal both in the u.s. , and increased consumption in anti-smoking aids . international sales were negatively impacted by covid-19 and low incidence of cough and
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because our smart cards are designed to enable the delivery of more advanced services and products , we are also willing to supply those services and products directly where the business case is compelling . for instance , we provide short-term ueps-based loans to our smart card holders . this is an example of the third approach that we have taken . here we can act as the principal in operating a business that can be better delivered through our ueps . we can also act as an agent , for instance , in the provision of insurance policies . in both cases , the revenue and costs associated with this approach are reflected in our financial services segment . through ksnet , we earn most of our revenue from payment processing services we provide to approximately 200,000 merchants and to card issuers in korea through our value-added network . in the us , we earn transaction fees from our customers who utilize our vcpay technology to generate a unique , one-time use prepaid virtual card number to securely purchase goods and services or perform bill payments in any card not present environment . the revenue and costs at ksnet and vcpay , as well as those from our iraqi contract , are reflected in our international transaction-based activities segment . we also generate fees from transaction processing for both funders and providers of healthcare in south africa and from providing a third party payroll payments solution to south african companies . in both cases , the revenue and costs associated with these services are reflected in our south african transaction-based activities segment . finally , we have entered into business partnerships or joint ventures to introduce our ueps and vtu solutions to new markets such as botswana , namibia , nigeria and colombia . in these situations , we take an equity position in the business while also acting as a supplier of technology . in evaluating these types of opportunities , we seek to maintain a highly disciplined approach , carefully selecting partners , participating closely in the development of the business plan and remaining actively engaged in the management of the new business . in most instances , the joint venture or partnership has a license to use the ueps in the specific territory , including the back-end system . we account for our equity investments using the equity method . when we equity-account these investments , we are required under us gaap to eliminate our share of the net income generated from sales of hardware and software to the investee . we recognize this net income from these equity-accounted investments during the period in which the hardware and software is utilized in the investee 's operations , or has been sold to third-party customers , as the case may be . we believe that this flexible approach enables us to drive adoption of our solution while capturing the value created by the implementation of our technology . business developments during fiscal 2011 south africa sassa contract under our sassa contract , we provide our social welfare grants distribution service to sassa in five of south africa 's nine provinces ( kwazulu-natal , limpopo , north west , northern cape and eastern cape ) . the contract contains a standard pricing formula for all provinces based on a transaction fee per beneficiary paid , regardless of the number or amount of grants paid per beneficiary , calculated on a guaranteed minimum number of beneficiaries per month . we signed our current agreement with sassa on august 24 , 2010 which was retroactively effective to july 1 , 2010. the contract was originally scheduled to expire on march 31 , 2011 , was extended to september 30 , 2011 and has been further extended to march 31 , 2012 on the same terms and conditions . in april 2011 , sassa publicly commenced a tender process for the award of new contracts . we are participating in the tender process and have submitted our proposal . see item 1arisk factors and item 3legal proceedings for more information and the risks associated with our sassa contract , the recently initiated new tender process and for an update on litigation between us and sassa . 36 easypay kiosk pilot project in september 2010 , we launched our easypay kiosk , or ep kiosk , pilot project at select locations in the gauteng province of south africa . the ep kiosk enables users to purchase prepaid electricity and airtime and perform any post paid bill payment service requirements using the interactive user-friendly touch screen kiosk interface . the user will also be able to transfer prepaid voucher value to other mobile phone users . users can register their own prepaid voucher wallet on the ep kiosk , with access to the wallet guaranteed via biometric identification of the user at time of registration . a five digit personal identification number , or pin , is also required by the user so as to facilitate transactions done via their own mobile phones or via the website . we have already deployed several ep kiosks and we expect to sign additional agreements during fiscal 2012. south african transaction processors during fiscal 2011 , our south african transaction processors were awarded various new business contracts to perform transaction processing including for a top five petroleum company , a medium-size retailer and four smaller-sized retailers , as well as to perform distribution of prepaid electricity for two large metropolitan areas . in addition , fihrst continues to expand its client base and number and value of transactions processed . outside south africa republic of korea on october 29 , 2010 , we acquired 98.73 % of ksnet , a leading republic of korea payment processor , for krw 270 billion ( approximately $ 240 million based on october 29 , 2010 exchange rates ) . most of ksnet 's revenue is derived from the provision of payment processing services to approximately 200,000 merchants and to card issuers in korea through its van . story_separator_special_tag ksnet has a diverse product offering and we believe it is the only total payments solutions provider offering card van , payment gateway and banking van services in korea , which differentiates ksnet from other korean payment solution providers and allows it to cross-sell its products across its customer base . the acquisition of ksnet expands our international footprint as well as diversifies our revenue , earnings and product portfolio and provides an established base in asia for further business development activities in the region . ksnet 's operating performance during fiscal 2011 has been largely in-line with our expectations and the integration of ksnet has progressed well since the acquisition closed at the end of october 2010. we have commenced a number of strategic initiatives in the republic of korea to maintain our current market share and to expand into adjacent markets . specifically , we have embarked on a number of medium-term initiatives which will be funded from our existing korean cash reserves . we do not expect to use funds generated by our other operations to fund these initiatives in korea . our management teams are actively engaged in identifying and evaluating opportunities in the korean market place . the african continent and iraq during fiscal 2011 , nuets recorded revenue from transaction fees and the delivery of ueps-enabled smartcards under its contract with the government of iraq . nuets expects to generate ongoing revenues from transaction fees under the iraqi contract during fiscal 2012. nuets has entered the second phase of its initiative in ghana and now generates recurring income in the form of hardware and software maintenance fees . nuets continued to service its current customers on the african continent and in iraq and continued its business development efforts , including responding to a number of tenders , in multiple new countries on the african continent during the year . during fiscal 2011 , smartswitch namibia generated incremental transaction fees from transactions conducted between namibian merchants and ueps-enabled smartcards . smartswitch botswana generated transaction fees during fiscal 2011 from the payment of food voucher grants . we expect smartswitch namibia and botswana to continue generating transaction fees during fiscal 2012. smartswitch namibia is no longer dependent on shareholder funding and commenced repayment of its shareholder loans and interest during fiscal 2011. the shareholders of smartswitch botswana agreed to convert their loan funding to equity funding and waive all interest due . the net effect of the reversal of the interest and related foreign exchange effects are included in our results for fiscal 2011. we sold our entire interest in vinapay during fiscal 2011 . 37 net1 uta during the third quarter of fiscal 2011 , one of net1 uta 's largest customers advised us of its intention to transition to an alternative payment platform which will negatively impact our revenue , net income and cash flow in the medium term . as a consequence of this development , as well as deteriorating trading conditions and uncertainty surrounding the timing and quantum of future net cash inflows , we reviewed customer relationships acquired as part of the net1 uta acquisition for impairment . as a result of this review , we recognized an impairment loss of approximately $ 41.8 million related to the entire carrying value of customer relationships acquired in the net1 uta acquisition in august 2008. in addition , we reversed the deferred tax liability of $ 10.4 million associated with this intangible asset . the impairment loss has been allocated to our hardware , software and related technology sales operating segment . in late fiscal 2011 , net1 uta 's management prepared an updated forecast for the remainder of calendar 2011 and for 2012 to determine the viability and sustainability of its operations . based on this forecast we believe that it will take a number of years for net1 uta to return to profitability and that in the short term it will require additional funding . the net1 uta management has proposed and implemented a cost containment plan and operations in the cis , including employee headcount , have been substantially reduced . as a result of the forecast provided , the anticipated short-term losses and the failure of net1 uta to generate revenues using its new transaction-based business model , we have determined to provide a valuation allowance of approximately $ 8.9 million for the full amount of deferred tax assets at net1 uta as of june 30 , 2011. in july , 2011 , net1 uta signed a contract with banamex , a leading bank in mexico and part of citigroup , for the delivery of vcpay . banamex will offer vcpay to its customers as an application that can be downloaded to a mobile phone and linked to the customer 's credit and or debit card accounts . vcpay allows consumers to securely generate an offline , one-time use mvc number for a specific limit or purchase amount on their mobile handsets to buy goods and services or perform bill payments in any card not present environment . net1 virtual card we launched our vcpay tm offering in the united states during fiscal 2011. our mobile phone-based virtual payment card application is designed to eliminate fraud in cnp transactions . we have teamed up with metropcs communications , inc. , or metropcs , the bancorp bank , a wholly-owned subsidiary of the bancorp , inc. , fsv payment systems and moneygram international to offer a comprehensive card issuing , processing and distribution network to wireless subscribers in the united states . metropcs offers our vcpay tm to its prepaid customers as an application that is pre-loaded on new smartphones or can be downloaded on select existing devices . vcpay tm allows a subscriber to generate a unique , one-time use prepaid virtual card number to securely purchase goods and services or perform bill payments in any cnp environment .
| fiscal 2010 selling , general and administration expenses include acquisition-related costs of $ 0.6 million ( zar 4.7 million ) and the stock-based compensation charge related to stock options awarded in may 2009 and restricted stock granted in august 2009. our direct costs of maintaining a listing on nasdaq and obtaining a listing on the jse , as well as compliance with the sarbanes-oxley act of 2002 , or sarbanes , particularly section 404 of sarbanes , includes independent directors ' fees , legal fees , fees paid to nasdaq and the jse , our compliance officer 's salary , fees paid to consultants who assist with sarbanes compliance , fees paid to our independent accountants related to the audit and review process and , during fiscal 2009 , fees paid to our consultants and advisors assisting with the jse listing . this has resulted in expenditures of $ 2.4 million ( zar 17.9 million ) and $ 2.1 million ( zar 18.7 million ) during fiscal 2010 and 2009 , respectively . in zar , depreciation and amortization decreased during fiscal 2010 primarily as a result of lower prism intangible asset amortization , offset by the intangible asset amortization related to the net1 uta , rmt , medikredit and fihrst acquisitions . the intangible asset amortization and deferred tax effects related to our various acquisitions are summarized in the tables below : replace_table_token_19_th 53 replace_table_token_20_th during the fourth quarter of fiscal 2010 , we recognized an impairment loss of approximately $ 37.4 million on goodwill allocated to the hardware , software and related technology sales segment as a result of deteriorating trading conditions of this segment , particularly at net1 uta , and uncertainty surrounding contract finalization dates which were expected to impact future cash flows . with regards to the latter , through the end of the third quarter of fiscal 2010 , we expected to sign our first agreement that reflects the transformed business model for net1 uta during the fourth quarter of fiscal 2010. however , it subsequently became clear to us that this project had been delayed due to key executive management changes at our target customer . during fiscal 2009 , we sold our traditional microlending business and recognized a profit of approximately $ 0.5 million ( zar 4.1 million ) and impaired goodwill of $ 1.8
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pursuant to the warrant , comcast may , subject to certain vesting provisions , purchase up to 7,816,162 shares of our common stock , for a per share exercise price of $ 4.76 . on july 8 , 2019 , comcast elected enterprise license pricing for the company 's cableos software under the product supply agreement . in connection with the election , effective as of july 1 , 2019 ( the “ effective date ” ) , comcast committed to $ 175 million in software license fees over the four-year term of the enterprise license , subject to certain incentive credits that may be earned by comcast pursuant to other purchases of cableos-related products . comcast paid the initial $ 50 million of the enterprise license fees in 2019. in consideration for the election commitments and certain other purchase commitments , all of the remaining milestones and thresholds required to fulfill each of the vesting requirements of the warrant were deemed satisfied and achieved or otherwise waived such that all warrant shares were fully vested and exercisable as of the effective date . the warrant is considered an incentive for comcast to purchase the company 's products , and as a result the value of the warrant is being recorded as a reduction in the company 's net revenues to the extent such value does not exceed net revenues from pertinent sales to comcast . ( see note 17 , “ warrants , ” of the notes to our consolidated financial statements for additional information ) . a majority of our revenue has been derived from relatively few customers , due in part to the consolidation of our service provider customers . sales to our 10 largest customers in 2019 , 2018 and 2017 accounted for approximately 49 % , 37 % and 24 % of our revenue , respectively . although we are attempting to broaden our customer base by penetrating new markets and further expanding internationally , we expect to see continuing industry consolidation and customer concentration . during 2019 and 2018 , comcast accounted for 23 % and 15 % of our net revenue , respectively . during 2017 , no single customer accounted for more than 10 % of our net revenue . the loss of any significant customer , any material reduction in orders by any significant customer , or our failure to qualify our new products with any significant customer could materially and adversely affect our operating results , financial condition and cash flows . our net revenue decreased $ 0.7 million , or 0.2 % in 2019 , compared to 2018 , primarily due to a decrease in our video segment revenue of $ 35.8 million , partially offset by an increase in our cable access segment revenue of $ 34.0 million . the increase in our cable access segment revenue in 2019 was primarily due to the growing success of our cableos solutions , reflected by additional customer deployments in 2019 compared to 2018. the decrease in our video segment revenue in 2019 was primarily due to a shift in product mix to software-based products . as the timing of our customers ' investment decisions can be uncertain , we have implemented restructuring plans to better align the company 's resources and strategic goals . we continue to focus on expense controls on a company-wide basis . ( see note 11 , “ restructuring and related charges ” of the notes to our consolidated financial statements for additional information ) . our aggregate balance of cash and cash equivalents as of december 31 , 2019 was $ 93.1 million , and we generated $ 31.3 million of cash from operations during the fiscal year ended december 31 , 2019 . we refinanced a portion of our 4.00 % senior convertible notes due 2020 ( the “ 2020 notes ” ) by issuing 2.00 % convertible senior notes due 2024 ( the “ 2024 notes ” ) . we also entered into a $ 25 million revolving loan facility with jpmorgan chase bank , n.a. , in october 2019 , which has not been used to withdraw any cash as of december 31 , 2019. see note 12 , “ convertible notes , other debts and finance leases ” of the notes to our consolidated financial statements for additional information . we expect that our current sources of liquidity will provide us adequate liquidity based on our current plan for the next twelve months . critical accounting policies , judgments and estimates the preparation of financial statements and related disclosures requires harmonic to make judgments , assumptions and estimates that affect the reported amounts of assets and liabilities , the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements and accompanying notes . material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were made . see note 2 of the notes to our consolidated financial statements for details of our accounting policies . critical accounting policies , judgments and estimates that we believe have the most significant impact on harmonic 's financial statements are set forth below : revenue recognition ; valuation of inventories ; impairment of goodwill or long-lived assets ; 39 table of content accounting for income taxes ; and stock-based compensation . revenue recognition on january 1 , 2018 , the company adopted asc 606 , revenue from contracts with customers ( “ topic 606 ” ) , using the modified retrospective method applied to those contracts which were not completed as of january 1 , 2018. results for the reporting period beginning january 1 , 2018 are presented under topic 606 , while prior period amounts are not restated and continue to be reported in accordance with our historic accounting under asc 605 , revenue recognition ( “ topic 605 ” ) . ( see note 3 “ revenue ” for additional information about the company 's revenue recognition policies . ) story_separator_special_tag valuation of inventories we state inventories at the lower of cost or net realizable value . cost is computed using standard cost , which approximates actual cost , on a first-in , first-out basis . we write down the cost of excess or obsolete inventory to net realizable value based on future demand forecasts and historical consumption . if there were to be a sudden and significant decrease in demand for our products , or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to record additional charges for excess and obsolete inventory and our gross margin could be adversely affected . inventory management is of critical importance in order to balance the need to maintain strategic inventory levels to ensure competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements . impairment of goodwill or long-lived assets goodwill represents the difference between the purchase price and the estimated fair value of the identifiable assets acquired and liabilities assumed . we test for goodwill impairment at the reporting unit level , which is the same as our operating segment , on an annual basis in the fourth quarter of each of our fiscal years , and at any other time at which events occur or circumstances indicate that the carrying amount of goodwill may exceed its fair value . in evaluating goodwill for impairment , we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value ( including goodwill ) . if we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying value , then no further testing is required . however , if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying value , then the two-step goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized , if any . the first step requires comparing the fair value of the reporting unit to its net book value , including goodwill . a potential impairment exists if the fair value of the reporting unit is lower than its net book value . the second step of the process , which is performed only if a potential impairment exists , involves determining the difference between the fair value of the reporting unit 's net assets other than goodwill and the fair value of the reporting unit . if this difference is less than the net book value of goodwill , an impairment exists and is recorded . in the first step , the fair value of each of our reporting units is determined using both the income and market valuation approaches . under the income approach , the fair value of the reporting unit is based on the present value of estimated future cash flows that the reporting unit is expected to generate over its remaining life . under the market approach , the value of the reporting unit is based on an analysis that compares the value of the reporting unit to values of publicly-traded companies in similar lines of business . in the application of the income and market valuation approaches , we are required to make estimates of future operating trends and judgments on discount rates and other variables . determining the fair value of a reporting unit is highly judgmental in nature and involves the use of significant estimates and assumptions . we base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain . actual future results related to assumed variables could differ from these estimates . in addition , we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units . under the income approach , we calculate the fair value of a reporting unit based on the present value of estimated future cash flows . cash flow projections are based on management 's estimates of revenue growth rates and operating margins , taking into consideration industry and market conditions . the discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business 's ability to execute on the projected cash flows . under the market approach , we estimate the fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting units , and then apply a control premium which is determined by considering control premiums offered as part of the acquisitions that have occurred in market segments that are comparable with our reporting units . 40 table of content during the fourth quarter of 2019 , we performed the first step of goodwill impairment testing for our two reporting units as part of our annual goodwill impairment test and concluded that goodwill was not impaired . we have not recorded any impairment charges related to goodwill for any prior periods . we evaluate the recoverability of intangible assets and other long-lived assets when indicators of impairment are present . when impairment indicators are present , we evaluate the recoverability of intangible assets and other long-lived assets on the basis of undiscounted cash flows expected to result from the use of each asset group and its eventual disposition . if the undiscounted expected future cash flows are less than the carrying amount of the asset , an impairment loss is recognized in order to write down the carrying value of the asset to its estimated fair market value . accounting for income taxes in preparing our financial statements , we estimate our income taxes for each of the jurisdictions in which we operate .
| gross profit the following presents the gross profit and gross profit as a percentage of net revenue ( “ gross margin ” ) ( in thousands , except percentages ) : 42 table of content replace_table_token_3_th our gross margins are dependent upon , among other factors , the proportion of software sales , product mix , customer mix , product introduction costs , price reductions granted to customers and achievement of cost reductions . our gross margin increased 3.6 % in 2019 , as compared to 2018 , primarily due to a higher proportion of software in the product mix for each of our business segments . gross margin increased 4.4 % in 2018 , as compared to 2017 , primarily due to more favorable margins generated in our cable access segment due to increased cableos sales activity . our video segment gross margin also improved marginally , primarily due to a favorable product mix . research and development our research and development expenses consist primarily of employee salaries and related expenses , contractors and outside consultants , supplies and materials , equipment depreciation and facilities costs , all associated with the design and development of new products and enhancements of existing products . the research and development expense is net of french r & d tax credits . the following table presents the research and development expenses , net and the expenses as a percentage of net revenue ( in thousands , except percentages ) : replace_table_token_4_th the $ 4.5 million , or 5 % , decrease in research and development expenses in 2019 compared to 2018 was primarily due to lower employee compensation costs due to headcount reductions as a result of our continuing transformation from a capital-intensive hardware development model to a predominantly software development model and lower stock-based compensation expense , offset by higher costs for third-party engineering services . the $ 6.8 million , or 7 % , decrease in research and development expenses in 2018 compared to 2017 was primarily due to lower
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segment sales and income from operations replace_table_token_6_th north america in 2018 , net sales of our north america segment increased 9.3 percent due to an 11.1 percent increase in average selling price per wheel partially offset by a 1.7 percent decrease in volumes . the increase in average selling price per wheel , contributed $ 81.5 million , and was driven by higher aluminum pricing , which we generally pass through to our customers , and improved product mix comprised of larger diameter wheels and premium finishes . unit shipments declined from 11.5 million in 2017 to 11.3 million in 2018 resulting in a $ 12.2 million reduction in revenue . the decline in unit shipments was primarily due to lower sales to ford , fca , bmw and subaru , partially offset by increased sales to gm . north american segment sales between u.s. and mexico were approximately 15.9 percent and 84.1 percent , respectively during 2018 , which compares to 17.0 percent and 83.0 percent for 2017. the north america 24 segment income from operations increased in 2018 due primarily to lower integration costs and favorable product mix , partially offset by increased launch and energy costs . europe in 2018 , net sales of our european segment increased 86.7 percent primarily due to an additional five months of sales , which contributed $ 283.3 million , and a 6.5 percent increase in the average selling price per wheel . the increase in average selling price per wheel , was driven by higher aluminum pricing , which we generally pass through to our customers . european segment sales between germany and poland were approximately 39.9 percent and 60.1 percent , respectively , during 2018 , which compares to 41.3 percent and 58.7 percent for 2017. european segment income from operations for the year ended 2018 increased consistent with increasing sales , as well as a reduction in integration related expenses from $ 14.8 million in 2017 to $ 2.4 million in 2018. financial condition , liquidity and capital resources our sources of liquidity primarily include cash , cash equivalents and short-term investments , net cash provided by operating activities , our senior notes and borrowings under available debt facilities , factoring arrangements for trade receivables and , from time to time , other external sources of funds . working capital ( current assets minus current liabilities ) and our current ratio ( current assets divided by current liabilities ) were $ 163.1 million and 1.9 , respectively , at december 31 , 2019 , versus $ 192.0 million and 2.1:1 at december 31 , 2018. as of december 31 , 2019 , our cash , cash equivalents and short-term investments totaled $ 77.9 million compared to $ 48.2 million at december 31 , 2018. our working capital requirements , investing activities and cash dividend payments have historically been funded from internally generated funds , debt facilities , cash equivalents and short-term investments , and we believe these sources will continue to meet our capital requirements , as well as our currently anticipated short-term needs . capital expenditures consist of ongoing maintenance and operational improvements ( “ maintenance ” ) , as well as capital related to new product offerings and expanded capacity for existing products ( “ new business ” ) . over time capital expenditures have consisted of roughly equal components of maintenance and new business , the most significant of which in recent years has been our investment in physical vapor deposition ( pvd ) technology which went into production in 2019. in connection with the acquisition of our european business , we entered into several debt and equity financing arrangements during 2017. on march 22 , 2017 , we entered into a usd senior secured credit facility ( “ usd sscf ” ) consisting of a $ 400.0 million senior secured term loan facility ( “ term loan facility ” ) and a $ 160.0 million revolving credit facility ( “ revolving credit facility ” ) . on may 22 , 2017 , we issued 150,000 shares of redeemable preferred stock to tpg growth iii sidewall , l.p. ( “ tpg ” ) for an aggregate purchase price of $ 150.0 million . on june 15 , 2017 , we issued 250.0 aggregate principal amount of 6 % senior notes due june 15 , 2025 ( “ notes ” ) . in addition , as a part of our european business acquisition , we assumed $ 70.7 million of outstanding debt . during the second quarter of 2019 , the company amended the eur senior secured credit facility ( “ eur sscf ” ) , our european revolving credit facility , increasing the available borrowing limit from 30.0 million euro to 45.0 million euro and extending the term to may 22 , 2022. in addition , the european business entered into equipment loan agreements totaling $ 13.4 million ( 12.0 million euro ) in the fourth quarter of 2019 , but the company had not drawn down on the loans as of december 31 , 2019. on january 1 , 2020 , the available borrowing limit of the eur sscf was increased from 45.0 million euro to 60.0 million euro . all other terms of the eur sscf remained unchanged . balances outstanding under the term loan facility , notes , and an equipment loan as of december 31 , 2019 were $ 371.8 million , $ 243.1 million , $ 12.7 million , respectively . the redeemable preferred stock balance issued to tpg amounted to $ 161.0 million as of december 31 , 2019. there was no balance outstanding under the revolving credit facility of the usd sscf at december 31 , 2019 and unused commitments were $ 156.4 million . story_separator_special_tag in addition , there was 44.6 million euro available under our eur sscf as of december 31 , 2019. cash and funds available under credit facilities were $ 284.2 million at december 31 , 2019. on september 3 , 2019 , the company announced that its board of directors determined to suspend the company 's quarterly common dividend . 25 the following table summarizes the cash flows from operating , investing and financing activities as reflected in the consolidated statements of cash flows . replace_table_token_7_th 2019 versus 2018 operating activities net cash provided by operating activities was $ 162.8 million in 2019 compared to $ 156.1 million in 2018. the year-over-year increase in operating cash flow is primarily due to improved working capital management . the reduction in inventory was driven by lower production volumes and aluminum prices . the increase in payables due to improved terms with aluminum suppliers was largely offset by the lower year-over-year reduction in accounts receivable . investing activities net cash used in investing activities was $ 54.7 million in 2019 compared to $ 77.1 million in 2018. the decline in cash used in investing activities in 2019 was due to the year-over-year reduction in capital expenditures , as well as cash proceeds received upon sale of other assets in 2019. financing activities net cash used in financing activities was $ 76.6 million compared to $ 76.3 million in 2018. the modest increase in cash used in financing activities was due to prepayments on the term loan and early extinguishment of the 6 % notes in 2019 , substantially offset by lower purchases of non-controlling redeemable shares and , to a lesser extent , lower cash dividends largely due to suspension of the common share dividend in the third quarter of 2019 . 2018 versus 2017 operating activities net cash provided by operating activities was $ 156.1 million in 2018 and $ 63.7 million in 2017. the increase in cash flow provided by operating activities was mainly due to the inclusion of a full year of our european operations as compared to seven months in 2017 , improved working capital management and the introduction of a receivables factoring program in north america , which generated $ 30.1 million of operating cash flows in the year . investing activities net cash used in investing activities was $ 77.1 million in 2018 compared to $ 777.6 million in 2017. net cash used in investing activities was higher in 2017 due to our european business acquisition in 2017. financing activities net cash used in financing activities was $ 76.3 million compared to net cash provided by financing activities of $ 701.1 million in 2017. net cash provided by financing activities was higher in 2017 due to the issuance of debt to finance the european business acquisition . 26 contractual obligations contractual obligations as of december 31 , 2019 are as follows ( amounts in millions ) : replace_table_token_8_th the table above does not reflect unrecognized tax benefits and related interest and penalties of $ 34.3 million , for which the timing of settlement is uncertain , $ 8.7 million of liabilities for derivative financial instruments maturing in 2020 through 2023 nor the redeemable preferred stock embedded derivative liability of $ 3.9 million . in addition , the table does not include dividend payments due quarterly nor the redemption value of the redeemable preferred stock in 2025. off-balance sheet arrangements as of december 31 , 2019 , we had no significant off-balance sheet arrangements other than factoring of $ 49.6 million of our trade receivables . non-gaap financial measures in this annual report , we discuss two important measures that are not calculated according to u.s. gaap , value added sales and adjusted ebitda . value added sales is a key measure that is not calculated according to gaap . in the discussion of operating results , we provide information regarding value added sales . value added sales represents net sales less the value of aluminum and services provided by outsourced service providers ( “ osps ” ) that are included in net sales . as discussed further below , arrangements with our customers allow us to pass on changes in aluminum prices ; therefore , fluctuations in underlying aluminum price generally do not directly impact our profitability . accordingly , value added sales is worthy of being highlighted for the benefit of users of our financial statements . our intent is to allow users of the financial statements to consider our net sales information both with and without the aluminum and osp cost components thereof . management utilizes value added sales as a key metric to determine growth of the company because it eliminates the volatility of aluminum prices . replace_table_token_9_th adjusted ebitda is a key measure that is not calculated according to u.s. gaap . adjusted ebitda is defined as earnings before interest income and expense , income taxes , depreciation , amortization , restructuring charges and other closure costs and impairments of long-lived assets and investments , changes in the fair value of the redeemable preferred stock embedded derivative liability , acquisition and integration costs , certain hiring and separation related costs , gains associated with early debt extinguishment , and accounts receivable factoring fees . we use adjusted ebitda as an important indicator of the operating performance of our business . adjusted ebitda is used in our internal forecasts and models when establishing internal operating budgets , supplementing the financial results and forecasts reported to our board of directors and evaluating short-term and long-term trends in our operations . we believe the adjusted ebitda financial measure assists in providing a more complete understanding of our underlying operational measures to manage our business , to evaluate our performance compared to prior periods and the marketplace and to establish operational goals . adjusted ebitda is a non-gaap financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with u.s. gaap .
| the decrease in cost of sales was due primarily due to lower volumes , lower aluminum prices , and a weaker euro partially offset by higher aluminum content associated with larger diameter wheels and $ 14.8 million of restructuring and relocation costs related to our fayetteville , arkansas manufacturing location . selling , general and administrative expenses selling , general and administrative expenses for 2019 were $ 63.9 million , or 4.7 percent of net sales , compared to $ 77.7 million , or 5.2 percent of net sales for the same period in 2018. the decrease is primarily due to a reduction in acquisition and integration expenses and the alignment of reporting for sg & a between our north american and european operations . impairment of goodwill and indefinite-lived intangibles in 2019 we recognized a goodwill and indefinite-lived intangibles impairment charge of $ 102.2 million relating to our european reporting unit ( refer to note 10 , “ goodwill and other intangible assets ” in the notes to the consolidated financial statements in item 8 , “ financial statements and supplementary data ” in this annual report ) . net interest expense net interest expense for 2019 was $ 47.0 million , compared to interest expense of $ 50.1 million in 2018. the reduction in interest expense was primarily due to the 2018 repricing of the company 's $ 400.0 million senior secured term loan facility ( “ term loan facility ” ) , the early extinguishment of a portion of the 6 % senior notes due june 15 , 2025 ( “ notes ” ) in 2019 and decreased loan reference rates , primarily us dollar libor rates . other income ( expense ) other income was $ 4.8 million in 2019 , compared with other expense of $ ( 6.9 ) million in 2018. the increase in other income was primarily driven by a $ 3.7 million gain on the early extinguishment of a portion of the notes in 2019 and a foreign exchange gain in 2019 versus a foreign exchange loss in 2018. change in fair value of embedded derivative liability during 2019 , the redeemable preferred stock embedded derivative liability associated with the conversion and the early redemption options increased $ 0.8 million to $
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we are broadening our product offerings into the transportation segment in europe and the middle east . we currently focus on third-party advertising market opportunities and the factors listed in each of the other business units to the extent they apply outside the united states and canada . 15 critical accounting policies and estimates the following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments which affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on a regular basis , we evaluate our estimates , including those related to total costs on long-term construction-type contracts , costs to be incurred for product warranties and extended maintenance contracts , bad debts , excess and obsolete inventory , income taxes , share-based compensation and contingencies . our estimates are based on historical experience and on various other assumptions 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 not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies require significant judgments and estimates in the preparation of our consolidated financial statements : revenue recognition on long-term construction-type contracts . earnings on construction-type contracts are recognized on the percentage-of-completion method , measured by the percentage of costs incurred to date to estimated total costs for each contract . contract costs include all direct material and labor costs and those indirect costs related to contract performance . indirect costs include charges for such items as facilities , engineering and project management . provisions for estimated losses on uncompleted contracts are made in the period such losses are capable of being estimated . generally , construction-type contracts we enter into have fixed prices established , and to the extent the actual costs to complete construction-type contracts are higher than the amounts estimated as of the date of the financial statements , the resulting gross margin would be negatively affected in future quarters when we revise our estimates . our practice is to revise estimates as soon as such changes in estimates are known . we do not believe there is a reasonable likelihood there will be a material change in future estimates or assumptions we use to determine these estimates . we combine contracts for accounting purposes when they are negotiated as a package with an overall profit margin objective , essentially represent an agreement to do a single project for a customer , involve interrelated construction activities , and are performed concurrently or sequentially . when a group of contracts is combined , revenue and profit are recognized uniformly over the performance of the combined projects . we segment revenues in accordance with the contract segmenting criteria in accounting standards codification ( “ asc ” ) 650-35 , construction-type and production-type contracts . allowance for doubtful accounts . we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . if the financial condition of our customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . to identify impairment in customers ' ability to pay , we review aging reports , contact customers in connection with collection efforts and review other available information . although we consider our allowance for doubtful accounts adequate , if the financial condition of our customers were to deteriorate and impair their ability to make payments to us , additional allowances may be required in future periods . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine the allowance for doubtful accounts . as of may 2 , 2015 and april 26 , 2014 , we had an allowance for doubtful accounts balance of approximately $ 2.3 million and $ 2.5 million , respectively . warranties . we have recognized a reserve for warranties on our products equal to our estimate of the actual costs to be incurred in connection with our performance under the warranties . generally , estimates are based on historical experience taking into account known or expected changes . if we would become aware of an increase in our estimated warranty costs , additional reserves may become necessary , resulting in an increase in costs of goods sold . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine our reserve for warranties . as of may 2 , 2015 and april 26 , 2014 , we had approximately $ 26.5 million and $ 27.3 million reserved for these costs , respectively . extended warranty and product maintenance . we recognize deferred revenue related to separately priced extended warranty and product maintenance agreements . the deferred revenue is recognized ratably over the contractual term . if we would become aware of an increase in our estimated costs under these agreements in excess of our deferred revenue , additional reserves may be necessary , resulting in an increase in costs of goods sold . in determining if additional reserves are necessary , we examine cost trends on the contracts and other information and compare them to the deferred revenue . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to determine estimated costs under these agreements . as of may 2 , 2015 and april 26 , 2014 , we had $ 13.1 million and $ 13.8 million of deferred revenue related to separately priced extended warranty and product maintenance agreements , respectively . inventory . story_separator_special_tag inventories are stated at the lower of cost or market . market refers to the current replacement cost , except market may not exceed the net realizable value ( that is , the estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal ) , and market is not less than the net realizable value reduced by an allowance for normal profit margins . in valuing inventory , we estimate market value where it is believed to be the lower of cost or market , and any necessary changes are charged to costs of goods sold in the period in which they occur . in determining market value , we review various factors such as current inventory 16 levels , forecasted demand and technological obsolescence . we do not believe there is a reasonable likelihood there will be a material change in the future estimates or assumptions we use to calculate the estimated market value of inventory . however , if market conditions change , including changes in technology , product components used in our products or expected sales , we may be exposed to unforeseen losses which could be material . income taxes . we operate in multiple income tax jurisdictions both within the united states and internationally . our annual tax rate is determined based on our income , statutory tax rates and the tax impacts of items treated differently for tax purposes than for financial reporting purposes in each tax jurisdiction . tax laws require that certain items be included in the tax returns at different times than the items are reflected in the financial statements . some of these differences are permanent , such as expenses that are not deductible in our tax return , and some differences are temporary and reverse over time , such as depreciation expense . these temporary differences create deferred tax assets and liabilities and reflect the enacted income tax rates in effect for the years in which the differences are expected to reverse . we consider a valuation allowance for deferred tax assets if it is `` more likely than not '' that some or all of the benefits will not be realized . because we operate in multiple income tax jurisdictions both within the united states and internationally , management must determine the appropriate allocation of income and expenses to each of these jurisdictions based on current interpretations of complex income tax regulations . income tax authorities in all jurisdictions regularly perform audits of our income tax filings . income tax audits associated with the allocation of income , expenses and other complex issues , including transfer pricing methodologies , may require an extended period of time to resolve and may result in significant income tax adjustments if changes to the income allocation are required between jurisdictions with different income tax rates . we have no deferred tax liability recognized relating to our investment in foreign subsidiaries where the earnings have been indefinitely reinvested . if circumstances change and it becomes apparent that some or all of the undistributed untaxed earnings of a subsidiary will be remitted to the united states , we will accrue a tax expense at the time of the remittance . we have approximately $ 10.4 million of untaxed earnings which have indefinitely been reinvested . asset impairment . carrying values of goodwill and other intangible assets with indefinite lives are reviewed at least annually for possible impairment in accordance with asc 350 , intangibles - goodwill and other . our impairment review involves estimating the fair value of goodwill and indefinite-lived intangible assets using a combination of a market approach and an income ( discounted cash flow ) approach at the reporting unit level , requiring significant management judgment with respect to revenue and expense growth rates , changes in working capital , and the selection and use of an appropriate discount rate . the estimates of fair value of reporting units are based on the best information available as of the date of the assessment . the use of different assumptions would increase or decrease estimated discounted future operating cash flows and could increase or decrease any impairment charge . we use our judgment in assessing whether assets may have become impaired between annual impairment tests . indicators such as adverse business conditions , economic factors and technological change or competitive activities may signal an asset has become impaired . carrying values for long-lived tangible assets and definite-lived intangible assets , excluding goodwill and indefinite-lived intangible assets , are reviewed for possible impairment as circumstances warrant in connection with asc 360-10-05-4 , impairment or disposal of long-lived assets . impairment reviews are conducted when we believe a change in circumstances in the business or external factors warrants a review . circumstances such as the discontinuation of a product or product line , a sudden or consistent decline in the forecast for a product , changes in technology or in the way an asset is being used , a history of negative operating cash flow , or an adverse change in legal factors or in the business climate , among others , may be indicators that trigger an impairment review . our initial impairment review to determine if a potential impairment charge is required is based on an undiscounted cash flow analysis at the lowest level for which identifiable cash flows exist . the analysis requires judgment with respect to changes in technology , the continued success of product lines , future volume , revenue and expense growth rates , and discount rates . share-based compensation . we use the black-scholes standard option pricing model ( “ black-scholes model ” ) to determine the fair value of stock options and stock purchase rights .
| general and administrative costs increase d by approximately 8.2 percent in the fourth quarter of fiscal 2015 to $ 7.8 million as compared to $ 7.2 million in the fourth quarter of fiscal 2014 . the increase was primarily due to increased personnel expenses , including taxes and benefits , and information technology , including software and hardware expenses , and partially offset by a decrease in professional fees . product development costs decrease d by approximately 2.7 percent in the fourth quarter of fiscal 2015 to $ 5.9 million as compared to $ 6.0 million in the fourth quarter of fiscal 2014 . the decrease was the result of reduced engineering costs and small changes in non-engineering costs , the cost of materials to produce prototypes or test materials , and legal fees related to patent work . the effective tax rate was 45.0 percent in the fourth quarter of fiscal 2015 compared to 74.3 percent in the fourth quarter of fiscal 2014 . the effective income tax rate for fiscal 2014 includes the impact of a $ 2.3 million valuation allowance against a deferred tax asset related to losses in an equity in investment when it became more likely than not we would not realize the benefit . 25 liquidity and capital resources replace_table_token_8_th cash flows from operating activities : operating cash flows result primarily from cash received from customers , which is offset by cash payments for inventories , income taxes , market and warranty obligations , and employee compensation . cash provided by operating activities was $ 53.2 million for fiscal 2015 compared to $ 36.2 million in fiscal 2014 . the increase in cash from operating activities of $ 17.0 million was the net result of an increase for changes in net operating assets and liabilities of $ 18.2 million , an increase of $ 0.6 million in our deferred income taxes , a $ 0.5 million increase in depreciation and amortization , and a $ 0.1 million increase in other non-cash items , net , offset by a decrease of $ 1.3 million in
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; and ( e ) other international construction and facilities services . the segment “ united states facilities services ” principally consists of those operations which provide a portfolio of services needed to support the operation and maintenance of customers ' facilities ( industrial maintenance and services ; outage services to utilities and industrial plants ; commercial and government site-based operations and maintenance ; military base operations support services ; mobile maintenance and services ; floor care and janitorial services ; landscaping , lot sweeping and snow removal ; facilities management ; vendor management ; call center services ; installation and support for building systems ; program development , management and maintenance for energy systems ; technical consulting and diagnostic services ; infrastructure and building projects for federal , state and local governmental agencies and bodies ; small modification and retrofit projects ; and retrofit projects to comply with clean air laws ) , which services are not generally related to customers ' construction programs . the united kingdom and other international construction and facilities services segments perform electrical construction , mechanical construction and facilities services . in august 2011 , we sold our canadian subsidiary , which represented our canada construction segment and which performed electrical construction and mechanical construction . our “ other international construction and facilities services ” segment consisted of our equity interest in a middle east venture , which interest we sold in june 2010. story_separator_special_tag acquired in 2011 and 2010 , which perform facilities maintenance services , government infrastructure contracting services and mobile mechanical services , and to an increase in revenues at : ( a ) our industrial services operations , which have seen an increase in demand for our services in the refinery and petrochemical markets , ( b ) our mobile mechanical services , excluding revenues attributable to acquisitions made in 2011 and 2010 , reflecting an increase in demand for our repair services , 20 controls installation and small project work and ( c ) our government services operations , due to new project awards . additionally , a contract amendment with a client resulted in an increase in revenues as the new terms and conditions required us to act as a principal and no longer as the client 's agent . our united kingdom construction and facilities services segment revenues were $ 538.8 million in 2012 compared to $ 529.0 million in 2011. this increase in revenues was primarily attributable to growth in revenues in our facilities services business as a result of an expansion in scope of contracts with our existing customers in the commercial and transportation markets , partially offset by a decrease in revenues from our united kingdom construction business as a result of lower volume from institutional and healthcare construction projects and a decrease of $ 6.5 million relating to the effect of unfavorable exchange rates for the british pound versus the united states dollar . our united kingdom construction and facilities services segment revenues were $ 529.0 million in 2011 compared to $ 462.4 million in 2010. this increase in revenues was primarily attributable to growth in revenues from our facilities services business as a result of an expansion in scope of contracts with our existing customers in the commercial market . this increase was also partly attributable to an increase of $ 18.3 million relating to the effect of favorable exchange rates for the british pound versus the united states dollar . other international construction and facilities services activities consisted of a venture in the middle east . the results of the venture were accounted for under the equity method of accounting . in june 2010 , we sold our equity interest in a middle east venture to our partner in the venture . as a result of this sale , we received $ 7.9 million and recognized a pretax gain in this amount , which is classified as a “ gain on sale of equity investment ” on the consolidated statement of operations . cost of sales and gross profit the following table presents cost of sales , gross profit ( revenues less cost of sales ) , and gross profit margin ( gross profit as a percentage of revenues ) for the years ended december 31 , 2012 , 2011 and 2010 ( in millions , except for percentages ) : replace_table_token_8_th our gross profit for the year ended december 31 , 2012 was $ 806.4 million , an increase of $ 72.4 million compared to the gross profit for the year ended december 31 , 2011 of $ 733.9 million . the increase in gross profit was primarily attributable to : ( a ) companies acquired in 2012 and 2011 reported within our united states mechanical construction and facilities services segment and our united states facilities services segment , which contributed approximately $ 29.2 million to gross profit , net of amortization expense attributable to identifiable intangible assets of $ 0.2 million , ( b ) our united states facilities services segment , excluding gross profit from acquisitions made in 2011 , primarily due to our industrial services operations , ( c ) our united states electrical construction and facilities services segment and ( d ) our united states mechanical construction and facilities services segment , excluding the gross profit from companies acquired in 2012 and 2011. these increases were partially offset by lower gross profit from our united kingdom operations , whose construction business experienced several project write-downs . the increase in gross profit was also negatively impacted by changes in the exchange rates for the british pound versus the united states dollar . story_separator_special_tag our gross profit margin was 12.7 % for 2012 compared to 13.1 % for 2011. the decrease in gross profit margin was primarily the result of lower gross profit margin at : ( a ) our united states mechanical construction and facilities services segment , primarily as a result of the favorable resolution in 2011 of various uncertainties on projects and the settlement of a long outstanding construction claim , ( b ) our united states facilities services segment , partially attributable to the margin dilutive impact of an acquisition in 2011 , and ( c ) our united kingdom operations , as a result of the operating loss from its construction business . the decrease in gross profit margin in 2012 was partially offset by higher gross profit margin at our united states electrical construction and facilities services segment , primarily as a result of : ( a ) the favorable resolution of a long outstanding construction claim on a water and wastewater construction project and ( b ) higher margins from certain other construction projects , as a result of claim settlements and better than anticipated project execution on other contracts . our gross profit for the year ended december 31 , 2011 was $ 733.9 million , an increase of $ 40.4 million compared to the gross profit for the year ended december 31 , 2010 of $ 693.5 million . the increase in gross profit was primarily attributable to : ( a ) companies acquired in 2011 and 2010 within our united states mechanical construction and facilities services and our united states facilities services segments , which contributed approximately $ 38.5 million to gross profit , net of amortization expense of $ 4.6 million attributable to identifiable intangible assets , ( b ) our united states facilities services segment , excluding gross profit from acquisitions in 2011 and 2010 , primarily due to our industrial services operations and ( c ) our united states electrical construction and facilities services segment . the increase in gross profit was also attributable to an increase of $ 1.9 million relating 21 to the effect of favorable exchange rates for the british pound versus the united states dollar . these increases were partially offset by lower gross profit and gross profit margin from : ( a ) our united states mechanical construction and facilities services segment , excluding gross profit from the 2011 acquisition in this segment , primarily as a result of lower margin work acquired during the then economic slow down and ( b ) our united kingdom operations , whose construction business experienced project write-downs . gross profit and gross profit margin for 2010 were favorably impacted by the resolution of long outstanding legal claim on a healthcare construction project in our united states mechanical construction and facilities services segment and the receipt of a contract termination fee pursuant to the terms of a contract in our united kingdom operations . additionally in 2010 , we recognized a pretax gain of $ 4.5 million by our energy services operations within our united states facilities services segment from the sale of our interest in a venture , which gain is classified as a component of “ cost of sales ” on the consolidated statements of operations . our gross profit margin was 13.1 % for 2011 compared to 14.3 % for 2010. the decrease in gross profit margin was primarily the result of lower gross profit margin at : ( a ) our united states mechanical construction and facilities services segment ( excluding gross profit margin attributable to the 2011 acquisition in this segment ) for reasons discussed in the preceding paragraph , ( b ) our united states facilities services segment , partially attributable to acquisitions made in 2011 and 2010 , and the contract amendment mentioned above and ( c ) our united kingdom operations . additionally in 2010 , we recognized a pretax gain of $ 4.5 million by our energy services operations within our united states facilities services segment as discussed in the preceding paragraph . this decrease in gross profit margin in 2011 was partially offset by higher gross profit margin at our united states electrical construction and facilities services segment , primarily as a result of : ( a ) the favorable resolution of uncertainties upon the substantial completion of a hospitality construction project and ( b ) higher margins from certain transportation construction projects , as a result of claim settlements and better than anticipated project execution on other contracts . selling , general and administrative expenses the following table presents selling , general and administrative expenses , and selling , general and administrative expenses as a percentage of revenues , for the years ended december 31 , 2012 , 2011 and 2010 ( in millions , except for percentages ) : replace_table_token_9_th our selling , general and administrative expenses for the year ended december 31 , 2012 were $ 556.2 million , a $ 38.1 million increase compared to selling , general and administrative expenses of $ 518.1 million for the year ended december 31 , 2011. this increase was primarily attributable to : ( a ) $ 26.9 million of incremental expenses directly related to companies acquired in 2012 and 2011 , including amortization expense attributable to identifiable intangible assets of $ 4.9 million , and ( b ) higher employee related costs such as incentive compensation and employee benefits , partially as a result of improved results and share-based compensation costs . this increase was partially offset by : ( a ) the $ 6.4 million reversal of contingent consideration accruals relating to acquisitions made prior to 2012 and ( b ) a decrease in professional fees , as we had incurred $ 4.7 million of transaction costs associated with an acquisition made in 2011. selling , general and administrative expenses as a percentage of revenues decreased for 2012 compared to 2011 , primarily related to our ability to increase revenues at a greater rate than the increase in overhead costs .
| billion compared to $ 3.33 billion of backlog at december 31 , 2011. this slight increase in backlog , excluding the effect of acquisitions , was primarily attributable to : ( a ) an increase in contracts awarded for work in all of our domestic segments and ( b ) an increase of $ 27.7 million in backlog associated with a company acquired in 2012 , which is included in our united states mechanical construction and facilities services segment . this increase was partially offset by lower backlog within our united kingdom segment . backlog increases with awards of new contracts and decreases as we perform work on existing contracts . backlog is not a term recognized under united states generally accepted accounting principles ; however , it is a common measurement used in our industry . backlog includes unrecognized revenues to be realized from uncompleted construction contracts plus unrecognized revenues expected to be realized over the remaining term of facilities services contracts . if the remaining term of a facilities services contract exceeds 12 months , the unrecognized revenues attributable to such contract included in backlog are limited to only the next 12 months of revenues . 19 the following table presents our revenues for each of our operating segments and the approximate percentages that each segment 's revenues were of total revenues for the years ended december 31 , 2012 , 2011 and 2010 ( in millions , except for percentages ) : replace_table_token_7_th revenues of our united states electrical construction and facilities services segment were $ 1,211.7 million for the year ended december 31 , 2012 compared to revenues of $ 1,155.1 million for the year ended december 31 , 2011. this increase in revenues was primarily attributable to higher levels of work from industrial , institutional and commercial construction projects , partially offset by a decrease in revenues from healthcare , transportation and hospitality construction projects . revenues of our united states electrical construction and facilities
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the number of impacted annuitants for whom the company released the full insurance liability was no more than 1,000 in any one year , and over the entire period totaled approximately 13,500 as of december 31 , 2017 , which is approximately 2 % of the total group annuitant population . further , an additional internal review of practices and procedures was completed in early 2018 , focusing on the calculation of certain reserves associated with metlife holdings variable annuity guarantees assumed from a former operating joint venture in japan . as a result , the company reduced these reserves by $ 896 million ( $ 582 million , net of income tax ) . of this amount , $ 214 million ( $ 139 million , net of income tax ) was incurred in 2017 and $ 682 million ( $ 443 million , net of income tax ) was considered an error . recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017. metlife uses a valuation model to estimate the fair value of the embedded derivative portion of this reserve . in reviewing the model inputs , the company determined that customer withdrawals were not properly incorporated into this valuation model , resulting in an overstatement of the reserve . as a result of these adjustments , amounts previously reported have been immaterially restated . in addition , the company has corrected other unrelated immaterial errors which were previously recorded in the periods the company identified them . management , in consultation with the audit committee of metlife , inc. 's board of directors , had identified material weaknesses in the company 's internal control over financial reporting related to certain ris group annuity reserves and assumed variable annuity guarantee reserves . see “ risk factors ” and “ controls and procedures ” for further information , as well as note 1 of the notes to the consolidated financial statements for information regarding prior period revisions related to the company 's consolidated results . u.s. tax reform on december 22 , 2017 , u.s. tax reform was signed into law . u.s. tax reform includes numerous changes in tax law , including a permanent reduction in the u.s. federal corporate income tax rate from 35 % to 21 % , which took effect for taxable years beginning on or after january 1 , 2018 , a participation exemption system which generally eliminates u.s. federal income tax on dividends received from foreign subsidiaries , and a number of other revenue raisers . 87 the impact of u.s. tax reform was a net benefit of $ 1.3 billion in 2017. u.s. gaap requires that the impact of tax legislation be recognized in the period in which the law was enacted . as a result , in the fourth quarter of 2017 the company revalued its net u.s. deferred tax liability to the new corporate tax rate of 21 % , resulting in a one-time benefit of $ 1.5 billion . additionally , the company also recorded a one-time charge of $ 170 million related to the deemed repatriation of untaxed accumulated foreign earnings . given the complexities of u.s. tax reform , amounts recorded may change , possibly materially , due to , among other things , changes in interpretations and assumptions made by the company , additional guidance that may be issued and actions that the company may take . see note 18 of the notes to the consolidated financial statements for a further discussion of u.s. tax reform and the impact to the company in the fourth quarter of 2017. see also “ — consolidated company outlook ” for a discussion of u.s. tax reform 's projected near-term impacts to the company . separation of brighthouse on august 4 , 2017 , metlife , inc. completed the separation . metlife , inc. retained the remaining ownership interest of 22,996,436 shares , or 19.2 % , of brighthouse financial , inc. common stock outstanding . the separation resulted in the elimination of the brighthouse financial segment . the results of brighthouse are reflected in the company 's consolidated financial statements as discontinued operations and , therefore , are presented as assets and liabilities of disposed subsidiary on the consolidated balance sheets and income ( loss ) from discontinued operations on the consolidated statements of operations . the reporting of discontinued operations had no impact on total consolidated assets or liabilities or on total consolidated net income ( loss ) for any of the years presented . see note 3 of the notes to the consolidated financial statements for further information . current year highlights during the year ended december 31 , 2017 , overall sales increased compared to the year ended december 31 , 2016 , reflecting improved sales in our ris and group benefits businesses , as well as in the majority of our segments abroad , largely offset by declines in sales of our u.s. life and annuity products due to the discontinued marketing of these products in connection with the separation . u.s. tax reform positively impacted net income in 2017. in addition , while positive net flows drove an increase in our investment portfolio , investment yields were down despite improved equity market performance . results improved due to the impact in both 2017 and 2016 of our annual actuarial assumption review . an unfavorable change in net investment gains ( losses ) was primarily the result of losses recognized in connection with the separation . despite the 2017 loss on separation , income ( loss ) from discontinued operations increased due to significant net derivative losses in 2016. the following represents segment level results and percentage contributions to total segment level adjusted earnings available to common shareholders for the year ended december 31 , 2017 : _ ( 1 ) excludes corporate & other adjusted loss available to common shareholders of $ 1.1 billion . ( 2 ) consistent with gaap guidance for segment reporting , adjusted earnings is our gaap measure of segment performance . story_separator_special_tag see “ — non-gaap and other financial disclosures. ” 88 year ended december 31 , 2017 compared with the year ended december 31 , 2016 consolidated results - highlights net income ( loss ) available to metlife , inc. 's common shareholders up $ 3.2 billion : lower losses from discontinued operations , net of income tax , of $ 1.7 billion net tax-related benefit of $ 1.3 billion due to u.s. tax reform unfavorable change in divested businesses of $ 861 million ( $ 618 million , net of income tax ) unfavorable change in net investment gains ( losses ) of $ 625 million ( $ 406 million , net of income tax ) adjusted earnings available to common shareholders up $ 202 million ( 1 ) see “ — results of operations — consolidated results ” and “ — non-gaap and other financial disclosures ” for reconciliations and definitions of non-gaap financial measures . consolidated results - adjusted earnings adjusted earnings available to common shareholders up $ 202 million : results of operations positively impacted by annuities reinsurance activity with brighthouse , the impact of 2017 and 2016 refinements made to dac and certain insurance-related liabilities and the impact in both 2017 and 2016 of our annual actuarial assumption review , partially offset by the unfavorable impact of u.s. tax reform and other tax items our results for 2017 included the following : a tax charge of $ 298 million related to u.s. tax reform net tax charges of $ 139 million consisting of ( i ) a $ 180 million net tax charge related to the repatriation of approximately $ 3.0 billion of cash following the post-separation review of our capital needs , partially offset by a tax benefit associated with dividends from our non-u.s. operations , and ( ii ) a $ 41 million tax benefit from the finalization of certain tax audits a $ 102 million , net of income tax , increase in expenses associated with our previously announced unit cost initiative a $ 73 million , net of income tax , charge for expenses incurred related to a guaranty fund assessment for penn treaty network america insurance company ( “ penn treaty ” ) and increases in asbestos and litigation reserves a $ 90 million , net of income tax , charge to increase certain ris policy reserves a favorable reserve adjustment of $ 55 million , net of income tax , resulting from modeling improvements in the reserving process for our life business a charge of $ 36 million , net of income tax , for lease impairments a benefit of $ 12 million , net of income tax , related to a refinement to prior period reinsurance receivables in australia our results for 2016 included the following : unfavorable reserve adjustments of $ 65 million , net of income tax , resulting from modeling improvements in the reserving process a $ 44 million , net of income tax , charge related to an adjustment to reinsurance receivables in australia tax benefit of $ 25 million related to a change in tax rate in japan , which includes a benefit of $ 20 million that pertains to prior periods a $ 23 million , net of income tax , charge for an increase in litigation reserves tax charge in chile of $ 12 million as a result of tax reform legislation , which includes a charge of $ 10 million that pertains to prior periods 89 for a more in-depth discussion of our consolidated results , see “ — results of operations — consolidated results ” and “ — results of operations — consolidated results — adjusted earnings. ” year ended december 31 , 2016 compared with the year ended december 31 , 2015 consolidated results – highlights net income ( loss ) available to metlife , inc. 's common shareholders down $ 4.5 billion : income ( loss ) from discontinued operations , net of income tax , down $ 4.0 billion unfavorable change in net derivative gains ( losses ) of $ 1.3 billion ( $ 857 million , net of income tax ) primarily driven by the impact of our variable annuity hedging program unfavorable change in net investment gains ( losses ) of $ 292 million ( $ 190 million , net of income tax ) adjusted earnings available to common shareholders up $ 119 million results for 2016 include the financial impact of converting the company 's japan operations to calendar year-end reporting without retrospective application of this change to prior years ( 1 ) see “ — results of operations — consolidated results ” and “ — non-gaap and other financial disclosures ” for reconciliations and definitions of non-gaap financial measures . consolidated results - adjusted earnings adjusted earnings available to common shareholders up $ 119 million : results of operations impacted by : ( i ) higher net investment income from portfolio growth ; ( ii ) lower tax and related interest expense ; ( iii ) lower investment yields ; ( iv ) refinements made to dac and certain insurance-related liabilities ; ( v ) unfavorable underwriting ; ( vi ) the impact of affiliated reinsurance activity ; and ( vii ) the impact of our annual actuarial assumption review . our 2016 results included the following : unfavorable reserve adjustments of $ 65 million , net of income tax , resulting from modeling improvements in the reserving process a $ 44 million , net of income tax , charge related to an adjustment to reinsurance receivables in australia tax benefit of $ 25 million related to a change in tax rate in japan , which includes a benefit of $ 20 million that pertains to prior periods a $ 23 million , net of income tax , charge for an increase in litigation reserves tax charge in chile of $ 12 million as a result of tax reform legislation , which includes a charge of $ 10 million that pertains to prior periods our 2015 results included the following : a $ 557 million tax charge and a $ 362
| results for 2016 include a $ 648 million ( $ 421 million , net of income tax ) loss associated with our annual review of actuarial assumptions related to reserves and dac , of which a $ 709 million ( $ 461 million , net of income tax ) loss was recognized in net derivative gains ( losses ) and a $ 103 million ( $ 67 million , net of income tax ) loss was recognized in updates to the closed block projection . of the $ 648 million loss , a $ 729 million ( $ 474 million , net of income tax ) loss was related to reserves while an $ 81 million ( $ 53 million , net of income tax ) gain was associated with dac . divested businesses and lag elimination . income ( loss ) before provision for income tax related to the divested businesses and lag elimination , excluding net investment gains ( losses ) and net derivative gains ( losses ) , decreased $ 861 million ( $ 618 million , net of income tax ) to a loss of $ 1.1 billion ( $ 747 million , net of income tax ) in 2017 from a loss of $ 197 million ( $ 129 million , net of income tax ) in 2016. included in this decline was a decrease in total revenues of $ 272 million , before income tax , and an increase in total expenses of $ 589 million , before income tax . divested businesses include activity primarily related to the separation . in addition , divested businesses for 2016 also include the financial impact of converting our japan operations to calendar year-end reporting without retrospective application of this change to prior years . discontinued operations . loss from discontinued operations , net of income tax , decreased $ 1.7 billion for the year ended december 31 , 2017 to a loss of $ 986 million , net of income tax , from a loss of $ 2.7 billion , net of income tax , for the year ended december 31 , 2016. income ( loss ) from discontinued operations reflects the results of our former brighthouse financial segment . the
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this conservative leverage goal could reduce the amount of current income we can generate for our stockholders , but it also reduces their risk of loss . we believe that preserving investor capital while generating stable current income is in the best interest of our stockholders . our debt-to-real-estate-asset ratio is calculated using the outstanding debt balance and real estate at cost . as of december 31 , 2015 , our debt-to-real-estate-asset ratio , including our pro-rata share ( 51 % ) of the market square joint venture , was approximately 35.6 % . page 24 index to financial statements contractual commitments and contingencies as of december 31 , 2015 , our contractual obligations will become payable in the following periods ( in thousands ) : replace_table_token_12_th ( 1 ) reflects debt and interest obligations on debt , including our pro-rata share ( 51 % ) of the market square buildings note payable . we guarantee $ 25.0 million of the market square buildings note payable ( see footnote 7 , commitments & contingencies , to the accompanying financial statements ) . ( 2 ) interest obligations on variable-rate debt are measured at the rate at which they are effectively fixed with interest rate swap agreements ( where applicable ) , a portion of which is reflected as loss on interest rate swaps in our consolidated statements of operations of the accompanying consolidated financial statements . interest obligations on all other debt instruments are measured at the contractual rate . see item 7a , quantitative and qualitative disclosure about market risk , for more information regarding our interest rate swaps . ( 3 ) amounts include principal obligations only . we made interest payments on these obligations of $ 7.2 million during 2015 , all of which was funded with interest income earned on the corresponding investments in development authority bonds . revolving credit facility our revolving credit facility has a capacity of $ 500.0 million and matures in july 2019 , with two , six-month extension options . as of december 31 , 2015 , we had an outstanding balance of $ 247.0 million on the revolving credit facility . amounts outstanding under the revolving credit facility bear interest at libor , plus an applicable margin ranging from 0.875 % to 1.55 % for libor borrowings , or an alternate base rate , plus an applicable margin ranging from 0.00 % to 0.55 % for base rate borrowings , based on our applicable credit rating . the per annum facility fee on the aggregate revolving commitment ( used or unused ) ranges from 0.125 % to 0.30 % , also based on our applicable credit rating . additionally , we have the ability to increase the capacity of the revolving credit facility , along with the $ 300 million term loan , which provides for four accordion options for an aggregate amount of up to $ 400 million , subject to certain limitations . the revolving credit facility contains the following restrictive covenants : limits the ratio of secured debt to total asset value , as defined therein , to 40 % or less ; requires the fixed charge coverage ratio , as defined therein , to be at least 1.50 :1.00 ; limits the ratio of debt to total asset value , as defined therein , to 60 % or less ; requires the ratio of unencumbered adjusted net operating income , as defined therein , to unsecured interest expense , as defined therein , to be at least 1.75 :1.00 ; requires the ratio of unencumbered asset value , as defined therein , to total unsecured debt , as defined therein , to be at least 1.66 :1.00 ; and requires maintenance of certain minimum tangible net worth balances . as of december 31 , 2015 , we believe we were in compliance with the restrictive covenants on our outstanding debt obligations . term loans we have a $ 300.0 million unsecured , single-draw term loan , which matures in july 2020 ( the `` $ 300 million term loan '' ) , and , along with the revolving credit facility , provides for four accordion options for an aggregate amount of up to $ 400 million , subject to certain conditions . the $ 300 million term loan bears interest , at our option , at either ( i ) libor plus an applicable margin ranging from 0.90 % to 1.75 % for libor loans , or ( ii ) an alternate base rate , plus an applicable margin ranging from 0.00 % to 0.75 % for base rate loans , based on our applicable credit rating . page 25 index to financial statements we have a $ 150.0 million unsecured , single-draw term loan , which matures in july 2022 ( the `` $ 150 million term loan '' ) . the $ 150 million term loan bears interest , at our option , at either ( i ) libor plus an applicable margin ranging from 1.40 % to 2.35 % for libor loans , or ( ii ) base rate , plus an applicable margin ranging from 0.40 % to 1.35 % for base rate loans . the interest rate on the $ 150 million term loan is effectively fixed with an interest rate swap agreement . based on the terms of the interest rate swap and our current credit rating , the interest rate on the $ 150 million term loan is effectively fixed at 3.52 % . bonds payable in march 2015 , we issued $ 350.0 million of ten-year , unsecured 4.150 % senior notes at 99.859 % of their face value under our universal shelf registration statement ( the `` 2025 bonds payable '' ) . we received proceeds from the 2025 bonds payable , net of fees , of $ 347.2 million , a portion of which was used to repay a bridge loan , which was originated in january . story_separator_special_tag the 2025 bonds payable require semi-annual interest payments in april and october based on a contractual annual interest rate of 4.150 % . the principal amount of the 2025 bonds payable is due and payable on the maturity date , april 1 , 2025. also , in 2011 , we issued $ 250.0 million of seven-year , unsecured 5.875 % senior notes at 99.295 % of their face value ( the `` 2018 bonds payable '' ) . we received proceeds from the 2018 bonds payable , net of fees , of $ 246.7 million . the 2018 bonds payable require semi-annual interest payments in april and october based on a contractual annual interest rate of 5.875 % , which is subject to adjustment in certain circumstances . the principal amount of the 2018 bonds payable is due and payable on the maturity date , april 1 , 2018. the restrictive covenants on the 2025 bonds payable and the 2018 bonds payable as defined pursuant to an indenture include : a limitation on the ratio of debt to total assets , as defined , to 60 % ; limits to our ability to incur debt if the consolidated income available for debt service to annual debt service charge , as defined , for four previous consecutive fiscal quarters is less than 1.5:1 on a pro forma basis ; limits to our ability to incur liens if , on an aggregate basis for us , the secured debt amount would exceed 40 % of the value of the total assets ; and a requirement that the ratio of unencumbered asset value , as defined , to total unsecured debt be at least 150 % at all times . as of december 31 , 2015 , we believe we were in compliance with the restrictive covenants on the 2025 bonds payable and the 2018 bonds payable . debt repayments , maturities , and interest payments on january 6 , 2015 , we entered into a $ 300.0 million , six -month , unsecured loan to finance a portion of the real estate assets purchased in january 2015. on march 12 , 2015 , we fully repaid the loan with proceeds from the 2025 bonds payable , at which time we recognized a loss on early extinguishment of debt of $ 0.5 million as a result of writing off the unamortized deferred financing costs . the loan was set to mature on july 6 , 2015. on june 1 , 2015 , we repaid the mortgage note for the 333 market street building for $ 206.5 million and the related interest rate swap agreement expired . the maturity date for the 333 market street building mortgage note was july 1 , 2015. on july 1 , 2015 , in connection with the 11 property sale , as described in note 3 , real estate and other transactions , to the accompanying financial statements , we repaid the mortgage note for the 215 diehl road building , one of the properties included in the 11 property sale , for $ 21.0 million . as a result , we recognized a loss on early extinguishment of debt of $ 2.1 million , primarily as a result of a prepayment premium . the maturity date for the 215 diehl road building mortgage note was july 1 , 2017. on july 13 , 2015 , we repaid the $ 105.0 million mortgage note on the 100 east pratt street building at par . the maturity date for the 100 east pratt street building mortgage note was june 11 , 2017. on october 8 , 2014 , we repaid the mortgage note for the 544 lakeview building for $ 9.1 million , resulting in a loss on early extinguishment of debt of $ 23,000 . the original maturity date for the 544 lakeview building mortgage note was december 1 , 2014. during 2015 and 2014 , we made interest payments of approximately $ 54.0 million and $ 56.1 million , respectively , related to our line of credit and notes payable . interest payments on the 2025 bonds payable began in october 2015. interest payments of $ 22.7 million were made on the 2025 bonds payable and the 2018 bonds payable during 2015 , and interest payments of $ 14.7 million were made on the 2018 bonds payable during 2014 . page 26 index to financial statements universal shelf registration statement we have on file a universal shelf registration statement on form s-3 ( no . 333-198764 ) with the securities and exchange commission ( the `` universal shelf registration statement '' ) , which was effective upon filing in september 2014. the universal shelf registration statement provides us with flexibility to offer , from time to time and in one or more offerings , debt securities , common stock , preferred stock , depositary shares , warrants , or any combination thereof . the terms of any such future offerings would be established at the time of an offering . results of operations overview as of december 31 , 2015 , we owned 27 office properties , which were approximately 93.2 % leased , including our share of the market square joint venture , and one hotel . all of our properties are wholly owned except the market square buildings , which are owned through an unconsolidated joint venture . our operating results are impacted by recent acquisition and disposition activity , as set forth in the transaction activity section of item 1 , business , and the partial disposition of the market square buildings in october 2015. in the near term , we expect real estate operating income to fluctuate primarily based on acquisitions , dispositions , and leasing activity . comparison of the year ended december 31 , 2015 versus the year ended december 31 , 2014 continuing operations rental income was $ 436.0 million for 2015 , which represents an increase from $ 414.5 million for 2014 .
| further , in september of 2015 , we launched a stock repurchase program , which authorizes us to purchase up to $ 200.0 million of our common stock through september of 2017. we believe a stock repurchase program will enable us to benefit from market downturns , which may cause our stock to be undervalued from time to time . as of december 31 , 2015 , we had purchased $ 16.3 million of common stock at an average price of $ 22.62 per share . page 22 index to financial statements key performance indicators our operating results depend primarily upon the level of income generated by the leases at our properties . occupancy and rental rates are critical drivers of our lease income . historically , we have maintained portfolio occupancy above 90 % and within a fairly narrow range . during 2014 and 2015 , our average portfolio percentage leased ranged from 92.1 % to 93.5 % . the following table sets forth details related to recent leasing activities , which drive changes in our rental revenues . replace_table_token_11_th ( 1 ) includes our pro-rata share ( 51 % ) of total leased at market square ( 6,000 square feet of renewal leasing ) from october 28 , 2015 through december 31 , 2015 . ( 2 ) includes our pro-rata share ( 51 % ) of total leased at market square ( 22,000 square feet of new leasing ) from october 28 , 2015 through december 31 , 2015 . ( 3 ) rent leasing spreads for renewal leases are calculated based on the change in base rental income measured on a straight-line basis . ( 4 ) rent leasing spreads for new leases are calculated only for properties that have been vacant less than one year , and are measured on a straight-line basis . in 2015 , rent leasing spreads were positive primarily due to a lease with docusign , inc. at 221 main street and a lease with equinox at 315 park avenue south , partially offset by the impact of a lease with ch2m at south jamaica street . in february 2015 , we executed an expansion and extension with docusign , inc. , the anchor
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most of our leases require the tenants to pay their share of operating expenses , including common area maintenance , real estate taxes and insurance , thereby reducing our exposure to increases in costs and operating expenses resulting from inflation . in addition , most of our leases expire within five years which enables us to replace existing leases with new leases at then-existing market rates . story_separator_special_tag collection if collectability is not assured . we earn revenues from asset management fees , acquisition fees , property management fees and fees for other services pursuant to joint venture and other agreements . these are included in our consolidated statements of operations in institutional capital management and other fees. we recognize revenues from asset management fees , acquisition fees , property management fees and fees for other services when the related fees are earned and are realized or realizable . 44 principles of consolidation we hold interests in both consolidated and unconsolidated joint ventures . all joint ventures over which we have financial and operating control , and variable interest entities ( vie's ) in which we have determined that we are the primary beneficiary , are included in the consolidated financial statements . we use the equity method of accounting for joint ventures over which we do not have a controlling interest or where we do not exercise significant control over major operating and management decisions but where we exercise significant influence and include our share of earnings or losses of these joint ventures in our consolidated net loss . we analyze our joint ventures in accordance with gaap to determine whether they are vie 's and , if so , whether we are the primary beneficiary . our judgment with respect to our level of influence or control over an entity and whether we are the primary beneficiary of a vie involves consideration of various factors including the form of our ownership interest , our representation on the entity 's board of directors , the size of our investment ( including loans ) and our ability to participate in major decisions . our ability to correctly assess our influence or control over an entity and the determination of whether the agreement constitutes a vie includes complex models forecasting of the future expected cash flows , which affects the presentation of these investments in the consolidated financial statements and , consequently , our financial position and results of operations . capitalization of costs we capitalize costs directly related to the development , predevelopment , redevelopment or improvement of our investment in real estate , referred to as capital projects and other activities included within this paragraph . costs associated with our capital projects are capitalized as incurred . if the project is abandoned , these costs are expensed during the period in which the project is abandoned . costs considered for capitalization include , but are not limited to , construction costs , interest , real estate taxes , insurance and leasing costs , if appropriate . we capitalize indirect costs such as personnel , office , and administrative expenses that are directly related to our projects based on an estimate of the time spent on the construction or development . costs incurred for maintaining and repairing our properties , which do not extend their useful lives , are expensed as incurred . interest is capitalized based on actual capital expenditures from the period when development or redevelopment commences until the asset is ready for its intended use , at the weighted average borrowing rates in effect during the period . we also capitalize interest on qualifying investments in unconsolidated joint ventures . interest is capitalized based on the average capital invested in a venture during the period when development or predevelopment begins until planned principle operations commence , at our weighted average borrowing rates in effect during the period . fair value the financial accounting standards board ( fasb ) issued guidance related to accounting for fair value measurements which defines fair value , establishes a framework for measuring fair value and expands disclosures about fair value measurements . fair value is defined as the exit price or price at which an asset ( in its highest and best use ) would be sold or liability assumed by an informed market participant in a transaction that is not distressed and is executed in the most advantageous market . this guidance provides a framework of how to determine such measurements on reported balances which are required or permitted to be measured at fair value under existing accounting pronouncements and emphasizes that fair value is a market-based rather than an entity-specific measurement . therefore , our fair value measurement is determined based on the assumptions that market participants would use to price the asset or liability . as a basis for considering market participant assumptions in fair value measurements , this guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity ( observable inputs that are classified within levels 1 and 2 of the hierarchy ) and the reporting entity 's own assumptions about market participant assumptions based on the best information available in the circumstances ( unobservable inputs classified within level 3 of the hierarchy ) . 45 level 1 inputs utilize quoted prices ( unadjusted ) in active markets for identical assets or liabilities . level 2 inputs are inputs other than quoted prices included in level 1 that are observable for the asset or liability , either directly or indirectly . level 2 inputs may include quoted prices for similar assets and liabilities in active markets , as well as inputs that are observable for the asset or liability ( other than quoted prices ) , such as interest rates , foreign exchange rates and yield curves that are observable at commonly quoted intervals , and the contracted sales price for assets held for sale . story_separator_special_tag level 3 inputs are unobservable inputs for the asset or liability that are typically based on management 's own assumptions , as there is little , if any , related observable market activity . in instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy , the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety . our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment , and considers factors specific to the asset or liability . investment in properties we record the assets , liabilities and noncontrolling interests associated with property acquisitions which qualify as business combinations at their respective acquisition-date fair values which are derived using a market , income or replacement cost approach , or a combination thereof . acquisition-related costs associated with business combinations are expensed as incurred . as defined by gaap , a business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends , lower costs or other economic benefits directly to investors or other owners , members or participants . we generally do not consider acquisitions of land or unoccupied buildings to be business combinations . rather , these transactions are treated as asset acquisitions and recorded at cost . the fair value of identifiable tangible assets such as land , building , building and land improvements and tenant improvements is determined on an as-if-vacant basis which requires significant judgment by management . management considers level 3 inputs such as the replacement cost of such assets , appraisals , property condition reports , comparable market rental data and other related information in determining the fair value of the tangible assets . the recorded fair value of intangible lease assets or liabilities includes level 3 inputs including the value associated with leasing commissions , legal and other costs , as well as the estimated period necessary to lease such property and lease commencement . an intangible asset or liability resulting from in-place leases that are above or below the market rental rates are valued based upon managements estimates of prevailing market rates for similar leases . intangible lease assets or liabilities are amortized over the estimated , reasonably assured lease term of the remaining in-place leases as an adjustment to rental revenues or real estate related depreciation and amortization depending on the nature of the intangible . the difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to interest expense over the life of the debt assumed . the valuation of assumed liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date . we have certain properties which we have acquired or removed from service with the intention to redevelop the property . buildings under redevelopment require significant construction activities prior to being placed back into service . we generally do not depreciate properties classified as redevelopment until the date that the redevelopment properties are ready for their intended use . real estate , including land , building , building and land improvements , and tenant improvements , leasehold improvements , leasing costs and intangible lease assets and liabilities are stated at historical cost less accumulated depreciation and amortization , unless circumstances indicate that the cost can not be recovered , in which case , the carrying value of the property is reduced to estimated fair value . our estimate of the useful life of our assets is evaluated upon acquisition and when circumstances indicate a change in the useful life , which requires significant judgment regarding the economic obsolescence of tangible and intangible assets . 46 impairment of properties investments in properties classified as held for use are carried at cost and evaluated for impairment at least annually and when events or changes in circumstances indicate that the carrying amounts of these assets may not be fully recoverable . as we selectively dispose of non-strategic assets and redeploy the proceeds into higher growth assets , our intended hold period may change due to our intention to sell or otherwise dispose of an asset . as a result , we would reevaluate whether that asset is impaired . depending on the carrying value of the property at that time and the amount that we would receive on disposal , we may record an impairment loss . other indicators include the point at which we deem a building to be held for sale or when a building remains vacant significantly longer than expected . for investments in properties that we intend to hold long-term , the recoverability is based on the estimated future undiscounted cash flows . if the asset carrying value is not recoverable on an undiscounted cash flow basis , the amount of impairment is measured as the difference between the carrying value and the fair value of the asset and is reflected in impairment losses on the consolidated statements of operations . the determination of fair value of real estate assets to be held for use is derived using the discounted cash flow method and involves a number of management assumptions relating to future economic events that could materially affect the determination of the ultimate value , and therefore , the carrying amounts of our real estate . such assumptions are level 3 inputs and include , but are not limited to , projected vacancy rates , rental rates , property operating expenses and capital expenditures .
| % to 1.35 % over prime or 1.65 % to 2.35 % over libor , per annum at our election , depending upon the company 's leverage ratio . the amendment 42 also provides us the ability , from time to time , to extend the size of the facility by up to an additional $ 200.0 million , to a total of $ 500.0 million , subject to lender commitments and certain other conditions . on august 1 , 2011 , we issued $ 225.0 million of new fixed rate , senior unsecured notes through a private placement . these senior unsecured notes have a weighted average maturity of 8.5 years and a weighted average interest rate of 4.93 % . the notes have maturities of 5 , 7 , 8 , 10 , 11 or 12 years . proceeds from these notes were used to repay outstanding indebtedness and for general corporate use . on november 4 , 2011 , we issued a non-recourse mortgage note for $ 20.0 million in connection with a property acquisition . the note bears interest of 4.25 % , requires monthly payments of principal and interest and matures in december 2021. during the year ended december 31 , 2011 , we assumed two non-recourse mortgage notes with outstanding balances of approximately $ 3.9 million and $ 3.4 million , respectively , in connection with two property acquisitions . the assumed notes bear interest at rates of 4.96 % and 6.0 % , respectively , and require monthly payments of principal and interest . the notes mature in august 2023 and april 2014 , respectively . during the year ended december 31 , 2011 , we retired $ 124.7 million of maturing mortgage notes which were repaid using proceeds from our senior unsecured revolving credit facility , our senior unsecured notes issued through the private placement and equity offering , as previously referenced . acquisitions during the year ended december 31 , 2011 , we acquired 24 buildings comprising 2.8 million square feet and controlling
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investments the balance of investments at december 31 , 2020 was $ 27.0 billion , a decrease of $ 7.3 billion from year-end 2019. at december 31 , 2020 , investments included $ 9.7 billion of mbs and $ 17.3 billion of other investments , which consisted primarily of highly-rated short-term instruments and longer-term u.s. treasury and gse obligations held for liquidity . all of our mbs held at december 31 , 2020 were issued and guaranteed by fannie mae , freddie mac or a u.s. agency . the decline in the balance of investments at the end of 2020 was due to decreases in both mbs and liquidity investments . mbs balances declined due to an increase in prepayments of the underlying mortgages as a result of the low interest rate environment . due to regulatory limitations regarding the purchase of mbs that reference libor , we have not been able to fully replace the prepaid mbs with suitable alternatives . liquidity investments decreased as we decided to hold more of our liquidity portfolio as deposits at the federal reserve at the end of 2020 in anticipation of volatile market conditions . at december 31 , 2020 , we held $ 3.0 billion in deposits at the federal reserve , which are reflected in cash and due from banks on the statements of condition . investments averaged $ 32.9 billion in 2020 , a decrease of $ 4.9 billion ( 13 percent ) from year-end 2019. the decrease in average investments was primarily driven by the decrease in mbs balances described above . liquidity investments can vary significantly on a daily basis during times of volatility in advance balances . we maintained a robust amount of asset liquidity throughout 2020 across a variety of liquidity measures , as discussed in the `` liquidity risk '' section of `` quantitative and qualitative disclosures about risk management . '' capital capital adequacy surpassed all minimum regulatory capital requirements in 2020. the gaap capital-to-assets ratio at december 31 , 2020 was 6.02 percent , while the regulatory capital-to-assets ratio was 6.07 percent . both ratios exceeded the regulatory required minimum of four percent . regulatory capital includes mandatorily redeemable capital stock accounted for as a liability under gaap . gaap and regulatory capital both decreased $ 0.5 billion in 2020 , primarily due to the repurchase of $ 2.3 billion of excess stock and members ' redemption of $ 0.6 billion of stock in 2020. the repurchase and redemption of capital stock were partially offset by members ' purchases of capital stock to support advance growth at the end of the first quarter . retained earnings totaled $ 1.3 billion at december 31 , 2020 , an increase of $ 0.2 billion ( 19 percent ) from year-end 2019 , which is a higher growth rate relative to recent years . the increase in retained earnings was due in part to the lower weighted average dividend rate in 2020 . 29 story_separator_special_tag `` > loan portfolios of our members grow quicker than aggregate deposits , interest rates begin to increase over time , or changes in federal reserve policy reduce other sources of liquidity available to members . mpp : mpp balances are influenced by conditions in the housing and mortgage markets , the com petitiveness of prices we offer to purchase loans as well as program features , and activity from our largest sellers . our ongoing strategy for the mpp has two components : 1 ) increase the number of regular sellers and participants in the program ; and 2 ) manage purchases and balances at a prudent level relative to capital and total assets to effectively manage market and credit risks consistent with our risk appetite . market risk during 2020 , as in 2019 , the market risk exposure to changing interest rates was moderate overall and well within policy limits . we believe that longer-term profitability would not become uncompetitive unless interest rates were to change quickly and significantly . in the short-term , profitability could become uncompetitive if long-term interest rates decrease in excess of 50 basis points leading to faster prepayments of mortgage assets , which would further accelerate the recognition of purchased premiums . capital adequacy we believe members place a high value on their capital investment in our company . capital ratios at december 31 , 2020 , and all throughout the year , exceeded the regulatory required minimum of four percent . we believe the amount of retained earnings is sufficient to protect against members ' impairment risk of their capital stock investment in the fhlb and to provide the opportunity to stabilize or increase future dividends . our capital policies and capital plan also have safeguards to ensure we meet regulatory and prudential capital requirements . credit risk in 2020 , we continued to maintain a de minimis level of overall residual credit risk exposure from our credit services , investments , and derivative transactions . we believe policies and procedures related to credit underwriting , advance collateral management , and transactions with investment and derivative counterparties continue to mitigate these risks . we have never experienced any credit losses , and we continue to have no loan loss reserves or impairment recorded for these instruments . residual credit risk exposure in the mortgage loan portfolio was minimal . liquidity risk our liquidity position remained strong during 2020 , as did our overall ability to fund operations through the issuance of consolidated obligations at acceptable interest costs . investor demand for fhlbank system debt continued to be robust . there were no substantive stresses on market access or liquidity from external market and political events . although we can make no assurances , we believe there is only a remote possibility of a liquidity or funding crisis in the system that could impair our ability to participate , on a cost-effective basis , in issuances of new debt , service outstanding debt , maintain adequate capital levels , or pay competitive dividends . story_separator_special_tag regulatory and legislative risk and significant developments general : the fhlbank system is subject to legislative and regulatory oversight . legislative and regulatory actions applicable , directly or indirectly , to the fhlbank system in the last decade have increased uncertainty regarding the business model and membership base under which the fhlbanks may operate in the future . this is due primarily to the uncertainty around potential future gse reform , and the evolution of mortgage financing moving towards financial institutions currently not eligible for fhlbank membership . see item 1a . risk factors for more discussion . we can not predict the ultimate outcome of gse reform and whether our membership base will be legislatively and regulatorily permitted to evolve in concert with the housing finance market . federal deposit insurance corporation ( fdic ) brokered deposits restrictions : on january 22 , 2021 , the fdic published a final rule , effective april 1 , 2021 , that amends its brokered deposits regulations that apply to less than well-capitalized insured depository institutions . the fdic stated that the amendments are intended to modernize and clarify the fdic 's brokered deposit regulations and they establish a new framework for analyzing the deposit broker definition , which determines whether deposits placed through deposit placement arrangements qualify as brokered deposits . these deposit placement arrangements include those between insured depository institutions and third parties , such as financial technology companies , for a variety of business purposes , including access to deposits . the amendments to the fdic 's brokered deposit regulations , among other things , clarify what it means to be engaged in the business of facilitating the placement of deposits and expand the scope of the primary purpose exception . the rule amendments are expected to have the effect of narrowing the definition of deposit broker and excluding more deposits from treatment as brokered deposits . the amendments also establish an application and reporting 32 process with respect to the primary purpose exception for businesses that do not meet one of several bright-line tests , and they affirm the fdic 's position that the brokering of certificates of deposit constitutes deposit brokering . this rule may have an effect on member demand for certain advances , but we can not predict the extent of the impact . we do not expect this rule to materially affect our financial condition or results of operations . finance agency final rule on fhlbank housing goals amendments : on june 25 , 2020 , the finance agency published a final rule , effective august 24 , 2020 , amending the fhlbank housing goals regulation . enforcement of the final rule will phase in over three years . the final rule eliminated the existing $ 2.5 billion volume threshold , such that all fhlbanks are subject to a new housing goal , regardless of their mortgage purchase volume . the new housing goal establishes one overall target level requiring 20 percent of an fhlbank 's total mortgage purchases to be home-purchase mortgages for low- and very-low income families and low-income areas as well as refinancing mortgages for low-income families . the final rule also establishes a separate small member participation housing goal with a target level of 50 percent . the final rule provides that an fhlbank may request finance agency approval of alternative target levels for either or both of the goals . we do not believe these changes will have a material effect on our financial condition or results of operations . finance agency supervisory letter - paycheck protection program ( ppp ) loans as collateral for fhlbank advances : on april 23 , 2020 , the finance agency issued a supervisory letter ( ppp supervisory letter ) permitting the fhlbanks to accept ppp loans as collateral for advances as “ agency securities , ” given the small business administration 's ( sba ) 100 percent guarantee of the unpaid principal balance . on april 20 , 2020 , the sba 's third interim final rule related to ppp loans was published . the rule explicitly waived certain regulatory requirements that must be satisfied before a member could pledge ppp loans to the fhlbanks as collateral . the ppp supervisory letter establishes a series of conditions under which the fhlbanks may accept ppp loans as collateral that focus on the financial condition of members , collateral discounts , and pledge dollar limits . on december 27 , 2020 , the president signed into law an extension of the ppp until march 21 , 2021. the april 23 , 2020 supervisory letter from the finance agency allowing us to accept ppp loans as collateral remains in effect . coronavirus aid , relief , and economic security ( cares ) act : the cares act was signed into law on march 27 , 2020. the $ 2.2 trillion package was the largest stimulus bill in united states history . the cares act is in addition to previous relief legislation passed by congress in march 2020. the legislation provides the following : ▪ assistance to businesses , states , and municipalities . ▪ a loan program for small businesses , non-profits and physician practices that can be forgiven through employee retention incentives . ▪ treasury secretary authority to make loans or loan guarantees to states , municipalities , and eligible businesses and loosens some regulations imposed through the dodd-frank act . ▪ direct payments to eligible taxpayers and their families . ▪ expanded eligibility for unemployment insurance and payment amounts . ▪ mortgage forbearance provisions and a foreclosure moratorium . funding for the ppp , which was created by the cares act , was increased with the enactment of subsequent laws , most recently by the consolidated appropriations act , 2021 , on december 27 , 2020. additional phases of the cares act or other covid-19 pandemic relief legislation may be enacted by congress or other actions by the president , state governments , and governmental agencies .
| the spread between roe and average short-term rates , which we compute using 3-month libor and the federal funds effective rate , is a market benchmark we believe member stockholders actively use to assess the competitiveness of the return on their capital investment . in december 2020 , we paid stockholders a quarterly dividend at a 2.00 percent annualized rate on their capital investment in our company , which is 1.84 percentage points above fourth quarter average short-term interest rates . the lower weighted average dividend rate in 2020 was due to the uncertainty surrounding the economic effects from the covid-19 pandemic and its ultimate impact on our business and profitability , and to grow retained earnings to bolster the capital position going forward . 30 effect of interest rate environment trends in market interest rates and the resulting shapes of the market yield curves strongly influence the results of operations and profitability because of how they affect members ' demand for mission asset activity , spreads on assets , funding costs and decisions in managing the tradeoffs in our market risk/return profile . the following table presents key market interest rates ( obtained from bloomberg l.p. ) . replace_table_token_6_th replace_table_token_7_th ( 1 ) simple average of current coupon rates of fannie mae and freddie mac par mbs indications . the target overnight federal funds rate was in the range of zero to 0.25 percent at december 31 , 2020 , a decrease from the range of 1.50 to 1.75 percent at december 31 , 2019. the low interest rate environment reflects the evolving risks to economic activity from the covid-19 pandemic . average short-term rates were approximately 170 to 180 basis points lower in 2020 compared to 2019 and average long-term rates decreased by approximately 125 to 135 basis points during that same period . the decline in interest rates negatively impacted income in 2020 primarily because of the lower earnings generated from investing capital and
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the preparation of these financial statements requires us to make estimates and judgments that affect our reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses , income taxes , stock-based compensation , investments and in-process r & d . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable , collectability is reasonably assured , contractual obligations have been satisfied and title and risk of loss have been transferred to the customer . we generate our revenue from two different types of contractual arrangements : cost-reimbursable grants and contracts and fixed-price grants and contracts . costs consist primarily of actual internal labor charges , subcontractor and material costs incurred , plus an allocation of fringe benefits , overhead and general and administrative expenses ( `` g & a `` ) , and applicable fee , if any , based on the terms of the contract . revenues on cost-reimbursable grants and contracts are recognized in an amount equal to the costs incurred during the period , plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the grant or contract . revenues on fixed-price grants and contracts are recognized using a percentage-of-completion method , which uses assumptions and estimates , as appropriate . these assumptions and estimates are developed in coordination with the principal investigator performing the work under the fixed-price grant or contract to determine levels of accomplishments throughout the life of the grant or contract . stock-based compensation we expense all share-based awards to employees and consultants , including grants of stock options and shares , based on their estimated fair value at the date of grant . costs of all share-based payments are recognized over the requisite service period that 41 an employee or consultant must provide to earn the award ( i.e. , the vesting period ) and allocated to the functional operating expense associated with that employee or consultant . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , short-term investments , accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments . common stock warrants , which are classified as liabilities , are recorded at their fair market value as of each reporting period . the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : level 1 – quoted prices for identical instruments in active markets . level 2 – quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . level 3 – instruments where significant value drivers are unobservable to third parties . we use the black-scholes model to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in level 3. the black-scholes model utilizes inputs consisting of : ( i ) the closing price of our common stock ; ( ii ) the expected remaining life of the warrants ; ( iii ) the expected volatility using a weighted-average of historical volatilities of cbli and a group of comparable companies ; and ( iv ) the risk-free market rate . as of december 31 , 2016 , we held approximately $ 0.9 million in accrued expenses classified as level 3 securities for warrants to purchase common stock . income taxes determining the consolidated provision for income tax expense , deferred tax assets and liabilities and related valuation allowance , if any , involves judgment . on an on-going basis , we evaluate whether a valuation allowance is needed to reduce our deferred income tax assets to an amount that is more likely than not to be realized . the evaluation process includes assessing historical and current results in addition to future expected results . upon determining that we would be able to realize our deferred tax assets , an adjustment to the deferred tax valuation allowance would increase income in the period we make such determination . revenue our revenue originates from grants and contracts from both u.s. federal government sources and russian government sources and service contracts with incuron . u.s. federal grants and contracts are provided to advance research and development for product candidates that are of interest for potential sale to the dod or barda . story_separator_special_tag state grants are usually designed to stimulate economic activity . russian government contracts are provided to develop the biotechnology and pharmaceutical industries in russia . we provide various research , management , business development and clinical advisory and management services to incuron . research and development expenses r & d costs are expensed as incurred . advance payments are deferred and expensed as performance occurs . r & d costs include the cost of our personnel consisting of salaries , incentive and stock-based compensation , out-of-pocket preclinical and clinical trial costs usually associated with cros , drug product manufacturing and formulation and a pro-rata share of facilities expense and other overhead items . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > we have been awarded $ 4.0 million in grants and contracts not described above , all of which has been recognized at december 31 , 2016 ; incuron was formed to develop and commercialize the curaxins product line , including its lead oncology drug candidate cbl0137 . as more fully described in note 5 , `` noncontrolling interests '' we sold our remaining ownership interest in incuron during 2015 for approximately $ 4.0 million and retain a 2 % royalty interest in the cbl0137 technology ; and panacela was formed to develop and commercialize preclinical compounds , which were transferred to panacela through assignment and lease agreements . rusnano contributed $ 9.0 million and we contributed $ 3.0 million plus intellectual property at formation . as more fully described in note 5 , `` noncontrolling interests '' we recapitalized panacela in december 2015 with rusnano converting $ 0.7 million of debt to equity and cbli obtaining $ 2.2 million of panacela equity through a combination of cash payments , debt forgiveness and common stock issuance . as of the date of this filing , cbli owns 67.57 % of panacela . we have incurred cumulative net losses and expect to incur additional losses related to our r & d activities . we do not have commercial products and have limited capital resources . as of december 31 , 2016 we had $ 15.2 million in cash , cash equivalents and short-term investments which , along with the active government contracts described above , are expected to fund our projected operating requirements and allow us to fund our operating plan , in each case , for at least 12 months beyond the filing date of this annual report on form 10-k. however , until we are able to commercialize our product candidates at a level that covers our cash expenses , we will need to raise substantial additional capital , which we may be unable to raise in sufficient amounts , when needed and at acceptable terms . our plans with regard to these matters may include seeking additional capital through debt or equity financing , the sale or license of drug candidates , or obtaining additional research funding from the u.s. or russian governments . there can be no assurance that we will be able to obtain future financing on acceptable terms , or that we can obtain additional government financing for our operations . if we are unable to raise adequate capital and or achieve profitable operations , future operations might need to be scaled back or discontinued . the financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties . operating activities the following table provides information regarding our cash flows for the nine months ended december 31 , 2016 and 2015 : replace_table_token_4_th operating activities net cash used in operations decreased by $ 7.0 million to $ 5.0 million for the year ended december 31 , 2016 from $ 12.1 million for the year ended december 31 , 2015 . net cash used in operating activities for the period ending december 31 , 2016 consisted of a reported net loss of $ 2.6 million , which was adjusted up for $ 3.2 million of net noncash operating activities , and a $ 0.8 million net decrease due to changes in operating assets and liabilities . the $ 3.2 million of net noncash operating activities consisted 45 principally of changes in the valuation of our warrant liability and gains from equipment sales . of the net $ 0.8 million of changes in operating assets and liabilities , $ 0.5 million was due to a net decrease in accounts receivable and other current assets primarily due to a decrease in accounts receivable associated with our mpt contracts and amortization of prepaid insurance , and $ 0.3 million was due to a net increase in accrued expenses and accounts payable primarily due to expense increases associated with clinical studies which were supported by our recently completed mpt contracts , preclinical and other drug manufacturing activities supported by our jwmrp contract which were partially offset by reductions in personnel and outside professional costs . net cash used in operating activities for the period ending december 31 , 2015 consisted of reported net loss of $ 13 million , which was adjusted down for $ 2.4 million of net noncash operating activities , and a $ 1.4 million net increase due to changes in operating assets and liabilities . of the net noncash operating activities of $ 2.4 million , $ 1.1 million was due to an investment loss in connection with our nota-bank deposit , as more fully described in note 2 , `` summary of significant accounting policies- restricted cash , '' $ 0.6 million was due to warrant issuance costs associated with the sale of equity in february 2015 , $ 0.4 million was due to our equity in incuron losses , and $ 0.5 million was due to depreciation , amortization , noncash compensation expense and other noncash expenses . these expenses were partially offset by a $ 0.2 million gain on the settlement of
| all contracted activities for our russian trials funded by mpt were completed in the year ended december 31 , 2016. as a result , the contracted revenue for each of our mpt revenue sources was fully recognized . service revenue from incuron is expected to continue into 2017 in an amount similar to 2016. since these revenue sources are cost reimbursable in nature , variances in these activities , period to period , are directly aligned with variances in the underlying costs of service . differences in our revenue sources , by program , between the years are set forth in the following table : replace_table_token_1_th ( 1 ) the contracts received from russian government entities are denominated in russian rubles . the revenue above was calculated using average exchange rates for the periods presented . we anticipate our revenue over the next year will continue to be derived primarily from government grants and contracts and service contracts from incuron . the following table sets forth information regarding our currently active contracts as of december 31 , 2016 : replace_table_token_2_th ( 1 ) the contract values above are calculated based on the cumulative revenue recognized to date plus our backlog valued at the december 31 , 2016 exchange rate for russian ruble denominated values . 43 research and development expenses r & d expenses decreased from $ 7.1 million for the year ended december 31 , 2015 to $ 6.5 million for the year ended december 31 , 2016 , representing a decrease of $ 0.6 million , or 9 % . variances in individual development programs are noted in the table below . significant reductions include reduction of funds spent on entolimod for oncology indications and curaxins due to the completion of preclinical studies in 2015. these reductions were partially offset by increased expenses on entolimod 's biodefense indication for continued preclinical development along with other drug manufacturing activities associated with our jwmrp contract and expenses associated with our regulatory efforts with the
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10 effective since january 1 , 2011 , regis manages our commercial properties and provides brokerage services . regis is entitled to receive a fee for its property management and brokerage services . see part iii , item 10 . “ directors , executive officers and corporate governance – property management ” and “ directors , executive officers and corporate governance – real estate brokerage ” . prior to december 31 , 2010 , triad provided management services . triad sub-contracted the property-level management and leasing of our commercial properties to regis i. we have historically engaged in and may continue to engage in certain business transactions with related parties , including but not limited to asset acquisition and dispositions . transactions involving related parties can not be presumed to be carried out on an arm 's length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities . related party transactions may not always be favorable to our business and may include terms , conditions and agreements that are not necessarily beneficial to or in our best interest . critical accounting policies we present our financial statements in accordance with generally accepted accounting principles in the united states ( “ gaap ” ) . in june 2009 , the financial accounting standards board ( “ fasb ” ) completed its accounting guidance codification project . the fasb accounting standards codification ( “ asc ” ) became effective for the company 's financial statements issued subsequent to june 30 , 2009 and is the single source of authoritative accounting principles recognized by the fasb to be applied by nongovernmental entities in the preparation of financial statements in conformity with gaap . as of the effective date , we no longer refer to the authoritative guidance dictating its accounting methodologies under the previous accounting standards hierarchy . instead , we refer to the asc codification as the sole source of authoritative literature . the accompanying consolidated financial statements include our accounts , our subsidiaries , generally all of which are wholly-owned , and all entities in which we have a controlling interest . arrangements that are not controlled through voting or similar rights are accounted for as a variable interest entity ( vie ) , in accordance with the provisions and guidance of asc topic 810 “ consolidation ” , whereby we have determined that we are a primary beneficiary of the vie and meet certain criteria of a sole general partner or managing member as identified in accordance with emerging issues task force ( “ eitf ” ) issue 04-5 , investor 's accounting for an investment in a limited partnership when the investor is the sole general partner and the limited partners have certain rights ( “ eitf 04-5 ” ) . vies are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders as a group lack adequate decision making ability , the obligation to absorb expected losses or residual returns of the entity , or have voting rights that are not proportional to their economic interests . the primary beneficiary generally is the entity that provides financial support and bears a majority of the financial risks , authorizes certain capital transactions , or makes operating decisions that materially affect the entity 's financial results . all significant intercompany balances and transactions have been eliminated in consolidation . in determining whether we are the primary beneficiary of a vie , we consider qualitative and quantitative factors , including , but not limited to : the amount and characteristics of our investment ; the obligation or likelihood for us or other investors to provide financial support ; our and the other investors ' ability to control or significantly influence key decisions for the vie ; and the similarity with and significance to the business activities of us and the other investors . significant judgments related to these determinations include estimates about the current future fair values and performance of real estate held by these vies and general market conditions . as of december 31 , 2012 , iot is not the primary beneficiary of a vie . for entities in which we have less than a controlling financial interest or entities where it is not deemed to be the primary beneficiary , the entities are accounted for using the equity method of accounting . accordingly , the company 's share of the net earnings or losses of these entities is included in consolidated net income . iot 's investment in eton square is accounted for under the equity method . real estate upon acquisitions of real estate , we assess the fair value of acquired tangible and intangible assets , including land , buildings , tenant improvements , “ above-market ” and “ below-market ” leases , origination costs , acquired in-place leases , other identified intangible assets and assumed liabilities in accordance with asc topic 805 “ business combinations ” , and allocate the purchase price to the acquired assets and assumed liabilities , including land at appraised value and buildings at replacement cost . we assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and or capitalization rates , as well as available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known and anticipated trends , and market and economic conditions . the fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant . we also consider an allocation of purchase price of other acquired intangibles , including acquired in-place leases that may have a customer relationship intangible value , including ( but not limited to ) the nature and extent of the existing relationship with the tenants , the tenants ' credit quality and expectations of lease renewals . based on our acquisitions to date , our allocation to customer relationship intangible assets has been immaterial . story_separator_special_tag 11 we record acquired “ above-market ” and “ below-market ” leases at their fair values ( using a discount rate which reflects the risks associated with the leases acquired ) equal to the difference between ( 1 ) the contractual amounts to be paid pursuant to each in-place lease and ( 2 ) management 's estimate of fair market lease rates for each corresponding in-place lease , measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases . other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant 's lease . factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions , and costs to execute similar leases . in estimating carrying costs , we include real estate taxes , insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods , depending on local market conditions . in estimating costs to execute similar leases , we consider leasing commissions , legal and other related expenses . depreciation and impairment real estate is stated at depreciated cost . the cost of buildings and improvements includes the purchase price of property , legal fees and other acquisition costs . costs directly related to the development of properties are capitalized . capitalized development costs include interest , property taxes , insurance , and other project costs incurred during the period of development . management reviews its long-lived assets used in operations for impairment when there is an event or change in circumstances that indicates impairment in value . an impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value . if such impairment is present , an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value . the evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results in future periods . if we determine that impairment has occurred , the affected assets must be reduced to their face value . asc topic 360 “ property , plant and equipment ” requires that qualifying assets and liabilities and the results of operations that have been sold , or otherwise qualify as “ held for sale , ” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the company will not have significant continuing involvement following the sale . the components of the property 's net income that is reflected as discontinued operations include the net gain ( or loss ) upon the disposition of the property held for sale , operating results , depreciation and interest expense ( if the property is subject to a secured loan ) . we generally consider assets to be “ held for sale ” when the transaction has been approved by our board of directors , or a committee thereof , and there are no known significant contingencies relating to the sale , such that the property sale within one year is considered probable . following the classification of a property as “ held for sale , ” no further depreciation is recorded on the assets . a variety of costs are incurred in the acquisition , development and leasing of properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . our capitalization policy on development properties is guided by asc topic 835-20 “ interest - capitalization of interest ” and asc topic 970 “ real estate—general ” . the costs of land and buildings under development include specifically identifiable costs . the capitalized costs include 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 . we consider a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy , but no later than one year from cessation of major construction activity . we cease capitalization on the portion ( 1 ) substantially completed and ( 2 ) occupied or held available for occupancy , and we capitalize only those costs associated with the portion under construction . recognition of revenue our revenues are composed largely of interest income on notes receivable . included in discontinued operations , in accordance with asc 805 “ business combinations ” , we recognize rental revenue of acquired in-place “ above- ” and “ below-market ” leases at their fair values over the terms of the respective leases , as applicable . revenue recognition on the sale of real estate sales and the associated gains or losses of real estate assets are recognized in accordance with the provisions of asc topic 360-20 , “ property , plant and equipment – real estate sale ” . the specific timing of a sale is measured against various criteria in asc 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties . if the sales criteria for the full accrual method are not met , we defer some or all of the gain recognition and accounts for the continued operations of the property by applying the finance , leasing , deposit , installment or cost recovery methods , as appropriate , until the sales criteria are met .
| there was no income generated from this segment for the twelve months ended december 31 , 2012 and december 31 , 2011. in 2011 , we recognized the sale of the land and storage warehouse known as eagle crest , resulting in no further rental revenues and the reclassification of all financial results to discontinued operations . expenses property operating expenses were $ 67,000 for the twelve months ended december 31 , 2012. this represents an increase of $ 29,000 , as compared to the prior period operating expenses of $ 38,000. the increase was in the land portfolio relating to poa fees billed during 2012 , $ 25,000 of which was the 3 rd and 4 th quarter billings for the prior year and $ 3,000 was an increase in current period billings . there was a decrease in professional fees for potential land development . advisory fees were $ 815,000 for the twelve months ended december 31 , 2012. this represents a decrease of $ 35,000 as compared to the prior period advisory fee of $ 850,000. the advisory fee is calculated as a percentage of total gross assets and subsequent to the disposition of eagle crest land and storage warehouse , this fee reduced in correlation to the decrease in assets . other income ( expense ) interest income was $ 5.2 million for the twelve months ended december 31 , 2012. this represents an increase of $ 736,000 in the current year , as compared to interest income of $ 4.4 million in the prior period . the increase is due to the payments received on our notes receivables from unified housing foundation , a related party . the receivables are surplus cash flow notes . prior to january 1 , 2012 , on cash flow notes where payments are based upon surplus cash from operations , accrued but unpaid interest income was only recognized to the extent that cash was received . as of january 1 , 2012 , due to the consistency of cash received on the surplus cash notes , we are recording interest as earned . mortgage loan interest expense was $ 1.3 million for the twelve months ended december 31 , 2012 .
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oil prices rose steadily through the first half of the year as the requirements of emerging market countries such as china and india outweighed the recessionary pressures in the u.s. and drove prices to record levels , only to collapse in the second half of 2008 as the economic recession spread globally . oil fell 54 % in 2008 to $ 44.60 a barrel , down $ 100.69 from its record price in early july 2008. the dow jones-aig commodity index , a broad benchmark , finished 2008 with a 37 % loss , the worst year since the index was launched in 1998. gold rose 5.8 % on the year , although it was down considerably from the high reached in first half of 2008. growth in underlying markets and new product offerings our business has historically benefited from growth in the otc derivatives markets due to either the expansion of existing markets , including increased notional amounts outstanding or increased transaction volumes , or the development of new products or classes of products . the level of growth in these markets is difficult to measure on a quarterly basis as there are only a few independent , objective measures of growth in outstanding notional amount of otc derivatives , all of which are published retrospectively and do not measure transactional volumes . therefore , to help gauge growth in any particular quarter , management also looks to the published results of large otc derivatives dealers and certain futures exchanges as potential indicators of transactional activity in the related otc derivative markets . the international swaps and derivatives association ( `` isda '' ) released its mid-year 2008 market survey in september 2008 detailing growth in global notional outstanding in various over-the-counter markets . the isda statistics indicated that there was growth in the notional outstanding for all derivative categories over the previous year 's first half results , including interest rate and currency derivatives , which were up 33.9 % , credit default swaps , which were up 20.1 % , and equity derivatives , which were up 18.7 % . however , outstanding notional amounts of credit default swaps decreased 12.2 % from the year-end 2007 market survey , its first sequential period decline . isda attributed this decline to the industry 's efforts to reduce risk through netting of offsetting transactions . despite these indicators of growth in notional outstanding amount of otc derivatives , there was a trend is toward lower trading volumes in the second half of 2008 in certain otc derivatives products as hedge funds deploy less trading capital due to investor redemptions and reduced borrowing capacity . evidence of this trend can be seen in the reduced transaction volumes of certain products traded on futures exchanges . for several years , exchange traded derivatives have exhibited generally similar growth rates to those of related otc derivative markets . in the third and fourth quarters , cme , excluding its new york mercantile exchange ( `` nymex '' ) operations , reported 10 % and 16 % declines , respectively , in quarterly average daily volumes from the previous year , nymex average daily volumes increased 2.9 % in the fourth quarter of 2008. the international securities exchange ( `` ise '' ) reported 47 declining average daily trading volumes in november and december , while ice reported fourth quarter results that indicated decreasing or flat average daily commissions for many otc energy and credit products . in addition , newer products and our expansion into growing markets and new geographical areas have historically contributed to the growth in our brokerage revenues . for example , in recent years we have been a leading broker in developing product areas such as shipping , property and insurance derivatives , and our currency and interest rate derivatives brokerage businesses have benefited from the growth of emerging markets in eastern europe , asia and latin america . while hedge fund deleveraging in the structured credit and high yield markets have recently led to lower volumes in these products , transactional volumes in single name and index credit derivative products have held up better . our recent expansion in calgary , santiago , dubai and tel aviv seeks to capitalize on regional growth opportunities . competitive environment another major external market factor affecting our business and results of operations is competition , which may take the form of competitive pressure on the commissions we charge for our brokerage services or competition for brokerage personnel with extensive experience in the specialized markets we serve . competition for the services of productive brokers was intense in 2008 , as other inter-dealer brokers sought to bolster their derivative brokerage capabilities by hiring , or attempting to hire , certain of our key brokerage personnel . in april of 2008 , almost two dozen of our credit division personnel in new york defected to a competitor , notwithstanding that many of them did so in breach of contractual obligations . since this event , we have worked to re-staff our north american credit operations through the shifting of experienced internal staff and the hiring of external staff . during the second half of 2008 , there was also consolidation and significant-layoffs in the dealer market and deleveraging in the hedge fund industry , which may lead to increased competition to provide brokerage services to a smaller number of market participants . efforts to regulate credit derivatives and to create a central clearinghouse for credit derivatives were prevalent in the second half of 2008 , as the credit crisis and failure of lehman brothers led to calls for better management of counterparty risk exposure . as a result , there may be increased competition from exchanges and other market participants as the credit markets in the u.s. and europe emphasize central clearing , automation and increased transparency . financial overview as more fully discussed below , our results of operations are significantly impacted by our revenue growth and the amount of compensation and benefits we provide to our employees . story_separator_special_tag the following factors had a significant impact on our revenues and employee costs during the three year period ended december 31 , 2008 : our revenues grew from $ 747.2 million for the year ended december 31 , 2006 to $ 1,015.5 million for the year ended december 31 , 2008. the main factors contributing to our revenue growth were : an increase in our brokerage personnel ( consisting of brokers , trainees and clerks ) from 777 at january 1 , 2006 to 1,037 at december 31 , 2008 ; the acquisitions of amerex energy in october 2006 and trayport in january of 2008 ; the opening of new offices , including in seoul , dublin , dubai , tel aviv and santiago , and the continued growth of our paris office ; a continued focus on , and investment in , higher margin and growing product areas ; 48 the overall volume growth in certain markets in which we provide brokerage services ; the introduction and continued development and expansion of our hybrid brokerage capabilities ; and the continued development , marketing and sale of our data and analytical products . partially offsetting this growth were several factors adversely affecting our brokerage revenues , including : the defection of two dozen of our north american credit brokers to a competitor in april 2008 ; dealer and hedge fund deleveraging led to lower volumes in the second half of 2008 ; uncertainty around the regulatory and operating environment of certain otc markets in the second half of 2008 , including the losses from unsettled trades directly related to the lehman brothers bankruptcy ; the considerable decrease in asset and index values worldwide in the second half of 2008 that led to lower revenues in certain markets where commissions are a product of underlying notional values ; and consolidation in the dealer market and deleveraging in the hedge fund industry in the second half of 2008 which led to lower volumes in certain of our markets . the most significant component of our cost structure is employee compensation and employee benefits , which includes salaries , sign-on bonuses , incentive compensation and related employee benefits and taxes . our employee compensation and employee benefits have grown from $ 465.6 million for the year ended december 31 , 2006 to $ 666.0 million for the year ended december 31 , 2008. the main factors contributing to the growth in the amount of employee compensation and employee benefits were an increase in bonuses for brokerage personnel , salaries for brokerage and support personnel , and sign-on bonuses for certain newly-hired brokers or for certain of our existing brokers who agree to long-term employment agreements . our compensation and employee benefits for all employees have both a fixed and variable component . base salaries and benefit costs are primarily fixed for all employees while bonuses constitute the variable portion of our compensation and employee benefits . within overall compensation and employee benefits , employment costs of our brokerage personnel are the key component . bonuses for brokerage personnel are primarily based on the operating results of their related brokerage desk as well as their individual performance . for many of our brokerage employees , their bonus constitutes a significant component of their overall compensation . broker performance bonuses increased from $ 238.6 million for the year ended december 31 , 2006 to $ 331.0 million for the year ended december 31 , 2008. additionally , a portion of our bonus expense is subject to contractual guarantees that may require us to make bonus payments to brokers regardless of their performance in any particular period . further , we grant sign-on bonuses for certain newly-hired brokers or for certain of our existing brokers who agree to long-term employment agreements . expense related to sign-on bonuses paid to brokerage personnel increased from $ 23.5 million for the year ended december 31 , 2006 to $ 40.8 million for the year ended december 31 , 2008. these sign-on bonuses may be paid in the form of cash , rsus or forgivable loans and are typically amortized over the term of the related employment agreement , which is generally two to four years . these employment agreements typically contain repayment or forfeiture provisions for unvested rsus or all or a portion of the sign-on bonus and forgivable loan should the employee voluntarily terminate his 49 or her employment or if the employee 's employment is terminated for cause during the initial term of the agreement . results of consolidated operations the following table sets forth our consolidated results of operations for the periods indicated : replace_table_token_5_th 50 the following table sets forth our consolidated results of operations as a percentage of our total revenues for the periods indicated : replace_table_token_6_th year ended december 31 , 2008 compared to the year ended december 31 , 2007 net income for the year ended december 31 , 2008 was $ 53.1 million as compared to net income of $ 94.9 million for the year ended december 31 , 2007 , a decrease of approximately $ 41.8 million or 44.0 % . total revenues increased by $ 45.0 million , or 4.6 % , to $ 1,015.5 million for the year ended december 31 , 2008 from $ 970.5 million for 2007. our increased revenues were primarily due to increased equity brokerage revenues and the acquisition of trayport , which was partially offset by declines in credit and financial brokerage revenues .
| the following tables summarize our revenues , expenses and pre-tax income/ ( loss ) by segment : replace_table_token_11_th replace_table_token_12_th replace_table_token_13_th 60 segment results for the year ended december 31 , 2008 compared to the year ended december 31 , 2007 revenues revenues for americas brokerage decreased $ 15.7 million , or 3.9 % , to $ 387.5 million for the year ended december 31 , 2008 from $ 403.2 million for the year ended december 31 , 2007. revenues for emea brokerage increased $ 39.7 million , or 8.8 % , to $ 489.7 million for the year ended december 31 , 2008 from $ 450.0 million for the year ended december 31 , 2007. revenues for asia brokerage increased $ 2.7 million , or 3.1 % , to $ 88.6 million for the year ended december 31 , 2008 from $ 85.9 million for the year ended december 31 , 2007. total revenues for our three brokerage segments increased by $ 26.7 million , or 2.8 % , to $ 965.8 million for the year ended december 31 , 2008 from $ 939.1 million for the year ended december 31 , 2007. the increase in revenues was primarily due to an increase in equities brokerage revenues in the u.s and europe . other factors that contributed to this overall increase include those described above under `` year ended december 31 , 2008 compared to the year ended december 31 , 2007 '' . revenues for all other primarily consisted of revenues generated from sales of software , analytics and market data . total revenues from all other increased by $ 18.3 million , or 58.2 % , to $ 49.7 million for the year ended december 31 , 2008 from $ 31.4 million for the year ended december 31 , 2007. the increase was primarily related to $ 28.3 million of software revenues generated by trayport . expenses expenses for americas brokerage decreased $ 2.8 million , or 1 % , to $ 276.8 million for the year ended december 31 , 2008 from $ 279.6 million for the year ended december 31 , 2007. expenses for emea brokerage increased $ 42.7 million , or 14.4 % , to $ 339.1 for the year ended december 31 , 2008 from $ 296.4 million for the year ended december 31 , 2007. expenses for asia brokerage increased $ 7.4 million , or 11.0 % , to $ 74.6 million for the year ended december 31 , 2008 from $ 67.2 million for the year ended december 31 , 2007. total expenses for our three brokerage segments increased by $ 47.3 million or 7.4 % , to $ 690.5 million for the year ended december 31 , 2008 from $ 643.2 million for the year ended december 31 , 2007. the increase was primarily due to an increase in compensation and employee benefits , communications and
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statistical significance in primary endpoint in march 2020 ( cycle 1 ) ; and demonstrated continued improvement in treatment response with extended treatment in april 2020 ( cycle 2 ) and october ( cycle 3 ) sgx942 oral mucositis in head and neck cancer phase 2 trial completed ; demonstrated significant response compared to placebo with positive long-term ( 12 month ) safety also reported ; phase 3 clinical trial results announced december 2020 : the primary endpoint of median duration of severe oral mucositis ( “ som ” ) did not achieve the pre-specified criterion for statistical significance ( p≤0.05 ) , although biological activity was observed with a 56 % reduction in the median duration of som from 18 days in the placebo group to 8 days in the sgx942 treatment group sgx203 † pediatric crohn 's disease phase 1/2 clinical trial completed ; efficacy data , pharmacokinetic ( pk ) /pharmacodynamic ( pd ) profile and safety profile demonstrated ; phase 3 clinical trial initiation contingent upon additional funding , such as through partnership sgx201 † acute radiation enteritis phase 1/2 clinical trial completed ; safety profile and preliminary efficacy demonstrated ; further clinical development contingent upon additional funding , such as through partnership 51 public health solutions * † soligenix product candidate indication stage of development thermovax ® thermostability of vaccines for ricin toxin , ebola , marburg and sars-cov-2 ( covid-19 ) viruses pre-clinical rivax ® vaccine against ricin toxin poisoning phase 1a and 1b trials completed , safety and neutralizing antibodies for protection demonstrated ; phase 1c trial initiated december 2019 , closed january 2020 sgx943 therapeutic against emerging infectious diseases pre-clinical civax vaccine against covid-19 pre-clinical * timelines subject to potential disruption due to covid-19 outbreak . † contingent upon continued government contract/grant funding or other funding source . critical accounting policies our management 's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states . the preparation of our financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , costs and expenses and the disclosure of contingent assets and liabilities in our financial statements . we base our estimates on historical experience , known trends and events and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . we evaluate our estimates and assumptions on an ongoing basis . our actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this annual report on form 10-k , we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements . revenue recognition our revenues are primarily generated from government contracts and grants . the revenue from government contracts and grants is based upon subcontractor costs and internal costs incurred that are specifically covered by the contracts and grants , plus a facilities and administrative rate that provides funding for overhead expenses and management fees . these revenues are recognized when expenses have been incurred by subcontractors or when we incur reimbursable internal expenses that are related to the government contracts and grants . research and development costs as part of the process of preparing our financial statements , we are required to estimate our accrued research and development expenses . this process involves reviewing open contract and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers invoice us in arrears for services performed , on a pre-determined schedule or when contractual milestones are met ; however , some require advanced payments . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . examples of estimated accrued research and development expenses include fees paid to : ● contract research organizations ( “ cros ” ) in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf ; ● investigative sites or other service providers in connection with clinical trials ; ● vendors in connection with preclinical and clinical development activities ; and ● vendors related to product manufacturing and development and distribution of preclinical and clinical supplies . 52 we base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple cros that conduct and manage preclinical studies and clinical trials on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense . payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones . in accruing fees , we estimate the time period over which services will be performed , enrollment of patients , number of sites activated and the level of effort to be expended in each period . story_separator_special_tag if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrual or amount of prepaid expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . to date , we have not made any material adjustments to our prior estimates of accrued research and development expenses . use of estimates and assumptions the preparation of financial statements in conformity with accounting principles generally accepted in the u.s. requires management to make estimates and assumptions such as the fair value of warrants and stock options and recovery of the useful life of intangibles that affect the reported amounts in the financial statements and accompanying notes . actual results could differ from those estimates . story_separator_special_tag margin : 0pt 0 ; text-align : justify '' > cash and working capital as of december 31 , 2020 , we had cash and cash equivalents of $ 18,676,663 as compared to $ 5,420,708 as of december 31 , 2019 , representing an increase of $ 13,255,955 or 245 % . as of december 31 , 2020 , we had working capital of $ 13,386,485 , representing an increase of $ 12,205,236 as compared to working capital of $ 1,181,249 for the prior year . the increase in cash and cash equivalents was primarily related to our usage of the at market issuance sales agreement ( “ fbr sales agreement ” ) with b. riley fbr , inc. ( “ fbr ” ) and the loan proceeds from pontifax medison finance . based on our current rate of cash outflows , cash on hand , proceeds from government contract and grant programs , cash available from the loan from pontifax medison finance , and proceeds available from the fbr sales agreement , management believes that its current cash will be sufficient to meet the anticipated cash needs for working capital and capital expenditures for at least the next twelve months from issuance of the financial statements . our plans with respect to our liquidity management include , but are not limited to , the following : ● we have up to $ 2.16 million in active government contract funding still available as of december 31 , 2020 to support our associated research programs through 2021 and beyond , provided the federal agencies do not elect to terminate the contracts for convenience . we plan to submit additional contract and grant applications for further support of our programs with various funding agencies ; ● we have continued to use equity instruments to provide a portion of the compensation due to vendors and collaboration partners and expect to continue to do so for the foreseeable future ; ● we will continue to pursue net operating loss ( “ nol ” ) sales in the state of new jersey pursuant to its technology business tax certificate transfer program if the program is available ; 54 ● we plan to pursue potential partnerships for pipeline programs ; however , there can be no assurances that we can consummate such transactions ; ● we have up to $ 10.0 million remaining available from the loan and security agreement with pontifax medison finance as of march 30 , 2021 , which includes an immediately available $ 5 million line of credit and a $ 5 million late withdrawal loan that is contingent upon the initial filing of the nda for ctcl ; ● we have up to $ 2.1 million remaining from the fbr sales agreement as of march 30 , 2021 under the prospectus supplement updated august 28 , 2020 ; and ● we may seek additional capital in the private and or public equity markets , pursue government contracts and grants as well as business development activities , to continue our operations , respond to competitive pressures , develop new products and services , and to support new strategic partnerships . we are currently evaluating additional equity/debt financing opportunities on an ongoing basis and may execute them when appropriate . however , there can be no assurances that we can consummate such a transaction , or consummate a transaction at favorable pricing . expenditures under our budget and based upon our existing product development agreements and license agreements pursuant to letters of intent and option agreements , we expect our total research and development expenditures for the year ending december 31 , 2021 to be approximately $ 10.7 million before any contract or grant reimbursements , of which $ 9.8 million relates to the specialized biotherapeutics business and $ 0.9 million relates to the public health solutions business . we anticipate contract and grant reimbursements for the same period of approximately $ 0.8 million to offset research and development expenses in the specialized biotherapeutics and public health solutions business segments . the table below details our costs for research and development by program and amounts reimbursed for the years ended december 31 , 2020 and 2019 : replace_table_token_2_th contractual obligations we have licensing fee commitments of approximately $ 500,000 for the next five years for several licensing agreements with entities , consultants and universities . additionally , we have collaboration and license agreements , which upon clinical or commercialization success may require the payment of milestones of up to $ 7.9 million and or royalties up to 6 % of net sales of covered products , if and when achieved . however , there can be no assurance that clinical or commercialization success will occur .
| research and development expenses increased by $ 2,023,168 or 25 % to $ 10,145,778 for the year ended december 31 , 2020 as compared to $ 8,122,610 for the prior year . the increase in research and development spending for the year ended december 31 , 2020 was related to expenditures incurred in the phase 3 of the clinical trials of sgx942 and sgx301 . general and administrative expenses increased by $ 498,315 or 14 % , to $ 3,979,227 for the year ended december 31 , 2020 , as compared to $ 3,480,912 for the prior year . this increase is primarily related to employee compensation increases . other income for the year ended december 31 , 2020 was $ 61,092 as compared to $ 574,753 for the prior year , reflecting a decrease of $ 513,661 or 89 % . the decrease was primarily due to a decrease in the uk research and development tax credit , a decrease in interest income earned on our cash balances due to decreased interest rates on invested cash in 2020 and interest expense in 2020 on the new convertible debt agreement . the state of new jersey 's technology business tax certificate program allows certain high technology and biotechnology companies to sell unused net operating loss ( “ nol ” ) carryforwards to other new jersey-based corporate taxpayers . we sold nols resulting in the recognition of income tax benefits of $ 836,893 and $ 610,676 for the years ending december 31 , 2020 and 2019 , respectively . we have applied for and received preliminary confirmation for nols related to the tax year ended december 31 , 2019 in the amount of approximately $ 865,000 , which will not be recognized until a certificate for the refund is received . we have not yet sold our tax year 2020 new jersey nols but may do so in the future . we will continue to explore opportunities to sell unused nol carryforwards for the tax year
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net sales are subject to seasonal fluctuation . typically , sales of our consumer products are highest in the second quarter , due to increased demand during the spring and summer season , and in the fourth quarter , due to increased demand during the holiday buying season . our aviation products do not experience much seasonal variation , but are more influenced by the timing of aircraft certifications and the release of new products when the initial demand is typically the strongest . cost of sales/gross profit raw material costs are our most significant component of cost of goods sold . our existing practice of performing the design and manufacture of our products in-house has enabled us to source components from different suppliers and , where possible , to redesign our products to leverage lower cost components . we believe that our flexible production model allows our xizhi , jhongli , and linkou manufacturing plants in taiwan ; yangzhou , china ; and our olathe , kansas , and salem , oregon manufacturing plants in the u.s. to experience relatively low costs of manufacturing . in general , products manufactured in taiwan have been our highest volume products . our manufacturing labor costs historically have been lower in taiwan than in olathe and salem . the yangzhou , china facility was opened in 2015. sales price variability has had and can be expected to have an effect on our gross profit . in the past , prices of our devices sold into the auto market have declined due to market pressures and introduction of new products sold at lower price points . in recent years , pricing has stabilized in auto allowing for relatively stable gross margins excluding the impact of deferred revenues and costs . the average selling prices of our aviation , outdoor , fitness , and marine products have historically been stable due to product mix and the introduction of more advanced products sold at higher prices . in 2014 and 2015 , fitness pricing declined due to high volumes of lower-priced activity trackers . the effect of the sales price differences inherent within the mix of products sold could have a significant impact on our gross profit . advertising expense our advertising expenses consist of costs for media advertising , cooperative advertising with our retail partners , point of sale displays , and sponsorships . 40 selling , general and administrative expenses our selling , general and administrative expenses consist primarily of : · salaries for sales , marketing and product support personnel ; · salaries and related costs for executives and administrative personnel ; · marketing , and other brand building costs ; · accounting and legal costs ; · information systems and infrastructure costs ; · travel and related costs ; and · occupancy and other overhead costs . research and development the majority of our research and development costs represent salaries for our engineers , costs for high technology components and costs of test equipment used in product and prototype development . we are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for active lifestyle products . income taxes we have experienced a relatively low effective corporate tax rate due to the proportion of our revenue generated by entities in tax jurisdictions with low statutory rates . in particular , the profit entitlement afforded our swiss-based companies based on their intellectual property rights ownership of our consumer products along with tax incentives offered by the taiwanese government on certain high-technology capital investments have contributed to our relatively low effective corporate tax rate . story_separator_special_tag dollar strengthened 10.0 % compared to the euro resulting in a net loss of $ 31.2 million . this was largely offset as the u.s. dollar strengthened 3.8 % compared to the taiwan dollar resulting in a gain of $ 19.5 million . the remaining net currency loss of $ 11.8 million is related to other currencies and timing of transactions . the majority of the $ 4.3 million currency loss in the fiscal year 2014 was due to the strengthening of the u.s. dollar compared to the euro and the british pound sterling . the strengthening of the u.s. dollar compared to the taiwan dollar contributed an offsetting gain . during fiscal year 2014 , the u.s. dollar strengthened 11.4 % compared to the euro and 5.5 % compared to the british pound sterling resulting in a net loss of $ 43.7 million . this was more than offset as the u.s. dollar strengthened 5.5 % compared to the taiwan dollar resulting in a gain of $ 44.8 million . the remaining net currency loss of $ 5.4 million is related to other currencies and timing of transactions . during fiscal year 2015 , garmin recorded other income of $ 11.4 million . this income was primarily due to a legal settlement received during the year and a gain on the disposal of property . income tax provision our income tax expense decreased by $ 248.6 million , to $ 111.0 million for the fiscal year 2015 , from $ 359.5 million for the fiscal year 2014. contributing to the significant decrease was : · tax expense of $ 307.6 million in 2014 associated with the inter-company restructuring discussed below , partially offset by : · release of uncertain tax position reserves due to expiration of certain statutes of limitations or completion of tax audits of $ 7.3 million in fiscal year 2015 compared to releases of $ 83.9 million in fiscal year 2014. in addition , the full year income mix by tax jurisdiction for 2015 compared to 2014 is unfavorable resulting in an increased effective tax rate . in the third quarter of 2014 , the company initiated an inter-company restructuring that realigned our corporate entity structure . story_separator_special_tag this change in corporate structure provides access to historical earnings that were previously permanently reinvested and allows us to efficiently repatriate future earnings . as a result of the change in corporate structure , garmin recorded tax expense of $ 307.6 million . the first and second cash tax payments of $ 78.1 million and $ 182.8 million associated with the restructuring were made in the third quarter of 2014 and the second quarter of 2015 , respectively . the remainder of the accrued tax will be paid incrementally as the cash is repatriated . 46 the company expects the effective income tax rate to be approximately 20.5 % in 2016. net income as a result of the various factors noted above , net income increased 25 % to $ 456.2 million for the fiscal year 2015 compared to $ 364.2 million for the fiscal year 2014. comparison of 52-weeks ended december 27 , 2014 and december 28 , 2013 net sales replace_table_token_19_th net sales increased 9 % in 2014 when compared to the year-ago period . all segments , excluding auto , grew in the fiscal year 2014. auto revenue remains the largest portion of our revenue mix at 43 % in the fiscal year 2014 compared to 49 % in the fiscal year 2013. total unit sales increased 9 % to 15.1 million units in 2014 from 13.9 million units in 2013. the increase in unit sales volume was attributable to growth in all segments except auto which had volume decline due to penetration rates and competing technologies . auto segment revenue decreased 5 % from fiscal year 2013 , as a 10 % volume decline and slight average selling price ( asp ) decline , were partially offset by amortization of previously deferred revenue exceeding current period revenue deferrals and increased auto oem contributions . revenues in our fitness segment increased 60 % from fiscal year 2013 on the strength of wellness products first introduced in 2014 , and recent biking and running product introductions . aviation revenues increased 14 % from fiscal year 2013 as both oem market share gains and aftermarket strength contributed to growth . outdoor revenues increased 4 % from fiscal year 2013 primarily due to strong sales of fēnix 2 and our lineup of dog tracking and training products , offset by declining sales of our handheld products which serve a mature industry . revenues in our marine segment increased 11 % due to both the recent acquisition of fusion electronics as well as new product introductions . this growth was partially offset by a competitive pricing environment in the global marine electronics industry . cost of goods sold replace_table_token_20_th cost of goods sold increased 3 % in absolute dollars for fiscal year 2014 when compared to fiscal year 2013. the increase was driven by growth in all segments excluding auto . fitness and marine cost of goods increased in-line with sales growth as described above with gross margins stable year-over-year . outdoor cost of goods increased due to sales growth with gross margin contraction driven by product mix . 47 as a percentage of revenue , cost of goods sold decreased 240 basis points from fiscal year 2013 with improvement or stability in each segment , excluding outdoor as mentioned above . the auto cost of goods improvement as a percent of revenues was primarily due to benefit from the amortization of previously deferred revenue and costs exceeding new deferrals on current period sales in 2014. aviation margin improvement was primarily due to increased contribution of software sales which carry a higher margin . gross profit replace_table_token_21_th gross profit dollars in fiscal year 2014 increased 14 % while gross profit margin increased 240 basis points compared to fiscal year 2013 with all segments stable or improving , excluding outdoor . the auto , fitness , marine and aviation segments recorded improved gross margins , as discussed above . outdoor gross profit margins declined , as discussed above . advertising expenses replace_table_token_22_th advertising expense increased 30 % in absolute dollars while increasing 80 basis points as a percent of revenues . the increase in absolute dollars occurred primarily in outdoor and fitness to support new product introductions and was partially offset by decreased spending in auto due to reduced cooperative advertising associated with lower volumes . aviation advertising increased materially due to increased cooperative advertising efforts with our dealers . selling , general and administrative expenses replace_table_token_23_th selling , general and administrative expense increased 5 % in absolute dollars and declined 50 basis points as a percent of revenues compared to fiscal year 2013. the absolute dollar increase is primarily related to product support , information technology costs and legal costs specific to marine litigation . the aviation increase was primarily driven by product support costs . other variances by segment , excluding aviation , are primarily due to the allocation of certain selling , general and administrative expenses based on percentage of total revenues . 48 research and development expense replace_table_token_24_th research and development expense increased 8 % due to ongoing development activities for new products and the addition of over 200 new engineering personnel to our staff since the fiscal year 2013. in absolute dollars , research and development costs increased $ 30.2 million when compared with fiscal year 2013 and decreased 10 basis points as a percent of revenue . fitness , outdoor and aviation increased to support new product initiatives . auto investment declined due to efforts to allocate research and development spending to areas with the highest growth potential . operating income replace_table_token_25_th as a result of the above , operating income increased 20 % in absolute dollars and 220 basis points as a percent of revenue when compared to the fiscal year 2013. revenue growth and an improving gross margin percentage , as discussed above , contributed to the growth . by segment results are discussed above .
| outdoor revenues decreased 1 % from the year-ago period due to geographic exposure to weak currencies and maturing product categories largely offset by the strength of outdoor wearables . revenues in our marine segment increased 15 % as the release of new marine products drove strong revenue growth . the company anticipates revenue of approximately $ 2.82 billion in 2016 driven by growth in the outdoor , fitness , aviation and marine segments offset by ongoing declines in the auto segment . in general , management believes that continuous innovation and the introduction of new products are essential for future revenue growth . cost of goods sold replace_table_token_12_th cost of goods sold increased 1 % in absolute dollars for fiscal year 2015 when compared to fiscal year 2014. cost of goods as a percentage of revenue increased in part due to a stronger u.s. dollar that created downward pressure on revenue in all segments excluding aviation as discussed above . in the auto segment , the cost of goods decline was largely consistent with the segment revenue decline . in the fitness segment , the cost of goods increase outpaced revenue growth due to product mix and competitive pricing dynamics . the cost of goods increases in marine are due to increased sales of higher margin products . aviation cost of goods was lower due to product mix . 43 management believes that cost of goods sold as a percentage of sales will be relatively consistent in 2016. gross profit replace_table_token_13_th gross profit dollars in fiscal year 2015 decreased 4 % while gross profit margin decreased 130 basis points compared to fiscal year 2014 with all segments declining , excluding marine and aviation . segment specific gross margin drivers are discussed above . management believes that total company gross margins will be relatively consistent in 2016. advertising expenses replace_table_token_14_th advertising expense increased 14 % in absolute dollars while increasing 80 basis points as a percent of revenues . the increase in absolute dollars occurred in fitness and marine to support new product introductions with increased media spend , point of sale presence
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as there can be no assurance that an agreement will be reached , burberry has exercised its right to evaluate the purchase price for the unexpired term of the existing license . in this process , burberry has until july 31 , 2012 to determine whether it wishes to buy out the unexpired portion of the license as of december 31 , 2012 or continue the existing contract which runs through december 31 , 2017. as previously disclosed , if burberry were to buy back the license , then the purchase price will be the greater of the fair market value of the unexpired term of the license or 70 % of 2010 net wholesale sales of burberry products . 38 repetto in december 2011 , we entered into a thirteen-year exclusive worldwide license agreement to create , produce and distribute perfumes and ancillary products under the repetto brand . our rights under the agreement commenced on january 1 , 2012. the agreement is subject to certain minimum advertising expenditures and royalty payments as are customary in our industry . the gap inc. in july 2011 , we renewed our exclusive agreement with the gap , inc. to develop , produce , manufacture and distribute fragrances for gap and banana republic brand names to be sold in gap and banana republic retail stores in the united states and canada . in july 2011 , we also renewed our license agreement with the gap inc. for international distribution of fragrances through gap and banana republic stores as well as select specialty and department stores outside the united states , including duty-free and other travel related retailers . these renewal agreements , which took effect on january 1 , 2012 and run through december 31 , 2014 , contain terms and conditions similar to those of the original agreements . pierre balmain in july 2011 , we entered into a twelve-year exclusive worldwide license agreement to create , produce and distribute perfumes and ancillary products under the balmain brand . our rights under the agreement commenced on january 1 , 2012 when we took over production and distribution of existing balmain fragrances . the agreement is subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . the company paid an up front entry fee of 2.1 million ( approximately $ 2.7 million ) for this license . anna sui in june 2011 , we entered into a ten-year exclusive worldwide fragrance license agreement , with two five-year renewal options , to create , produce and distribute perfumes and fragrance-related products under the anna sui brand . our rights under the agreement commenced on january 1 , 2012 when we took over production and distribution of the existing anna sui fragrance collections . the agreement is subject to certain minimum sales , advertising expenditures and royalty payments as are customary in our industry . the company agreed to pay an upfront entry fee of $ 2.0 million for this license which was paid in 2012 and we agreed to purchase current inventory and certain other assets of the former licensee . as of december 31 , 2011 , approximately $ 2.8 million of current inventory was purchased . 39 s. t. dupont in april 2011 , we renewed our license agreement with s.t . dupont for the creation , development and distribution of fragrance products through december 31 , 2016. our initial eleven-year license agreement with s.t . dupont was signed in june 1997 , and had previously been extended in 2006 for an additional three years until june 2011. lane bryant in march 2011 , we entered into an exclusive agreement with a unit of charming shoppes , inc. for its flagship brand , lane bryant . under the agreement , inter parfums designs and manufactures personal care products for the lane bryant brand for sale in their stores . lane bryant is responsible for marketing , promoting and selling these products . the initial term of the contract , which may be extended by mutual consent , runs through december 31 , 2015. u.s. distribution of prestige products beginning january 1 , 2011 , interparfums luxury brands , inc. , a u.s. subsidiary of our french subsidiary interparfums sa , assumed all u.s. prestige fragrance distribution responsibilities . in addition , under the terms of a four-year agreement , interparfums luxury brands , inc. and clarins fragrance group usa ( a division of clarins group in the u.s. responsible for the thierry mugler , azzaro , porsche design , david yurman and swarovski brands ) share and manage an expanded sales force . logistical and administrative support is provided by clarins group usa from its park avenue offices in new york and its warehouse in orangeburg , new york . discussion of critical accounting policies we make estimates and assumptions in the preparation of our financial statements in conformity with accounting principles generally accepted in the united states of america . actual results could differ significantly from those estimates under different assumptions and conditions . we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations . these accounting policies generally require our management 's most difficult and subjective judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . management of the company has discussed the selection of significant accounting policies and the effect of estimates with the audit committee of the board of directors . revenue recognition we sell our products to department stores , perfumeries , specialty retailers , mass-market retailers , supermarkets and domestic and international wholesalers and distributors . sales of such products by our domestic subsidiaries are denominated in u.s. dollars and sales of such products by our foreign subsidiaries are primarily denominated in either euro or u.s. dollars . we recognize revenues when merchandise is shipped and the risk of loss passes to the customer . story_separator_special_tag net sales are comprised of gross revenues less returns , trade discounts and allowances . 40 accounts receivable accounts receivable represent payments due to the company for previously recognized net sales , reduced by allowances for sales returns and doubtful accounts . accounts receivable balances are written-off against the allowance for doubtful accounts when they become uncollectible . recoveries of accounts receivable previously recorded against the allowance are recorded in the consolidated statement of income when received . we generally grant credit based upon our analysis of the customer 's financial position as well as previously established buying patterns . sales returns generally , we do not permit customers to return their unsold products . however , commencing in january 2011 we took over u.s. distribution of our european based prestige products and for u.s. based customers we allow customer returns if properly requested , authorized and approved . we regularly review and revise , as deemed necessary , our estimate of reserves for future sales returns based primarily upon historic trends and relevant current data including information provided by retailers regarding their inventory levels . in addition , as necessary , specific accruals may be established for significant future known or anticipated events . the types of known or anticipated events that we have considered , and will continue to consider , include , but are not limited to , the financial condition of our customers , store closings by retailers , changes in the retail environment and our decision to continue to support new and existing products . we record estimated reserves for sales returns as a reduction of sales , cost of sales and accounts receivable . returned products are recorded as inventories and are valued based upon estimated realizable value . the physical condition and marketability of returned products are the major factors we consider in estimating realizable value . actual returns , as well as estimated realizable values of returned products , may differ significantly , either favorably or unfavorably , from our estimates , if factors such as economic conditions , inventory levels or competitive conditions differ from our expectations . promotional allowances we have various performance-based arrangements with certain retailers . these arrangements primarily allow customers to take deductions against amounts owed to us for product purchases . the costs that our company incurs for performance-based arrangements , shelf replacement costs and slotting fees are netted against revenues on our company 's consolidated statement of income . estimated accruals for promotions and advertising programs are recorded in the period in which the related revenue is recognized . we review and revise the estimated accruals for the projected costs for these promotions . actual costs incurred may differ significantly , either favorably or unfavorably , from estimates if factors such as the level and success of the retailers ' programs or other conditions differ from our expectations . 41 inventories inventories are stated at the lower of cost or market value . cost is principally determined by the first-in , first-out method . we record adjustments to the cost of inventories based upon our sales forecast and the physical condition of the inventories . these adjustments are estimates , which could vary significantly , either favorably or unfavorably , from actual requirements if future economic conditions or competitive conditions differ from our expectations . equipment and other long-lived assets equipment , which includes tools and molds , is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets . changes in circumstances such as technological advances , changes to our business model or changes in our capital spending strategy can result in the actual useful lives differing from our estimates . in those cases where we determine that the useful life of equipment should be shortened , we would depreciate the net book value in excess of the salvage value , over its revised remaining useful life , thereby increasing depreciation expense . factors such as changes in the planned use of equipment , or market acceptance of products , could result in shortened useful lives . we evaluate goodwill and indefinite-lived intangible assets for impairment at least annually during the fourth quarter , or more frequently when events occur or circumstances change , such as an unexpected decline in sales , that would more likely than not ( i ) reduce the fair value of the reporting unit below its fair value or ( ii ) indicate that the carrying value of an indefinite-lived intangible asset may not be recoverable . impairment of goodwill is evaluated using a two-step process . the first step involves a comparison of the estimated fair value of the reporting unit to the carrying value of that unit to determine if there is an indication of impairment . if the carrying value of the reporting unit exceeds the fair value of the reporting unit , the second step of the process involves comparison of the implied fair value of goodwill ( based on industry purchase and sale transaction data ) with its carrying value . if the carrying value of the reporting unit 's goodwill exceeds the implied fair value of that goodwill , an impairment loss is recognized as an amount equal to the excess . for indefinite-lived intangible assets , the evaluation requires a comparison of the estimated fair value of the asset to the carrying value of the asset . if the carrying value of an indefinite-lived intangible asset exceeds its fair value , impairment is recorded . goodwill relates to our nickel skin care business , which is primarily a component of our european operations . testing goodwill for impairment requires us to estimate the fair value of the reporting unit using significant estimates and assumptions . the assumptions we make will impact the outcome and ultimate results of the testing . in making our assumptions and estimates , we use industry accepted valuation models and set criteria that are reviewed and approved by management .
| burberry fragrance sales registered an increase of 6 % in 2010 to $ 242.1 million , as compared to $ 232.1 million in 2009. all of our other major prestige fragrance brands contributed to sales growth in 2010. lanvin , our second largest prestige brand , performed extremely well in 2010 with sales aggregating $ 70.3 million , 24 % ahead of 2009 lead by eclat d'arpège and jeanne lanvin and the launch of marry me ! . the 2010 launch of oriens and midnight in paris by van cleef & arpels boosted that brand 's 2010 sales by 22 % to $ 34.3 million as compared to $ 28.1 million in 2009. in addition to the burberry body fragrance launched in 2011 , we continue to commit capital to further grow our largest brand with a cosmetics line for women currently in approximately 75 shops around the world . the burberry beauty collection includes over 100 products for skin , lips and eyes . we are reviewing burberry beauty results , as well as the anticipated financial commitment which may be necessary , in order to determine the appropriate level of distribution for the burberry beauty in the years to come . our growth expectations for 2012 for our european based product lines reflect our plans to continue to build upon the strength of our brands and worldwide distribution network . while we are not expecting any significant contributions in 2012 from our newest lines , balmain and repetto , where we are just beginning the product development process , we do expect continued strong performances from jimmy choo and montblanc . in addition , the recent launch of burberry body will enjoy a full year of sales supported by a very aggressive marketing campaign . we also have new products for lanvin , montblanc and boucheron planned for a 2012 debut . with respect to our united states specialty retail and mass market products , after increasing 16 % in 2010 , our u.s. based product sales increased 13 % in 2011. sales growth was driven by a strong performance in international distribution of specialty retail products ; banana republic , gap and bebe product lines are performing especially well with further expansion of new products into new
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our consolidated financial statements ; the accuracy of our estimates of the useful life and values of our property , assets and other liabilities ; the adequacy of our patent strategy , and our belief that the impact of the expiration of any particular patent will not have a material effect on our business ; our actions to vigorously and aggressively defend and protect our intellectual property on a worldwide basis ; our ability to obtain patents and intellectual property licenses and minimize the effects of litigation ; the level of risk we are exposed to for product liability or indemnification claims ; the effect of fluctuations in market interest rates on our income and or cash flows ; the effect of fluctuations in currency rates ; our belief that any unrealized losses represent an other-than-temporary impairment based on our evaluation of available evidence and our intent to hold these investments until these assets are no longer impaired ; that a significant portion of our future cash generation will be in our foreign subsidiaries ; our intention to satisfy the lesser of the principal amount or the conversion value of our debenture in cash ; our intention to indefinitely reinvest undistributed earnings of certain non-us subsidiaries in those subsidiaries ; our intent to maintain a high-quality investment portfolio that preserves principal , meets liquidity needs , avoids inappropriate concentrations and delivers an appropriate yield ; and our ability to collect accounts receivable . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors including those set forth in `` item 1a – risk factors , '' and elsewhere in this form 10-k. although we believe that the expectations reflected in our forward-looking statements are reasonable , we can not guarantee future results , levels of activity , performance or achievements . you should not place undue reliance on these forward-looking statements . we disclaim any obligation to update the information contained in any forward-looking statement . introduction the following discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this document , as well as with other sections of this annual report on form 10-k , including `` item 1 – business ; '' `` item 6 – selected financial data ; '' and `` item 8 – financial statements and supplementary data . '' we begin our management 's discussion and analysis of financial condition and results of operations ( md & a ) with a summary of our overall business strategy to give the reader an overview of the goals of our business and the overall direction of our business and products . this is followed by a discussion of the critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results . in the next section , beginning at page 36 , we discuss our results of operations for fiscal 2016 compared to fiscal 2015 , and for fiscal 2015 compared to fiscal 2014. we then provide an analysis of changes in our balance sheet and cash flows , and discuss our financial commitments in the sections titled `` liquidity and capital resources , '' `` contractual obligations '' and `` off-balance sheet arrangements . '' strategy our goal is to be a worldwide leader in providing specialized semiconductor products for a wide variety of embedded control applications . our strategic focus is on embedded control solutions , including general purpose and specialized microcontrollers , development tools and related software , analog , interface , mixed signal and timing products , wired and wireless connectivity products , memory products and technology licensing . we provide highly cost-effective embedded control solutions that also offer the advantages of small size , high performance , extreme low power usage , wide voltage range operation , mixed signal integration and ease of development , thus enabling timely and cost-effective integration of our solutions by our customers in their end products . we license our superflash technology and other technologies to wafer foundries , integrated device manufacturers and design partners throughout the world for use in the manufacture of advanced microcontroller products , gate array , rf and analog products that require embedded non-volatile memory . 31 we sell our products to a broad base of domestic and international customers across a variety of industries . the principal markets that we serve include consumer , automotive , industrial , office automation and telecommunications . our business is subject to fluctuations based on economic conditions within these markets . our manufacturing operations include wafer fabrication , wafer probe and assembly and test . the ownership of a substantial portion of our manufacturing resources is an important component of our business strategy , enabling us to maintain a high level of manufacturing control resulting in us being one of the lowest cost producers in the embedded control industry . by owning wafer fabrication facilities and our assembly and test operations , and by employing statistical process control techniques , we have been able to achieve and maintain high production yields . direct control over manufacturing resources allows us to shorten our design and production cycles . this control also allows us to capture a portion of the wafer manufacturing and the assembly and test profit margin . we do outsource a significant portion of our manufacturing requirements to third parties . we employ proprietary design and manufacturing processes in developing our embedded control products . we believe our processes afford us both cost-effective designs in existing and derivative products and greater functionality in new product designs . while many of our competitors develop and optimize separate processes for their logic and memory product lines , we use a common process technology for both microcontroller and non-volatile memory products . this allows us to more fully leverage our process research and development costs and to deliver new products to market more rapidly . story_separator_special_tag our engineers utilize advanced computer-aided design ( cad ) tools and software to perform circuit design , simulation and layout , and our in-house photomask and wafer fabrication facilities enable us to rapidly verify design techniques by processing test wafers quickly and efficiently . we are committed to continuing our investment in new and enhanced products , including development systems , and in our design and manufacturing process technologies . we believe these investments are significant factors in maintaining our competitive position . our current research and development activities focus on the design of new microcontrollers , digital signal controllers , memory , analog and mixed-signal products , flash-ip systems , development systems , software and application-specific software libraries . we are also developing new design and process technologies to achieve further cost reductions and performance improvements in our products . we market and sell our products worldwide primarily through a network of direct sales personnel and distributors . our distributors focus primarily on servicing the product and technical support requirements of a broad base of diverse customers . we believe that our direct sales personnel combined with our distributors provide an effective means of reaching this broad and diverse customer base . our direct sales force focuses primarily on major strategic accounts in three geographical markets : the americas , europe and asia . we currently maintain sales and support centers in major metropolitan areas in north america , europe and asia . we believe that a strong technical service presence is essential to the continued development of the embedded control market . many of our client engagement manager ( cems ) , embedded system engineer ( eses ) , and sales management personnel have technical degrees and have been previously employed in an engineering environment . we believe that the technical knowledge of our sales force is a key competitive advantage in the sale of our products . the primary mission of our ese team is to provide technical assistance to strategic accounts and to conduct periodic training sessions for cems and distributor sales teams . eses also frequently conduct technical seminars for our customers in major cities around the world , and work closely with our distributors to provide technical assistance and end-user support . see `` our operating results are impacted by both seasonality and the wide fluctuation of supply and demand in the semiconductor industry , '' on page 15 for discussion of the impact of seasonality on our business . critical accounting policies and estimates general our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the u.s. we review the accounting policies we use in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate our estimates , including those related to revenue recognition , business combinations , share-based compensation , inventories , income taxes , senior and junior subordinated convertible debentures and contingencies . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our results may differ from these 32 estimates due to actual outcomes being different from those on which we based our assumptions . we review these estimates and judgments on an ongoing basis . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . we also have other policies that we consider key accounting policies , such as our policy regarding revenue recognition to original equipment manufacturers ( oems ) ; however , we do not believe these policies require us to make estimates or judgments that are as difficult or subjective as our policies described below . revenue recognition – distributors our distributors worldwide generally have broad price protection and product return rights , so we defer revenue recognition until the distributor sells the product to their customer . revenue is recognized when the distributor sells the product to an end-user , at which time the sales price becomes fixed or determinable . revenue is not recognized upon shipment to our distributors since , due to discounts from list price as well as price protection rights , the sales price is not substantially fixed or determinable at that time . at the time of shipment to these distributors , we record a trade receivable for the selling price as there is a legally enforceable right to payment , relieve inventory for the carrying value of goods shipped since legal title has passed to the distributor , and record the gross margin in deferred income on shipments to distributors on our consolidated balance sheets . deferred income on shipments to distributors effectively represents the gross margin on the sale to the distributor ; however , the amount of gross margin that we recognize in future periods could be less than the deferred margin as a result of credits granted to distributors on specifically identified products and customers to allow the distributors to earn a competitive gross margin on the sale of our products to their end customers and price protection concessions related to market pricing conditions . we sell the majority of the items in our product catalog to our distributors worldwide at a uniform list price . however , distributors resell our products to end customers at a very broad range of individually negotiated price points . the majority of our distributors ' resales require a reduction from the original list price paid .
| key factors impacting the amount of net sales during the last three fiscal years include : 36 our acquisition of micrel , which closed on august 3 , 2015 ; global economic conditions in the markets we serve ; semiconductor industry conditions ; our acquisition of issc on july 17 , 2014 ; our acquisition of supertex on april 1 , 2014 ; our new product offerings that have increased our served available market ; customers ' increasing needs for the flexibility offered by our programmable solutions ; inventory holding patterns of our customers ; increasing semiconductor content in our customers ' products ; and continued market share gains in the segments of the markets we address . net sales by product line for fiscal 2016 , 2015 and 2014 were as follows ( dollars in thousands ) : replace_table_token_9_th microcontrollers our microcontroller product line represents the largest component of our total net sales . microcontrollers and associated application development systems accounted for approximately 61.9 % of our net sales in fiscal 2016 , approximately 64.9 % of our net sales in fiscal 2015 and approximately 65.3 % of our net sales in fiscal 2014 . net sales of our microcontroller products decreased approximately 3.5 % in fiscal 2016 compared to fiscal 2015 , and increased approximately 10.5 % in fiscal 2015 compared to fiscal 2014 . the decrease in net sales in fiscal 2016 compared to fiscal 2015 resulted primarily from weaker general economic and semiconductor industry conditions in the end markets we serve including the consumer , automotive , industrial control , communications and computing markets . the increase in net sales in fiscal 2015 compared to fiscal 2014 resulted primarily from our acquisition of issc in the second quarter of fiscal 2015 , market share gains and improved general economic and semiconductor industry conditions in the end markets we serve . historically , average selling prices in the semiconductor industry decrease over the life of any particular product . the
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in addition to the aforementioned macroeconomic and sector-specific trends , we believe the following factors will influence our future performance : the extent to which investors favor alternative investments . our ability to attract new capital is partially dependent on investors ' views of alternative assets relative to traditional publicly listed equity and debt securities . we believe fundraising efforts will continue to be impacted by certain fundamental asset management trends that include : ( 1 ) the increasing importance and market share of alternative investment strategies to investors in light of an increased focus on lower-correlated and absolute levels of return ; ( 2 ) the increasing demands of the investing community , including the potential for fee compression and changes to other terms ; ( 3 ) shifting asset allocation policies of institutional investors ; and ( 4 ) increasing barriers to entry and growth . our ability to generate strong returns . we must continue to generate strong returns for our investors through our disciplined investment diligence process in an increasingly competitive market . the ability to attract and retain clients is partially dependent on returns we are able to deliver versus our peers . the capital we are able to attract drives the growth of our aum and aua and the management and advisory fees we earn . 65 our ability to source investments with attractive risk-adjusted returns . an increasing part of our management fee and incentive fee revenue has been from our co-investment and secondary investment platforms . the continued growth of this revenue is dependent on our continued ability to source attractive investments and deploy the capital that we have raised or manage on behalf of our clients . because we are selective in the opportunities in which we invest , the capital deployed can vary from year to year . our ability to identify attractive investments and execute on those investments is dependent on a number of factors , including the general macroeconomic environment , valuation , transaction size , and expected duration of such investment opportunity . a significant decrease in the quality or quantity of potential opportunities could adversely affect our ability to source investments with attractive risk-adjusted returns . our ability to maintain our data advantage relative to competitors . we believe that the general trend towards transparency and consistency in private markets reporting will create new opportunities for us to leverage our databases and analytical capabilities . we intend to use these advantages afforded to us by our proprietary databases , analytical tools and deep industry knowledge to drive our performance , provide our clients with customized solutions across private markets asset classes and continue to differentiate our products and services from those of our competitors . our ability to maintain our data advantage is dependent on a number of factors , including our continued access to a broad set of private market information on an on-going basis , as well as our ability to maintain our investment scale , considering the evolving competitive landscape and potential industry consolidation . our ability to continue to expand globally . we believe that many institutional investors outside the united states are currently underinvested in private markets asset classes and that capturing capital inflows into private capital investing from non-u.s. global markets represents a significant growth opportunity for us . our ability to continue to expand globally is dependent on our ability to continue building successful relationships with investors internationally and subject to the evolving macroeconomic and regulatory environment of the various countries where we operate or in which we invest . increased competition to work with top private equity fund managers . there has been a trend amongst private markets investors to consolidate the number of general partners in which they invest . at the same time , an increasing flow of capital to the private markets has often times resulted in certain funds being oversubscribed . this has resulted in some investors , primarily smaller investors or less strategically important investors , not being able to gain access to certain funds . our ability to invest and maintain our sphere of influence with these high-performing fund managers is critical to our investors ' success and our ability to maintain our competitive position and grow our revenue . unpredictable global macroeconomic conditions . global economic conditions , including political environments , financial market performance , interest rates , credit spreads or other conditions beyond our control , all of which affect the performance of the assets underlying private market investments , are unpredictable and could negatively affect the performance of our clients ' portfolios or the ability to raise funds in the future . increasing regulatory requirements . the complex regulatory and tax environment could restrict our operations and subject us to increased compliance costs and administrative burdens , as well as restrictions on our business activities . 66 key transactions 2018 offering in march 2018 , we and certain selling stockholders completed a registered offering of an aggregate of 4,531,001 shares of class a common stock at a price of $ 34.25 per share ( the “ 2018 offering ” ) . the purpose of the 2018 offering was to provide liquidity to significant direct and indirect owners of hla . the shares sold consisted of ( i ) 696,315 shares held by the selling stockholders and ( ii ) 3,834,686 newly issued shares by us . we received approximately $ 125.2 million in proceeds from the sale of our shares , net of underwriting discounts and commissions and estimated offering expenses , and used all of the net proceeds to settle in cash exchanges by certain members of hla of a total of 2,235,187 class b units and 1,599,499 class c units . in connection with the exchange of the class b units , we also repurchased for par value and canceled a corresponding number of shares of class b common stock . we did not receive any proceeds from the sale of shares by the selling stockholders . story_separator_special_tag see “ —hla operating agreement , ” “ —exchange agreement ” and “ —2018 offering ” under the heading “ related-party transactions ” included in part iii , item 13. new term loan and revolving credit facility in august 2017 , we entered into a term loan and security agreement ( the “ term loan agreement ” ) and a revolving loan and security agreement ( the “ revolving loan agreement ” and , together with the term loan agreement , the “ loan agreements ” ) with first republic bank ( “ first republic ” ) for $ 75.0 million and total availability of $ 25.0 million , respectively . at closing , we borrowed $ 85.5 million under the loan agreements , which was utilized to pay off the outstanding principal amount and accrued interest of the predecessor credit facility . acquisition in august 2017 , we acquired substantially all of the assets of real asset portfolio management llc ( “ rapm ” ) , a portland , oregon-based investment management firm focused exclusively on real assets , for a total aggregate purchase price of approximately $ 5.8 million , of which $ 5.2 million was paid in cash with the remainder settled in 27,240 shares of class a common stock valued at approximately $ 0.6 million . an additional amount , currently estimated at approximately $ 6.1 million , is payable as compensation to the principals of rapm who are now employees and is contingent upon those individuals remaining employed through the expected payment date in october 2018. reorganization and initial public offering on march 6 , 2017 , we completed an ipo pursuant to which we sold an aggregate of 13,656,250 shares of class a common stock at a public offering price of $ 16.00 per share , receiving $ 203.2 million in net proceeds . we used $ 37.2 million of the net proceeds from our ipo to purchase membership units in hla from certain of its existing owners . we used $ 160.0 million of the net proceeds from the ipo to repay principal on our existing senior secured term loan ( as defined in “ —liquidity and capital resources—historical liquidity and capital resources—term loan ” ) and the remaining $ 6.0 million for ipo transaction expenses and general corporate purposes . in connection with the ipo , we completed a series of reorganization transactions that included the following : 67 the limited liability company operating agreement of hla was amended and restated to , among other things , ( i ) effect a reverse split of existing membership interests ; ( ii ) exchange all of the then-existing membership interests of the members of hla for class b and class c units , ( iii ) reclassify all membership interests held by us as class a units , and ( iv ) appoint us as the sole managing member of hla ; our certificate of incorporation was amended and restated to , among other things , ( i ) provide for class a common stock and class b common stock , ( ii ) set forth the voting rights of the class a common stock and class b common stock , and ( iii ) establish a classified board of directors ; certain hla members exchanged their hla units for 3,899,169 shares of class a common stock of hli ; hli issued to the class b unitholders of hla one share of class b common stock for each class b unit that they owned , in exchange for a payment of its par value ; and hli entered into an exchange agreement with the direct owners of hla pursuant to which they will be entitled to exchange hla units for shares of our class a common stock on a one-for-one basis . see note 1 to the consolidated financial statements included in part ii , item 8 and “ related-party transactions ” included in part iii , item 13 for more information about the above-mentioned transactions as well as the other transactions completed in connection with the ipo , which we refer to collectively as the “ reorganization. ” operating segments we operate our business in a single segment , which is how our chief operating decision maker ( who is our chief executive officer ) reviews financial performance and allocates resources . key financial and operating measures our key financial measures are discussed below . revenues we generate revenues primarily from management and advisory fees , and to a lesser extent , incentive fees . see “ —critical accounting policies—revenue recognition of incentive fees ” and note 2 of the consolidated financial statements included in part ii , item 8 of this form 10-k for additional information regarding the manner in which management and advisory fees and incentive fees are generated . management and advisory fees comprise specialized fund and customized separate account management fees , advisory and reporting fees and distribution management fees . revenues from customized separate accounts are generally based on a contractual rate applied to committed capital or net invested capital under management . these fees often decrease over the life of the contract due to built-in declines in contractual rates and or as a result of lower net invested capital balances as capital is returned to clients . in certain cases , we also provide advisory and or reporting services , and therefore we also receive fees for services such as monitoring and reporting on a client 's existing private markets investments . in addition , we may provide for investments in our specialized funds as part of our customized separate accounts . in these cases , we reduce the management fees on customized separate accounts to the extent that assets in the accounts are invested in our specialized funds so that our clients do not pay duplicate fees . 68 revenues from specialized funds are based on a percentage of limited partners ' capital commitments to , or net invested capital in , our specialized funds .
| advisory and reporting fees increased $ 4.6 million for fiscal 2018 compared to fiscal 2017 due primarily to the addition of new accounts as compared to the prior fiscal year . distribution management revenue increased $ 1.4 million in fiscal 2018 compared to the prior year due to higher stock distribution activity and the related fees earned from this business . incentive fees increased $ 41.9 million to $ 49.0 million for fiscal 2018 , due primarily to $ 40.6 million of deferred incentive fees recognized , which related to one of our co-investment funds in the period . the $ 40.6 million recognition of carried interest did not result in cash incentive fee payments for the period , as $ 1.7 million was attributable to non-controlling interests and $ 38.9 million was related to the $ 41.5 million of incentive fee payments that were received in fiscal 2016 but were not recognized as revenue in that period . year ended march 31 , 2017 compared to year ended march 31 , 2016 total revenues decreased $ 1.0 million , or 1 % , to $ 179.8 million , for fiscal 2017 compared to fiscal 2016 , due primarily to lower incentive fees . management and advisory fees increased $ 15.0 million , or 10 % , to $ 172.7 million for fiscal 2017 compared to fiscal 2016. this increase was driven by specialized funds revenue , which increased by $ 12.3 million compared to the prior year , due primarily to a $ 14.9 million increase in revenue from our latest secondary fund , including $ 2.9 million in retroactive fees . this fund added $ 1.2 billion in fee-earning aum in fiscal 2017. the revenue increase from our latest secondary fund was partially offset by $ 3.7 million in retroactive fees from our latest direct/co-investment fund in the prior year period . retroactive fees are management fees earned in the current period from investors that commit to
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million , and ( ii ) the aggregate redemption price does not exceed the aggregate net proceeds from such qualified equity offerings . the recovery act signed by the president on february 17 , 2009 amended the terms of the cpp purchase agreement , allowing the company to redeem the series t preferred stock prior to february 15 , 2012. however , any redemption remains subject to the consent of the federal reserve . recent regulatory developments on april 6 , 2010 , the bank entered into the formal agreement with the occ , its primary regulator . the formal agreement is based on the findings of the occ during a 2009 on-site examination of the bank . as reflected in the formal agreement , the occ 's primary concern with the bank was driven by the rating agencies downgrades of non-agency mbs in its investment portfolio . these securities , purchased in 2004 through 2008 , were all rated aaa by the rating agencies at the time of purchase ; however , they have been impacted by the economic recession and the stress on the residential housing sector . these ratings do not reflect the discounted purchase price paid by the bank . they only reflect their analysis of the performance of the security overall , and therefore , a downgrade does not capture the risk of loss to the bank . the formal agreement did not require any adjustment to the bank 's balance sheet or income statement ; nor did it change the bank 's `` well capitalized '' status . the occ has , however , separately established the following individual minimum capital ratios for the bank : a tier 1 leverage capital ratio of at least 8.00 % , a tier 1 risk-based capital ratio of at least 10.00 % , and a total risk-based capital ratio of at least 12.00 % . as of december 31 , 2011 , the bank exceeded each of these ratios and remained `` well capitalized . '' 43 the board of directors has appointed an independent compliance committee made up of directors to monitor and report on compliance with the terms of the formal agreement . the bank intends to take all actions necessary to enable it to comply with the requirements of the formal agreement , and as of the date hereof , management has submitted all documentation required as of this date to the occ . there can be no assurance that the bank will be able to continue to comply fully with the provisions of the formal agreement , and the determination of our compliance will be made by the occ . however , management believes the bank is currently in compliance with all provisions of the formal agreement . failure to meet the requirements of the formal agreement could result in additional regulatory requirements , which could result in regulators taking additional enforcement actions against the bank . as previously disclosed , on june 15 , 2010 , the company entered into the 2010 mou with the federal reserve . the 2010 mou included , among other things , a requirement that the company obtain the prior written approval of the federal reserve before declaring or paying any dividends or directly or indirectly accepting dividends or any other form of payment representing a reduction in capital from the bank . the 2010 mou has been terminated and replaced in its entirety by the 2011 mou with the federal reserve , which eliminates the requirement that the company receive prior approval from the federal reserve before declaring or paying any dividends . the 2011 mou also provides that the company will ensure that any company dividends on common or preferred stock , or payments on trust preferred securities , are paid in accordance with applicable regulations and guidance issued by the federal reserve board . in addition , the 2011 mou provides that if the bank or the company ( on a consolidated basis ) were to become less than adequately capitalized then the company would not make payments on subordinated debt not related to trust preferred securities without federal reserve approval . the bank and the company are currently considered `` well capitalized . '' to be considered adequately capitalized , the occ and federal reserve board minimum regulatory capital guidelines for tier 1 risk-based capital , total risk-based capital and tier 1 leverage ratios are 4.0 % , 8.0 % and 4.0 % , respectively . as of december 31 , 2011 , the bank 's risk-based capital ratios of tier 1 capital , total capital and leverage were 15.12 % , 16.38 % and 9.27 % , respectively , and the company 's risk-based capital ratios of tier 1 capital , total capital , leverage ratio were 15.33 % , 17.25 % and 9.40 % , respectively . as in the 2010 mou , the 2011 mou includes , among other things , a requirement that the company obtain the prior written approval of the federal reserve before appointing any new director or senior executive officer or changing the position of any senior executive officer ; directly or indirectly , incurring , increasing or guaranteeing any debt ; and directly or indirectly , purchasing or redeeming any shares of its stock . the 2011 mou eliminates the requirement contained in the 2010 mou that the company obtain written approval from the federal reserve prior to taking dividends from the bank . with respect to bank dividends , the 2011 mou only requires that any dividends from the bank must be paid in compliance with requirements established by the bank 's regulators . the 2011 mou will remain in effect until further modified or terminated by the federal reserve . critical accounting policies we have adopted various accounting policies that govern the application of accounting principles generally accepted in the united states and with general practices within the banking industry in the preparation of our financial statements . our significant accounting policies are described in the notes to our consolidated financial statements in this report . story_separator_special_tag certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities . we consider these accounting policies to be critical accounting policies . the judgment and assumptions we use are based on historical experience and other factors , which we believe to be reasonable under the circumstances . because of 44 the nature of the judgment and assumptions we make , actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations . we believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements . some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers , the estimated value of the underlying collateral , the assumptions about cash flow , determination of loss factors for estimating credit losses , the impact of current events , and conditions , and other factors impacting the level of probable inherent losses . under different conditions or using different assumptions , the actual amount of credit losses incurred by us may be different from management 's estimates provided in our consolidated financial statements . refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses . the evaluation and recognition of other-than-temporary impairment ( `` otti '' ) on certain investments including our private label mortgage-backed securities and other corporate debt security holdings requires significant judgment and estimates . some of the more critical judgments supporting the evaluation of otti include projected cash flows including prepayment assumptions , default rates and severities of losses on the underlying collateral within the security . under different conditions or utilizing different assumptions , the actual otti recognized by us may be different from the actual amounts recognized in our consolidated financial statements . see note 5 to the financial statements for the disclosure of certain of the assumptions used as well as otti recognized in the financial statements during the years ended december 31 , 2011 , 2010 and 2009. story_separator_special_tag have been at historic lows . the yield on earning assets decreased by 31 basis points and our cost of funds decreased by 41 basis points in 2011 as compared to 2010. this resulted in an increase in our net interest spread of 10 basis points in 2011 as compared to 2010. our average borrowings and time deposits , which are typically the higher costing funding source , decreased $ 18.6 million and $ 14.8 million , respectively , in 2011 as compared to 2010. this results from ongoing successful efforts to control the growth of our balance sheet and also increasing our funding from lower costing sources ( non-interest bearing transaction accounts , interest-bearing transaction accounts , money market accounts and savings deposits ) . during 2011 , the average balance in these accounts increased by $ 26.9 million . this change in the mix of funding sources contributed to the improvement in our margin between the two periods . throughout 2011 , time deposits and borrowed funds represented 65.1 % of our total interest bearing funding sources and in 2010 these balances represented 70.3 % of our interest bearing funding sources . the net interest margin improved in 2010 as compared to 2009 after two years of declining margins in 2009 and 2008. the yield on earning assets decreased by 42 basis points and our cost of funds decreased by 63 basis points in 2010 as compared to 2009. this resulted in an increase in our net interest spread of 21 basis points in 2010 as compared to 2009. our average borrowings and time deposits , which as noted above , are typically the higher costing funding sources decreased $ 38.8 million and $ 10.3 million , respectively , in 2010 as compared to 2009. during the same period our average transaction accounts ( interest and non-interest bearing , money market accounts and savings deposits ) increased by $ 24.3 million . this change in the mix of funding sources contributed to the increase in our margin between the two periods . throughout 2010 , time deposits and borrowed funds represented 70.3 % of our total interest bearing funding sources and in 2009 these balances represented 76.4 % of our interest bearing funding sources . average balances , income expenses and rates . the following table depicts , for the periods indicated , certain information related to our average balance sheet and our average yields on assets and average costs of liabilities . such yields are derived by dividing income or expense by the average 47 balance of the corresponding assets or liabilities . average balances have been derived from daily averages . replace_table_token_6_th ( 1 ) all loans and deposits are domestic . average loan balances include non-accrual loans and loans held for sale . ( 2 ) the computation includes federal funds sold , securities purchased under agreement to resell and interest bearing deposits . ( 3 ) based on 32.5 % marginal tax rate . the following table presents the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate . the combined effect 48 in both volume and rate , which can not be separately identified , has been allocated proportionately to the change due to volume and due to rate . replace_table_token_7_th market risk and interest rate sensitivity market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates . the risk of loss can be measured in either diminished current market values or reduced current and potential net income . our primary market risk is interest rate risk .
| during the year ended december 31 , 2010 , we were able to improve our net interest income and the related net interest margin . we continued to control the growth in assets by reducing funding from brokered certificates of deposits and other borrowings . as a result of the continued slow economic recovery , loan demand remained very weak throughout 2010. loans decreased by $ 14.2 million at december 31 , 2010 as compared to december 31 , 2009. average loan balances were relatively flat during 2010 at $ 337.1 million as compared to $ 337.7 million in 2009 . 45 during the year ended december 31 , 2009 , we recognized a non-cash goodwill impairment charge of $ 27.8 million , or $ 8.51 per diluted share , that represented the complete write-off of our goodwill intangible . goodwill resulted from business acquisitions and represented the value attributable to unidentifiable intangible elements in the businesses acquired . the analysis and valuation which was performed in the third quarter 2009 resulted in our determination that goodwill was impaired . this determination was reflective of the impact of the then and ongoing economic environment and its effect on the banking industry and our company . the calculation of fair value as part of the goodwill impairment test is subject to significant management judgment and estimates . industry-wide , market capitalization and acquisition multiples had significantly declined since 2004 and 2006 , which are the dates of the acquisition of dutchfork bankshares and dekalb bancshares , respectively . our company experienced the same trend , with a decline in its market price per share and an extended period of time trading at a discount to book value and tangible book value . this non-cash charge represented the accounting recognition of the events . given the non-cash nature of a goodwill charge , this non-interest expense item had no adverse impact upon our regulatory capital , liquidity position , operating performance or our prospects
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in comparison , for the year ended december 31 , 2009 , approximately 43 % of our consolidated revenue was generated by our u.s. wireless segment ( then our `` rural wireless '' segment , as we did not own a u.s. retail wireless business ) , while 38 % was generated by our international integrated telephony segment . as of december 31 , 2010 , our u.s. retail wireless services were offered in six states to approximately 718,000 customers under the `` alltel '' brand name . our wireless licenses provide mobile data and voice coverage to a network footprint covering a population of approximately six million people as of december 31 , 2010. through the alltel acquisition , we acquired a regional , non-contiguous wireless network that we anticipate will require network expansion and improvements as well as roaming support to ensure ongoing nationwide coverage . our alltel service offerings provide rate plans , advanced devices and features that include local and nationwide voice and data services on either a postpaid or prepaid basis . we offer several rate plans designed for customers to choose the flexibility that they desire for their calling preferences , and believe that the ability to offer nationwide calling to our customers is a key factor in our ability to remain competitive in the telecommunications market . the revenue of our u.s. retail wireless business is primarily driven by the number of wireless retail subscribers , their adoption of our enhanced service offerings and their related voice and data usage . the number of our retail subscribers and their usage volumes and patterns also has a major impact on the profitability of our u.s. retail wireless operations . our customer activity may be influenced by traditional retail selling periods , which may be seasonal in nature , and other factors that arise in connection with our rural customer base . we are currently in a transition period as we move from the legacy alltel information technology systems and platforms to our own . during this transition , which we expect to be substantially completed by the end of the second quarter of 2011 , we anticipate that our u.s. retail wireless revenue will decline as our ability to drive subscriber additions , control churn and optimize our offerings is constrained . during this time , we also expect to experience higher economic-related churn as we eliminate certain sales and credit practices implemented by the management of the trust that operated the alltel assets from 2009 through the completion of the alltel acquisition . during this time , we may engage in sales and promotional activities designed to retain or increase our 37 customer base , but may be affected by other factors , including general economic conditions , the roaming and usage of our existing customer base and actions by our competitors , which may reduce or outweigh the success of our marketing or promotional efforts . once this transition period expires , we expect that our churn will gradually improve as we are able to refine our service offerings . the mix of our customers and their patterns of usage , particularly usage outside our network footprint , will have a significant impact on the level of profits for our u.s. retail wireless business . in general , we compete with national and regional wireless providers that offer both prepaid and postpaid services whose scale , resources and u.s. network footprint are generally significantly greater than ours . our ability to remain competitive and to maintain reasonable profit margins will depend , in part , on our ability to provide competitive pricing for our customers , to provide the latest mobile voice and data services in all of the areas where they wish to access those services and to anticipate and respond to various competitive factors . in addition , the revenue and profits of our u.s. wholesale wireless business are an important part of our overall u.s. wireless revenues and are primarily driven by the number of sites and base stations we operate , the amount of voice and data traffic that each of these sites generates , and the rate we get paid from our carrier customers on that traffic . we provide wholesale roaming services in a number of areas in the u.s. ( mainly in the western united states ) where we do not also operate a retail wireless business . as a result of the alltel acquisition , our reported wholesale wireless revenue also includes roaming revenue generation in areas in which we have retail wireless operations . historically , the growth in same site voice and data volumes and the number of operated sites has outpaced the decline in data rates . however , during 2010 , a significant decrease in the data rates almost offset overall voice and data traffic growth , and we expect that growth in 2011 will be offset by further decreased rates . the growth of wholesale wireless revenue has historically been driven mainly by the rate at which we expand the number of base stations we operate . we compete with other wireless service providers that operate networks in their markets and offer wholesale roaming services as well . however , the most significant competitive factor we face in our u.s. wholesale wireless business is the extent to which our carrier customers elect to build or acquire their own infrastructure ( including networks that we built out pursuant to certain roaming agreements ) in a market in which they operate , reducing or eliminating their need for our services in those markets . for example , the 2009 acquisition by verizon wireless of alltel corporation and subsequent 2010 acquisition of certain divested alltel assets by at & t resulted in our wholesale customers acquiring their own infrastructure in certain markets where they are currently served by us . story_separator_special_tag this has already resulted in some loss , and is expected to continue to result in a significant loss , of wireless wholesale revenue and operating income in future periods , which , if not offset by growth in other wholesale revenue generated or other sources , could materially reduce our overall operating profits . while we are not able to forecast the extent of this revenue impact precisely , we expect that at the very least such loss may more than offset any growth in u.s. wholesale wireless revenue during these periods . acquisition of alltel assets on april 26 , 2010 , we completed our previously-announced acquisition of a portion of the former alltel network from verizon wireless pursuant to the purchase agreement , dated june 9 , 2009 , by and between the company and verizon wireless . pursuant to the alltel acquisition , verizon wireless contributed certain licenses , network assets , tower and other leases and other assets and certain related liabilities to a wholly-owned subsidiary limited liability company , whose membership interests were acquired by our wholly-owned subsidiary . in connection with the acquisition , the company and verizon wireless entered into roaming and transition services arrangements and we obtained the rights to use the alltel brand and related service marks for up to twenty eight years in connection with the continuing operation of the acquired assets . the purchase price of the acquisition was $ 200 million , 38 plus approximately $ 21.4 million in connection with a customary net working capital adjustment and other fees and expenses . stimulus grants in 2009 and 2010 , we filed several applications for stimulus funds made available by the u.s. government under provisions of the american recovery and reinvestment act of 2009 intended to stimulate the deployment of broadband infrastructure and services to rural , unserved and underserved areas . in december 2009 , we were named to receive a $ 39.7 million federal stimulus grant to fund our ion upstate new york rural broadband initiative , which involves building ten new segments of fiber-optic , middle-mile broadband infrastructure , serving more than 70 rural communities in upstate new york and parts of pennsylvania and vermont . the new project is being undertaken through our public-private partnership with the development authority of the north country ( `` danc '' ) , a new york state public benefit corporation that owns and operates 750 miles of fiber optic network and provides wholesale telecommunications transport services to voice , video , data and wireless service providers . the $ 39.7 million grant , awarded to us by the national telecommunications and information administration of the u.s. department of commerce ( `` ntia '' ) , under its broadband technology opportunities program , will be paid over the course of the three-year project period as expenses are incurred . an additional $ 9.9 million will be invested in the project by us and by danc . the funding and build of this new project began in the third quarter of 2010. the results of our u.s. fiber optic transport business are included in our `` u.s. wireline '' segment . on march 25 , 2010 the ntia awarded the navajo tribal utility authority ( `` ntua '' ) a $ 32.1 million federal stimulus grant . the grant , along with partial matching funds , will provide broadband infrastructure access to the navajo nation across arizona , new mexico and utah . as part of the project , we are proposing to partner with ntua to provide last mile services through a 4g lte network to be constructed as a part of this project . our proposed partnership with ntua will receive a portion of the total grant to build-out the last mile infrastructure . this network will allow ntua to supply both fixed and mobile customers with high-speed broadband access . the funding of this project is not scheduled to begin until 2011 , once the necessary environmental site work is completed . accordingly , we did not recognize any of the granted funds during the year ended december 31 , 2010. the results of our wholesale u.s. wireless business are included in our `` u.s. wireless '' segment . on july 7 , 2010 , in partnership with the vermont telecommunications authority ( the `` vta '' ) , we were awarded a $ 33.4 million federal stimulus grant by the ntia . the grant , along with partial matching funds to be contributed by us ( through a vermont subsidiary ) and the vta , will be invested in building a new fiber-optic middle mile network in vermont to provide broadband and wireless services to community schools , colleges , libraries and state-owned buildings in the area . the funding of this project is not scheduled to occur until 2011 , once the necessary environmental site work is completed . accordingly , we did not recognize any of the granted funds during the year ended december 31 , 2010. the results of our u.s. wireline business are included in our `` u.s. wireline '' segment . 39 results of operations year ended december 31 , 2009 and 2010 replace_table_token_6_th u.s. wireless revenue . u.s. wireless revenue includes voice and data services revenue from our prepaid and postpaid retail operations as well as our wholesale roaming operations . retail revenue is derived from access by our retail customers to and usage of our networks and facilities , including airtime , roaming and long distance as well as enhanced services such as caller identification , call waiting , voice mail and other features . wholesale revenue is generated from providing mobile voice or data services to the customers of other wireless carriers and also includes revenue from other , related , wholesale services such as the provision of network switching services and certain wholesale transport services .
| as of december 31 , 2009 a total of 580 base stations were deployed as compared to 473 base stations as of december 31 , 2008. our u.s. wireless revenue also increased as a result of growth in 46 voice and data traffic ( measured in minutes and megabytes , respectively ) at existing sites and growth in data roaming revenue and international roaming revenue . international wireless revenue . international wireless revenue increased by $ 6.2 million to $ 45.3 million for the year ended december 31 , 2009 , from $ 39.1 million for the year ended december 31 , 2008. wireless revenue in guyana increased by $ 0.9 million in 2009. wireless subscribers in guyana increased 17 % , from approximately 248,000 subscribers as of december 31 , 2008 to approximately 289,000 subscribers as of december 31 , 2009 , as a result of our continued response to increased competition and declining rates . due to a full year consolidation of revenues in 2009 following the increase in our equity position in , and consolidation of our equity interests in our bermuda subsidiary , which occurred as of may 15 , 2008 , wireless revenues increased $ 6.7 million . wireless subscribers in bermuda remained consistent at 20,500 for the years ended december 31 , 2008 and 2009 , respectively . the remaining increase was a result of increased revenue in the u.s. virgin islands . wireline revenue . wireline revenue decreased by $ 5.4 million to $ 88.5 million for the year ended december 31 , 2009 from $ 93.9 million for the year ended december 31 , 2008. an $ 8.2 million decrease in international long distance revenue was partially offset by an increase in u.s. revenue . we believe this decrease was a result of continued and considerable illegal bypass activities resulting in lost revenue opportunities , as well as an overall reduction in call volume into guyana attributable to the current difficult global economic environment . our access lines in
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the allowance for loan losses is a reserve established through a provision for loan losses charged to expense , which represents management 's best estimate of probable losses that have been incurred within the existing portfolio of loans . the allowance , in the judgment of management , is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio . the corporation 's allowance for loan loss methodology includes allowance allocations calculated in accordance with accounting standards codification ( asc ) topic 310 , “ receivables ” and allowance allocations calculated in accordance with asc topic 450 , “ contingencies. ” the level of the allowance reflects management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , present economic , political and regulatory conditions and unidentified losses inherent in the current loan portfolio , as well as trends in the foregoing . portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the corporation 's control , including the performance of the corporation 's loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . see the section captioned “ allowance for loan losses ” elsewhere in this discussion and note 3 - loans in the notes to consolidated financial statements included in item 8. financial statements and supplementary data elsewhere in this report for further details of the risk factors considered by management in estimating the necessary level of the allowance for loan losses . overview the following discussion and analysis presents the more significant factors affecting the corporation 's financial condition as of december 31 , 2013 and 2012 and results of operations for each of the years in the three-year period ended december 31 , 2013. this discussion and analysis should be read in conjunction with the corporation 's consolidated financial statements , notes thereto and other financial information appearing elsewhere in this report . the corporation acquired a houston-based insurance agency specializing in commercial lines insurance products during 2013 , a human resources consulting firm in the houston market area , with offices in dallas and austin , in 2012 and an insurance agency in the san antonio market area in 2011. all of the corporation 's acquisitions during the reported periods were accounted for as purchase transactions , and as such , their related results of operations are included from the date of acquisition , though none of these acquisitions had a significant impact on the corporation 's financial statements during their respective reporting periods . taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by an amount equal to the taxes that would be paid if the income were fully taxable based on a 35 % federal tax rate , thus making tax-exempt yields comparable to taxable asset yields . dollar amounts in tables are stated in thousands , except for per share amounts . 31 story_separator_special_tag 3.41 % during 2013. the decrease in the net interest margin was partly due to an increase in the relative proportion of average interest-earning assets invested in lower-yielding , interest bearing deposits during 2013 compared to 2012 while the relative proportion of average interest-earning assets invested in higher-yielding securities and loans decreased . the net interest margin was also negatively impacted by a decrease in the average yield on loans . the net interest margin was positively impacted by 33 an increase in the average yield on securities which resulted from an increase in the relative proportion of higher-yielding tax-exempt municipal securities relative to lower-yielding taxable securities . these items are more fully discussed below . the average yield on interest-earning assets decreased 21 basis points to 3.52 % during 2013 from 3.73 % during 2012 while the average cost of funds decreased 6 basis points from 0.24 % during 2012 to 0.18 % during 2013. the average yield on interest-earning assets is primarily impacted by changes in market interest rates as well as changes in the volume and relative mix of interest-earning assets . as stated above , market interest rates have remained at historically low levels during the reported periods . the effect of lower average market interest rates during the reported periods on the average yield on average interest-earning assets was partly limited by the aforementioned interest rate swaps on variable-rate loans . taxable-equivalent net interest income for 2012 increased $ 26.1 million , or 4.1 % , compared to 2011. the increase primarily resulted from an increase in the average volume of interest-earning assets partly offset by a decrease in the net interest margin . the average volume of interest-earning assets for 2012 increased $ 2.2 billion , or 13.4 % , compared to 2011. the net interest margin decreased 29 basis points from 3.88 % during 2011 to 3.59 % during 2012. the decrease in the net interest margin was partly due to an increase in the relative proportion of average interest-earning assets invested in lower-yielding , taxable securities during 2012 compared to 2011 while the relative proportion of average interest-earning assets invested in higher-yielding loans decreased . the impact of this shift was partly mitigated by a decrease in the relative proportion of average interest-earning assets invested in lower-yielding interest bearing deposits . the net interest margin was also negatively impacted by a decrease in the average yield on securities . story_separator_special_tag the average yield on interest-earning assets decreased 40 basis points from 4.13 % during 2011 to 3.73 % during 2012 while the average cost of funds decreased 16 basis points from 0.40 % during 2011 to 0.24 % during 2012. the average volume of loans increased $ 772.8 million , or 9.1 % , in 2013 compared to 2012 and increased $ 413.9 million , or 5.1 % , in 2012 compared to 2011. loans made up approximately 44.0 % of average interest-earning assets during 2013 compared to 44.5 % during 2012 and 48.0 % in 2011. the average yield on loans was 4.56 % during 2013 compared to 4.82 % during 2012 and 5.02 % during 2011. loans generally have significantly higher yields compared to securities , interest-bearing deposits and federal funds sold and resell agreements and , as such , have a more positive effect on the net interest margin . the average volume of securities did not significantly fluctuate during 2013 compared to 2012 and increased $ 2.7 billion , or 44.0 % , in 2012 compared to 2011. securities made up approximately 42.4 % of average interest-earning assets in 2013 compared to 47.0 % in 2012 and 37.0 % in 2011. the average yield on securities was 3.48 % in 2013 compared to 3.31 % in 2012 and 4.57 % in 2011. despite a significant decrease in market rates for investment securities during 2013 , the average yield on securities increased 17 basis points during 2013 compared to 2012 as the corporation increased the relative proportion of investments held in higher-yielding , tax-exempt municipal securities . the relative proportion of higher-yielding , tax-exempt municipal securities to total average securities totaled 40.7 % in 2013 compared to 27.4 % in 2012 and 35.2 % in 2011. the average yield on taxable securities was 1.90 % in 2013 compared to 2.10 % in 2012 and 3.27 % in 2011 , while the average taxable-equivalent yield on tax-exempt securities was 5.75 % in 2013 compared to 6.68 % in 2012 and 6.97 % in 2011. average federal funds sold , resell agreements and interest-bearing deposits during 2013 increased $ 1.3 billion , or 77.6 % , compared to 2012 and decreased $ 899.1 million , or 35.8 % , in 2012 compared to 2011. federal funds sold , resell agreements and interest-bearing deposits made up approximately 13.7 % of average interest-earning assets in 2013 compared to approximately 8.5 % in 2012 and 15.0 % in 2011. the combined average yield on federal funds sold , resell agreements and interest-bearing deposits was 0.26 % in 2013 compared to 0.27 % in 2012 and 0.26 % in 2011. the increase in average federal funds sold , resell agreements and interest bearing deposits compared to 2012 was primarily related to excess liquidity from deposit growth . the decrease in federal funds sold , resell agreements and interest-bearing deposits during 2012 compared to 2011 was due to the reinvestment of funds into higher-yielding securities and loans . average deposits increased $ 2.0 billion , or 11.4 % , in 2013 compared to 2012 and $ 2.1 billion , or 13.6 % , in 2012 compared to 2011. average interest-bearing deposits increased $ 1.3 billion in 2013 compared to 2012 and $ 786.5 million in 2012 compared to 2011 , while average non-interest-bearing deposits increased $ 635.8 million in 2013 compared to 2012 and $ 1.3 billion in 2012 compared to 2011. the ratio of average interest-bearing deposits to total average deposits was 60.3 % in 2013 compared to 59.4 % in 2012 and 62.3 % in 2011. the average cost of interest-bearing deposits and total deposits was 0.12 % and 0.08 % in 2013 compared to 0.18 % and 0.10 % in 2012 and 0.23 % and 0.15 % in 2011. the decrease in the average cost of interest-bearing deposits during the comparable periods was primarily the result of decreases in interest rates offered on certain deposit products due to decreases in average market interest rates and decreases in renewal interest rates on maturing certificates of deposit given the current low interest rate environment . additionally , the relative proportion of higher-cost certificates of deposit to total average interest-bearing deposits decreased to 8.4 % in 2013 from 10.0 % in 2012 and 11.9 % in 2011. the corporation 's net interest spread , which represents the difference between the average rate earned on earning assets and the average rate paid on interest-bearing liabilities , was 3.34 % in 2013 compared to 3.49 % in 2012 and 3.73 % in 2011. the net interest spread , as well as the net interest margin , will be impacted by future changes in short-term and long-term interest rate levels , as well as the impact from the competitive environment . a discussion of the effects of changing interest rates on net interest income is set forth in item 7a . quantitative and qualitative disclosures about market risk included elsewhere in this report . 34 the corporation 's hedging policies permit the use of various derivative financial instruments , including interest rate swaps , swaptions , caps and floors , to manage exposure to changes in interest rates . details of the corporation 's derivatives and hedging activities are set forth in note 15 - derivative financial instruments in the accompanying notes to consolidated financial statements included elsewhere in this report . information regarding the impact of fluctuations in interest rates on the corporation 's derivative financial instruments is set forth in item 7a . quantitative and qualitative disclosures about market risk included elsewhere in this report . provision for loan losses the provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which , in management 's best estimate , is necessary to absorb probable losses within the existing loan portfolio . the provision for loan losses totaled $ 20.6 million in 2013 compared to $ 10.1 million in 2012 and $ 27.4 million in 2011 .
| net interest income is the corporation 's largest source of revenue , representing 67.2 % of total revenue during 2013. net interest margin is the ratio of taxable-equivalent net interest income to average earning assets for the period . the level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and net interest margin . the federal reserve influences the general market rates of interest , including the deposit and loan rates offered by many financial institutions . the corporation 's loan portfolio is significantly affected by changes in the prime interest rate . the prime interest rate , which is the rate offered on loans to borrowers with strong credit , remained at 3.25 % during 2013 , 2012 and 2011. the corporation 's loan portfolio is also impacted , to a lesser extent , by changes in the london interbank offered rate ( libor ) . at december 31 , 2013 , the one-month and three-month u.s. dollar libor rates were 0.17 % and 0.25 % , respectively , while at december 31 , 2012 , the one-month and three-month u.s. dollar libor rates were 0.21 % and 0.31 % , respectively . the intended federal funds rate , which is the cost of immediately available overnight funds , remained at zero to 0.25 % during 2013 , 2012 and 2011. the corporation 's balance sheet has historically been asset sensitive , meaning that earning assets generally reprice more quickly than interest-bearing liabilities . therefore , the corporation 's net interest margin was likely to increase in sustained periods of rising interest rates and decrease in sustained periods of declining interest rates . during the fourth quarter of 2007 , in an effort to make the corporation 's balance sheet less sensitive to changes in interest rates , the corporation entered into various interest rate swaps which effectively converted certain variable-rate loans into fixed-rate instruments for a period of time . during the fourth quarter of 2008 , the corporation also entered into an interest rate swap which effectively converted variable-rate debt into fixed-rate debt for a period of 32 time . as a result of these actions , the
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our customers include holders of our card products and those of our partners , for whom we manage card programs , members of our proprietary networks who are provided access to our products and services and commercial businesses to whom we provide workforce payment productivity solutions . revenue from transactions is derived from our merchant and network relationships , as well as our customers and partners . through our merchant and network relationships we primarily offer fuel cards , corporate cards , virtual cards , purchasing cards , t & e cards , gift cards , stored value payroll cards , vehicle maintenance , food , fuel , toll and transportation cards and vouchers or lodging services to our customers . the following diagram illustrates a typical card transaction flow , but may also be applied to our vehicle maintenance , lodging and food , fuel , toll and transportation card and voucher products , substituting transactions for gallons . this representative model is not applicable to all of our businesses . illustrative transaction flow from our customers and partners , we derive revenue from a variety of program fees , including transaction fees , card fees , network fees and charges , which can be fixed fees , cost plus a mark-up or based on a percentage discount from retail prices . our programs include other fees and charges associated with late payments and based on customer credit risk . 43 from our merchant and network relationships , we derive revenue mostly from the difference between the price charged to a customer for a transaction and the price paid to the merchant or network for the same transaction , as well as network fees and charges in certain businesses . as illustrated in the table below , the price paid to a merchant or network may be calculated as ( i ) the merchant 's wholesale cost of the product plus a markup ; ( ii ) the transaction purchase price less a percentage discount ; or ( iii ) the transaction purchase price less a fixed fee per unit . the following table presents an illustrative revenue model for transactions with the merchant , which is primarily applicable to fuel based product transactions , but may also be applied to our vehicle maintenance , lodging and food , fuel , toll and transportation card and voucher products , substituting transactions for gallons . this representative model may not include all of our businesses . illustrative revenue model for fuel purchases ( unit of one gallon ) replace_table_token_6_th revenues by geography , product and source . set forth below are further breakdowns of revenue by geography , product and source for the years ended december 31 , 2016 and 2015 ( in millions ) : replace_table_token_7_th replace_table_token_8_th 44 replace_table_token_9_th 1 interchange revenue directly influenced by the absolute price of fuel and other interchange primarily related to fuel products . 2 interchange revenue primarily related to nonfuel products . * columns may not calculate due to impact of rounding . revenue per transaction . set forth below is revenue per transaction information for the years ended december 31 , 2016 , 2015 and 2014 : replace_table_token_10_th 3 adjusted revenues is a non-gaap financial measure defined as revenues , net less merchant commissions . we believe this measure is a more effective way to evaluate our revenue performance . we use adjusted revenues as a basis to evaluate our revenues , net of the commissions that are paid to merchants to participate in our card programs . adjusted revenues is a supplemental non-gaap financial measure of operating performance . see the heading entitled `` management 's use of non-gaap financial measures . '' from 2015 to 2016 , total transactions increased from 1.9 billion to 2.2 billion , an increase of 375.1 million or 20.3 % . north american segment transactions increased approximately 3 % in 2016 as compared to 2015 due primarily to growth in our pacpride , mastercard and corporate payments businesses . transaction volumes in our international segment increased by approximately 176 % over 2015 , primarily due to the acquisition of stp and travelcard during the third quarter of 2016 , the addition of new shell fuel card markets in 2015 and 2016 and additional transactions from a small acquisition in brazil in the first quarter of 2016. from 2014 to 2015 , total transactions increased from 652.4 million to 1.9 billion , an increase of 1.2 billion , or 183.8 % . we experienced an increase in transactions in our north america segment primarily due to our acquisition of comdata in november 2014 , of which 1.3 billion and 270 million transactions are attributable to svs for 2015 and 2014 , respectively , as well as from organic growth in our u.s. businesses . transaction volumes in our international segment decreased slightly by 4.5 % primarily due to market softness in some of our international businesses . 45 set forth below is further breakdown of revenue per transaction by product information for the years ended december 31 , 2016 and 2015 ( in millions , except per transaction data ) : replace_table_token_11_th 4 other includes telematics , maintenance and transportation benefits related businesses . revenue per transaction is derived from the various revenue types as discussed above and can vary based on geography , the relevant merchant relationship , the payment product utilized and the types of products or services purchased , the mix of which would be influenced by our acquisitions , organic growth in our business , and the overall macroeconomic environment , including fluctuations in foreign currency exchange rates . revenue per transaction per customer changes as the level of services we provide to a customer increases or decreases , as macroeconomic factors change and as adjustments are made to merchant and customer rates . see “ results of operations ” for further discussion of transaction volumes and revenue per transaction . story_separator_special_tag sources of expenses we incur expenses in the following categories : merchant commissions —in certain of our card programs , we incur merchant commissions expense when we reimburse merchants with whom we have direct , contractual relationships for specific transactions where a customer purchases products or services from the merchant . in the card programs where it is paid , merchant commissions equal the difference between the price paid by us to the merchant and the merchant 's wholesale cost of the underlying products or services . processing —our processing expense consists of expenses related to processing transactions , servicing our customers and merchants , bad debt expense and cost of goods sold related to our hardware sales in certain businesses . 46 selling —our selling expenses consist primarily of wages , benefits , sales commissions ( other than merchant commissions ) and related expenses for our sales , marketing and account management personnel and activities . general and administrative —our general and administrative expenses include compensation and related expenses ( including stock-based compensation ) for our executive , finance and accounting , information technology , human resources , legal and other administrative personnel . also included are facilities expenses , third-party professional services fees , travel and entertainment expenses , and other corporate-level expenses . depreciation and amortization —our depreciation expenses include depreciation of property and equipment , consisting of computer hardware and software ( including proprietary software development amortization expense ) , card-reading equipment , furniture , fixtures , vehicles and buildings and leasehold improvements related to office space . our amortization expenses include amortization of intangible assets related to customer and vendor relationships , trade names and trademarks and non-compete agreements . we are amortizing intangible assets related to business acquisitions and certain private label contracts associated with the purchase of accounts receivable . other operating , net —our other operating , net includes other operating expenses and income items unusual to the period and presented separately . equity method investment loss —our equity method investment loss relates to our minority interest in masternaut group holdings limited ( “ masternaut ” ) , a provider of telematics solutions to commercial fleets in europe , which we account for using the equity method . other expense ( income ) , net —other expense ( income ) , net includes foreign currency transaction gains or losses , proceeds/costs from the sale of assets and other miscellaneous operating costs and revenue . interest expense , net —interest expense , net includes interest income on our cash balances and interest expense on our outstanding debt and on our securitization facility . we have historically invested our cash primarily in short-term money market funds . loss on early extinguishment of debt —loss on early extinguishment of debt relates to our write-off of debt issuance costs associated with the refinancing of our existing credit facility and entry into our new credit agreement , along with our recent acquisition of comdata . provision for income taxes —the provision for income taxes consists primarily of corporate income taxes related to profits resulting from the sale of our products and services in the united states and internationally . our worldwide effective tax rate is lower than the u.s. statutory rate of 35 % , due primarily to lower rates in foreign jurisdictions and foreign-sourced non-taxable income . adjusted revenues , adjusted net income and adjusted net income per diluted share . set forth below are adjusted revenues , adjusted net income and adjusted net income per diluted share for the years ended december 31 , 2016 , 2015 and 2014 . replace_table_token_12_th we use adjusted revenues as a basis to evaluate our revenues , net of the commissions that are paid to merchants that participate in certain of our card programs . the commissions paid to merchants can vary when market spreads fluctuate in much the same way as revenues are impacted when market spreads fluctuate . thus , we believe this is a more effective way to evaluate our revenue performance on a consistent basis . we use adjusted net income and adjusted net income per diluted share to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis . adjusted revenues , adjusted net income and adjusted net income per diluted share are supplemental non-gaap financial measures of operating performance . see the heading entitled “ management 's use of non-gaap financial measures. ” 47 factors and trends impacting our business we believe that the following factors and trends are important in understanding our financial performance : fuel prices —our fleet customers use our products and services primarily in connection with the purchase of fuel . accordingly , our revenue is affected by fuel prices , which are subject to significant volatility . a change in retail fuel prices could cause a decrease or increase in our revenue from several sources , including fees paid to us based on a percentage of each customer 's total purchase . changes in the absolute price of fuel may also impact unpaid account balances and the late fees and charges based on these amounts . see “ sources of revenue ” above for further information related to the absolute price of fuel . fuel-price spread volatility —a portion of our revenue involves transactions where we derive revenue from fuel-price spreads , which is the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant for the same transaction . in these transactions , the price paid to the merchant is based on the wholesale cost of fuel . the merchant 's wholesale cost of fuel is dependent on several factors including , among others , the factors described above affecting fuel prices . the fuel price that we charge to our customer is dependent on several factors including , among others , the fuel price paid to the merchant , posted retail fuel prices and competitive fuel prices .
| the new credit agreement provided for senior secured credit facilities consisting of ( a ) a revolving a credit facility in the amount of $ 1.0 billion , with sublimits for letters of credit , swing line loans and multicurrency borrowings , ( b ) a revolving b facility in the amount of $ 35 million for loans in australian dollars or new zealand dollars , ( c ) a term a loan facility in the amount of $ 2.02 billion and ( d ) a term b loan facility in the amount $ 300 million . the revolving line of credit contains a $ 20 million sublimit for letters of credit , a $ 20 million sublimit for swing line loans and sublimits for multicurrency borrowings in euros , sterling , japanese yen , australian dollars and new zealand dollars . the new credit agreement also contains an accordion feature for borrowing an additional $ 500 million in term a or revolver a and term b. proceeds from the new credit facility may be used for working capital purposes , acquisitions , and other general corporate purposes . the proceeds of the new credit facility were used to paydown borrowings under the credit agreement . on november 14 , 2014 in order to finance a portion of the comdata acquisition and to refinance our credit agreement , we made initial borrowings under the new credit agreement . on august 22 , 2016 , the company entered into the first amendment to the new credit agreement , which increased the size of our term a loan from $ 2.02 billion to $ 2.62 billion . the proceeds from the additional $ 600 million in term a loan were used to partially finance the stp acquisition . on january 20 , 2017 , the company entered into the second amendment to the new credit agreement , which established a new term b loan ( `` term b-2 loan '' ) in the amount of $ 245 million to replace the existing term 59 b loan . interest on the term b-2 loan facility accrues based on the eurocurrency rate or the base rate at 2.25 % for eurocurrency loans and at 1.25 % for base rate loans . the obligations of the borrowers under the new credit agreement are secured by substantially all of the assets of fleetcor and its domestic subsidiaries , pursuant to a security agreement and includes a pledge of ( i ) 100 % of the issued and outstanding equity interests owned by us of each domestic subsidiary and ( 2 ) 66 % of the voting
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on december 15 , 2011 , we entered into a first amendment to amended and restated credit agreement and second amended and restated promissory note in the amount of $ 50,000,000 with the bank . the amendment reflects the addition of rantoul partners , as an additional borrower and adds as additional security for the loans the assets held by rantoul partners . 39 on august 31 , 2012 , we entered into a second amendment to amended and restated credit agreement with the bank . the second amendment : ( i ) increased the borrowing base to $ 7,000,000 , ( ii ) reduced the minimum interest rate to 3.75 % and ( iii ) added additional new leases as collateral for the loan . on november 2 , 2012 , we entered into a third amendment to amended and restated credit agreement with the bank . the third amendment ( i ) increased the borrowing base to $ 12,150,000 and ( ii ) clarified certain continuing covenants and provided a limited waiver of compliance with one of the covenants so clarified for the fiscal quarter ended december 31 , 2011. on january 24 , 2013 , we entered into a fourth amendment to amended and restated credit agreement , which was made effective as of december 31 , 2012 with the bank . the fourth amendment reflects the following changes : ( i ) the bank consented to the restructuring transactions related to the dissolution of rantoul partners , and ( ii ) the bank terminated a limited guaranty , as defined in the credit agreement , executed by rantoul partners in favor of the bank . on april 16 , 2013 , the bank increased our borrowing base to $ 19,500,000. on september 30 , 2013 , we entered into a fifth amendment to the amended and restated credit agreement . the fifth amendment reflects the following changes : ( i ) expanded principal commitment amount of the bank to $ 100,000,000 ; ( ii ) increased the borrowing base to $ 38,000,000 ; ( iii ) added black raven energy , inc. to the credit agreement as borrower parties ; ( iv ) added certain collateral and security interests in favor of the bank ; and ( v ) reduced the company 's current interest rate to 3.30 % . on november 19 , 2013 , we entered into a sixth amendment to the amended and restated credit agreement . the sixth amendment reflects the following changes : ( i ) the addition of iberia bank as a participant in our credit facility , and ( ii ) a technical correction to our covenant calculations . on may 22 , 2014 , we entered into a seventh amendment to the amended and restated credit agreement . the seventh amendment reflects the bank 's consent to our issuance of up to 850,000 shares of our 10 % series a cumulative redeemable perpetual preferred stock . on august 15 , 2014 , we entered into an eighth amendment to the amended and restated credit agreement . the eighth amendment reflects the following changes : ( i ) the borrowing base was increased from $ 38 million to $ 40 million , and ( ii ) the maturity of the facility was extended by three years to october 3 , 2018. on april 29 , 2015 , we entered into a ninth amendment to the amended and restated credit agreement . in the ninth amendment , the banks ( i ) re-determined the borrowing base based upon the recent reserve report dated january 1 , 2015 , ( ii ) imposed affirmative obligations on the company to use a portion of proceeds received with regard to future sales of securities or certain assets to repay the loan , ( iii ) consented to non-compliance by the company with certain terms of the credit agreement , ( iv ) waived certain provisions of the credit agreement , and ( v ) agreed to certain other amendments to the credit agreement . on may 1 , 2015 , the borrowers and the banks entered into a letter agreement to clarify that up to $ 1,000,000 in proceeds from any potential future securities offering will be unencumbered by the banks ' liens as described in the credit agreement through november 1 , 2015 , and that , until november 1 , 2015 , such proceeds shall not be subject to certain provisions in the credit agreement prohibiting the company from declaring and paying dividends that may be due and payable to holders of securities issued in such potential offerings or issued prior to the letter agreement . on august 12 , 2015 , we entered into a tenth amendment to the amended and restated credit agreement . the tenth amendment reflects the following changes : ( i ) allow the company to sell certain oil assets in kansas , ( ii ) allow for approximately $ 1,300,000 of the proceeds from the sale to be reinvested in company owned oil and gas projects and ( iii ) apply not less than $ 1,500,000 from the proceed of the sale to outstanding loan balances . on november 13 , 2015 , the company entered into a eleventh amendment to the amended and restated credit agreement . the eleventh amendment reflects the following changes : ( i ) waived certain provisions of the credit agreement , ( ii ) suspend certain hedging requirements , and ( iii ) to make certain other amendments to the credit agreement . our current borrowing base is $ 17,925,000 , of which we had borrowed $ 17,925,000 as of december 31 , 2016. the interest rate on amounts borrowed under our credit facility during 2016 was approximately 8.7 % and for the year ended december 31 , 2015 , the interest rate on amounts borrowed was approximately 4.3 % . this facility expires on october 3 , 2018 . story_separator_special_tag 40 on april 1 , 2016 , the company informed the bank that it would cease making the mandatory monthly borrowing base reduction payments and did not make the required april 1 , 2016 payment . the company made its mandatory quarterly interest payments on april 6 , 2016 , and may 2 , 2016. on april 7 , 2016 the company entered into a forbearance agreement whereby the bank agreed to not exercise remedies and rights afforded it under the amended and restated credit agreement for thirty days . the thirty day period was to be used by the company to pursue strategic alternatives . on april 28 , 2016 the bank informed the company that it would extend the above forbearance agreement period to may 31 , 2016 upon effecting a principal reduction of $ 125,000. in addition , the company will receive an automatic extension to september 15 , 2016 upon meeting certain terms and conditions specified by the bank . on may 31 , 2016 , the company and the bank amended the forbearance agreement to extend the forbearance period to august 31 , 2016. on july 29 , 2016 , the company and the bank amended the forbearance agreement to extend the forbearance period to october 1 , 2016. on october 1 , 2016 , the company and the bank could not reach an agreement to extend the third amendment to the forbearance agreement . following this outcome , the company decided to discontinue payment of interest on its outstanding loan obligations with the bank . the company continued to evaluate plans to restructure , amend or refinance existing debt through private options . on february 10 , 2017 , the company , the bank and iberiabank ( collectively , `` sellers '' ) , and pwcm investment company ic llc , and certain financial institutions ( collectively , `` buyers '' ) entered into a loan sale agreement ( `` lsa '' ) , pursuant to which seller sold to buyers , and buyers purchased from sellers , all of sellers ' right , title and interest in , to and under the credit agreement and loan documents , in exchange for ( i ) a cash payment of $ 5,000,000 ( the `` cash purchase price '' ) , ( ii ) a synthetic equity interest equal to 10 % of the proceeds , after buyer 's realization of 150 % return on the cash purchase price within five ( 5 ) years of the closing date , with payment being distributed 65.78947368 % to tcb and 34.21052632 % to iberiabank , and ( iii ) at any time prior to february 10 , 2022 , buyer may acquire the interest in clause ( ii ) above . in connection with the lsa , we release sellers and its successors as holders of the rights under the credit agreement and loan documents , including buyers , from any and all claims under the credit agreement and loan documents . also on february 10 , 2017 , the company and its subsidiaries , and pwcm investment company ic llc , a delaware limited liability company and other buyers ( collectively , the `` successor lender '' ) , entered into a binding letter agreement dated february 10 , 2017 , which was subsequently amended on march 30 , 2017 ( as amended , the “ letter agreement ” ) pursuant to which : 1. the successor lender would agree to forgive our existing secured loan in the approximate principal amount of $ 17,295,000 , and in exchange enter into a secured promissory note ( which we refer to as the `` restated secured note '' ) in the original principal amount of $ 4,500,000 . 2. we would : a. convey our oil and gas properties and associated performance and surety bonds in colorado , texas , and nebraska , and b. all of our shares of oakridge energy , inc. ( together , the `` conveyed oil and gas assets '' ) ; and c. retain our assets in kansas and continue as a going concern . the kansas assets currently provide most of our current operating revenue . the restated secured note shall : a. be secured by a first-priority lien in the company 's oil and gas producing assets situated in the state of kansas , b. evidence accrued interest on the $ 4,500,000 principal balance at a rate of 16 % per annum , c. bear interest from and after may 1 , 2017 , at a rate of 16.0 % per annum , d. be pre-payable in full at a discount at any time during the term of the restated secured note upon enerjex 's paying $ 3,300,000 to successor lender , and e. mature and be due and payable in full on november 1 , 2017. we will have 2 options to extend the maturity date of the restated secured note by 90 days each upon payment of an extension fee of $ 100,000 , which shall be applied against the principal balance of the note . so long as we repay the $ 3,300,000 in indebtedness on or prior to the maturity date , as extended , all other amounts payable under the restated secured note shall be forgiven . the closing is expected to occur on or before may 1 , 2017 ( the february 10 , 2017 letter agreement provided for a closing on or before april 30 , 2017. this was amended to may 1 , 2017 in the amendment ) .
| ( 3 ) the depletion expense decrease is due primarily to the impairment of oil and gas properties necessitated by the sec quarterly ceiling tests . the company reviews the carrying value of oil and gas properties accounted for by use of the full cost rules of accounting . this method dictates that the net book value of oil and gas properties , less deferred income taxes , may not exceed a calculated “ ceiling. ” any excess of the net book value of proved oil and gas properties , less related deferred income taxes , over the ceiling is charged to expense and reflected in the statement of operations . for the year ended december 31 , 2015 impairments of $ 16,401,376 , $ 11,421,613 , $ 9,720,983 and $ 11,386,115 were record in the first , second , third and fourth quarters respectively . for the year ended december 31 , 2016 impairments of $ 4,506,933 , $ 2,137,663 , $ 800,000 and $ 588,073were record in the first , second , third and fourth quarters respectively . because of these write downs depletion expense per boe decreased 54 % or $ 4.47 per boe from $ 8.29 per boe in 2015 to $ 3.82 per boe in 2016. as a result , 2016 depletion expense decreased approximately $ 854,000 to approximately $ 254,000 from $ 1,108,039 in 2015 . ( 4 ) professional fees decreased 54 % or approximately $ 370,000 thousand from approximately $ 681,000 in 2015 to approximately $ 310,500 in 2016. investor relation expenditures decreased approximately $ 110,000 and consulting fees including tax , third party engineering and audit decreased by approximately $ 308,000. these decreases were partially offset by increases in legal fees of approximately $ 48,000 . ( 5 ) salaries decreased 15 % or approximately $ 300,000. the decrease was due primarily to decreased head counts . ( 6 ) administrative expenses decreased approximately $ 97,000 or 15 % . the decrease was due primarily to decreased spending on sec matters , travel , training and office supplies of $ 122,000 ,
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17 in may 2010 , we made a decision to consolidate certain administrative functions from edina , minnesota , to naperville , illinois . the transition of these functions was completed in the first half of fiscal 2011. this plan , together with the plan to move production of our meat snacks from garner , north carolina to troy , ohio , are collectively referred to as the 2010 restructuring plan ( the 2010 plan ) . in connection with the 2010 plan , we expect to incur pre-tax cash and non-cash charges of $ 68 million . in fiscal 2011 and 2010 , we recognized charges of approximately $ 26 million and $ 39 million , respectively , in relation to these plans . as part of a focus on cost reduction , we previously carried out a restructuring plan focused on streamlining our supply chain and reducing selling , general , and administrative costs ( the 2006-2008 restructuring plan ) . as part of the 2006-2008 restructuring plan , we began construction of a new production facility in fiscal 2007. as a result of an updated assessment of manufacturing strategies and the related impact on this partially completed production facility , we decided to divest this facility . accordingly , in fiscal 2010 , we recognized a non-cash impairment charge of $ 33 million , representing a write-down of the carrying value of the assets to fair value based on anticipated proceeds from the sale . this charge is reflected in selling , general and administrative expenses within the consumer foods segment . the network optimization plan and the 2010 plan are collectively referred to as our restructuring plans . management continues to evaluate our manufacturing footprint and potential opportunities to generate cost savings . if such opportunities are identified , the network optimization plan will be amended accordingly , and this could lead to significant additional restructuring expenses . acquisitions in june 2010 , we acquired the assets of american pie , llc , a manufacturer of frozen fruit pies , thaw and serve pies , fruit cobblers , and pie crusts under the licensed marie callender 's ® and claim jumper ® trade names , as well as frozen dinners , pot pies , and appetizers under the claim jumper ® trade name . we paid $ 131 million in cash plus assumed liabilities for this business . this business is included in the consumer foods segment . during fiscal 2010 , we completed the acquisition of elan nutrition ( elan ) , a privately held formulator and manufacturer of private label snack and nutrition bars , for approximately $ 103 million in cash . this business is included in the consumer foods segment . in june 2011 , we purchased various marie callender 's ® brand trademarks from marie callender pie shops , inc. , for approximately $ 58 million . divestitures in july 2010 , we completed the sale of substantially all of the assets of gilroy foods & flavors tm dehydrated garlic , onion , capsicum and controlled moisture tm , gardenfrost ® , redi-made tm , and fresh vegetable operations for $ 246 million in cash . based on our estimate of proceeds from the sale of this business , we recognized impairment and related charges totaling $ 59 million ( $ 40 million after-tax ) in the fourth quarter of fiscal 2010. we reflected the results of these operations as discontinued operations for all periods presented . in may 2011 , we completed the sale of the assets of our frozen handhelds operations for approximately $ 10 million . we recognized charges totaling $ 22 million ( $ 14 million after-tax ) relating to the impairment of the long-lived assets of the business . we reflected the results of these operations as discontinued operations for all periods presented . capital allocation during fiscal 2011 , we received $ 554 million as payment in full of all principal and interest due on the remaining notes received in connection with the divestiture of the trading and merchandising operations in fiscal 2009 , in advance of the scheduled maturity dates . during fiscal 2011 , we repurchased approximately 36 million shares of our common stock for $ 825 million , and we repaid the entire principal balance of $ 248 million of our 7.875 % senior notes , which were due september 15 , 2010. during fiscal 2010 , we repurchased 4 million shares of our common stock for $ 100 million . 18 during fiscal 2011 , we paid dividends of $ 375 million . segment review we report our operations in two reporting segments : consumer foods and commercial foods . consumer foods the consumer foods reporting segment includes branded and private label food products that are sold in various retail and foodservice channels , principally in north america . the products include a variety of categories ( meals , entrees , condiments , sides , snacks , and desserts ) across frozen , refrigerated , and shelf-stable temperature classes . in may 2011 , we completed the sale of the assets of our frozen handhelds operations for approximately $ 10 million . we recognized charges totaling $ 22 million ( $ 14 million after-tax ) relating to the impairment of the long-lived assets of the business . we reflected the results of these operations as discontinued operations for all periods presented . in february 2010 , we completed the sale of our luck 's ® brand for proceeds of approximately $ 22 million in cash , resulting in a pre-tax gain of $ 14 million ( $ 9 million after-tax ) , reflected in selling , general and administrative expenses . in june 2009 , we completed the divestiture of the fernando 's ® foodservice business for proceeds of $ 6 million in cash . we reflected the results of these operations as discontinued operations for all periods presented . story_separator_special_tag the assets and liabilities of the divested fernando 's ® business have been reclassified as assets and liabilities held for sale within our consolidated balance sheets for all periods prior to divestiture . commercial foods the commercial foods reporting segment principally includes commercially branded foods and ingredients , which are sold primarily to foodservice , food manufacturing , and industrial customers . the segment 's primary products include : specialty potato products , milled grain ingredients , and a variety of vegetable products , seasonings , blends , and flavors , which are sold under brands such as conagra mills ® , lamb weston ® , and spicetec flavors & seasonings tm . as discussed above , we reflected the results of the gilroy foods & flavors tm operations as discontinued operations for all periods presented . the assets and liabilities of the divested gilroy foods & flavors tm dehydrated vegetable business have been reclassified as assets and liabilities held for sale within our consolidated balance sheets for all periods presented prior to divestiture . presentation of derivative gains ( losses ) for economic hedges of forecasted cash flows in segment results derivatives used to manage commodity price risk and foreign currency risk are not designated for hedge accounting treatment . we believe these derivatives provide economic hedges of certain forecasted transactions . as such , these derivatives ( except those related to our milling operations , see note 19 to our consolidated financial statements ) are recognized at fair market value with realized and unrealized gains and losses recognized in general corporate expenses . the gains and losses are subsequently recognized in the operating results of the reporting segments in the period in which the underlying transaction being economically hedged is included in earnings . 19 the following table presents the net derivative gains ( losses ) from economic hedges of forecasted commodity consumption and the foreign currency risk of certain forecasted transactions , under this methodology ( in millions ) : replace_table_token_3_th based on our forecasts of the timing of recognition of the underlying hedged items , we expect to reclassify gains of $ 34 million and losses of $ 2 million to segment operating results in fiscal 2012 and 2013 and thereafter , respectively . amounts allocated , or to be allocated , to segment operating results during fiscal 2011 and thereafter include net losses of $ 3 million recognized within corporate expense prior to fiscal 2011 . 2011 vs. 2010 net sales ( $ in millions ) replace_table_token_4_th overall , our net sales increased $ 288 million to $ 12.3 billion in fiscal 2011 , reflecting a 1 % increase in our consumer foods segment and a 6 % increase in our commercial foods segment relative to results in fiscal 2010. consumer foods net sales for fiscal 2011 were $ 8.0 billion , an increase of 1 % as compared to fiscal 2010. results reflected a 2 % benefit from acquisitions , net of divestitures , a 1 % decrease in volume from existing businesses , and essentially unchanged net pricing and mix . the decrease in volume from existing businesses reflected highly competitive pricing for some products , as well as lower consumption in certain product categories . the net pricing impacts for fiscal 2011 were not significant , reflecting the fact that price increases in the second half of the year were offset by pricing reductions earlier in the year related to competitive pressures . sales of products associated with some of our most significant brands , including blue bonnet ® , marie callender 's ® , peter pan ® , reddi-wip ® , ro * tel ® , slim jim ® , snack pack ® , and wesson ® , grew in fiscal 2011. significant brands that experienced sales declines in fiscal 2011 included act ii ® , banquet ® , chef boyardee ® , egg beaters ® , healthy choice ® , hunt 's ® , libby 's ® , orville redenbacher 's ® , pam ® , swiss miss ® , and van camp 's ® . commercial foods net sales were $ 4.3 billion in fiscal 2011 , an increase of $ 226 million , or 6 % compared to fiscal 2010. net sales in our flour milling business were approximately $ 107 million higher in fiscal 2011 than in fiscal 2010 , principally reflecting the pass-through of higher wheat prices . results also reflected a $ 98 million increase in sales in our lamb weston ® specialty potato products business , reflecting higher volume of approximately 4 % and flat net pricing and mix . the increase in sales volume included significant growth in sales of sweet potato products . 20 selling , general and administrative expenses ( includes general corporate expense ) ( sg & a ) sg & a expenses totaled $ 1.51 billion for fiscal 2011 , a decrease of $ 308 million , or 17 % , compared to fiscal 2010. selling , general and administrative expenses for fiscal 2011 reflected the following : a decrease in incentive compensation expense of $ 130 million , a net benefit of $ 105 million in connection with the settlement of insurance claims , net of expenses incurred , related to the garner accident , charges totaling $ 35 million in connection with our restructuring plans , a decrease in advertising and promotion expense of $ 37 million , an increase in salaries and labor expense of $ 26 million , a gain of $ 25 million from the receipt , as payment in full of all principal and interest due on the remaining notes received in connection with the divestiture of the trading and merchandising operations in fiscal 2009 , in advance of the scheduled maturity dates , a decrease in charitable donations of $ 13 million , a decrease in stock-based compensation expense of $ 11 million , an increase in self-insured medical expense of $ 10 million , and a decrease in property , sales , and use taxes of $ 10 million .
| commercial foods net sales were $ 4.08 billion in fiscal 2010 , a decrease of $ 370 million , or 8 % , compared to fiscal 2009. net sales in our flour milling business were approximately $ 330 million lower in fiscal 2010 than in fiscal 2009 , principally reflecting the pass-through of lower wheat prices . results also reflected a slight decrease in sales in our lamb weston ® specialty potato products business , reflecting lower volume of approximately 2 % , partially offset by increased pricing . volume reflected a benefit of approximately 2 % in fiscal 2009 due to the inclusion of the additional week of results . excluding the impact of the additional week , volume was essentially unchanged in fiscal 2010 , as compared to fiscal 2009. sg & a expenses ( includes general corporate expense ) ( sg & a ) sg & a expenses totaled $ 1.82 billion for fiscal 2010 , an increase of 8 % compared to fiscal 2009. we estimate that the inclusion of the extra week in the fiscal 2009 results increased sg & a expenses by approximately 2 % in that fiscal year . selling , general and administrative expenses for fiscal 2010 reflected the following : an increase in incentive compensation expense of $ 99 million , charges totaling $ 36 million in connection with the 2010 plan , consisting of charges related to the company 's decision to move manufacturing activities in garner , north carolina to troy , ohio , and the company 's decision to move administrative functions in edina , minnesota to naperville , illinois , a charge of $ 33 million in connection with the impairment of a partially completed production facility , an increase in advertising and promotion expense of $ 29 million , an increase in self-insured medical expense of $ 15 million , a benefit of $ 15 million associated with a favorable adjustment to an environmental-related liability , transaction-related costs of $ 14 million associated with securing federal tax benefits related to the delhi , la sweet potato production facility ( the associated income tax benefits will be
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while the turkish authorities had variously issued , renewed and overseen these licenses for more than a decade , they now assert that these were issued by mistake and that the turkish government has a governmental monopoly over all uranium mining activities in turkey , in violation of westwater 's rights under turkish and international law . westwater has reached out on numerous occasions to the turkish government to resolve this dispute amicably , to reinstate the licenses and to remedy its unlawful actions , but to no avail . as a result , on december 13 , 2018 westwater filed a request for arbitration against the republic of turkey before the international centre for the settlement of investment disputes ( “ icsid ” ) , pursuant to the treaty between the united states of america and the republic of turkey concerning the reciprocal encouragement and protection of investments . on december 21 , 2018 , icsid advised that it had formally “ registered ” the request for arbitration . therefore , the company has determined that all of the uranium mineral holding property assets located in turkey were fully impaired and recorded an $ 18.0 million impairment charge in june 2018. the amount of the impairment charge reflects the accounting net book value for the uranium holding property assets and does not reflect fair market value of the assets . the company will recognize compensation for the mining and exploration licenses when the amount of the full and fair compensation is fixed and determinable and the ability to collect is probable . 54 acquisition of alabama graphite on april 23 , 2018 , westwater completed its acquisition of alabama graphite corp. as part of a strategic decision to refocus the company to supply battery manufacturers with low-cost , advanced , high-quality , and high-margin graphite products . the principal asset acquired is the coosa graphite project ( “ coosa project ” ) , which includes the coosa graphite mine located near sylacauga , alabama , 50 miles southeast of birmingham . the coosa mine is located in an area that has been a past producer of graphite , utilizing a geology trend spanning tens of thousands of acres , known as the “ alabama graphite belt. ” the state of alabama remains a business friendly jurisdiction , exemplified by the state successfully securing a $ 1 billion commitment from daimler benz to build a lithium-ion battery factory near its automobile assembly plant in the state . the transaction process began on december 13 , 2017 when the company entered into a binding arrangement agreement , to acquire all of the issued and outstanding securities of alabama graphite corp. through the issuance of new securities in the company by way of a court-sanctioned plan of arrangement under the business corporation act of british columbia . eligible shareholders of alabama graphite were offered 0.08 shares of the company 's common stock for every one share of alabama graphite they owned . alabama graphite 's shareholders approved the arrangement on march 9 , 2018 , and on march 19 , 2018 , the supreme court of british columbia granted orders approving the alabama graphite plan of arrangement implementing the acquisition . on april 19 , 2018 , the company 's stockholders approved the shares to be issued to alabama graphite shareholders pursuant to the arrangement . following customary canadian regulatory approvals , the company closed the acquisition on april 23 , 2018. at closing , the company issued 11,625,210 shares of its common stock to the stockholders of alabama graphite who received approximately 28 % of the combined company and current stockholders of the company retained approximately 72 % . the company also issued replacement options and warrants for 2,508,378 shares of its common stock to the previous option and warrant holders of alabama graphite . vanadium target mineralization discovery in late november 2018 , westwater announced the discovery of significant levels of vanadium concentrations at several locales within the graphitic schists at the company 's coosa project . westwater has begun the first of a four-phase exploration program designed to determine the extent , character and quality of the vanadium discovery at coosa . this first phase has evaluated some 28,000 feet of core and 10,000 feet of trench samples for vanadium potential . 2,161 samples have been submitted to an independent third-party analytical laboratory for assay , with results expected in the first quarter of 2019. previous assay results for numerous samples collected from the graphitic schists in areas adjacent to the known graphite resource area of the coosa project have shown concentrations values of up to 0.4 % v2o5 ( which is equal to 8 pounds of v2o5 per short ton ) , as well as values ranging up to 0.26 % v2o5 in the graphite deposit area itself . westwater believes that these concentrations are significant and warrant integrated evaluation of graphite-vanadium resources of the coosa project . vanadium pentoxide ( v2o5 ) is the most common form traded and currently sells for $ 16.10/lb . ( 98 % v2o5 flake , china as reported by www.vanadiumprice.com on november 26 , 2018 ) . this current price represents a multi-year high , with a rise of over 300 % in the last 12 months . reclamation success in texas westwater has completed wellfield plugging at the vasquez project in texas and has received certification by the texas commission on environmental quality ( tceq ) . story_separator_special_tag this paves the way for bond release applications in 2019. reclamation of the waste disposal well and its associated pond , as well as the remainder of the surface is scheduled for completion in 2019. at the rosita project in texas , the wellfield production areas 1 & 2 are plugged , and surface reclamation in those areas is also expected to be completed in 2019. lithium acquisition on march 24 , 2018 , the company 's wholly owned subsidiary lithium holdings nevada llc exercised an option to purchase a block of unpatented placer mining claims covering an area of approximately 3,000 acres within the columbus salt marsh area of esmeralda county , nevada . the claims adjoin a portion of the company 's current property holdings at its columbus basin project , expanding the project area within the basin to approximately 14,200 acres . pursuant to the terms of the option agreement , the company acquired the mineral property claims in exchange for 200,000 shares of wwr common stock , which were issued on april 23 , 2018 and a 1 % net smelter return royalty on the claims . 55 election of new director effective september 26 , 2018 , the company 's board of directors ( the “ board ” ) elected karli s. anderson to serve as an independent director of the company . mrs. anderson most recently served as vice president investor relations for royal gold , inc. , a precious metals stream and royalty company engaged in the acquisition and management of precious metal streams , royalties , and similar production-based interests with over 190 properties on six continents . previously , mrs. anderson was a senior director of investor relations for newmont mining corporation , one of the world 's largest gold producers . mrs. anderson also serves on the board of directors of women 's mining coalition . equity financings registered direct offering on june 14 , 2018 , the company completed a registered direct offering of securities with aspire capital for net proceeds of $ 2.9 million pursuant to a new securities purchase agreement ( the “ securities purchase agreement ” ) . the securities consisted of 3,717,773 shares of common stock at a price of $ 0.34 per share for net proceeds of $ 1.3 million and 4,968,518 pre-funded common stock warrants at a price of $ 0.33 per warrant for net proceeds of $ 1.6 million . the exercise price of the warrants is $ 0.01 per share and the warrants were exercised on a net basis on august 7 , 2018 , resulting in the issuance of 4,825,509 shares of common stock . the company did not incur underwriting discounts or commissions with this offering . the previous common stock purchase agreement with aspire capital dated september 25 , 2017 was terminated on june 14 , 2018 concurrently with the launch of the registered direct offering and the entering into the securities purchase agreement . controlled equity offering sales agreement with cantor fitzgerald on april 14 , 2017 , the company entered into a controlled equity offering sm sales agreement ( the “ sales agreement ” ) with cantor fitzgerald & co. ( “ cantor ” ) , pursuant to which the company may offer and sell from time to time , at its option , shares of its common stock having an aggregate offering price of up to $ 30.0 million through cantor acting as sales agent , $ 8.0 million of which shares are registered for sale under a registration statement on form s-3 . the company pays cantor a commission of up to 2.5 % of the gross proceeds from the sale of any shares pursuant to the atm offering . as of january 31 , 2019 , the company had sold 23,573,682 shares of common stock for net proceeds of $ 5.9 million under the sales agreement . as a result , the company had approximately $ 23.9 million remaining available for future sales under the sales agreement , of which $ 3.1 million has been registered for sale . common stock purchase agreement with aspire capital on september 25 , 2017 , the company entered into the common stock purchase agreement with aspire capital to place up to $ 22.0 million in the aggregate of the company 's common stock on an ongoing basis when required by the company over a term of 30 months . as consideration for aspire capital entering into the purchase agreement , the company issued 880,000 shares of its common stock to aspire capital . on september 27 , 2017 , pursuant to the common stock purchase agreement and after satisfaction of certain commencement conditions , aspire capital made an initial purchase of 1,428,571 shares of common stock for which the company received net proceeds of $ 2.0 million . through its termination on june 14 , 2018 in connection with the registered direct offering described above , aspire capital purchased an additional 2,725,096 shares of common stock for which the company received net proceeds of $ 1.5 million . story_separator_special_tag roman ; margin-top:11.25pt ; margin-bottom:11.25pt ; text-indent:36pt '' > the company also recorded a $ 5.7 million impairment charge against certain of its uranium plant and equipment located in south texas . the majority of the plant and equipment that was deemed impaired was plant and equipment that had been designated to be utilized in the temrezli project . with the taking of temrezli 's licenses by the republic of turkey and with no immediate alternative operating plan for these assets , the estimated sales value of such plant and equipment is the best determinate of fair value . accordingly , the impairment charge adjusts the carrying value of the plant and equipment to its estimated net realizable sales value . for the year ended december 31 , 2017 , substantially all of the 2017 impairment charges related to the company 's cebolleta/juan tafoya project as the carrying value exceeded the project 's cash flows on an undiscounted and discounted basis .
| 57 general and administrative expenses significant expenditures for general and administrative expenses for the years ended december 31 , 2018 and 2017 were : replace_table_token_4_th general and administrative expenses increased by approximately $ 0.7 million as compared with the corresponding period in 2017. this increase was mostly due to the following : an increase in stock compensation expense of $ 0.2 million , which was primarily the result of the 2018 stock option grants ; an increase in the company 's salaries and payroll burden of $ 0.3 million , which was primarily the result of a higher head count in 2018 versus 2017 ; an increase in consulting expenses of $ 0.4 million , primarily related to alabama graphite operations ; and these increases were partially offset by decreases in legal , accounting , public company expenses of $ 0.1 million and office expenses of $ 0.1 million . acquisition related expenses during 2018 , we incurred acquisition related legal and accounting costs of $ 0.3 million associated with the alabama graphite acquisition . we also advanced $ 1.0 million to alabama graphite pursuant to the arrangement agreement and loan agreement as of april 23 , 2018. the total loan amount of $ 1.8 million was incorporated into the final purchase accounting at the acquisition date of april 23 , 2018. during 2017 , we incurred acquisition related legal and accounting costs of $ 1.0 million associated with the alabama graphite acquisition . we also advanced $ 0.8 million to alabama graphite pursuant to the arrangement agreement and loan agreement as of december 31 , 2017. impairment of uranium properties during 2018 and 2017 , we recorded impairments of $ 23.7 million and $ 11.4 million , respectively , to reduce the carrying value of certain uranium properties . on june 20 , 2018 , the general directorate of mining affairs , a department of the turkish ministry of energy and natural resources , notified the company that the mining and exploration licenses for its temrezli and sefaatli projects located in turkey had been revoked and potential compensation will be proffered . on december 13 , 2018 westwater filed a request for arbitration against the republic of turkey before the international centre for the settlement of investment disputes ( “ icsid ” ) , pursuant to the treaty between the united states of america and the republic of turkey concerning the reciprocal encouragement and protection of investments . on december 21 , 2018 , icsid advised that it had formally “ registered ” the request for arbitration . 58 the company
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whenever we learn of a confirmed case of covid-19 involving an individual known to have been in one of our buildings , we immediately take additional steps in collaboration with our tenants and vendors to disinfect and sanitize the affected spaces and all common areas in the building . to date , the impact of the covid-19 pandemic on our business and financial condition has not been significant . substantially all of our revenue continues to be generated through the receipt of rental payments from u.s. government tenant agencies , which accounted for 98.5 % of our annualized lease income as of december 31 , 2020. we expect that leases to agencies of the u.s. government will continue to be the primary source of our revenues for the foreseeable future . notwithstanding the recent volatility in the financial markets , we also believe that our capital structure will continue to provide us with the resources , financial flexibility and the capacity to support the continued growth of our business . since january 1 , 2020 , we have issued an aggregate of 6,996,824 shares of our common stock , including in settlement of forward sales transactions , through our march 2019 atm program and december 2019 atm program ( each as described below ) . as of february 16 , 2021 , there are 4,106,521 shares underlying forward sale transactions that have not yet been settled , including an aggregate of 359,289 shares sold on a forward basis subsequent to the year ended december 31 , 2020. subject to our right to elect net share settlement , we expect to physically settle the forward sales transactions between april 2021 and february 2022. as of december 31 , 2020 , we also had $ 370.7 million available under our $ 450.0 million senior unsecured revolving credit facility . the future impact of the covid-19 pandemic on our operations and financial condition will , however , depend on future developments , which are highly uncertain and can not be predicted with confidence , including the scope , severity and duration of the pandemic , the actions taken to contain the pandemic or mitigate its impact , and the direct and indirect economic effects of the pandemic and containment measures , among others . see “ item 1a risk factors ” for a discussion of the potential adverse impact of the covid-19 pandemic on our business , results of operations and financial condition . financial information analyzed below reflects the audited financial statements as of december 31 , 2020 , included in the f pages of this annual report on form 10-k. story_separator_special_tag 25 , 2020. liquidity and capital resources we anticipate that our cash flows from the sources listed below will provide adequate capital for the next 12 months for all anticipated uses , including all scheduled principal and interest payments on our outstanding indebtedness , current and anticipated tenant improvements , stockholder distributions to maintain our qualification as a reit and other capital obligations associated with conducting our business . at december 31 , 2020 , we had approximately $ 8.5 million available in cash and cash equivalents and there was $ 370.7 million available under our revolving credit facility . our primary expected sources of capital are as follows : cash and cash equivalents ; operating cash flow ; available borrowings under our revolving credit facility ; issuance of long-term debt ; issuance of equity , including under our atm programs ( as described below ) ; and asset sales . our short-term liquidity requirements consist primarily of funds to pay for the following : development and redevelopment activities , including major redevelopment , renovation or expansion programs at individual properties ; property acquisitions under contract ; tenant improvements allowances and leasing costs ; recurring maintenance and capital expenditures ; debt repayment requirements ; corporate and administrative costs ; interest payments on our outstanding indebtedness ; interest swap payments ; and distribution payments . our long-term liquidity needs , in addition to recurring short-term liquidity needs as discussed above , consist primarily of funds necessary to pay for acquisitions , non-recurring capital expenditures , and scheduled debt maturities . although we may be able to anticipate and plan for certain of our liquidity needs , unexpected increases in uses of cash that are beyond our control and which affect our financial condition and results of operations may arise , or our sources of liquidity may be fewer than , and the funds available from such sources may be less than , anticipated or required . as of the date of this filing , there were no known commitments or events that would have a material impact on our liquidity . equity shelf registration statement on form s-3 on march 16 , 2018 , we filed an automatic universal shelf registration statement on form s-3 with the sec , which was deemed automatically effective and which provides for the registration of unspecified amounts of securities . however , there can be no assurance that we will be able to complete any such offerings of securities in the future . 38 atm program s on each of march 4 , 2019 and december 20 , 2019 , we entered into separate equity distribution agreements with each of c itigroup global markets inc. , bmo capital markets corp. , btig , llc , capital one securities , inc. , jefferies llc , raymond james & associates , inc. , rbc capital markets , llc , suntrust robinson humphrey , inc. and wells fargo securities , llc , pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $ 200.0 million and $ 300.0 million , respectively , from time to time , which we refer to herein as the atm programs , in negotiated transactions or transactions that are deemed to be “ at the market ” offerings as defined in rule 415 under the securities act . story_separator_special_tag the atm programs implemented on march 4 , 2019 and december 20 , 2019 are referred to as the “ march 2019 atm program ” and “ december 2019 atm program ” respectively . under each of the atm programs , we may also enter into one or more forward transactions ( each , a “ forward sale transaction ” ) under separate master forward sale confirmations and related supplemental confirmations with each of citibank , n.a. , bank of montreal , jefferies llc , raymond james & associates , inc. , royal bank of canada and wells fargo bank , national association for the sale of shares of our common stock on a forward basis . the following table sets forth certain information with respect to issuances , including in settlement of forward sales transactions , made under each of the atm programs as of december 31 , 2020 ( amounts in thousands except share amounts ) : replace_table_token_7_th ( 1 ) includes shares issued by the company , including in settlement of forward sales transactions . additionally , as of december 31 , 2020 , we had entered into forward sales transactions under the march 2019 atm program and december 2019 atm program for the sale of an additional 3,747,232 shares of our common stock that had not yet been settled . subject to our right to elect net share settlement , we expect to physically settle the forward sales transactions by the maturity dates set forth in each applicable forward sale transaction placement notice , which dates range from april 2021 to september 2021. assuming the forward sales transactions are physically settled in full utilizing a net weighted average initial forward sales price of $ 25.96 per share , we expect to receive net proceeds of approximately $ 97.3 million , after deducting offering costs , subject to adjustments in accordance with the applicable forward sale transactions . we accounted for the forward sale agreements as equity . we have used the net proceeds received from such sales for general corporate purposes . as of december 31 , 2020 , we had approximately $ 140.6 million of gross sales of our common stock available under the december 2019 atm program and no remaining availability under the march 2019 atm program . debt amended and restated credit facility we had a $ 400.0 million senior unsecured credit facility , which we amended and restated in 2018 , which we refer to as our senior unsecured credit facility . our senior unsecured credit facility includes a total borrowing capacity of $ 600.0 million , consisting of two components : ( i ) a $ 450.0 million revolving credit facility , which we refer to as the revolving credit facility , and ( ii ) a $ 150.0 million term loan facility , which we refer to as the 2018 term loan facility . the revolving credit facility also includes an accordion feature that will provide us with additional capacity , subject to the satisfaction of customary terms and conditions , of up to $ 250.0 million . as of december 31 , 2020 , we had $ 370.7 million in available capacity available under the revolving credit facility . we also have a $ 100.0 million senior unsecured term loan facility , which we refer to as the 2016 term loan facility . 39 indebtedness outstanding the following table sets forth certain information with respect to our outstanding indebtedness as of december 31 , 2020 ( dollars in thousands ) : replace_table_token_8_th ( 1 ) at december 31 , 2020 the one-month libor ( “ l ” ) was 0.14 % . the current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums . the spread over the applicable rate for each of our revolving credit facility , our 2018 term loan facility , and our 2016 term loan facility is based on our consolidated leverage ratio , as defined in the respective loan agreements . ( 2 ) our revolving credit facility had available capacity of $ 370.7 million at december 31 , 2020 , with an accordion feature that permits us to request additional lender commitments for up to $ 250.0 million of additional capacity , subject to the satisfaction of customary terms and conditions . ( 3 ) our revolving credit facility has two six-month as-of-right extension options subject to certain conditions and the payment of an extension fee . ( 4 ) entered into two interest rate swaps with an effective date of march 29 , 2017 with an aggregate notional value of $ 100.0 million to effectively fix the interest rate at 2.67 % annually , based on our consolidated leverage ratio , as defined in our 2016 term loan facility agreement . 40 ( 5 ) entered into four interest rate swaps with an effective date of december 13 , 2018 with an aggregate notional value of $ 150.0 million to effectively fix the interest rate at 3.9 6 % annually , based on our consolidate d leverage ratio , as defined in our 2018 term loan facility agreement . ( 6 ) effective interest rates are as follows : dea – pleasanton 1.8 % , va – golden 5.03 % , mepcom – jacksonville 3.89 % , usfs ii – albuquerque 3.92 % , ice – charleston 3.93 % , va – loma linda 3.78 % , cbp – savannah 4.12 % . our revolving credit facility , term loan facilities , notes payable , and mortgage notes payable are subject to ongoing compliance with a number of financial and other covenants . as of december 31 , 2020 , we were in compliance with all applicable financial covenants .
| expenses total expenses increased by $ 5.8 million to $ 192.1 million for the year ended december 31 , 2020 compared to $ 186.3 million for the year ended december 31 , 2019. the $ 0.2 million increase in property operating expenses is primarily attributable to an increase in property operating expenses associated with the nine operating properties acquired and one development property placed in service since december 31 , 2019 , as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended december 31 , 2019 , offset by a decrease in expenses associated with tenant project reimbursements . the $ 3.5 million increase in real estate taxes is also primarily attributable to the nine operating properties acquired and one development property placed in service since december 31 , 2019 as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended december 31 , 2019. additionally , the $ 1.4 million increase in depreciation and amortization is primarily attributable to the nine operating properties acquired and one development property placed in service since december 31 , 2019 , as well as a full period of operations from the eight operating properties acquired and one development property placed in service during the year ended december 31 , 2019 , offset by a decrease in depreciation related to the timing of intangible amortization . the $ 0.3 million increase in acquisition costs was primarily due to an increase in employee costs . the $ 0.4 million increase in corporate and general administrative costs was also primarily due to an increase in employee costs . interest expense interest expense increased $ 2.0 million to $ 35.5 million for the year ended december 31 , 2020 compared to $ 33.5 million for the year ended december 31 , 2019. the increase is primarily due to additional interest expense attributable to the $ 275.0 million fixed rate , senior unsecured notes issued in the third quarter of 2019. this increase is offset by a decrease in interest owed on our revolving credit facility primarily due to a decrease in the weighted average interest rate and weighted average borrowings for the year ended december 31 , 2020 compared to the year ended december 31 , 2019. gain ( loss ) on the sale of operating property on november 24 , 2020 , we sold dea – otay to a third party . net proceeds from the sale of the
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icann is a private sector , not-for-profit corporation formed to oversee a number of internet related tasks , including domain registrations for which it collects fees . the market for wholesale registrar services is both price sensitive and competitive , particularly for large volume customers , such as large web hosting companies and owners of large portfolios of domain names . we have a relatively limited ability to increase the pricing of domain name registrations without negatively impacting our ability to maintain or grow our customer base . in 2007 , we entered into contractual agreements with verisign for the supply of domain names . these agreements were automatically renewed in february 2012 until february 2017. under the agreements , verisign charges a fee for .com and .net domain names of $ 7.34 and $ 5.40 respectively , for each year for which a domain name is registered . effective january 15 , 2012 , verisign increased these domain name fees to $ 7.85 and $ 5.86 respectively . mandated registry price increases such as these will adversely increase our service costs as a percentage of our total revenue . in 2009 , our contractual agreement with icann was amended to extend the terms of the agreement through june 30 , 2014. under the agreement , icann charges a $ 0.18 fee for each year that a domain name is registered in the tlds that fall within its purview . in addition , icann has approved a framework for the significant expansion of the number of gtlds in 2012. we believe that such expansion , once completed , will result in an increase in the number of domains we register and related revenues in 2013. in addition , we believe that the new gtld program could also provide us with new revenue opportunities in 2013 , which include operating the back-end infrastructure for new tld registries and or owning one or more tlds in our own right . our revenue is primarily realized in u.s. dollars and a major portion of our operating expenses are paid in canadian dollars . fluctuations in the exchange rate between the u.s. dollar and the canadian dollar may have a material effect on our business , financial condition and results from operations . in particular , we may be adversely affected by a significant weakening of the u.s. dollar against the canadian dollar on a quarterly and an annual basis . our policy with respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to mitigate the exchange risk on a portion of our canadian dollar exposure . we may not always enter into such forward contracts and such contracts may not always be available and economical for us . additionally , the forward rates established by the contracts may be less advantageous than the market rate upon settlement . 31 display advertising from the desk-top software download site has historically been the largest source of butterscotch revenue . this revenue stream has suffered from the secular shift away from desktop software . recently , we have experienced an increase in video advertising and corporate video revenue as advertisers continue to migrate their advertising spend towards more content rich websites such as butterscotch.com . a portion of this increase was from larger video contracts which may not be repeatable . in addition , to reach a wider audience of consumers , butterscotch has refocused its efforts towards mobile technology . we believe that these initiatives present us with a potentially larger long-term revenue opportunity . however , if our marketing efforts with the above initiatives , together with other initiatives we take to grow our revenue and our page views , are not successful in offsetting any decline we experience in display advertising from the desk-top software download site , in the short- term , may result in a decline in butterscotch revenue . net revenues opensrs we derive revenue from our reseller network by providing them with reseller services that comprise ( a ) domain service , ( b ) email service and ( c ) other services . other services include the provisioning of secure sockets layer ( “ ssl ” ) , billing , provisioning and customer care software solutions through our platypus software , and from time to time we receive fees from vendors to expand or maintain the market position for their services . opensrs domain service historically , our opensrs domain service has constituted the largest portion of our business and encompasses all of our services as an accredited registrar related to the registration , renewal , transfer and management of domain names . in addition , this service fuels other revenue categories as it often is the initial service for which a customer will engage us , enabling us to follow on with other services and allowing us to add to our domain portfolio by purchasing names registered through us upon their expiration . we also provide resellers with the ability to sell personal names . this service allows resellers the opportunity to sell email addresses based on our domain portfolio of surname domain names . with the acquisition of epag domainservices gmbh ( “ epag ” ) in august 2011 , we now offer registration services for over 200 tlds . with respect to the sale of domain registrations , our pricing structure for domain names provides visibility into the various fees that make up the cost of a domain name by breaking out the cost of the registry and icann fees separately from our management fee . effective january 2012 , registry fees for the .com and .net registrations were increased by the registry to $ 7.85 and $ 5.86 , respectively . story_separator_special_tag the management fee provides our resellers with access to our provisioning and management tools to enable them to register and administer domain names and access to additional services like whois privacy and dns services , enhanced domain name suggestion tools and access to our premium domain name services . we earn fees in connection with each new , renewed and transferred-in registration and from providing provisioning services to resellers and registrars on a monthly basis . domain registrations are generally purchased for terms of one to ten years , with a majority having a one-year term . opensrs email service we derive revenue from our hosted email service through our global distribution network . our email service is offered on a per account , per month basis , and provides resellers with a reliable , scalable “ white label ” hosted email solutions that can be customized to their branding and business model requirements . the email service also includes spam and virus filtering on all accounts . end-users can access the email service via a full-featured , multi-language ajax-enabled web interface , a wap mobile interface , or through traditional desktop email clients , such as microsoft outlook or apple mail , using imap or pop/smtp and 5gb of email storage . 32 other opensrs services we derive revenue from other services primarily from provisioning ssl certificates . from time to time , we also receive fees from vendors to expand or maintain the market position for their services . in addition , we provide billing , provisioning and customer care software solutions to isps through our platypus billing software . yummynames we derive revenue from our portfolio of domain names by displaying advertising on the domains and by making them available for sale or lease . in addition we display advertising on “ parked pages ” within opensrs . parked pages are domain names registered with us that do not yet contain an active website . when a user types one of these domain names into a web browser , they are presented with dynamically generated links that are pay-per-click advertising . every time a user clicks on one of these links , it generates revenue for us through our partnership with third-parties who provide syndicated pay-per-click advertising ( “ parked page vendors ” ) . our parked page vendor relationships may not continue to generate levels of revenue commensurate with what we have achieved during past periods . our ability to generate online advertising revenue from parked page vendors depends on their advertising networks ' assessment of the quality and performance characteristics of internet traffic resulting from online advertisements rendered on their websites . we have no control over any of these quality assessments . parked page vendors may from time to time change their existing , or establish new , methodologies and metrics for valuing the quality of internet traffic and delivering pay-per-click advertisements . any changes in these methodologies , metrics and advertising technology platforms could decrease the amount of revenue that we generate from online advertisements . in addition , parked page vendors may at any time change or suspend the nature of the service that they provide to online advertisers . these types of changes or suspensions would adversely impact our ability to generate revenue from pay-per-click advertising . portfolio names are sold through our premium domain name service , auctions or in negotiated sales . the size of our domain name portfolio varies over time , as we acquire and sell domains on a regular basis to maximize the overall value and revenue generation potential of our portfolio . in evaluating names for sale , we consider the potential foregone revenue from pay-per-click advertising , as well as other factors . the name will be offered for sale if , based on our evaluation , the name is deemed non-essential to our business and management believes that deriving proceeds from the sale is strategically more beneficial to the company . portfolio names that have been acquired from third-parties or through acquisition are included as intangible assets with indefinite lives on our consolidated balance sheet . in addition , we also offer the same services to our customers , allowing them to make available names registered by them for monetization on a similar basis . for customer names , we earn a referral fee for premium names or names sold or leased , and participate on a revenue share basis for names offered through our pay-per-click advertising program . hover we derive revenues from hover 's sale of retail internet domain name registration and email services to individuals and small businesses . these services include the sale of personalized email through tucows ' portfolio of surname-based domain names as well as simplified interfaces that allow customers to connect their domain names to websites and email addresses through a unique domain forwarding system . butterscotch we also generate advertising and other revenue through two ad-supported content sites , butterscotch.com and tucows.com . butterscotch.com and tucows.com primarily derive revenue from banner and text advertising on their sites . in addition , their revenue is derived from software developers who rely on us as a primary source of distribution . software developers use our author resource center to submit their products for inclusion on our site and to purchase promotional placements of their software . 33 critical accounting policies the following is a discussion of our critical accounting policies and methods . critical accounting policies are defined as those that are both important to the portrayal of our financial condition and results of operations and are reflective of significant judgments and uncertainties made by management that may result in materially different results under different assumptions and conditions . note 2 to the consolidated financial statements for the year ended december 31 , 2011 , or fiscal 2011 , includes further information on the significant accounting policies and methods used in the preparation of our consolidated financial statements .
| this increase was partially offset by market development funds of $ 0.7 million we received for fiscal 2011. yummynames costs for yummynames for fiscal 2011 as compared to fiscal 2010 remained relatively flat at $ 0.8 million . hover costs for hover for fiscal 2011 as compared to fiscal 2010 increased by $ 0.4 million , or 23 % , to $ 1.9 million , and primarily reflect our success in attracting new customers and retaining existing ones . 40 network costs network costs before depreciation and amortization for fiscal 2011 increased by $ 0.2 million , or 4 % , to $ 4.8 million , primarily as a result of increased workforce costs . network costs were also negatively impacted by the approximately 5 % strengthening , on average , in the canadian dollar relative to the u.s. dollar compared to fiscal 2010 which reflects our improved efficiency in operating and managing our co-location facilities . amortization of intangible assets consists of amounts arising in connection with the acquisition of technology from each of the boardtown corporation in april 2004 , mailbank.com inc. in june 2006 , iyd in july 2007 and epag in august 2011. the technology purchased in connection with the acquisition of boardtown corporation is amortized on a straight-line basis over seven years , and for iyd over three years , while the technology acquired in connection with each of the acquisitions of the in-house software of mailbank.com inc. and epag are being amortized on a straight-line basis over two years . we expect cost of sales to increase as a result of transactional volumes and the competitive and general business environment during fiscal 2012. sales and marketing sales and marketing expenses consist primarily of personnel costs . these costs include commissions and related expenses of our sales , product management , public relations , call center , support and marketing personnel . other sales and marketing expenses include customer acquisition costs , advertising and other promotional costs . replace_table_token_8_th sales and marketing expenses for fiscal
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the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : sales to customers are evidenced by firm purchase orders . title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms . payment by the customer is due under fixed payment terms and collectability is reasonably assured . we place certain of our capital equipment with customers on a loaned basis in return for commitments to purchase related single-use products over time periods generally ranging from one to three years . in these circumstances , no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met . revenue is recognized upon the sale and shipment of the related single-use products . the cost of the equipment is amortized over its estimated useful life . we recognize revenues related to the promotion and marketing of sports medicine allograft tissue in accordance with the contractual terms of our agreement with musculoskeletal transplant foundation ( “ mtf ” ) on a net basis as our role is limited to that of an agent earning a commission or fee . mtf records revenue when the tissue is shipped to the customer . our services are completed at this time and net revenues for the “ service fee ” for our promotional and marketing efforts are then recognized based on a percentage of the net amounts billed by mtf to its customers . the timing of revenue recognition is determined through review of the net billings made by mtf each month . our net commission service fee is based on the contractual terms of our agreement and is currently 50 % . this percentage can vary over the term of the agreement but is contractually determinable . our service fee revenues are recorded net of amortization of the acquired assets , which are being expensed over the expected useful life of 25 years . product returns are only accepted at the discretion of the company and in accordance with our “ returned goods policy ” . historically the level of product returns has not been significant . we accrue for sales returns , rebates and allowances based upon an analysis of historical customer returns and credits , rebates , discounts and current market conditions . our terms of sale to customers generally do not include any obligations to perform future services . limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data . amounts billed to customers related to shipping and handling have been included in net sales . shipping and handling costs included in selling and administrative expense were $ 13.6 million , $ 12.6 million and $ 12.8 million for 2014 , 2013 and 2012 , respectively . we sell to a diversified base of customers around the world and , therefore , believe there is no material concentration of credit risk . 19 we assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment . historically , losses on accounts receivable have not been material . management believes that the allowance for doubtful accounts of $ 1.2 million at december 31 , 2014 is adequate to provide for probable losses resulting from accounts receivable . inventory valuation we write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of current carrying costs . the markets in which we operate are highly competitive , with new products and surgical procedures introduced on an on-going basis . such marketplace changes may result in our products becoming obsolete . we make estimates regarding the future recoverability of the costs of our products and record a provision for excess and obsolete inventories based on historical experience and expected future trends . if actual product life cycles , product demand or acceptance of new product introductions are less favorable than projected by management , additional inventory write-downs may be required . goodwill and intangible assets we have a history of growth through acquisitions . assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition . goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . customer relationships , trademarks , tradenames , patents and other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses . promotional , marketing and distribution rights represent intangible assets created under our sports medicine joint development and distribution agreement ( the `` jdda '' ) with musculoskeletal transplant foundation ( “ mtf ” ) . we have accumulated goodwill of $ 256.2 million and other intangible assets of $ 316.4 million as of december 31 , 2014 . in accordance with fasb guidance , goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to at least annual impairment testing . it is our policy to perform our annual impairment testing in the fourth quarter . the identification and measurement of goodwill impairment involves the estimation of the fair value of our business . estimates of fair value are based on the best information available as of the date of the assessment . during 2014 , we completed our goodwill impairment testing with data as of october 1 , 2014. we performed a step 1 impairment test in accordance with asc 350 utilizing the market capitalization approach to determine whether the fair value of a reporting unit is less than its carrying amount . story_separator_special_tag based upon our assessment , we believe the fair value continues to exceed carrying value . intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization . intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . the carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset . an impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value . customer relationship assets arose principally as a result of the 1997 acquisition of linvatec corporation . these assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived during their estimated remaining useful life . the useful lives of these customer relationships were not , and are not , limited by contract or any economic , regulatory or other known factors . the estimated useful life of the linvatec customer relationship assets was determined as of the date of acquisition as a result of a study of the observed pattern of historical revenue attrition during the 5 years immediately preceding the acquisition of linvatec corporation . this observed attrition pattern was then applied to the existing customer relationships to derive the future expected useful life of the customer relationships . this analysis indicated an annual attrition rate of 2.6 % . assuming an exponential attrition pattern , this equated to an average remaining useful life of approximately 38 years for the linvatec customer relationship assets . customer relationship intangible assets arising as a result of other business acquisitions are being amortized over a weighted average life of 16 years . the weighted average life for customer relationship assets in aggregate is 33 years . we evaluate the remaining useful life of our customer relationship intangible assets each reporting period in order to determine whether events and circumstances warrant a revision to the remaining period of amortization . in order to further evaluate the remaining useful life of our customer relationship intangible assets , we perform an analysis and assessment of actual customer attrition and activity as events and circumstances warrant . this assessment includes a comparison of customer activity since the acquisition date and review of customer attrition rates . in the event that our analysis of actual customer attrition rates indicates a level of attrition that is in excess of that which was originally contemplated , we would change the estimated useful life of the 20 related customer relationship asset with the remaining carrying amount amortized prospectively over the revised remaining useful life . we test our customer relationship assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . factors specific to our customer relationship assets which might lead to an impairment charge include a significant increase in the annual customer attrition rate or otherwise significant loss of customers , significant decreases in sales or current-period operating or cash flow losses or a projection or forecast of losses . we do not believe that there have been events or changes in circumstances which would indicate the carrying amount of our customer relationship assets might not be recoverable . for all other indefinite lived intangible assets , we perform a qualitative impairment test in accordance with asc 350. based upon this assessment , we have determined that it is unlikely that our indefinite lived intangible assets are impaired . see note 4 to the consolidated financial statements for further discussion of goodwill and other intangible assets . pension plan we sponsor a defined benefit pension plan ( the “ pension plan ” ) that was frozen in 2009. it covered substantially all our united states based employees at the time it was frozen . major assumptions used in accounting for the plan include the discount rate , expected return on plan assets , rate of increase in employee compensation levels and expected mortality . assumptions are determined based on company data and appropriate market indicators , and are evaluated annually as of the plan 's measurement date . a change in any of these assumptions would have an effect on net periodic pension costs reported in the consolidated financial statements . the weighted-average discount rate used to measure pension liabilities and costs is set by reference to the citigroup pension liability index . however , this index gives only an indication of the appropriate discount rate because the cash flows of the bonds comprising the index do not match precisely the projected benefit payment stream of the plan . for this reason , we also consider the individual characteristics of the plan , such as projected cash flow patterns and payment durations , when setting the discount rate . the rates used in determining 2015 and 2014 pension expense were 3.81 % and 4.75 % , respectively . we have used an expected rate of return on pension plan assets of 8.0 % for purposes of determining the net periodic pension benefit cost . in determining the expected return on pension plan assets , we consider the relative weighting of plan assets , the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance . in addition , we consult with financial and investment management professionals in developing appropriate targeted rates of return . pension expense in 2015 is expected to be $ 1.2 million . pension income was $ 0.6 million in 2014 . in addition , we do not expect to make any contributions to the pension plan for the 2015 plan year .
| in 2014 , the decrease was mainly due to lower sales in our procedure specific , fluid and resection product offerings and the discontinuation of the cascade prp product line offset by increased sales of large bone and small bone handpieces . in 2013 , the decrease was mainly due to lower sales in our resection production offerings and large bone burs and blades . in local currency , excluding the effects of the hedging program , sales decreased 1.3 % in 2014 after an increase of 0.1 % in 2013 . general surgery sales decreased 2.5 % in 2014 to $ 279.4 million after remaining relatively flat in 2013 at $ 286.7 million compared to $ 286.6 million in 2012 . in 2014 , the decrease was mainly due to decreased sales in all product offerings . in 2013 , we experienced increased sales in our endomechanical , gastrointestinal and pulmonary product offerings offset by decreased sales in our advanced energy and patient monitoring product offerings . in local currency , excluding the effects of the hedging program , sales decreased 2.0 % in 2014 after an increase of 0.5 % in 2013 . surgical visualization sales decreased 12.0 % in 2014 to $ 57.9 million after a decrease of 1.2 % to $ 65.8 million in 2013 from $ 66.6 million in 2012 . the decreases in 2014 and 2013 were both due to lower video system sales . we believe the decline in 2014 was driven by customers awaiting the release of our new im8000 2dhd camera system . we had a limited release in the united states in the fourth quarter of 2014. in local currency , excluding the effects of the hedging program , sales decreased 10.9 % in 2014 and 0.9 % in 2013 . 22 cost of sales cost of sales decreased to $ 336.0 million in 2014 as compared to $ 350.3 million in 2013 and $ 361.3 million in 2012 . gross profit margins increased 0.5 percentage points to 54.6 % in 2014 after an increase of 1.2 percentage points to 54.1 % in 2013 from 52.9 % in 2012 . the increase in gross profit margins of 0.5
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in evaluating our operating performance , our management focuses primarily on : ( 1 ) the amount of cng , lng and rng gasoline gallon equivalents delivered ( which we define as ( i ) the volume of gasoline gallon equivalents we sell to our customers , plus ( ii ) the volume of gasoline gallon equivalents dispensed at facilities we do not own but where we provide o & m services on a per-gallon or fixed fee basis , plus ( iii ) our proportionate share of the gasoline gallon equivalents sold as cng by our joint venture with mansfield ventures , llc called mansfield clean energy partners , llc ( “ mcep ” ) , plus ( iv ) our proportionate share ( as applicable ) of the gasoline gallon equivalents of rng produced and sold as pipeline quality natural gas by the rng production facilities we owned or operated before completion of the bp transaction , discussed under “ 2017 developments ” below ) , ( 2 ) our station construction cost of sales , ( 3 ) our gross margin ( which we define as revenue minus cost of sales ) , and ( 4 ) net loss attributable to us . the following tables present our key operating data for the years ended december 31 , 2015 , 2016 , and 2017 : replace_table_token_6_th 26 replace_table_token_7_th replace_table_token_8_th _ ( 1 ) as noted above , amounts include our proportionate share of the gges sold as cng by our joint venture mcep . gges sold by this joint venture were 0.4 million , 0.5 million and 0.5 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively . ( 2 ) represents rng sold as non-vehicle fuel . rng sold as vehicle fuel , is sold under the brand name redeem and is included in cng and lng . ( 3 ) represents gasoline gallon equivalents at stations where we provide both fuel and o & m services . ( 4 ) includes the following amounts of aftc revenue : $ 31.0 million , $ 26.6 million and $ 0.0 million for the years ended december 31 , 2015 , 2016 and 2017 , respectively . ( 5 ) for 2017 , gross margin includes an inventory valuation provision of $ 13.2 million . see `` 2017 developments '' and note 2 for more information . 2017 developments aftc . we have been eligible to receive the aftc alternative fuels tax credit for our natural gas vehicle fuel sales made during all periods covered in the performance overview . the aftc , which had previously expired on december 31 , 2016 , was reinstated on february 9 , 2018 to apply to vehicle fuel sales made from january 1 , 2017 through december 31 , 2017. as a result , all aftc revenue for vehicle fuel we sold in the 2017 calendar year , expected to total approximately $ 25.0 million , will be recognized and collected subsequent to december 31 , 2017. the aftc credit is equal to $ 0.50 per gasoline gallon equivalent of cng that we sold as vehicle fuel , $ 0.50 per liquid gallon of lng that we sold as vehicle fuel through 2015 , and $ 0.50 per diesel gallon of lng that we sold as vehicle fuel in 2016 and 2017. safe & cec s.r.l . on november 26 , 2017 , we , through our former subsidiary imw industries ltd. ( formerly known as clean energy compression corp. ) ( “ cec ” ) , entered into an investment agreement with landi renzo s.p.a. ( “ lr ” ) , an alternative fuels company based in italy , pursuant to which we and lr agreed to combine our respective natural gas compressor subsidiaries , cec and safe s.p.a , in a new company known as “ safe & cec s.r.l. ” ( we refer to this combination transaction as the “ cec combination ” ) . safe & cec s.r.l . is focused on manufacturing , selling and servicing natural gas fueling compressors and related equipment for the global natural gas fueling market . upon the closing of the cec combination , which occurred on december 29 , 2017 , we own 49 % of safe & cec s.r.l . and lr owns 51 % of safe & cec s.r.l . the operating results of cec have been fully consolidated into our consolidated results through december 29 , 2017 ( effectively the full year of 2017 ) . as of december 31 , 2017 we have an investment balance of $ 27.9 million representing our 49 % interest in safe & cec s.r.l. , and beginning in 2018 we will account for our interest in safe & cec s.r.l . using the equity method of accounting as we have the ability to exercise significant influence over safe & cec s.r.l . 's operations . we recognized a loss of $ 6.5 million in connection with the cec combination , and incurred working capital adjustments , funding for certain post-closing commitments , and transaction fees of which $ 4.0 million was unpaid as of december 31 , 2017. see note 3 to our consolidated financial statements for more information . asset impairments , other charges , and inventory valuation provision . during the year ended december 31 , 2017 , we undertook an evaluation of our operations with the intent of minimizing and eliminating assets we believe are underperforming . as a result of this evaluation , we identified 42 fueling stations where the volume and profitability levels are not expected to be sufficient to support our investment in the fueling station assets , and we determined to close these stations by the end of 2017 . 27 we also reduced our workforce and took other steps to reduce overhead costs in the third quarter of 2017 as a result of this evaluation . story_separator_special_tag in addition , we positioned cec 's compressor business for industry consolidation with a potential strategic partner , which resulted in the cec combination in the fourth quarter of 2017. as a result of these decisions and the steps taken to implement them , we determined that impairment indicators were present for cec 's assets and the closed station assets , and we recorded asset impairment charges of $ 32.3 million related to cec and $ 20.4 million related to the station closures during 2017. we also recorded during this period an additional $ 5.1 million of other charges relating to the station closures , consisting of lease termination fees , write-offs of deferred losses , and an increase in asset retirement obligations . in addition , we incurred $ 3.1 million in cash charges during this period related to our workforce reduction and $ 13.2 million in non-cash charges during this period related to an inventory valuation provision . in addition , during the fourth quarter of 2017 , the company incurred a cash charge of $ 7.0 million related to payments for lcfs credits as further discussed below in volume-related revenue . as a result of these steps , we incurred , on a pre-tax basis , aggregate cash and non-cash charges of $ 81.1 million during 2017. see note 2 for more information . purchase of natural gas heavy -duty trucks . in july 2017 , we entered into an arrangement to purchase 146 used natural gas heavy -duty trucks from a single seller by january 31 , 2018 , with the intention of selling the trucks to our customers . as of december 31 , 2017 , this arrangement represented an outstanding commitment to purchase 124 natural gas heavy -duty trucks for $ 7.9 million . subsequent to december 31 , 2017 , 66 of the trucks were sold to third parties . ng advantage customer arrangement . in june 2017 , our subsidiary ng advantage , llc ( “ ng advantage ” ) entered into an arrangement with one of its customers for the purchase , transportation and sale of cng over a five-year period . the arrangement is customary and ordinary course , and provided for the payment by the customer of a nonrefundable amount of $ 13.4 million to reserve a specified volume of cng transportation capacity . this amount was paid to ng advantage in two installments , with $ 8.4 million paid on july 3 , 2017 and $ 5.0 million paid on october 2 , 2017. contribution of milton cng fueling station . on july 14 , 2017 , we contributed to ng advantage all of our right , title and interest in and to a cng fueling station located in milton , vermont . we had purchased this cng station from ng advantage in october 2014 in connection with our initial investment in ng advantage , and at that time , we entered into a lease agreement with ng advantage to lease the station back to ng advantage . this lease agreement was terminated contemporaneously with the contribution of the station to ng advantage in july 2017. as consideration for the contribution , ng advantage issued to us series a preferred units with an aggregate value of $ 7.5 million . the series a preferred units provide for an accrued return in the event of a liquidation event with respect to ng advantage and will convert into common units of ng advantage if and when it completes a future equity financing that satisfies certain specified conditions ; however , the series a preferred units do not , in themselves , increase our controlling interest in ng advantage . as a result , immediately following the contribution , our controlling interest in ng advantage remained at 53.3 % . termination of atm program . on may 31 , 2017 , we terminated our equity distribution agreement ( the “ sales agreement ” ) with citigroup global markets inc. ( “ citigroup ” ) , as sales agent and or principal . the sales agreement was terminable at will upon written notification by us with no penalty . pursuant to the sales agreement , we were entitled to issue and sell , from time to time , through or to citigroup shares of our common stock having an aggregate offering price of up to $ 200.0 million in an “ at-the-market ” offering program ( the “ atm program ” ) . the atm program commenced on november 11 , 2015 when we and citigroup entered into the original equity distribution agreement , which was amended and restated on september 9 , 2016 and again on december 21 , 2016 prior to its termination . see “ liquidity and capital resources-sources of cash ” below for more information about the atm program . bp transaction . on february 27 , 2017 , our subsidiary clean energy renewable fuels ( `` renewables '' ) entered into an asset purchase agreement ( the “ apa ” ) with bp products north america , inc. ( “ bp ” ) , pursuant to which renewables agreed to sell to bp certain assets related to its rng production business ( the “ bp transaction ” ) , consisting of renewables ' two existing rng production facilities , renewables ' 50 % ownership interest in joint ventures formed to develop two new rng production facilities , and renewables ' third-party rng supply contracts ( the “ assets ” ) .
| our effective price per gallon charged was $ 0.76 for 2017 , a $ 0.10 per gallon decrease from $ 0.86 per gallon 36 for 2016. our effective price per gallon is defined as revenue generated from selling cng , lng , rng , and any related rins and lcfs credits and providing o & m services to our vehicle fleet customers at stations we do not own and for which we receive a per-gallon or fixed fee , all divided by the total gges delivered less gges delivered by non-consolidated entities , such as entities that are accounted for under the equity method . the decrease in our effective price per gallon between periods was primarily due to lower revenue from sales of rins and lcfs credits . station construction sales decreased by $ 13.0 million between periods , principally due to a decrease in large , full -station projects and station upgrade projects . compressor revenue decreased by $ 3.8 million between periods due to lower compressor sales , which we believe was primarily due to continued low global demand . aftc revenue decreased by $ 26.6 million between periods due to the absence of aftc revenue recorded in 2017. cost of sales . cost of sales increased by $ 0.2 million to $ 255.8 million for 2017 , from $ 255.6 million for 2016 . this increase was primarily due to a $ 13.2 million inventory valuation provision charge recorded in 2017 , comprised of $ 7.8 million related to station construction inventory and $ 5.4 million related to compressor inventory ( see `` 2017 developments '' and note 2 for more information regarding developments related to this compressor inventory ) . this increase was partially offset by a $ 10.0 million decrease in station construction costs between periods due to lower station construction sales , and a $ 1.4 million decrease in compressor costs between periods due to lower compressor sales . our effective cost per gallon decreased by $ 0.03 per gallon between periods , to $ 0.49 per gallon for 2017 from $ 0.52 for 2016 , excluding the $ 7.8 million inventory
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some of the factors that may be an indication that an increase in inventory levels will be temporary include : recently implemented or announced price increases for our products ; and new product launches or expanded indications for our existing products . conversely , other-than-temporary increases in inventory levels may be an indication that future product returns could be higher than originally anticipated and , accordingly , we may need to adjust our provision for returns and allowances . some of the factors that may be an indication that an increase in inventory levels will be other-than-temporary include : declining sales trends based on prescription demand ; recent regulatory approvals to shorten the shelf life of our products , which could result in a period of higher returns related to older product still in the distribution channel ; introduction of new product or generic competition ; 56 increasing price competition from generic competitors ; and changes to the national drug codes ( ndcs ) of our products , which could result in a period of higher returns related to product with the old ndc , as our customers generally permit only one ndc per product for identification and tracking within their inventory systems . rebates our provision for rebates , sales incentives and other allowances can generally be categorized into the following four types : direct rebates ; indirect rebates ; governmental rebates , including those for medicaid , medicare and tricare , among others ; and managed-care rebates . we establish contracts with wholesalers , chain stores and indirect customers that provide for rebates , sales incentives , dsa fees and other allowances . some customers receive rebates upon attaining established sales volumes . direct rebates are generally rebates paid to direct purchasing customers based on a percentage applied to a direct customer 's purchases from us , including fees paid to wholesalers under our dsas , as described above . indirect rebates are rebates paid to indirect customers which have purchased our products from a wholesaler under a contract with us . we are subject to rebates on sales made under governmental and managed-care pricing programs based on relevant statutes with respect to governmental pricing programs and contractual sales terms with respect to managed-care providers and group purchasing organizations . for example , we are required to provide a discount on our brand-name drugs to patients who fall within the medicare part d coverage gap , also referred to as the donut hole . we participate in various federal and state government-managed programs whereby discounts and rebates are provided to participating government entities . for example , medicaid rebates are amounts owed based upon contractual agreements or legal requirements with public sector ( medicaid ) benefit providers after the final dispensing of the product by a pharmacy to a benefit plan participant . medicaid reserves are based on expected payments , which are driven by patient usage , contract performance and field inventory that will be subject to a medicaid rebate . medicaid rebates are typically billed up to 180 days after the product is shipped , but can be as much as 270 days after the quarter in which the product is dispensed to the medicaid participant . in addition to the estimates mentioned above , our calculation also requires other estimates , such as estimates of sales mix , to determine which sales are subject to rebates and the amount of such rebates . periodically , we adjust the medicaid rebate provision based on actual claims paid . due to the delay in billing , adjustments to actual claims paid may incorporate revisions of this provision for several periods . because medicaid pricing programs involve particularly difficult interpretations of complex statutes and regulatory guidance , our estimates could differ from actual experience . in determining our estimates for rebates , we consider the terms of our contracts , relevant statutes , historical relationships of rebates to revenues , past payment experience , estimated inventory levels of our customers and estimated future trends . our provisions for rebates include estimates for both unbilled claims for end-customer sales that have already occurred and future claims that will be made when inventory in the distribution channel is sold through to end-customer plan participants . changes in the level of utilization of our products through private or public benefit plans and group purchasing organizations will affect the amount of rebates that we owe . chargebacks we market and sell products to both : ( i ) direct customers including wholesalers , distributors , warehousing pharmacy chains and other direct purchasing groups and ( ii ) indirect customers including independent pharmacies , non-warehousing chains , managed-care organizations , group purchasing organizations and government entities . we enter into agreements with certain of our indirect customers to establish contract pricing for certain products . these indirect customers then independently select a wholesaler from which to purchase the products at these contracted prices . alternatively , we may pre-authorize wholesalers to offer specified contract pricing to other indirect customers . under either arrangement , we provide credit to the wholesaler for any difference between the contracted price with the indirect customer and the wholesaler 's invoice price . such credit is called a chargeback . our provision for chargebacks consists of our estimates for the credits described above . the primary factors we consider in developing and evaluating our provision for chargebacks include : the average historical chargeback credits ; estimated future sales trends ; and an estimate of the inventory held by our wholesalers , based on internal analysis of a wholesaler 's historical purchases and contract sales . 57 other sales deductions we offer certain of our customers prompt pay cash discounts . provisions for prompt pay discounts are estimated and recorded at the time of sale . we estimate provisions for cash discounts based on contractual sales terms with customers , an analysis of unpaid invoices and historical payment experience . story_separator_special_tag estimated cash discounts have historically been predictable and less subjective due to the limited number of assumptions involved , the consistency of historical experience and the fact that we generally settle these amounts within 30 to 60 days . shelf-stock adjustments are credits issued to our customers to reflect decreases in the selling prices of our products . these credits are customary in the industry and are intended to reduce a customer 's inventory cost to better reflect current market prices . the determination to grant a shelf-stock credit to a customer following a price decrease is generally at our discretion , rather than contractually required . the primary factors we consider when deciding whether to record a reserve for a shelf-stock adjustment include : the estimated number of competing products being launched as well as the expected launch date , which we determine based on market intelligence ; the estimated decline in the market price of our product , which we determine based on historical experience and customer input ; and the estimated levels of inventory held by our customers at the time of the anticipated decrease in market price , which we determine based upon historical experience and customer input . valuation of long-lived assets as of december 31 , 2018 , our combined long-lived assets balance , including property , plant and equipment and finite-lived intangible assets , is approximately $ 3.9 billion . long-lived assets are assessed for impairment whenever events or changes in circumstances indicate the carrying amounts of the assets may not be recoverable . recoverability of an asset that will continue to be used in our operations is measured by comparing the carrying amount of the asset to the forecasted undiscounted future cash flows related to the asset . in the event the carrying amount of the asset exceeds its undiscounted future cash flows and the carrying amount is not considered recoverable , impairment may exist . an impairment loss , if any , is measured as the excess of the asset 's carrying amount over its fair value , generally based on a discounted future cash flow method , independent appraisals or offers from prospective buyers . an impairment loss would be recognized in the consolidated statements of operations in the period that the impairment occurs . as a result of the significance of our long-lived assets , any recognized impairment loss could have a material adverse impact on our financial position and results of operations . our reviews of long-lived assets during the three years ended december 31 , 2018 resulted in certain impairment charges . the majority of these charges related to finite-lived intangible assets , which are described in note 10. goodwill and other intangibles in the consolidated financial statements included in part iv , item 15 of this report . our impairment charges relating to long-lived assets were generally based on fair value estimates determined using either discounted cash flow models or offers from prospective buyers . when testing a long-lived asset using a discounted cash flow model , we utilize assumptions related to the revenues , growth rates and operating margins of the corresponding product based on management 's annual and ongoing budgeting , forecasting and planning processes , which represent our best estimate of future cash flows . these estimates are subject to the economic environment in which our segments operate , demand for our products and competitor actions . these assumptions are based on significant inputs not observable in the market and thus represent level 3 measurements within the fair value hierarchy . the use of different inputs and assumptions would increase or decrease our estimated discounted future cash flows , the resulting estimated fair values and the amounts of our related impairments , if any . the discount rates applied to intangible long-lived assets impaired in 2018 ranged from 9.0 % to 10.0 % . events giving rise to impairment are an inherent risk in the pharmaceutical industry and can not be predicted . factors that we consider in deciding when to perform an impairment review include significant under-performance of a product line in relation to expectations , significant negative industry or economic trends and significant changes or planned changes in our use of the assets . our long-lived intangible assets , which consist of license rights and developed technology , are initially recorded at fair value upon acquisition . to the extent they are deemed to have finite lives , they are then amortized over their estimated useful lives using either the straight-line method or , in the case of certain developed technology assets , the economic benefit model . the values of these various assets are subject to continuing scientific , medical and marketplace uncertainty . factors giving rise to our initial estimate of useful lives are subject to change . significant changes to any of these factors may result in a reduction in the useful lives of the assets and acceleration of related amortization expense , which could cause our operating income , net income and net income per share to decrease . amortization expense is not recorded on assets held for sale . each category of long-lived intangible assets is described further below . 58 developed technology . our developed technology assets subject to amortization have useful lives ranging from 4 years to 20 years , with a weighted average useful life of approximately 11 years . we determine amortization periods and methods of amortization for developed technology assets based on our assessment of various factors impacting estimated useful lives and the timing and extent of estimated cash flows of the acquired assets , including the strength of the intellectual property protection of the product , contractual terms and various other competitive and regulatory issues . license rights . our license rights subject to amortization have useful lives ranging from 10 years to 15 years , with a weighted average useful life of approximately 12 years .
| additionally , the following summary highlights certain key events that occurred during 2018 : in january 2018 , the company initiated a restructuring initiative that included a reorganization of its u.s. generic pharmaceuticals segment 's research and development network , a further simplification of the company 's manufacturing networks and a company-wide unification of certain corporate functions . during the second quarter of 2018 , we entered into a development , license and commercialization agreement with nevakar , inc. related to five sterile injectable product candidates . in november 2018 , we reported positive results from two phase 3 clinical trials of cch for the treatment of cellulite in the buttocks . trial subjects receiving cch showed highly statistically significant levels of improvement in the appearance of cellulite with treatment , as measured by the trials ' primary endpoint . in addition , the release-1 trial passed 8 out of 8 key secondary endpoints and the release-2 trial passed 7 out of 8 key secondary endpoints . finally , cch was well-tolerated in the actively-treated subjects with most adverse events being mild to moderate in severity and primarily limited to the local injection area . critical accounting estimates the preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the u.s. ( u.s. gaap ) requires us to make estimates and assumptions that affect the amounts and disclosures in our consolidated financial statements , including the notes thereto , and elsewhere in this report . for example , we are required to make significant estimates and assumptions related to revenue recognition , including sales deductions , financial instruments , long-lived assets , goodwill , other intangibles , income taxes , contingencies and share-based compensation , among others . some of these estimates can be subjective and complex . although we believe that our estimates and assumptions are reasonable , there may be other reasonable estimates or assumptions that differ significantly from ours . further , our estimates and assumptions are based upon information available at the time they were made . actual results may differ significantly from our estimates . 54 accordingly , in order to understand our consolidated financial statements , it is important
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humanigen believes that the authors ' findings are worthy of further investigation , suggesting that to reduce or eradicate icu care and prevent deaths from covid-19 infection , an intervention may be needed to prevent cytokine storm . separate publications confirm that cytokine storm is characterized by surge of high levels of circulating inflammatory cytokines , and is an overreaction of the immune system under the conditions , such as car-t therapy and patients infected with sars-cov-2 . these recent studies revealed that high levels of gm-csf , along with a few other cytokines , are critically associated with severe clinical complications in covid-19 patients . high concentration of gm-csf was found in the plasma of severe and critically ill patients , which account for approximately 20 % of all patients , especially in those requiring intensive care . lenzilumab has been shown to prevent cytokine storm in animal models and this work has been published in peer reviewed journals . patients are expected to be enrolled soon in a clinical study to determine lenzilumab 's effect on cytokine storm associated with the hyper-active immune response associated with car-t therapy in collaboration with kite pharma . the company believes these new data suggest that gm-csf may be a critical triggering cytokine in the increased mortality in the current coronavirus pandemic . a potential program in covid-19 to prevent cytokine storm is complementary to the programs in car-t and gvhd , which are also focused on preventing or reducing cytokine storm in those disease states . as a leader in gm-csf pathway science , we believe that we have the ability to transform car-t therapy and a broad range of other t-cell engaging therapies , including both autologous and allogeneic cell transplantation . there is a direct correlation between the efficacy of car-t therapy and the incidence of life-threatening toxicities ( referred to as the efficacy/toxicity linkage ) .we believe that our gm-csf neutralization and gene-editing car-t platform technologies have the potential to reduce the inflammatory cascade associated with serious and potentially life-threatening car-t therapy-related side-effects while preserving and potentially improving the efficacy of the car-t therapy itself , thereby breaking the efficacy/toxicity linkage . clinical correlative analysis and preclinical in vivo evidence points to gm-csf as the key initiator of the inflammatory cascade resulting in car-t therapy 's side-effects , including crs and nt . gm-csf has also been linked to the suppressive myeloid cell axis through recruitment of mdscs that reduce car-t cell expansion and hamper car-t cell efficacy . our strategy is to continue to pioneer the use of gm-csf neutralization and gm-csf gene knockout technologies to improve efficacy and prevent or significantly reduce the serious side-effects associated with car-t therapy . we believe that our gm-csf pathway science , assets and expertise create two technology platforms to assist in the development of next-generation car-t therapies . lenzilumab has the potential to be used in combination with any fda-approved or development stage t-cell therapy , including car-t therapy , as well as in combination with other cell therapies such as hsct to make these treatments safer and more effective . 78 we have utilized a precision medicine approach and personalized the development of lenzilumab based on specific genetic mutations or biomarkers at baseline . we recently reported on a phase i study of lenzilumab as monotherapy in refractory chronic myelomonocytic leukemia ( cmml ) and are now planning a potential phase ii study of lenzilumab in combination with azacitidine ( current standard therapy ) in newly-diagnosed cmml patients with certain genetic mutations . we are also planning a potential phase ii/iii study focused on early intervention with lenzilumab in patients at high risk for acute graft versus host disease ( gvhd ) based on specific biomarkers . we have also reported on a phase ii study in severe asthma utilizing lenzilumab , which showed a statistically significant improvement in efficacy and favorable safety profile in patients with eosinophilic asthma , 21 of whom received lenzilumab vs. 20 patients who received placebo . in addition , our gm-csf knockout gene-editing car-t platform has the potential to create next-generation car-t therapies that may inherently avoid any efficacy/toxicity linkage , thereby potentially preserving the benefits of the car-t therapy while reducing or altogether avoiding its serious and potentially life-threatening side-effects . our immediate focus is combining fda-approved and development stage car-t therapies with lenzilumab , our lead product candidate . a clinical collaboration with kite was recently announced to evaluate the use of lenzilumab with yescarta . we are also creating next-generation combinatory gene-edited car-t therapies using strategies to improve efficacy while employing gm-csf gene knockout technologies to control toxicity . this includes developing our own portfolio of proprietary first-in-class epha3-car-ts for various solid cancers and emr1-car-ts for various eosinophilic disorders . lenzilumab lenzilumab neutralizes human gm-csf and has the potential to prevent or reduce certain serious side-effects associated with car-t therapy ( crs and neurotoxicity ) and improve upon the efficacy of car-t therapy . this same mechanism we believe to be the causation of crs/cytokine storm which precedes the decline in lung function seen with severe cases of covid-19 . preclinical data generated in collaboration with the mayo clinic , which was published in ‘ blood ® ' , a premier journal in hematology , indicates that the use of lenzilumab in combination with car-t therapy may also enhance the proliferation and improve the efficacy of car-t therapy . this may also result in durable , or longer term , responses in car-t therapies . there are currently no products approved by the fda for the prevention of crs/cytokine storm associated with covid-19 . also there are currently no products approved by the fda for the prevention of car-t therapy-related side effects , nor are there any approved therapies for the treatment of car-t therapy related nt . story_separator_special_tag we continue to advance the development of lenzilumab in combination with car-t therapy through a non-exclusive clinical collaboration with kite , pursuant to which we are conducting a multi-center phase ib/ii study ( the “ study ” ) of lenzilumab with kite 's yescarta in patients with relapsed or refractory b-cell lymphoma , including diffuse large b-cell lymphoma ( “ dlbcl ” ) . the study has been designated the nomenclature ‘ zuma-19 ' , consistent with the other kite car-t studies , which also receive a ‘ zuma ' designation . the primary objective of zuma-19 is to determine the effect of lenzilumab on the safety and efficacy of yescarta . kite 's yescarta is one of two car-t therapies that have been approved by the fda and is the car-t therapy market leader , and our collaboration with kite is currently the only clinical collaboration which is now enrolling patients with the potential to improve both the safety and efficacy of car-t therapy . we also plan to measure other potentially beneficial effects on efficacy and healthcare resource utilization . in addition , lenzilumab 's success in preventing serious and potentially life-threatening side-effects could offer economic benefits to medical system payers by making the car-t therapy capable of being administered , and follow-up care subsequently monitored and managed , potentially on an out-patient basis in certain patients and circumstances . in turn , we believe that delivering such provider and payer benefits might accelerate the use of the car-t therapy itself , and thereby permit us to generate further revenues from sales of lenzilumab . 79 in addition to covid-19 and car-t therapy , we are committed to advancing our diverse platform for gm-csf axis suppression for a broad range of other t-cell engaging therapies , including both autologous and allogeneic next generation car-t therapies , bi-specific antibody therapies , as well as other cell-based immunotherapies in development , including allogeneic hsct , with our current and future partners . in july 2019 , we entered into the zurich agreement with uzh . under the zurich agreement , we have in-licensed certain technologies that we believe may be used to prevent or treat gvhd , thereby expanding our development platform to include improving the safety and effectiveness of allogeneic hsct , a potentially curative therapy for patients with hematological cancers . there are currently no fda-approved agents for the prevention of gvhd , nor treatment of gvhd in patients identified as high risk by certain biomarkers . we believe that gm-csf neutralization with lenzilumab has the potential to prevent or treat gvhd without compromising , and potentially improving , the beneficial gvl effect in patients undergoing allogeneic hsct , thereby making allogeneic hsct safer . several recent papers have been published which support this approach , including in science translational medicine in november 2018 and in ‘ blood advances ' in october 2019. we aim to position lenzilumab as a necessary companion product to any allogeneic hsct and as a part of the standard pre-conditioning that all patients receiving allogeneic hsct should receive or as an early treatment option in patients identified as high risk for gvhd . given our interest in developing lenzilumab to prevent crs/cytokine storm in covid-19 as well as in the treatment of rare cancers and other orphan conditions such as gvhd , we believe that we have the opportunity to benefit from various regulatory incentives , such as orphan drug exclusivity , breakthrough therapy designation , fast track designation , priority review and accelerated approval . gm-csf gene knockout we are advancing our gm-csf knockout gene-editing car-t platform through the mayo agreement that we entered into in june 2019 with the mayo foundation . under the mayo agreement , we have in-licensed certain technologies that we believe may be used to create car-t cells lacking gm-csf expression through various gene-editing tools , including crispr-cas9 . we believe that our gm-csf knockout gene-editing car-t platform has the potential to create next-generation car-t therapies that improve the efficacy and safety profile of car-t therapy . in addition , we have and continue to file intellectual property encompassing a broad range of gene-editing approaches related to gm-csf knockout . preclinical data indicates that gm-csf gene knockout car-t cells show improved overall survival compared to wild-type car-t cells in addition to the expected benefits of reduced serious side-effects associated with car-t therapy . we are establishing a platform of next-generation combinatorial gene knockout car-t cells that have potential to be applied across both autologous and allogeneic approaches and we are also investigating multiple car-t cell designs using precise dual and triple gene editing to significantly enhance the anti-tumor activity while simultaneously preventing car-t therapy induced toxicities . through targeted gene expression and modulating cytokine activation signaling , we may be able to increase the proportion of fitter t-cells produced during expansion , increase their proliferative potential , and inhibit activation-induced cell death , thereby improving the cancer killing activity of our engineered car-t cells thereby making them more effective and safer in the treatment of cancers . initial data were published in an abstract that was presented at the december 2019 ash meeting and also won an ash abstract achievement award . we plan to continue development of this technology in combination approaches that could add to the observed efficacy benefits of current generation car-t products . in addition , we anticipate that our gm-csf knockout gene-editing car-t platform may be a future backbone for controlling the serious side-effects that hamper car-t therapy that lead to serious and sometimes fatal outcomes for patients as a result of the car-t therapy itself . 80 epha3-car : targeting tumor stroma and tumor vasculature we have begun to generate our own pipeline of car-t therapies including an epha3-car-t based on the ifabotuzumab v-region and backbone . ifabotuzumab is a humaneered anti-epha3 monoclonal antibody . ifabotuzumab has the potential to kill tumor cells by targeting tumor stroma that protects them and the vasculature that feeds them .
| other research and development costs consist primarily of internal research and development costs such as salaries and related fringe benefit costs for our employees ( such as workers compensation and health insurance premiums ) , stock-based compensation charges , travel costs , lab supplies , overhead expenses such as rent and utilities , and external costs not allocated to one of our clinical programs . internal research and development costs generally benefit multiple projects and are not separately tracked per project . the following table shows our total research and development expenses for the years ended december 31 , 2019 and 2018 ( $ 000 's ) : replace_table_token_1_th we expect to continue to incur substantial expenses related to our research and development activities for the foreseeable future as we continue product development including our development efforts for lenzilumab to reduce the serious and potentially life-threatening side-effects associated with car-t therapy and potentially improve efficacy . depending on the results of our development efforts we expect to incur substantial costs to prepare for potential clinical trials and activities for lenzilumab . general and administrative expenses general and administrative expenses consist principally of personnel-related costs , professional fees for legal , consulting , audit and tax services , rent and other general operating expenses not otherwise included in research and development . for the years ended december 31 , 2019 and 2018 , general and administrative expenses were $ 6.3 million and $ 9.1 million , respectively . 85 comparison of years ended december 31 , 2019 and 2018 ( $ 000 's ) replace_table_token_2_th research and development expenses increased $ 0.4 million in 2019 from $ 2.2 million for the year ended december 31 , 2018 to $ 2.6 million for the year ended december 31 , 2019. the increase is primarily due to the increase in spending in preparation for the phase ib/ii clinical trial of lenzilumab with kite 's yescarta in car-t therapy . we expect our research and development expenses will increase substantially in 2020 compared to 2019 , due to the commencement of enrollment in the trial . general and administrative expenses decreased $ 2.8 million in 2019 from $ 9.1 million for the year ended december 31 , 2018 to $ 6.3 million for the year ended december
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sales to foreign and domestic distributors accounted for 50.4 % , 58.7 % and 50.0 % of our net revenues for fiscal 2016 , 2015 and 2014 , respectively . the following direct customers accounted for 10 % or more of our net revenues in one or more of the following periods : replace_table_token_5_th alcatel-lucent was our largest customer in fiscal 2016 and 2015. alcatel-lucent purchases products directly from us and through contract manufacturers and distributors . based on information provided to us by alcatel-lucent 's contract manufacturers and our distributors , purchases by alcatel-lucent represented approximately 32 % , 25 % and 19 % of our net revenues in fiscal 2016 , 2015 and 2014 , respectively . cisco systems , historically our largest oem customer , purchases our products primarily through its consignment warehouses and also purchases some products through its contract manufacturers and directly from us . based on information provided to us by cisco systems ' consignment warehouses and contract manufacturers , purchases by cisco systems represented approximately 9 % , 13 % and 19 % of our net revenues in fiscal 2016 , 2015 and 2014 , respectively . our revenues have been substantially impacted by significant fluctuations in sales to alcatel-lucent and cisco systems , and we expect that future direct and indirect sales to these two customers will continue to fluctuate substantially on a quarterly basis and that such fluctuations may significantly affect our operating results in future periods . to our knowledge , none of our other oem customers accounted for more than 10 % of our net revenues in fiscal 2016 , 2015 or 2014 . cost of revenues . our cost of revenues consists primarily of wafer fabrication costs , wafer sort , assembly , test and burn-in expenses , the amortized cost of production mask sets , stock-based compensation and the cost of materials and overhead from operations . all of our wafer manufacturing and assembly operations , and a significant portion of our wafer sort testing operations , are outsourced . accordingly , most of our cost of revenues consists of payments to tsmc , powerchip and independent assembly and test houses . because we do not have long-term , fixed-price supply contracts , our wafer fabrication and other outsourced manufacturing costs are subject to the cyclical fluctuations in demand for semiconductors . cost of revenues also includes expenses related to supply chain management , quality assurance , and final product testing and documentation control activities conducted at our headquarters in sunnyvale , california and our branch operations in taiwan . gross profit . our gross profit margins vary among our products and are generally greater on our higher density products and , within a particular density , greater on our higher speed and industrial temperature products . we expect that our overall gross margins will fluctuate from period to period as a result of shifts in product mix , changes in average selling prices and our ability to control our cost of revenues , including costs associated with outsourced wafer fabrication and product assembly and testing . 40 research and development expenses . research and development expenses consist primarily of salaries and related expenses for design engineers and other technical personnel , the cost of developing prototypes , stock-based compensation and fees paid to consultants . we charge all research and development expenses to operations as incurred . we charge mask costs used in production to costs of revenues over a 12-month period . however , we charge costs related to pre-production mask sets , which are not used in production , to research and development expenses at the time they are incurred . these charges often arise as we transition to new process technologies and , accordingly , can cause research and development expenses to fluctuate on a quarterly basis . we believe that continued investment in research and development is critical to our long-term success , and we expect to continue to devote significant resources to product development activities . in particular , we plan to devote substantial resources to the development of in-place associative computing products based on patented technology obtained in our acquisition of mikamonu in november 2015. accordingly , we expect that our research and development expenses will increase in future periods , although such expenses as a percentage of net revenues may fluctuate . selling , general and administrative expenses . selling , general and administrative expenses consist primarily of commissions paid to independent sales representatives , salaries , stock-based compensation and related expenses for personnel engaged in sales , marketing , administrative , finance and human resources activities , professional fees , costs associated with the promotion of our products and other corporate expenses . we expect that our sales and marketing expenses will increase in absolute dollars in future periods if we are able to grow and expand our sales force but that , to the extent our revenues increase in future periods , these expenses will generally decline as a percentage of net revenues . we also expect that , in support of any future growth that we are able to achieve , general and administrative expenses will generally increase in absolute dollars . general and administrative expenses increased significantly beginning in fiscal 2012 as a result of substantial legal expenses , principally related to our patent infringement and antitrust litigation with cypress semiconductor corporation . these expenses varied significantly from quarter to quarter thereafter , depending on the relative level of activity in the cypress litigation . in may 2015 , we entered into a settlement agreement to resolve our protracted litigation with cypress . see “ part i. item 3. legal proceedings. story_separator_special_tag ” although we ceased to incur legal expenses related to our litigation with cypress after the quarter ended june 30 , 2015 , legal expenses associated with unrelated commercial and trade secret litigation in which we were the plaintiff continued to be significant through the quarter ended december 31 , 2015 , reflecting preparation for and conduct of the trial of that case which was concluded in november 2015. acquisition on november 23 , 2015 , we acquired all of the outstanding capital stock of privately held mikamonu group ltd. ( “ mikamonu ” ) , a development-stage , israel-based company that specializes in in-place associative computing for markets including big data , computer vision and cyber security . mikamonu , located in tel aviv , held 12 united states patents and a number of pending patent applications . the acquisition was undertaken by the company in order to gain access to the mikamonu patents and the potential markets , and new customer base in those markets , that can be served by new products that we plan to develop using the mikamonu patents obtained in the acquisition . the acquisition has been accounted for as a purchase under authoritative guidance for business combinations . the purchase price of the acquisition has been preliminarily allocated to the intangible assets acquired , with the excess of the purchase price over the fair value of assets acquired recorded as goodwill . we will perform a goodwill impairment test in february of each fiscal year . the results of operations of mikamonu and the estimated fair value of the assets acquired were included in our consolidated financial statements beginning november 23 , 2015. under the terms of the acquisition agreement , we paid the former mikamonu shareholders initial cash consideration of approximately $ 4.4 million at the closing on november 23 , 2015. we will make cash payments of up to $ 484,000 to the three former mikamonu shareholders in may 2017 upon the release of cash held in escrow for 41 potential indemnification claims . this amount is included in other assets on the consolidated balance sheet at march 31 , 2016. we are also required to pay the former mikamonu shareholders future contingent consideration consisting of retention payments and “ earnout ” payments , as described below . we will make cash retention payments of up to an additional $ 2.5 million to the three former mikamonu shareholders in installments over a four-year period , conditioned on the continued employment of dr. avidan akerib , mikamonu 's co-founder and chief technologist . the retention amount of $ 2.5 million has been deposited in escrow and is included in other assets on the consolidated balance sheet at march 31 , 2016. we will also make “ earnout ” payments to the former mikamonu shareholders in cash or shares of our common stock , at our discretion , during a period of up to ten years following the closing if certain product development milestones and revenue targets for products based on the mikamonu technology are achieved . earnout amounts of $ 750,000 will be payable if certain product development milestones are achieved by december 31 , 2017. additional earnout amounts of $ 2,750,000 and $ 4,000,000 will be payable if certain revenue milestones are achieved by january 1 , 2021 and january 1 , 2022 , respectively ; and additional payments , up to a maximum of $ 30 million , equal to 5 % of net revenues from the sale of qualifying products in excess of certain thresholds , will be made quarterly through december 31 , 2025. the portion of the retention payment contingently payable to dr. akerib ( approximately $ 1.2 million ) will be recorded as compensation expense over the period that his services are provided to us . the portion of the retention payment contingently payable to the other former mikamonu shareholders ( approximately $ 1.3 million ) plus the maximum amount of the potential earnout payments totals approximately $ 38.8 million . we determined that the fair value of this contingent consideration liability was $ 5.8 million at the acquisition date . the fair value of the contingent consideration liability was determined as of the acquisition date using unobservable inputs . these inputs include the estimated amount and timing of future revenues , the probability of success ( achievement of the various contingent events ) and a risk-adjusted discount rate of approximately 14.8 % used to adjust the probability-weighted cash flows to their present value . subsequent to the acquisition date , at each reporting period , the contingent consideration liability will be re-measured at then current fair value with changes recorded in the consolidated statement of operations . changes in any of the inputs may result in significant adjustments to the recorded fair value . the amount included in other accrued expenses on the consolidated balance sheet at march 31 , 2016 was $ 5.9 million . acquisition-related costs of approximately $ 426,000 are included in selling , general and administrative expenses in the consolidated statements of operations for the fiscal year ended march 31 , 2016. the allocation of the purchase price to acquired identifiable intangible assets and goodwill was based on their estimated fair values at the date of acquisition . the fair value allocated to patents was $ 3.5 million and the fair value allocated to goodwill was $ 8.0 million . 42 story_separator_special_tag style= '' margin:0pt 0pt 10pt ; text-indent:22.5pt ; line-height:115 % ; font-family : times new roman , times , serif ; font-size : 10pt ; '' > net income ( loss ) . net loss decreased from $ 5.0 million in fiscal 2015 to $ 2.2 million in fiscal 2016. this decrease was primarily due to the changes in net revenues , gross profit and operating expenses discussed above . fiscal year ended march 31 , 2015 compared to fiscal year ended march 31 , 2014 net revenues .
| cost of revenues decreased by 8.4 % from $ 28.4 million in fiscal 2015 to $ 26.0 million in fiscal 2016. this decrease was primarily due to the corresponding decrease in net revenues , favorable product mix and reductions in variable manufacturing costs in fiscal 2016. cost of revenues included stock-based compensation expense of $ 320,000 and $ 401,000 , respectively , in fiscal 2016 and fiscal 2015. gross profit . gross profit increased by 6.4 % from $ 25.1 million in fiscal 2015 to $ 26.7 million in fiscal 2016. gross margin increased from 47.0 % in fiscal 2015 to 50.7 % in fiscal 2016. the increases in gross profit and improvements in gross margin were primarily related to favorable changes in the mix of products and customers . research and development expenses . research and development expenses increased 1.5 % from $ 11.9 million in fiscal 2015 to $ 12.1 million in fiscal 2016. this increase was primarily due to an increase in payroll 43 related expenses of $ 314,000 and lesser increases in patent related legal fees and travel related expenses , partially offset by a decrease in depreciation expense of $ 129,000 and lesser decreases in facilities related expenses , stock-based compensation expense and software maintenance expenses . payroll expenses increased as a result of our acquisition of mikamonu in november 2015 and the subsequent hiring of engineers to work on our in-place associative computing product development . research and development expenses included stock-based compensation expense of $ 858,000 and $ 941,000 , respectively , in fiscal 2016 and fiscal 2015. selling , general and administrative expenses . selling , general and administrative expenses decreased 8.2 % from $ 19.2 million in fiscal 2015 to $ 17.7 million in fiscal 2016. this decrease was primarily related to a $ 1.5 million decrease in legal fees related to the patent infringement and antitrust litigation involving cypress semiconductor corporation which was settled in may 2015 and commercial and trade secret litigation in which we
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we are focused on diversifying our merchandise assortment within our existing product categories as well as by offering potential new product categories , including proprietary , exclusive and name-brands , in an effort to increase revenues , gross profits and to grow our new and active customer base . the following table shows our merchandise mix as a percentage of total digital commerce net merchandise sales for the years indicated by product category group . certain fiscal 2017 and fiscal 2016 product category percentages in the accompanying table have been reclassified to conform to our fiscal 2018 product category groupings . replace_table_token_5_th our product strategy is to continue to develop and expand new product offerings across multiple merchandise categories based on customer demand , as well as to offer competitive pricing and special values in order to drive new customers and maximize margin dollars per minute . our core digital commerce customers — those who interact with our network and transact through television , online and mobile devices — are primarily women between the ages of 45 and 70. we also have a strong presence of male customers of similar age . we believe our customers make purchases based on our unique products , quality merchandise and value . company strategy as a multiplatform interactive video and digital commerce company , our strategy includes offering our curated assortment of proprietary , exclusive ( i.e. , products that are not readily available elsewhere ) , emerging and name-brand products . our programming is distributed through our video commerce infrastructure , which includes television access to more than 87 million homes in the united states , primarily on cable and satellite systems as well as over-the-air broadcast and over-the-top platforms . we are also focused on growing our high lifetime value customer file and growing our revenues , through social , mobile , online , and over-the-top platforms , as well as leveraging our capacity , system capability and expertise in distribution and product development to generate new business relationships . our merchandising plan is focused on delivering a balanced assortment of profitable proprietary , exclusive , emerging and name-brand products presented in an engaging , entertaining , shopping-centric format using our unique expertise in storytelling . to enhance the shopping experience for our customers , we leverage the use of predictive analytics and interactive marketing to drive personalization and relevancy to each experience . in addition , we continuously seek new methods , technologies and channels to distribute our video commerce programming beyond the television screen , including `` live on location '' entertainment and enhancing our social advertising . we believe these initiatives will position us as a multiplatform interactive video and digital commerce company that delivers a more engaging and enjoyable customer experience with product offerings and service that exceed customer expectations . our competition the video and digital commerce retail business is highly competitive , and we are in direct competition with numerous retailers , including online retailers , many of whom are larger , better financed and have a broader customer base than we do . in our television shopping and digital commerce operations , we compete for customers with other television shopping and e-commerce retailers , infomercial companies , other types of consumer retail businesses , including traditional `` brick and mortar '' department stores , discount stores , warehouse stores and specialty stores ; catalog and mail order retailers and other direct sellers . our direct competitors within the television shopping industry include qvc , inc. and hsn , inc. , which are owned by qurate retail inc. both qvc , inc. and hsn , inc. are substantially larger than we are in terms of annual revenues and customers , and the programming of each is carried more broadly to u.s. households , including high definition bands and multi-channel carriage , than our programming . multimedia commerce group , inc. , which operates jewelry television , also competes with us for customers in the jewelry category . in addition , there are a number of smaller niche retailers and startups in the television shopping arena who compete with us . we believe that our major competitors incur cable and satellite distribution fees representing a significantly 27 lower percentage of their sales attributable to their television programming than we do , and that their fee arrangements are substantially on a commission basis ( in some cases with minimum guarantees ) rather than on the predominantly fixed-cost basis that we currently have . at our current sales level , our distribution costs as a percentage of total consolidated net sales are higher than those of our competition . however , we have the ability to leverage this fixed expense with sales growth to accelerate improvement in our profitability . we anticipate continued competition for viewers and customers , for experienced television commerce and e-commerce personnel , for distribution agreements with cable and satellite systems and for vendors and suppliers - not only from television shopping companies , but also from other companies that seek to enter the television shopping and online retail industries , including telecommunications and cable companies , television networks , and other established retailers . we believe that our ability to be successful in the video and digital commerce industry will be dependent on a number of key factors , including continuing to expand our digital footprint to meet our customers ' needs , increasing the lifetime value of our customer base by a combination of growing the number of customers who purchase products from us and maximizing the dollar value of sales and profitability per customer . story_separator_special_tag vest in equal amounts on january 4 , 2020 and january 4 , 2021. the aggregate market value on the date of the award was $ 1,408,000 and is being amortized as cost of sales over the three year vendor exclusivity agreement term . compensation expense relating to the restricted stock award grant was $ 89,000 for fiscal 2018 . story_separator_special_tag 28 services and trademark licensing agreement on november 27 , 2018 , we issued warrants to fonda , inc. for 1,500,000 shares of our common stock in connection with and as consideration for entering into a services and trademark licensing agreement between our companies . under the agreement , the parties plan to develop and market one or more lines of products , including a fitness and wellness lifestyle brand . additionally , the agreement identifies jane fonda as the primary spokesperson for the brand on our television network . the parties also plan to partner with key retailers to offer a brick & mortar version of the brand . of the warrant shares issued , 500,000 have an exercise price of $ 1.05 per share representing the closing price of our stock on the date the agreement was signed . the warrants vested as to 125,000 warrant shares on the date of grant and 125,000 of the warrant shares will vest on each of the first , second and third anniversaries of the date of grant . of the warrant shares issued , 1,000,000 have an exercise price of $ 3.00 per share . these will vest in full on the date when the dollar volume-weighted average price of our common stock equals or exceeds $ 3.00 for 30 trading days . the aggregate market value on the date of the award was $ 441,000 and is being amortized as cost of sales over the three year services and trademark licensing agreement term . compensation expense relating to the warrant issuance was $ 26,000 for fiscal 2018 . sale of boston television station , wwdp and fcc broadcast license on august 28 , 2017 , we entered into two agreements with unrelated parties to sell our boston television station , wwdp , including our fcc broadcast license , for an aggregate of $ 13,500,000 . during the fiscal 2017 fourth quarter , we closed on the asset purchase agreement to sell substantially all the assets primarily related to its television broadcast station , wwdp ( tv ) , norwell , massachusetts ( the “ station ” ) , which included an intangible fcc broadcasting license asset . we recorded a pre-tax operating gain on the television station sale of $ 551,000 during the fourth quarter of fiscal 2017 upon the closing of the transaction . during the fiscal 2018 fourth quarter , we received the remainder of the sales price , which resulted from the satisfaction of the station being carried by certain designated carriers , and recorded a pre-tax operating gain of $ 665,000 upon the resolution of this gain contingency . executive & management transition costs on january 1 , 2019 , we entered into a separation and release agreement with our president in connection with her resignation , effective january 1 , 2019. on april 11 , 2018 , we entered into a transition and separation agreement with our executive vice president , chief operating officer/chief financial officer , under which his position terminated on april 16 , 2018 and he served as a non-officer employee until june 1 , 2018. on april 11 , 2018 , we announced the appointment of a new chief financial officer , effective as of april 16 , 2018. in conjunction with these executive changes as well as other executive and management terminations made during fiscal 2018 , we recorded charges to income of $ 2.1 million , which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with the company 's 2018 executive and management transition . on march 23 , 2017 , we announced the elimination of the position of senior vice president of sales & product planning . in conjunction with this executive change as well as other executive and management terminations made during fiscal 2017 , we recorded charges to income of $ 2.1 million , which relate primarily to severance payments to be made as a result of the executive officer and other management terminations and other direct costs associated with the company 's 2017 executive and management transition . on february 8 , 2016 , we announced the resignation and departure of mark bozek , our chief executive officer , and of our executive vice president - chief strategy officer and interim general counsel . on august 18 , 2016 , we announced that robert rosenblatt , was appointed permanent chief executive officer , effective immediately , and entered into an executive employment agreement with mr. rosenblatt . in conjunction with these executive changes as well as other executive and management terminations made during fiscal 2016 , we recorded charges to income of $ 4.4 million , which relate primarily to severance payments to be made as a result of the executive officer terminations and other direct costs associated with our 2016 executive and management transition . 29 results of operations the following table sets forth , for the periods indicated , certain statement of operations data expressed as a percentage of net sales . replace_table_token_6_th key operating metrics replace_table_token_7_th ( a ) the company 's most recently completed fiscal year , fiscal 2018 , ended on february 2 , 2019 , and consisted of 52 weeks . fiscal 2017 ended on february 3 , 2018 and consisted of 53 weeks . fiscal 2016 ended on january 28 , 2017 and consisted of 52 weeks . ( b ) digital net sales percentage is calculated based on net sales that are generated from our evine.com website and mobile platforms , which are primarily ordered directly online . program distribution our 24-hour television shopping programs , evine and evine too , which are distributed primarily on cable and satellite systems , reached more than 87 million homes during fiscal 2018 , fiscal 2017 and fiscal 2016 .
| impact of 53rd week in fiscal 2017 because we follow a 4-5-4 retail calendar , every five or six years we have an extra week of operations within our fiscal year , and this occurred in fiscal 2017. therefore , operations for our fourth quarter and full year fiscal 2017 have 14 and 53 weeks , as compared to operations for fourth quarter and full year fiscal 2018 which have 13 and 52 weeks . to facilitate a comparison with fiscal 2018 results , we calculated the fiscal 2017 fourth quarter results on a 13-week basis by excluding discrete items and then dividing actual q4 2017 results by 14 and multiplying the quotients by 13. fiscal 2017 results on a 52-week basis were calculated by adding our fourth quarter 13-week basis calculation to previously reported fiscal year-to-date third quarter results of operations . using this calculation , fiscal 2018 net sales decreased 6.0 % from fiscal 2017 and fiscal 2017 net sales decreased 4.8 % from fiscal 2016. fiscal 2017 net income per common share , basic and diluted , were not impacted as a result of the calculation . business development and expansion costs during fiscal 2018 , we recorded approximately $ 796,000 of incremental business development and expansion costs relating to start-up costs associated with our new product development division , including costs associated with the opening and launch of evine 's new satellite office and studio located in los angeles , california . vendor exclusivity agreement on november 23 , 2018 , we entered into a restricted stock award agreement with flageoli classic limited , llc ( “ fcl ” ) granting fcl 1,500,000 restricted shares of our common stock in connection with and as consideration for entering into a vendor exclusivity agreement with the company . the vendor exclusivity agreement grants us the exclusive right in television shopping to market , promote and sell products under the trademark of serious skincare , a successful skin-care brand with a loyal customer base , that launched on our television network on january 3 , 2019. additionally , the agreement identifies
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these statements are only predictions and involve known and unknown risks , uncertainties , and other factors that may cause our actual results , levels of activity , performance , or achievements to be materially different from any future results , levels of activity , performance , or achievements expressed or implied by such forward-looking statements . given these uncertainties , you should not place undue reliance on these forward-looking statements . also , these forward-looking statements represent our estimates and assumptions only as of the date of this report . except as otherwise required by law , we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events , conditions or circumstances on which any of our forward-looking statements are based . we qualify all of our forward-looking statements by these cautionary statements . plan of operation the company is seeking to acquire assets or shares of an entity actively engaged in business which generates revenues . the company has no particular acquisitions in mind and has not entered into any negotiations regarding such an acquisition . none of the company 's officers , directors , promoters or affiliates have engaged in any substantive contact or discussions with any representative of any other company regarding the possibility of an acquisition or merger between the company and such other company as of the date of this annual report . the board of directors intends to obtain certain assurances of value of the target entity 's assets prior to consummating such a transaction . any business combination or transaction will likely result in a significant issuance of shares and substantial dilution to present stockholders of the company . the company 's current operating plan is to continue searching for potential businesses , products , technologies and companies for acquisition and to handle the administrative and reporting requirements of a public company . to demonstrate our commitment to maintaining ethical reporting and business practices , we adopted a code of ethics and business conduct . the company has , and will continue to have , no capital with which to provide the owners of business opportunities with any significant cash or other assets . however , management believes the company will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in a publicly registered company without incurring the cost and time required to conduct an initial public offering . the owners of the acquisition candidate will , however , incur significant legal and accounting costs in connection with the acquisition of a business opportunity , including the costs of preparing form 8-k 's , 10-k 's , 10-q 's , agreements and related reports and documents . 9 liquidity and capital resources the company 's balance sheet as of december 31 , 2011 , reflects total assets of cash in the amount of $ 150. as of december 31 , 2011 , our liabilities were $ 84,479 which included $ 6 in accounts payable , $ 300 in accrued legal fees , $ 26,005 in accrued interest and $ 58,168 in a note payable to related parties . we anticipate our expenses for the next twelve months will be approximately $ 20,000. in the past we have relied on advances from our president to cover our operating costs . management anticipates that we will receive sufficient advances from our president to meet our needs through the next 12 months . however , there can be no assurances to that effect . our need for capital may change dramatically if we acquire an interest in a business opportunity during that period . at present , we have no understandings , commitments or agreements with respect to the acquisition of any business venture , and there can be no assurance that we will identify a business venture suitable for acquisition in the future . further , we can not assure that we will be successful in consummating any acquisition on favorable terms or that we will be able to profitably manage any business venture we acquire . should we require additional capital , we may seek additional advances from officers , sell common stock or find other forms of debt financing . the company has no other assets or line of credit , other than that which present management may agree to extend to or invest in the company , nor does it expect to have one before a merger is effected . the company will carry out its business plan as discussed above . the company can not predict to what extent its liquidity and capital resources will be diminished prior to the consummation of a business combination or whether its capital will be further depleted by the operating losses ( if any ) of the business entity which the company may eventually acquire . our current operating plan is to continue searching for potential businesses , products , technologies and companies for acquisition and to handle the administrative and reporting requirements of a public company . to demonstrate our commitment to maintaining ethical reporting and business practices , we adopted a code of ethics and business conduct . financial interpretation no . 48 , accounting for uncertainty in income taxes an interpretation of fasb statement no . 109 , statement of financial accounting standards ( sfas ) no . 141 ( revised 2007 ) , business combinations , sfas no . 160 , noncontrolling interests in consolidated financial statementsan amendment of arb no . 51 , sfas no . 159 , the fair value option for financial assets and financial liabilities including an amendment of fasb statement no . 115 , sfas no . 158 , employers ' accounting for defined benefit pension and other postretirement plans , sfas no . 157 , fair value measurements , sfas no . story_separator_special_tag these statements are only predictions and involve known and unknown risks , uncertainties , and other factors that may cause our actual results , levels of activity , performance , or achievements to be materially different from any future results , levels of activity , performance , or achievements expressed or implied by such forward-looking statements . given these uncertainties , you should not place undue reliance on these forward-looking statements . also , these forward-looking statements represent our estimates and assumptions only as of the date of this report . except as otherwise required by law , we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events , conditions or circumstances on which any of our forward-looking statements are based . we qualify all of our forward-looking statements by these cautionary statements . plan of operation the company is seeking to acquire assets or shares of an entity actively engaged in business which generates revenues . the company has no particular acquisitions in mind and has not entered into any negotiations regarding such an acquisition . none of the company 's officers , directors , promoters or affiliates have engaged in any substantive contact or discussions with any representative of any other company regarding the possibility of an acquisition or merger between the company and such other company as of the date of this annual report . the board of directors intends to obtain certain assurances of value of the target entity 's assets prior to consummating such a transaction . any business combination or transaction will likely result in a significant issuance of shares and substantial dilution to present stockholders of the company . the company 's current operating plan is to continue searching for potential businesses , products , technologies and companies for acquisition and to handle the administrative and reporting requirements of a public company . to demonstrate our commitment to maintaining ethical reporting and business practices , we adopted a code of ethics and business conduct . the company has , and will continue to have , no capital with which to provide the owners of business opportunities with any significant cash or other assets . however , management believes the company will be able to offer owners of acquisition candidates the opportunity to acquire a controlling ownership interest in a publicly registered company without incurring the cost and time required to conduct an initial public offering . the owners of the acquisition candidate will , however , incur significant legal and accounting costs in connection with the acquisition of a business opportunity , including the costs of preparing form 8-k 's , 10-k 's , 10-q 's , agreements and related reports and documents . 9 liquidity and capital resources the company 's balance sheet as of december 31 , 2011 , reflects total assets of cash in the amount of $ 150. as of december 31 , 2011 , our liabilities were $ 84,479 which included $ 6 in accounts payable , $ 300 in accrued legal fees , $ 26,005 in accrued interest and $ 58,168 in a note payable to related parties . we anticipate our expenses for the next twelve months will be approximately $ 20,000. in the past we have relied on advances from our president to cover our operating costs . management anticipates that we will receive sufficient advances from our president to meet our needs through the next 12 months . however , there can be no assurances to that effect . our need for capital may change dramatically if we acquire an interest in a business opportunity during that period . at present , we have no understandings , commitments or agreements with respect to the acquisition of any business venture , and there can be no assurance that we will identify a business venture suitable for acquisition in the future . further , we can not assure that we will be successful in consummating any acquisition on favorable terms or that we will be able to profitably manage any business venture we acquire . should we require additional capital , we may seek additional advances from officers , sell common stock or find other forms of debt financing . the company has no other assets or line of credit , other than that which present management may agree to extend to or invest in the company , nor does it expect to have one before a merger is effected . the company will carry out its business plan as discussed above . the company can not predict to what extent its liquidity and capital resources will be diminished prior to the consummation of a business combination or whether its capital will be further depleted by the operating losses ( if any ) of the business entity which the company may eventually acquire . our current operating plan is to continue searching for potential businesses , products , technologies and companies for acquisition and to handle the administrative and reporting requirements of a public company . to demonstrate our commitment to maintaining ethical reporting and business practices , we adopted a code of ethics and business conduct . financial interpretation no . 48 , accounting for uncertainty in income taxes an interpretation of fasb statement no . 109 , statement of financial accounting standards ( sfas ) no . 141 ( revised 2007 ) , business combinations , sfas no . 160 , noncontrolling interests in consolidated financial statementsan amendment of arb no . 51 , sfas no . 159 , the fair value option for financial assets and financial liabilities including an amendment of fasb statement no . 115 , sfas no . 158 , employers ' accounting for defined benefit pension and other postretirement plans , sfas no . 157 , fair value measurements , sfas no .
| the company anticipates that until a business combination is completed with an acquisition candidate , it will not generate revenues , and may continue to operate at a loss after completing a business combination , depending upon the performance of the acquired business . 10 off-balance sheet arrangements we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition , results of operations or liquidity . need for additional financing based upon current management 's willingness to extend credit to the company and or invest in the company until a business combination is completed , the company believes that its existing capital will be sufficient to meet the company 's cash needs required for the costs of compliance with the reporting requirements of the securities exchange act of 1934 , as amended , and for the costs of accomplishing its goal of completing a business combination , for an indefinite period of time . accordingly , in the event the company is able to complete a business combination during this period , it anticipates that its existing capital will be sufficient to allow it to accomplish the goal of completing a business combination . there is no assurance , however , that the available funds will ultimately prove to be adequate to allow it to complete a business combination , and once a business combination is completed , the company 's needs for additional financing are likely to increase substantially . in addition , as current management is under no obligation to continue to extend credit to the company and or invest in the company , there is no assurance that such credit or investment will continue or that it will continue to be sufficient for future
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in connection with the merger , zhone technologies , inc. changed its name to dasan zhone solutions , inc. our common stock continues to be traded on the nasdaq capital market , and our ticker symbol was changed from `` zhne '' to `` dzsi '' effective september 12 , 2016. at the effective time of the merger , all issued and outstanding shares of capital stock of dns held by its sole shareholder , dni , were canceled and converted into the right to receive shares of our common stock in an amount equal to 58 % of the issued and outstanding shares of our common stock immediately following the merger . accordingly , at the effective time of the merger , we issued 9,493,016 shares ( post reverse stock split ) of our common stock to dni as consideration in the merger , of which 949,302 shares ( post reverse stock split ) are being held in escrow as security for claims for indemnifiable losses in accordance with the merger agreement relating to the merger . as a result , immediately following the effective time of the merger , dni held 58 % of the outstanding shares of our common stock and the holders of our common stock immediately prior to the merger retained , in the aggregate , 42 % of the outstanding shares of our common stock . see note 2 to the consolidated financial statements set forth in part ii , item 8 of this report for additional information regarding the merger . items affecting comparability of our financial results 28 as discussed in note 2 to the consolidated financial statements set forth in part ii , item 8 of this report , the merger has been accounted for as a reverse acquisition under which dns was considered the accounting acquirer of legacy zhone . as such , our financial results for the year ended december 31 , 2016 presented in this annual report on form 10-k reflect the operating results of dns and its consolidated subsidiaries for the period commencing on the first day of the applicable period through september 8 , 2016 and the operating results of both dns and legacy zhone and their respective consolidated subsidiaries for the period september 9 through december 31 , 2016. such results are compared to the financial results of dns and its consolidated subsidiaries for the year ended december 31 , 2015. our balance sheet as of december 31 , 2016 included the fair value of the assets and liabilities of legacy zhone as of the effective date of the merger . those assets include the fair value of acquired intangible assets and goodwill . due to the foregoing , our financial results for the year ended december 31 , 2016 are not comparable to our financial results for prior years . the fourth quarter ended december 31 , 2016 was the first quarter in which our financial results reflected a full quarter of operating results for both dns and legacy zhone and their respective consolidated subsidiaries . critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . the policies discussed below are considered by management to be critical because changes in such estimates can materially affect the amount of our reported net income or loss . for all of these policies , management cautions that actual results may differ materially from these estimates under different assumptions or conditions . revenue recognition we recognize revenue when the earnings process is complete . we recognize product revenue upon shipment of product under contractual terms which transfer title to customers upon shipment , under normal credit terms , net of estimated sales returns and allowances at the time of shipment . revenue is deferred if there are significant post-delivery obligations or if the fees are not fixed or determinable . when significant post-delivery obligations exist , revenue is deferred until such obligations are fulfilled . our arrangements generally do not have any significant post-delivery obligations . if our arrangements include customer acceptance provisions , revenue is recognized upon obtaining the signed acceptance certificate from the customer , unless we can objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement prior to obtaining the signed acceptance . in those instances where revenue is recognized prior to obtaining the signed acceptance certificate , we use successful completion of customer testing as the basis to objectively demonstrate that the delivered products or services meet all the acceptance criteria specified in the arrangement . we also consider historical acceptance experience with the customer , as well as the payment terms specified in the arrangement , when revenue is recognized prior to obtaining the signed acceptance certificate . when collectability is not reasonably assured , revenue is recognized when cash is collected . we make certain sales to product distributors . these customers are given certain privileges to return a portion of inventory . return privileges generally allow distributors to return inventory based on a percent of purchases made within a specific period of time . we recognize revenue on sales to distributors that have contractual return rights when the products have been sold by the distributors , unless there is sufficient customer specific sales and sales returns history to support revenue recognition upon shipment . in those instances when revenue is recognized upon shipment to distributors , we use historical rates of return from the distributors to provide for estimated product returns . we accrue for warranty costs , sales returns and other allowances at the time of shipment based on historical experience and expected future costs . story_separator_special_tag we derive revenue primarily from stand-alone sales of our products . in certain cases , our products are sold along with services , which include education , training , installation , and or extended warranty services . as such , some of our sales have multiple deliverables . our products and services qualify as separate units of accounting and are deemed to be non-contingent deliverables as our arrangements typically do not have any significant performance , cancellation , termination and refund type provisions . products are typically considered delivered upon shipment . revenue from services is recognized ratably over the period during which the services are to be performed . for multiple deliverable revenue arrangements , we allocate revenue to products and services using the relative selling price method to recognize revenue when the revenue recognition criteria for each deliverable are met . the selling price of a deliverable is based on a hierarchy and if we are unable to establish vendor-specific objective evidence of selling price ( vsoe ) we look to third-party evidence of selling price ( tpe ) and if no such data is available , we use a best estimated selling price ( bsp ) . in most instances , particularly as it relates to products , we are not able to establish vsoe for all deliverables in an arrangement with multiple elements . this may be due to infrequently selling each element separately , not pricing products 29 within a narrow range , or only having a limited sales history . when vsoe can not be established , we attempt to establish the selling price of each element based on tpe . generally , our marketing strategy differs from that of our peers and our offerings contain a significant level of customization and 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 . therefore , we are typically not able to determine tpe for our products . when we are unable to establish selling price using vsoe or tpe , we use bsp . the objective of bsp is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis . the bsp of each deliverable is determined using average discounts from list price from historical sales transactions or cost plus margin approaches based on the factors , including but not limited to our gross margin objectives and pricing practices plus customer and market specific considerations . we have established tpe for our training , education and installation services . these service arrangements are typically short term in nature and are largely completed shortly after delivery of the product . tpe is determined based on competitor prices for similar deliverables when sold separately . training and education services are based on a daily rate per person and vary according to the type of class offered . installation services are based on daily rate per person and vary according to the complexity of the products being installed . extended warranty services are priced based on the type of product and are sold in one to five year durations . extended warranty services include the right to warranty coverage beyond the standard warranty period . in substantially all of the arrangements with multiple deliverables pertaining to arrangements with these services , we have used and intend to continue using vsoe to determine the selling price for the services . we determine vsoe based on our normal pricing practices for these specific services when sold separately . allowances for sales returns and doubtful accounts we record an allowance for sales returns for estimated future product returns related to current period product revenue . the allowance for sales returns is recorded as a reduction of revenue and an allowance against our accounts receivable . we base our allowance for sales returns on periodic assessments of historical trends in product return rates and current approved returned products . if the actual future returns were to deviate from the historical data on which the reserve had been established , our future revenue could be adversely affected . we record an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments for amounts owed to us . the allowance for doubtful accounts is recorded as a charge to general and administrative expenses . we base our allowance on periodic assessments of our customers ' liquidity and financial condition through analysis of information obtained from credit rating agencies , financial statement reviews and historical collection trends . additional allowances may be required in the future if the liquidity or financial condition of our customers deteriorates , resulting in impairment in their ability to make payments . inventories inventories are stated at the lower of cost or market , with cost being determined using the first-in , first-out ( fifo ) method . in assessing the net realizable value of inventories , we are required to make judgments as to future demand requirements and compare these with the current or committed inventory levels . once inventory has been written down to its estimated net realizable value , its carrying value can not be increased due to subsequent changes in demand forecasts . to the extent that a severe decline in forecasted demand occurs , or we experience a higher incidence of inventory obsolescence due to rapidly changing technology and customer requirements , we may incur significant charges for excess inventory . goodwill and other acquisition-related intangible assets goodwill and other acquisition-related intangible assets not subject to amortization are tested annually for impairment using a two-step approach , 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 .
| this increase was partially offset by a decrease in product revenue resulting from the decrease in sales to certain customers in korea . international net revenue decreased 3 % or $ 3.4 million to $ 131.4 million for 2016 compared to $ 134.8 million for 2015 , and represented 87 % of total net revenue compared with 97 % in 2015 . the decrease in international net revenue was primarily due to a decrease in sales to certain customers in korea , which resulted in a decrease in net revenue from korea of 32 % or $ 36.8 million compared to the prior year period . this decrease was partially offset by the consummation of the merger in september 2016 , which resulted in the inclusion of international net revenue from the legacy zhone business in 2016 for the period from and after the consummation of the merger , primarily relating to sales in latin america , europe and the middle east . net revenue from north america increased 330 % or $ 14.5 million to $ 18.9 million in 2016 compared to $ 4.4 million in 2015 . this increase was primarily due to the consummation of the merger in september 2016 , which resulted in the inclusion of net revenue related to the legacy zhone business in north america in 2016 for the period from and after the consummation of the merger . for the year ended december 31 , 2016 , three customers represented 16 % , 14 % and 10 % of net revenue , respectively . for the year ended december 31 , 2015 , four customers represented 26 % , 21 % , 17 % ( a related-party ) and 10 % of net revenue , respectively . we anticipate that our results of operations in any given period may depend to a large extent on sales to a small number of large accounts . as a result , our revenue for any quarter may be subject to significant volatility based upon changes in orders from one or a
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we communicated our intent to strengthen our financial profile and generate additional consolidated adjusted ebitda of $ 250 to $ 275 million over the three years ending with our fiscal year ending june 30 , 2018 ( `` fiscal 2018 '' ) . we also intend to achieve consolidated net earnings attributable to cdk margin of 13 % -17 % , or consolidated adjusted ebitda margin between 35-36 % for fiscal 2018. during fiscal 2017 , we executed against this goal by expanding margin on consolidated net earnings attributable to cdk by 200 basis points to 13.3 % and expanding consolidated adjusted ebitda margin by 550 basis points to 32.1 % . as we execute the business transformation plan , we continually monitor , evaluate and refine its structure , including its design , goals , term and estimate of total restructuring expenses . as part of this process , during the second quarter of fiscal 2017 , we extended the business transformation plan by one year through the fiscal year ending june 30 , 2019 ( `` fiscal 2019 '' ) , and updated our target of additional consolidated adjusted ebitda generated to approximately $ 300 million through fiscal 2019. we also announced our intent to generate a targeted adjusted ebitda exit margin of 40 % or above for fiscal 2019. the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the united states ( “ gaap ” ) . see `` results of operations - non-gaap measures '' for a discussion regarding our use of non-gaap measures and a reconciliation of our non-gaap measures to the nearest gaap measures . the fiscal 2019 business transformation plan targets represent financial objectives distinct from forecasts of performance . therefore , we have not provided a reconciliation of our fiscal 2019 adjusted ebitda margin exit targets to the most directly 32 comparable gaap measure of net earnings attributable to cdk , because projecting potential adjustments to gaap results for the fiscal 2019 target is not practical and could be misleading to users of this financial information . the ebitda reconciliation disclosed under `` results of operations - non-gaap measures '' is indicative of the reconciliations that will be prepared for the same fiscal 2019 adjusted measures in the future . we estimate the cost to execute the plan through fiscal 2019 to be approximately $ 225 million to $ 250 million comprised of approximately $ 70 million of restructuring expense and approximately $ 155 million to $ 180 million of other expenses to implement the business transformation plan . we will continue to evaluate our estimate of expenses and the allocation of those expenses as we execute the business transformation plan . restructuring expenses associated with the business transformation plan included employee-related costs , which represent severance and other termination-related benefits , and contract termination costs , which include costs to terminate facility leases . we recognized $ 18.4 million , $ 20.2 million , and $ 2.4 million of restructuring expenses for fiscal year ending june 30 , 2017 ( `` fiscal 2017 '' ) , 2016 and 2015 , respectively . since the inception of the business transformation plan , we have recognized cumulative restructuring expenses of $ 41.0 million . restructuring expenses are presented separately on the consolidated and combined statements of operations . restructuring expenses are recorded in the other segment , as these initiatives are predominantly centrally directed and are not included in internal measures of segment operating performance . accruals for restructuring expenses were included within accrued expenses and other current liabilities on the consolidated balance sheets as of june 30 , 2017 and 2016. the following table summarizes the activity for the restructuring accrual for fiscal 2017 and 2016 : replace_table_token_4_th our business transformation plan included a goal to close by the end of fiscal 2018 , 18 of the 41 north american facilities that we occupied as of june 30 , 2015. we have exceeded our goal and closed 20 north american facilities as of the end of fiscal 2017. in addition to the restructuring expenses discussed above , we expect to incur additional costs to implement the business transformation plan , including consulting , training , and transition costs . we may also incur accelerated depreciation and or amortization expenses if the expected useful lives of our assets are adjusted . while these costs are directly attributable to our business transformation plan , they are not included in restructuring expenses on our consolidated and combined statements of operations . we recognized $ 80.6 million , $ 39.7 million , and $ 1.9 million of other business transformation expenses for fiscal 2017 , 2016 and 2015 , respectively . since the inception of the business transformation plan in the fourth quarter of fiscal 2015 , we have recognized cumulative other business transformation expenses of $ 122.2 million . in december 2015 , we announced our intent to return $ 1.0 billion to our stockholders in the form of dividends and share repurchases . in december 2016 , we completed the $ 1.0 billion return of capital plan . in february 2017 , we announced our intent to return $ 750 million to $ 1.0 billion of capital to shareholders per calendar year through 2019 through a combination of dividends and share repurchases . we believe that the execution of our business transformation plan will result in increased earnings , which will drive free cash flow ( the amount of cash generated from operating activities less capital expenditures and capitalized software ) . we intend to continue to return free cash flow to our stockholders as our business transformation plan progresses . our new return of capital plan is expected to be funded through a combination of free cash flow and incremental borrowings intended to bring leverage , measured as financial debt , net of cash , divided by adjusted ebitda , to a range of 2.5x to 3.0x over the period . 33 sources of revenues and expenses revenues . we generally receive fee-based revenue by providing services to customers . story_separator_special_tag in our rsna segment , we have the following sources of revenue : subscription : for software and technology solutions provided to automotive retailers and oems , which includes : dealer management systems ( “ dmss ” ) and layered applications , which may be installed onsite at the customer 's location , or hosted and provided on a software-as-a-service ( `` saas '' ) basis , including ongoing maintenance and support ; interrelated services such as installation , initial training , and data updates ; websites , search marketing , and reputation management services ; and hardware on a service basis , meaning no specific assets are identified or a substantive right of substitution exists . transaction : fees per transaction to process credit reports , vehicle registrations , and automotive equity mining . other : consulting and professional services , sales of hardware , and other miscellaneous revenues . in our ana segment , revenues are primarily earned for placing internet advertisements for oems and automotive retailers . cdki revenues are generated primarily from subscription revenue as described above , aside from the absence of website offerings . expenses . expenses generally relate to the cost of providing services to customers in the three reportable segments . in the rsna and cdki segments , significant expenses include employee payroll and other labor-related costs , the cost of hosting customer systems , third-party costs for transaction-based solutions and licensed software utilized in our solution offerings , computer hardware , software , telecommunications , transportation and distribution costs , third-party content for website offerings , the cost of hosting customer websites , computer hardware , software , and other general overhead items . in the ana segment , significant expenses include third-party internet-based advertising placements , employee payroll and other labor-related costs , computer hardware , software , and other general overhead items . we also have some company-wide expenses attributable to management compensation and corporate overhead . potential material trends and uncertainties in our marketplace a number of material trends and or uncertainties in our marketplace could have either a positive or negative impact on our ability to conduct business , our results of operations , and or our financial condition . the following is a summary of trends or uncertainties that have the potential to affect our liquidity , capital resources , or results of operations : our revenues , operating earnings , and profitability have varied in the past as a result of these trends and uncertainties and are likely to continue to vary from quarter to quarter , which may lead to volatility in our stock price . these trends or uncertainties could occur in a variety of different areas of our business and the marketplace . changing market trends , including changes in the automotive marketplace , both in north america and internationally , could have a material impact on our business . from time to time , the economic trends of a region could have an impact on the volume of automobiles sold at retail within one or more of the geographic markets in which we operate . to some extent , our business is impacted by these trends , either directly through a shift in the number of transactions processed by customers of our transactional business , or indirectly through changes in our customers ' spending habits based on their own changes in profitability . our presence in multiple markets internationally could pose challenges that would impact our business or results of operations . we currently operate in over 100 countries and derive a significant amount of our overall revenues from markets outside of north america . the geographic breadth of our presence exposes us to potential economic , social , regulatory , and political shifts . our ability to bring new solutions to market , research and develop , or acquire the data and technology that enables those solutions is important to our continued success . in addition , our strategy includes the selective pursuit of acquisitions that support or complement our existing technology and solution set . an inability to invest in the 34 continued development of new solutions for the automotive marketplace , or an inability to acquire new technology or solutions due to a lack of liquidity or resources , could impair our strategic position . along with our development and acquisition expenditures , our success depends on our ability to maintain the security of our data and intellectual property , as well as our customers ' data . although we maintain a clear focus on data and system security , and we incur significant costs securing our infrastructure annually in support of that focus , we may experience interruptions of service or potential security issues that may be beyond our control . factors affecting comparability of financial results our spin-off from adp on april 9 , 2014 , the board of directors of adp approved the spin-off of the dealer services business of adp dealer services . on september 30 , 2014 , the spin-off became effective and adp distributed 100 % of the common stock of the company to the holders of record of adp 's common stock as of september 24 , 2014 ( the `` spin-off '' ) . historical adp cost allocations versus cdk as a stand-alone company our historical combined financial statements were prepared in accordance gaap . fiscal 2015 financial statements include the combined results of operations of the dealer services business of adp , which was the subject of the spin-off . the combined financial statements include allocated costs for facilities , functions , and services used by the company at shared adp sites and costs for certain functions and services performed by centralized adp organizations and directly charged to the company based on usage . as a division of adp , we were historically managed by the senior management of adp . the historical allocation of adp 's expenses to the company was , in certain circumstances , less than the actual costs we incur as an independent public company .
| by adjusting for these items we believe we have more precise inputs for use as factors in ( i ) our budgeting process , ( ii ) making financial and operational decisions , ( iii ) evaluating ongoing segment and overall operating performance on a consistent period-to-period basis , ( iv ) target leverage calculations , ( v ) debt covenant calculations , and ( vi ) determining incentive-based compensation . we believe our non-gaap financial measures are useful for users of the financial statements because they ( i ) provide investors with meaningful supplemental information regarding financial performance by excluding certain items , ( ii ) permit investors to view performance using the same tools that management uses , and ( iii ) otherwise provide supplemental information that may be useful to investors in evaluating our ongoing operating results on a consistent basis . we believe that the presentation of these non-gaap financial measures , when considered together with the corresponding gaap financial measures and the reconciliations to those measures disclosed below , provides investors with a fuller understanding of the factors and trends affecting our business than could be obtained absent these disclosures . we review revenues and adjusted earnings before income taxes on a constant currency basis to understand underlying business trends . to present these results on a constant currency basis , current period results for entities reporting in currencies other than the u.s. dollar were translated into u.s. dollars using the average monthly exchange rates for the comparable prior period . as a result , constant currency results neutralize the effects of foreign currency . segment reporting effective july 1 , 2016 , our new operating segments are comprised of retail solutions north america , advertising north america , and cdk international . we have revised prior period segment data to conform to the new segment reporting structure . in addition , we have an other segment , the primary components of which are corporate allocations and other expenses not recorded in the segment results . we also review segment results on a constant currency basis to understand underlying business trends . to present these results on a constant currency basis , current period results for entities reporting in currencies other than the u.s. dollar were translated into u.s. dollars using the average monthly exchange rate for the comparable prior period .
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the year-over-year projections do not reflect the potential impact of fuel and oil expense , profitsharing expense , and special items in both years because the company can not reliably predict or estimate those items or expenses or their impact to its financial statements in future periods , especially considering the significant volatility of the fuel and oil expense line item . accordingly , the company believes a reconciliation of non–gaap financial measures to the equivalent gaap financial measures for projected results is not meaningful or available without unreasonable effort . the company currently expects to record a charge during 2017 associated with the grounding of its remaining classic fleet . see note 1 to the consolidated financial statements for further information . this charge primarily relates to future contractual payments due to lessors for leased classic aircraft with lease terms extending beyond third quarter 2017. the company continues to negotiate with these lessors in order to attempt to terminate certain leases early and potentially buy-out the remainder of the lease . therefore , the company can not yet accurately predict the amounts and or timing of such charges during the first three quarters of 2017. salaries , wages , and benefits expense for 2016 increase d $ 415 million , or 6.5 percent , compared with 2015 . salaries , wages , and benefits expense per asm for 2016 increased 0.7 percent , compared with 2015 . on both a dollar and per asm basis , the increase was primarily due to wage rate increases as a result of agreements reached with multiple workgroups , increased training , additional headcount , and contractual increases . based on current cost trends and anticipated capacity , the company expects first quarter 2017 salaries , wages , and benefits expense per asm , excluding profitsharing expense , to increase , compared with first quarter 2016 . the year-over-year projection does not reflect the potential impact of profitsharing expense in both years because the company can not reliably predict or estimate that expense or its impact to the company 's financial statements in future periods . accordingly , the company believes a reconciliation of non-gaap financial measures to the equivalent gaap financial measures for projected results is not meaningful or available without unreasonable effort . 39 during 2016 , the company conducted negotiations with various unionized employee groups . see the above discussion in company overview for agreements reached during the year . the following table sets forth the company 's unionized employee groups that are currently in negotiations on collective-bargaining agreements : employee group approximate number of employees representatives amendable date southwest material specialists ( formerly known as stock clerks ) 300 international brotherhood of teamsters , local 19 ( “ ibt 19 ” ) august 2013 southwest mechanics 2,400 aircraft mechanics fraternal association ( “ amfa ” ) august 2012 southwest facilities maintenance technicians 40 amfa n/a fuel and oil expense for 2016 increase d by $ 31 million , or 0.9 percent , compared with 2015 . on a per asm basis , fuel and oil expense for 2016 decrease d 4.7 percent , compared with 2015 , as the dollar increase s were more than offset by the 5.7 percent increase in capacity . on a dollar basis , the increase was attributable to the $ 566 million increase in net losses resulting from the company 's fuel hedging program . excluding the impact of hedging , fuel and oil expense would have decreased by $ 535 million , or 15.9 percent , compared with 2015 , due to lower market jet fuel prices . 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 . the company 's average economic jet fuel price per gallon decrease d 7.2 percent year-over-year , from $ 2.07 for 2015 to $ 1.92 for 2016 . fuel gallons consumed increase d 5.0 percent , compared with 2015 , while year-over-year capacity increase d 5.7 percent . as a result of the company 's fuel hedging program , the company recognized net losses totaling $ 820 million in fuel and oil expense for 2016 , compared with net losses totaling $ 254 million for 2015 . these totals include cash settlements realized from the settlement of fuel derivative contracts associated with the company 's `` economic '' fuel hedge totaling $ 1.0 billion paid to counterparties for 2016 , compared with $ 577 million paid to counterparties for 2015 . additionally , these totals exclude gains and or losses recognized from hedge ineffectiveness and from derivatives that did not qualify for hedge accounting . those items are recorded as a component of other ( gains ) losses , net . see note 10 to the consolidated financial statements . as of january 20 , 2017 , on an economic basis , the company had derivative contracts in place related to expected future fuel consumption as follows : replace_table_token_10_th ( 1 ) 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 . the company believes its coverage related to first quarter 2017 is best reflected within the jet fuel forecast price sensitivity table provided below . see note 10 to the consolidated financial statements for further information . as a result of applying hedge accounting in prior periods , including related to hedge positions that have either been offset or settled early on a cash basis , the company has amounts “ frozen ” in accumulated other comprehensive income ( loss ) ( “ aoci ” ) , and these amounts will be recognized in earnings in future periods when the underlying fuel derivative contracts settle . story_separator_special_tag the following table displays the company 's estimated fair value of remaining fuel derivative contracts 40 ( 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 , 2016 , and the expected future periods in which these items are expected to settle and or be recognized in earnings ( in millions ) : replace_table_token_11_th based on forward market prices and the amounts in the above table ( and excluding any other subsequent changes to the fuel hedge portfolio ) , the company 's jet fuel costs per gallon could exceed market ( i.e. , unhedged ) prices during some of these future periods . this is based primarily on expected future cash settlements associated with fuel derivatives , but excludes any impact associated with the ineffectiveness of fuel hedges or fuel derivatives that are marked to market because they do not qualify for hedge accounting . see note 10 to the consolidated financial statements for further information . 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 payments related to hedges that will settle , the company is providing the below sensitivity table for first quarter 2017 and full year 2017 jet fuel prices at different crude oil assumptions as of january 20 , 2017 , and for expected premium costs associated with settling contracts each period , respectively . replace_table_token_12_th ( 1 ) brent crude oil average market prices as of january 20 , 2017 , were approximately $ 56 and $ 57 per barrel for first quarter 2017 and full year 2017 , respectively . ( 2 ) 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 20 , 2017 . economic fuel cost projections do not reflect the potential impact of special items because the company can not reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets or the impact to its financial statements in future periods . accordingly , the company believes a reconciliation of non-gaap financial measures to the equivalent gaap financial measures for projected results is not meaningful or available without unreasonable effort . ( 3 ) fuel hedge premium expense is recognized as a component of other ( gains ) losses , net . maintenance materials and repairs expense for 2016 increase d by $ 40 million , or 4.0 percent , compared with 2015 . on a per asm basis , maintenance materials and repairs expense for 2016 decrease d 2.8 percent , compared with 2015 , as the dollar increases were more than offset by the 5.7 percent increase in capacity . on a dollar basis , the majority of the increase was attributable to the timing of regular maintenance checks and ongoing cabin refresh projects including updates for the company 's new heart cabin interior . these increases were partially offset by lower engine expense as a result of the early retirement of the classic fleet , as this decrease in engine repairs was only partially offset by higher 737-700 engine expense due to increased flight hours . the company currently expects maintenance materials and repairs expense per asm for first quarter 2017 to be comparable with fourth quarter 2016 unit cost of 0.66 cents . 41 aircraft rentals expense for 2016 decrease d by $ 9 million , or 3.8 percent , compared with 2015 . on a per asm basis , aircraft rentals expense decrease d 11.8 percent , compared with 2015 . on both a dollar and per asm basis , the decrease was primarily due to the retirement of five 737-300 leased aircraft and two 737-500 leased aircraft since 2015 , as well as the purchase of five leased 737-300s that were previously on operating lease during 2016 . see the accompanying note regarding use of non-gaap financial measures for further information . the company currently expects aircraft rentals expense per asm for first quarter 2017 to be comparable with fourth quarter 2016 unit cost of 0.15 cents . landing fees and other rentals expense for 2016 increase d by $ 45 million , or 3.9 percent , compared with 2015 . on a per asm basis , landing fees and other rentals expense for 2016 decrease d 1.2 percent , compared with 2015 , as the dollar increases were more than offset by the 5.7 percent increase in capacity . on a dollar basis , approximately 70 percent of the increase was due to higher space rental rates and usage at various airports . the remainder was due to a 3.5 percent increase in trips flown coupled with heavier landing weights for the company 's higher capacity 737-800 aircraft , which now make up a larger portion of the company 's fleet than in 2015 . the company currently expects landing fees and other rentals expense per asm for first quarter 2017 to be comparable with first quarter 2016 . depreciation and amortization expense for 2016 increase d by $ 206 million , or 20.3 percent , compared with 2015 . on a per asm basis , depreciation and amortization expense increase d 13.9 percent , compared with 2015 . on both a dollar and per asm basis , approximately 60 percent of the increase was due to the accelerated depreciation expense resulting from a change in the estimated retirement dates of many of the company 's owned classic fleet from mid-2021 to third quarter 2017. the remainder of the increase was due to the purchase and capital lease of new and used aircraft since 2015 .
| see the company 's calculation of roic in the accompanying reconciliation tables as well as the note regarding use of non-gaap financial measures . during 2016 , the company continued to return significant value to its shareholders . the company returned a record $ 2.0 billion to shareholders through a combined $ 222 million in dividend payments and $ 1.75 billion through five separate accelerated share repurchase programs . during november 2016 , the company launched the fourth quarter 2016 asr program by advancing $ 300 million to a financial institution in a privately negotiated transaction . during december 2016 , the company received an initial delivery of 4.7 million shares of common stock , representing an estimated 75 percent of shares to be purchased by the company under the fourth quarter 2016 asr program . the specific number of shares that the company ultimately will repurchase under the fourth quarter 2016 asr program will be determined based generally on a discount to the volume-weighted average price per share of the company 's common stock during a calculation period to be completed in february 2017. the purchase was recorded as a treasury share purchase for purposes of calculating earnings per share . see part ii , item 5 for further information on the company 's share repurchase authorizations . 36 company overview during 2016 , the company began scheduled service to long beach , california and scheduled service to three cuban cities : havana , varadero , and santa clara . with the addition of these new markets , the company now serves 101 cities across nine countries and operates over 3,900 departures a day . also in january 2017 , the company filed an application with the dot to serve owen roberts international airport in grand cayman , and announced plans to launch service to cincinnati/northern kentucky international airport , both scheduled to begin in june 2017. the company plans to continue its route network and schedule optimization efforts through the addition of new markets and itineraries , while also pruning less profitable flights from its schedule . the company currently plans to grow
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each unit consisted of one share of our common stock , one class a warrant to purchase one share of our common stock at an exercise price of $ 4.55 per share and one class b warrant to purchase one-half share of our common stock at an exercise price of $ 3.90 per full share . the class a warrants expire on october 20 , 2018 and the class b warrants expire on april 20 , 2017. the closing of the ipo resulted in the sale of 4,000,000 units at an initial public offering price of $ 6.50 per unit for gross proceeds of $ 26.0 million . the net proceeds of the ipo , after underwriting discounts , commissions and expenses , and before offering expenses , were approximately $ 23.6 million . on november 13 , 2015 , the units separated into shares of our common stock , class a warrants and class b warrants and began trading separately on the nasdaq capital market . on november 23 , 2015 , the underwriter of the ipo exercised its over-allotment option for 20,000 shares of our common stock , 551,900 class a warrants to purchase one share of our common stock and 551,900 class b warrants to purchase one-half share of our common stock for additional gross proceeds of $ 135,319. the common stock and accompanying class a warrants and class b warrants have been classified within stockholders ' equity ( deficit ) in the accompanying balance sheet . underwriter 's unit purchase option the underwriter of the ipo received , for $ 100 in the aggregate , a unit purchase option , or the upo , to purchase up to a total of 40,000 units ( or 1 % of the units sold in the ipo ) exercisable at $ 7.48 per unit ( or 115 % of the public offering price per unit in the ipo ) . the units underlying the upo will be , immediately upon exercise , separated into shares of our common stock , underwriters ' class a warrants and underwriters ' class b warrants ( such warrants together referred to as the underwriters ' warrants ) such that , upon exercise , the holder of a upo will not receive actual units but will instead receive the shares of our common stock and underwriters ' warrants , to the extent that any portion of the underwriters ' warrants underlying such units have not otherwise expired . the exercise prices of the underwriters ' class a warrants and underwriters ' class b warrants underlying the upo are $ 5.23 and $ 4.49 , respectively . the upo may be exercised for cash or on a cashless basis , at the holder 's option , and expires on october 14 , 2020 ; provided , that , following the expiration of underwriters ' class b warrants on april 20 , 2017 , the upo will be exercisable only for shares of common stock and underwriters ' class a warrants at an exercise price of $ 7.475 per unit ; provided further , that , following the expiration of underwriters ' class a warrants on october 20 , 2018 , the upo will be exercisable only for shares of common stock at an exercise price of $ 7.47. we have classified the upo as a liability as it is a freestanding marked-to-market derivative instrument precluded from being classified in stockholders ' equity . the fair value of the upo is re-measured each reporting period and the change in fair value is recognized in the statement of operations . 83 resignation of former chief executive officer on december 17 , 2015 , dr. blake paterson resigned as our president and chief executive officer and as a member of our board of directors , in each case effective december 31 , 2015. we entered into a separation agreement with dr. paterson pursuant to which we agreed to pay dr. paterson severance payments in accordance with his existing employment agreement , including severance payments equal to his last base salary of $ 415,000 for a period of twelve months , as well as an annual bonus for the year ended december 31 , 2015 in the amount of $ 207,500 and an additional payment in the amount of $ 112,500. the severance payments were included as part of general and administrative expenses for the year ended december 31 , 2015 in the accompanying statement of operations . on december 20 , 2015 , dr. uli hacksell , chairman of cerecor , was appointed chief executive officer and president , effective january 1 , 2016. components of operating results revenue we have not generated any revenue from commercial product sales to date . we will not generate any commercial revenue , if ever , until one of our product candidates receives marketing approval and we successfully commercialize such product candidates . research and development expenses our research and development expenses consist primarily of costs incurred developing , testing and seeking marketing approval for our product candidates . these costs include both external costs , which are study ‑specific costs , and internal research and development costs , which are not directly allocated to our product candidates . external costs include : · expenses incurred under agreements with third ‑party contract research organizations , or cros , and investigative sites that conduct our clinical trials , preclinical studies and regulatory activities ; · payments made to contract manufacturers for drug substance and acquiring , developing and manufacturing clinical trial materials ; and · payments related to acquisitions of our product candidates and preclinical platform and milestone payments . internal costs include : · personnel ‑related expenses , including salaries , benefits and stock ‑based compensation expense ; · consulting costs related to our internal research and development programs ; · allocated facilities , depreciation and other expenses , which include rent and utilities , as well as other supplies ; and · product liability insurance . research and development costs are expensed as incurred . story_separator_special_tag we record costs for some development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our vendors . 84 we track external costs by discovery program and subsequently by product candidate once a product candidate has been selected for development . product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development , primarily due to the increased size and duration of the clinical trials . as we advance our product candidates through clinical development , we expect that the amount of our research and development spending allocated to external spending relative to internal spending will continue to grow for the foreseeable future , while our internal research and development spending should grow at a slower and more controlled pace . during december 2014 and the first quarter of 2015 , our research and development headcount was reduced by seven employees due to voluntary terminations . we hired and used consultants as needed to assist with our ongoing clinical trials of cerc-301 and cerc-501 . as of december 31 , 2015 , we had seven full ‑time employees whom were primarily engaged in research and development . we anticipate that our research and development costs , including the need to hire additional research and development employees , will increase in 2016 and beyond . general and administrative expenses general and administrative expenses consist primarily of professional fees , patent costs and salaries , benefits and related costs for executive and other personnel , including stock ‑based compensation and travel expenses . other general and administrative expenses include facility ‑related costs , communication expenses and professional fees for legal , including patent ‑related expenses , consulting , tax and accounting services , insurance , depreciation and general corporate expenses . we anticipate that our general and administrative expenses will increase in the future with continued research , development and potential commercialization of our existing and future product candidates and expanded compliance obligations of operating as a public company . these increases will likely include greater costs for insurance , costs related to the hiring of additional personnel , payments to outside consultants and investor relations providers , and costs for legal and accounting professionals , among other expenses . additionally , if and when we believe a marketing approval of a product candidate appears likely , we anticipate an increase in payroll and expense as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidates . change in fair value of warrant liability , unit purchase option liability and investor rights obligation in connection with the issuance of our term debt facility in august 2014 , we issued warrants to purchase 625,208 shares of series b convertible preferred stock . upon the closing of our ipo , these warrants became warrants to purchase 22,328 shares of common stock , in accordance with its terms . these warrants represent a freestanding financial instrument that is indexed to an obligation , which we refer to as the warrant liability . these warrants are classified as a liability at fair value . this liability is remeasured at each balance sheet date and the change in fair value is recorded within our statement of operations . our obligation to issue additional shares of our series b preferred stock as part of the series b preferred stock offering was accounted for as a freestanding financial instrument , which we referred to as the investor rights obligation . the investor rights obligation expired upon the closing of our initial public offering in accordance with its terms , and the related liability was reduced to zero at that time . the gain on the change in fair value was recorded within our statement of operations for the year ended december 31 , 2015. as part of our initial public offering , the underwriter of our initial public offering received a unit purchase option , or upo , to purchase up to 40,000 units , whereby a unit is comprised of one share of our common stock , one class a warrant to purchase one share of our common stock and one class b warrant to purchase one-half share of our common stock . the upo is classified as a liability at its respective fair value . this liability is remeasured at each balance sheet date and the change in fair value is recorded within our statement of operations . 85 interest income ( expense ) , net interest expense is primarily related to interest payments pursuant to the terms of our term debt facility entered into in august 2014 , as well as the amortization of the debt discounts and premiums and deferred financing fees in connection with such term debt facility . interest income consists principally of interest earned on our cash and cash equivalent balances . critical accounting policies and significant judgments and estimates this discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states of america , or gaap . the preparation of these financial statements requires us 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 the reported amounts of revenue and expenses during the reported period . in accordance with gaap , we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . on an ongoing basis , we evaluate our estimates and assumptions , including those related to clinical and preclinical trial expenses and stock ‑based compensation . actual results may differ from these estimates under different assumptions or conditions .
| legal , consulting and other professional expenses decreased by $ 0.5 million , driven by the write-off of deferred offering costs in 2014 of $ 1.1 million when we had determined that our initial public offering was no longer probable of being consummated at such time , offset by increases in board member fees , d & o insurance expense , recruiting expense , accounting and audit fees , legal fees and consulting expenses totaling $ 0.6 million , primarily as a result of becoming a public company in 2015. salaries , benefits and related costs increased by $ 0.7 million , which was driven by $ 0.5 million of accrued severance expense due to the resignation of our former ceo . change in fair value of warrant liability , unit purchase option liability and investor rights obligation we recognized a gain on the change in fair value of our warrant liability , unit purchase option liability and investor rights obligation of $ 1.3 million during the year ended december 31 , 2015 compared to a gain of $ 2.3 million during the year ended december 31 , 2014. the $ 1.3 million gain on the change in fair value in 2015 is driven by the expiration of the investor rights obligation in october 2015 upon the closing of our initial public offering . the $ 2.3 million gain on the change in fair value in 2014 was driven by the issuance of warrants for shares of series b convertible preferred stock and the investor rights obligation and their respective changes in fair value during the year due to the gain recognized from marking the warrants for shares of series a ‑1 convertible preferred stock to market . interest expense , net net interest expense decreased by $ 0.4 million for the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the decrease is primarily due to the interest on the convertible promissory notes and demand notes we entered into in 2014. the convertible promissory notes and demand notes converted to series b convertible preferred stock upon the completion of the series b convertible preferred stock equity offering , and
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the company shall pay interest on the aggregate unconverted and then outstanding principal amount of the 2014 debentures at the rate of 8 % per annum , payable quarterly on january 1 , april 1 , july 1 and october 1 , beginning on october 1 , 2014. interest is payable in cash or at the company 's option in shares of common stock , provided certain terms and conditions are met as more fully described in the 2014 debentures . on each of october 1 , 2015 and january 1 , 2016 , the company is obligated to redeem an amount equal to $ 998,925 and on april 1 , 2016 , an amount equal to $ 1,997,850 , plus accrued but unpaid interest , liquidated damages and any other amounts then owing in respect of the 2014 debentures ( as to each of the forgoing periodic redemptions , each a “ periodic redemption amount ” ) . in lieu of a cash redemption and subject to the company meeting certain equity conditions described in the 2014 debentures , the company may elect to pay the periodic redemption amount in shares on the terms set forth in the 2014 debentures . 21 upon any event of default ( as defined in the debenture ) , the outstanding principal amount of the debenture , plus liquidated damages , interest , a premium of 30 % and other amounts owing in respect thereof through the date of acceleration , shall become , at the 2014 holders ' election , immediately due and payable in cash . commencing five days after the occurrence of any event of default , the interest rate on the debenture shall accrue at an interest rate equal to the lesser of 18 % per annum or the maximum rate permitted under applicable law . the 20014 debentures contain anti-dilution protective provisions as described therein . the company is subject to compliance with certain covenants under the 2014 debentures as set forth therein . the 2014 warrants may be exercised at any time on or after april 10 , 2014 and on or prior to the close of business on april 10 , 2019 , at an exercise price of $ .275 per share , subject to adjustment upon certain events . the 2014 warrants contain anti-dilution protective provisions and limitations on exercise as described therein . to secure the company 's obligations under the 2014 debentures , the company 's wholly-owned subsidiary , sg building blocks , inc. ( “ sg building ” ) , entered into a subsidiary guarantee , dated as of april 10 , 2014 ( the “ guarantee ” ) , pursuant to which it unconditionally and irrevocably guaranteed the prompt and complete payment and performance when due of the obligations arising from the 2014 debentures . the company and sg building have each granted the 2014 holders a security interest in their assets to secure the payment , performance and discharge in full of all of the company 's obligations under the 2014 debentures and the guarantor 's obligations under the guarantee , in accordance with that certain security agreement , dated as of april 10 , 2014. with respect to the existing debenture , sold in 2012 and 2013 , at any time after such issuance until the debentures are no longer outstanding , the debentures are convertible , in whole or in part , into shares of common stock of the company at the option of the holder , subject to certain conversion limitations set forth in the existing debenture . the initial conversion price for the existing debenture was $ 0.43 per share , subject to adjustments upon certain events , as set forth in the existing debenture . the company shall pay interest on the outstanding principal amount of the debenture that has not been converted , at the rate of 8 % per annum , payable quarterly on july 1 , october 1 , january 1 and april 1 , beginning on july 1 , 2013. interest is payable in cash or at the company 's option in shares of common stock , provided certain conditions are met , as described in the debenture . on each of april 1 , 2014 and july 1 , 2014 , the company is obligated to redeem $ 196,000 and $ 196,000 respectively , ( plus accrued but unpaid interest , liquidated damages and any other amounts then owing in respect of the debenture ) ( the “ 2012 periodic redemption amount ” ) . in lieu of a cash redemption and subject to the company meeting certain equity conditions described in the debenture , the company may elect to pay the 2012 periodic redemption amount in common stock on the terms set forth in the existing debentures . upon any event of default ( as defined in the debenture ) , the outstanding principal amount of the debenture , plus liquidated damages , interest , a premium of 30 % and other amounts owing in respect thereof , shall become , at the holder 's election , immediately due and payable in cash . commencing five days after the occurrence of any event of default , the interest rate on the debenture shall accrue at an interest rate equal to the lesser of 18 % per annum or the maximum rate permitted under applicable law . the existing debentures were extended in 2014 as described above . the company intends to raise additional funds in the future through a private placement of its senior convertible debentures . the additional capital would be used to fund the company 's operations , including the costs that it expects to incur as a public company . the current level of cash and operating margins is not enough to cover the existing fixed and variable obligations of the company , so increased revenue performance and the addition of capital through issuances of securities are critical to the company 's success . story_separator_special_tag assuming that the company is successful in its growth plans and development efforts , the company believes that it will be able to raise additional funds through sales of its stock . there is no guarantee that the company will be able to raise such additional funds on acceptable terms , if at all . these factors , among others , raise substantial doubt about the company 's ability to continue as a going concern . the company 's financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should it be unable to continue as a going concern . 22 off –balance sheet arrangements as of december , 2013 and 2012 , the company had no material off-balance sheet arrangements other than operating leases to which sg building is a party . in the ordinary course of business , sg building enters into agreements with third parties that include indemnification provisions which , in its judgment , are normal and customary for companies in its industry sector . these agreements are typically with consultants and certain vendors . pursuant to these agreements , sg building generally agrees to indemnify , hold harmless , and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to actions taken or omitted by sg building . the maximum potential amount of future payments sg building could be required to make under these indemnification provisions is unlimited . sg building has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions . as a result , the estimated fair value of liabilities relating to these provisions is minimal . accordingly , sg building has no liabilities recorded for these provisions as of december 31 , 2013. critical accounting policies and new accounting pronouncements critical accounting policies accounting estimates . the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made , and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition . significant areas which require the company to make estimates include revenue recognition , stock-based compensation and allowance for doubtful accounts . share-based payments . the company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award . for employees and directors , the fair value of the award is measured on the grant date and for non-employees , the fair value of the award is generally re-measured on interim financial reporting dates and vesting dates until the service period is complete . the fair value amount is then recognized over the period services are required to be provided in exchange for the award , usually the vesting period . the company recognizes stock-based compensation expense on a graded-vesting basis over the requisite service period for each separately vesting tranche of each award . stock-based compensation expense is reported within operating expenses in the consolidated statements of operations . common stock purchase warrants and other derivative financial instruments . the company classifies as equity any contracts that ( i ) require physical settlement or net-share settlement or ( ii ) provides a choice of net-cash settlement or settlement in the company 's own shares ( physical settlement or net-share settlement ) providing that such contracts are indexed to the company 's own stock . the company classifies as assets or liabilities any contracts that ( i ) require net-cash settlement ( including a requirement to net cash settle the contract if any event occurs and if that event is outside the company 's control ) or ( ii ) gives the counterparty a choice of net-cash settlement of settlement shares ( physical settlement or net-cash settlement ) . the company assesses classification of common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities or equity is required . the company 's free standing derivatives consist of warrants to purchase common stock that were issued to a placement agent involved with the private offering memorandum as well as issuances of convertible debentures . the company evaluated the common stock purchase warrants to assess their proper classification in the consolidated balance sheet and determined that the common stock purchase warrants feature a characteristic permitting cash settlement at the option of the holder . accordingly , these instruments have been classified as warrant liabilities . convertible instruments – the company bifurcates conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria . the criteria includes circumstances in which ( a ) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract , ( b ) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and ( c ) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument . the company has determined that the embedded conversion options should be bifurcated from their host and a portion of the proceeds received upon the issuance of the hybrid contract have been allocated to the fair value of the derivative . the derivative is subsequently marked to market at each reporting date based on current fair value , with the changes in fair value reporting in results of operations . revenue recognition .
| costs recognized from block “ green steel ” jobs and project management jobs increased $ 1,396,825 and $ 2,226,888 , respectively , and costs recognized from engineering jobs decreased $ 472,232 for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. gross profit increased by $ 130,630 to $ 583,557 for the year ended december 31 , 2013 compared to $ 452,927 for the year ended december 31 , 2012. gross profit percentage decreased to 10 % for the year ended december 31 , 2013 compared to 19 % for the year ended december 31 , 2012. this decrease results primarily from losses on five jobs from one customer in the amount of $ 197,240 being recognized during the year ended december 31 , 2013. payroll and related expense payroll and related expense for the year ended december 31 , 2013 was $ 1,350,953 compared to $ 1,357,717 for the year ended december 31 , 2012. stock compensation decreased by $ 86,960 to $ 421,305 for the year ended december 31 , 2013 compared to $ 508,265 for the year ended december 31 , 2012. this decrease was offset by an increase of $ 62,419 in payroll expense for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. other operating expenses other operating expense for the year ended december 31 , 2013 was $ 1,091,379 compared to $ 1,035,634 for the year ended december 31 , 2012. the change results primarily from an increase of $ 105,589 and a decrease of $ 61,384 , in professional fees and rent expense respectively , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012. interest expense interest expense for the year ended december 31 , 2013 was $ 689,156 compared to $ 8,220 for the year ended december 31 , 2012. this increase of $ 680,936 results from accrued interest
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revenues increased approximately $ 47,000 or 31 % , for the year ended december 31 , 2014 as compared to the same time period of 2013. as of december 31 , 2014 , we had no alferon n injection® finished good product to commercially sell and all revenue was generated from the fda approved open-label treatment protocol , ( “ amp 511 ” ) , that allows patient access to ampligen ® for treatment in an open-label safety study . production costs production costs were approximately $ 1,251,000 and $ 1,234,000 , respectively , for the year ended december 31 , 2014 and 2013. this increase of approximately $ 17,000 or 1 % was primarily due to an increase in stability testing and pre-production costs related to the initiation of potential manufacturing of alferon n injection® offset by a write off of inventory of $ 453,000 incurred during the year ended december 31 , 2013. research and development costs overall research and development ( “ r & d ” ) costs for the year ended december 31 , 2014 were approximately $ 8,988,000 as compared to $ 8,360,000 for the same period a year ago , reflecting an increase of approximately $ 628,000 or 8 % . the primary reasons for the increase in research and development costs can be attributed to an increase in alferon® related costs of approximately $ 1,149,000 associated with cgmp compliance testing , environmental studies , and clinical research at our new brunswick manufacturing facility as well as higher salaries and wages of $ 667,000 associated with incentive compensation and bonuses awarded to executives as compared to the prior period , offset by a general decrease in costs associated with efforts regarding ampligen® research and development , stability tests and polymer production of approximately $ 1,154,000 . 60 general and administrative expenses general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2014 and 2013 , were approximately $ 9,057,000 and $ 7,723,000 , respectively , reflecting an increase of approximately $ 1,334,000 or 17 % . the rise in g & a expenses in 2014 are due to : 1 ) higher legal fees of $ 1,144,000 ( see `` part i - item 3 : legal proceedings '' for details ) , and 2 ) higher salaries and wages of $ 787,000 associated with incentive compensation and bonuses awarded to executives ; offset by 1 ) a decrease in consulting fees of $ 227,000 related to governmental affairs , 2 ) a net decrease in salaries , wages and severance resulting from the resignation of two executives in 2013 of approximately $ 348,000 , and 3 ) a decrease in fees incurred from the sage group of $ 48,000. interest and other income interest and other income for the year ended december 31 , 2014 and 2013 were approximately $ 665,000 and $ 791,000 , respectively , representing a decrease of approximately $ 126,000 or 16 % . the cause for the decrease in investment income was primarily due to investment performance as well as a greater value of funds available for investment purposes in the prior period . impairment loss from marketable securities impairment loss from marketable securities was $ 145,000 and $ 800,000 , respectively , for the years ended december 2014 and 2013. our analysis in 2014 of the trading value for marketable securities for the year ended december 31 , 2014 resulted in an observation that some of our investments had experienced a decrease in market value for a period of longer than the last twelve consecutive months . accordingly , an estimated impairment loss of $ 145,000 was recognized in 2014 for the sustained decrease in the respective market value as compared to $ 800,000 in the prior period . 61 redeemable warrants the quarterly fiscal revaluation of certain redeemable warrants for the year ended december 31 , 2014 resulted in non-cash adjustments of $ 14,000 in the valuation of the redeemable warrants liability versus an approximate $ 281,000 gain for the same period in the prior year ( see “ note 17 : fair value ” for the various factors considered in the valuation of redeemable warrants ) . sale of new jersey tax net operating loss in february 2014 , we effectively sold $ 13,900,000 of our approximately $ 25,000,000 of new jersey state net operating loss carryforwards ( for the year 2012 ) for approximately $ 1,126,000. in january 2013 , we effectively sold $ 8,500,000 of our approximately $ 17,000,000 of new jersey state net operating loss carryforwards ( for the year 2011 ) for approximately $ 686,000 , representing an increase in cash gain of $ 440,000 or 64 % ( see “ note 13 : income taxes ” ) for the year ended december 31 , 2014 as compared to the same period in 2013. liquidity and capital resources cash used in operating activities for the year ended december 31 , 2015 was approximately $ 16,053,000 compared to approximately $ 13,964,000 for the same period in 2014 , an increase of $ 2,089,000 or 15 % . excluding the proceeds from the sale of new jersey net operating loss carry-forwards , cash used in operating activities for the year ended december 31 , 2015 increased by approximately $ 2,337,000 or 15 % over the comparable period in 2014. the primary reason for this increase in 2015 was due to : 1 ) the payout of 2014 executive incentive bonuses for approximately $ 1,831,000 reflected in accrued expenses ; 2 ) an increase in inventory of $ 1,326,000 during the year ended december 31 , 2015 ; and 3 ) a change in accounts payable balances of $ 196,000 due to the timing of payments between periods . story_separator_special_tag as of december 31 , 2015 , we had approximately $ 8,910,000 in cash , cash equivalents and marketable securities inclusive of approximately $ 6,795,000 in marketable securities , representing a decrease of approximately $ 7,198,000 or 45 % from december 31 , 2014. the primary reason for the decrease in cash , cash equivalents and marketable securities during the year ended december 31 , 2015 was the result of cash being utilized in operating activities of $ 16,053,000 being partially offset by cash provided by financing activities of $ 9,681,000 primarily from the sale of 40,995,890 shares sold pursuant to the atm during the year ended december 31 , 2015 ( see below and `` note 7 : stockholders ' equity ” ) . the company received proceeds of $ 6,842,000 from the sale and maturity of marketable securities during the year ended december 31 , 2015 whereby the proceeds were utilized in cash flow used in operations . in an effort to conserve cash , we conducted an analysis of our research and development programs as well as our staffing levels within our new jersey manufacturing facility . our analysis disclosed an ability to gain efficiencies and eliminate redundancies within our staffing which will result in a decrease in cash flow used in operations in 2016 and beyond . if we are unable to commercialize and sell ampligen® or alferon® ldo and or recommence material sales of alferon n injection® , our operations , financial position and liquidity may be adversely impacted , and additional financing may be required . however , there is no assurance that such financing will be available . 62 on march 15 , 2016 , we received written notice from the nyse mkt that we were not in compliance with the continued listing standards set forth in section 1003 ( f ) ( v ) of the nyse mkt company guide because the company 's common stock has been selling for a low price per share for a substantial period of time . the nyse mkt has determined that the continued listing of our common stock is predicated on the company affecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time . we have until september 15 , 2016 to demonstrate compliance . we plan to seek stockholder approval of a reverse stock split at the annual stockholders ' meeting which we anticipate holding in late august 2016. in the interim , as discussed below , we will continue to actively pursue our new honed business focus in the hopes that such actions will increase stockholder value and raise the price of our common stock . we can not assure that our actions will demonstrate compliance . we have been reexamining our fundamental priorities in terms of direction , corporate culture and our ability to fund operations . as a result , there have been significant changes at the company in the past few months . the ceo of the company was terminated and the board of directors has made several changes to the company 's executive management team to provide effective and competent leadership that , management believes , will properly position the company to achieve its commercial goals and increase stockholder value . recent actions include listing for sale underutilized assets , aggressively pursuing international sales of clinical grade materials , and implementing a strong financial austerity plan . we are committed to a focused business plan oriented toward finding senior co-development partners with the capital and expertise needed to commercialize the many potential therapeutic aspects of its experimental drug and its approved drug alferon® . a co-development partner may help in the acceleration of the commercialization of many of our potential experimental drugs as they have access to additional resources and capital ; however , there can be no assurance that such co-development partnerships will be on acceptable terms , or that such partnerships , will be acceptable from a profitability standpoint . management 's primary objectives are to create stockholder value and deliver much needed therapies to patients . in this regard , since the implementation of these actions , the stock price of the company 's common stock has increased from approximately $ 0.10 prior to the implementation of these actions , to a high of $ 0.19 and , as of the march 23 , 2016 , the closing price on the nyse mkt was $ 0.13. there is no immediate impact on the listing of the company 's common stock , which will continue to trade on the nyse mkt , subject to the company 's compliance with other listing standards . see “ item 1a-risk factors ; the trading price of our common stock has decreased significantly over the past year and , as a result , the nyse mkt has informed us that we are not in compliance with the standards for continued listing on the nyse mkt . if we are unable to raise the trading price , the market for our common stock most likely will be adversely affected ” . we have executed an agreement with impatients ( `` mytomorrows '' ) on a collaboration to provide access to our natural alpha interferon for patients that have become intolerant to treatment with recombinant interferon or where such treatment fails in south america and europe . we currently have inventory available for sale comprising of approximately 1,200 vials of clinical grade natural interferon alpha-n3 . we are currently working to sell this inventory of clinical grade natural interferon alpha-n3 through our early access program ( `` eap '' ) in south america and europe . we are reviewing the possibility of also selling the remaining work-in-process inventory through the eap ; however , this inventory has yet to go through the fill and finish process . international sales are anticipated to start in early 2016 .
| for the years ended december 31 , 2015 and 2014 , we had no alferon n injection® finished good product to commercially sell and all revenue was generated from the fda approved open-label treatment protocol , ( “ amp 511 ” ) , that allows patient access to ampligen® for treatment in an open-label safety study . production costs production costs were approximately $ 1,598,000 and $ 1,251,000 , respectively , for the year ended december 31 , 2015 and 2014. this increase of approximately $ 347,000 or 28 % was primarily due to charges to inventory of $ 117,000 resulting from vials removed from inventory for testing purposes and losses incurred during the manufacturing process . the remaining increase in production costs of $ 213,000 was mainly due to an increase in facility costs related to the manufacturing of alferon n injection® . research and development costs overall research and development ( “ r & d ” ) costs for the year ended december 31 , 2015 were approximately $ 8,038,000 as compared to $ 8,988,000 for the same period a year ago , reflecting a decrease of approximately $ 950,000 or 11 % . the primary reason for the decrease in research and development costs was due to a decrease in clinical trial costs of $ 122,000 associated with the conclusion of our university of washington study in 2014 utilizing ampligen® as an adjuvant in optimally treated breast cancer patients as data from these patients was evaluated and resources were directed to other projects , a decrease in bonus charges to executive officers of $ 628,000 , a decrease in charges of $ 228,000 associated with the abandonment of patents and a decrease in research and development costs of $ 131,000 associated with ampligen® . this was offset by an increase in stability testing and pre-production costs related to the initiation of manufacturing of alferon n injection® of $ 232,000 during the period . general and administrative expenses general and administrative ( “ g & a ” ) expenses for the year ended december 31 , 2015 and 2014 , were approximately $ 7,147,000 and $ 9,057,000 , respectively , reflecting a decrease of approximately $ 1,910,000 or 21 % . the decrease in g & a expenses in 2015 was mainly due to lower legal
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story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; '' > 2015 period compared to the 2014 period . the following table sets forth the changes in various components of property operating expenses ( in thousands ) : replace_table_token_23_th property operating expenses from existing properties increased due to higher snow removal costs and increased mall office operating costs , maintenance costs , and increased real estate taxes . general and administrative expenses general and administrative expenses in the 2015 period was flat when compared to the 2014 period . increases in general and administrative expenses , including annual wage increases , the addition of new employees subsequent to january 1 , 2014 and higher share-based compensation expense related to equity awards granted during 2015 , were essentially offset by the reversal of $ 731,000 of share-based compensation expense related to the october 2015 announcement of the retirement of our chief financial officer effective in 2016 and decreases in payroll taxes as the 2014 period included taxes for the significant amount of notional units that vested in december 2014. abandoned pre-development costs during the 2014 period , we decided to abandon two pre-development projects and as a result , we recorded a $ 2.4 million charge , representing the cumulative related costs . depreciation and amortization depreciation and amortization increased $ 1.5 million , or 1 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of depreciation and amortization ( in thousands ) : replace_table_token_24_th depreciation and amortization costs decreased at existing properties as certain construction and development related assets , as well as lease related intangibles recorded as part of the acquisition price of acquired properties , which are amortized over shorter lives , became fully depreciated during the reporting periods . interest expense interest expense decreased $ 3.7 million , or 6 % , in the 2015 period compared to the 2014 period , due to the issuance of $ 250 million senior notes in november 2014 which bear an interest rate of 3.75 % . the net proceeds were used in december 2014 to redeem our $ 250 million , 6.15 % senior notes which had an original maturity of november 2015. loss on early extinguishment of debt in november 2014 , we completed a $ 250 million , 3.75 % senior notes offering . the net proceeds were used to redeem our $ 250 million , 6.15 % senior notes originally due november 2015. we recorded a charge of approximately $ 13.1 million for the make-whole premium related to the early redemption , which was completed in december 2014 . 40 gain on sale of assets and interests in unconsolidated entities in february 2015 , we sold our equity interest in the joint venture that owned the wisconsin dells outlet center for approximately $ 15.6 million , representing our share of the sales price totaling $ 27.7 million less our share of the outstanding debt , which totaled $ 12.1 million . as a result of this transaction , we recorded a gain of approximately $ 13.7 million in the first quarter of 2015 , which represents the difference between the carrying value of our equity method investment and the net proceeds received . in september 2015 , we sold our kittery i & ii , tuscola , and west branch outlet centers for approximately $ 43.3 million , which resulted in a gain of $ 20.2 million and in october 2015 , we sold our barstow outlet center for approximately $ 105.8 million , which resulted in a gain of $ 86.5 million . equity in earnings of unconsolidated joint ventures equity in earnings of unconsolidated joint ventures increased approximately $ 2.4 million or 27 % in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures ( in thousands ) : replace_table_token_25_th the increase in equity in earnings of unconsolidated joint ventures from new developments is due to the incremental earnings from the charlotte outlet center , which opened during the third quarter of 2014 ; the ottawa outlet center , which opened during the fourth quarter of 2014 ; and the savannah outlet center , which opened in april 2015. the equity in earnings from properties disposed are related to our equity interest in the wisconsin dells joint venture , which we sold in february 2015 . 2014 compared to 2013 net income net income decreased approximately $ 35.2 million in the 2014 period to $ 78.2 million compared to $ 113.3 million for the 2013 period . the decrease in net income was due in part to the loss from the early redemption of our $ 250 million , 6.15 % senior notes . in november 2014 , we completed a $ 250 million , 3.75 % senior notes offering . the net proceeds were used to redeem our $ 250 million , 6.15 % senior notes due november 2015. we recorded a charge of approximately $ 13.1 million for the early extinguishment of debt . this charge was partially offset by the gain on the sale of our outlet center in lincoln city . the net proceeds received from the sale of the property were approximately $ 39.0 million . we recorded a gain on sale of real estate of approximately $ 7.5 million . the decrease in net income was also due to a $ 26.0 million gain on a previously held interest in an acquired joint venture , which owned the property in deer park , recorded in the third quarter of fiscal 2013 , as well as $ 7.8 million recorded as our equity earnings of unconsolidated joint ventures related to certain transactions that occurred at deer park just prior to the acquisition . previously we owned a one-third interest in the deer park , property which was accounted for using the equity method of accounting . story_separator_special_tag the acquisition of our controlling interest on august 30 , 2013 required us to consolidate the property for financial reporting purposes . as a result , our consolidated statements of operations reflect all of the revenues and expenses of deer park since the acquisition date including the significant depreciation and amortization associated with the property , the net effect of which was a reduction in net income . 41 base rentals base rentals increased $ 21.1 million , or 8 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_26_th base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant spaces , as well as incremental base rental income from the expansions at our branson , charleston , park city and sevierville outlet centers in 2014. termination fees , which are generally based on the lease term remaining at the time of termination , increased compared to the 2013 period as the average remaining term on leases terminating early in 2014 was longer than the average remaining term of the leases terminating early in 2013. at december 31 , 2014 , the combined net amount of above market lease assets and below market lease liability values , recorded as a part of the purchase price of acquired properties , was a net above market lease asset totaling approximately $ 7.9 million . if a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively . the change in the amortization of above and below market lease values was primarily attributable to the amortization of the above market lease values recorded from the 2013 acquisition of the deer park , new york property . percentage rentals percentage rentals decreased $ 944,000 , or 8 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_27_th percentage rentals represents revenues based on a percentage of tenants ' sales volume above their contractual breakpoints . the decrease in percentage rentals is primarily a function of tenants renewing leases with higher base rental rates , and accordingly , higher contractual breakpoints . reported tenant comparable sales for our consolidated properties for the year ended december 31 , 2014 increased approximately 2 % to $ 393 per square foot . reported tenant comparable sales is defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period . expense reimbursements expense reimbursements increased $ 12.9 million , or 12 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of expense reimbursements ( in thousands ) : replace_table_token_28_th 42 expense reimbursements , which represent the contractual recovery from tenants of certain common area maintenance , insurance , property tax , promotional , advertising and management expenses , generally fluctuate consistently with the reimbursable property operating expenses to which they relate . see `` property operating expenses '' below for a discussion of the increase in operating expenses from our existing properties . management , leasing and other services management , leasing and other services increased $ 511,000 , or 17 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of management , leasing and other services ( in thousands ) : replace_table_token_29_th the increase in development , leasing . management and marketing fees recognized from unconsolidated joint ventures was due to incremental increases from our ottawa and charlotte outlet centers , which opened in 2014. the increase in loan guarantee fees was due to fees earned from our westgate and savannah joint ventures . other income other income increased $ 216,000 , or 3 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of other income ( in thousands ) : replace_table_token_30_th property operating expenses property operating expenses increased $ 16.4 million , or 14 % , in the 2014 period compared to the 2013 period . the following table sets forth the changes in various components of property operating expenses ( in thousands ) : replace_table_token_31_th property operating expenses increased at existing properties due to increases in mall office operating costs and real estate taxes , as well as significantly higher snow removal costs . general and administrative expenses general and administrative expenses increased $ 5.4 million , or 14 % , in the 2014 period compared to the 2013 period . this increase was mainly due to additional share-based compensation expense related to the 2014 issuance of restricted shares to directors and certain officers of the company , the grant of performance shares under a new long term incentive plan and the grant of options to certain employees . also , the 2014 period included higher payroll related expenses due to the addition of new employees during 2013 and 2014. acquisition costs the 2013 period included costs related to the acquisition of the additional ownership interest in the deer park property as well as costs from other potential acquisitions of operating properties that we chose not to pursue . 43 abandoned pre-development costs during the 2014 period , we decided to abandon two pre-development projects and as a result , we recorded a $ 2.4 million charge , representing the cumulative related costs . depreciation and amortization depreciation and amortization increased $ 6.7 million , or 7 % , in the 2014 period compared to the 2013 period .
| properties disposed includes the lincoln city outlet center that was sold in december 2014 , the kittery i & ii , tuscola , and west branch outlet centers sold in september 2015 and the barstow outlet center sold in october 2015. base rentals base rentals increased $ 15.2 million , or 6 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_18_th base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals , incremental rents from re-tenanting vacant spaces , and incremental income from the expansion of our sevierville , branson , park city and san marcos outlet centers . termination fees , which are generally based on the lease term remaining at the time of termination , increased in the 2015 period compared to the 2014 period as a result of certain brand-wide store closures throughout our portfolio . the 2014 period did not have any significant tenant closures . at december 31 , 2015 , the combined net value representing the amount of unamortized above market lease assets and below market lease liability values , recorded as a part of the purchase price of acquired properties , was a net above market lease asset totaling approximately $ 5.9 million . if a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related above or below market lease value would be written off and could materially impact our net income positively or negatively . percentage rentals percentage rentals decreased $ 150,000 , or 1 % , in the 2015 period compared to the 2014 period . the following table sets forth the changes in various components of base rentals ( in thousands ) : replace_table_token_19_th percentage rentals represents revenues based on a percentage of tenants ' sales volume above their contractual breakpoints . the increase in percentage rentals from existing properties is due to higher sales volume
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sources and uses of cash cash and cash equivalents decreased by $ 10.2 million during the year ended december 31 , 2016. the change in cash and cash equivalents is summarized as follows : replace_table_token_10_th operating activities operating activities generated cash of $ 28.5 million during fiscal 2016 as compared with $ 39.6 million of cash provided during fiscal 2015. net income increased by $ 0.8 million from 2015 to 2016 ; however , cash provided by operations decreased by $ 11.1 million due primarily to the following factors : · net income for 2016 included a non-cash equity in loss from amak of $ 1.5 million and a $ 3.2 million gain from additional equity issuance by amak as compared to equity in losses from amak $ 5.3 million in 2015 ; · net income for 2016 included a bargain purchase gain from the basf acquisition of $ 11.5 million as compared to 2015 which had no gain ; · trade receivables increased approximately $ 2.8 million in 2016 ( due to an increase in wax sales in december and longer payment terms for some foreign customers because of increased shipping times ) as compared to a decrease of approximately $ 8.8 million ( due to a 27.1 % decrease in the average per gallon selling price of petrochemical products ) in 2015 ; · prepaid expenses and other assets increased $ 1.0 million in 2016 ( primarily due to license fees for the advanced reformer unit being constructed ) as compared to a decrease of $ 0.9 million in 2015 ( primarily due to expensing of loan fees and disbursement of the prepayment of a lawsuit settlement ) ; and · other liabilities decreased $ 0.2 million in 2016 ( due to the recognition of revenue from customer funding of capital projects ) as compared to an increase of $ 2.2 million in 2015 ( due to customer funding of capital projects for custom processing ) . these significant uses of cash were partially offset by the following increases in cash provided by operations : · net income for 2016 included a non-cash depreciation and amortization charge of $ 9.8 million as compared to 2015 which included a non-cash depreciation and amortization charge of $ 9.1 million ; 22 · net income for 2016 included non-cash deferred income tax benefits of $ 8.7 million as compared to $ 5.6 million in 2015 ; · income taxes receivable decreased $ 3.7 million in 2016 ( primarily due to overpayments being applied to 2016 estimated taxes ) as compared to an increase of $ 7.2 million in 2015 ( primarily due to estimated tax payments being made prior to the update of tax laws passed in december 2015 ) ; · inventory increased $ 2.1 million in 2016 ( due to lower sales volume ) as compared to an increase of $ 3.0 million in 2015 ( due to tc 's increase in raw material receipts from their primary supplier which translated into additional finished goods production ) ; and · accounts payable and accrued liabilities increased $ 3.2 million in 2016 ( primarily due to increased construction expenditures ) as compared to a decrease of $ 2.4 million in 2015 ( primarily due to construction projects being completed during the year ) . operating activities generated cash of $ 39.6 million during fiscal 2015 as compared with $ 23.2 million of cash provided during fiscal 2014. the company 's net income increased by $ 3.0 million from 2014 to 2015 and cash provided by operations increased by $ 16.4 million due primarily to the following factors : · net income for 2015 included a non-cash equity in loss from amak of $ 5.3 million as compared to equity in loss from amak $ 1.1 million in 2014 ; · net income for 2015 included a non-cash depreciation and amortization charge of $ 9.1 million ( due to the incorporation of tc 's charges for a full year ) as compared to 2014 which included a charge of $ 5.7 million ( included only one quarter of tc 's charges ) ; · net income for 2015 included a non-cash deferred income tax charge of $ 5.6 million as compared to 2014 which included a deferred income tax benefit of $ 1.9 million ; · trade receivables decreased approximately $ 8.8 million in 2015 ( due to a 27.1 % decrease in the average per gallon selling price ) as compared to an increase of approximately $ 3.4 million in 2014 ( due to a 9.9 % increase in volume sold during the fourth quarter and receivables acquired from the acquisition ) ; · prepaid expenses and other assets decreased $ 1.2 million in 2015 ( primarily due to expensing of loan fees and disbursement of the prepayment of a lawsuit settlement ) as compared to an increase of $ 1.4 million in 2014 ( primarily due to prepaid loan fees associated with the debt from the acquisition , prepayment of a lawsuit settlement , and prepaids acquired from the acquisition ) ; and · other liabilities increased $ 2.2 million in 2015 ( due to customer funding of capital projects for custom processing ) as compared to an increase of $ 0.1 million in 2014 ( due to deferred revenue acquired from the acquisition offset by recognition of deferred revenue during 2014 ) . story_separator_special_tag these significant sources of cash were partially offset by the following decreases in cash provided by operations : · income tax receivable increased $ 7.2 million in 2015 ( primarily due to estimated tax payments being made prior to the update of tax laws passed in december 2015 ) as compared to a decrease of $ 0.1 million in 2014 ; · inventory increased $ 3.0 million in 2015 ( due to tc 's increase in raw material receipts from their primary supplier which translated into additional finished goods production ) as compared to a decrease of $ 2.6 million in 2014 ( due to a 31.9 % decrease in cost per gallon ) ; and · accounts payable and accrued liabilities decreased $ 2.4 million in 2015 ( primarily due to construction projects being completed during the year ) as compared to an increase of $ 1.8 million in 2014 ( primarily due to the working capital adjustment payable for the acquisition ) . 23 investing activities cash used by investing activities during fiscal 2016 was approximately $ 40.5 million , representing an increase of approximately $ 9.2 million over the corresponding period of 2015. the majority of the increase was due to the construction projects for the hydrogenation/distillation unit and the advanced reformer unit . during 2016 we expended $ 15.5 million on the hydrogenation/distillation project , $ 3.9 million to purchase and upgrade b plant , $ 11.6 million to construct the advanced reformer unit , $ 1.9 million for tank farm improvements , $ 1.2 million for high purity hexane productions , $ 0.8 million for cooling tower construction , $ 0.6 million for transport trucks , $ 0.5 million for loading rack expansion capabilities , and $ 4.5 million on various plant improvements and equipment . cash used by investing activities during fiscal 2015 was approximately $ 31.3 million , representing a decrease of approximately $ 57.6 million over the corresponding period of 2014. the majority of the decrease was due to the 2014 acquisition for $ 74.8 million , net of $ 0.1 million in cash acquired . during 2015 we expended $ 13.3 million on the d train expansion , $ 1.8 million on tank farm improvements , $ 0.6 million on spare equipment , $ 2.8 on pipeline upgrades , $ 1.5 million on transportation equipment , $ 2.2 million on the oligomerization project ( costs fully paid by the customer ) , $ 2.1 million on the hydrogenation/distillation project , $ 1.3 million on a wax stripping column , and $ 5.6 million on various plant improvements and equipment . financing activities cash provided by financing activities during fiscal 2016 was approximately $ 1.8 million versus cash provided of $ 1.8 million during the corresponding period of 2015. during 2016 we made principal payments of $ 5.3 million on our acquisition loan and $ 1.0 million on our term debt . we drew $ 8.0 million on our line of credit to help fund our expansion projects . cash provided by financing activities during fiscal 2015 was approximately $ 1.8 million versus cash provided of $ 66.6 million during the corresponding period of 2014. during 2015 we made principal payments of $ 7.0 million on our term debt and $ 6.2 million on our line of credit . we drew $ 15.0 million on our term debt at year end 2015 to pre-fund the new advanced reformer project approved for 2016 since borrowing availability for that particular financing was set to expire on december 31 , 2015. credit agreement on october 1 , 2014 , tocco , shr , gspl , and tc ( shr , gspl and tc collectively the “ guarantors ” ) entered into an amended and restated credit agreement ( “ arc agreement ” ) with the lenders which from time to time are parties to the arc agreement ( collectively , the “ lenders ” ) and bank of america , n.a. , a national banking association , as administrative agent for the lenders , and merrill lynch , pierce , fenner & smith incorporated as lead arranger . subject to the terms and conditions of the arc agreement , tocco may ( a ) borrow , repay and re-borrow revolving loans ( collectively , the “ revolving loans ” ) from time to time during the period ending september 30 , 2019 , up to but not exceeding at any one time outstanding $ 40.0 million ( the “ revolving loan commitment ” ) and ( b ) request up to $ 5.0 million of letters of credit and $ 5.0 million of swingline loans . each of the issuance of letters of credit and the advance of swingline loans shall be considered usage of the revolving loan commitment . all outstanding loans under the revolving loans must be repaid on october 1 , 2019. as of december 31 , 2016 , and 2015 , tocco had long-term outstanding borrowings of $ 9.0 million and $ 1.0 million , respectively under the revolving loans . under the arc agreement , tocco also borrowed $ 70.0 million in a single advance term loan ( the “ acquisition term loan ” ) to partially finance the acquisition . at december 31 , 2016 , there was a short-term amount of $ 8.8 million and a long-term amount of $ 47.3 million outstanding . at december 31 , 2015 , there was a short-term amount of $ 7.0 million and a long-term amount of $ 54.3 million outstanding . under the arc agreement , tocco also had the right to borrow $ 25.0 million in a multiple advance loan ( the “ term loans , ” together with the revolving loans and acquisition term loan , collectively the “ loans ” ) .
| our average selling prices for our non-formula priced customers also declined approximately 10.5 % primarily due to competitive pressure on pricing . average delivered feedstock price for 2016 was 7.4 % lower than 2015. we also saw a significant decrease in our margin on byproduct sales from 2015 to 2016. prime product sales volume ( total petrochemical product sales volume less byproduct sales volume ) decreased 8.8 % from 2015 to 2016 primarily due to lower demand in north america . margins on our petrochemical products were also negatively impacted by financial penalties that we incurred due to feedstock purchases below minimum amounts as prescribed by our agreement with suppliers . foreign sales volume accounted for approximately 22.7 % of volume and 26.3 % of revenue for petrochemical product sales during 2016 as compared to 25.2 % of volume and 27.9 % of revenue during 2015 . 2014-2015 petrochemical product sales revenue decreased 23.5 % from 2014 to 2015 due to a decrease in the average selling price of 27.1 % . we saw a significant decline in raw material prices beginning in the fourth quarter of 2014 which continued throughout 2015. since our selling prices are based on raw material prices , they declined as well . deferred sales volume remained steady from 2014 to 2015 ; however , deferred sales revenue declined 19.8 % due to the decrease in the average selling price . prime product sales volume increased 3.1 % from 2014 to 2015. foreign sales volume accounted for approximately 25.2 % of volume and 27.9 % of revenue for petrochemical product sales during 2015 as compared to 27.7 % of volume and 30.8 % of revenue during 2014. processing fees 2015-2016 processing fees increased 51.1 % from 2015 to 2016 primarily due to fees associated with a customer who reimbursed us for installation expenses plus a markup . we were successful in negotiating a contract extension with one of our processing customers whose contract was set to expire in 2016 . 2014-2015
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electricity generation provided by coal-fired power plants in 2015 represented 33.2 % of total generation compared with a share percentage of 38.6 % for 2014. the number of megawatt hours provided by coal-fired plants declined by 14.3 % in 2015 compared to the amount provided in 2014. for the third and fourth quarters of calendar 2015 , the shares of total electrical power generated by natural gas-fired plants actually exceeded the shares provided by coal-fired power plants , the first two times that this has occurred . for 2016 , the shares of total electricity generation provided by gas-fired power plants and coal-fired power plants are expected to be approximately 33.4 % and 32.0 % , respectively . the electricity-generation statistics for 2015 are consistent with the long-term power generation trends . over the last 10 years , total power generation has increased by less than 1 % and coal has remained the largest energy source for electricity generation . however , during this period , the amount of electricity generated by natural gas-fired power sources increased by 75 % , and the amount of electric power generated by coal-fired plants declined by 33 % . the amount of electricity provided by nuclear power plants increased over the last 10 years by only 2 % . electrical power generated by renewable energy sources ( excluding hydroelectric sources ) more than tripled over the last ten years , but represents only 7 % of total generation . current projections of future power generation assume the sustained increase in domestic natural gas production , which should lead to stable natural gas prices continuing into the future . the availability of competitively priced natural gas , the significant increases in the efficiency of combined cycle power plants , the existence of certain programs encouraging renewable fuel use , and the implementation of a series of environmental rules , primarily directed toward the reductions of air pollution and the emissions of greenhouse gases should dampen future coal use and continue to increase the shares of the power generation mix represented by gas-fired power plants , wind farms , solar fields and other renewable energy sources . 27 announcements by electric utilities of the retirement of coal-fired and nuclear power plants continue , citing the availability of cheap natural gas , increasingly stringent environmental regulations and the significant costs of refurbishment and relicensing . the future retirements of coal and nuclear plants will result in the need for new capacity , and new natural gas-fired plants are cheaper to build than coal , nuclear , or renewable plants , they are substantially more environmentally friendly than conventional coal-fired power plants , and they represent the most economical way to meet peak demands . the expected increase in momentum towards more environmentally friendly power generation facilities has not occurred at the pace expected prior to the latest recession . the environmental protection agency has been stridently exercising an expansion of regulatory power over air quality and electric power generation . however , the federal government has not passed comprehensive energy legislation that might include national renewable energy standards , incentives or mandates for the retirement of existing coal-fired power plants and caps on the volume of carbon emissions . existing coal-fired plants in the united states are proving to be a challenge to retrofit or replace . coal prices are widely considered to be stable and certain states see the availability of inexpensive , coal-powered electricity as a key driver of economic growth . additional uncertainty was created when , in february 2016 , the united states supreme court decided to stay the implementation of the agency 's clean power plan , which was finalized in august 2015 , as it undergoes legal review . as a result , the requirement for states to draft compliance plans by september 2016 has been at least delayed , and states have longer periods of time in order to consider and make decisions regarding future power generation mixes . the future pace of announcements of coal-fired power plant retirements may slow . nevertheless , as we have stated in the past , we believe that the long-term prospects for natural gas-fired power plant construction are favorable . major advances in horizontal drilling and the practice of hydraulic fracturing have led to a boom in natural gas supply . the abundant availability of cheap , less carbon-intense , natural gas should continue to be a significant factor in the economic assessment of future power plants . currently effective emission standards have also become a significant obstacle for any plan to build a new coal-fired power plant . despite the recent success in the supreme court , the coal industry fears that the pending regulations limiting carbon emissions may jeopardize the continuing operation of existing coal-fired power plants . the future of clean burning coal-fired power plants is also uncertain . for multiple reasons , the retrofit of existing coal-fired plants in order to employ carbon-capture and sequestration processes ( ccs ) is problematic . construction costs and schedules for new ccs plants are proving to be difficult to control , and these projects may be difficult to finance . a power industry trade publication predicted in 2015 that only three large scale , coal-fired ccs power plants will be operating in north america by 2020. as indicated above , the demand for electric power in this country is expected to grow slowly but steadily over the long term . increasing demands for electricity , the ample supply of natural gas , and the expected retirement of old coal , nuclear and oil-powered energy plants , should result in natural gas-fired and renewable energy plants , like wind , biomass and solar , representing the substantial majority of new power generation additions in the future and an increased share of the power generation mix . story_separator_special_tag currently , the business environment in our sector has improved substantially due to a combination of an overall improved economy and the forward momentum of increasing the amount of electrical power generated in the united states from energy resources other than coal . market concerns about emissions should continue to dampen the expansion of coal-fired capacity . low fuel prices for new natural gas-fired plants also affect the relative economics of coal-fired capacity , as does the continued rise in construction costs for coal-fired power plants incorporating new carbon-capture techniques . we expect continuing concerns about the safety , high cost and construction cost overrun risk of nuclear power plants . in summary , the development of renewable and natural gas-fired power generation facilities should result in new construction opportunities for us . during the construction industry 's recovery from the recession , we have been successful in the effective and efficient completion of our epc projects and the control of costs while we pursue new construction business opportunities . despite the intensely competitive business environment , we are committed to the rational pursuit of new construction projects which may result in our decision to make investments in the ownership of new projects , at least during the corresponding development phase . because we believe in the strength of our balance sheet , we are willing to consider certain opportunities that include reasonable and manageable risks in order to assure the award of the related epc contract to us . accordingly , our involvement with the development of projects sponsored by moxie and others began after careful evaluation of the opportunities and risks . we structured the terms of our involvement with each of these projects in order to minimize the financial risks and to benefit from the successful development of the projects . 28 with a growing reputation as a low cost provider of epc contracting services and with the proven ability to deliver completed power facilities , particularly combined-cycle , gas-fired power plants , 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 . moreover , we believe that the epc contract approach preferred by us , once considered an alternative delivery method for power plant construction , is now an accepted industry practice in the united states as a strategy that gives project owners an end-to-end solution by putting nearly all aspects and phases of a project under a single contract . we believe that our expectations are reasonable and that our future plans are based on reasonable assumptions . our performance on current projects , including four new epc projects awarded to us during the second half of fiscal 2016 , should provide a stable base of business activity for the next few fiscal years . we are looking forward to ramping up activities on the new projects , to continuing efficient performance on current projects and to being able to take advantage of new opportunities that should continue to emerge in this improving business environment . comparison of the results of operations for the years ended january 31 , 2016 and 2015 we reported net income attributable to our stockholders of $ 36.3 million , or $ 2.42 per diluted share , for the fiscal year ended january 31 , 2016. for the fiscal year ended january 31 , 2015 , we reported a comparable net income amount of $ 30.4 million , or $ 2.05 per diluted share . the following schedule compares our operating results for the years ended january 31 , 2016 and 2015 ( dollars in thousands ) . replace_table_token_7_th nm = not meaningful revenues power industry services the revenues of the power industry services business increased by $ 11.0 million to $ 387.6 million for fiscal 2016 compared with revenues of $ 376.7 million for the prior year . the revenues of this business represented approximately 94 % of consolidated revenues for fiscal 2016 , and approximately 98 % of consolidated revenues for the prior year . the fiscal 2016 increase in revenues for the power industry services segment reflected the continued construction activity of two significant construction projects , the large gas-fired combined-cycle power plants located in the marcellus shale region of pennsylvania . the combined revenues associated with these gas-fired power plant projects represented approximately 78 % of this reportable segment 's revenues for fiscal 2016 , compared to 88 % in the prior year . in addition , fiscal 2016 included revenues associated with five new epc projects , which represented approximately 14 % of this segment 's revenues for the year , and revenues in the amount of $ 14.2 million , or 4 % of segment revenues , provided by the newly acquired company , apc . fiscal 2016 revenues also included project development success fees in the amount of $ 4.3 million and revenues in the amount of $ 1.6 million that were recorded in connection with the resolution of the altra bankruptcy matter discussed in note 14 to the accompanying consolidated financial statements . in the prior year , the only other significant project was the construction of the biomass-fired plant that was completed last year in eastern texas . future revenues associated with the two current pennsylvania projects are expected to decline in fiscal year 2017 as the projects progress toward their completion during the first half of the year . however , these decreases should be more than offset by revenues earned on the early construction activities associated with new projects and increased revenues contributed by apc . 29 industrial fabrication and field services the revenues from this segment reflect less than two months of activity as we acquired trc on december 4 , 2015. telecommunications infrastructure services the revenues of this business segment increased by $ 3.9 million , or 61 % during fiscal 2016 when compared to the prior year .
| in addition to the new acquisitions , our existing subsidiaries , specifically gps , continue to excel and generate increased profitability . since the acquisition of gps in december 2006 , over nine years ago , we have responded through challenging industry economic cycles with consistent organic growth and profitability as illustrated below : 25 since the year ended january 31 , 2008 , gps has achieved average organic growth in revenues of 9.5 % per year and an average ebitda growth of 19.1 % per year . overall , our growth during fiscal 2016 can be attributed to four major factors : 1 ) continued execution on existing projects ; 2 ) increased gps contract backlog ; 3 ) the acquisition of apc ; and 4 ) the acquisition of trc . panda power plant projects since 2013 , we have performed engineering , procurement and construction ( epc ) services for two natural gas-fired power plants , known as panda liberty and panda patriot . the epc contracts were assigned to two separate joint ventures that were formed in order to perform the work for the applicable project and to spread the bonding risk of each project . the joint venture partner for both projects is a large , heavy civil contracting firm . we have no significant commitments under these arrangements beyond those related to the completion of the epc contracts . the joint venture partners are dedicating resources that are necessary to complete the projects and are being reimbursed for their costs . we are performing most of the activities of these two epc contracts . for fiscal 2016 , we recognized revenues associated with epc contract services provided to panda liberty and panda patriot that represented approximately 35 % and 38 % of consolidated revenues , respectively . these two projects are scheduled for completion in calendar year 2016. gps contract backlog contract backlog represents the total accumulated value of projects awarded less the amounts of revenues recognized to date on those contracts at a specific point in time . we believe contract
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our wholesale channel generated 64 % and 65 % of our net revenues in fiscal years 2019 and 2018 , respectively . our dtc channel generated 36 % and 35 % of our net revenues in fiscal years 2019 and 2018 , respectively , with our company operated e-commerce representing 14 % and 13 % of dtc channel net revenues and 5 % and 4 % of total net revenues in fiscal years 2019 and 2018 , respectively . our objectives our key long-term objectives are to strengthen our brands globally in order to deliver sustainable profitable growth and generate industry leading shareholder returns . critical strategies to achieve these objectives include ; driving our profitable core business , expanding the reach of our brands globally and into new categories , leading in omni-channel , and achieving operational excellence . factors affecting our business we believe the key business and marketplace factors that are impacting our business include the following : factors that impact consumer discretionary spending , which remains volatile globally , continue to create a complex and challenging retail environment for us and our customers , characterized by unpredictable traffic patterns and a general promotional environment . in developed economies , mixed real wage growth and shifting in consumer spending also continue to pressure global discretionary spending . consumers continue to focus on value pricing and convenience with the off-price retail channel remaining strong and increased expectations for real-time delivery . the diversification of our business model across regions , channels , brands and categories affects our gross margin . for example , if our sales in higher gross margin business regions , channels , brands and categories grow at a faster rate than in our lower gross margin business regions , channels , brands and categories , we would expect a favorable impact to aggregate gross margin over time . gross margin in europe is generally higher than in our other two regional operating segments . sales directly to consumers generally have higher gross margins than sales through third parties , although these sales typically have higher selling expenses . value brands , which are focused on the value-conscious consumer , generally generate lower gross margin . enhancements to our existing product offerings , or our expansion into new products categories , may also impact our future gross margin . more competitors are seeking growth globally , thereby increasing competition across regions . some of these competitors are entering markets where we already have a mature business such as the united states , mexico , western europe and japan , and may provide consumers discretionary purchase alternatives or lower-priced apparel offerings . wholesaler/retailer dynamics and wholesale channels remain challenged by mixed growth prospects due to increased competition from e-commerce shopping , pricing transparency enabled by the proliferation of online technologies and vertically-integrated specialty stores . retailers , including our top customers , have in the past and may in the future decide to consolidate , undergo restructurings or rationalize their stores which could result in a reduction in the number of stores that carry our products . many apparel companies that have traditionally relied on wholesale distribution channels have invested in expanding their own retail store and e-commerce distribution and consumer-facing technologies , which has increased competition in the retail market . competition for , and price volatility of , resources throughout the supply chain have increased , causing us and other apparel manufacturers to continue to seek alternative sourcing channels and create new efficiencies in our global supply chain . trends affecting the supply chain include the proliferation of lower-cost sourcing alternatives , resulting in reduced barriers to entry for new competitors , and the impact of fluctuating prices of labor and raw materials as well as the consolidation of suppliers . trends such as these can bring additional pressure on us and other wholesalers and retailers to shorten lead-times , reduce costs and raise product prices . foreign currencies continue to be volatile . significant fluctuations of the u.s. dollar against various foreign currencies , including the euro , british pound and mexican peso will impact our financial results , affecting translation , and revenue , operating margins and net income . the current environment has introduced greater uncertainty with respect to potential tax and trade regulations . the current domestic and international political environment , including changes to other u.s. policies related to global trade and tariffs , have resulted in uncertainty surrounding the future state of the global economy . such changes may require us to modify our current sourcing practices , which may impact our product costs and , if not mitigated , could 34 have a material adverse effect on our business and results of operations . i n addition , the united states enacted tax legislation in fiscal year 2018 , which is intended to stimulate economic growth and capital investments in the united states by , among other provisions , lowering tax rates for both corporations and individuals . for more information , see note 18 of our audited consolidated financial statements included in this report . these factors contribute to a global market environment of intense competition , constant product innovation and continuing cost pressure , and combine with the continuing global economic conditions to create a challenging commercial and economic environment . we evaluate these factors as we develop and execute our strategies . for more information on the risk factors affecting our business , see `` item 1a - risk factors '' . seasonality of sales we typically achieve our largest quarterly revenues in the fourth quarter . in fiscal year 2019 , our net revenues in the first , second , third and fourth quarters represented 25 % , 23 % , 25 % and 27 % , respectively , of our total net revenues for the year . story_separator_special_tag in fiscal year 2018 , our net revenues in the first , second , third and fourth quarters represented 24 % , 22 % , 25 % and 29 % , respectively , of our total net revenues for the year . we typically achieve a significant amount of revenues from our dtc channel on the friday following thanksgiving day , which is commonly referred to as black friday . due to the timing of our fiscal year-end , a particular fiscal year might include one , two or no black fridays , which could impact our net revenues for the fiscal year . each of fiscal years 2018 and 2017 included one black friday , fiscal year 2019 did not have a black friday , while fiscal year 2020 will have two black fridays . the level of our working capital reflects the seasonality of our business . we expect inventory , accounts payable and accrued expenses to be higher in the second and third quarters in preparation for the fourth quarter selling season . order backlog is not material to our business . effects of inflation we believe inflation in the regions where most of our sales occur has not had a significant effect on our net revenues or profitability . our 2019 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; font-style : italic ; font-weight : bold ; text-decoration : none ; '' > 2018 the following table summarizes , for the periods indicated , our consolidated statements of income , the changes in these items from period to period and these items expressed as a percentage of net revenues : replace_table_token_3_th _ * not meaningful 37 net revenues the following table presents net revenues by regional operating segment for the periods indicated and the changes in net revenues by operating segment on both reported and constant-currency bases from period to period : replace_table_token_4_th as compared to the same period in the prior year , total net revenues were affected unfavorably by approximately $ 126 million in foreign currency exchange rates . americas . on both a reported basis and constant-currency basis , net revenues in our americas region increased slightly for 2019 . currency translation had an unfavorable impact on net revenues of approximately $ 10 million for the year . constant-currency net revenues increased as a result of higher dtc revenues , in the u.s. and international markets , specifically mexico , despite lacking black friday sales due to the timing of our 2019 fiscal year-end . the increase in sales was due to the expansion of our company-operated retail network , as we had 14 more stores in operation as of november 24 , 2019 as compared to november 25 , 2018 and increased traffic to our e-commerce business . total wholesale revenues were down , driven from a decline in u.s. wholesale revenues , as a result of the softening in the overall wholesale environment , including the impact of financially troubled retailers and increased door closures since a year ago . the decline was also due to the 2018 relaunch of our docker 's signature khaki , as we stocked our customers ' floors with the new product , driving increased sales in the prior year . europe . net revenues in europe increased on both reported and constant-currency bases , with currency translation affecting net revenues unfavorably by approximately $ 86 million . constant-currency net revenues increased for 2019 as a result of strong performance across both dtc and wholesale channels . the growth in dtc is mainly driven from strong performance within our company-operated retail network , particularly outlets , as well as expansion , as we had 24 more stores in operation as of november 24 , 2019 as compared to november 25 , 2018 , despite lacking black friday sales due to the timing of our 2019 fiscal year-end . the growth in our wholesale channel is broad based , across all markets and product categories . asia . net revenues in asia increased on both reported and constant-currency bases , with currency translation affecting net revenues unfavorably by approximately $ 30 million . on a constant-currency basis , the increase in net revenues was due to growth across both wholesale and dtc channels . the growth in wholesale , which includes franchised stores was across multiple markets , in particular india . the growth in dtc was primarily due to store expansion , as there were 43 more stores as of november 24 , 2019 as compared to november 25 , 2018 as well as growth within our e-commerce business . 38 gross profit the following table shows consolidated gross profit and gross margin for the periods indicated and the changes in these items from period to period : replace_table_token_5_th currency translation unfavorably impacted gross profit by approximately $ 72 million . excluding the impact of currency translation , gross margin increased slightly due to sales in higher gross margin businesses offset primarily by transactional currency impact . selling , general and administrative expenses the following table shows sg & a expenses for the periods indicated , the changes in these items from period to period and these items expressed as a percentage of net revenues : replace_table_token_6_th currency translation affected sg & a expenses favorably by approximately $ 50 million as compared to the prior year . selling . currency translation impacted selling expenses favorably by approximately $ 29 million for the year ended november 24 , 2019 . higher selling expenses primarily reflected costs associated with the expansion and performance of our dtc business , including increased investment in new and existing company-operated stores . we had 81 more company-operated stores as of november 24 , 2019 than as of november 25 , 2018 . advertising and promotion . currency translation impacted advertising and promotion expense favorably by approximately $ 8 million for the year ended november 24 , 2019 . advertising and promotion expenses as a percent of net revenues decreased due to planned reductions in advertising spend . administration .
| earnings per share . compared to 2018 , diluted earnings per share increased from $ 0.73 to $ 0.97 due to higher net income , partially offset by an increase in shares outstanding as a result of our ipo . adjusted diluted earnings per share . compared to 2018 , adjusted diluted earnings per share increased from $ 1.08 to $ 1.12 on a reported basis and increased from $ 1.03 to $ 1.12 on a constant-currency basis as a result of higher adjusted net income , partially offset by increased shares outstanding as a result of our ipo . 35 financial information presentation fiscal year . we use a 52- or 53-week fiscal year , with each fiscal year ending on the sunday that is closest to november 30 of that year . certain of our foreign subsidiaries have fiscal years ending november 30. each fiscal year generally consists of four 13-week quarters , with each quarter ending on the sunday that is closest to the last day of the last month of that quarter . fiscal years 2019 , 2018 and 2017 were 52-week years ending on november 24 , 2019 , november 25 , 2018 and november 26 , 2017 , respectively . fiscal 2020 will be a 53-week year . each quarter of fiscal years 2019 , 2018 and 2017 consisted of 13 weeks . the fourth quarter of 2020 will consist of 14 weeks . segments . we manage our business according to three operating segments : americas , europe and asia . classification . our classification of certain significant revenues and expenses reflects the following : net revenues comprise net sales and licensing revenues . net sales include sales of products to wholesale customers , including franchised stores , and direct sales to consumers at our company-operated stores and shop-in-shops located within department stores and other third party locations , as well as company-operated e-commerce sites . net revenues include discounts , allowances
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we are actively seeking ways to improve our capital structure and reduce our overall cost of capital . we believe that the improving end markets for our products combined with our improved operating performance will be a benefit in achieving those efforts . as a part of that , in the second quarter of 2018 , we refinanced our outstanding senior secured notes . we will continue to actively seek ways to improve our capital structure going forward . we may not successfully implement any or all of these initiatives . even if we successfully implement the initiatives , they may not achieve the results that we expect or desire . business developments - 2018 financing transaction and series e redeemable preferred letter agreement as discussed in note 7 to the consolidated financial statements , on april 25 , 2018 ( the date of the “ financing transactions ” ) , we issued $ 400 million aggregate principal amount of 9.625 % senior secured notes due 2023 ( the “ senior secured notes ” ) . most of the net proceeds from the senior secured notes were used to repurchase all of our senior secured notes due 2019. as discussed in note 11 , in connection with the financing transactions discussed above , we entered into a letter agreement with the holder of our series e redeemable preferred to extend the date upon which a holder of series e redeemable preferred has the right to elect to have such holder 's shares of series e redeemable preferred redeemed by us from august 2 , 2019 to october 25 , 2023. the letter agreement also provides for the amendment of certain other terms relating to the series e redeemable preferred , including an increase in the per annum dividend rate payable in respect of the series e redeemable preferred ( a ) by 0.50 % on the third anniversary of the financing transactions , ( b ) by an additional 0.50 % on the fourth anniversary of the financing transactions and ( c ) by an additional 1.0 % on the fifth anniversary of the financing transactions . completion of a turnaround at cherokee during 2018 , we successfully completed a 35-day turnaround performed on our plants at our cherokee facility . the next turnaround for this facility is scheduled in 2021. see additional discussion below under “ items affecting comparability of results. ” sale of certain non-core assets during 2018 , we sold certain non-core assets ( primarily real estate properties ) for approximately $ 6.0 million of net proceeds and recognized a net gain of approximately $ 2.4 million that is included in other income . we continue to evaluate our assets to determine if there are additional non-core assets that we should consider monetizing . key industry factors supply and demand agricultural sales of our agricultural products were approximatel y 50 % of ou r total net sales for 2018. the price at which our agricultural products are ultimately sold depends on numerous factors , including the supply and demand for nitrogen fertilizers which , in turn , depends upon world grain demand and production levels , the cost and availability of transportation and storage , weather conditions , competitive pricing and the availability of imports . additionally , expansions or upgrades of competitors ' facilities and international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics . these factors can affect , in addition to selling prices , the level of inventories in the market which can cause price volatility and effect product margins . 29 additionally , changes in corn prices and those of soybean , cotton and wheat prices , can affect the number of acres of corn planted in a given year , and the number of acres planted will drive th e level of nitrogen fertilizer consumption , likely effecting prices . industry reports indicated china 's recent tariffs placed on u.s. soybeans could result in a shift of 2 to 4 million acres that will be rotated from soybeans to corn in th is next planting season . the usda also estimates an increase in 2019 corn acres that is in line with other industry reports ranging between 92 million to 93 million acres . soybean pricing concerns may drive crop planting selection when final crop choices are made at the farm level . the following february estimates are associated with the corn market : replace_table_token_6_th ( 1 ) information obtained from wasde reports dated february 8 , 2019 ( february report ) for the 2018/2019 ( “ 2019 crop ” ) , 2017/2018 ( “ 2018 crop ” ) and 2016/2017 ( “ 2016 ” ) corn marketing years . ( 2 ) represents the percentage change between the 2019 crop amounts compared to the 2018 crop amounts . ( 3 ) represents the percentage change between the 2019 crop amounts compared to the 2017 crop amounts . on the supply side , given the low price of natural gas in north america over the last several years , north american fertilizer producers have become the global low-cost producers for delivered fertilizer products to the midwest u.s. several years ago , the market believed that low natural gas prices would continue . that belief , combined with favorable fertilizer pricing , stimulated investment in numerous expansions of existing nitrogen chemical facilities and the construction of new nitrogen chemical facilities . since those announcements , global nitrogen fertilizer supply has outpaced global nitrogen fertilizer demand causing oversupply in the global and north american markets . the increased fertilizer supply led to lower nitrogen fertilizer sale prices during most of 2017. also , additional domestic supply of ammonia and other fertilizer products changed the physical flow of ammonia in north america placing pressure on ammonia and other fertilizer prices until the distribution system accepted the new supply . story_separator_special_tag beginning in the fourth quarter of 2017 and through 2018 , we have seen an increase in fertilizer prices as imports of fertilizers have decreased significantly and the distribution of the new domestic supply of fertilizer has been established . we expect this trend to continue into 2019. industrial sales of our industrial products were approximately 39 % of our total net sales for 2018. our industrial products sales volumes are dependent upon general economic conditions primarily in the housing , automotive , and paper industries . according to the american chemistry council , the u.s. economic indicators continue to be positive for these sectors domestically . our sales prices generally vary with the market price of ammonia or natural gas , as applicable , in our pricing arrangements with customers . mining sales of our mining products were approximately 11 % of o ur total net sales for 2018. our mining products are ldan and an solutions , which are primary used as an fuel oil and specialty emulsions for surface mining of coal and for usage in quarries and the construction industry . as reported by the eia , annual coal production in the u.s. for the full year of 2018 is down 3 % from 2017 due to this market 's weak competitive position in the electrical generation sector compared with natural gas and to a lesser degree lower export demand . eia is forecasting another 3 % decrease in u.s. coal production in 2019 followed by a continued decline of 7 % in 2020. this estimated decline is based on the continual shift in utility-scale electricity generation from coal to natural gas . we believe that coal production in the u.s. continues to face significant challenges from competition from natural gas and renewable sources of energy . while we believe , our plants are well located to support the more stable coal-producing regions in the upcoming years , our current mining sales volumes are being affected by overall lower customer demand for ldan . as part of our continued effort to expand sales of our mining products , we entered into an agreement with a current customer , by which the customer has located an emulsion explosives plant at our el dorado facility . we will continue to explore further guest plant opportunities in 2019. farmer economics the demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers . individual farmers make planting decisions based largely on prospective profitability of a harvest , while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources , soil conditions , weather patterns and the types of crops planted . natural gas prices natural gas is the primary feedstock used to produce nitrogen fertilizers at our manufacturing facilities . in recent years , u.s. natural gas reserves have increased significantly due to , among other factors , advances in extracting shale gas , which has reduced and 30 stabilized natural gas prices , providing north america with a cost advantage over certain imports . as a result , our competitive position and that of other north american nitrogen fertilizer producer s has been positively affected . we historically have purchased natural gas in the spot market , using forward purchase contracts , or through a combination of both and have used forward purchase contracts to lock in pricing for a portion of our natural gas requirements . these forward purchase contracts are generally either fixed-price or index-price , short-term in nature and for a fixed supply quantity . we are able to purchase natural gas at competitive prices due to our connections to large distribution systems and their proximity to interstate pipeline systems . the following table shows the annual volume of natural gas we purchased and the average cost per mmbtu : replace_table_token_7_th transportation costs costs for transporting nitrogen-based products can be significant relative to their selling price . for example , ammonia is a hazardous gas at ambient temperatures and must be transported in specialized equipment , which is more expensive than other forms of nitrogen fertilizers . in recent years , a significant amount of the ammonia consumed annually in the u.s. was imported . therefore , nitrogen fertilizers prices in the u.s. are influenced by the cost to transport product from exporting countries , giving domestic producers who transport shorter distances an advantage . however , we continue to evaluate the recent rising costs of rail and truck freight domestically . higher transportation costs may impact our margins if we are not able to pass through these costs . as a result , we continue to evaluate supply chain efficiencies to reduce or counter the impact of higher logistics costs . key operational factors facility reliability consistent , reliable and safe operations at our chemical plants are critical to our financial performance and results of operations . the financial effects of planned downtime at our plants , including turnarounds is mitigated through a diligent planning process that considers the availability of resources to perform the needed maintenance , feedstock logistics and other factors . unplanned downtime of our plants typically results in lost contribution margin from lost sales of our products , lost fixed cost absorption from lower production of our products and increased costs related to repairs and maintenance . all turnarounds result in lost contribution margin from lost sales of our products , lost fixed cost absorption from lower production of our products , and increased costs related to repairs and maintenance , which repair , and maintenance costs are expensed as incurred . also see the turnaround costs presented in the quarterly financial data of the consolidated financial statements included in this report .
| at our el dorado facility , the ammonia plant 's on-stream rate for 2018 was 88 % compared to 86 % for the same period of 2017. the ammonia plant 's on-stream rate for 2018 was impacted by maintenance completed on its boiler relating to tube failures caused by a power outage during june 2018. the el dorado facility 's ammonia plant operated at 93 % during the second half of 2018 and we are targeting an ammonia plant average on-stream rate for 2019 of 95 % . at our pryor facility , the on-stream rate for 2018 for our ammonia plant increased to 89 % from 69 % in 2017. despite having to perform maintenance to repair leaks in the ammonia plant 's waste heat boiler during 2018 , this was the pryor facility 's best full year performance since we brought the facility online in 2010. we view this result as an indication that the leadership changes in personnel and reliability investments made , coupled with the maintenance management systems , procedures and preventative maintenance programs being implementing are yielding positive results . while we anticipate brief periods of unscheduled downtime during 2019 as we continue to take actions to improve long-term reliability , we are targeting an ammonia plant average on-stream rate for 2019 of 90 % . we believe that our focus on improving on-stream rates as discussed in key operating initiatives will continue to improve our overall on-stream rate for 2019. selling prices during 2018 , we experienced improved selling prices for our agricultural products compared to 2017. average selling prices for our ammonia , uan and hdan increased 16 % , 15 % and 11 % , respectively compared to 2017 average selling prices . this increase reflects a more favorable alignment of demand with market capacity for these products . we expect these overall sales price levels to continue into 2019. our 2018 average industrial selling prices for our ammonia also improved compared to 2017 . 2018 average tampa ammonia pricing improved 12 % as compared to 2017 and many of our industrial contracts are indexed to the tampa ammonia price . depreciation expense during 2018 and 2017 , depreciation expense was $ 70.3 million and $ 67.0 million , respectively . for 2018 , approximately $ 2.0 million relates to accelerated depreciation at the el dorado
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as such , microarrays provide repeatable , standardized assays for certain subsets of nucleotide bases within the overall genome . during 2010 , microarray product sales increased as compared to 2009 , led by : the launch of the omni 2.5 , a four sample beadchip enabling interrogation of approximately 2.5 million markers per sample ; growth in sales of focused content arrays primarily from use for genetic screening in applied markets such as agriculture and fine mapping for follow up to gwas projects ; and the launch of the hiscansq , our instrument that integrates next-generation sequencing with genotyping and gene expression arrays . as additional new rare variant content becomes available from the 1000 genomes project , an international research effort launched in 2008 to establish the most detailed catalog of human genetic variation , we plan to launch a microarray that will feature approximately five million markers per sample . we expect to begin customer shipments of this product in mid-2011 . however , the launch of this product will depend on the timing of the release of new content from the 1000 genomes project . we believe new product introductions as new content becomes available will continue to drive growth in the sales of our microarray products . american recovery and reinvestment act of 2009 ( the recovery act ) the recovery act was enacted in february 2009 to provide stimulus to the u.s. economy in the wake of the economic downturn . as part of the recovery act legislation , over $ 10.0 billion in funding was provided to the national institutes of health ( nih ) to support the advancement of scientific research . while it is not possible to precisely quantify the net impact of orders resulting from the recovery act due to the uncertainty surrounding orders that would have been received in absence of stimulus , we believe approximately $ 70.4 million in orders during 2010 were directly related to recovery act grants . we believe recovery act funds will continue to be spent by our customers through 2012. gross margin our gross profit as a percentage of revenue ( gross margin ) decreased during 2010 as compared to 2009 due to the effects of discounts provided to customers on the sales of hiseq 2000s associated with promotional programs , including the genome analyzer trade-in program , and lower margins on our newer products , such as the hiseq 2000. over the course of 2011 , we expect our gross margin to improve as the genome analyzer trade-in program is completed and sales of consumables , which generally carry a higher gross margin than instruments , increase as a percentage of total revenue . we also expect improved manufacturing efficiency for the hiseq 2000 to improve gross margin in 2011. operating expense we expect to incur additional operating costs to support the expected growth in our business . we believe a substantial investment in research and development is essential to remain competitive and expand into additional markets . accordingly , we expect our research and development expenses to increase in absolute dollars as we continue to expand our product base . selling , general and administrative expenses are also 33 expected to increase in absolute dollars as we invest in staff and infrastructure to support top line growth and global expansion . income taxes the provision for income taxes is dependent on the mix of earnings in tax jurisdictions with different statutory tax rates and the other factors discussed in the risk factor we are subject to risks related to taxation in multiple jurisdictions and the possible loss of the tax deduction on our outstanding convertible notes in item 1a of this form 10-k. for 2011 and beyond , we anticipate increased earnings in higher tax jurisdictions , which may adversely impact the provision for income taxes . due to the expected utilization of the majority of our net operating loss carryforwards and u.s. federal research and development tax credit carryforwards , we anticipate significant income tax payments in 2011 and beyond . results of operations to enhance comparability , the following table sets forth audited consolidated statement of operations data for the years ended january 2 , 2011 , january 3 , 2010 and december 28 , 2008 stated as a percentage of total revenue . replace_table_token_5_th 34 comparison of 2010 and 2009 our fiscal year is the 52 or 53 weeks ending the sunday closest to december 31 , with quarters of 13 or 14 weeks ending the sunday closest to march 31 , june 30 , september 30 , and december 31. the year ended january 2 , 2011 was 52 weeks and the year ended january 3 , 2010 was 53 weeks . revenue replace_table_token_6_th revenue product revenue consists primarily of revenue from the sale of consumables and instruments . consumable revenue increased $ 113.7 million , or 29 % , to $ 505.0 million for 2010 compared to $ 391.3 million for 2009. microarray consumable revenue , which constituted more than half of our total consumable revenue , increased $ 28.3 million primarily attributable to growth in sales of our infinium beadchips , which constituted a majority of our microarray consumable sales . sales volume of our infinium beadchip products increased on a per sample basis during 2010 compared to 2009. the average selling price per sample , however , declined due to a change in product mix primarily attributable to growth in sales of our focused content arrays and a number of large sample volume purchase orders that incurred higher discounts . revenue from sequencing consumables increased $ 85.4 million due to growth in the installed base of our sequencing systems . revenue from the sale of instruments increased $ 98.9 million , or 44 % , to $ 324.6 million for 2010 compared to $ 225.7 million for 2009. sequencing instrument revenue increased $ 85.7 million . story_separator_special_tag we experienced increases in both the number of units sold and average selling prices per unit for our sequencing systems during 2010 compared to 2009. unit growth was due to increased demand for next-generation sequencing systems . the increase in average selling prices was primarily attributable to the launch of the hiseq 2000 in q1 2010. microarray instrument revenue increased $ 13.2 million primarily attributable to strong demand for our hiscansq instrument launched in 2010. the launch of this system resulted in increases in both the number of units sold and average selling prices per unit for our microarray instruments during 2010 compared to 2009. the increase in service and other revenue , which includes extended warranty contracts and genotyping and sequencing services , was primarily attributable to an increase in extended warranty contracts for our growing installed base of sequencing systems . gross margin the decrease in gross margin was primarily attributable to the effect of discounts provided to customers on the sales of hiseq 2000 associated with promotional programs , including the genome analyzer trade-in program , and lower margins on our newer products , such as the hiseq 2000. see revenue recognition in note 1 . organization and summary of significant accounting policies in part ii , item 8 , of this form 10-k for additional information on the genome analyzer trade-in program . the impact of the promotional programs was partially offset by improved margins on sequencing consumables primarily attributable to improved overhead absorption from increased volumes and the benefit of decreased costs associated with chemistry improvements . 35 operating expense replace_table_token_7_th the increase in research and development expenses was primarily attributable to a $ 25.9 million increase in personnel expenses , including salaries , non-cash share-based compensation , and benefits , and an increase in other non-personnel expenses of $ 13.3 million comprised mostly of lab and production supplies expenses . these increases were primarily attributable to investments in new product development and commercialization along with projects to sustain and optimize our existing product portfolio . the increase in selling , general and administrative expenses was primarily attributable to a $ 31.8 million increase in personnel expenses , including salaries , non-cash share-based compensation , and benefits , associated with the growth of our business , and an increase in outside service expenses of $ 9.7 million comprised mostly of legal and marketing expenses . during 2010 , acquisition related ( gain ) expense , net , includes a gain of $ 10.4 million from a change in the fair value of contingent consideration related to an acquisition , partially offset by an acquired in-process research and development charge of $ 1.3 million related to a milestone payment made to the former shareholders of a company we acquired in 2008. during 2009 , acquisition related ( gain ) expense , net , included acquired in-process research and development charges of $ 11.3 million related to milestone payments made to the former shareholders of the company we acquired in 2008. other expense , net replace_table_token_8_th interest income decreased despite an increase in our average cash and investment balance due to an overall decline in interest rates during 2010 compared to 2009. the increase in interest expense was due to the amortization of the discount on our convertible senior notes . the change in other ( expense ) income , net , was primarily attributable to a $ 13.2 million impairment charge recorded in q4 2010 related to the impairment of a cost-method investment and a related note receivable ( see note 5 . impairment in part ii , item 8 of this form 10-k for additional information on this impairment ) partially offset by a $ 2.9 million gain recognized in q2 2010 on the acquisition of helixis , inc. , which represented the difference between the carrying value of our cost-method investment in helixis , inc. prior to acquisition and the fair value of that investment at the time of acquisition . provision for income taxes replace_table_token_9_th 36 the decrease in the effective tax rate was primarily attributable to the gain recorded on the change in the fair value of contingent consideration related to our acquisition of helixis , inc. that is excluded from taxable income and a decrease in nondeductible acquired ipr & d recognized for financial reporting purposes in 2010 as compared to 2009. comparison of 2009 and 2008 our fiscal year is 52 or 53 weeks ending the sunday closest to december 31 , with quarters of 13 or 14 weeks ending the sunday closest to march 31 , june 30 , september 30 , and december 31. the year ended january 3 , 2010 was 53 weeks and the year ended december 28 , 2008 was 52 weeks . revenue replace_table_token_10_th revenue product revenue consists primarily of revenue from the sale of consumables and instruments . consumable revenue increased $ 57.6 million , or 17 % , to $ 391.3 million for 2009 compared to $ 333.7 million for 2008. microarray consumable revenue , which constituted more than half of our consumable revenue , declined $ 11.4 million primarily attributable to lower sales of whole-genome genotyping arrays partially offset by growth in focused content arrays . the decline was driven by customers delaying the start of new gwas in anticipation of new and rare variant content from the 1000 genome project , order delays directly related to stimulus funding under the recovery act , and the impact of reduced foundation funding at a few key customers . sales volume for our infinium beadchip product lines , which constituted a majority of our microarray consumable sales , was relatively flat on a sample basis during 2009 compared to 2008. the average selling price per sample , however , declined due to a change in product mix attributable to growth in the sales of our focused content arrays coupled with lower sales of whole-genome genotyping arrays .
| we incurred $ 52.7 million in capital expenditures primarily associated with the expansion of our facilities and infrastructure at our san diego , hayward and uk locations . financing activities cash provided by financing activities totaled $ 116.5 million in 2010. we received $ 118.0 million in proceeds from the issuance of our common stock through the exercise of stock options and warrants and under our employee stock purchase plan . we also received $ 42.4 million in incremental tax benefit related to stock options exercised . these increases were partially offset by common stock repurchases of $ 44.0 million . cash used in financing activities totaled $ 98.9 million in 2009. during the year we repurchased approximately 6.1 million shares of our common stock for $ 175.1 million , which was partially offset by $ 39.4 million in proceeds received from issuance of common stock through the exercise of stock options and under our employee stock purchase plan . we also received $ 39.3 million in incremental tax benefit related to stock options exercised . liquidity we manage our business to maximize operating cash flows as the primary source of our liquidity . our ability to generate cash from operations provides us with the financial flexibility we need to meet operating , investing , and financing needs . historically , we have issued debt and equity securities to finance our requirements to the extent that cash provided by operating activities was not sufficient to fund our needs . at january 2 , 2011 , we had approximately $ 894.3 million in cash and short-term investments . our short-term investments include marketable securities consisting of debt securities in government sponsored entities , corporate debt securities , and u.s. treasury notes . on february 16 , 2007 , we issued $ 400.0 million in principal of convertible senior notes that mature february 15 , 2014. we pay 0.625 % interest per annum on the principal
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this summary should be read in conjunction with a more complete discussion of our accounting policies included in note 2 – story_separator_special_tag face= '' times new roman , serif '' lang= '' en-us '' style= '' font-size:10.0pt ; '' > · percentage rent – revenue arising from retail tenant leases that is contingent upon the sales of tenants exceeding defined thresholds . these rents are recognized only after the contingency has been removed ( i.e. , when tenant sales thresholds have been achieved ) . · expense reimbursements – revenue arising from tenant leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes of the respective properties . this revenue is recognized in the same periods as the expenses are incurred . · parking income – revenue arising from the rental of parking space at our properties . this income is recognized as the service is provided . before we recognize revenue , we assess , among other things , its collectibility . if our assessment of the collectibility of revenue changes , the impact on our consolidated financial statements could be material . income taxes we operate in a manner intended to enable us to continue to qualify as a reit under sections 856 – 860 of the internal revenue code of 1986 , as amended ( the “ code ” ) . in order to maintain our qualification as a reit under the code , we must distribute at least 90 % of our taxable income to stockholders each year . we distribute to our stockholders 100 % of our taxable income and therefore , no provision for federal income taxes is required . if we fail to distribute the required amount of income to our stockholders , or fail to meet other reit requirements , we may fail to qualify as a reit , which may result in substantial adverse tax consequences . 25 results of operations – year ended december 31 , 2016 compared to december 31 , 2015 property rentals property rentals were $ 151,444,000 in the year ended december 31 , 2016 , compared to $ 138,688,000 in the prior year , an increase of $ 12,756,000. this increase was primarily due to ( i ) rental income of $ 7,271,000 from the alexander apartment tower , which was placed in service in phases beginning july 2015 , ( ii ) higher rental income of $ 3,366,000 from the january 2016 lease amendment with bloomberg at 731 lexington avenue and ( iii ) income of $ 2,257,000 resulting from a tenant lease termination at our rego park ii property . expense reimbursements tenant expense reimbursements were $ 75,492,000 in the year ended december 31 , 2016 , compared to $ 69,227,000 in the prior year , an increase of $ 6,265,000. this increase was primarily due to ( i ) higher recoveries of real estate taxes and operating expenses from bloomberg at 731 lexington avenue as a result of the january 2016 lease amendment , which converted 192,000 square feet from a gross basis to a net rent basis and ( ii ) higher reimbursable real estate taxes , partially offset by ( iii ) lower reimbursable operating expenses . operating expenses operating expenses were $ 82,232,000 in the year ended december 31 , 2016 , compared to $ 76,218,000 in the prior year , an increase of $ 6,014,000. this increase was primarily due to ( i ) higher operating expenses of $ 2,494,000 related to the alexander apartment tower , which was placed in service in phases beginning july 2015 , ( ii ) higher reimbursable real estate taxes of $ 3,703,000 and ( iii ) higher bad debt expense of $ 871,000 , partially offset by ( iv ) lower reimbursable operating expenses of $ 1,068,000. depreciation and amortization depreciation and amortization was $ 33,807,000 in the year ended december 31 , 2016 , compared to $ 31,086,000 in the prior year , an increase of $ 2,721,000. this increase was primarily due to additional depreciation related to the alexander apartment tower , which was placed in service in phases beginning july 2015. general and administrative expenses general and administrative expenses were $ 5,436,000 in the year ended december 31 , 2016 , compared to $ 5,406,000 in the prior year , an increase of $ 30,000. interest and other income , net interest and other income , net was $ 3,305,000 in the year ended december 31 , 2016 , compared to $ 5,949,000 in the prior year , a decrease of $ 2,644,000. this decrease was primarily due to $ 2,141,000 from a special dividend from our investment in common shares of macerich in 2015 and lower income of $ 1,275,000 in connection with bankruptcy recoveries . interest and debt expense interest and debt expense was $ 22,241,000 in the year ended december 31 , 2016 , compared to $ 24,239,000 in the prior year , a decrease of $ 1,998,000. this decrease was primarily due to savings of $ 5,631,000 resulting from the refinancing of the retail portion of 731 lexington avenue on august 5 , 2015 at libor plus 1.40 % , or 2.05 % as of december 31 , 2016 ( the prior loan had a fixed rate of 4.93 % ) ; partially offset by lower capitalized interest of $ 1,486,000 as a result of completing the development of the alexander apartment tower and higher average libor of $ 2,066,000. income taxes income tax expense was $ 48,000 in the year ended december 31 , 2016 , compared to $ 8,000 in the prior year . story_separator_special_tag 26 results of operations – year ended december 31 , 2015 compared to december 31 , 2014 property rentals property rentals were $ 138,688,000 in the year ended december 31 , 2015 , compared to $ 136,628,000 in the prior year , an increase of $ 2,060,000. this increase was primarily due to higher straight-line rental income of $ 979,000 at our 731 lexington avenue property resulting from the extensions of two of bloomberg 's leases in october 2014 that were scheduled to expire in december 2015. in addition , there was higher straight-line rental income of $ 524,000 from a new tenant at our rego park ii property and rental income of $ 364,000 from leasing activity at the alexander apartment tower , which was placed in service in phases beginning july 2015. expense reimbursements tenant expense reimbursements were $ 69,227,000 in the year ended december 31 , 2015 , compared to $ 64,186,000 in the prior year , an increase of $ 5,041,000. this increase was primarily due to higher reimbursable real estate taxes and higher reimbursable operating expenses . operating expenses operating expenses were $ 76,218,000 in the year ended december 31 , 2015 , compared to $ 69,897,000 in the prior year , an increase of $ 6,321,000. this increase was due to ( i ) higher real estate taxes of $ 4,438,000 ; ( ii ) higher reimbursable operating expenses of $ 1,904,000 ; and ( iii ) higher operating expenses of $ 1,565,000 related to the alexander apartment tower , which was placed in service in phases beginning july 2015 , partially offset by ( iv ) lower bad debt expense of $ 1,019,000 and lower non-reimbursable expenses of $ 567,000. depreciation and amortization depreciation and amortization was $ 31,086,000 in the year ended december 31 , 2015 , compared to $ 29,196,000 in the prior year , an increase of $ 1,890,000. this increase was primarily due to depreciation related to the alexander apartment tower , which was placed in service in phases beginning july 2015. general and administrative expenses general and administrative expenses were $ 5,406,000 in the year ended december 31 , 2015 , compared to $ 5,032,000 in the prior year , an increase of $ 374,000. this increase was primarily due to higher stock-based compensation expense as a result of deferred stock units granted to a newly appointed member of our board of directors during the second quarter of 2015 , comprised of an initial award of $ 150,000 and a $ 56,000 annual award . interest and other income , net interest and other income , net was $ 5,949,000 in the year ended december 31 , 2015 , compared to $ 2,434,000 in the prior year , an increase of $ 3,515,000. this increase was primarily due to ( i ) $ 2,141,000 from a special dividend from our investment in common shares of macerich and ( ii ) $ 2,100,000 of income in connection with bankruptcy recoveries , partially offset by ( iii ) lease termination income of $ 800,000 in the prior year . interest and debt expense interest and debt expense was $ 24,239,000 in the year ended december 31 , 2015 , compared to $ 32,068,000 in the prior year , a decrease of $ 7,829,000. this decrease was primarily due to ( i ) savings of $ 4,160,000 resulting from the refinancing of the retail portion of 731 lexington avenue on august 5 , 2015 at libor plus 1.40 % , or 1.67 % as of december 31 , 2015 ( the prior loan had a fixed rate of 4.93 % ) ; ( ii ) savings of $ 2,081,000 resulting from the refinancing of the office portion of 731 lexington avenue on february 28 , 2014 at libor plus 0.95 % , or 1.28 % as of december 31 , 2015 ( the prior loan had a fixed rate of 5.33 % ) ; and ( iii ) higher capitalized interest costs of $ 883,000 during the current year related to the development of the alexander apartment tower . income taxes income tax expense was $ 8,000 in the year ended december 31 , 2015 , compared to an income tax benefit of $ 341,000 in the prior year . the income tax benefit in the prior year resulted from a reversal of tax liabilities after the expiration of the applicable statute of limitations . income from discontinued operations income from discontinued operations was $ 529,000 in the year ended december 31 , 2014 , representing the reversal of previously accrued liabilities related to kings plaza regional shopping center ( “ kings plaza ” ) , which was sold in 2012 . 27 related party transactions vornado steven roth is the chairman of our board of directors and chief executive officer , the managing general partner of interstate properties ( “ interstate ” ) , a new jersey general partnership , and the chairman of the board of trustees and chief executive officer of vornado . as of december 31 , 2016 , mr. roth , interstate and its other two general partners , david mandelbaum and russell b. wight , jr. ( who are also directors of the company and trustees of vornado ) owned , in the aggregate , 26.3 % of our outstanding common stock , in addition to the 2.2 % they indirectly own through vornado . joseph macnow , our executive vice president and chief financial officer , is the executive vice president – finance and chief administrative officer of vornado . stephen w. theriot , our assistant treasurer , is the chief financial officer of vornado . as of december 31 , 2016 , vornado owned 32.4 % of our outstanding common stock . we are managed by , and our properties are leased and developed by , vornado , pursuant to various agreements , which expire in march of each year and are automatically renewable .
| for our development properties , estimates of future cash flows also include all future expenditures necessary to develop the asset , including interest payments that will be capitalized as part of the cost of the asset . an impairment loss is recognized only if the carrying amount of the asset is not recoverable and is measured based on the excess of the property 's carrying amount over its estimated fair value . if our estimates of future cash flows , anticipated holding periods , or fair values change , based on market conditions or otherwise , our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements . estimates of future cash flows are subjective and are based , in part , on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results . plans to hold properties over longer periods decrease the likelihood of recording impairment losses . allowance for doubtful accounts we periodically evaluate the collectibility of amounts due from tenants , including the receivable arising from the straight-lining of rents , and maintain an allowance for doubtful accounts ( $ 1,473,000 and $ 918,000 as of december 31 , 2016 and 2015 , respectively ) for estimated losses resulting from the inability of tenants to make required payments under the lease agreements . we exercise judgment in establishing these allowances and consider payment history and current credit status in developing these estimates . these estimates may differ from actual results , which could be material to our consolidated financial statements . revenue recognition we have the following revenue sources and revenue recognition policies : · base rent – revenue arising from tenant leases . these rents are recognized over the non-cancelable term of the related leases on a straight-line basis , which includes the effects of rent steps and free rent abatements under the leases . we commence rental revenue recognition when the tenant takes possession of the
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payroll expense at the corporate level also increased as the company expanded its management and accounting resources to match the increased scope of its operations . commission expense commission expense was $ 4.3 million in 2014 and was incurred by fortegra , since its acquisition , on most of its revenue classes , including commissions paid to distributors and retailers selling credit insurance policies , motor club memberships , mobile device protection and warranty service contracts . credit insurance commission rates are , in many instances , set by state regulators and are also impacted by market conditions . member benefit claims member benefit claims were $ 2.7 million in 2014 and were incurred by fortegra in the period since its acquisition . member benefit claims represent costs of services and replacement devices incurred on motor club and protectcell warranty protection programs . net losses and loss adjustment expenses net losses and loss adjustment expenses were $ 3.2 million in 2014 and were incurred by fortegra in the period since its acquisition . net losses and loss adjustment expenses represent actual insurance claims paid , changes in unpaid claim reserves , net of amounts ceded , and the costs of administering said claims . incurred claims are impacted by loss frequency , which is a measure of the number of claims per unit of insured exposure and loss severity , which is based on the average size of claims . factors affecting loss frequency and loss severity include changes in claims reporting patterns , claims settlement patterns , judicial decisions , economic conditions , morbidity patterns and the attitudes of claimants towards settlements . professional fees professional fees include audit , legal , tax advice , consultancy and other professional fees . professional fee expenses are incurred by our subsidiary companies and tiptree and operating company . consolidated professional fee expense was $ 9.3 million in 2014 , compared to $ 7.1 million in 2013. the increase in professional fees is primarily attributable to higher audit and legal fees associated with the acquisition and sale of subsidiaries . depreciation and amortization expense depreciation and amortization expense relates to the depreciation and amortization of the company 's fixed assets , including buildings , leasehold improvements and other fixed assets . the company also incurs amortization expense on the intangible assets acquired as a result of the purchase of subsidiary companies . depreciation and amortization expense was $ 11.9 million in 2014 , compared to $ 2.0 million in 2013. the increase in depreciation and amortization expense in 2014 was attributable primarily to $ 4.4 million in amortization of intangible assets acquired in conjunction with the expansion in care joint ventures and due to $ 4.2 million in amortization of intangible assets acquired with the purchase of fortegra . 30 acquisition costs the company incurred costs of $ 6.1 million in connection with its acquisition of fortegra , including consultancy fees and accelerated stock vesting expenses , which are not expected to be recurring , and have been classified as acquisition costs . other expenses other expenses were $ 15.3 million in 2014 and $ 5.6 million in 2013. other expenses are incurred by all our segments and primarily consist of office and rent expenses , together with other expenses specific to each of the company 's operating segments . the increase in other expenses in 2014 was primarily attributable to the expansion in the company 's business activities including the acquisition of luxury in 2014 which added $ 2.9 million of other expenses and fortegra 's other expenses of $ 4.0 million incurred in the period since its acquisition . net income attributable to consolidated clos asc topic 810 , consolidations , requires the consolidation of a variable interest entity ( “ vie ” ) into the financial statements of the entity that is considered the vie 's primary beneficiary ( for further discussion , see note 13—clos and consolidated variable interest entities of the accompanying financial statements ) . the company has reviewed the clos it manages and determined that these clos should be consolidated into the company 's financial statements . new accounting guidance ( asu 2014-13 , consolidation ( topic 810 ) : measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity ) , enables the company to recognize the value of the financial liabilities of the clos as the residual value of : ( i ) the sum of the fair value of the financial assets and the carrying value of any non-financial assets held temporarily , less ( ii ) the sum of the fair value of any beneficial interests in the clos held by the company , including the fair value of subordinated debt and interest-only positions issued by the clos and unpaid compensation for management services provided by the company . the company has elected to early adopt this new accounting guidance and has also elected to apply it retrospectively for all relevant prior periods . previously , the company did not elect to fair value the debt issued by the clos , which resulted in potentially significant movements in the net income attributable to clos as a result of the mark-to-market valuation of the assets of the clos but not the mark-to-market valuation of the debt issued by the clos . the impact of the early adoption of the change in accounting guidance is that the net income attributed to consolidated clos now represents the company 's economic interests in the clos , which includes realized and unrealized gains and losses on the subordinated debt and interest-only positions of the clos held by the company , distributions earned on such debt and positions and the clo management fees earned by the company . both income and expenses attributable to consolidated clos increased over the prior year , primarily due to the increased number of clos managed by the company . story_separator_special_tag on december 31 , 2014 , the company managed six clos , compared to four clos on december 31 , 2013. the net income attributable to clos was $ 19.5 million in 2014 , compared to $ 28.9 million in 2013. the decrease in net income in 2014 was primarily attributable to the decline in the net value of subordinated notes held by the company in 2014 and by a reduction in management fees earned by the company in 2014. the components of net income attributable to the consolidated clos are tabulated below : replace_table_token_5_th the net income attributable to consolidated clos has been allocated to the asset management segment ( representing the fees earned from the management of clos ) and to the corporate and other segment ( representing the distributions earned on the clo subordinated debt and interest-only positions held by the company and realized and unrealized gains and losses on such 31 debt and positions ) . the expenses the company incurs in connection with the management of the clos have also been allocated to the asset management segment . for further discussion of the company 's clo income and the costs the company incurs associated with the management of the clos , which are not included in the table above , see “ — segment reporting — segment results - year ended december 31 , 2014 compared to year ended december 31 , 2013 —asset management ” and “ — segment reporting — segment results - year ended december 31 , 2014 compared to year ended december 31 , 2013 — corporate and other ” . provision for income taxes the provision for income taxes increased in 2014 over the prior year primarily due to state income taxes , non-deductible transaction costs incurred on the fortegra transaction and the effect of changes in valuation allowance on net operating losses reported by tiptree financial , siena , luxury and mfca . the effective tax rate on income from continuing operations for the year ended december 31 , 2014 was approximately 525.5 % compared to 3.44 % for the prior year end ( which does not bear a customary relationship to statutory income tax rates ) . differences from the statutory income tax rates are primarily the result of : ( i ) non-deductible transaction costs incurred in the fortegra transactions ( ii ) the effect of changes in valuation allowance on net operating losses reported by tiptree financial , siena , luxury , and mfca , and ( iii ) the effect of state income taxes required to be reported on a separate legal entity basis resulting in higher aggregate state taxable income than the consolidated pre-tax income from continuing operations . discontinued operations , net discontinued operations , net totaled $ 7.9 million in 2014 , compared to $ 25.0 million in 2013. the components of discontinued operations in 2014 and 2013 are tabulated below : replace_table_token_6_th in 2013 , the company had a $ 15.5 million net gain from the sale of the bickford portfolio of properties which had been owned by care . there was no comparable gain on sale earned in 2014. net income from discontinued operations decreased to $ 7.9 million in 2014 from $ 9.6 million in 2013. the decline in net income from discontinued operations in 2014 is principally due to the absence of income from bickford operations as noted below . net income from discontinued operations at pfg increased slightly in 2014 , principally due to increased separate account fees of $ 1.1 million , resulting from increased assets held in separate accounts and higher account management fee rates . fees from the administration of hartford policies increased in 2014 by $ 1.1 million due to higher assets under administration . interest expense on pfas 's notes declined by $ 1.0 million due to the amortization of the principal amount outstanding . these gains were largely offset by an increase in depreciation and amortization expense of $ 1.4 million , principally due to the increase in depreciation expense incurred in 2014 in connection with the move of pfas 's physical location from new jersey to philadelphia and amortization expense relating to pfg 's intangible assets . other expenses in 2014 also increased as a result of the move . there were no comparable move-related expenses in 2013. pfg incurred tax expense of $ 6.1 million in 2013 and $ 5.5 million in 2014. included in income from discontinued operations in 2013 was net income of $ 1.6 million from the bickford portfolio which did not recur in 2014. for further information relating to the sale of pfg see the discussion of discontinued operations in part i of this document and note 5—dispositions , assets held for sale and discontinued operations , in the accompanying consolidated financial statements . net loss available to class a common stockholders net loss available to class a common stockholders for the year ended december 31 , 2014 was $ 1.7 million compared to net income of $ 10.4 million for the same period in 2013. the decline in net income available to class a common stockholders was primarily due to the decline in the company 's net income from $ 40.7 million in 2013 to $ 4.6 million in 2014 . 32 balance sheet information - year ended december 31 , 2014 compared to december 31 , 2013 the company 's total assets were $ 8.2 billion as of december 31 , 2014 , compared to $ 6.9 billion as of december 31 , 2013. the $ 1.3 billion increase in assets is primarily attributable to $ 760.2 million of assets acquired as a result of the purchase of fortegra in 2014 and an increase of $ 572 million in the assets of the consolidated clos as a result of the issuance of two new clos under management in 2014. total stockholders ' equity of the company increased to $ 401.7 million as of december 31 , 2014 compared to $ 396.9 million as of december 31 , 2013. total stockholders ' equity of tiptree
| net credit derivative revenue is the net total of premium income earned and premium expense incurred on our credit derivatives and net unrealized gains and losses from changes in the fair value of our credit derivative transactions . the net credit derivative loss of $ 1.6 million in 2014 was consistent with the net credit derivative loss of $ 1.8 million in 2013. service and administrative fees service and administrative fees were $ 8.7 million in 2014 and represent fees earned by fortegra , since its acquisition , from a number of different activities , but principally from the provision of warranty protection on furniture , equipment and cell phones . service fees are also earned through fortegra 's car club program , offering road side assistance to motorists and car damage protection plans . fortegra also earns administrative fees paid by reinsurance companies for insurance policies ceded by fortegra to the reinsurer . the fee covers fortegra 's administrative cost for issuing the policies plus a profit margin . ceding commissions ceding commissions were $ 3.7 million in 2014 and represent commissions earned by fortegra , since its acquisition , under coinsurance agreements with third party insurers that are based on contractual formulas that take into account , in part , underwriting performance and investment returns experienced by companies assuming the insurance risks . as experience changes , adjustments to ceding commissions are reflected in the period and are based on the claim and investment experience of the related polices . earned premium , net earned premium , net , was $ 12.8 million in 2014 and represent direct and assumed earned premiums generated by fortegra , since its acquisition , from the direct sale of payment protection insurance policies by fortegra 's distributors and premiums written for payment protection insurance policies by another carrier and assumed by fortegra . the underlying insurance plans primarily relate to credit protection in the event of job loss or disability . further discussion of service and administrative fee income , ceding fees and commissions and net earned premium earned by fortegra in the
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the execution of this project , which we refer to as project one , is being supported by internal resources and consulting services . during 2013 , a project team was formed and the global blueprint for the software configuration was designed and built . in the latter half of 2013 and in the early months of 2014 , the global blueprint was applied to the specific requirements of our north america adhesives business , the software was tested and the user groups were trained . on april 6 , 2014 , our north america adhesives business went live . the implementation process proved to be more difficult than we originally anticipated resulting in disruptions in our manufacturing network , lower productivity and deteriorated customer service levels . by the end of 2014 , most of the problems associated with the software implementation had been remediated and the business was stable and running at capacity with productivity levels approaching the levels experienced prior to the new software implementation . in 2017 , we re-initiated project one and began the implementation of our erp system in argentina . the project work was completed at the end of fiscal 2017 and the system went live at the beginning of fiscal 2018. we expect full implementation of our erp system in latin america in early 2019 , followed by continued implementation in north america ( including our acquired businesses and construction products business ) , eimea and asia pacific . total expenditures for project one are estimated to be $ 125 to $ 150 million , of which 50-60 % is expected to be capital expenditures . our total project-to-date expenditures are approximately $ 50 million , of which approximately $ 33 million are capital expenditures . given the complexity of the implementation , the total investment to complete the project may exceed our estimate . 19 restructuring plan on december 7 , 2016 , the company approved a restructuring plan ( the “ 2017 restructuring plan ” ) related to organizational changes and other actions to optimize operations . in implementing the 2017 restructuring plan , we expect to incur pre-tax costs of approximately $ 20.0 million which includes severance and related employee costs and costs related to the optimization of production facilities , streamlining of processes , rationalization of product offerings and accelerated depreciation of long-lived assets . the 2017 restructuring plan was implemented in the first quarter of 2017 and is currently expected to be completed by mid-year of fiscal 2018. during the year ended december 2 , 2017 , we recorded a pre-tax charge of $ 18.0 million related to the 2017 restructuring plan . federal income tax reform on december 22 , 2017 , the president of the united states signed into law h.r . 1 , originally known as the “ tax cuts and jobs act ” , hereafter referred to as “ u.s . tax reform ” . the company is in the process of determining the impact to the financial statements of all aspects of u.s. tax reform and will reflect the impact of such reform in the financial statements during the period in which such amounts can be reasonably estimated . u.s. tax reform includes a number of provisions , including the lowering of the u.s. corporate tax rate from 35 percent to 21 percent , effective january 1 , 2018 , which will result in a blended federal tax rate for fiscal year 2018. there are also provisions that may partially offset the benefit of such rate reduction , such as the repeal of the deduction for domestic production activities . u.s. tax reform also includes international provisions , which generally establish a territorial-style system for taxing foreign-source income of domestic multinational corporations . financial statement impacts will include adjustments for the re-measurement of deferred tax assets ( liabilities ) and the accrual for deemed repatriation tax on unremitted foreign earnings and profits . the company anticipates that the impact of u.s. tax reform may be material to the income tax expense on the consolidated statement of income and related income tax balances on the consolidated balance sheet and statement of cash flow . critical accounting policies and significant estimates management 's discussion and analysis of our results of operations and financial condition are based upon the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . we believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are pension and other postretirement plan assumptions ; goodwill impairment assessment ; long-lived assets recoverability ; product , environmental and other litigation liabilities ; accounting for our contingent consideration liability ; income tax accounting ; and acquisition accounting . pension and other postretirement plan assumptions we sponsor defined-benefit pension plans in both the u.s. and non-u.s. entities . also in the u.s. , we sponsor other postretirement plans for health care and life insurance benefits . expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated . these calculations are based on our assumptions related to the discount rate , expected return on assets , projected salary increases and health care cost trend rates . note 10 to the consolidated financial statements includes disclosure of assumptions employed in these measurements for both the non-u.s. and u.s. plans . the discount rate assumption is determined using an actuarial yield curve approach , which results in a discount rate that reflects the characteristics of the plan . the approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan . story_separator_special_tag we use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan . a higher discount rate reduces the present value of the pension obligations . the discount rate for the u.s. pension plan was 3.73 percent at december 2 , 2017 , as compared to 4.10 percent at december 3 , 2016 and 4.30 percent at november 28 , 2015. net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year . a discount rate reduction of 0.5 percentage points at december 2 , 2017 would increase u.s. pension and other postretirement plan expense approximately $ 0.1 million ( pre-tax ) in fiscal 2018. discount rates for non-u.s. plans are determined in a manner consistent with the u.s. plans . 20 the expected long-term rate of return on plan assets assumption for the u.s. pension plan was 7.75 percent in 2017 , 2016 and 2015. our expected long-term rate of return on u.s. plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income . management , in conjunction with our external financial advisors , determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations . for 2017 , the expected long-term rate of return on the target equities allocation was 8.5 percent and the expected long-term rate of return on the target fixed-income allocation was 5.0 percent . the total plan rate of return assumption included an estimate of the effect of diversification and the plan expense . for 2018 , the expected long-term rate of return on assets will continue to be 7.75 percent with an expected long-term rate of return on the target equities allocation of 8.2 percent and an expected long-term rate of return on target fixed-income allocation of 5.6 percent . a change of 0.5 percentage points for the expected return on assets assumption would impact u.s. net pension and other postretirement plan expense by approximately $ 2.3 million ( pre-tax ) . management , in conjunction with our external financial advisors , uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets . the most recent 10-year and 20-year historical equity returns are shown in the table below . our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames . replace_table_token_5_th * beginning in 2006 , our target allocation migrated from 100 percent equities to our current allocation of 60 percent equities and 40 percent fixed-income . the historical actual rate of return for the fixed income of 8.1 percent is since inception ( 11 years , 11 months ) . the expected long- term rate of return on plan assets assumption for non-u.s. pension plans was a weighted-average of 6.21 percent in 2017 compared to 6.20 percent in 2016 and 6.22 percent in 2015. the expected long-term rate of return on plan assets assumption used in each non-u.s. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan . management , in conjunction with our external financial advisors , develops expected rates of return for each plan , considers expected long-term returns for each asset category in the plan , reviews expectations for inflation for each local jurisdiction , and estimates the effect of active management of the plan 's assets . our largest non-u.s. pension plans are in the united kingdom and germany . the expected long-term rate of return on plan assets for the united kingdom was 6.75 percent and the expected long-term rate of return on plan assets for germany was 5.75 percent . management , in conjunction with our external financial advisors , uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan . the projected salary increase assumption is based on historic trends and comparisons to the external market . higher rates of increase result in higher pension expenses . as this rate is also a long-term expected rate , it is less likely to change on an annual basis . in the u.s. , we have used the rate of 4.50 percent for 2017 , 2016 and 2015. benefits under the u.s. pension plan were locked-in as of may 31 , 2011 and no longer include compensation increases . the 4.50 percent rate is for the supplemental executive retirement plan only . projected salary increase assumptions for non-u.s. plans are determined in a manner consistent with the u.s. plans . goodwill goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase business combination . goodwill is assigned to reporting units at the date the goodwill is initially recorded . once goodwill has been assigned to a reporting unit , it no longer retains its association with a particular acquisition , and all the activities within a reporting unit are available to support the value of goodwill . accounting standards require us to test goodwill for impairment annually or more often if circumstances or events indicate a change in the estimated fair value may have occurred . the goodwill impairment analysis is a two-step process . the first step used to identify potential impairment involves comparing each reporting unit 's estimated fair value to its carrying value , including goodwill . we use a discounted cash flow approach to estimate the fair value of our reporting units . our judgment is required in developing the assumptions for the discounted cash flow model .
| ● inventory – changes in inventory resulted in a $ 10.6 million use of cash in 2017 compared to a $ 3.5 million use of cash in 2016 and a $ 4.6 million use of cash of in 2015. in 2017 , inventory levels increased due to higher raw material costs and to maintain service levels while integrating our acquisitions . in 2016 , inventory levels decreased slightly from 2015 related to normal activity . inventory days on hand were 59 days at the end of 2017 compared to 60 days at the end of 2016 and 60 days at the end of 2015 . 35 ● trade payables – changes in trade payables resulted in a $ 44.4 million source of cash in 2017 compared to a $ 12.3 million use of cash in 2016 and a $ 5.8 million source of cash in 2015. both comparisons were primarily related to the timing of payments . contributions to our pension and other postretirement benefit plans were $ 4.7 million , $ 6.6 million and $ 4.6 million in 2017 , 2016 and 2015 , respectively . income taxes payable resulted in a $ 15.0 million , $ 1.7 million and $ 1.4 million use of cash in 2017 , 2016 and 2015 , respectively . other assets resulted in a $ 13.0 million use of cash in 2017 , an $ 8.4 million use of cash in 2016 and a $ 12.0 million source of cash in 2015. accrued compensation was a $ 12.2 million , $ 0.9 million and a $ 6.0 million source of cash in 2017 , 2016 and 2015 , respectively . the source of cash in 2017 relates to higher accruals for our employee incentive plans and the source of cash in 2016 relates to lower payouts for our employee incentive plans . other operating activity was a $ 8.8 million use of cash in 2017 and a source of cash in $ 29.5 million and $ 22.6 million in 2016 and 2015 , respectively . this reflects the impact of a stronger u.s. dollar on certain foreign transactions in 2017 , 2016 and 2015. cash flows from investing activities from continuing operations ( $ in millions ) 2017 2016 2015
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we have and will continue to carefully review all rules , regulations , and orders and responding accordingly . if the current pace of the pandemic can not be slowed and the spread of covid-19 is not contained , our business operations could be further delayed or interrupted . we expect that government and health authorities may announce new or extend existing restrictions , which could require us to make further adjustments to our operations in order to comply with any such restrictions . we may also experience limitations in employee resources . in addition , our operations could be disrupted if any of our employees were suspected of having covid-19 , which could require quarantine of some or all such employees or closure of our facilities for disinfection . the duration of any business disruption can not be reasonably estimated at this time but may materially affect our ability to operate our business and result in additional costs . the extent to which the pandemic may impact our results will depend on future developments , which are highly uncertain and can not be predicted as of the date of this report , including new information that may emerge concerning the severity of the pandemic and steps taken to contain the pandemic or treat its impact , among others . nevertheless , the pandemic and the current financial , economic and capital markets environment , and future developments in the global supply chain and other areas present material uncertainty and risk with respect to our performance , financial condition , results of operations and cash flows . see also item 1a “ risk factors ” for more information . lease agreement on january 13 , 2021 , we entered into a lease agreement with westgate 200 , llc , pursuant to which we lease approximately 58,000 square feet in a building located in st. charles , missouri , and which we expect to occupy on or around april 15 , 2021. the lease , which commenced on january 13 , 2021 , is for a term of 63 months and provides for a base rent of $ 4.35 per square foot per year with 2.5 % annual increases and a three-month abatement , resulting in a base rent during the first year of $ 20,977 per month , increasing to a base rent during the fifth year of $ 23,147 per month . we will also pay our 29 % pro rata portion of the property taxes , operating expenses and insurance costs and are also responsible to pay for the utilities used on the premises . pursuant to the lease , the landlord will provide us with an improvement allowance of $ 150,000 towards the expenses incurred by us connection with the installation of approved office and bathroom improvements , together with the main electrical services for the premises , and we are responsible for any additional work necessary to ready the premises for our occupancy , such as installing furnishings , trade fixtures and equipment . we have two ( 2 ) options to renew the lease , each for an additional five ( 5 ) year period . securities purchase agreement on march 19 , 2021 , we entered into a securities purchase agreement with two institutional investors , pursuant to which we issued to each investor ( i ) a 10 % oid senior secured promissory note in the principal amount of $ 2,750,000 and ( ii ) a four-year warrant to purchase 200,000 shares of our common stock at an exercise price of $ 12.00 , subject to adjustments , which may be exercised on a cashless basis , for a purchase price of $ 2,500,000 each , or $ 5,000,000 in the aggregate . after deducting a placement fee and other expenses , we received net proceeds of $ 4,590,000. the notes bear interest at a rate of 10 % per annum and mature on december 19 , 2021. we may prepare the notes in whole or in part at any time or from time to time without penalty or premium upon at least five ( 5 ) days prior written notice , which notice period may be waived by the holder . in addition , if we issue and sell shares of our equity securities to investors on or before the maturity date in an equity financing with total gross proceeds of not less than $ 10,000,000 ( excluding the conversion of the notes or other convertible securities issued for capital raising purposes ) , then we must repay the then-outstanding principal amount of the notes and any accrued but unpaid interest . the notes are secured by a first priority security interest in all of our assets and contain customary events of default . upon , and during the continuance of , an event of default , the notes are convertible , in whole or in part , at the option of the holder into shares of common stock at a conversion price equal to $ 12.00 , or if lower , 80 % of the lowest volume weighted average price for the twenty ( 20 ) consecutive trading days prior to the applicable conversion date , but in no event less than $ 9.00. the conversion price will be appropriately adjusted for any stock dividend , stock split , stock combination , reclassification or similar transaction that proportionately decreases or increases the common stock . in addition , if we sell or grant any common stock or securities convertible into or exchangeable for common stock or grant any right to reprice such securities at an effective price per share that is lower than the then conversion price , the conversion price shall be reduced to such price , subject to certain exceptions set forth in the notes . story_separator_special_tag notwithstanding the foregoing , we shall not effect any conversion of a note , and a holder shall not have the right to convert any principal and or interest of a note , to the extent that after giving effect to the conversion the holder ( together with the holder 's affiliates and any persons acting as a group together with the holder or any of the holder 's affiliates ) would beneficially own over 4.99 % of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note . the holder may , upon not less than 61 days ' prior notice to us , increase or decrease such limitation , provided that such limitation in no event exceeds 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the note . the warrants also contain this beneficial ownership limitation . 35 the securities purchase agreement contains customary representations , warranties and covenants for a transaction of this type . pursuant to the securities purchase agreement , the investors were granted piggy-back registration rights with respect to the shares issuable upon conversion of the notes and exercise of the warrants . we also agreed that , until the date that no investor own any securities , we will timely file ( or obtain extensions in respect thereof and file within the applicable grace period ) all reports required to be filed by us pursuant to the exchange act even if we are not then subject to the reporting requirements of the exchange act . in addition , we agreed that , so long as any of the notes remain outstanding , neither our company , nor any subsidiary of our company , shall , without each investor 's written consent and subject to certain exceptions set forth in the securities purchase agreement : ● sell , lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business ; ● incur , create , assume or suffer to exist any lien on any of its property or assets , except for certain liens set forth in the purchase agreement ; ● incur or suffer to exist or guarantee any indebtedness that is senior to or pari passu with ( in priority of payment and performance ) our obligations under the securities purchase agreement except for non-equity linked indebtedness relating to the acquisition of inventory secured by certain liens ; ● pay , declare or set apart for such payment , any dividend or other distribution ( whether in cash , property or other securities ) on shares of capital stock , other than dividends on shares of common stock solely in the form of additional shares of common stock , or directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock ; ● redeem , repurchase or otherwise acquire in any one transaction or series of related transactions any shares of our capital stock or any warrants , rights or options to purchase or acquire any such shares , or repay any pari passu or subordinated indebtedness other than non-equity linked indebtedness relating to the acquisition of inventory secured by certain liens ; ● lend money , give credit , make advances to or enter into any transaction with any person , firm , joint venture or corporation , including , without limitation , officers , directors , employees , subsidiaries and affiliates of our company , except loans , credits or advances ( i ) in existence or committed on the closing date and which we have informed each investor in writing prior to the closing date , ( ii ) in regard to transactions with unaffiliated third parties , made in the ordinary course of business , or ( iii ) in regard to transactions with unaffiliated third parties , not in excess of $ 50,000 ; or ● repay any affiliate ( as defined in rule 144 ) of our company in connection with any indebtedness or accrued amounts owed to any such party . principal factors affecting our financial performance our operating results are primarily affected by the following factors : ● our ability to acquire new customers or retain existing customers ; ● our ability to offer competitive product pricing ; ● our ability to broaden product offerings ; ● industry demand and competition ; and ● market conditions and our market position . key financial operating metrics replace_table_token_3_th 36 a site session occurs when a person visits our website . an order occurs when a customer has visited our website and ordered one or more items and has paid for them . an order is paid for by our customer when the order is placed and booked as revenue by us when the order is shipped .. total revenues and total orders for any given month may not be equal for two primary reasons : ( 1 ) normal customer cancellations and ( 2 ) the time required to ship an order and recognize revenue . when there are no supply chain issues , the time from order to shipping is between 20 and 25 days . thus , an order made after the 10th of the current month will become revenue in the succeeding month , distorting the comparison between a months ' orders and its sales . in 2020 , supply chain issues increased the time up to 44 days from order to delivery . our site sessions increased to approximately 9.9 million in the year ended december 31 , 2020 , as compared to approximately 6.3 million in the year ended december 31 , 2019. these increased site sessions resulted in three-year highs for orders in the year ended december 31 , 2020. emerging growth company we qualify as an “ emerging growth company ” under the jobs act .
| in the first three months , sales were affected by working capital issues , which delayed the timing of ordering product to fulfill customer orders resulting in increased order cancellations . late in the second quarter and through the remainder of 2020 , we experienced delays in getting products from manufacturers whose production facilities were closed or operating at reduced capacity because of the coronavirus pandemic , which resulted in some cancellations of customer orders . we estimate that cancellations caused by shipping delays approximated $ 39.7 million in the year ended december 31 , 2020 , based on the historical ratio of shipped sales to customer orders of approximately 79 % to the actual ratio of approximately 45 % in the year ended december 31 , 2020. our net sales by sales type is as follows : replace_table_token_6_th the percentage of furniture sales increased in 2020 as compared to 2019 as furniture was more readily available from manufacturers than appliances . cost of goods sold . our cost of goods sold consists of the cost of purchased merchandise plus the cost of delivering merchandise and , where applicable , installation , net of promotional rebates and other incentives received from vendors . our cost of goods sold increased by $ 8,277,570 , or 20.90 % , to $ 47,878,541 for the year ended december 31 , 2020 from $ 39,600,971 for the year ended december 31 , 2019 , which included $ 11,004,842 for our predecessor from january 1 , 2019 to april 5 , 2019 and $ 28,596,129 for our successor from april 6 , 2019 to december 31 , 2019. as a percentage of net sales , cost of goods sold increased from 83.17 % in 2019 to 86.84 % in 2020. such increase was due to coronavirus related supply chain issues reducing the volume we purchased , which resulted in decreased manufacturer rebates , as well as due to the change in product mix , with furniture sales , which have lower margins , accounting for a larger portion of our total sales
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through our platform , we connect customers to various lending partners for a completely digital end-to-end process for financing and service products . a customer can also complete a short online prequalification form and immediately see a filtered view of cars that meet their budget based on the financing options for which they are , statistically speaking , able to qualify . customers can also get approved for financing before they even test drive a car , making it much more likely that the customer will purchase a car from us . shift focuses on unit economics driven by direct vehicle acquisition channels , optimized inventory mix and ancillary product offerings , combined with streamlined inventory onboarding , low fulfillment costs , and centralized software . for the year ended december 31 , 2020 , shift sourced 88 % of its inventory from consumer-sellers and partners driving industry-leading margins and customer acquisition cost . our data-driven vehicle evaluations help ensure acquisition of the right inventory at the right price to reduce days to sale . we believe that a differentiated ability to purchase vehicles directly from consumer-sellers as compared to our competitors , who purchase a higher percentage through the wholesale market , provides shift access to a deeper pool of scarce , highly desirable inventory . sellers are able to go to shift.com , submit information on their car , and get a quote instantly . shift uses a proprietary algorithm for pricing that utilizes current market information about market conditions , demand and supply , and car option data , among other factors . using proprietary pricing and shift-built mobile diagnostic tools , shift provides an immediate quote for a customer 's trade-in vehicle , and will schedule an on-demand evaluation at the customer 's location by a member of shift 's concierge staff . shift provides selling customers with information on market rates and , when a customer is ready to sell their car , we can digitally initiate e-contracting and an ach transfer and conveniently take the car on the seller 's behalf so the seller does n't even have to leave his or her home to sell their car . over time , we will expand our machine learning-enabled recommendation engine to help customers find the cars best suited to them . customer response to the shift experience is extremely positive , resulting in a 70 net promoter score ( “ nps ” ) , an order of magnitude higher score than traditional auto retailers . these positive experiences allow shift to serve customers over the entire lifecycle of vehicle ownership and retain customers for repeat sales and purchases . by continuing to invest in services that benefit the customer throughout the ownership phase of the lifecycle ( for example , vehicle maintenance plans ) , we will continue to establish a long-term customer base that will return for future transactions . _ 1 includes msa 's within 60 miles of shift hub facilities in san francisco , los angeles , san diego , sacramento , portland , and seattle . 42 revenue model shift 's two-sided model generates value from both the purchase and sale of vehicles along with financing and vehicle protection products . we acquire cars directly from consumers , partners , and other sources and sell vehicles through our ecommerce platform directly to consumers in a seamless end-to-end process . this model captures value from the difference in the price at which the car is acquired and sold , as well as through fees on the sale of ancillary products such as financing , vehicle protection , and services . if a car that we purchase does not meet our standards for retail sale , we generate revenue by selling through wholesale channels . these vehicles are primarily acquired from customers who trade-in their existing vehicles in connection with a purchase from us . our revenue for the years ended december 31 , 2020 and 2019 , was $ 195.7 million and $ 166.2 million , respectively . in 2020 and 2019 , our revenue was impacted by contra-revenue charges of $ 0.6 million and $ 8.5 million , respectively related to certain milestones under our agreement with lithia ( see note 10 - related party transactions in the accompanying consolidated financial statements ) . we expect significant growth going forward as we expand geographically , increase market penetration , and increase ancillary product sales . our adjusted gross profit is equal to the revenue from vehicle sales and services , exclusive of the impact of the warrants issued related to milestone achievement under our lithia agreement , less the costs associated with acquiring and reconditioning the vehicle prior to sale . adjusted gross profit is a non-gaap financial measure used by our management team to assess our business and consists of gross profit adjusted for non-cash items as set forth below under “ non-gaap financial measures. ” inventory sourcing we source the majority of our vehicles directly from consumers and partners who use the shift platform to resell trade-in and other vehicles . these channels provide scarce and desirable local inventory of used cars of greater quality than those typically found at auction . in addition to those primary channels , we supplement our vehicle acquisitions with purchases from auto auctions , as well as some vehicles sourced locally through the trade-in program of an original equipment manufacturer ( “ oem ” ) . proprietary machine learning-enabled software inputs vast quantities of data across both the supply and demand sides to optimize our vehicle acquisition strategy . as we grow volumes , we expect to improve the performance of our model to optimize our vehicle selection and disposal . to further increase our inventory , we intend to expand our current third-party relationships and enter into new partnerships that provide significant growth opportunities in a capital efficient manner . story_separator_special_tag vehicle reconditioning all of the cars shift sells undergo a rigorous 150+ point mechanical inspection and reconditioning process at one of our six regional reconditioning hub facilities ( or at a third-party partner when additional capacity is needed , such as during the establishment of a new hub location ) to help ensure that they 're safe , reliable , up to cosmetic standards , and comfortable . we have created two classifications of inventory for reconditioning — value and certified — to optimize the level of reconditioning for each vehicle classification . this allows us to efficiently provide each customer with the greatest value through a tailored reconditioning approach . value cars are typically sold at a lower price point and are sought after by consumers who have different expectations and tolerances for cosmetic reconditioning standards — therefore , we focus on mechanical and safety issues for these vehicles , with less emphasis on cosmetic repair , in order to optimize reconditioning costs . this key component of our reconditioning process impacts our ability to grow profitably and is a primary factor in our decision to conduct reconditioning in-house . with a 60-mile test drive service radius from our hub to a customer 's home , each reconditioning facility is able to cover a large geographic range and service the surrounding metropolitan area . we plan to grow our reconditioning center network as we expand geographically and launch new markets . logistics network the primary component of our logistics network consists of intra-city concierge personnel and inter-city third-party carriers . shift concierges are able to transport vehicles to and from customers , while providing a customer friendly white glove experience , including delivery , disposal , and at-home test drives . this provides the benefit of a seamless experience as well as an on-site sales support agent to guide the customer through the process . our agreements with long distance haulers allow us to combine the nodes in our network and deliver vehicles between cities . strategically , this provides customers with a broad set of inventory and a great speed of delivery . 43 financing and vehicle protection products we generate revenue by earning no obligation referral fees for selling ancillary products to customers that purchase vehicles through the shift platform . since we earn fees for the financing and vehicle protection products we sell , also referred to as finance and insurance ( “ f & i ” ) , our gross profit on these items is equal to the revenue we generate for the sale of those . our current offering consists of financing from third-party lenders , guaranteed asset protection ( “ gap ” ) waiver , and tire and wheel protection services . we plan to offer additional third-party products to provide a greater product offering to customers and expect these products to contribute to reaching our revenue and profitability targets . factors affecting our business performance various trends and other factors have affected and may continue to affect our business , financial condition and operating results , including : deeper market penetration within our existing markets we believe that there remains a large opportunity to capture additional market share within our existing service areas . we 've proven our ability to command a strong market share through effective marketing channels , as demonstrated by our current market share in our most established cities in the san francisco area . we believe that with effective brand marketing , we will be able to reach similar market penetration in our other geographic markets . expansion into new markets we believe that a phased , capital efficient , expansion model results in the most cost-effective new market launch strategy in the industry . our approach to market expansion is to implement controlled launches to expand our existing service territory . this approach both bolsters our existing markets ( with new inventory being acquired in nearby cities ) , while simultaneously providing the new market with the local talent and resources required for a successful launch . improvements in technology platform we are constantly investing in our technology platform to improve both customer experience and our business performance . we regularly implement changes to our software to help customers find the right car for them , while the machine learning component of our inventory and pricing model ensures we get the right cars at the right price . as our algorithms evolve , we are able to better monetize our inventory of vehicles through better pricing , while simultaneously customers are much more likely to purchase a car on our website , thus driving higher demand and sales volume . improvements in reconditioning processes we learned early on from our experience in the used car sales business that to be a reliable used car resource with desirable inventory for all customer types , we needed to control our own reconditioning processes . our reconditioning program has constantly improved over the course of our history , and we are happy with what we have achieved . each unit of our inventory is reconditioned with a focus on safety first , while optimizing for repairs that will have the highest return on investment . we believe that our network of reconditioning centers and connecting logistics routes have excess capacity , which we plan to utilize as we increase retail sales volumes . increasing capacity utilization will positively affect adjusted gross profit per unit ( “ adjusted gpu ” ) by reducing per unit overhead costs . in the second half of 2020 , due to hiring challenges in the covid environment , our ability to grow our reconditioning teams could not keep pace with the consumer demand in the market , and we therefore outsourced the reconditioning process for select vehicles . while we believe we saw the greatest impact of this need in the third quarter , we continued to use third-party reconditioning in the fourth quarter of 2020 and will continue this into 2021 as our technician hiring catches up to our throughput targets .
| 52 the following table presents our gross profit per unit by channel for the periods indicated : replace_table_token_4_th ecommerce vehicle revenue fiscal 2020 versus fiscal 2019. ecommerce vehicle revenue increased by $ 22.8 million , or 16.8 % , to $ 158.0 million during the year ended december 31 , 2020 , from $ 135.3 million during the year ended december 31 , 2019. this increase was primarily driven by an increase in ecommerce unit sales as we sold 9,497 ecommerce vehicles in the year ended december 31 , 2020 , compared to 8,263 ecommerce vehicles in the year ended december 31 , 2019 , offset by a slight decrease in average selling price . the increase was also driven by the decrease in contra revenue charges related to the lithia warrants to $ 0.6 million in 2020 from $ 8.5 million in 2019. other revenue fiscal 2020 versus fiscal 2019. other revenue increased by $ 3.2 million , or 102.9 % , to $ 6.4 million during the year ended december 31 , 2020 , from $ 3.2 million during the year ended december 31 , 2019. this increase was primarily due to improved sales of our finance and insurance product offerings resulting from investment in our lending partnerships , sales teams and technology platform . wholesale vehicle revenue fiscal 2020 versus fiscal 2019. wholesale vehicle revenue increased by $ 3.5 million , or 12.5 % , to $ 31.3 million during the year ended december 31 , 2020 , from $ 27.8 million in the year ended december 31 , 2019. the increase was primarily due to a increase in unit sales as we sold 3,638 wholesale vehicles in the year ended december 31 , 2020 , compared to 2,828 wholesale vehicles in the year ended december 31 , 2019. cost of sales fiscal 2020 versus fiscal 2019. cost of sales increased by $ 15.5 million , or 9.3 % , to $ 183.5 million during the year ended december 31 , 2020 , from $ 168.0 million in the year ended december 31 , 2019. the increase was primarily due to an increase in unit sales as we sold 13,135 total vehicles in the year ended december 31 , 2020 , compared to 11,091 total vehicles in the year ended december 31 , 2019. as a percentage of sales , cost of sales decreased from 101 % during 2019 to 94 % during 2020 . 53 ecommerce vehicle gross profit fiscal 2020 versus fiscal 2019. ecommerce
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peopleready connects people to work in a broad range of industries that include construction , manufacturing and logistics , warehousing and distribution , waste and recycling , hospitality , general labor and others . peopleready helped approximately 107,000 businesses in fiscal 2017 to be more productive by providing easy access to dependable contingent labor . additionally , we connected approximately 352,000 people with work in fiscal 2017 . we have a network of 623 branches across all 50 states , canada and puerto rico . peoplemanagement predominantly encompasses our on-site placement and management services and provides a wide range of workforce management solutions for blue-collar , contingent , on-premise staffing and management of a facility 's workforce . we use distinct brands to market our peoplemanagement contingent workforce solutions and operate as staff management | smx ( “ staff management ” ) , simos , planetechs and centerline drivers . staff management specializes in exclusive recruitment and on-premise management of a facility 's contingent industrial workforce . simos specializes in exclusive recruitment and on-premise management of warehouse/distribution operations to meet the growing demand for e-commerce and scalable supply chain solutions . planetechs specializes in recruitment and on-premise management of temporary skilled mechanics and technicians to the aviation and transportation industries . centerline drivers specializes in dedicated and temporary truck drivers to the transportation and distribution industries . peoplemanagement helped approximately 1,000 customers in fiscal 2017 to be more productive by providing easy access to dependable blue-collar contingent workforce solutions . additionally , we connected approximately 91,000 people with work in fiscal 2017 . we have 251 on-premise locations at customers ' facilities . peoplescout provides permanent employee recruitment process outsourcing ( “ rpo ” ) for our customers for all major industries and jobs . the rpo solution delivers improved talent quality , faster hiring , increased scalability , reduced turnover , lower cost of recruitment , greater flexibility , and increased compliance . we leverage our proprietary candidate applicant tracking system , along with dedicated service delivery teams to work as an integrated partner with our customers in providing end-to-end talent acquisition services from sourcing candidates through onboarding employees . the solution is highly scalable and flexible , allowing for outsourcing of all or a subset of skill categories across a series of recruitment processes and onboarding steps . customer contracts are generally multi-year in duration and pricing is typically composed of a fee for each hire . volume , job type , degree of recruiting difficulty , and number of recruiting process steps from sourcing to onboarding factor into pricing . our peoplescout segment also includes a management service provider business , which provides customers with improved quality and spend management of their contingent labor vendors . in fiscal 2017 , peoplescout connected approximately 297,000 individuals with work for approximately 200 customers . our fiscal year-end changed from the last friday in december to the sunday closest to the last day in december effective in the fourth quarter of 2016. the week ending date was moved forward from friday to sunday to better align with the work week of our customers . in addition , the 2016 fiscal year included 53 weeks , with the 53rd week falling in our fourth quarter . all other years presented include 52 weeks . page - 23 management 's discussion and analysis fiscal 2017 as compared to fiscal 2016 revenue from services revenue from services by reportable segment was as follows : replace_table_token_6_th total company revenue declined to $ 2.5 billion for the year ended december 31 , 2017 , an 8.8 % decrease compared to the year ended january 1 , 2017 , primarily due to lower volumes for staffing services within our peopleready business and with our former largest customer . revenue from our former largest customer declined by $ 118 million , or 68.8 % for the year ended december 31 , 2017 , when compared to the year ended january 1 , 2017 , which represented a decline in total company revenue of 4.0 % . our fiscal 2017 also had nine fewer days when compared to fiscal 2016 , which represented a decline in total company revenue of 1.2 % .the remaining decrease of 3.6 % was primarily due to lower peopleready volume partially offset by higher peoplescout volume . peopleready peopleready revenue declined to $ 1.5 billion for the year ended december 31 , 2017 , a 7.2 % decrease compared to the year ended january 1 , 2017 . the nine fewer days in fiscal 2017 represented a decline in peopleready revenue of 1.1 % . the remaining decline was primarily due to weakness with our residential construction , manufacturing and retail customers . however , this decline was partially offset by an increase in revenue from improving performance in the commercial construction and hospitality customers . we saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. we exited fiscal 2017 with a year-over-year quarterly decline of 0.7 % , excluding the nine additional days in fiscal 2016. the improving year-over-year results were due to improving customer trends across all the industries we serve , with the exception of manufacturing and retail . wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets . we have increased bill rates for the higher wages , payroll burdens and our traditional mark-up . while we believe our pricing strategy is the right long-term decision , these actions impact our revenue trends in the near term . peopleready performance was impacted by temporary disruptions from operational changes related to our consolidation of labor ready , clp resources , and spartan staffing into one specialized workforce solutions business in order to create a more seamless experience for our customers to access all of our blue-collar , contingent on-demand general and skilled labor service offerings . the transition is largely complete . story_separator_special_tag peoplemanagement peoplemanagement revenue declined to $ 807 million for the year ended december 31 , 2017 , a 14.2 % decrease compared to the year ended january 1 , 2017 . revenue from our former largest customer declined by $ 118 million , or 68.8 % to $ 53 million for the year ended december 31 , 2017 , compared to the year ended january 1 , 2017 , which represented a decline in peoplemanagement revenue of 12.2 % . our fiscal 2017 also had nine fewer days when compared to fiscal 2016 , which represented a decline in peoplemanagement revenue of 1.3 % . during fiscal 2017 , revenue trends have stabilized with a more diverse customer base and we have seen modest increases in demand from existing and new customers supporting e-commerce and transportation . page - 24 management 's discussion and analysis peoplescout peoplescout revenue grew to $ 190 million for the year ended december 31 , 2017 , a 5.2 % increase compared to the year ended january 1 , 2017 . new customer wins and expansion of our services with existing customers represented an increase in revenue of 6.4 % , partially offset by the nine fewer days in fiscal 2017 , which represented a decline in peoplescout revenue of 1.2 % . gross profit gross profit was as follows : years ended ( in thousands , except percentages ) 2017 2016 gross profit $ 634,473 $ 679,718 percentage of revenue 25.3 % 24.7 % total company gross profit as a percentage of revenue for the year ended december 31 , 2017 was 25.3 % , compared to 24.7 % for the year ended january 1 , 2017 . the increase was primarily due to favorable mix with less peoplemanagement revenue from our former largest customer , which carries a lower gross margin than the blended average , and additional efficiency gains in the sourcing and recruiting activities of peoplescout as growth has accelerated . selling , general and administrative expense sg & a expense was as follows : years ended ( in thousands , except percentages ) 2017 2016 selling , general and administrative expense $ 510,794 $ 546,477 percentage of revenue 20.4 % 19.9 % total company sg & a expense decreased by $ 36 million to $ 511 million for the year ended december 31 , 2017 , compared to the year ended january 1 , 2017 . the nine fewer days in fiscal 2017 represented $ 8 million of the decrease . additionally , fiscal 2016 included $ 7 million of integration costs to fully integrate the rpo business of aon hewitt into the peoplescout service line and $ 6 million in costs incurred to exit the delivery business of our former largest customer and certain other realignment costs . the remaining decrease of $ 15 million was primarily due to cost control programs commencing in the prior year , which have continued in the current year . total company sg & a expense as a percentage of revenue increased to 20.4 % for the year ended december 31 , 2017 , from 19.9 % for the year ended january 1 , 2017 , largely due to the decline in revenue outpacing the decline in expense . depreciation and amortization depreciation and amortization was as follows : years ended ( in thousands , except percentages ) 2017 2016 depreciation and amortization $ 46,115 $ 46,692 percentage of revenue 1.8 % 1.7 % depreciation increased due to investments designed to further improve our efficiency and effectiveness in recruiting and retaining our contingent workers , and attracting and retaining customers , which was more than offset by a decline in amortization for the year ended december 31 , 2017 , due to the intangible asset impairment in the prior year . goodwill and intangible asset impairment charge the goodwill and intangible asset impairment charge in the prior year was primarily driven by a change in the scope of services with our former largest customer and other changes in our outlook reflecting changes in economic and industry conditions . page - 25 management 's discussion and analysis income taxes the income tax expense ( benefit ) and the effective income tax rate were as follows : years ended ( in thousands , except percentages ) 2017 2016 income tax expense ( benefit ) $ 22,094 $ ( 5,089 ) effective income tax rate 28.5 % 25.0 % our effective tax rate for the years ended december 31 , 2017 and january 1 , 2017 was 28.5 % and 25.0 % , respectively . we recognized discrete tax benefits from prior years hiring credits of $ 1 million for the year ended december 31 , 2017 , compared to $ 6 million for the year ended january 1 , 2017 . as a result of the tax act , we recognized $ 2 million of additional tax expense from a one-time transition tax on deemed repatriated earnings of foreign subsidiaries and from the revaluation of net deferred tax assets to reflect the federal tax rate reduction from 35.0 % to 21.0 % . upon completion of our fiscal 2017 u.s. income tax return in 2018 , we may identify adjustments to our recorded transition tax and remeasurement of our net deferred tax assets . we will continue to assess our provision for income taxes as future guidance is issued , but do not currently anticipate significant revisions will be necessary . any such revisions will be treated in accordance with the measurement period guidance outlined in staff accounting bulletin no . 118 , income tax accounting implications of the tax cuts and jobs act . our tax provision and our effective tax rate are subject to variation due to several factors , including variability in accurately predicting our pre-tax and taxable income and loss by jurisdiction , tax credits , audit developments , changes in law , regulations and administrative practices , and relative changes of expenses or losses for which tax benefits are not recognized .
| we saw improvement in our year-over-year quarterly revenue trends for the second half of fiscal 2017. excluding the nine additional days in fiscal 2016 , we exited fiscal 2017 with a year-over-year quarterly decline of 0.7 % , which was an improvement from a decline of 4.8 % in the third quarter of fiscal 2017 , and a decline of 8.8 % in the second quarter of fiscal 2017. the improving year-over-year results were due to improving customer trends across the industries we serve , with the exception of manufacturing and retail . wage growth has accelerated due to various minimum wage increases and a need for higher wages to attract talent in tight labor markets . we have increased bill rates for the higher wages , payroll burdens and our traditional mark-up . while we believe our pricing strategy is the right long-term decision , these actions impact our revenue trends in the near term . page - 20 management 's discussion and analysis peopleready performance was impacted by temporary disruptions from operational changes related to our consolidation of labor ready , clp resources , and spartan staffing into one specialized workforce solutions business at the beginning of fiscal 2017 in order to create a more seamless experience for our customers to access all of our blue-collar , contingent on-demand general and skilled labor service offerings . the transition is largely complete . peoplemanagement revenue from services peoplemanagement revenue declined to $ 807 million for the year ended december 31 , 2017 , a 14.2 % decrease compared to the year ended january 1 , 2017 . revenue from amazon , our former largest customer , declined by $ 118 million , or 68.8 % to $ 53 million for the year ended december 31 , 2017 , compared to the year ended january 1 , 2017 , which represented a decline in peoplemanagement revenue of 12.2 % . this customer substantially insourced the recruitment and management of contingent labor for their warehouse fulfillment centers and distribution sites in the united states , commencing in the second quarter of fiscal 2016. our fiscal 2017 also had nine fewer days when compared to fiscal 2016 , which represented a decline in
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management is pursuing various financing alternatives , based upon a third-party assessment of the historically demonstrated or contractually committed profit-earning capacities of our ip . we see this as the best path forward for non-dilutive funding . if funding is received , it will be used to support completion of the initial phases of our business plan , which is to license our thermal technologies and applications ; to license or sell a mobile electric power system ; and to license our submersible motor dry pit technologies and or to bring to market our technologies and applications through key distribution and joint venture partners . as of the filing date , it is uncertain whether covid-19 will continue to have a significant impact on production and distribution of company products . the occurrence of an uncontrollable event such as the covid-19 pandemic has negatively affected our operations over the past year . a pandemic typically results in social distancing , travel bans , lockdowns and quarantines . this has limited access to our facilities , customers , management , support staff and professional advisors . these , in turn , have impacted our operations and financial condition . it may also impact demand for our products and may continue to hamper our efforts to provide our investors with timely information and comply with our filing obligations with the securities and exchange commission . significant developments amendment of series b preferred stock on october 31 , 2016 , the company filed an amended and restated series b preferred stock certificate of designation ( which was originally filed with the secretary of state of nevada on april 19 , 2016 and amended on august 12 , 2016 ) to designate 3,636,360 shares as series b preferred stock and to provide for supermajority 66 2/3 % voting rights for the series b preferred stock . the series b preferred stock will not bear dividends , will not be entitled to receive any distributions in the event of any liquidation , dissolution or winding up of the company , and will have no other preferences , rights , restrictions , or qualifications , except as otherwise provided by law or the articles of incorporation of the company . the holders of class b stock shall have the right , at such holder 's option , at any time to convert such shares into common stock , in a conversion ratio of one share of common stock for each share of class b stock . if the common stock trades or is quoted at a price per share in excess of $ 2.25 for any twenty consecutive day trading period , ( subject to appropriate adjustment for forward or reverse stock splits , recapitalizations , stock dividends and the like ) , the series b stock will automatically be convertible into the common stock in a conversion ratio of one share of common stock for each share of series b stock . the series b stock may not be sold , hypothecated , transferred , assigned or disposed without the prior written consent of the company and the holders of the outstanding series b preferred stock . amendment of articles of incorporation we filed an amendment to our articles of incorporation with the secretary of state of the state of nevada increasing our authorized shares of common stock , from 140,000,000 shares to 350,000,000 shares , effective march 22 , 2017. we filed a second amendment to our articles of incorporation with the secretary of state of the state of nevada increasing our authorized shares of common stock , from 350,000,000 shares to 500,000,000 shares , effective october 28 , 2019. on february 13 , 2020 , stockholders holding shares that entitled them to exercise at least a majority of the voting power , voted in favor of increasing the number of authorized shares of common stock , from 500,000,000 shares to 1,000,000,000 shares . the vote marked the first step in the process to amend the articles again . 29 craftsmen industries , inc. as a consequence of the first public demonstration of the mg 30 kilovolt amp ( “ kva ” ) system at the north america international auto show in detroit in january 2017 , the company entered into an agreement in principle , dated february 21 , 2017 , with craftsmen industries , inc. ( “ craftsmen ' ) , a company engaged in the design , engineering and production of mobile marketing vehicles , experiential marketing platforms and industrial mobile solutions . on april 25 , 2017 , we delivered to craftsmen industries , a class iii vehicle ( ford f-350 dually ) up-fitted with a production-ready mg 30 kva ( single phase/three phase ) system . subsequently , craftsmen invited the company to demonstrate its mobile generation technology and the potential benefits for craftsmen products at craftsmen 's 35 th anniversary party on april 27 , 2017. over 100 current and prospective craftsmen customers were in the audience for the demonstrations . on june 9 , 2017 , the company received a purchase order for 10 mg systems from craftsmen , each in the amount of $ 29,500 with 50 % paid as a down payment at the time of customer acceptance . furthermore , craftsmen has agreed to produce the mg systems for the company 's initial orders from jatropha and veracruz ( see below ) . since october 2018 we have been ordering components for the initial pilot production run which was completed in the first quarter of 2019 and showcased on march 27 , 2019. in parallel , purchase orders will be placed for components to support increased production in the months that follow . veteran technology group on may 26 , 2017 , the company entered into a five-year strategic alliance agreement with veteran technology group llc ( “ vet tech ” ) , a developer of artificial intelligence ( “ ai ” ) software for advanced troubleshooting of complex systems . the agreement automatically renews for successive one-year terms unless terminated by either party 30 days prior to its expiration . story_separator_special_tag the agreement may be terminated earlier by either party upon 60 days prior notice . the parties agreed not to solicit the other parties ' employees or contractors for six months after the expiration or termination of the agreement . the agreement provides that the company market and provide its mg product and services to customers referred by vet tech and vet tech will market and provide gait software and other ai services for clients referred by the company . national union of jatropha producers in november 2017 , the company received a purchase commitment for 234 mg systems from the national union of producers of jatropha in mexico ( jatropha ) . jatropha has established a center for processing oil from jatropha seeds for biofuel production . through their union of producers , jatropha plans to introduce the mg and promote the product to their supplier network . the purchase commitment stipulates that cooltech will furnish jatropha with an mg80 retro-fitted onto a ford f-350 truck within 60 business days . to ensure the system is optimized to meet jatropha 's needs , cooltech set the terms of the agreement to allow both teams to gather data and provide performance feedback another 30 to 60 days . upon completion of this period , jatropha will release the balance of the order for 233 units . payment terms require 50 % down and 50 % at time of shipment , fob ( freight on board ) from cool technologies ' dock . 30 on february 6 , 2019 , jatropha signed an agreement to amend their previous purchase agreement . it eliminates the 60 business day deadline for the truck to be shipped to mexico . under the new agreement , representatives from jatropha will come to colorado for an inspection and live performance demonstration . if approved , the generator-equipped trucks will go into production as specified in the original purchase agreement . a representative of the national union of jatropha producers approved the generator-equipped truck . it will go into production as the company secures final funding . the value of the purchase commitment is expected to be between $ 17,000,000 and $ 22,000,000. on april 9 , 2018 , jatropha executed a purchase order with the company for 10 ford f-350s with mg80 kva systems installed . the value of the initial order is in excess of one million dollars . national union of producers in mexico for the state of veracruz in december 2017 , the company received a purchase commitment for 24 to 50 mg units from the national union of producers in mexico for the state of veracruz . depending on the respective numbers of mg55 and mg80 kva systems ordered , the company expects the value of the commitment to range between $ 1,200,000 and $ 3,750,000. the union represents farmers who grow labor and energy intensive crops such as sugar cane , tobacco , bananas , coffee , rice and vanilla . it expects that the mg systems will increase yields , exports and income for its members and their communities . according to the contract , the company will deliver an mg 80 retro-fitted onto a ford f-350 truck within 60 business days . then , to ensure the system fully addresses the application requirements , cooltech , as a best practice of six sigma quality , will gather data and performance feedback . when cooltech is satisfied that optimal performance has been achieved , the union will release the balance of the order and production begins . on february 23 , 2018 , veracruz signed an agreement to amend their previous purchase agreement . it eliminates the 60 business day deadline for the truck to be shipped to mexico . under the new agreement , representatives from veracruz will come to colorado for an inspection and live performance demonstration . if approved , the generator-equipped trucks will go into production as specified in the original purchase agreement . a representative of the national union of jatropha producers approved the generator-equipped truck . it will go into production as the company secures final funding . payment terms require 50 % down and 50 % at time of shipment , each payable with a bank letter of credit . product delivery will be considered fob ( freight on board ) from cool technologies ' shipping dock . the value of the purchase commitment is expected to commitment to range between $ 1.2m and $ 3.9m . panasonic system communications company of north america . in january 2018 , the company announced that its mobile generation systems will incorporate panasonic toughpad tablets to run cooltech 's software . the association between the two companies dates back to april 2017 when cool technologies demonstrated its mobile generation ( mg ) system at craftsman industries in st. louis . in attendance was the executive director of product planning strategy and innovation at the silicon valley center of panasonic corporation of north america . he received a demonstration of the mg technology as well as an overview of cooltech 's thermal dispersion technologies . that led to several conversations and meetings regarding the ways in which the two companies could pursue joint initiatives and opportunities . 31 the first initiative resulted in cooltech 's use of the panasonic toughpad tablet to provide a rugged touchscreen interface for field technicians to control and calibrate the mobile generation systems . the toughpad will be deployed in the trucks ' cabs . aon risk services central , inc and lee and hayes , pllc on january 18 , 2018 , the company entered into an agreement with aon risk services central , inc. and lee and hayes , pllc , through its operating unit , 601west , which provides intellectual property ( “ ip ” ) analytics , to assess the value of the company 's ip .
| consulting expenses decreased from $ 331,107 in 2019 to $ 316,068 in 2020. this was due primarily to the reduced workload and payments for related-party consultants and general consultants as well as a reflection of the company 's need to conserve cash professional fees decreased from $ 226,859 in 2019 to $ 224,453 in 2020. the decrease was negligible , as before professional fees consisted primarily of fees to retain legal representation to defend the company against the eviction complaint . research and development expenses decreased from $ 296,800 in 2019 to $ 19,069 in 2020 due to the completion of the design of the mg system and the company 's focus on its commercialization . general and administrative expenses decreased from $ 242,994 in 2019 to $ 68,309 in 2020 due to limited funds . 37 other income and expense interest expenses during the years ended december 31 , 2020 and 2019 related primarily to our debt . the change in fair value of derivative liability reflects the change in fair value of the conversion features embedded in the convertible debt agreements entered into in september 2020 , october 2020 , and november 2020 , and also includes the change in fair value of common share equivalents that were previously reclassified to derivative liability as a result of insufficient authorized but unissued shares . interest expense decreased during the year ended december 31 from $ 2,027,030 in 2019 to $ 1,472,104 in 2020 due to a number of vendors adding previously unrecognized interest to their bills . interest expense decreased in 2020 primarily due to our debt . net loss and noncontrolling interest since we have incurred losses since inception , we have not recorded any income tax expense or benefit . accordingly , our net loss is driven by our operating and other expenses . noncontrolling interest represents the 5 % third-party ownership in upt , which is subtracted to calculate net loss to shareholders . liquidity and capital resources we have historically met our liquidity requirements primarily through the public sale and private placement of equity securities , debt financing , and exchanging common stock warrants and options for
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we recognize a loss from an in-orbit failure of a satellite as an expense in the period it is determined that the satellite is not recoverable . we depreciate satellites over their estimated useful lives , beginning on the date each satellite is placed into service . we evaluate the appropriateness of estimated useful lives assigned to our property and equipment and revise such lives to the extent warranted by changing facts and circumstances . we capitalize costs associated with the design , manufacture and test of our ground stations and other capital assets . we track capitalized costs associated with our ground stations and other capital assets by fixed asset category and allocate them to each asset as it comes into service . we review the carrying value of our assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable . we look to current and future undiscounted cash flows , excluding financing costs , as primary indicators of recoverability . if we determine that impairment exists , we calculate any related impairment loss based on fair value . income taxes we use the asset and liability method of accounting for income taxes . this method takes into account the differences between financial statement treatment and tax treatment of certain transactions . we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . 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 . our deferred tax calculation requires us to make certain estimates about our future operations . changes in state , federal and foreign tax laws , as well as changes in our financial condition or the carrying value of existing assets and liabilities , could affect these estimates . we recognize the effect of a change in tax rates as income or expense in the period that the rate is enacted . we assess whether it is more likely than not that we will be able to realize some or all of our deferred tax assets . if we can not determine that deferred tax assets are more likely than not recoverable , we are required to provide a valuation allowance against those assets . this assessment takes into account factors including : ( a ) the nature , frequency , and severity of current and cumulative financial reporting losses ; ( b ) sources of estimated future taxable income ; and ( c ) tax planning strategies . derivative instruments we recognize all derivative instruments as either assets or liabilities on the balance sheet at their respective fair values . we record recognized gains or losses on derivative instruments in the consolidated statements of operations . we estimate the fair values of our derivative financial instruments using various techniques that are considered to be consistent with the objective of measuring fair values . in selecting the appropriate technique , we consider , among other factors , the nature of the instrument , the market risks that embody it and the expected means of settlement . we determine the fair value of our interest rate cap using pricing models developed based on the libor rate and other observable market data . we adjust the value to reflect nonperformance risk of both the counterparty and us . there are various features embedded in our debt instruments that require bifurcation from the debt host . for the conversion options and the contingent put features in the amended and restated thermo loan , the 8.00 % notes issued in 2009 and the 8.00 % notes issued in 2013 , we use the monte carlo valuation technique to determine fair value . for warrants issued with the 8.00 % notes issued in 2009 , we use the monte carlo valuation technique to determine fair value . valuations derived from these models are subject to ongoing internal and external verification and review . estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may , and are likely to , change over the duration of the instrument with related changes in internal and external market factors . our financial position and results of operations may vary materially from quarter-to-quarter based on conditions other than our operating revenues and expenses . 29 inventory inventory consists of purchased products and accessories . we compute cost using the first-in , first-out ( fifo ) method and state inventory transactions at the lower of cost or market . we measure inventory write-downs as the difference between the cost of inventory and market , record them as a cost of subscriber equipment sales - reduction in the value of inventory . at the point of any inventory write-downs to market , we establish a new , lower cost basis for that inventory , and any subsequent changes in facts and circumstances do not result in the restoration of the former cost basis or increase in that newly established cost basis . we review product sales and returns from the previous 12 months and future demand forecasts and write off any excess or obsolete inventory . we also assess inventory for obsolescence by testing finished goods to ensure they have been properly stored and maintained so that they will perform according to specifications . in addition , we assess the market for competing products to determine that the existing inventory will be competitive in the marketplace . we also record a liability for firm , noncancelable , and unconditional purchase commitments with contract manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory . story_separator_special_tag if there were to be a sudden and significant decrease in future demand for our products , or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to write down our inventory , and our liability for purchase commitments with contract manufacturers and suppliers , and accordingly gross margin could be adversely affected . allowance for doubtful accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of some of our customers to make required payments . we review these estimated allowances on a case by case basis , analyzing the customer 's payment history and information regarding the customer 's creditworthiness known to us . in addition , we record a reserve based on the size and age of all receivable balances against those balances that do not have specific reserves . if the financial condition of our customers deteriorates , resulting in their inability to make payments , we would record additional allowances . pension plan we calculate our pension benefit obligation and expense using actuarial models . critical assumptions and estimates we use in the actuarial calculations include discount rate , expected rate of return on plan assets and other participant data , such as demographic factors , mortality , and termination . we determine discount rates annually based on our calculated average of rates of return of long-term corporate bonds . we based discount rates on prudential 's yield curve index as of december 31 , 2013. we based discount rates on moody 's and citigroup 's annualized yield curve index as of december 31 , 2012. the discount rate used at the measurement date increased to 4.8 % from 3.75 % in 2012. a 100 basis point increase in our discount rate would reduce our benefit obligation by $ 1.8 million . we determine expected long-term rates of return on plan assets based on an evaluation of our plan assets , historical trends and experience , taking into account current and expected market conditions . plan assets are comprised primarily of equity and debt securities . the rate of return on plan assets remained consistent at 7.12 % in 2013 and 2012. to determine the rates of return , we consider historical experience and expected future performance of plan assets . stock-based compensation to measure compensation expense , we use valuation models which require estimates such as , forfeitures , vesting terms ( calculated based on market conditions associated with a certain award ) , volatility , and risk free interest rates . additionally we recognize stock-based compensation expense over the requisite service periods of the awards on a straight-line basis , which is generally commensurate with the vesting term . long-lived assets we review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of any asset may not be recoverable . in the event of impairment , we write the asset down to its fair market value . litigation , commitments and contingencies we are subject to various claims and lawsuits that arise in the ordinary course of business . estimating liabilities and costs associated with these matters requires judgment and assessment based on professional knowledge and experience of our management and legal counsel . the ultimate resolution of any such exposure may vary from earlier estimates as further facts and circumstances become known . 30 performance indicators our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality of and potential variability of our earnings and cash flows . these key performance indicators include : total revenue , which is an indicator of our overall business growth ; subscriber growth and churn rate , which are both indicators of the satisfaction of our customers ; average monthly revenue per user , or arpu , which is an indicator of our pricing and ability to obtain effectively long-term , high-value customers . we calculate arpu separately for each type of our duplex , simplex , spot and igo revenue ; operating income and adjusted ebitda , which are both indicators of our financial performance ; and capital expenditures , which are an indicator of future revenue growth potential and cash requirements . comparison of the results of operations for the years ended december 31 , 2013 and 2012 revenue : total revenue increased $ 6.4 million , or 8 % , to $ 82.7 million during 2013 from $ 76.3 million in 2012. this increase was due primarily to a $ 7.2 million increase in service revenue offset by a $ 0.8 million decrease in revenue from subscriber equipment sales . the primary driver for the increase in service revenue was duplex service revenue as we continue to see increases in new subscriber activations as a result of equipment sales over the past 12 months and subscribers moving to higher rate plans . demand for our duplex products and services has increased as we successfully completed the restoration of our second-generation constellation in august 2013 by placing our last second-generation satellite into commercial service . we also experienced increases in our spot and simplex service lines due primarily to growth in both of the related subscriber bases . the decrease in equipment sales revenue was due primarily to higher demand for our simplex and spot products in 2012 compared to 2013 , offset partially by increased demand for our duplex products in 2013. the following table sets forth amounts and percentages of our revenue by type of service for 2013 and 2012 ( dollars in thousands ) : replace_table_token_3_th the following table sets forth amounts and percentages of our revenue from equipment sales for 2013 and 2012 ( dollars in thousands ) . replace_table_token_4_th 31 the following table sets forth our average number of subscribers , arpu , and ending number of subscribers by type of revenue for 2013 and 2012. the following numbers are subject to immaterial rounding inherent in calculating averages .
| well as the recognition of a loss of approximately $ 7.1 million related to an adjustment made to the carrying value of our first-generation constellation . these items did not recur in 2013. excluding these one-time items , operating expenses increased $ 27.9 million , or 20 % , in 2013 from 2012 , due primarily to an increase in depreciation expense of $ 20.8 million . the increase in operating expenses , excluding one-time items discussed above , during 2013 from 2012 was driven primarily by the $ 20.8 million increase in non-cash depreciation expense as a result of additional second-generation satellites coming into service throughout the fourth quarter of 2012 and the first eight months of 2013 with our final second-generation satellite was placed into service in august 2013. this increase was also due to higher expense recorded related to the reduction in the value of equipment , discussed further below . cost of services cost of services increased $ 0.1 million , or less than 1 % , to $ 30.2 million in 2013 from $ 30.1 million in 2012. cost of services comprises primarily network operating costs , which are generally fixed in nature . the slight increase in cost of services was due primarily to higher salaries and other expense categories as we expand and repair our gateway infrastructure as well as timing of costs incurred related to our engineering service contracts in the current and prior year . we also experienced an increase in research and development costs in 2013 as we continue to develop and launch new products to support our growing commercial and retail channels . these increases were offset slightly by additional cost savings experienced as a result of our increased focus on monitoring telecommunication service expenses . cost of subscriber equipment sales cost of subscriber equipment sales increased $ 0.3 million , or 3 % , to $ 13.6 million
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certain statements under “ management 's discussion and analysis of financial condition and results of operations ” and elsewhere in this report constitute “ forward-looking statements ” within the meaning of the securities act of 1933 and the securities exchange act of 1934. such forward-looking statements involve known and unknown risks , uncertainties , and other factors which may cause the actual results , performance or achievements of bridgford foods corporation to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . such factors include , among others , the following : general economic and business conditions ; the impact of competitive products and pricing ; success of operating initiatives ; development and operating costs ; advertising and promotional efforts ; adverse publicity ; acceptance of new product offerings ; consumer trial and frequency ; changes in business strategy or development plans ; availability , terms and deployment of capital ; availability of qualified personnel ; commodity , labor , and employee benefit costs ; changes in , or failure to comply with , government regulations ; weather conditions ; construction schedules ; and other factors referenced in this report . results of operations ( in thousands except percentages ) fiscal year ended october 28 , 2011 ( 52 weeks ) compared to fiscal year ended october 29 , 2010 ( 52 weeks ) net sales-consolidated net sales in fiscal 2011 increased $ 608 ( 0.5 % ) when compared to the prior year . the changes in net sales were comprised as follows : replace_table_token_5_th net sales-frozen food products segment net sales in the frozen food products segment in fiscal 2011 increased $ 665 ( 1.2 % ) compared to the prior year . the changes in net sales were comprised as follows : replace_table_token_6_th 11 net sales-refrigerated and snack food products segment net sales , excluding intersegment sales , in the refrigerated and snack food products segment in fiscal 2011 decreased $ 57 ( 0.1 % ) compared to the prior year . the changes in net sales were comprised as follows : replace_table_token_7_th cost of products sold and gross margin-consolidated cost of products sold in fiscal 2011 increased $ 10,173 ( 14.4 % ) compared to the prior year . higher meat and flour commodities costs of $ 4,187 were the primary contributor to this increase . we also incurred a significant product loss in the amount of $ 1,675 as well as higher production labor of $ 648. lower overall production volumes increased unit overhead and unfavorable product mix changes also increased cost of sales compared to the prior year . the gross margin decreased to 31.7 % in fiscal year 2011 from 40.0 % in fiscal year 2010. in addition to the factors previously noted , this margin decline resulted from the company 's shift to lower margin , plant to customer warehouse direct shipments , rather than using our direct store delivery system . cost of products sold and gross margin–frozen food products segment cost of products sold in the frozen food products segment in fiscal 2011 increased $ 1,668 ( 5.3 % ) compared to the prior year . higher flour commodity costs in fiscal 2011 were the primary contributing factor causing this increase . the gross margin in the frozen food products segment decreased from 41.3 % in fiscal 2010 to 39.0 % in fiscal 2011. the cost of purchased flour increased approximately $ 1,219 in fiscal 2011 compared to the prior year . cost of products sold and gross margin–refrigerated and snack food products segment cost of products sold in the refrigerated and snack food products segment in fiscal 2011 increased $ 8,371 ( 20.9 % ) compared to the prior year . the cost of major meat commodities increased approximately $ 2,968 in fiscal 2011 compared to the prior year . production labor also increased $ 551 compared to the prior year . the gross margin in the refrigerated and snack food products segment decreased from 38.9 % in fiscal 2010 to 25.5 % in fiscal 2011. during fiscal 2011 , we rolled out a unique product line created to meet specific customer requirements . after a successful initial start-up period the customer determined the product did not meet their specific requirements and the company agreed to accept the return of these products . upon inspection , we concluded that the product had no ready market and we donated the product to a local food bank . included in cost of products sold is a loss of $ 1,675 related to this donation 12 selling , general and administrative expenses-consolidated selling , general and administrative expenses in fiscal 2011 decreased $ 2,930 ( 7.0 % ) when compared to the prior year . the decrease in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_8_th average employee headcount declined in the 2011 fiscal year compared to the prior year which decreased wages . lower profitability levels decreased bonus payments to employees . the company 's self-insured healthcare benefit expense was lower due to favorable experience trends . the company incurred significant osha of approximately $ 415 penalties during fiscal 2011. the company released a significant portion of the allowance for doubtful accounts during the fourth quarter of fiscal 2010 due to favorable trends in the accounts receivable aging . in fiscal year 2011 , the company incurred a significant loss due to the bankruptcy of a customer in the amount of $ 69. depreciation has declined in recent years due to a portion of the company 's assets becoming fully depreciated during fiscal 2011. selling , general and administrative expenses-frozen food products segment selling , general and administrative expenses in the frozen food products segment in fiscal 2011 increased $ 305 ( 1.8 % ) compared to the prior year . increases in this category story_separator_special_tag certain statements under “ management 's discussion and analysis of financial condition and results of operations ” and elsewhere in this report constitute “ forward-looking statements ” within the meaning of the securities act of 1933 and the securities exchange act of 1934. such forward-looking statements involve known and unknown risks , uncertainties , and other factors which may cause the actual results , performance or achievements of bridgford foods corporation to be materially different from any future results , performance or achievements expressed or implied by such forward-looking statements . such factors include , among others , the following : general economic and business conditions ; the impact of competitive products and pricing ; success of operating initiatives ; development and operating costs ; advertising and promotional efforts ; adverse publicity ; acceptance of new product offerings ; consumer trial and frequency ; changes in business strategy or development plans ; availability , terms and deployment of capital ; availability of qualified personnel ; commodity , labor , and employee benefit costs ; changes in , or failure to comply with , government regulations ; weather conditions ; construction schedules ; and other factors referenced in this report . results of operations ( in thousands except percentages ) fiscal year ended october 28 , 2011 ( 52 weeks ) compared to fiscal year ended october 29 , 2010 ( 52 weeks ) net sales-consolidated net sales in fiscal 2011 increased $ 608 ( 0.5 % ) when compared to the prior year . the changes in net sales were comprised as follows : replace_table_token_5_th net sales-frozen food products segment net sales in the frozen food products segment in fiscal 2011 increased $ 665 ( 1.2 % ) compared to the prior year . the changes in net sales were comprised as follows : replace_table_token_6_th 11 net sales-refrigerated and snack food products segment net sales , excluding intersegment sales , in the refrigerated and snack food products segment in fiscal 2011 decreased $ 57 ( 0.1 % ) compared to the prior year . the changes in net sales were comprised as follows : replace_table_token_7_th cost of products sold and gross margin-consolidated cost of products sold in fiscal 2011 increased $ 10,173 ( 14.4 % ) compared to the prior year . higher meat and flour commodities costs of $ 4,187 were the primary contributor to this increase . we also incurred a significant product loss in the amount of $ 1,675 as well as higher production labor of $ 648. lower overall production volumes increased unit overhead and unfavorable product mix changes also increased cost of sales compared to the prior year . the gross margin decreased to 31.7 % in fiscal year 2011 from 40.0 % in fiscal year 2010. in addition to the factors previously noted , this margin decline resulted from the company 's shift to lower margin , plant to customer warehouse direct shipments , rather than using our direct store delivery system . cost of products sold and gross margin–frozen food products segment cost of products sold in the frozen food products segment in fiscal 2011 increased $ 1,668 ( 5.3 % ) compared to the prior year . higher flour commodity costs in fiscal 2011 were the primary contributing factor causing this increase . the gross margin in the frozen food products segment decreased from 41.3 % in fiscal 2010 to 39.0 % in fiscal 2011. the cost of purchased flour increased approximately $ 1,219 in fiscal 2011 compared to the prior year . cost of products sold and gross margin–refrigerated and snack food products segment cost of products sold in the refrigerated and snack food products segment in fiscal 2011 increased $ 8,371 ( 20.9 % ) compared to the prior year . the cost of major meat commodities increased approximately $ 2,968 in fiscal 2011 compared to the prior year . production labor also increased $ 551 compared to the prior year . the gross margin in the refrigerated and snack food products segment decreased from 38.9 % in fiscal 2010 to 25.5 % in fiscal 2011. during fiscal 2011 , we rolled out a unique product line created to meet specific customer requirements . after a successful initial start-up period the customer determined the product did not meet their specific requirements and the company agreed to accept the return of these products . upon inspection , we concluded that the product had no ready market and we donated the product to a local food bank . included in cost of products sold is a loss of $ 1,675 related to this donation 12 selling , general and administrative expenses-consolidated selling , general and administrative expenses in fiscal 2011 decreased $ 2,930 ( 7.0 % ) when compared to the prior year . the decrease in this category did not directly correspond to the change in sales . the table below summarizes the primary expense variances in this category : replace_table_token_8_th average employee headcount declined in the 2011 fiscal year compared to the prior year which decreased wages . lower profitability levels decreased bonus payments to employees . the company 's self-insured healthcare benefit expense was lower due to favorable experience trends . the company incurred significant osha of approximately $ 415 penalties during fiscal 2011. the company released a significant portion of the allowance for doubtful accounts during the fourth quarter of fiscal 2010 due to favorable trends in the accounts receivable aging . in fiscal year 2011 , the company incurred a significant loss due to the bankruptcy of a customer in the amount of $ 69. depreciation has declined in recent years due to a portion of the company 's assets becoming fully depreciated during fiscal 2011. selling , general and administrative expenses-frozen food products segment selling , general and administrative expenses in the frozen food products segment in fiscal 2011 increased $ 305 ( 1.8 % ) compared to the prior year . increases in this category
| cash flows from operating activities : replace_table_token_9_th for fiscal year 2011 , net cash used by operating activities was $ 2,320. significant changes in operating working capital are as follows : 2011 – operating cash flows decreased primarily due to net loss of $ 443 and significant increases in accounts receivable of $ 2,219. operating cash flows also decreased due to an increase of inventories and other non-current assets . an increase in accounts payable of $ 882 as well as non-cash depreciation expense of $ 1,802 partially offset the cash flow decreases during 2011. during the 2011 fiscal year we funded $ 1,175 toward our defined benefit pension plan . 2010 – operating cash flows increased primarily due to net income of $ 4,319 and a decrease in accounts receivable of $ 2,460. operating cash flow was increased by a reduction in accounts receivable , a decrease in prepaids and an increase in accrued payroll , advertising and other expenses . an increase in inventory , a decrease in refundable income taxes , and a decrease in the current portion of non-current liabilities partially offset the cash flow increases during 2010. during the 2010 fiscal year we funded $ 1,943 toward our defined benefit pension plan . 14 cash used in investing activities : replace_table_token_10_th expenditures for property , plant and equipment include the acquisition of new equipment , upgrading of facilities to maintain operating efficiency and investments in cost effective technologies to lower costs . in general , we capitalize the cost of additions and improvements and expense the cost for repairs and maintenance . the company may also capitalize costs related to improvements that extend the life , increase the capacity , or improve the efficiency of existing machinery and equipment . specifically , capitalization of upgrades of facilities to maintain operating efficiency include acquisitions of machinery and equipment used on packaging lines and refrigeration equipment used to process food products . the table below highlights the additions to property , plant and equipment for the fifty-two weeks ended : replace_table_token_11_th cash used in financing activities : replace_table_token_12_th during fiscal year 2011 , we repurchased an aggregate of 129,900 shares of our common stock
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the global covid-19 pandemic has and may continue to have an adverse impact on our manufacturing and distribution capabilities . disruptions relating to the covid-19 pandemic , including current shelter-in-place orders in the u.s. and other countries , could prevent employees , suppliers , distributors , and others from accessing manufacturing facilities and from transporting our products or the components required to manufacture our products . for example , we have experienced some supply chain disruption due to the global restrictions resulting from the covid-19 pandemic in the manufacture of our next-generation cgm product . further , worldwide supply chain disruption relating to the covid-19 pandemic has resulted in product shortages that has and may continue to impact our ability to manufacture our devices . as of the filing date of this form 10-k , the extent to which covid-19 may impact our financial condition or results of operations or guidance is uncertain . the effect of the covid-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods . see “ risk factors ” in part i , item 1a of this annual report for further discussion of the possible impact of the covid-19 pandemic on our business . critical accounting policies and estimates the discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which we have prepared in accordance with 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 revenue and expenses during the reporting periods . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while our significant accounting policies are more fully described in note 1 to the consolidated financial statements in part ii , item 8 of this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . members of our senior management have discussed the development and selection of these critical accounting policies and their disclosure in this annual report with the audit committee of our board of directors . revenue recognition we generate our revenue primarily from the sale of our reusable hardware and disposable sensors . we generally recognize revenue when control is transferred to our customers in an amount that reflects the net consideration to which we expect to be entitled . we exercise significant judgment when we determine the transaction price , including variable consideration adjustments . transaction price is typically based on the contracted rates less an estimate of claim denials and historical reimbursement experience by payor , which include current and future expectations regarding reimbursement rates and payor mix . variable consideration includes but is not limited to rebates , chargebacks , consideration payable to customers such as specialty distributor and wholesaler fees , product returns allowance , prompt payment discounts , and various other promotional or incentive arrangements . calculating certain of these items involves significant estimates and judgments based on sales or invoice data , contractual terms and historical utilization rates . we estimate provisions for rebates based on contractual arrangements , estimates of products sold subject to rebate , known events or trends and channel inventory data . estimates associated with rebates on products sold through our distributors under pharmacy benefits are the most significant component of our variable consideration estimates and most at risk for changes between the recording of the accrual estimate and its ultimate settlement , an interval that can generally range up to one year . due to this time lag , in any given period , our adjustments to actuals can incorporate changes of estimates related to prior periods . we review the adequacy of our estimates for transaction price adjustments and variable consideration at each reporting date . if the actual amounts of consideration that we receive differ from our estimates , we would adjust our estimates and that would affect reported revenue in the period that such variances become known . if any of these judgments were to change , it could cause a material increase or decrease in the amount of revenue we report in a particular period . 69 for more information , see “ revenue recognition ” in note 1 to the consolidated financial statements in part ii , item 8 of this annual report . share-based compensation share-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized straight-line over the requisite service period of the individual grants , which typically equals the vesting period . we value time-based restricted stock units or rsus at the date of grant using the intrinsic value method . certain rsus granted to senior management vest based on the achievement of pre-established performance or market goals . we estimate the fair value of performance-based rsus at the date of grant using the intrinsic value method and the probability that the specified performance criteria will be met . we update our assessment of the probability that the specified performance criteria will be achieved each quarter and adjust our estimate of the fair value of the performance-based rsus if necessary . the monte carlo methodology that we use to estimate the fair value of market-based rsus at the date of grant incorporates into the valuation the possibility that the market condition may not be satisfied . story_separator_special_tag provided that the requisite service is rendered , the total fair value of the market-based rsus at the date of grant must be recognized as compensation expense even if the market condition is not achieved . however , the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria . if any of the assumptions used change significantly , share-based compensation expense may differ materially from what we have recorded in the current period . fair value of financial instruments the authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities . in general , the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . an asset or liability 's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value . the three levels of input defined by the authoritative guidance are as follows : level 1—uses unadjusted quoted prices that are available in active markets for identical assets or liabilities . level 2—uses inputs other than quoted prices included in level 1 that are observable , either directly or indirectly , through correlation with market data . these include quoted prices in active markets for similar assets or liabilities ; quoted prices for identical or similar assets or liabilities in markets that are not active ; and inputs to valuation models or other pricing methodologies that do not require significant judgment because the inputs used in the model , such as interest rates and volatility , can be corroborated by readily observable market data for substantially the full term of the assets or liabilities . level 3—uses unobservable inputs that are supported by little or no market activity and that are significant to the determination of fair value . level 3 assets and liabilities include those whose fair values are determined using pricing models , discounted cash flow methodologies , or similar valuation techniques and significant judgment or estimation . we estimate the fair value of most of our cash equivalents using level 1 inputs . we estimate the fair value of our marketable equity securities using level 1 inputs and we estimate the fair value of our marketable debt securities using level 2 inputs . we carry our other financial instruments , such as cash , accounts receivable , prepaid expenses and other current assets , accounts payable and accrued liabilities , at cost , which approximates the related fair values due to the short-term maturities of these instruments . see note 1 and note 3 to the consolidated financial statements in part ii , item 8 of this annual report for more information about fair value measurements . accounts receivable , net and related valuation accounts we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we evaluate the collectability of our accounts receivable based on a combination of factors . we regularly analyze customer accounts , review the length of time receivables are outstanding , review historical loss rates and assess current economic trends that may impact the level of credit losses in the future . our allowance for doubtful accounts has generally been adequate to cover our actual credit losses . however , since we can not reliably predict future changes in the financial stability of our customers , we may need to increase our reserves if the financial conditions of our customers deteriorate . excess and obsolete inventory inventory is valued at the lower of cost or net realizable value . we record adjustments to inventory for potentially excess , obsolete , or scrapped goods in order to state inventory at net realizable value . factors influencing these adjustments include inventories on hand and on order compared to estimated future usage and sales for existing and new products , as well as judgments regarding quality control testing data and assumptions about the likelihood of scrap and obsolescence . historically , our inventory reserves have been adequate to cover our actual losses . however , if actual product life cycles , product quality or 70 market conditions differ from our assumptions , additional inventory adjustments that would increase cost of goods sold could be required . income taxes we estimate our income taxes based on the various jurisdictions where we conduct business . significant judgment is required in determining our worldwide income tax provision . the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations and the potential for future adjustment of our uncertain tax positions by the internal revenue service or other taxing jurisdictions . while we believe we have appropriate support for the positions taken on our tax returns , we regularly assess the potential outcomes of examinations by tax authorities in determining the adequacy of our provision for income taxes . we continually assess the likelihood and amount of potential adjustments and adjust the income tax provision , income taxes payable , and deferred taxes in the period in which the facts that give rise to a revision become known . we use the asset and liability approach to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets . we review all available positive and negative evidence , including projections of pre-tax book income , earnings history , reliability of forecasting , and reversal of temporary differences .
| disposable sensor and other revenue comprised approximately 81 % of total revenue and reusable hardware revenue comprised approximately 19 % of total revenue for the twelve months ended december 31 , 2020. disposable sensor and other revenue comprised approximately 78 % of total revenue and reusable hardware revenue comprised approximately 22 % of total revenue for the twelve months ended december 31 , 2019. cost of sales increased $ 102.1 million or 19 % for the twelve months ended december 31 , 2020 compared to the twelve months ended december 31 , 2019 primarily due to increased sales volume . the gross profit of $ 1.28 billion or 66 % of total revenue for the twelve months ended december 31 , 2020 increased $ 348.6 million compared to $ 931.5 million or 63 % of total revenue for the same period in 2019. the increase in gross profit and gross profit margin in 2020 compared to 2019 were primarily driven by increased revenues and cost savings associated with incremental improvements to product design and manufacturing efficiencies . operating expenses replace_table_token_5_th our research and development expenses primarily consist of engineering and research expenses related to our continuous glucose monitoring technology , clinical trials , regulatory expenses , quality assurance programs , materials and products for clinical trials . research and development expenses are primarily related to employee compensation , including salary , fringe benefits , share-based compensation , and temporary employee expenses . we also incur significant expenses to operate our clinical trials including clinical site reimbursement , clinical trial product and associated travel expenses . our research and development expenses also include fees for design services , contractors and development materials . our selling , general and administrative expenses primarily consist of salary , fringe benefits and share-based compensation for our executive , financial , sales , marketing , information technology and administrative functions . other significant expenses include commissions , marketing and advertising , it software license costs , insurance , professional fees for our outside legal counsel and independent auditors , litigation expenses , patent application expenses and consulting expenses . fiscal 2020 compared to fiscal 2019 research and development expense . research and development expense increased $ 86.4 million or 32 % for the twelve months ended december 31 , 2020 compared to the same period of 2019. the increase was primarily due to $ 38.6 million in additional salaries , bonus , and payroll-related costs , $ 14.1 million in additional consulting fees , $ 7.5 million from losses on the disposal of assets primarily driven by
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management believes the allowance for loan losses is a significant estimate and therefore regularly evaluates it to determine the appropriate level by taking into consideration factors such as prior loan loss experience , the character and size of the loan portfolio , business and economic conditions and management 's estimation of potential losses . the use of different estimates or assumptions could produce different provisions for loan losses . goodwill . management utilizes numerous techniques to estimate the value of various assets held by the company , including methods to determine the appropriate carrying value of goodwill as required under financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic 350 `` intangibles – goodwill and other . '' goodwill from purchase acquisitions is subject to ongoing periodic evaluation for impairment . mortgage servicing rights . the valuation of mortgage servicing rights is a critical accounting policy which requires significant estimates and assumptions . the bank often sells mortgage loans it originates and retains the ongoing servicing of such loans , receiving a fee for these services , generally 0.25 % of the outstanding balance of the loan per annum . mortgage servicing rights are recognized at fair value when they are acquired through the sale of loans , and are reported in other assets . they are amortized into non-interest income in proportion to , and over the period of , the estimated future net servicing income of the underlying financial assets . the rights are subsequently carried at the lower of amortized cost or fair value . management uses an independent firm which specializes in the valuation of mortgage servicing rights to determine the fair value . the most important assumption is the anticipated loan prepayment rate , and increases in prepayment speed results in lower valuations of mortgage servicing rights . the valuation also includes an evaluation for impairment based upon the fair value of the rights , which can vary depending upon current interest rates and prepayment expectations , as compared to amortized cost . impairment is determined by stratifying rights by predominant characteristics , such as interest rates and terms . the use of different assumptions could produce a different valuation . all of the assumptions are based on standards the company believes would be utilized by market participants in valuing mortgage servicing rights and are consistently derived and or benchmarked against independent public sources . other-than-temporary impairment on securities . one of the significant estimates related to investment securities is the evaluation of other-than-temporary impairments . the evaluation of securities for other-than-temporary impairments is a quantitative and qualitative process , which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings . the risks and uncertainties include changes in general economic conditions , the issuer 's financial condition and or future prospects , the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses . securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures . the primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include : ( a ) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security , ( b ) the financial condition , credit rating and future prospects of the issuer , ( c ) whether the debtor is current on contractually obligated interest and principal payments , ( d ) the volatility of the securities ' market price , ( e ) the intent and ability of the company to retain the investment for a period of time sufficient to allow for recovery , which may be at maturity and ( f ) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred , including the expectation of receipt of all principal and interest when due . use of non-gaap financial measures certain information in management 's discussion and analysis of financial condition and results of operations and elsewhere in this report contains financial information determined by methods other than in accordance with accounting principles generally accepted in the united states of america ( `` gaap '' ) . management uses these `` non-gaap '' measures in its analysis of the company 's performance and believes that these non-gaap financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period . the company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance . management believes that investors may use these non-gaap financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the company 's underlying performance . these disclosures should not be viewed as a substitute for operating results determined in accordance with gaap , nor are they necessarily comparable to non-gaap performance measures that may be presented by other companies . in several places in this report , net interest income is presented on a fully taxable equivalent basis . specifically included in interest income was tax-exempt interest income from certain investment securities and loans . an amount equal to the tax benefit derived from this tax exempt income has been added back to the interest income total , which adjustments increased net the first bancorp - 2014 form 10-k - page 25 interest income accordingly . management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis , and is particularly useful to investors in understanding and evaluating the changes and trends in the company 's results of operations . other financial institutions commonly present net interest income on a tax-equivalent basis . story_separator_special_tag this adjustment is considered helpful in the comparison of one financial institution 's net interest income to that of another institution , as each will have a different proportion of tax-exempt interest from its earning assets . moreover , net interest income is a component of a second financial measure commonly used by financial institutions , net interest margin , which is the ratio of net interest income to average earning assets . for purposes of this measure as well , other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution . the company follows these practices . the following table provides a reconciliation of tax-equivalent financial information to the company 's consolidated financial statements , which have been prepared in accordance with gaap . a 35.0 % tax rate was used in 2014 , 2013 and 2012 . replace_table_token_4_th the company presents its efficiency ratio using non-gaap information . the gaap-based efficiency ratio is noninterest expenses divided by net interest income plus noninterest income from the consolidated statements of income and comprehensive income . the non-gaap efficiency ratio excludes securities losses from noninterest expenses , excludes securities gains from noninterest income , and adds the tax-equivalent adjustment to net interest income . the following table provides a reconciliation between the gaap and non-gaap efficiency ratio : replace_table_token_5_th the company presents certain information based upon average tangible common shareholders ' equity instead of total average shareholders ' equity . the difference between these two measures is the company 's intangible assets , specifically goodwill from prior acquisitions , and preferred stock . management , banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets , typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions . the following table provides a reconciliation of tangible average shareholders ' equity to the company 's consolidated financial statements , which have been prepared in accordance with gaap : replace_table_token_6_th the first bancorp - 2014 form 10-k - page 26 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > from the $ 12.5 million posted by the company in 2013 . tax-exempt interest income amounted to $ 6.4 million for the year ended december 31 , 2014 , $ 6.6 million for the year ended december 31 , 2013 and $ 5.8 million for the year ended december 31 , 2012 . the first bancorp - 2014 form 10-k - page 27 net interest income on a tax-equivalent basis decreased 2.4 % or $ 1.0 million to $ 41.0 million for the year ended december 31 , 2013 from the $ 42.0 million reported for the year ended december 31 , 2012. this decrease was attributable to a $ 1.1 million decline from margin compression experienced in the first half of the year that stabilized in the second half of 2013 , and this compression was partially offset by a $ 109,000 increase due to higher levels of earning assets , resulting in a decrease in the net interest margin from 3.14 % in 2012 to 3.05 % in 2013. total interest income in 2013 was $ 49.9 million , a decrease of $ 1.9 million or 3.6 % from the $ 51.8 million posted by the company in 2012. total interest expense in 2013 was $ 12.5 million , a decrease of $ 442,000 or 3.4 % from the $ 12.9 million posted by the company in 2012. the decrease in both interest income and interest expense was attributable to lower interest rates . the following tables present changes in interest income and expense attributable to changes in interest rates , volume , and rate/volume 1 for interest-earning assets and interest-bearing liabilities . tax-exempt income is calculated on a tax-equivalent basis , using a 35.0 % tax rate . replace_table_token_7_th replace_table_token_8_th 1 represents the change attributable to a combination of change in rate and change in volume . the first bancorp - 2014 form 10-k - page 28 the following table presents the interest earned on or paid for each major asset and liability category , respectively , for the years ended december 31 , 2014 , 2013 , and 2012 , as well as the average yield for each major asset and liability category , and the net yield between assets and liabilities . tax-exempt income has been calculated on a tax-equivalent basis using a 35 % rate . unrecognized interest on non-accrual loans is not included in the amount presented , but the average balance of non-accrual loans is included in the denominator when calculating yields . replace_table_token_9_th the first bancorp - 2014 form 10-k - page 29 average daily balance sheets the following table shows the company 's average daily balance sheets for the years ended december 31 , 2014 , 2013 and 2012 . replace_table_token_10_th the first bancorp - 2014 form 10-k - page 30 non-interest income non-interest income in 2014 was $ 11.0 million , a decrease of $ 1.0 million or 8.6 % from the $ 12.1 million reported in 2013 . this was attributable primarily to a decrease in income from the origination and sale of refinanced mortgage loans into the secondary market . non-interest income in 2013 was $ 12.1 million , an increase of $ 809,000 or 7.2 % from the $ 11.3 million reported in 2012. this was attributable to an increase in income from the origination and sale of refinanced mortgage loans into the secondary market as well as an increase in other operating income . non-interest expense non-interest expense in 2014 was $ 30.2 million , an increase of $ 1.3 million or 4.4 % from the $ 28.9 million reported in 2013 . the increase was primarily due to higher salaries and employee benefits and other operating expense .
| non-interest expense for the year ended december 31 , 2014 was $ 30.2 million or 4.4 % higher than non-interest expense posted for the year ended december 31 , 2013 , due to higher salaries and employee benefits , as well as higher other operating expenses . during 2014 , total assets increased $ 18.2 million or 1.2 % . loan demand was the healthiest the company has seen in several years , with the loan portfolio increasing $ 41.2 million or 4.7 % in 2014 . the investment portfolio was down $ 13.9 million or 2.8 % for the year . on the liability side of the balance sheet , low-cost deposits increased $ 72.2 million or 17.7 % for the year , replacing higher-cost certificates of deposit which decreased $ 83.6 million or 15.7 % from 2013 . local certificates of deposit ( cds ) decreased $ 21.6 million and wholesale cds decreased $ 62.0 million over the past year . credit quality continued to improve in 2014 . with significantly lower levels of non-performing assets and net chargeoffs , the provision for loan losses in 2014 was $ 1.2 million , $ 3.1 million or 72.6 % lower than in 2013 . non-performing loans stood at 1.15 % of total loans on december 31 , 2014 compared to 1.86 % of total loans on december 31 , 2013 . this compares to non-performing loans at 0.83 % for our uniform bank performance report peer group ( `` ubpr peer group '' ) as of december 31 , 2014 . net chargeoffs were $ 2.3 million or 0.26 % of average loans in 2014 compared to net chargeoffs of $ 5.2 million or 0.60 % of average loans in 2013 . net chargeoffs for the ubpr peer group in 2014 were 0.15 % of average loans . the allowance as a percentage of loans outstanding stood at 1.13 % in 2014 down from 1.31 % in 2013 . remaining well capitalized remains a top priority for the first bancorp , inc. since december 31 , 2008 , the
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