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proceeds from loan repayments and sales during the year ended december 31 , 2017 were $ 1.13 billion and $ 65.21 million , respectively , totaling $ 1.2 billion . we generated interest income of $ 198.9 million , incurred interest expense of $ 78.3 million , and generated net interest income of $ 120.6 million . the following table details our loan activity by unpaid principal balance ( dollars in thousands ) : replace_table_token_11_th ( 1 ) additional fundings made under existing loan commitments . ( 2 ) in certain instances , we create structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party . in either case , the senior mortgage loan ( i.e. , the non-consolidated senior interest ) is not included on our balance sheet . when we create structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party , we retain on our balance sheet a mezzanine loan . for the year ended december 31 , 2017 , such amounts include $ 53.0 million from two non-consolidated senior interests . see “ —investment portfolio financing—non-consolidated senior interests ” for additional information . additionally , loan sales for the year ended december 31 , 2017 include $ 12.2 million from the sale of two loan participation interests by our subsidiary , tpg re finance trust clo issuer , l.p. ( the “ clo issuer ” ) . 66 the following table details overall statistics for our loan portfolio as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_12_th ( 1 ) in certain instances , we create structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party . in either case , the senior mortgage loan ( i.e. , the non-consolidated senior interest ) is not included on our balance sheet . when we create structural leverage through the co-origination or non-recourse syndication of a senior loan interest to a third party , we retain on our balance sheet a mezzanine loan . total loan commitment encompasses the entire loan portfolio we originated , acquired and financed , including $ 135.5 million of such non-consolidated senior interests sold or co-originated in three loans that are not included in our balance sheet portfolio . see “ —investment portfolio financing—non-consolidated senior interests ” for additional information . ( 2 ) unfunded loan commitments may be funded over the term of each loan , subject in certain cases to an expiration date or a force-funding date , primarily to finance development , property improvements or lease-related expenditures by our borrowers , and in some instances to finance operating deficits during renovation and lease-up . ( 3 ) as of december 31 , 2017 , our floating rate loans were indexed to libor . in addition to credit spread , all-in yield includes the amortization of deferred origination fees , purchase price premium and discount , loan origination costs and accrual of both extension and exit fees . credit spread and all-in yield for the total portfolio assumes the applicable floating benchmark rate as of december 31 , 2017 for weighted average calculations . ( 4 ) extended maturity assumes all extension options are exercised by the borrower ; provided , however , that our loans may be repaid prior to such date . as of december 31 , 2017 , based on the unpaid principal balance of our total loan exposure , 67.2 % of our loans were subject to yield maintenance or other prepayment restrictions and 32.8 % were open to repayment by the borrower without penalty . ( 5 ) ltv is calculated as the total outstanding principal balance of the loan or participation interest in a loan plus any financing that is pari passu with or senior to such loan or participation interest as of december 31 , 2017 , divided by the applicable as-is real estate value at the time of origination or acquisition of such loan or participation interest in a loan . the as-is real estate value reflects our manager 's estimates , at the time of origination or acquisition of a loan or participation interest in a loan , of the real estate value underlying such loan or participation interest , determined in accordance with our manager 's underwriting standards and consistent with third-party appraisals obtained by our manager . see note 17 to the consolidated financial statements included in this form 10-k for details about our mortgage loan originations subsequent to december 31 , 2017 . 67 cmbs portfolio we may invest in cmbs , or cmbs-related , assets as part of our investment strategy , primarily as a short-term cash management tool . our current cmbs portfolio consists of five fixed rate securities whose underlying collateral is united states treasury bonds or first mortgage loans secured by multifamily or healthcare related properties . the underlying real estate collateral is located across the united states , primarily in texas , california , and florida with no state representing more than 11 % of an investment 's par value . at december 31 , 2017 , there were no floating rate securities in our cmbs portfolio . the following table details overall statistics for our cmbs portfolio as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_13_th ( 1 ) amounts disclosed are before giving effect to unamortized purchase price premium and discount and unrealized gains or losses . ( 2 ) weighted by market value as of december 31 , 2017 . ( 3 ) ratings range includes one structured finance investment that is unrated . this three year structured finance investment is 100 % collateralized by multifamily mortgage loans underwritten by the federal home loan mortgage corporation ( “ fhlmc ” ) , which loans are slated for near term securitization by fhlmc . upon the contractual maturity of the structured finance investment , fhlmc is required to purchase all of the performing mortgage loans at par . currently , all of the underlying mortgage loans are performing . story_separator_special_tag the four other cmbs investments are rated aa+ through aaa . asset management we proactively manage the assets in our portfolio from closing to final repayment . we are party to an agreement with situs asset management , llc ( “ situs ” ) , one of the largest commercial mortgage loan servicers , pursuant to which situs provides us with dedicated asset management employees for performing asset management services pursuant to our proprietary guidelines . following the closing of an investment , this dedicated asset management team rigorously monitors the investment under our manager 's oversight , with an emphasis on ongoing financial , legal and quantitative analyses . through the final repayment of an investment , the asset management team maintains regular contact with borrowers , servicers and local market experts monitoring performance of the collateral , anticipating borrower , property and market issues , and enforcing our rights and remedies when appropriate . our manager reviews our entire loan portfolio quarterly , undertakes an assessment of the performance of each loan , and assigns it a risk rating between “ 1 ” and “ 5 , ” from least risk to greatest risk , respectively . see notes 2 and 3 to our consolidated financial statements included in this form 10-k for a discussion regarding the risk rating system that we use in connection with our portfolio . the following table allocates the carrying value of our loan portfolio as of december 31 , 2017 and 2016 based on our internal risk ratings ( dollars in thousands ) : replace_table_token_14_th 68 the weighted average risk rating of our total loan exposure based on unpaid principal balance was 2.6 as of both december 31 , 2017 and december 31 , 2016. investment portfolio financing our portfolio financing arrangements during the year ended december 31 , 2017 and december 31 , 2016 included secured revolving repurchase facilities , a senior secured credit facility , a private , bi-lateral portfolio financing with a single investor structured as a collateralized loan obligation ( “ clo ” ) , asset-specific financings and non-consolidated senior interests . the following table details our portfolio financing outstanding principal balances ( dollars in thousands ) : replace_table_token_15_th ( 1 ) excludes deferred financing costs of $ 10.3 million and $ 13.6 million as of december 31 , 2017 and december 31 , 2016 , respectively . secured revolving repurchase facilities as of december 31 , 2017 , aggregate borrowings outstanding under our secured revolving repurchase facilities totaled $ 1.8 billion , with a weighted average interest rate of libor plus 2.2 % per annum , a weighted average all-in cost of credit , including associated fees and expenses , of libor plus 2.6 % per annum , and a weighted average advance rate of 74.1 % . as of december 31 , 2017 , outstanding borrowings under these facilities had a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions ) of 2.6 years . the morgan stanley secured revolving repurchase facility has an initial maturity date of may 4 , 2019 and can be extended for additional successive one year periods , subject to approval by the lender . the number of extension options is not limited by the terms of this facility . at december 31 , 2017 and december 31 , 2016 , the company had two secured revolving repurchase facilities to finance its cmbs investing activities . credit spreads vary depending upon the cmbs and advance rate . assets pledged at december 31 , 2017 and december 31 , 2016 consisted of three and three mortgage-backed securities , respectively . these facilities are 100 % recourse to holdco . the agreements include various covenants covering net worth , liquidity , recourse limitations , and debt coverage , as further discussed below . the company believes it is in compliance with all covenants as of december 31 , 2017 and december 31 , 2016. the following tables detail our secured revolving repurchase facilities as of december 31 , 2017 ( dollars in thousands ) : replace_table_token_16_th ( 1 ) facility commitment represents the largest amount of borrowings available under a given facility once sufficient collateral assets have been approved by the lender and pledged by us . 69 ( 2 ) represents the facility commitment less the approved borrowings which amount is available to be borrowed provided we pledge and the lender approves additional collateral assets . ( 3 ) undrawn capacity represents the positive difference between the borrowing amount approved by the lender against collateral assets pledged by us and the amount actually drawn against those collateral assets . in the case of asset-specific financings , our ability to draw the undrawn capacity is conditioned upon satisfaction by our borrower of conditions precedent to a funding on the underlying loan pledged as collateral , and by our pro rata funding with equity of the remaining future funding obligation . amounts designated as undrawn capacity under our asset specific financings may only be used to satisfy our future funding obligations on the respective underlying pledged loan . ( 4 ) our ability to extend our secured revolving repurchase facilities to the dates shown above is subject to satisfaction of certain conditions . even if extended , our lenders retain sole discretion to determine whether to accept pledged collateral , and the advance rate and credit spread applicable to each borrowing thereunder . ( 5 ) extended maturity represents the sooner of the next maturity date of the cmbs repurchase agreement , or roll over date for the applicable underlying trade confirmation , subsequent to december 31 , 2017. the following table details our secured revolving repurchase facilities as of december 31 , 2016 ( dollars in thousands ) : replace_table_token_17_th ( 1 ) facility commitment represents the largest amount of borrowings available under a given facility once sufficient collateral assets have been approved by the lender and pledged by us .
| $ 109.7 million of undrawn capacity on account of asset-specific financings with a maximum commitment amount of $ 399.2 million at a weighted average interest rate of libor plus 3.8 % and a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions ) of 2.4 years . 63 as of december 31 , 2017 , we had $ 1.1 billion of financing capacity under secured revolving repurchase and senior secured credit facilities provided by seven lenders . our ability to draw on this capacity is dependent upon our lenders ' willingness to accept as collateral loans or cmbs we pledge to them to secure additional borrowings : $ 984.3 million of financing capacity is available under our secured revolving repurchase facilities and senior secured credit facility for loan originations and acquisitions , with a maximum facility commitment of $ 2.8 billion and credit spreads based upon the ltv and other risk characteristics of collateral pledged , which together provide stable financing with mark-to-market provisions generally limited to asset and market specific events , and a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions ) of 2.6 years . these facilities are 25 % recourse to the company 's wholly-owned subsidiary , tpg re finance trust holdco , llc ( “ holdco ” ) . $ 156.8 million of financing capacity is available for cmbs investments , with a maximum facility commitment of $ 200 million , credit spreads based upon the haircut and other risk characteristics of the collateral pledged , and a weighted average term to extended maturity ( assuming we have exercised all extension options and term out provisions and have obtained the consent of our lenders ) of 0.2 years . these facilities are 100 % recourse to holdco . key financial measures and indicators as a commercial real estate finance company , we believe the key financial measures and indicators for our business are earnings per share , dividends declared per share , core earnings , and book value per share . for the three months ended
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we intend to effectuate our initial business combination using cash from proceeds of our initial public offering and the private placement warrants , our capital stock , debt or a combination of cash , stock and debt . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > due diligence and investigation of prospective target businesses ; legal and accounting fees relating to our sec reporting obligations and general corporate matters ; structuring and negotiating a business combination , including the making of a down payment or the payment of exclusivity or similar fees and expenses ; and other miscellaneous expenses . as indicated in the financial statements included elsewhere in this report , at december 31 , 2015 and 2014 , we had cash outside of trust in the amount of $ 700,873 and $ 1,570,214 , respectively , $ 135,937 and $ 59,921 , respectively , in accounts payable and accrued expenses , $ 116,877 and $ 78,411 , respectively , in franchise tax payable and $ 63,919 and $ 95,056 , respectively , in due to affiliates . off-balance sheet financing arrangements we have no obligations , assets or liabilities which would be considered off-balance sheet arrangements . we do not participate in transactions that create relationships with unconsolidated entities or financial partnerships , often referred to as variable interest entities , which would have been established for the purpose of facilitating off-balance sheet arrangements . we have not entered into any off-balance sheet financing arrangements , established any special purpose entities , guaranteed any debt or commitments of other entities , or entered into any non-financial agreements involving assets . contractual obligations we do not have any long-term debt , capital lease obligations , operating lease obligations or long-term liabilities other than an administrative services agreement to pay rcs advisory a total of $ 10,000 per month for office space , utilities , secretarial support and administrative services and a compensation reimbursement agreement to pay the sponsor an amount not to exceed $ 15,000 per month as reimbursement for a portion of the compensation paid to its personnel , including certain of our officers who work on our behalf , commencing on the date our securities were first listed on nasdaq . upon the earlier of the completion of the initial business combination or our liquidation , we will cease paying these monthly reimbursements . on january 22 , 2016 , due to the exigent circumstances publicly announced by rcs advisory 's parent company , including but not limited to its stated intention to file for chapter 11 bankruptcy protection and shut down all of its businesses other than its retail advisor platform by the end of january 2016 ( which bankruptcy filing did subsequently occur on january 31 , 2016 ) , which resulted in rcs advisory 's inability to provide the services contemplated by the administrative services agreement , we provided notice of termination of the administrative services agreement . the space formerly sublet by rcs advisory for our office space is currently leased by the sponsor and will be provided to us free of charge . significant accounting estimates and critical accounting policies we have identified the following as critical accounting policies : use of estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . 30 recently adopted accounting standards on january 1 , 2015 , we adopted accounting standards update ( `` asu '' ) no . 2014-10 , which eliminated certain financial reporting requirements of companies previously identified as “ development stage entities ” ( topic 915 ) . the amendments in this asu simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities . the amendments also reduce data maintenance and , for those entities subject to audit , audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income , cash flows , and stockholders ' equity . on september 30 , 2015 , we adopted asu no . 2014-15 , `` presentation of financial statements - going concern ( subtopic 205-40 ) , disclosure of uncertainties about an entity 's ability to continue as a going concern , '' which provided guidance on management 's responsibility in evaluating whether there is substantial doubt about a company 's ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures . as of december 31 , 2015 , our financial statements have been presented to conform with the reporting and disclosure requirements of the above standards . going concern consideration if we do not complete an initial business combination by october 7 , 2016 , we will ( i ) cease all operations except for the purpose of winding up , ( ii ) as promptly as reasonably possible but not more than ten business days thereafter , redeem 100 % of the common stock sold as part of the units in the public offering , at a per-share price , payable in cash , equal to the aggregate amount then on deposit in the trust account , including interest earned on the funds held in the trust account and not previously released to us to pay its franchise and income taxes ( less up to $ 100,000 of interest to pay dissolution expenses ) , divided by the number of then outstanding public shares , which redemption will completely extinguish public stockholders ' rights story_separator_special_tag as stockholders ( including the right to receive further liquidation distributions , if any ) , subject to applicable law , and ( iii ) as promptly as reasonably possible following such redemption , subject to the approval of our remaining stockholders and our board of directors , dissolve and liquidate , subject in each case to our obligations under delaware law to provide for claims of creditors and the requirements of other applicable law . this mandatory liquidation and subsequent dissolution requirement raises substantial doubt about our ability to continue as a going concern . there will be no redemption rights or liquidating distributions with respect to the warrants , which will expire worthless if we fail to complete an initial business combination by october 7 , 2016. cash and cash equivalents we consider all highly liquid investments with original maturities of three months or less to be cash equivalents . net loss per common share net loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding , excluding shares subject to possible redemption , for the period . the weighted average common shares issued and outstanding , excluding shares subject to possible redemption , of 7,240,479 for the year ended december 31 , 2015 takes into effect the 8,625,000 shares issued on july 24 , 2014 to the sponsor ; the 1,725,000 founder shares forfeited as a result of a reduction in the size of the public offering on october 1 , 2014 , the aggregate of 60,000 shares transferred by the sponsor to david gong , p. sue perrotty and dr. robert j. froehlich ( our independent directors ) , on october 1 , 2014 ; 24,000,000 shares sold in our initial public offering and outstanding since october 7 , 2014 ; and the aggregate of 900,000 founder shares forfeited by the initial stockholders on december 4 , 2014 as a result of the underwriters ' election not to exercise their over-allotment option in connection with our initial public offering . the 18,550,000 warrants related to our initial public offering and the sale of the private placement warrants are contingently issuable shares and are excluded from the calculation of diluted earnings per share because they are anti-dilutive . fair value of financial instruments the fair value of our assets and liabilities , which qualify as financial instruments under fasb asc 820 , “ fair value measurements and disclosures , ” approximates the carrying amounts represented in the balance sheet . 31 offering costs we comply with the requirements of fasb asb 340-10-s99-1 and sec staff accounting bulletin ( sab ) topic 5a - `` expenses of offering '' . offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the initial public offering and that were charged to stockholder 's equity upon the completion of the initial public offering . at december 31 , 2015 , the company expects to receive a reimbursement of offering costs of $ 2,817 . at december 31 , 2014 , offering costs of $ 13,294,182 ( including $ 13,200,000 in underwriting commissions and advisory fees and $ 94,182 in fees in connection with the initial public offering , which is net of reimbursable offering expenses of $ 500,000 ) have been charged to stockholders ' equity . organizational costs organizational costs include accounting and legal fees and the costs of incorporation . these costs are expensed as incurred . no organizational costs were incurred during the year ended december 31 , 2015 . for the period of july 25 , 2014 ( inception ) to december 31 , 2014 , we have incurred organizational costs of $ 22,979. redeemable common stock all of the 24,000,000 shares of common stock sold as part of the units in our initial public offering contain a redemption feature which allows for the redemption of such shares under our liquidation or tender offer/stockholder approval provisions . in accordance with fasb asc 480 , redemption provisions not solely within our control require the security to be classified outside of permanent equity . ordinary liquidation events , which involve the redemption and liquidation of all of the entity 's equity instruments , are excluded from the provisions of fasb asc 480. although we did not specify a maximum redemption threshold , our charter provides that in no event will we redeem the units sold in our initial public offering in an amount that would cause our net tangible assets ( stockholders ' equity ) to be less than $ 5,000,001 . we recognize changes in redemption value immediately as they occur and will adjust the carry value of the security to equal the redemption value at the end of each reporting period . increases or decreases in the carrying amount of redeemable common stock shall be affected by charges against additional paid-in capital in accordance with asc 480. income taxes we comply with the accounting and reporting requirements of financial accounting standards board accounting standard codification ( `` fasb asc '' ) 740 , “ income taxes , ” which requires an asset and liability approach to financial accounting and reporting for income taxes . deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts , based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . a valuation allowance is established when necessary to reduce deferred tax assets when it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized . at december 31 , 2015 , we have a deferred tax asset of approximately $ 447,197 related to startup costs and net operating loss . management has determined that a full valuation allowance
| other than the deferred underwriting discounts and commissions , no amounts are payable to the underwriters of our initial public offering in the event of a business combination . for the year ended december 31 , 2015 and for the period from july 25 , 2014 ( inception ) through december 31 , 2014 , we earned $ 17,456 and $ 3,077 , respectively , in interest income from investments held in the trust account and cash held outside of trust . all of our funds in the trust account are invested in permitted united states “ government securities ” within the meaning of section 2 ( a ) ( 16 ) of the investment company act , having a maturity of 180 days or less or in money market funds meeting certain conditions under rule 2a-7 promulgated under the investment company act which invest only in direct u.s. government treasury obligations . we entered into an agreement to pay rcs advisory a total of $ 10,000 per month for office space , utilities , secretarial support and administrative services commencing on the date our securities were first listed on nasdaq . we also entered into an agreement to pay our sponsor an amount not to exceed $ 15,000 per month as reimbursement for a portion of the compensation paid to its personnel , including certain of our officers , who work on our behalf , commencing on the date our securities were first listed on nasdaq . upon completion of our initial business combination or our liquidation , we will cease paying these monthly reimbursements . for the year ended december 31 , 2015 and for the period from july 25 , 2014 ( inception ) through december 31 , 2014 , we incurred a total of $ 300,000 and $ 74,193 , respectively under these agreements . as of december 31 , 2015 and 2014 , $ 20,000 and $ 29,677 , respectively , remained payable to rcs advisory and $ 30,000 and $ 44,516 , respectively remained payable to our sponsor for services under these agreements . on january 22 , 2016 , due to the exigent circumstances publicly announced by rcs advisory 's parent company , including
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garmin introduced nümaps lifetime in january 2009 , which is a single fee program that , subject to the program 's terms and conditions , enables customers to download the latest map and point of interest information every quarter for the useful life of their pnd . the revenue and associated cost of royalties for sales of nümaps lifetime products are deferred at the time of sale and recognized ratably on a straight-line basis over the estimated 36-month life of the products . with the acquisition of navigon ag in 2011 , products marketed under the navigon brand have a freshmaps program that enables customers to download the latest map and point of interest information for two years . the revenue and associated cost of royalties for sales of freshmaps products are deferred at the time of sale and recognized ratably on a straight-line basis over the two year period . for multiple-element arrangements that include tangible products that contain software essential to the tangible product 's functionality and undelivered software elements that relate to the tangible product 's essential software , the company allocates revenue to all deliverables based on their relative selling prices . in such circumstances , the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows : ( i ) vendor-specific objective evidence of fair value ( “ vsoe ” ) , ( ii ) third-party evidence of selling price ( “ tpe ” ) , and ( iii ) best estimate of the selling price ( “ esp ” ) . vsoe generally exists only when the company sells the deliverable separately , on more than a limited basis , at prices within a relatively narrow range . in addition to the products listed below , the company has offered certain other products including mobile applications , aviation subscriptions and extended warranties that involve multiple-element arrangements that are immaterial . 46 in 2010 , garmin began offering pnds with lifetime map updates ( lmus ) bundled in the original purchase price . similar to nümaps lifetime , lmus enable customers to download the latest map and point of interest information every quarter for the useful life of their pnd . in addition , garmin offers pnds with premium traffic service bundled in the original purchase price in the european market . the company has identified two deliverables contained in arrangements involving the sale of pnds which include either the lmu or premium traffic service . the first deliverable is the hardware along with the software essential to the functionality of the hardware device delivered at the time of sale . the second deliverable is either the lmu or premium traffic service . the company has allocated revenue between these two deliverables using the relative selling price method . amounts allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been met . the revenue and associated cost of royalties allocated to the lmu or the subscription for premium traffic service are deferred and recognized on a straight-line basis over the estimated 36-month life of the products . prior to the third quarter of fiscal 2011 , garmin determined its estimate of selling price using the dealer/distributor price for nümaps lifetime or premium traffic subscriptions sold separately , and the prices for products bundled with and without the lmu and premium traffic service when comparable models were available , as inputs to the relative selling price method in a manner similar to vsoe . the estimated selling price determined in this manner was used to defer revenues for all products bundled with the lmu and premium traffic service , as the number of bundled units sold as a percentage of total units sold was less significant and other indicators of selling price were not readily available . during 2011 , sales of products bundled with lmus and premium traffic service increased significantly as a percentage of total product sales . concurrently , market conditions caused decreases in the asp and margins of comparable models year over year , new bundled products were introduced at lower asps , and the difference in pricing of bundled units and comparable unbundled models decreased considerably . due to these changes , the company determined it was appropriate to change its estimate of the per unit revenue and cost deferrals during the third quarter of 2011. as the sales of nümaps lifetime and premium traffic subscriptions as a percentage of total unit sales or in the aggregate decreased significantly in mid-2011 , the company determined that the previous estimate of selling price based on more limited stand-alone sales of nümaps lifetime or premium traffic was no longer a sole determinant of its value as determined under vsoe , and that third party evidence of selling price was not available . management determined that the price differential between bundled and unbundled products and the royalty cost of the lmu or premium traffic subscription plus an approximate margin were both additional indicators of estimated selling price . these estimates are also reflective of how the company establishes product pricing based in part on customer perception of value of the added lmu or premium traffic service capability . as such , beginning in the third quarter of 2011 , the company changed its estimate of selling price of the undelivered element to be based on the relative selling price method using a weighted average of the stand-alone sales price , the price differential between bundled and unbundled units , and the royalty or subscription cost plus a normal margin . the impact in 2011 of the change in estimate for lifetime map updates and premium traffic service , as described above , was an increase in revenue , gross profit , net income , basic net income per share , and diluted net income per share of $ 77.8 million , $ 66.5 million , $ 59.3 million , $ 0.31 , and $ 0.30 , respectively . story_separator_special_tag garmin records estimated reductions to revenue for customer sales programs , returns and incentive offerings including rebates , price protection ( product discounts offered to retailers to assist in clearing older products from their inventories in advance of new product releases ) , promotions and other volume-based incentives . the reductions to revenue are based on estimates and judgments using historical experience and expectation of future conditions . changes in these estimates could negatively affect garmin 's operating results . these incentives are reviewed periodically and , with the exceptions of price protection and certain other promotions , are accrued for on a percentage of sales basis . if market conditions were to decline , garmin may take actions to increase customer incentive offerings , possibly resulting in an incremental reduction of revenue at the time the incentive is offered . 47 the company records revenue net of sales tax , trade discounts and customer returns . the reductions to revenue for expected future product returns are based on garmin 's historical experience . trade accounts receivable we sell our products to retailers , wholesalers , and other customers and extend credit based on our evaluation of each customer 's financial condition . potential losses on receivables are dependent on each individual customer 's financial condition . we carry our trade accounts receivable at net realizable value . typically , our accounts receivable are collected within 80 days and do not bear interest . we monitor our exposure to losses on receivables and maintain allowances for potential losses or adjustments . we determine these allowances by ( 1 ) evaluating the aging of our receivables ; and ( 2 ) reviewing our high-risk customers . past due receivable balances are written off when our internal collection efforts have been unsuccessful . in 2011 , garmin purchased credit insurance to provide security against large losses . warranties garmin 's products are generally covered by a warranty for periods ranging from one to two years . garmin accrues a warranty reserve for estimated costs to provide warranty services . garmin 's estimate of costs to service its warranty obligations is based on historical experience and expectation of future conditions . to the extent garmin experiences increased warranty claim activity or increased costs associated with servicing those claims , its warranty accrual will increase , resulting in decreased gross profit . inventory garmin writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions . if actual market conditions are less favorable than those projected by management , additional inventory write-downs may be required . investments investments are classified as available for sale and recorded at fair value , and unrealized investment gains and losses are reflected in stockholders ' equity . investment income is recorded when earned , and gains and losses are recognized when investments are sold . investments are reviewed periodically to determine if they have suffered an impairment of value that is considered other than temporary . if investments are determined to be impaired , a loss is recognized at the date of determination . testing for impairment of investments requires significant management judgment . the identification of potentially impaired investments , the determination of their fair value and the assessment of whether any decline in value is other than temporary are the key judgment elements . the discovery of new information and the passage of time can significantly change these judgments . revisions of impairment judgments are made when new information becomes known , and any resulting impairment adjustments are made at that time . the economic environment and volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment . investments are discussed in detail in note 3 of the notes to consolidated financial statements . 48 income taxes garmin provides deferred tax assets and liabilities based on the difference between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes as measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse . it is garmin 's policy to record a valuation allowance to reduce its deferred tax assets to an amount that it believes is more likely than not to be realized . while garmin has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance , in the event garmin were to determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination is made . likewise , should garmin determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the deferred tax assets would increase income in the period such determination is made . in addition , the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations . we recognize liabilities for tax audit issues in the u.s. and other tax jurisdictions based on our estimate of whether , and the extent to which , additional taxes will be due . if payment of these amounts ultimately proves not to be required , the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary . if our estimate of tax liabilities proves to be less than the ultimate assessment , a further charge to expense would result . stock based compensation garmin awards stock options , stock appreciation rights ( “ sars ” ) , restricted stock units ( “ rsus ” ) and or performance shares each year as part of garmin 's compensation package for employees .
| asp was stable due to the substantial increase in our bundled product offerings , which include lifetime map updates and premium traffic services , as a percentage of total units sold , offset by a decrease in the asp of comparable models from the previous year . the increase in product mix toward bundled offerings required us to defer $ 68.3 million of net sales in 2012 compared to $ 179.3 million of net sales in 2011. the reduced impact of deferred revenue is related to increased amortization of previously deferred revenues and costs and a reduced per unit revenue deferral rate due to a change in accounting estimate in the third quarter of 2011 , as previously discussed , offset by the impact of increased sales of bundled units requiring deferral .. outdoor revenue increased 11 % driven by market share gains in the gps-enabled golf category and the dog tracking and training portfolio including the benefit of an acquisition completed in the second half of 2011. fitness segment revenue increased 8 % on the strength of recent product introductions and ongoing global penetration though slowing from 24 % growth in the prior year when we had significant promotional activity on discontinued products . marine revenues decreased 6 % due to a difficult international marine environment . aviation revenues increased 2 % as the company 's oem business began to recover but was partially offset by declining sales of retrofit and portable products . the company anticipates revenue of $ 2.5 - $ 2.6 billion in 2013 driven by growth in the outdoor , fitness , aviation and marine segments offset by ongoing declines in the automotive/mobile segment . in general , management believes that continuous innovation and the introduction of new products are essential for future revenue growth . 54 cost of goods sold replace_table_token_9_th cost of goods sold decreased 10 % in 2012 when compared to the year-ago period primarily due to unit volume declines discussed above , component cost reductions , a mix shift toward higher margin new products and certain factors specific to the automotive/mobile segment discussed below . the cost of goods sold as a percentage of revenues for the automotive/mobile segment decreased by 560 basis
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no royalty or sublicense royalty payments were made to ccf in the years ended december 31 , 2013 , 2012 and 2011 , respectively . the company also recognized $ 7,516 , $ 4,804 and $ 2,558 as research and development expense to ccf for story_separator_special_tag this management 's discussion and analysis of financial condition and results of operations and other portions of this filing contains forward-looking information that involves risks and uncertainties . our actual results could differ materially from those anticipated by the forward-looking information . factors that may cause such differences include , but are not limited to , availability and cost of financial resources , results of our r & d efforts and clinical trials , product demand , market acceptance and other factors discussed in this annual report in item 1a , risk factors and the company 's other securities and exchange commission , or sec , filings . the following discussion should be read in conjunction with our financial statements and the related notes included elsewhere in this filing . overview we are an innovative drug development company seeking to develop first-in-class pharmaceuticals designed to address diseases with significant unmet medical need . our lead product candidates are entolimod , which we are developing as a radiation countermeasure and an oncology drug , and curaxin cbl0137 , our lead oncology product candidate . we conduct business in the united states and in the russian federation through several legal entities , some of which are majority-owned in collaboration with financial partners . see item 1 , business for more information on our product candidates and our strategic partnerships . we refer to cleveland biolabs , inc. or cbli , along with our wholly-owned subsidiary biolab 612 , llc , or biolab 612 , as cbli stand-alone . we refer to cbli stand-alone , in combination with , our majority-owned subsidiaries incuron and panacela , as cbli consolidated . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states , or gaap . 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 research and development . 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 , 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 contract . 46 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 grants to determine levels of accomplishments throughout the life of the grant . 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 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 . story_separator_special_tag 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 , 2013 , we held approximately $ 1.5 million in accrued expenses classified as level 3 securities for warrants to purchase common stock and for compensatory stock options not yet issued . 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 united states federal and state government sources and russian federation government sources . u.s. federal grants and contracts are provided to advance research and development for product candidates that are of interest for potential sale to dod or barda . state grants are usually designed to stimulate economic activity . russian government contracts are provided to develop the biotechnology and pharmaceutical industries in russia . 47 research and development expenses research and development , or 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 pre-clinical and clinical trial costs usually associated with contract research organizations , drug product manufacturing and formulation and a pro-rata share of facilities expense and other overhead items . story_separator_special_tag font-size:10pt ; font-family : times new roman '' > revenue decreased by $ 5.2 million to $ 3.6 million for the year ended december 31 , 2012 from $ 8.8 million for the year ended december 31 , 2011 , representing a decrease of 59 % . this decrease consisted of a reduction in $ 4.1 million of u.s. government contracts and grant revenues and $ 2.3 million of revenue from the ny state/rpci sponsored research agreement . these decreases were partially offset by an increase of $ 1.2 million in revenues from our russian government grants . the following table sets forth details regarding the sources of our government grant and contract revenue : replace_table_token_7_th ( 1 ) the mcs contract was formerly known as the cbms-mits contract . ( 2 ) the contracts received from russian government entities are denominated in russian rubles ( rur ) . the revenue above was calculated using average exchange rates for the periods presented . 50 research and development expenses r & d expenses decreased by $ 0.3 million to $ 22.5 million for the year ended december 31 , 2012 from $ 22.8 million for the year ended december 31 , 2011 , representing a decrease of 1 % . the following table sets forth our r & d expenses for 2012 and 2011 by drug candidate , which illustrate a reduced development effort for entolimod 's biodefense indication offset mainly by increased development efforts for panacela compounds as panacela became fully operational in the fourth quarter of 2011 and its first full year of operations was 2012. replace_table_token_8_th general and administrative expenses g & a expenses remained relatively unchanged for the years ended december 31 , 2012 and 2011 at $ 11.1 million per year . significant variances between periods included a $ 1.4 million increase in g & a costs associated with subsidiaries that were not active in the same periods in 2011 , a $ 1.0 million increase in business development expenses and a $ 0.4 million increase in miscellaneous g & a costs , offset by a decrease of $ 1.2 million due to a non-cash charge regarding a change in estimates for patents costs recorded in 2011. other income and expenses other income decreased by $ 12.2 million to $ 7.6 million for the year ended december 31 , 2012 from $ 19.8 million for the year ended december 31 , 2011 , a change of 62 % . the change in the fair market value of our stock yielded a change in the fair market value of our accrued warrant liability which was the primary reason for this decrease .
| the following table sets forth information regarding our currently active contracts : replace_table_token_5_th ( 1 ) the contract values above are calculated based on the cumulative revenue recognized to date plus our backlog valued at the december 31 , 2013 exchange rate . since december 31 , 2013 , the russian ruble exchange rate has increased from $ 32.2792 to $ 36.2618 as of march 11 , 2014. based on the march 11 , 2014 exchange rate , the funded backlog value decreased from $ 8.2 million to $ 7.4 million and the unfunded backlog value decreased from $ 5.0 million to $ 4.5 million . research and development expenses r & d expenses decreased by $ 3.0 million to $ 19.5 million for the year ended december 31 , 2013 from $ 22.5 million for the year ended december 31 , 2012 , representing a decrease of 13 % . this net decrease primarily reflected decreases of $ 2.7 million related to entolimod 's biodefense indication , as the development in 2013 focused on a less expensive , non-irradiated non-human primate study , and $ 1.6 million related to a narrowed scope of development for the compounds under development by panacela . these decreases were partially offset by an increase of $ 1.2 million related to our curaxin spending , primarily due to the initiation of a clinical trial in the united states for cbl0137 . the following table sets forth our r & d expenses by drug candidate : replace_table_token_6_th on september 30 , 2013 , we transferred 26 laboratory and pre-clinical employee positions to bbl an entity owned in part by our chief scientific officer and director , dr. andrei gudkov , to enable us to better focus on clinical development activities . in connection with this transition , we entered into a master services agreement , or msa , with bbl , pursuant to which bbl agreed to perform laboratory and pre-clinical research services for us . we plan to engage bbl for pre-clinical research services in the future . the prices
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these factors may affect the financial decisions made by investors and companies , including their level of participation in the financial markets and their willingness to participate in corporate transactions . severe market fluctuations or weak economic conditions could reduce our trading volume and revenues , negatively affect our ability to generate new issue and advisory revenue , and adversely affect our profitability . as a general rule , our trading business benefits from increased market volatility . increased volatility usually results in increased activity from our clients and counterparties . however , periods of extreme volatility may at times result in clients reducing their trading volumes , which would negatively impact our results . also , periods of extreme volatility may result in large fluctuations in securities valuations and we may incur losses on our holdings . also , our mortgage group 's business benefits when mortgage volumes increase , and may suffer when mortgage volumes decrease . among other things , mortgage volumes are significantly impacted by changes in interest rates . in addition , as a smaller firm , we are exposed to intense competition . although we provide financing to our customers , larger firms have a much greater capability to provide their clients w ith financing , giving them a competitive advantage . we are much more reliant upon our employees ' relationships , networks , and abilities to exploit market opportunities . therefore , our business may be significantly impacted by the addition or loss of key personnel . we try to address these challenges by ( i ) focusing our business on clients and asset classes that are underserved by the large firms , ( ii ) continuing to monitor our fixed costs to enhance operating leverage and limit our losses during periods of low volumes , and ( iii ) attempting to hire and retain entrepreneurial and effective traders and salespeople . our business environment is rapidly changing . new risks and uncertainties emerge continuously and it is not possible for us to predict all the risks we will face . this may negatively impact our operating performance . a portion of our revenue is generated from net trading activity . we engage in proprietary trading for our own account , provide securities financing for our customers , and execute “ riskless ” trades with a customer order in hand resulting in limited market risk to us . the inventory of securities held for our own account , as well as held to facilitate customer trades , and our market making activities are sensitive to market movements . a portion of our revenue is generated from new issue and advisory engagements . the fees charged and volume of these engagements are sensitive to the overall business environment . currently , we provide investment banking and advisory services in europe and advisory services in the united states through our subsidiaries , ccfl and jvb , respectively . currently in the united states , our primary source of new issue revenue is jvb 's sba group 's participation in coof securitizations . the sba secondary market program allows for the purchaser of a sba loan certificate to “ strip ” a portion of the interest rate from a guaranteed loan portion , creating what is called an originator fee or interest only strip . this enhances the ability of sba pool assemblers to securitize 42 the guaranteed portion of loans that do not have the same interest rate . our sba group 's participation in this area has grown during recent years . in europe , ccfl engages in new issue placements in corporate and securitized products and advisory services . a portion of our revenue is generated from management fees . our ability to charge management fees and the amount of those fees is dependent upon the underlying investment performance and stability of the investment vehicles . if these types of investments do not provide attractive returns to investors , the demand for such instruments will likely fall , thereby reducing our opportunity to earn new management fees or maintain existing management fees . as of december 31 , 2017 , 89.3 % of our existing aum were cdos . the creation of cdos and permanent capital vehicles has depended upon a vibrant securitization market . since 2008 , volumes within the securitization market have dropped significantly and have not fully recovered since that time . we have not complete d a new securitization since 2008 . almost all of our asset management revenue is earned from the management of cdos . as a result , our asset management revenue has declined from its historical highs as the assets of the cdos decline as a result of maturities , repayments , and defaults . our ability to complete securitizations in the future will depend upon , among other things , our asset origination capacity and success , our ability to arrange warehouse financing to originate assets , our willingness and capa city to fund required amounts to obtain warehouse financing and securitized financings , and the demand in the markets for such securitizations . a portion of our revenues is generated from our principal investing activities . therefore , our revenues are impacted by the by the overall market supply and demand of these investments as well as the individual performance of each investment . our principal investments are included within other investments , at fair value in our consolidated balance sheets . see note 8 to our consolidated financial statements included in item 1 of this annual report on form 10-k for a detail of the investments that comprise our principal investments . margin pressures in fixed income brokerage business performance in the financial services industry in which we operate is highly correlated to the overall strength of the economy and financial market activity . overall market conditions are a product of many factors beyond our control and can be unpredictable . story_separator_special_tag these factors may affect the financial decisions made by investors , including their level of participation in the financial markets . in turn , these decisions may affect our business results . with respect to financial market activity , our profitability is sensitive to a variety of factors including the volatility of the equity and fixed income markets , the level and shape of the various yield curves , and the volume and value of trading in securities . margins and volumes in certain products and markets within the fixed income brokerage business continue to decrease materially as competition has increased and general market activity has declined . further , we continue to expect that competition will increase over time , resulting in continued margin pressure . our response to this margin compression has included : ( i ) building a diversified fixed income trading platform ; ( ii ) expanding our european advisory and new issue capabilities ; ( iii ) acquiring new product lines ; ( iv ) building a hedging execution and funding operation to service mortgage originators ; ( v ) becoming a full netting member of the ficc enabling us to expand our matched book repo business ( see recent events – expansion of matched book repo business below ) ; and ( vi ) monitoring our fixed costs . our cost management initiatives are ongoing . however , there can be no certainty that these efforts will be sufficient . if insufficient , we will likely see a decline in profitability . u.s. housing market in recent years , our mortgage group has grown in significance to our capital markets segment and our company overall . the mortgage group primarily earns revenue by providing hedging execution , securities financing , and trade execution services to mortgage originators and other investors in mortgage backed securities . therefore , this group 's revenue is highly dependent on the volume of mortgage originations in the u.s. origination activity is highly sensitive to interest rates , the u.s. job market , housing starts , sale activity of existing housing stock , as well as the general health of the u.s. economy . in addition , any new regulation that impacts u . s . government agency mortgage backed security issuance activity , residential mortgage underwriting standards , or otherwise impacts mortgage originators will impact our business . we have no control over these external factors and there is no effective way for us to hedge against these risks . our mortgage group 's volumes and profitability will be highly impacted by these external factors . recent events expansion of matched book repo business on october 18 , 201 7 , we were informed that we had been approved as a full netting member of the ficc 's government services division . as a member of the ficc , we have access to the ficc 's general collateral funding ( “ gcf ” ) repo service that 43 provides netting and settlement services for repurchase transactions where the underlying security is general collateral ( primarily us treasuries and us agency securities ) . the ficc 's gcf repo service provides us with many benefits including : more flexible and lower cost of financing , increased liquidity , increased efficiency in trade execution , and guaranteed settlement . we began entering into transac tions with the ficc in november 2017. we have agreed to establish and maintain a committed line of credit in a minimum amount of $ 25,000 on o r prior to april 30 , 2018. the ficc reserves the right to terminate our membership if we fail to be in compliance with this condition . without access to the ficc 's gcf repo service , any expansion of our m atched b ook r epo business will be limited . corporate tax reform in december 201 7 , the u. s. c ongress passed the tax cuts and jobs act of 2017. among other things , this law made substantial changes to the way u.s. corporations are taxed . we are a u.s. corporation and ; therefore , are impacted by these changes . the changes that had the most significant impact on our ongoing operations are : · the corporate tax rate was reduced from 35 % to 21 % . as the result of our significant net operating loss ( “ nol ” ) and net capital loss ( “ ncl ” ) carryforwards , we do not current ly pay corporate income tax . therefore , this rate reduction will not directly benefit us until we exhaust our existing nol and ncl carryforwards . however , once our nols and ncls are either fully utilized , expire , or are otherwise limited , this change will have a significant positive effect on our after tax results . · the corporate alternative minimum tax ( “ amt ” ) was eliminated . because of our significant nol and ncl carryforwards , we generally do not currently pay corpora te income tax . however , we have been subject to amt tax . we no longer will be subject to amt tax , and therefore , t his will have a positive effect on our after tax results . · the new law limits the deductibility of interest expense . however , any such limit only limits net interest expense ( i.e . after offsetting interest income ) . t his limit should not have a significant adverse impact on us as we currently generate significant interest income in our trading and matched book repo operations . however , if our business changes in the future such that we do not generate significant interest income , the deductibility of our interest expense may be limited .
| pursuant to the 2017 investment agreements , the 2017 investors agreed to invest an aggregate of $ 10,000 ( the “ investment amount ” ) into the operating llc ( the “ investment ” ) , all of which was paid by the 2017 investors to us on september 29 , 2017. in exchange for the investment , we agreed to pay to the 2017 investors , in arrears following each calendar month during the term of the 2017 investment agreements , an amount equal to the aggregate i nvestment r eturn for such calendar month , as calculated in accordance with the terms of the 2017 investment agreements . the investment return ( “ 2017 investment return ” ) is defined as an annual return , in the aggregate , equal to : 1. for any 365-day period beginning on september 29 , 2017 or any anniversary of september 29 , 2017 ( each an “ annual period ” ) and ending on or before the third anniversary of september 29 , 2017 , 3.2 % of the investment amount , plus ( x ) 15 % of the revenue of the gcf repo business ( the “ revenue of the business ” ) of jvb , for any annual period in which the revenue of the business is greater than zero but less than or equal to $ 5,333 , ( y ) $ 800 for any annual period in which the revenue of the business is greater than $ 5,333 but less than or equal to $ 8,000 , or ( z ) 10 % of the revenue of the business for any annual period in which the revenue of the business is greater than $ 8,000 ; or 44 2. for any annual period following the third anniversary of september 29 , 2017 , ( x ) for any annual period in which the revenue of the business is greater than zero , the greater of 20 % of the investment amount or 20 % of the revenue of the business , or ( y ) for any annual period in which the revenue of the business is zero or less than zero , 3.2 % of the investment amount . the term of the 2017 investment agreements commenced on september 29 , 2017 and will continue until a redemption ( as defined in the 2017 investment agreements ) occurs , unless the 2017 investment agreements are earlier terminated . for additional information , see note 16 to our consolidated financial statements included in item 1 of this annual report on form 10-k. reverse stock split and name change
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one of the requirements for the permitted use of a qualitative assessment is that a quantitative assessment must be performed periodically , and we used the quantitative assessment of asc 350-20-35 for our 2016 annual impairment test to estimate the fair value of goodwill , using level 3 inputs of a discounted cash flow technique since level 1 and level 2 inputs of market prices were not available . no goodwill impairment was deemed to exist as a result of such 2016 annual impairment review , as the estimated fair value of compx 's security products reporting unit was in excess of its net carrying amount . see note 7 to our consolidated financial statements . considerable management judgment is necessary to evaluate the qualitative impact of events and circumstances on the fair value of a reporting unit . events and circumstances considered in our impairment evaluations , such as historical profits and stability of the markets served , are consistent with factors utilized with our internal projections and operating plan . however , future events and circumstances could result in materially different findings which could result in the recognition of a material goodwill impairment . benefit plans - we maintain various defined benefit pension plans and postretirement benefits other than pensions ( opeb ) . the amounts recognized as defined benefit pension and opeb expenses and the reported amounts of pension asset and accrued pension and opeb costs are actuarially determined based on several assumptions , including discount rates , expected rates of returns on plan assets , expected health care trend rates and expected mortality . variances from these actuarially assumed rates will result in increases or decreases , as applicable , in the recognized pension and opeb obligations , pension and opeb expenses and funding requirements . these assumptions are more fully described below under the heading “ assumptions on defined benefit pension plans and opeb plans. ” - 33 - income taxes - w e recognize deferred taxes for future tax effects of temporary differences between financial and income tax reporting . while we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valu ation allowance , it is possible that in the future we may change our estimate of the amount of the deferred income tax assets that would more-likely-than-not be realized in the future resulting in an adjustment to the deferred income tax asset valuation al lowance that would either increase or decrease , as applicable , reported net income in the period the change in estimate was made . we record a reserve for uncertain tax where we believe it is more-likely-than-not our position will not prevail with the appl icable tax authorities . it is possible that in the future we may change our assessment regarding the probability that our tax positions will prevail that would require an adjustment to the amount of our reserve for uncertain tax positions that could eithe r increase or decrease , as applicable , reported net income in the period the change in assessment was made . contingencies - we record accruals for environmental , legal and other contingencies and commitments when estimated future expenditures associated with such contingencies become probable , and the amounts can be reasonably estimated . however , new information may become available , or circumstances ( such as applicable laws and regulations ) may change , thereby resulting in an increase or decrease in the amount required to be accrued for such matters ( and therefore a decrease or increase in reported net income in the period of such change ) . income from operations of compx and kronos is impacted by certain significant judgments and estimates , as summarized below : chemicals ( kronos ) - allowance for doubtful accounts , impairment of equity method investments , long-lived assets , defined benefit pension and opeb plans , loss accruals and income taxes , and component products ( compx ) - impairment of goodwill and long-lived assets , loss accruals and income taxes . in addition , general corporate and other items are impacted by the significant judgments and estimates for impairment of marketable securities and equity method investments , defined benefit pension and opeb plans , deferred income tax asset valuation allowances and loss accruals . income ( loss ) from operations the following table shows the components of our income ( loss ) from operations . replace_table_token_6_th the following table shows the components of our income ( loss ) before income taxes exclusive of our income ( loss ) from operations . replace_table_token_7_th - 34 - compx international inc. replace_table_token_8_th net sales - net sales for 2016 were comparable to 2015 because compx 's security products business was able to substantially replace revenue for a government security end-user project which did not recur in 2016 with a new project with the same customer . compx 's marine components business also contributed with higher sales to the waterski/wakeboard boat market . relative changes in selling prices did not have a material impact on net sales comparisons . net sales increased approximately $ 5.2 million from 2014 to 2015 led by strong demand within security products from existing government customers . compx 's marine components business also contributed to the increase primarily through higher sales to the waterski/wakeboard boat market . relative changes in selling prices did not have a material impact on net sales comparisons . cost of sales and gross margin - cost of sales for 2016 was down from 2015 on comparable sales , resulting in an increase in gross margin . as a percentage of sales , gross margin for 2016 was favorable to 2015 due primarily to higher variable margins resulting from favorable customer and product mix for each of compx 's security products and marine components businesses . cost of sales and gross margin both increased from 2014 to 2015 primarily due to increased sales volumes . story_separator_special_tag as a percentage of net sales , cost sales and resulting gross margin for 2015 were comparable to 2014 as improved variable margins and manufacturing efficiencies attributable to compx 's marine components business were substantially offset by slightly lower variable margins and increased fixed costs within compx 's security products business . operating costs and expenses - operating costs and expenses consist primarily of sales and administrative-related personnel costs , sales commissions and advertising expenses directly related to product sales and administrative costs relating to compx 's business and corporate management activities , as well as gains and losses on plant , property and equipment . operating costs and expenses in 2016 were comparable to 2015 on an absolute basis and as a percentage of sales . operating costs and expenses increased slightly from 2014 to 2015 primarily as a result of increased personnel costs for compx 's security products business . income from operations - as a percentage of net sales , income from operations increased slightly from 2015 to 2016 while 2015 was comparable to 2014. operating margins were primarily impacted by the factors impacting cost of sales , gross margin and operating costs discussed above . general - compx 's profitability primarily depends on our ability to utilize our production capacity effectively , which is affected by , among other things , the demand for our products and our ability to control our manufacturing costs , primarily comprised of labor costs and materials . the materials used in our products consist of purchased components and raw materials some of which are subject to fluctuations in the commodity markets such - 35 - as zinc , brass and stainless steel . total material costs represented approximately 45 % of our cost of sales in 2016 , with commodity-related raw materials accounting for approximately 10 % of our cost of sales . during 2015 and 2016 , markets for our primary commodity-related raw materials , including zinc , brass an d stainless steel , have generally been stable and relatively soft compared to historical levels . markets for our primary commodity-related raw materials are expected to remain relatively stable into 2017 with the possible exception of zinc , which has incr eased in price over the final months of 2016. compx occasionally enters into short-term commodity-related raw material supply arrangements to mitigate the impact of future increases in commodity-related raw material costs . see item 1 - “ business- raw ma terials. ” results by reporting unit the key performance indicator for compx 's reporting units is the level of their income from operations ( see discussion below ) . replace_table_token_9_th security products - security products net sales decreased 1 % to $ 94.7 million in 2016 compared to $ 95.6 million in 2015. sales for 2015 included approximately $ 6.3 million for a government security end-user project which did not recur in 2016. during the second half of 2016 , we were awarded a substantial new project for the same customer which began to ship in august and was completed in december , totaling $ 5.8 million in net sales . as a percentage of net sales , gross margin for 2016 increased compared to 2015 on favorable variable margins resulting from relative changes in product and customer mix particularly in the fourth quarter . operating costs and expenses for 2016 were comparable to 2015. security products operating income as a percentage of net sales for 2016 increased compared to 2015 primarily as a result of the factors impacting gross profit and operating costs and expenses discussed above . - 36 - security produ cts net sales increased 5 % to $ 95.6 million in 2015 compared to $ 91.4 million in 2014. the increase in sales was primarily due to an increase of approximately $ 3.0 million in sales to existing government customers . as a percentage of net sales , gross mar gin for 2015 decreased compared to 2014 due to relative changes in customer and product mix driving lower variable margins , and increased fixed costs . operating costs and expenses increased approximately $ .5 million in 2015 compared to 2014 primarily as a result of increased personnel costs . security products operating income as a percentage of net sales for 2015 decreased compared to 2014 primarily as a result of the factors impacting gross margin and operating costs and expenses discussed above . marine components - marine components net sales increased 6 % in 2016 as compared to 2015 , while 2015 net sales increased 8 % over 2014. the increase in sales each year was primarily due to improved demand for products sold to the ski/wakeboard boat market , including the continuing introduction of new product lines to that market . as a percentage of net sales , gross margin and the operating income percentage for each period improved due to improved pricing , changes in customer and product mix , improved manufacturing efficiencies and increased leverage of fixed costs as a result of higher production volumes . outlook - we experienced robust demand for our products in 2015 and 2016 buoyed by continued high demand from certain large existing customers , including significant projects for government security applications which are not expected to recur . we continue to benefit from innovation and diversification in our product offerings to the recreational boat markets served by compx 's marine components business . we anticipate continued strong demand for our products in 2017 , though we do not expect demand for government security applications to equal 2016 volumes . as in prior periods , we will continue to monitor general economic conditions and sales order rates and respond to fluctuations in customer demand through continuous evaluation of staffing levels and consistent execution of our lean manufacturing and cost improvement initiatives .
| in 2015 , higher income from operations attributable to compx in 2016 of $ 1.6 million , lower litigation fees and related costs of $ 1.3 million in 2016 , and higher environmental remediation and related costs of $ .8 million in 2016. as more fully described below , the decrease in our earnings per share from 2014 to 2015 is primarily related to the net effects of : equity in losses from kronos in 2015 of $ 52.8 million compared to equity in earnings from kronos in 2014 of $ 30.2 million , lower insurance recoveries in 2015 of $ 6.7 million primarily related to an insurance recovery settlement for certain past lead pigment litigation defense costs we recognized in 2014 , lower environmental remediation and related costs of $ 2.1 million in 2015 , lower litigation fees and related costs of $ 2.2 million in 2015 , and a first quarter non-cash income tax benefit in 2015 related to a net reduction in our reserve for uncertain tax positions of $ 3.0 million . our 2016 net income attributable to nl stockholders includes : income of $ .01 per share , net of income taxes , related to insurance recoveries we recognized , and income or loss , net of income taxes , included in our equity in earnings of kronos : - 31 - income of $ .01 per share related to kronos ' insurance settlement gains , income of $ .01 per share related to kronos ' current income tax benefit related to the execution and finalization of an advance pricing agreement between the u.s. and canada , income of $ .01 per share related to kronos ' recognition of a net deferred income tax benefit as the result of a net decrease in its deferred income tax asset valuation allowance related to its german and belgian operations , and loss of $ .01 per share related to a net increase in kronos ' reserve for uncertain
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net revenues for the year ended december 31 , 2016 increased by 8.2 % , or $ 169.9 million , compared to the same period in 2015 due to the following : pricing 1.0 % volume 4.8 % acquisitions / divestitures 3.0 % currency exchange rates ( 0.6 ) % total 8.2 % 30 the increase in net revenues was primarily driven by higher volumes and improved pricing in all segments and incremental revenue from acquisitions in our emeia segment , offset by unfavorable foreign currency exchange rate movements due to the strengthening of the us dollar against currencies in emeia , primarily the british pound . cost of goods sold for the year ended december 31 , 2017 , cost of goods sold as a percentage of revenue decreased to 55.5 % from 56.0 % due to the following : pricing and productivity in excess of inflation ( 0.5 ) % volume/product mix 0.4 % acquisitions 0.5 % currency exchange rates ( 0.1 ) % environmental remediation charge ( 0.7 ) % restructuring / acquisition costs ( 0.1 ) % total ( 0.5 ) % costs of goods sold as a percentage of revenue for the year ended december 31 , 2017 decreased primarily due to pricing and productivity benefits in excess of inflation , favorable foreign currency exchange rate movements , a decrease related to an environmental remediation charge in the prior year , and decreased restructuring costs . these decreases were offset by unfavorable product mix and volume and the impact of acquisitions . for the year ended december 31 , 2016 , cost of goods sold as a percentage of revenue decreased to 56.0 % from 58.0 % due to the following : replace_table_token_7_th costs of goods sold as a percentage of revenue for the year ended december 31 , 2016 decreased primarily due to productivity benefits in excess of inflation , the impact of the acquisitions discussed above , favorable foreign currency exchange rate movements and decreased restructuring costs primarily in our emeia segment . these decreases were offset by increased investment spending and a charge for a change in approach for environmental remediation related to two sites in the americas . selling and administrative expenses for the year ended december 31 , 2017 , selling and administrative expenses as a percentage of revenue decreased to 24.2 % from 25.0 % due to the following : productivity in excess of inflation ( 0.7 ) % volume leverage ( 0.9 ) % acquisitions ( 0.2 ) % investment spending 0.7 % restructuring / acquisition costs 0.3 % total ( 0.8 ) % 31 selling and administrative expenses as a percentage of revenue for the year ended december 31 , 2017 decreased primarily due to favorable leverage due to increased volume , productivity benefits in excess of inflation , and acquisitions . these decreases were partially offset due to increased investment spending and higher restructuring and acquisition costs . for the year ended december 31 , 2016 , selling and administrative expenses as a percentage of revenue increased to 25.0 % from 24.7 % due to the following : other inflation in excess of productivity 0.8 % volume leverage ( 1.2 ) % acquisitions / divestitures 0.7 % investment spending 0.4 % restructuring / acquisition costs ( 0.4 ) % total 0.3 % selling and administrative expenses as a percentage of revenue for the year ended december 31 , 2016 increased primarily due to acquisitions , increased investment spending and inflation in excess of productivity . these increases were offset by favorable leverage due to increased volume and lower restructuring and acquisition costs . operating income/margin operating income for the year ended december 31 , 2017 increased $ 62.7 million from the same period in 2016 and operating margin increased to 20.3 % from 19.0 % for the same period in 2016 due to the following : replace_table_token_8_th operating income and operating margin both increased due to favorable volume/product mix in all of our segments , pricing improvements and productivity in excess of inflation , favorable foreign currency exchange rate movements , and lower environmental remediation charges in the current year due to a charge in the prior year for a change in approach for environmental remediation related to two sites in the americas . these increases were partially offset by investment spending and the impact of acquisitions and higher restructuring and acquisition costs . operating income for the year ended december 31 , 2016 increased $ 66.9 million and operating margin increased to 19.0 % from 17.3 % for the same period in 2015 due to the following : 32 replace_table_token_9_th operating income increased primarily due to favorable volume/product mix in all of our segments , pricing improvements and productivity in excess of inflation , lower restructuring and acquisition costs , the impact of acquisitions and divestitures , inventory impairment charges in venezuela in the prior year that did not occur in the current year and favorable foreign currency exchange rate movements . these increases were partially offset by investment spending and a charge for a change in approach for environmental remediation related to two sites in the americas . operating margin increased primarily due to favorable volume/product mix in all of our segments , pricing improvements and productivity in excess of inflation , lower restructuring and acquisition costs , inventory impairment charges in venezuela in the prior year and favorable foreign currency exchange rate movements . these increases were partially offset by investment spending , the impact of acquisitions and divestitures , and a charge for a change in approach for environmental remediation related to two sites in the americas . interest expense interest expense for the year ended december 31 , 2017 increased $ 41.4 million compared to the same period in 2016 . story_separator_special_tag interest expense increased primarily due to $ 44.7 million of costs associated with the refinancing of our credit facilities , issuance of our new 3.200 % and 3.550 % senior notes , and redemption of our previously outstanding senior notes due 2021 and 2023. interest expense for the year ended december 31 , 2016 increased $ 11.4 million compared with the same period of 2015 . interest expense increased primarily due to increased debt balances from the september 2015 issuance of the senior notes due 2023. loss on divestitures during the year ended december 31 , 2015 we entered into an agreement to sell a majority stake in our systems integration business in china and recorded a pre-tax charge of $ 78.1 million ( $ 82.4 million after tax charges ) to write the carrying value of the assets and liabilities down to their estimated fair value less costs to complete the transaction . during the year ended december 31 , 2016 we recorded an additional after tax charge of $ 84.4 million to further write-down the carrying value of consideration receivable related to this divestiture . other income , net the components of other income , net , for the year ended december 31 were as follows : replace_table_token_10_th 33 for the year ended december 31 , 2017 , other income , net decreased by $ 5.0 million compared to the same period in 2016 . during the year ended december 31 , 2017 we recorded a cumulative gain of $ 5.4 million from the sale of idevices , llc , and gains of $ 7.3 million related to legal entity liquidations in our asia pacific region , of which $ 2.2 million has been attributed to noncontrolling interests . for the year ended december 31 , 2016 , other income , net increased by $ 10.4 million compared with the same period in 2015 . during the year ended december 31 , 2016 we recorded gains from the sale of marketable securities of $ 12.4 million , which is included within other in the table above . additionally , earnings from equity method investments increased primarily due to a gain recognized by an investment in 2016. provision for income taxes on december 22 , 2017 , the president of the united states signed comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax reform act ” ) . the tax reform act makes broad and complex changes to the u.s. tax code which will impact our year ended december 31 , 2017 including , but not limited to ( 1 ) reducing the u.s. federal corporate tax rate , ( 2 ) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may electively be paid over eight years , and ( 3 ) requiring a review of the future realizability of deferred tax balances . for the year ended december 31 , 2017 , our effective tax rate was 30.1 % compared to 21.6 % for the year ended december 31 , 2016 . the effective income tax rate for the year ended december 31 , 2017 was negatively impacted by a $ 53.5 million tax charge related to the tax reform act , which was partially offset by the release of $ 10.4 million of valuation allowances . the effective income tax rate for the year ended december 31 , 2016 was negatively impacted by $ 84.4 million ( before and after tax ) of charges related to the divestiture of our systems integration business in china during 2015. for the year ended december 31 , 2016 , our effective tax rate was 21.6 % compared to 26.1 % for the year ended december 31 , 2015 . the effective income tax rate for the year ended december 31 , 2016 was negatively impacted by $ 84.4 million ( before and after tax ) of charges related to the divestiture of our systems integration business in china during 2015. the effective income tax rate for the ended december 31 , 2015 was negatively impacted by $ 111.3 million ( $ 115.0 million after tax ) of charges related to the divestiture of our systems integration business in china , the divestiture of our business in venezuela and the devaluation of the venezuelan bolivar . excluding these charges , the effective tax rate for the year ended december 31 , 2016 increased primarily due to increases in uncertain tax positions in 2016 that were partially offset by favorable changes in the mix of income earned in lower rate jurisdictions and the continued execution of our tax strategies . 34 story_separator_special_tag increase in revenues was primarily due to higher volumes and improved pricing . net revenues from non-residential products for the year ended december 31 , 2016 increased mid to high single digits compared to the same period in the prior year due to market growth , product launches , and channel initiatives . net revenues from residential products for the year ended december 31 , 2016 increased low single digits compared to the same period in the prior year primarily due to domestic market growth . these increases were partially offset by unfavorable foreign currency exchange movements and the 2015 divestiture of our venezuelan operation . operating income/margin segment operating income for the year ended december 31 , 2016 increased $ 30.1 million and segment operating margin increased to 27.2 % from 26.8 % compared to the same period in 2015 due to the following : replace_table_token_13_th the increases were primarily due to favorable volume/product mix , inventory impairment charges year-over-year in venezuela , pricing improvements and productivity in excess of inflation and favorable foreign currency exchange rate movements .
| 2017 vs 2016 net revenues net revenues for the year ended december 31 , 2017 increased by 7.4 % , or $ 121.8 million , compared to the same period in 2016 due to the following : 35 pricing 2.0 % volume 3.8 % acquisitions 1.4 % currency exchange rates 0.2 % total 7.4 % the increase in revenues was due to higher volumes , improved pricing , the impact of an acquisition in january 2017 , and favorable foreign currency exchange rate movements . net revenues from non-residential products for the year ended december 31 , 2017 increased high single digits compared to the same period in the prior year due to market growth , product launches and channel initiatives . net revenues from residential products for the year ended december 31 , 2017 increased mid-single digits compared to the same period in the prior year primarily due to domestic market growth . operating income/margin segment operating income for the year ended december 31 , 2017 increased $ 55.2 million and segment operating margin increased to 28.5 % from 27.2 % compared to the same period in 2016 due to the following : replace_table_token_12_th operating income increased primarily due to pricing improvements and productivity in excess of inflation , favorable volume/product mix , favorable foreign currency exchange rate movements , lower environmental remediation charges in the current year due to a charge in the prior year for a change in approach for environmental remediation related to two sites in the u.s. , and the impact of acquisitions . these increases were partially offset by increased investment spending primarily for new product development and channel development and restructuring and acquisition costs . operating margin increased primarily due to pricing improvements and productivity in excess of inflation , favorable volume/product mix , favorable foreign currency exchange rate movements , and lower environmental remediation charges in the current year due to a charge in the prior year for a change in approach for environmental remediation related to two sites in the u.s. these increases were partially offset by
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in april 2016 , we executed a restructuring plan ( `` the 2016 plan '' ) to streamline pixelworks ' operations and product offerings and to align our expenses with current revenue levels . the 2016 plan included an approximately 24 % reduction in workforce , primarily in the area of development , however , it also impacted operations , sales and marketing . the 2016 plan also included abandonment of certain assets resulting in impairment charges to write off the assets associated with markets we are no longer pursuing . restructuring expense for the years ended december 31 , 2017 , 2016 and 2015 , was as follows ( in thousands ) : replace_table_token_8_th during 2017 , we incurred expenses of $ 1.9 million related to the 2017 plan , which consisted of costs associated with employee severance and benefits . through december 31 , 2017 , the cumulative amount incurred related to the 2017 plan is $ 1.9 million , none of which is included in cost of revenue . as we continue to implement the 2017 plan , we expect to incur negligible additional restructuring charges during 2018 related to the plan . during 2016 , we incurred expenses of $ 4.4 million related to the 2016 plan , which primarily consisted of costs associated with employee severance and benefits of $ 2.6 million and the abandonment of certain assets of $ 1.7 million . the 2016 plan was completed at the end of 2016 and we did not incur any further restructuring charges related to the 2016 plan during 2017. through december 31 , 2017 , the cumulative amount incurred related to the 2016 plan is $ 4.4 million , of which $ 1.8 million is included in cost of revenue . interest expense and other , net interest expense and other , net , consisted of the following ( in thousands ) : replace_table_token_9_th the increase in interest expense in 2017 compared to 2016 is due to contractual interest on convertible debt , as well as imputed interest on short and long-term liabilities acquired as a part of the acquisition . 40 provision for income taxes the provision for income taxes was as follows ( in thousands ) : replace_table_token_10_th the income tax expense recorded for the year ended december 31 , 2017 is comprised of $ 1.0 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by $ 0.3 million benefit related to the treatment of amt tax credits under the tax cuts and jobs act ( `` tcja '' ) and $ 0.2 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . the income tax expense recorded for the year ended december 31 , 2016 is comprised of $ 0.6 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by $ 0.2 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . the income tax expense recorded for the year ended december 31 , 2015 is comprised of $ 0.6 million in current and deferred tax expense for our profitable cost-plus foreign jurisdictions and accruals for tax contingencies in foreign jurisdictions , partially offset by $ 0.3 million for the reversal of previously recorded tax contingencies due to the expiration of the applicable statute of limitations . as of december 31 , 2017 and 2016 , we continue to record a full valuation allowance against our u.s. net deferred tax assets as it is not more likely than not that we will realize a benefit from these assets in a future period . we have not provided a valuation allowance against any of our other foreign net deferred tax assets , with the exception of canada , as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers . as of december 31 , 2017 , we have federal , state and foreign net operating loss carryforwards of approximately $ 215.3 million , $ 11.4 million , and $ 38.6 million respectively , which will expire between 2019 and 2037. as of december 31 , 2017 , we have available federal , state and foreign research and experimentation tax credit carryforwards of approximately $ 9.0 million , $ 4.0 million and $ 27.3 million respectively . the federal and state tax credits will begin expiring in 2019 while the foreign tax credits have an indefinite life . in addition , our canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in canada of approximately $ 119,447. we have a general foreign tax credit of $ 1.7 million which will begin expiring in 2018. our ability to utilize our federal net operating losses may be limited by section 382 of the internal revenue code of 1986 , as amended , which imposes an annual limit on the ability of a corporation that undergoes an `` ownership change '' to use its net operating loss carryforwards to reduce its tax liability . an ownership change is generally defined as a greater than 50 % increase in equity ownership by 5 % shareholders in any three-year period . additional information regarding our expectations with respect to the impact of the tcja on our taxes and financial results can be found in `` note 10 : income taxes . '' in part ii , item 8 of this form 10-k. liquidity and capital resources cash and cash equivalents total cash and cash equivalents increased $ 7.9 million from $ 19.6 million at december 31 , 2016 to $ 27.5 million at december 31 , 2017 . story_separator_special_tag the net increase was the result of $ 12.2 million provided by operating activities , $ 3.0 million in proceeds from the issuances of common stock under our employee equity incentive plans and $ 1.9 million net cash acquired in the acquisition . these increases were partially offset by $ 4.0 million used in payments on the line of credit associated with the acquisition , $ 2.5 million used for purchases of property and equipment , $ 1.7 million in payments on other asset financings and $ 1.0 million used in payments on convertible debt . total cash and cash equivalents decreased $ 7.0 million from $ 26.6 million at december 31 , 2015 to $ 19.6 million at december 31 , 2016 . the net decrease resulted primarily from $ 3.0 million used to pay the outstanding balance on our line of credit , $ 2.1 million used for purchases of property and equipment and $ 1.4 million used for payments on other asset financings . the decrease was also due to $ 1.5 million used in operating activities primarily due to our net loss recorded in 2016 , partially offset by changes in working capital . these decreases were partially offset by $ 1.1 million in proceeds from the issuances of common stock under our employee equity incentive plans . 41 as of december 31 , 2017 , our cash and cash equivalents balance of $ 27.5 million consisted of $ 4.1 million in cash and $ 23.4 million in u.s. denominated money market funds . although we did not hold short- or long-term investments as of december 31 , 2017 , our investment policy requires that our portfolio maintains a weighted average maturity of less than 12 months . additionally , no maturities can extend beyond 24 months and concentrations with individual securities are limited . at the time of purchase , short-term credit rating must be rated at least a-1 / p-1 / f-1 by at least two nationally recognized statistical rating organizations ( `` nrsro '' ) and securities of issuers with a long-term credit rating must be rated at least a or a2 by at least two nrsros . our investment policy is reviewed at least annually by our audit committee . accounts receivable , net accounts receivable , net increased to $ 4.6 million at december 31 , 2017 from $ 3.1 million at december 31 , 2016 . average number of days sales outstanding increased to 23 days at december 31 , 2017 from 18 days at december 31 , 2016 . the increase in accounts receivable and days sales outstanding was partially due to an increase in sales due to the acquisition and partially due to normal fluctuations in the timing of sales and customer receipts within the fourth quarter of 2017 , and the fourth quarter of 2016. inventories inventories were $ 2.8 million at december 31 , 2017 and $ 2.8 million at december 31 , 2016 . inventory turnover increased to 10.6 at december 31 , 2017 from 10.1 at december 31 , 2016 . inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter . capital resources short-term line of credit on december 21 , 2010 , we entered into a loan and security agreement with silicon valley bank ( the `` bank '' ) , which was amended on december 14 , 2012 , december 4 , 2013 , december 18 , 2015 , december 15 , 2016 , july 21 , 2017 and december 21 , 2017 ( as amended , the `` revolving loan agreement '' ) . the revolving loan agreement provides a secured working capital-based revolving line of credit ( the `` revolving line '' ) in an aggregate amount of up to the lesser of ( i ) $ 10.0 million , or ( ii ) $ 1.0 million plus 80 % of eligible domestic accounts receivable and certain foreign accounts receivable . the revolving line has a maturity date of december 28 , 2018. in addition , the revolving loan agreement provides for non-formula advances of up to $ 10.0 million which may be made solely during the last five business days of any fiscal month or quarter and which must be repaid by us on or before the fifth business day after the applicable fiscal month or quarter end . due to their repayment terms , non-formula advances do not provide us with usable liquidity . the revolving loan agreement , as amended , contains customary affirmative and negative covenants as well as customary events of default . the occurrence of an event of default could result in the acceleration of our obligations under the revolving loan agreement , as amended , and an increase to the applicable interest rate , and would permit the bank to exercise remedies with respect to its security interest . as of december 31 , 2017 , we were in compliance with all of the terms of the revolving loan agreement , as amended . as of december 31 , 2017 and december 31 , 2016 , we had no outstanding borrowings under the revolving line . liquidity as of december 31 , 2017 , our cash and cash equivalents balance was highly liquid . we anticipate that our existing working capital will be adequate to fund our operating , investing and financing needs for at least the next twelve months . we may pursue financing arrangements including the issuance of debt or equity securities or reduce expenditures , or both , to meet the company 's cash requirements , including in the longer term . there is no assurance that , if required , we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which , in turn , may have an adverse effect on our results of operations , financial position and cash flows . 42 from time to time , we evaluate acquisitions of businesses , products or technologies that complement our business .
| 36 cost of revenue and gross profit cost of revenue and gross profit were as follows ( in thousands ) : replace_table_token_5_th 1 includes purchased materials , assembly , test , labor , employee benefits and royalties , all of which are related to sales of ic products . 2 includes stock-based compensation and additional amortization of a non-cancelable prepaid royalty . 3 includes charges to reduce inventory to lower of cost or market and a benefit for sales of previously written down inventory . 2017 v. 2016 cost of revenue decreased to 48 % of revenue in 2017 from 53 % of revenue in 2016. contributing to the majority of this decrease was a decrease in direct product costs and related overhead as a percent of revenue . direct product costs and related overhead as a percent of revenue was 45 % in 2017 compared to 49 % of revenue in 2016. the decrease in direct product costs and related overhead as a percent of revenue was primarily due to the following factors : an increase in units sold within 2017 related to an end-of-life for our legacy products . many of these legacy products have lower direct product costs as a percent of revenue , compared to our other products . revenue attributable to the video delivery market as a result of the acquisition in 2017. the products sold into the video delivery market have lower direct product costs as a percentage of revenue , compared to our existing product offerings . a decrease in direct product costs and related overhead as a percentage of revenue due to better absorption . as revenue increases our overhead costs stay relatively constant which favorably impacts direct product costs and related overhead as a percent of revenue . the decrease in cost of revenue as a percent of revenue was also due to a decrease in restructuring charges from 2016 to 2017. there were no restructuring charges in 2017 that impacted cost of revenue . these
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story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > interest expense decreased $ 2.4 million or 1.1 % to $ 220.5 million in 2018 compared to $ 222.9 million in 2017 , primarily due to debt that was paid off or matured and regular principal amortization during and after 2017 , which resulted in a decrease in interest expense of $ 16.2 million for 2018 . additionally , there was a $ 4.8 million increase in capitalized interest during 2018 , which was due to an increase in development costs as compared to 2017 . these decreases in interest expense were partially offset by an increase in average outstanding debt primarily as a result of the issuance of $ 350.0 million senior unsecured notes due may 1 , 2027 in april 2017 and $ 300.0 million senior unsecured notes due march 15 , 2048 in march 2018 , which resulted in an increase of $ 18.6 million interest expense for 2018 as compared to 2017 . total return swap income of $ 8.7 million in 2018 consists of monthly settlements related to the company 's total return swap contracts that were entered into during 2015 , in connection with issuing $ 257.3 million of fixed rate tax-exempt mortgage notes payable . the decrease of $ 1.4 million or 13.9 % from $ 10.1 million in 2017 was due to less favorable interest rates in 2018. interest and other income decreased $ 1.6 million or 6.5 % to $ 23.0 million in 2018 compared to $ 24.6 million in 2017 , primarily due to unrealized losses on marketable securities of $ 5.2 million that were recognized through income during 2018 , partially offset by an increase in marketable securities and other interest income of $ 4.2 million . equity income from co-investments increased by $ 2.7 million or 3.1 % to $ 89.1 million in 2018 compared to $ 86.4 million in 2017 , primarily due to $ 20.5 million of co-investment promote income from the bexaew joint venture recognized during the first quarter of 2018 , an increase in income from preferred equity investments of $ 11.8 million , and a gain on early retirement of debt from an unconsolidated co-investment of $ 3.7 million in the third quarter of 2018 , partially offset by a decrease in gains on sales of co-investment communities of $ 34.3 million . gain on sale of real estate and land increased by $ 35.5 million or 134.5 % to $ 61.9 million in 2018 compared to $ 26.4 million in 2017 . the company 's 2018 gain was attributable to the sales of domain in the second quarter of 2018 and 8th & hope in the fourth quarter of 2018 , which resulted in a gain of $ 22.3 million and $ 39.6 million , respectively , for the company . the company 's 2017 gain was primarily attributable to the sale of jefferson at hollywood , which resulted in a gain of $ 26.2 million . gain on remeasurement of co-investment of $ 1.3 million in 2018 resulted from the purchase of the company 's joint venture partner 's 49.9 % membership interest in the marquis co-investment in december 2018. gain on remeasurement of $ 88.6 million in 2017 resulted from the purchase of the company 's joint venture partner 's 50 % membership interest in the palm valley co-investment in january 2017. comparison of year ended december 31 , 2017 to the year ended december 31 , 2016 the company 's average financial occupancies for the company 's stabilized apartment communities or `` 2017 same-property '' ( stabilized properties consolidated by the company for the years ended december 31 , 2017 and 2016 ) increased 30 basis points to 96.6 % in 2017 from 96.3 % in 2016. the regional breakdown of the company 's 2017 same-property portfolio for financial occupancy for the years ended december 31 , 2017 and 2016 is as follows : replace_table_token_21_th 47 the following table provides a breakdown of revenue amounts , including the revenues attributable to 2017 same-properties : replace_table_token_22_th ( 1 ) same-property excludes properties held for sale . 2017 same-property revenues increased by $ 44.0 million or 3.7 % to $ 1.2 billion for 2017 compared to $ 1.2 billion in 2016. the increase was primarily attributable to an increase of 3.3 % in average rental rates from $ 2,095 per apartment home for 2016 to $ 2,164 per apartment home for 2017 . 2017 non-same property revenues increased by $ 24.6 million or 23.6 % to $ 128.5 million in 2017 compared to $ 103.9 million in 2016. the increase was primarily due to revenue generated by palm valley , which was consolidated in january 2017. management and other fees from affiliates increased by $ 1.3 million or 15.7 % to $ 9.6 million in 2017 from $ 8.3 million in 2016. the increase is primarily due to property management fee revenue from joint venture development communities that went into lease-up from the third quarter of 2016 until the fourth quarter of 2017. property operating expenses , excluding real estate taxes increased $ 9.4 million or 4.3 % to $ 229.1 million in 2017 compared to $ 219.7 million in 2016 , primarily due to expenses generated by palm valley , which was consolidated in january 2017 . 2017 same-property operating expenses excluding real estate taxes , increased by $ 5.5 million or 2.7 % to $ 210.4 million in 2017 compared to $ 204.9 million in 2016 , primarily due to a $ 4.3 million increase in utilities . real estate taxes increased $ 7.1 million or 5.1 % to $ 146.3 million in 2017 compared to $ 139.2 million in 2016 , primarily due to property taxes at palm valley , which was consolidated in january 2017 and due to increases in tax rates and property valuations . story_separator_special_tag 2017 same-property real estate taxes increased by $ 4.1 million or 3.3 % to $ 130.1 million in 2017 compared to $ 126.0 million in 2016 due to increases in tax rates and property valuations . corporate-level property management expenses increased $ 0.1 million or 0.3 % to $ 30.2 million in 2017 compared to $ 30.1 million in 2016 , primarily due to a slight increase in corporate-level property management and staffing costs supporting the communities . depreciation and amortization expense increased by $ 27.2 million or 6.2 % to $ 468.9 million in 2017 compared to $ 441.7 million in 2016 , primarily due to depreciation at palm valley , which was consolidated in january 2017. interest expense increased $ 3.2 million or 1.5 % to $ 222.9 million in 2017 compared to $ 219.7 million in 2016 , due to an increase in average outstanding debt primarily due to the $ 350.0 million senior unsecured notes due may 1 , 2027 issued in april 2017 and the $ 450.0 million senior unsecured notes due april 15 , 2026 issued in april 2016 , which resulted in $ 19.1 million of interest expense for 2017 compared to 2016. these additions were partially offset by various debts that were paid off or matured and regular principal amortization during and after 2016 , which resulted in a decrease in interest expense of $ 14.5 million for 2017. additionally , there was a $ 1.4 million increase in capitalized interest in 2017 compared to 2016 , which was due to an increase in development costs as compared to the same period in 2016. total return swap income of $ 10.1 million in 2017 consists of monthly settlements related to the company 's total return swap contracts that were entered into during 2015 , in connection with issuing $ 257.3 million of fixed rate tax-exempt mortgage notes payable . the decrease of $ 1.6 million or 13.7 % from $ 11.7 million in 2016 was due to less favorable interest rates in 2017. interest and other income decreased $ 2.7 million or 9.9 % to $ 24.6 million in 2017 compared to $ 27.3 million in 2016 , primarily due to a decrease of $ 3.8 million in income from the gain on sale of marketable securities combined with a decrease 48 of $ 3.5 million in income from insurance reimbursements , legal settlements , and other , partially offset by an increase of $ 4.6 million in marketable securities and other interest income . equity income from co-investments increased by $ 37.7 million or 77.4 % to $ 86.4 million in 2017 compared to $ 48.7 million in 2016 , primarily due to the sale of two properties by bexaew and one property by wesco i during 2017 , which resulted in a total gain of $ 44.8 million , as well as increases in preferred equity income of approximately $ 7.5 million . in 2016 , two co-investment properties were sold , resulting in gains of $ 13.0 million for the company during 2016. gain on sale of real estate and land decreased by $ 128.2 million or 82.9 % to $ 26.4 million in 2017 compared to $ 154.6 million in 2016. the company 's 2017 gain was primarily attributable to the sale of jefferson at hollywood , which resulted in a gain of $ 26.2 million for the company . deferred tax expense on gain on sale of real estate and land of $ 4.4 million for 2016 was recorded primarily due to the sale of harvest park , which was owned by our wholly owned taxable reit subsidiary . there was no current tax expense on the sale of real estate and land for 2016 as the harvest park proceeds were used in a like-kind exchange transaction . there were no such transactions during 2017. gain on remeasurement of co-investment of $ 88.6 million in 2017 resulted from the purchase of the company 's joint venture partner 's 50 % membership interest in the palm valley co-investment in january 2017. there were no such transactions during 2016. liquidity and capital resources the following table sets forth the company 's cash flows for 2018 , 2017 and 2016 ( $ in thousands ) : replace_table_token_23_th essex 's business is operated primarily through the operating partnership . essex issues public equity from time to time , but does not otherwise generate any capital itself or conduct any business itself , other than incurring certain expenses from operating as a public company which are fully reimbursed by the operating partnership . essex itself does not hold any indebtedness , and its only material asset is its ownership of partnership interests of the operating partnership . essex 's principal funding requirement is the payment of dividends on its common stock and preferred stock . essex 's sole source of funding for its dividend payments is distributions it receives from the operating partnership . as of december 31 , 2018 , essex owned a 96.6 % general partner interest and the limited partners owned the remaining 3.4 % interest in the operating partnership . the liquidity of essex is dependent on the operating partnership 's ability to make sufficient distributions to essex . the primary cash requirement of essex is its payment of dividends to its stockholders . essex also guarantees some of the operating partnership 's debt , as discussed further in notes 7 and 8 to our consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. if the operating partnership fails to fulfill certain of its debt requirements , which trigger essex 's guarantee obligations , then essex will be required to fulfill its cash payment commitments under such guarantees . however , essex 's only significant asset is its investment in the operating partnership . for essex to maintain its qualification as a reit , it must pay dividends to its stockholders aggregating annually at least 90 % of its reit taxable income , excluding net capital gains .
| the calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes , and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions . for apartment communities that are development properties in lease-up without stabilized occupancy figures , the company believes the physical occupancy rate is the appropriate performance metric . while an apartment community is in the lease-up phase , the company 's primary motivation is to stabilize the property , which may entail the use of rent concessions and other incentives , and thus financial occupancy , which is based on contractual revenue is not considered the best metric to quantify occupancy . 45 the regional breakdown of the company 's 2018 same-property portfolio for financial occupancy for the years ended december 31 , 2018 and 2017 is as follows : replace_table_token_19_th the following table provides a breakdown of revenue amounts , including the revenues attributable to 2018 same-properties . replace_table_token_20_th ( 1 ) same-property excludes properties held for sale . 2018 same-property revenues increased by $ 34.9 million or 2.8 % to $ 1.3 billion for 2018 compared to $ 1.2 billion in 2017 . the increase was primarily attributable to an increase of 2.5 % in average rental rates from $ 2,177 per apartment home for 2017 to $ 2,231 per apartment home for 2018 . 2018 non-same property revenues increased by $ 1.6 million or 1.5 % to $ 111.2 million in 2018 compared to $ 109.6 million in 2017 . the increase was primarily due to revenue generated by station park green - phase i , a development community , which began producing rental income during the first quarter of 2018 , and sage at cupertino , which was consolidated in march 2017 , offset by the sales of domain in the second quarter of 2018 and 8th & hope in the fourth quarter of 2018. management and other fees from affiliates decreased by $
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for additional information on the above acquisitions and dispositions refer to item 8. financial statements — note 3. new business and asset management and note 4. dispositions and assets held for sale . net cash used in financing activities for the year ended december 31 , 2019 decrease d by $ 67 million from the prior year period . net cash used in financing activities for the year ended december 31 , 2019 of $ 122 million primarily consisted of the following : $ 134 million of dividends paid to shareholders ; and $ 29 million of net repayments on our revolving credit facility ; and $ 18 million of repayments of project debt ; offset by $ 50 million of proceeds from tax-exempt bonds ; and $ 30 million of proceeds from equipment financing arrangements . net cash used in financing activities for the year ended december 31 , 2018 of $ 189 million primarily consisted of the following : $ 233 million of net repayments on our revolving credit facility ; $ 134 million dividends paid to shareholders ; and $ 23 million of repayments of project debt ; partially funded by approximately $ 200 million of net proceeds from the refinancing of covanta energy 's previous $ 200 million term loan with a new $ 400 million term loan ; and $ 30 million of proceeds from the issuance of tax-exempt bonds . 43 for additional information on the above financing transactions refer to item 8. financial statements — note 15. consolidated debt . for a discussion of the sources and uses of cash flow for the years ended december 31 , 2018 and 2017 please refer to part ii- item 7. results of operations in our annual report on form 10-k for the year ended december 31 , 2018 . supplementary financial information — free cash flow ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of free cash flow which is a non-gaap measure as defined by the sec . this non-gaap financial measure is not intended as a substitute and should not be considered in isolation from measures of liquidity prepared in accordance with gaap . in addition , our use of free cash flow may be different from similarly identified non-gaap measures used by other companies , limiting its usefulness for comparison purposes . the presentation of free cash flow is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use the non-gaap financial measures of free cash flow as criteria of liquidity and performance-based components of employee compensation . free cash flow is defined as cash flow provided by operating activities , less maintenance capital expenditures , which are capital expenditures primarily to maintain our existing facilities . we use free cash flow as a measure of liquidity to determine amounts we can reinvest in our core businesses , such as amounts available to make acquisitions , invest in construction of new projects , make principal payments on debt , or return capital to our shareholders through dividends and or stock repurchases . for additional discussion related to management 's use of non-gaap measures , see results of operations — supplementary financial information — adjusted ebitda ( non-gaap discussion ) above . in order to provide a meaningful basis for comparison , we are providing information with respect to our free cash flow for the years ended december 31 , 2019 and 2018 , reconciled for each such period to cash flow provided by operating activities , which we believe to be the most directly comparable measure under gaap . the following is a reconciliation of net cash provided by operating activities to free cash flow ( in millions ) : replace_table_token_17_th ( a ) adjustment for the impact of the adoption of asu 2016-18 effective january 1 , 2018. as a result of adoption , the statement of cash flows explains the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , changes in restricted funds are eliminated in arriving at net cash , cash equivalents and restricted funds provided by operating activities . ( b ) purchases of property , plant and equipment are also referred to as capital expenditures . capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures . 44 the following table provides the components of total purchases of property , plant and equipment ( in millions ) : replace_table_token_18_th available sources of liquidity cash and cash equivalents cash and cash equivalents include all cash balances and highly liquid investments having maturities of three months or less from the date of purchase . these short-term investments are stated at cost , which approximates fair value . balances held by our international subsidiaries are not generally available for near-term liquidity in our domestic operations . replace_table_token_19_th credit facilities as of december 31 , 2019 , covanta energy 's senior secured credit facilities consist of a $ 900 million revolving credit facility ( the “ revolving credit facility ” ) and a $ 385 million term loan ( the “ term loan ” ) both expiring 2023 ( collectively referred to as the `` credit facilities '' ) . for a detailed description of the terms of the credit facilities , see item 8. financial statements and supplementary data — note 15. consolidated debt . 45 consolidated debt the face value of our consolidated debt is as follows ( in millions ) : replace_table_token_20_th ( 1 ) excludes union county efw facility finance lease which is presented within project debt in our consolidated balance sheets . for a detailed description of the terms of the story_separator_special_tag for additional information on the above acquisitions and dispositions refer to item 8. financial statements — note 3. new business and asset management and note 4. dispositions and assets held for sale . net cash used in financing activities for the year ended december 31 , 2019 decrease d by $ 67 million from the prior year period . net cash used in financing activities for the year ended december 31 , 2019 of $ 122 million primarily consisted of the following : $ 134 million of dividends paid to shareholders ; and $ 29 million of net repayments on our revolving credit facility ; and $ 18 million of repayments of project debt ; offset by $ 50 million of proceeds from tax-exempt bonds ; and $ 30 million of proceeds from equipment financing arrangements . net cash used in financing activities for the year ended december 31 , 2018 of $ 189 million primarily consisted of the following : $ 233 million of net repayments on our revolving credit facility ; $ 134 million dividends paid to shareholders ; and $ 23 million of repayments of project debt ; partially funded by approximately $ 200 million of net proceeds from the refinancing of covanta energy 's previous $ 200 million term loan with a new $ 400 million term loan ; and $ 30 million of proceeds from the issuance of tax-exempt bonds . 43 for additional information on the above financing transactions refer to item 8. financial statements — note 15. consolidated debt . for a discussion of the sources and uses of cash flow for the years ended december 31 , 2018 and 2017 please refer to part ii- item 7. results of operations in our annual report on form 10-k for the year ended december 31 , 2018 . supplementary financial information — free cash flow ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of free cash flow which is a non-gaap measure as defined by the sec . this non-gaap financial measure is not intended as a substitute and should not be considered in isolation from measures of liquidity prepared in accordance with gaap . in addition , our use of free cash flow may be different from similarly identified non-gaap measures used by other companies , limiting its usefulness for comparison purposes . the presentation of free cash flow is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use the non-gaap financial measures of free cash flow as criteria of liquidity and performance-based components of employee compensation . free cash flow is defined as cash flow provided by operating activities , less maintenance capital expenditures , which are capital expenditures primarily to maintain our existing facilities . we use free cash flow as a measure of liquidity to determine amounts we can reinvest in our core businesses , such as amounts available to make acquisitions , invest in construction of new projects , make principal payments on debt , or return capital to our shareholders through dividends and or stock repurchases . for additional discussion related to management 's use of non-gaap measures , see results of operations — supplementary financial information — adjusted ebitda ( non-gaap discussion ) above . in order to provide a meaningful basis for comparison , we are providing information with respect to our free cash flow for the years ended december 31 , 2019 and 2018 , reconciled for each such period to cash flow provided by operating activities , which we believe to be the most directly comparable measure under gaap . the following is a reconciliation of net cash provided by operating activities to free cash flow ( in millions ) : replace_table_token_17_th ( a ) adjustment for the impact of the adoption of asu 2016-18 effective january 1 , 2018. as a result of adoption , the statement of cash flows explains the change during the period in the total of cash , cash equivalents , and amounts generally described as restricted cash or restricted cash equivalents . therefore , changes in restricted funds are eliminated in arriving at net cash , cash equivalents and restricted funds provided by operating activities . ( b ) purchases of property , plant and equipment are also referred to as capital expenditures . capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures . 44 the following table provides the components of total purchases of property , plant and equipment ( in millions ) : replace_table_token_18_th available sources of liquidity cash and cash equivalents cash and cash equivalents include all cash balances and highly liquid investments having maturities of three months or less from the date of purchase . these short-term investments are stated at cost , which approximates fair value . balances held by our international subsidiaries are not generally available for near-term liquidity in our domestic operations . replace_table_token_19_th credit facilities as of december 31 , 2019 , covanta energy 's senior secured credit facilities consist of a $ 900 million revolving credit facility ( the “ revolving credit facility ” ) and a $ 385 million term loan ( the “ term loan ” ) both expiring 2023 ( collectively referred to as the `` credit facilities '' ) . for a detailed description of the terms of the credit facilities , see item 8. financial statements and supplementary data — note 15. consolidated debt . 45 consolidated debt the face value of our consolidated debt is as follows ( in millions ) : replace_table_token_20_th ( 1 ) excludes union county efw facility finance lease which is presented within project debt in our consolidated balance sheets . for a detailed description of the terms of the
| certain amounts may not total due to rounding . for the twelve month comparative period , waste and service revenue increased by $ 66 million , primarily driven by $ 44 million of organic growth and the acquisition of two palm beach county efw facility operating contracts in the third quarter of 2018 , partially offset by $ 7 million related to service contract transitions . within organic growth , efw tip fee revenue increased by $ 28 million , with $ 31 million due to higher average revenue per ton , partially offset by lower volume , and efw service fees increased by $ 13 million . 36 energy revenue replace_table_token_9_th ( 1 ) includes non-energy portion of wholesale load serving . ( 2 ) covanta share only . represents the sale of electricity and steam based upon output delivered and capacity provided . ( 3 ) steam converted to mwh at an assumed average rate of 11 klbs of steam / mwh . certain amounts may not total due to rounding . for the twelve month comparative period , energy revenue decreased by $ 14 million , driven by lower market pricing for energy and capacity ( $ 16 million ) , a decrease in production at efw facilities ( $ 7 million ) , and the deconsolidation of the dublin efw facility ( $ 5 million ) , partially offset by a net benefit from contract transitions of $ 7 million and new wholesale energy load serving revenue of $ 11 million . recycled metal revenue replace_table_token_10_th ( 1 ) represents the portion of total volume that is equivalent to covanta 's share of revenue under applicable client revenue sharing arrangements . for the twelve month comparative period , recycled metals revenue decreased $ 9 million primarily due to lower market pricing for ferrous material of $ 17 million , partially offset by higher volumes of ferrous material sold . other operating revenue other operating revenue decreased by $ 41 million for the twelve month comparative period , primarily due
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consequently , gross profit is an important measure to evaluate growth in our business because , in contrast to our revenues , it is not affected by the different methods of recording revenue and cost of revenue between our name your own price ® travel reservation services and our other services . on january 1 , 2018 , we adopted a new revenue recognition accounting standard which will change the presentation of our name your own price ® revenue to a net basis ( see note 2 to the consolidated financial statements ) for periods beginning after december 31 , 2017 , and , as a result , we will no longer report cost of revenues or gross profit . trends over the last several years we have experienced strong growth in our accommodation reservation services . we believe this growth is the result of , among other things , the broader shift of travel purchases from offline to online , the widespread adoption of mobile devices and the growth of travel overall , including in higher growth emerging markets such as asia-pacific and south america . we also believe this growth is the result of the continued innovation and execution by our teams around the world to add accommodations to our travel reservation services , increase and improve content , build distribution and improve the consumer experience on our websites and mobile apps , as well as consistently and effectively marketing our brands through performance and brand advertising efforts . these year-over-year growth rates have generally decelerated . given the size of our accommodation reservation business , we expect that our year-over-year growth rates will generally continue to decelerate , though the rate of deceleration may fluctuate and there may be periods of acceleration from time to time . our international business represents the substantial majority of our financial results , and we expect our operating results and other financial metrics to continue to be largely driven by international performance . the size of the travel market outside of the united states is substantially greater than that within the united states , and recent international online travel growth rates have exceeded , and are expected to continue to exceed , the growth rates within the united states . over the long term , we expect that international online travel growth rates will follow a similar trend to that experienced in the united states . in addition , the base of hotel properties in europe and asia is particularly fragmented compared to that in the united states , where the hotel market is dominated by large hotel chains . we believe online reservation systems like ours may be more appealing to small chains and independent hotels more commonly found outside of the united states . we believe these trends and factors have enabled us to become the leading online accommodation reservation service provider in the world as measured by room nights booked . we believe that the opportunity to continue to grow our business exists for the markets in which we operate . our growth has primarily been generated by our worldwide accommodation reservation service brand , booking.com , which is our most significant brand , and has been due , in part , to the availability of a large and growing number of instantly bookable properties through booking.com . booking.com included approximately 1,586,000 properties on its website as of december 31 , 2017 , consisting of approximately 396,000 hotels , motels and resorts and approximately 1,190,000 homes , apartments and other unique places to stay ( updated property counts are available on the booking.com website ) , compared to approximately 1,115,000 properties ( including approximately 339,000 hotels , motels and resorts and approximately 776,000 homes , apartments and other unique places to stay ) as of december 31 , 2016 . booking.com has begun categorizing properties listed on its website as either ( a ) hotels , motels and resorts , which groups together more traditional accommodation types ( including hostels , resorts , inns and motels ) , or ( b ) homes , apartments and other unique places to stay , also referred to as alternative accommodations , which encompasses all other types of accommodations , including homes , apartments , villas , igloos and beyond . booking.com previously classified properties as hotels , vacation rentals or other . we believe the new categories are more consistent with those used by other industry participants and allow for a more direct comparison of traditional and unique property counts among companies . we intend to continue to invest in adding accommodations available for reservation on our websites , such as hotels , motels , resorts , homes , apartments and other unique places to stay . many of the newer accommodations we add to our travel 37 reservation services , especially in highly-penetrated markets , may have fewer rooms or higher credit risk and may appeal to a smaller subset of consumers ( e.g. , hostels and bed and breakfasts ) . because alternative accommodations are often either a single unit or a small collection of independent units , these properties generally represent more limited booking opportunities than hotels , motels and resorts , which generally have more units to rent per property . further , alternative accommodations in general may be subject to increased seasonality due to local tourism seasons , weather or other factors or may not be available at peak times due to use by the property owners , and we may also experience lower profit margins with respect to these properties due to certain additional costs related to offering these accommodations on our websites . as we increase our alternative accommodation business , these different characteristics could negatively impact our profit margins ; and , to the extent these properties represent an increasing percentage of the properties added to our websites , we expect that our gross bookings growth rate and property growth rate will continue to diverge over time ( since each such property has fewer booking opportunities ) . story_separator_special_tag as a result of the foregoing , as the percentage of alternative accommodation properties increases , the number of reservations per property will likely continue to decrease . we believe that continuing to expand the number and variety of accommodations available through our services , in particular booking.com , will help us to continue to grow our accommodation reservation business . as part of our strategy to increase the number and variety of accommodations available on booking.com , booking.com is increasingly processing transactions on a merchant basis where it facilitates payments on behalf of customers . this allows booking.com to process transactions for properties that do not accept credit cards and to increase its ability to offer flexible transaction terms to consumers , such as the form and timing of payment . we believe that adding these types of properties and service offerings will benefit our customers and our gross bookings , room night and earnings growth rates . however , this results in additional payment processing costs , chargebacks and other costs related to these transactions . as this business continues to grow , we may experience a significant increase in payment processing costs , chargebacks and other costs related to these transactions , which are recorded as sales and marketing expenses in our consolidated statements of operations and which negatively impact our operating margins . perceived or actual adverse economic conditions , including slow , slowing or negative economic growth , unemployment rates and weakening currencies and concerns over government responses such as higher taxes and reduced government spending , could impair consumer spending and adversely affect travel demand . further , political uncertainty , conditions or events , such as the united kingdom 's decision to leave the european union ( `` brexit '' ) and concerns regarding certain e.u . members with sovereign debt default risks can also negatively affect consumer spending and adversely affect travel demand . at times , we have experienced volatility in transaction growth rates , increased cancellation rates and weaker trends in hotel average daily rates ( `` adrs '' ) across many regions of the world , particularly in those countries that appear to be most affected by economic and political uncertainties , which we believe are due at least in part to these macro-economic conditions and concerns . for more detail , see part ii item 1a risk factors - `` declines or disruptions in the travel industry could adversely affect our business and financial performance . '' these and other macro-economic uncertainties , such as geopolitical tensions and differing central bank monetary policies , have led to significant volatility in the exchange rates between the u.s. dollar and the euro , the british pound sterling and other currencies . significant fluctuations in currency exchange rates , stock markets and oil prices can also impact consumer travel behavior . as noted earlier , our international business represents a substantial majority of our financial results . therefore , because we report our results in u.s. dollars , we face exposure to movements in currency exchange rates as the financial results of our international businesses are translated from local currency ( principally euros and british pounds sterling ) into u.s. dollars . as a result of currency exchange rate changes , our foreign-currency-denominated net assets , gross bookings , gross profit , operating expenses and net income have been positively impacted as expressed in u.s. dollars for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. for example , gross profit from our international operations grew 22.0 % for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 , but , without the positive impact of changes in currency exchange rates , grew year-over-year on a constant-currency basis by approximately 21 % . since our expenses are generally denominated in foreign currencies on a basis similar to our revenues , our operating margins have not been significantly impacted by currency fluctuations . the aggregate principal value of our euro-denominated long-term debt , and accrued interest thereon , provide a natural hedge against the impact of currency exchange rate fluctuations on the net assets of certain of our euro functional currency subsidiaries . for more information , see part i item 1a risk factors - `` we are exposed to fluctuations in currency exchange rates . '' we generally enter into derivative instruments to minimize the impact of short-term currency fluctuations on the translation of our consolidated operating results into u.s. dollars . however , such derivative instruments are short term in nature and not designed to hedge against currency fluctuations that could impact growth rates for our gross bookings , revenues or gross profit ( see note 5 to our consolidated financial statements for additional information on our derivative contracts ) . 38 we compete globally with both online and traditional providers of travel and restaurant reservation and related services . the markets for the services we offer are intensely competitive and current and new competitors can launch new services to compete with us at relatively low cost . some of our current and potential competitors , such as google , apple , alibaba , tencent , amazon and facebook , have access to significantly greater and more diversified resources than we do , and they may be able to leverage other aspects of their businesses ( e.g. , search or mobile device businesses ) to enable them to compete more effectively with us . for example , google has entered various aspects of the online travel market , including by establishing a flight meta-search product ( google flights ) and a hotel meta-search business ( google hotel ads ) that are growing rapidly , as well as its `` book on google '' reservation functionality and its google trips app . our markets are also subject to rapidly changing conditions , including technological developments , consumer behavior changes , regulatory changes and travel service provider consolidation . we expect these trends to continue .
| merchant gross bookings increased by 25.0 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to growth in gross bookings from the merchant accommodation reservation services for booking.com and agoda.com , the merchant rental car reservation service for rentalcars.com and the merchant airline ticket reservation service for priceline.com . accommodation room nights , rental car days and airline tickets reserved through our services for the years ended december 31 , 2016 and 2015 were as follows : replace_table_token_17_th accommodation room night reservations increased by 28.7 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to strong execution by our brand teams to add accommodations to our websites , advertise our brands to consumers and provide a continuously improving experience for customers on our desktop and mobile platforms . rental car day reservations increased by 11.2 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , due to an increase in rental car day reservations for rentalcars.com . airline ticket reservations decreased by 5.2 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , due to a decline in priceline.com 's retail airline ticket reservations and the discontinuation on september 1 , 52 2016 of priceline.com 's name your own price ® airline ticket reservation offering , partially offset by an increase in priceline.com 's express deals ® airline ticket reservations . revenues replace_table_token_18_th agency revenues agency revenues increased by 22.3 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily as a result of growth in agency accommodation room night reservations at booking.com . merchant revenues merchant revenues decreased by 1.7 % for the year ended december 31 , 2016 , compared to the year ended december 31 , 2015 , primarily due to decreases in revenues from priceline.com 's name your own price ® reservation services , partially offset by increases in our merchant price-disclosed accommodation reservation services , particularly at booking.com , as well as our merchant price-disclosed rental car and airline ticket reservation services . on september 1 , 2016 , priceline.com 's name your own price ® airline
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beginning in 2002 , unremitted earnings of foreign subsidiaries have been included in the consolidated financial statements without giving effect to the united states taxes that may be payable on distribution to the united states , because such earnings are not anticipated to be remitted to the united states . if such earnings were to be distributed , we may be subject to united states income taxes that may not be fully offset by foreign tax credits . 23 in assessing the realization of deferred tax assets , we consider whether it is more likely than not that all or some portion of the deferred tax assets will not be realizable . the ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible and net operating losses are available . we consider many factors when assessing the likelihood of future realization of the deferred tax assets , including our recent cumulative earnings , expectation of future taxable income , the carryforward periods available to us for tax reporting purposes , and other relevant factors . at december 31 , 2011 and 2010 , we had no valuation allowance on our deferred tax assets . pursuant to an income tax audit by the indian bureau of taxation in march 2006 , one of our indian subsidiaries received a tax assessment approximating $ 339,000 , including interest , through december 31 , 2011 , for the fiscal tax year ended march 31 , 2003. we disagreed with the basis of the tax assessment and filed an appeal with the appeal officer against the assessment . in october 2010 , the matter was resolved with a judgment in our favor . under the indian income tax act , however , the income tax assessing officer has a right to appeal against the judgment passed by the appeal officer . in december 2010 , the income tax assessing officer exercised this right , against which we filed an application to defend the case and we intend to contest it vigorously . the indian bureau of taxation has also completed an audit of our indian subsidiary 's income tax return for the fiscal tax year ended march 31 , 2004. the ultimate outcome was favorable , and there was no tax assessment imposed for the fiscal tax year ended march 31 , 2004. as of december 31 , 2008 and 2009 , the indian subsidiary received a final tax assessment for the fiscal years ended march 31 , 2005 and 2006 from the indian bureau of taxation approximating $ 340,000 and $ 345,000 , respectively , including interest through december 31 , 2011. we disagree with the basis of these tax assessments , have filed an appeal against the assessments and will contest them vigorously . in january 2012 , the indian subsidiary received a final tax assessment approximately $ 1.1 million , including interest , through december 31 , 2011 for the fiscal year ended march 31 , 2008 from the indian bureau of taxation . we disagree with the basis of this tax assessment , and has filed an appeal against the assessment . due to this assessment , we recorded a tax provision amounting to $ 295,000 including interest through december 31 , 2011. based on recent experience and current development , we believe that the tax provision of $ 295,000 including interest is adequate . as the company is continually subject to tax audits by the indian bureau of taxation , the company assessed the likelihood of an unfavorable assessment for all fiscal years where the company is not subject to a final tax assessment as of december 31 , 2011 , and recorded an additional tax provision amounting to approximately $ 0.9 million including interest through december 31 , 2011. the indian bureau of taxation commenced an audit of this subsidiary 's income tax return for the fiscal year ended march 31 , 2009. the ultimate outcome can not be determined at this time . we had unrecognized tax benefits of $ 2.3 million and $ 1.8 million at december 31 , 2011 and 2010 , respectively . the portion of unrecognized tax benefits relating to interest and penalties was $ 0.5 million and $ 0.4 million at december 31 , 2011 and 2010 , respectively . the unrecognized tax benefits as of december 31 , 2011 and 2010 , respectively , if recognized , would have an impact on our effective tax rate . we are subject to various tax audits and claims which arise in the ordinary course of business . management currently believes that the ultimate outcome of these audits and claims will not have a material adverse effect on our consolidated financial position , results of operations or cash flows . net income ( loss ) we generated net income of $ 4.5 million in 2011 compared with net loss of $ 0.7 million in 2010. the change was primarily attributable to an increase in gross margins resulting from an increase in revenues , and an increase in productivity due to improvements in processes and technology . this increase was partly offset by unfavorable foreign exchange rates , an increase in selling and administrative expenses primarily due to hiring of new sales and marketing personnel and an increase in variable employee incentives , and start-up costs incurred for the iads segment amounting to $ 2.7 million . the change in net income also reflects an increase in interest income and an increase in the tax provision in 2011 compared to a tax benefit recorded in 2010 . 24 year ended december 31 , 2010 compared to the year ended december 31 , 2009 revenues revenues were $ 61.5 million for the year ended december 31 , 2010 compared to $ 76.7 million for the similar period in 2009 , a decline of approximately 20 % . story_separator_special_tag the $ 15.2 million decline in revenues was principally attributable to a $ 20.5 million decline in revenue from one of our significant clients , which was partially offset by a $ 5.3 million increase in revenues from our other clients . the $ 20.5 million decline in revenues from one of our significant clients follows a significant decline in revenues from this client in the second half of 2009 and the first quarter of 2010. in addition , for one of our clients , which accounted for approximately $ 2 million in revenues for the year ended december 31 , 2010 , we had forecast that revenues would wind down in 2011. three clients generated $ 23.8 million or 39 % and $ 39.2 million or 51 % of our revenues in the fiscal years ended december 31 , 2010 and 2009 , respectively . no other client accounted for 10 % or more of our total revenues for these periods . further , for the years ended december 31 , 2010 and 2009 , revenues from clients located in foreign countries ( principally in europe ) amounted to $ 20.5 million or 33 % and $ 16.4 million or 21 % , respectively , of our total revenues . for the year ended december 31 , 2010 , approximately 72 % or $ 44.5 million of our revenues were recurring and 28 % or $ 17.0 million were non-recurring , compared with 65 % or $ 49.8 million and 35 % or $ 26.9 million , respectively , for the year ended december 31 , 2009. direct operating costs direct operating costs were $ 47.3 million and $ 52.1 million for the years ended december 31 , 2010 and 2009 , respectively , a decline of approximately 9.3 % . the decrease in direct operating costs was principally attributable to a decrease in compensation , incentives and benefit costs as the number of production employees was scaled down due to a decline in revenues from one of our significant clients . the decline in direct operating costs was partially offset by an annual increase in compensation costs of existing employees , compensation costs of new hires in our consulting and technology group and other miscellaneous operating costs . in addition , for the year ended december 31 , 2010 , foreign exchange rate fluctuations caused by a strengthening philippine peso and indian rupee against the u.s. dollar increased direct operating costs by approximately $ 2.2 million , which was offset by gains from the settlement of foreign currency forward contracts of $ 2.2 million . changes in d irect operating expenses and revenues , as mentioned above , resulted in an increase in direct operating costs , as a percentage of revenues , to 77 % for the year ended december 31 , 2010 , from 68 % for the year ended december 31 , 2009. selling and administrative expenses selling and administrative expenses were $ 15.7 million and $ 16.3 million for the years ended december 31 , 2010 and 2009 , respectively , a decline of 4 % . selling and administrative expenses as a percentage of revenues was 25 % and 21 % for the years ended december 31 , 2010 and 2009 , respectively . in 2009 , we recorded a provision for doubtful accounts of approximately $ 1.2 million for one of our clients . in the fourth quarter of 2010 , we entered into a settlement agreement with the client whereby the client agreed to pay $ 0.9 million of the total outstanding balance . of the total amount , we received $ 0.4 million in the fourth quarter of 2010 and received the remaining balance of $ 0.5 million in the first half of 2011. this resulted in a net decline of approximately $ 1.6 million in selling and administrative expenses in the fiscal year ended december 31 , 2010 compared to the same period in 2009. in addition , we spent $ 0.4 million less towards consultancy fees during fiscal year ended december 31 , 2010. the decrease in selling and administrative expenses was partially offset by compensation costs of new personnel hired for sales and consulting services combined with unfavorable foreign exchange rates . 25 if no effect were given to the $ 1.2 million provision for doubtful accounts which was recorded for one of our clients and $ 0.4 million of collection thereof , selling and administrative expenses would have increased by approximately 6 % in 2010 as compared to 2009 and , as a percentage of revenues , would have been 26 % in 2010 , compared to 20 % in 2009. income taxes for the year ended december 31 , 2010 , we recorded a provision for income taxes primarily for our foreign subsidiaries , which was more than offset by a tax benefit recorded for the u.s. entity . the benefit from income tax recorded by the u.s. entity resulted primarily from losses incurred by the u.s. entity during the year ended december 31 , 2010. one of our foreign subsidiaries enjoyed a tax holiday in 2010. in addition , certain of our foreign subsidiaries enjoy preferential tax rates . certain overseas income is not subject to tax in the u.s. unless repatriated . for the year ended december 31 , 2009 , we recorded a provision for income taxes primarily for our foreign subsidiaries , which was partially offset by the benefit recorded for the u.s. entity . certain foreign subsidiaries enjoyed a tax holiday in 2009. whereas the income tax holiday for one of our philippine subsidiaries expired in may 2009 and the income tax holiday for one of our indian subsidiaries expired in march 2009 , one of our other foreign subsidiaries continued enjoying tax holiday benefits in 2009. in addition , certain of our foreign subsidiaries enjoy preferential tax rates . certain overseas income is not subject to tax in the u.s. unless repatriated .
| in addition , direct operating costs increased on account of foreign exchange rate fluctuations caused by a strengthening of the philippine peso and indian rupee against the u.s. dollar . the u.s. dollar depreciated against the asian currencies in the first three quarters of 2011 ; however , it surged significantly in the fourth quarter of 2011. this resulted in a net loss on the settlement of foreign currency forward contracts in the fourth quarter of 2011. the realized gain on the settlement of forward contracts in 2011 was $ 1.2 million as compared to $ 2.2 million in 2010. the increase in direct operating costs was partially offset by a decrease in direct labor costs achieved primarily from productivity gains . the productivity gains were principally the result of increased efficiency , improvements in our processes and innovation in our technology . 22 included in total direct operating costs is approximately $ 1.1 million in start-up costs that we incurred for the iads segment during the year ended december 31 , 2011. the changes in revenues and d irect operating expenses mentioned above resulted in a decline in direct operating costs as a percentage of revenues to 68 % for the year ended december 31 , 2011 , from 77 % for the year ended december 31 , 2010. excluding the start-up costs incurred for the iads segment from the total direct operating costs , direct operating costs would have increased by approximately 4 % in 2011 as compared to 2010 and , as a percentage of revenues , would have been 66 % in 2011 , compared to 77 % in 2010. selling and administrative expenses selling and administrative expenses were $ 19.1 million and $ 15.7 million for the years ended december 31 , 2011 and 2010 , respectively , an increase of $ 3.4 million or 20 % . selling and administrative expenses as a percentage of revenues was 26 % for the year ended december 31 , 2011 and 25 % for the year ended december 31 , 2010. the increase in selling and administrative
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total debt as of the end december 27 , 2014 was $ 2.2 billion compared to $ 2.1 billion as of december 28 , 2013. our cash , cash equivalents and marketable securities as of december 27 , 2014 were $ 1.0 billion compared to $ 1.2 billion as of december 28 , 2013. globalfoundries formation and accounting on march 2 , 2009 , we consummated the transactions contemplated by the master transaction agreement among us , advanced technology investment company llc ( currently known as mubadala technology investments llc ( mubadala tech ) ) and west coast hitech l.p. ( wch ) , pursuant to which we formed gf . in connection with the consummation of the transactions contemplated by the master transaction agreement , amd , mubadala tech and gf entered into a wafer supply agreement ( the wsa ) , a funding agreement ( the funding agreement ) and a shareholders ' agreement ( the shareholders ' agreement ) on march 2 , 2009. at gf 's formation on march 2 , 2009 and through december 26 , 2009 , gf was deemed a variable-interest entity , and we were deemed to be gf 's primary beneficiary . accordingly , we consolidated gf under applicable accounting rules . as a result of certain gf governance changes , we deconsolidated gf and accounted for our gf ownership under the equity method of accounting as of december 27 , 2009. following the deconsolidation , gf became our related party . in the first quarter of 2011 , as a result of a contribution to gf by an affiliate of mubadala tech and certain gf governance changes noted above , our ownership in gf was diluted , and we concluded that we no longer had the ability to exercise significant influence over gf . accordingly , we changed our accounting for our investment in gf from the equity method to the cost method of accounting and recognized a dilution gain in investee of approximately $ 492 million . in the fourth quarter of 2011 , we identified indicators of impairment in gf that were deemed other than temporary . we performed a valuation analysis and recorded a non-cash impairment charge of $ 209 million . the carrying value of our remaining investment in gf after the impairment charge was $ 278 million as of december 31 , 2011. on march 4 , 2012 , as partial consideration for certain rights received under a second amendment to the wsa , we transferred to gf all of the remaining capital stock of gf that we owned . in addition , as of march 4 , 2012 , the funding agreement was terminated , and we were no longer party to the shareholders ' agreement . as a result of these transactions , we no longer owned any gf capital stock as of march 4 , 2012. gf continues to be a related party of us because mubadala development company pjsc ( mubadala ) and mubadala tech are affiliated with wch , our largest stockholder . wch and mubadala tech are wholly-owned subsidiaries of mubadala . wafer supply agreement the wsa governs the terms by which we purchase products manufactured by gf . pursuant to the wsa , we are required to purchase all of our microprocessor and apu product requirements from gf with limited exceptions . if we acquire a third-party business that manufactures microprocessor and apu products , we will have up to two years to transition the manufacture of such microprocessor and apu products to gf . 42 the wsa terminates no later than march 2 , 2024. gf has agreed to use commercially reasonable efforts to assist us to transition the supply of products to another provider and to continue to fulfill purchase orders for up to two years following the termination or expiration of the wsa . during the transition period , pricing for microprocessor and apu products will remain as set forth in the wsa , but our purchase commitments to gf will no longer apply . on april 2 , 2011 , we entered into a first amendment to the wsa . the primary effect of the first amendment was to change the pricing methodology applicable to wafers delivered in 2011 for our microprocessors and apu products . the first amendment also modified our existing commitments regarding the production of certain gpu and chipset products at gf . on march 4 , 2012 , we entered into a second amendment to the wsa . the primary effect of the second amendment was to modify certain pricing and other terms of the wsa applicable to wafers for our microprocessor and apu products , to be delivered by gf to us during 2012. under the terms of the second amendment to the wsa , gf granted us rights to contract with another wafer foundry supplier with respect to specified 28nm products for a specified period of time ( the limited waiver of exclusivity ) . in consideration for the limited waiver of exclusivity , we recorded a charge of $ 703 million in the first quarter of 2012 consisting of a $ 425 million cash payment and a $ 278 million non-cash charge representing the transfer to gf of our remaining investment in gf at fair value . on december 6 , 2012 , we entered into a third amendment to the wsa . pursuant to the third amendment , we modified our wafer purchase commitments for the fourth quarter of 2012 made pursuant to the second amendment to the wsa . in addition , we agreed to certain pricing and other terms of the wsa applicable to wafers for our microprocessor and apu products , to be delivered by gf to us from the fourth quarter of 2012 through december 31 , 2013. pursuant to the third amendment , gf agreed to waive a portion of our wafer purchase commitments for the fourth quarter of 2012. in consideration for this waiver , we agreed to pay gf a fee of $ 320 million . story_separator_special_tag as a result , we recorded a lower of cost or market charge of $ 273 million for the write-down of inventory to its market value in the fourth quarter of 2012. the cash impact of this $ 320 million fee was paid over several quarters , with $ 80 million paid on december 28 , 2012 , $ 40 million paid on april 1 , 2013 and $ 200 million paid on december 31 , 2013. on march 30 , 2014 , we entered into a fourth amendment to the wsa . the primary effect of the fourth amendment was to establish volume purchase commitments and fixed pricing for the 2014 calendar year as well as to modify certain other terms of the wsa applicable to wafers for some of our microprocessor , graphics processor and semi-custom game console products to be delivered by gf to us during the 2014 calendar year . we are currently in the process of negotiating a fifth amendment to the wsa , and we expect that our future purchases from gf will continue to be material . our total purchases from gf related to wafer manufacturing and research and development activities for 2014 , 2013 and 2012 were $ 1.0 billion , $ 1.0 billion and $ 1.2 billion , respectively . critical accounting estimates our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements . we evaluate our estimates on an on-going basis , including those related to our revenue , inventories , goodwill impairments and income taxes . 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 . although actual results have historically been reasonably consistent with management 's expectations , the actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions . 43 management believes the following critical accounting estimates are the most significant to the presentation of our financial statements and require the most difficult , subjective and complex judgments . revenue allowances . we record a provision for estimated sales returns and allowances on product sales for estimated future price reductions and other customer incentives in the same period that the related revenues are recorded . we base these estimates on actual historical sales returns , historical allowances , historical price reductions , market activity and other known or anticipated trends and factors . these estimates are subject to management 's judgment and actual provisions could be different from our estimates and current provisions , resulting in future adjustments to our revenue and operating results . inventory valuation . at each balance sheet date , we evaluate our ending inventories for excess quantities and obsolescence based on projected sales outlook . this evaluation includes analysis of historical sales levels by product and projections of future demand . these projections assist us in determining the carrying value of our inventory . in addition , we write off inventories that we consider obsolete . we adjust the remaining specific inventory balances to approximate the lower of our standard manufacturing cost or market value . among other factors , management considers forecasted demand in relation to the inventory on hand , competitiveness of product offerings , market conditions and product life cycles when determining obsolescence and market value . if , in any period , we anticipate future demand or market conditions to be less favorable than our previous estimates , additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made . this would have a negative impact on our gross margin in that period . if in any period we are able to sell inventories that were not valued or that had been written down in a previous period , related revenues would be recorded without any offsetting charge to cost of sales , resulting in a net benefit to our gross margin in that period . goodwill . goodwill represents the excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired . goodwill is not amortized , but rather is tested for impairment at least annually , or more frequently if there are indicators of impairment present . we perform an annual goodwill impairment analysis as of the first day of the fourth quarter of each year . we evaluate whether goodwill has been impaired at the reporting unit level by first determining whether the estimated fair value of the reporting unit is less than its carrying value and , if so , by determining whether the implied fair value of goodwill within the reporting unit is less than the carrying value . the implied fair value of a reporting unit is determined through the application of one or more valuation models common to our industry , including the income , market and cost approaches . while market valuation data for comparable companies is gathered and analyzed , we believe that there has not been sufficient comparability between the peer groups and the specific reporting units to allow for the derivation of reliable indications of value using a market approach . therefore , we have ultimately employed the income approach which requires estimates of 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 condition .
| we also reported the results of former businesses in the all other category because the operating results were not material . in addition , during 2014 , we reclassified $ 273 million of lower of cost or market inventory adjustment previously recorded in computing and graphics segment in 2012 to all other category to conform with the current year 's presentation . we intend the discussion of our financial condition and results of operations that follows to provide information that will assist you in understanding our financial statements , the changes in certain key items in those financial statements from year to year , the primary factors that resulted in those changes and how certain accounting principles , policies and estimates affect our financial statements . we use a 52 or 53 week fiscal year ending on the last saturday in december . the years ended december 27 , 2014 , december 28 , 2013 and december 29 , 2012 each included 52 weeks . references in this report to 2014 , 2013 and 2012 refer to the fiscal year unless explicitly stated otherwise . the following table provides a summary of net revenue and operating income ( loss ) by segment and income ( loss ) before income taxes for 2014 , 2013 and 2012. the prior period results have been recast to reflect our new reportable segments . replace_table_token_4_th computing and graphics computing and graphics net revenue of $ 3.1 billion in 2014 decreased by 16 % compared to $ 3.7 billion in 2013 as a result of a 27 % decrease in unit shipments , partially offset by a 15 % increase in average selling price . the decrease in unit shipments was primarily attributable to lower unit shipments of our microprocessor products for desktop and notebook pcs and chipsets due to challenging consumer pc market conditions and our chipsets being integrated into our apu products . the increase in average selling price was primarily attributable to an increase in average selling price of our
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if neither vsoe nor tpe of selling price exist for a deliverable , we use besp . once revenue is allocated to software or software-related elements as a group , we recognize revenue in conformance with software revenue accounting guidance . revenue is recognized when revenue recognition criteria are met for each element . we are generally unable to establish vsoe or tpe for non-software elements and as such , we use besp . besp is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings . we determine besp for a product or service by considering multiple factors including , but not limited to , major product groupings , geographies , market conditions , competitive landscape , internal costs , gross margin objectives and pricing practices . pricing practices taken into consideration include historic contractually stated prices , volume discounts where applicable and our price lists . we must estimate certain royalty revenue amounts due to the timing of securing information from our customers . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , our assumptions and judgments regarding future products and services as well as our estimates of royalty revenue could differ from actual events , thus materially impacting our financial position and results of operations . product revenue is recognized when the above criteria are met . we reduce the revenue recognized for estimated future returns , price protection and rebates at the time the related revenue is recorded . in determining our estimate for returns and in accordance with our internal policy regarding global channel inventory which is used to determine the level of product held by our distributors on which we have recognized revenue , we rely upon historical data , the estimated amount of product inventory in our distribution channel , the rate at which our product sells through to the end user , product plans and other factors . our estimated provisions for returns can vary from what actually occurs . product returns may be more or less than what was estimated . the amount of inventory in the channel could be different than what is estimated . our estimate of the rate of sell-through for product in the channel could be different than what actually occurs . there could be a delay in the release of our products . these factors and unanticipated changes in the economic and industry environment could make our return estimates differ from actual returns , thus impacting our financial position and results of operations . in the future , actual returns and price protection may exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences , market conditions or technological obsolescence due to new platforms , product updates or competing products . while we believe we can make reliable estimates regarding these matters , these estimates are inherently subjective . accordingly , if our estimates change , our returns and price protection reserves would change , which would impact the total net revenue we report . we recognize revenues for hosted services that are based on a committed number of transactions ratably beginning on the date the customer commences use of our services and continuing through the end of the customer term . over-usage fees , and fees billed based on the actual number of transactions from which we capture data , are billed in accordance with contract terms as these fees are incurred . we record amounts that have been invoiced in accounts receivable and in deferred revenue or revenue , depending on whether the revenue recognition criteria have been met . our consulting revenue is recognized on a time and materials basis and is measured monthly based on input measures , such as on hours incurred to date compared to total estimated hours to complete , with consideration given to output measures , such as contract milestones , when applicable . business combinations we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed , assumed equity awards , as well as to in-process research and development based upon their estimated fair values at the acquisition 37 date . the purchase price allocation process requires management to make significant estimates and assumptions , especially at the acquisition date with respect to intangible assets , deferred revenue obligations and equity assumed . although we believe the assumptions and estimates we have made are reasonable , they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain . examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to : future expected cash flows from software license sales , subscriptions , support agreements , consulting contracts and acquired developed technologies and patents ; expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed ; the acquired company 's trade name and trademarks as well as assumptions about the period of time the acquired trade name and trademarks will continue to be used in the combined company 's product portfolio ; and discount rates . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the deferred revenue obligations assumed . the estimated fair value of the support obligations is determined utilizing a cost build-up approach . the cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin . the estimated costs to fulfill the obligations are based on the historical costs related to fulfilling the obligations . in connection with the purchase price allocations for our acquisitions , we estimate the fair value of the equity awards assumed . story_separator_special_tag the estimated fair value is determined utilizing a modified binomial option pricing model which assumes employees exercise their stock options when the share price exceeds the strike price by a certain dollar threshold . if the acquired company has significant historical data on their employee 's exercise behavior , then this threshold is determined based upon the acquired company 's history . otherwise , our historical exercise experience is used to determine the exercise threshold . zero coupon yields implied by u.s. treasury issuances , implied volatility for our common stock and our historical forfeiture rate are other inputs to the binomial model . unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions , estimates or actual results . goodwill impairment we complete our goodwill impairment test on an annual basis , during the second quarter of our fiscal year , or more frequently , if changes in facts and circumstances indicate that an impairment in the value of goodwill recorded on our balance sheet may exist . in order to estimate the fair value of goodwill , we typically estimate future revenue , consider market factors and estimate our future cash flows . based on these key assumptions , judgments and estimates , we determine whether we need to record an impairment charge to reduce the value of the asset carried on our balance sheet to its estimated fair value . assumptions , judgments and estimates about future values are complex and often subjective . they can be affected by a variety of factors , including external factors such as industry and economic trends , and internal factors such as changes in our business strategy or our internal forecasts . although we believe the ass umptions , judgme nts and estimates we have made in the past have been reasonable and appropriate , different assumptions , judgments and estimates could materially affect our reported financial results . we completed our annual impairment test in the second quarter of fiscal 2014 and determined there was no impairment . the results of our annual impairment test indicate there is no significant risk of future material goodwill impairment in any of our reporting units . accounting for income taxes we use the asset and liability method of accounting for income taxes . under this method , income tax expense is recognized for the amount of taxes payable or refundable for the current year . in addition , deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , and for operating losses and tax credit carryforwards . management must make assumptions , judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset . our assumptions , judgments and estimates relative to the current provision for income taxes take into account current tax laws , our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic 38 tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . in addition , we are subject to the continual examination of our income tax returns by the irs and other domestic and foreign tax authorities , including a current examination by the irs of our fiscal 2010 , 2011 and 2012 tax returns . we expect future examinations to focus on our intercompany transfer pricing practices as well as other matters . we regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from the current examinations . we believe such estimates to be reasonable ; however , the final determination of any of these examinations could significantly impact the amounts provided for income taxes in our consolidated financial statements . our assumptions , judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income , such as income from operations or capital gains income . actual operating results and the underlying amount and category of income in future years could render our current assumptions , judgments and estimates of recoverable net deferred taxes inaccurate . any of the assumptions , judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates , thus materially impacting our financial position and results of operations . we are a united states-based multinational company subject to tax in multiple u.s. and foreign tax jurisdictions . a significant portion of our foreign earnings for the current fiscal year were earned by our irish subsidiaries . in addition to providing for u.s. income taxes on earnings from the u.s. , we provide for u.s. income taxes on the earnings of foreign subsidiaries unless the subsidiaries ' earnings are considered permanently reinvested outside the u.s. while we do not anticipate changing our intention regarding permanently reinvested earnings , if certain foreign earnings previously treated as permanently reinvested are repatriated , the related u.s. tax liability may be reduced by any foreign income taxes paid on these earnings . our income tax expense has differed from the tax computed at the u.s. federal statutory income tax rate due primarily to discrete items and to earnings considered as permanently reinvested in foreign operations . unanticipated changes in our tax rates could affect our future results of operations .
| these strategies include increasing the value creative cloud users receive , as well as targeted promotions and offers that attract past customers and potential users to try out and ultimately subscribe to creative cloud . additionally , in may 2013 we announced we would exclusively deliver new creative product innovations and features to creative cloud subscribers , and that adobe creative suite 6 ( “ cs6 ” ) , which was released in may 2012 , would be the last major update we provide for perpetual licensees . in the first half of fiscal 2014 , we announced the removal of general availability of cs6 on a perpetual licensing basis from legacy shrinkwrap and volume licensing channels . we still offer cs6 through our adobe.com website and in certain markets . because of the shift towards creative cloud subscriptions and etlas , perpetual revenue for cs6 has declined , and by the fourth quarter of fiscal 2014 revenue from perpetual licensing of our creative professional products was immaterial . during fiscal 2014 , we continued to experience strong adoption of our creative cloud subscription offerings which has caused our creative cloud subscription revenue to increase as compared to the year-ago period . to assist with an understanding of this transition , we are using certain performance metrics to assess the health and trajectory of our overall digital media segment . these metrics include the total number of current paid subscriptions and annualized recurring revenue ( “ arr ” ) . arr should be viewed independently of revenue , deferred revenue and unbilled deferred revenue as arr is a performance metric and is not intended to be combined with any of these items . we plan to adjust our reported arr on an annual basis to reflect any material exchange rates changes . for our creative business , we define creative arr as the sum of : the number of current subscriptions , multiplied by the average subscription price paid per user per month , multiplied by twelve months ; plus , twelve months of contract value of etlas where the revenue is ratably recognized
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results of operations comparison of the years ended december 31 , 2019 and 2018 revenues net product sales consist of sales of exparel in the u.s. , our bupivacaine liposome injectable suspension to aratana therapeutics , inc. , or aratana , for veterinary use in the u.s. , and sales of iovera° in the u.s. licensing , milestone and royalty revenues are from our collaborative licensing agreements . the following table provides information regarding our revenues during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_4_th exparel revenue grew 23 % in 2019 compared to 2018 , primarily due to an increase in net product sales of exparel units of 27 % and a 3 % increase in gross selling price per unit , partially offset by the mix of exparel product sizes . the demand for exparel has continued to increase as a result of a number of key growth initiatives , such as the expansion of the exparel label in april 2018 to include interscalene brachial plexus nerve block which has resulted in rapid adoption among anesthesiologists , the success of our co-promotion agreement with depuy synthes sales , inc. , or depuy synthes , and the 56 continued implementation of exparel-based enhanced recovery after surgery ( eras ) protocols across a wide range of surgical procedures . all of these factors are driving growth in new and existing accounts due to the continued adoption of exparel as a critical component of multimodal pain management strategies for soft tissue and orthopedic procedures . in 2019 , there was also an increase in sales of our bupivacaine liposome injectable suspension to aratana for veterinary use . as part of the myoscience acquisition , we acquired iovera° . net product sales of iovera° were $ 7.9 million for the year ended december 31 , 2019 ( attributable to the post-closing period of april 10 , 2019 to december 31 , 2019 ) . thus far , we have seen the greatest iovera° demand as pain relief for patients in advance of tka procedures and in chronic pain management , particularly for people with mild to severe osteoarthritis of the knee . collaborative licensing and milestone revenue decreased 100 % in 2019 versus 2018 due to a $ 3.0 million upfront payment earned in june 2018 under a license agreement with nuance biotech co. ltd. for the development and commercialization of exparel in china . in both 2019 and 2018 , royalty revenue reflected royalties earned on sales to aratana . royalty revenue increased 14 % in 2019 versus 2018. cost of goods sold cost of goods sold primarily relates to the costs to produce , package and deliver our products to customers . these expenses include labor , raw materials , manufacturing overhead and occupancy costs , depreciation of facilities , royalty payments , quality control and engineering . the following table provides information regarding cost of goods sold and gross margin during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_5_th gross margin increased by one percentage point in 2019 versus 2018. in 2019 , exparel gross margins increased as a result of completing our capacity expansion project for the commercial production of exparel at our custom manufacturing suite in swindon , england ( under our partnership with thermo fisher scientific pharma services , or thermo fisher ) . this increase was partially offset as a result of the lower gross margin of iovera° . research and development expenses research and development expenses primarily consist of costs related to clinical trials and related outside services , product development and other research and development costs , including phase 4 trials that we are conducting to generate new data for exparel and stock-based compensation expense . clinical and preclinical development expenses include costs for clinical personnel , clinical trials performed by third-parties , toxicology studies , materials and supplies , database management and other third-party fees . product development and manufacturing capacity expansion expenses include development costs for our products , which include personnel , equipment , materials and contractor costs for process development and product candidates , development costs related to significant scale-ups of our manufacturing capacity and facility costs for our research space . regulatory and other expenses include regulatory activities related to unapproved products and indications , medical information expenses and related personnel . stock-based compensation expense relates to the costs of stock option grants , awards of restricted stock units , or rsus , and our employee stock purchase plan , or espp . 57 the following table provides a breakout of our research and development expenses during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_6_th total research and development expense increased 30 % in 2019 versus 2018. the 67 % increase in clinical and preclinical development expense in 2019 versus 2018 was primarily related to completed enrollment in our phase 3 pediatric ( “ play ” ) clinical trial and our phase 4 opioid free c-section ( “ choice ” ) clinical trial and initial enrollment in our phase 4 spine ( “ fusion ” ) clinical trial . there was also increased investment in investigator-initiated studies , toxicology studies , as well as increased costs related to our global expansion activities for exparel . product development and manufacturing capacity expansion expense increased 4 % in 2019 versus 2018 due to increased spend in exparel support for in vitro release testing , a significant scale-up of our manufacturing capacity for exparel in swindon , england in partnership with thermo fisher and iovera° development costs to improve the functionality of the device and enhance the iovera° product line . regulatory and other expense increased 33 % in 2019 versus 2018 due to activities related to our european marketing authorization application ( maa ) and health canada submissions for exparel and the dissemination and publication of exparel data in response to medical information queries . story_separator_special_tag stock-based compensation increased 30 % in 2019 versus 2018 primarily due to an increase in personnel as well as the number of awards granted during 2019 and the fourth quarter of 2018. selling , general and administrative expenses sales and marketing expenses primarily consist of compensation and benefits for our sales force and personnel that support our sales , marketing , medical and scientific affairs operations , commission payments to our marketing partners for the promotion and sale of exparel and iovera° , expenses related to communicating the health outcome benefits of exparel and educational programs for our customers . general and administrative expenses consist of compensation and benefits for legal , finance , regulatory activities related to approved products and indications , compliance , information technology , human resources , business development , executive management and other supporting personnel . it also includes professional fees for legal , audit , tax and consulting services . stock-based compensation expense relates to the costs of stock option grants , rsu awards and our espp . the following table provides information regarding selling , general and administrative expenses during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_7_th total selling , general and administrative expenses increased 13 % in 2019 versus 2018. sales and marketing expenses increased 21 % in 2019 versus 2018. in 2019 , the increases were driven by additional selling and promotional activities to support the growth of exparel , including growing a team in the field consisting of account managers focused on the outpatient market , initiatives and commissions related to our co-promotion agreement with 58 depuy synthes and additional marketing spend for the launch of ambulatory and dental reimbursement codes , which became effective on january 1 , 2019. we are continuing our marketing investment in exparel—including educational initiatives and programs related to the impact of opioids and postsurgical pain management , our national advocacy campaign designed to educate patients about non-opioid treatment options and initiatives surrounding women ' s health , especially related to c-section . additionally , in 2019 we invested in marketing initiatives and customer outreach for iovera° as a result of the myoscience acquisition . general and administrative expenses increased 1 % in 2019 versus 2018. the increase was primarily due to additional cryotech expenditures after the myoscience acquisition in april 2019 , partially offset by a decrease in legal expenditures . stock-based compensation increased 2 % in 2019 versus 2018 , primarily due to an increase in personnel and the number of equity awards granted . amortization of acquired intangible assets the following table provides a summary of the amortization of acquired intangible assets during the periods indicated , including percent changes ( dollar amounts in thousands ) : year ended december 31 , % increase / ( decrease ) 2019 2018 amortization of acquired intangible assets $ 5,703 $ — n/a as part of the myoscience acquisition we acquired intangible assets consisting of developed technology and customer relationships , with estimated useful lives of 14 and 10 years , respectively . beginning in the second quarter of 2019 , these are being amortized on a straight-line basis . for more information , see note 9 , goodwill and intangible assets , to our consolidated financial statements included herein . acquisition-related charges , product discontinuation and other the following table provides a summary of the costs related to the myoscience acquisition , our depocyt ( e ) discontinuation and other activities during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_8_th in 2019 , we recognized charges of $ 21.6 million related to the myoscience acquisition . of this total , $ 16.7 million represents increases in the fair value of contingent consideration resulting from the achievement of regulatory milestones and revised commercial forecasts ( which are tied to potential future milestone payments ) and $ 4.2 million represents advisory costs , including legal , financial , accounting and tax services . the remaining $ 0.7 million represents separation costs , asset write-downs and other restructuring charges . we did not incur any acquisition-related charges in 2018. in 2019 and 2018 , we recorded charges of $ 0.2 million and $ 1.6 million , respectively , related to the discontinuation of our depocyt ( e ) manufacturing activities for lease costs , asset retirement obligations and other estimated exit costs . the charges incurred in 2018 primarily represented additional lease and facility costs due to the fact that we were not able to sub-lease the property where depocyt ( e ) was manufactured considering the short period of time remaining on our existing lease . in 2019 , we recorded a charge of $ 3.5 million related to reaching an agreement in principle with the u.s. department of justice on a proposal for a global civil settlement , related to an april 2015 inquiry . for more information , see note 21 , commitments and contingencies , to our consolidated financial statements included herein . 59 other ( expense ) income the following table provides information regarding other ( expense ) income during the periods indicated , including percent changes ( dollar amounts in thousands ) : replace_table_token_9_th total other expense , net increased 30 % in 2019 versus 2018 , primarily due to a $ 5.7 million impairment of our equity investment in tela bio , inc. , or tela bio , ( net of the receipt of a non-cash stock dividend ) due to its decreased market value . 2018 included a $ 0.9 million loss on an unexercised purchase option related to the investment ( see note 12 , financial instruments , to our consolidated financial statements for further discussion ) .
| in 2018 , net cash provided by investing activities was $ 20.6 million , which reflected $ 41.9 million of short-term and long-term investment maturities ( net of purchases ) . these proceeds were partially offset by purchases of fixed assets of $ 14.5 million and contingent consideration payments on collections of net sales of depobupivacaine products , including exparel , of $ 6.8 million related to the march 2007 acquisition of the california operating subsidiary of skyepharma holding , inc. ( now a subsidiary of vectura group plc ) , or skyepharma . major fixed asset purchases included continuing expenditures for expanding our exparel manufacturing capacity in swindon , england and facility upgrades at our science center campus in san diego , california . financing activities in 2019 , net cash provided by financing activities was $ 3.7 million , which consisted of proceeds from the exercise of stock options of $ 8.5 million and $ 2.4 million from the issuance of shares through our espp , partially offset by $ 6.6 million of contingent consideration payments made to myoscience securityholders and $ 0.6 million of payments made to retire our 3.25 % convertible senior notes due 2019. in 2018 , net cash provided by financing activities was $ 9.0 million , which consisted of proceeds from the exercise of stock options of $ 7.2 million and $ 1.8 million from the issuance of shares under our espp . equity financings from our inception through december 31 , 2019 , we have raised $ 344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings . debt 2022 convertible senior notes on march 13 , 2017 , we completed a private placement of $ 345.0 million in aggregate principal amount of our 2022 notes , and entered into an indenture , or 2022 indenture , with respect to the 2022 notes . the 2022 notes accrue interest at a fixed rate of 2.375 % per annum , payable semiannually in arrears on april 1 and october 1 of each year . the 2022 notes mature on april 1 ,
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while our consolidated financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) , management believes that operating measures , which exclude net realized investment gains or losses , net of the related dsic and dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on variable annuity guaranteed benefits , net of hedges and the related dsic and dac amortization ; the market impact on indexed universal life benefits , net of hedges and the related dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact of hedges to offset interest rate changes on unrealized gains or losses for certain investments ; integration and restructuring charges ; income ( loss ) from discontinued operations ; and the impact of consolidating cies , best reflect the underlying performance of our core operations and facilitate a more meaningful trend analysis . management uses certain of these non-gaap measures to evaluate our financial performance on a basis comparable to that used by some securities analysts and investors . also , certain of these non-gaap measures are taken into consideration , to varying degrees , for purposes of business planning and analysis and for certain compensation-related matters . throughout our management 's discussion and analysis , these non-gaap measures are referred to as operating measures . these non-gaap measures should not be viewed as a substitute for u.s. gaap measures . it is management 's priority to increase shareholder value over a multi-year horizon by achieving our on-average , over-time financial targets . our financial targets are : operating total net revenue growth of 6 % to 8 % , operating earnings per diluted share growth of 12 % to 15 % , and operating return on equity excluding accumulated other comprehensive income ( “ aoci ” ) of 19 % to 23 % . the following tables reconcile our gaap measures to operating measures : replace_table_token_3_th 44 years ended december 31 , per diluted share years ended december 31 , 2015 2014 2015 2014 ( in millions , except per share amounts ) net income $ 1,687 $ 2,000 less : net income attributable to noncontrolling interests 125 381 net income attributable to ameriprise financial 1,562 1,619 $ 8.48 $ 8.30 less : loss from discontinued operations , net of tax — ( 2 ) — ( 0.01 ) net income from continuing operations attributable to ameriprise financial 1,562 1,621 8.48 8.31 add : integration/restructuring charges , net of tax ( 1 ) 3 — 0.02 — add : market impact on variable annuity guaranteed benefits , net of tax ( 1 ) 139 61 0.75 0.31 add : market impact on indexed universal life benefits , net of tax ( 1 ) 1 4 0.01 0.02 add : market impact of hedges on investments , net of tax ( 1 ) 14 — 0.08 — less : net realized investment gains , net of tax ( 1 ) 3 24 0.02 0.12 operating earnings $ 1,716 $ 1,662 $ 9.32 $ 8.52 weighted average common shares outstanding : basic 181.7 191.6 diluted 184.2 195.0 ( 1 ) calculated using the statutory tax rate of 35 % . the following table reconciles the trailing twelve months ' sum of net income attributable to ameriprise financial to operating earnings and the five-point average of quarter-end equity to operating equity : replace_table_token_4_th ( 1 ) adjustments reflect the trailing twelve months ' sum of after-tax net realized investment gains/losses , net of dsic and dac amortization , unearned revenue amortization and the reinsurance accrual ; the market impact on variable annuity guaranteed benefits , net of hedges and related dsic and dac amortization ; the market impact on indexed universal life benefits , net of hedges and the related dac amortization , unearned revenue amortization , and the reinsurance accrual ; the market impact of hedges to offset interest rate change on unrealized gains or losses for certain investments ; and integration and restructuring charges . after-tax is calculated using the statutory tax rate of 35 % . ( 2 ) operating return on equity , excluding aoci , is calculated using the trailing twelve months of earnings excluding the after-tax net realized investment gains/losses , net of dsic and dac amortization , unearned revenue amortization and the reinsurance accrual ; market impact on variable annuity guaranteed benefits , net of hedges and related dsic and dac amortization ; the market impact on indexed universal benefits , net of hedges and the related dac amortization , unearned revenue amortization , and the reinsurance accrual ; the market impact of hedges to offset interest rate change on unrealized gains or losses for certain investments ; integration and restructuring charges ; and discontinued operations in the numerator , and ameriprise financial shareholders ' equity , excluding aoci and the impact of consolidating investment entities using a five-point average of quarter-end equity in the denominator . after-tax is calculated using the statutory rate of 35 % . 45 critical accounting policies and estimates the accounting and reporting policies that we use affect our consolidated financial statements . certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and , in some cases , the application of these policies can be significantly affected by the estimates , judgments and assumptions made by management during the preparation of our consolidated financial statements . the accounting and reporting policies and estimates we have identified as fundamental to a full understanding of our consolidated results of operations and financial condition are described below . see note 2 to our consolidated financial statements for further information about our accounting policies . valuation of investments the most significant component of our investments is our available-for-sale securities , which we carry at fair value within our consolidated balance sheets . the fair value of our available-for-sale securities at december 31 , 2015 was primarily obtained from third-party pricing sources . story_separator_special_tag for a discussion on our accounting policies related to the valuation of our investments and other-than-temporary impairments , see note 2 and note 14 to our consolidated financial statements . deferred acquisition costs we incur costs in connection with acquiring new and renewal insurance and annuity businesses . the portion of these costs which are incremental and direct to the acquisition of a new or renewal insurance policy or annuity contract are deferred . significant costs capitalized include sales based compensation related to the acquisition of new and renewal insurance policies and annuity contracts , medical inspection costs for successful sales , and a portion of employee compensation and benefit costs based upon the amount of time spent on successful sales . sales based compensation paid to advisors and employees and third-party distributors is capitalized . employee compensation and benefits costs which are capitalized relate primarily to sales efforts , underwriting and processing . all other costs which are not incremental direct costs of acquiring an insurance policy or annuity contract are expensed as incurred . we monitor principal dac amortization assumptions , such as persistency , mortality , morbidity , interest margin , variable annuity benefit utilization and maintenance expense levels each quarter and , when assessed independently , each could impact our dac balance . the analysis of the dac balance and the corresponding amortization is a dynamic process that considers all relevant factors and assumptions described previously . unless management identifies a significant deviation over the course of the quarterly monitoring , management reviews and updates these dac amortization assumptions annually in the third quarter of each year . non-traditional long-duration products for our non-traditional long-duration products ( including variable and fixed annuity contracts , universal life ( “ ul ” ) and variable universal life ( “ vul ” ) insurance products ) , our dac balance at any reporting date is based on projections that show management expects there to be estimated gross profits ( “ egps ” ) after that date to amortize the remaining balance . these projections are inherently uncertain because they require management to make assumptions about financial markets , mortality levels and contractholder and policyholder behavior over periods extending well into the future . projection periods used for our annuity products are typically 30 to 50 years and for our ul insurance products 50 years or longer . management regularly monitors financial market conditions and actual contractholder and policyholder behavior experience and compares them to its assumptions . egps vary based on persistency rates ( assumptions at which contractholders and policyholders are expected to surrender , make withdrawals from and make deposits to their contracts ) , mortality levels , client asset value growth rates ( based on equity and bond market performance ) , variable annuity benefit utilization and interest margins ( the spread between earned rates on invested assets and rates credited to contractholder and policyholder accounts ) . when assumptions are changed , the percentage of egps used to amortize dac might also change . a change in the required amortization percentage is applied retrospectively ; an increase in amortization percentage will result in a decrease in the dac balance and an increase in dac amortization expense , while a decrease in amortization percentage will result in an increase in the dac balance and a decrease in dac amortization expense . the impact on results of operations of changing assumptions can be either positive or negative in any particular period and is reflected in the period in which such changes are made . the client asset value growth rates are the rates at which variable annuity and vul insurance contract values invested in separate accounts are assumed to appreciate in the future . the rates used vary by equity and fixed income investments . management reviews and , where appropriate , adjusts its assumptions with respect to client asset value growth rates on a regular basis . the long-term client asset value growth rates are based on assumed gross annual returns of 9 % for equity funds and 6 % for fixed income funds . we typically use a five-year mean reversion process as a guideline in setting near-term equity fund growth rates based on a long-term view of financial market performance as well as recent actual performance . the suggested near-term equity fund growth rate is reviewed quarterly to ensure consistency with management 's assessment of anticipated equity market performance . 46 a decrease of 100 basis points in various rate assumptions is likely to result in an increase in dac amortization and an increase in benefits and claims expense from variable annuity guarantees . the following table presents the estimated impact to current period pretax income : estimated impact to pretax income ( 1 ) ( in millions ) decrease in future near- and long-term fixed income returns by 100 basis points $ ( 62 ) decrease in future near-term equity fund growth returns by 100 basis points $ ( 41 ) decrease in future long-term equity fund growth returns by 100 basis points ( 32 ) decrease in future near- and long-term equity fund growth returns by 100 basis points $ ( 73 ) ( 1 ) an increase in the above assumptions by 100 basis points would result in an increase to pretax income for approximately the same amount . an assessment of sensitivity associated with changes in any single assumption would not necessarily be an indicator of future results . traditional long-duration products for our traditional long-duration products ( including traditional life , disability income ( “ di ” ) and long term care ( “ ltc ” ) insurance products ) , our dac balance at any reporting date is based on projections that show management expects there to be adequate premiums after the date to amortize the remaining balance . these projections are inherently uncertain because they require management to make assumptions over periods extending well into the future .
| ( 3 ) average ending balances are calculated using an average of the prior period 's ending balance and all months in the current period . wrap account assets increased $ 5.8 billion , or 3 % , during the year ended december 31 , 2015 due to net inflows of $ 11.1 billion , partially offset by market depreciation and other of $ 5.3 billion . average advisory wrap account assets increased $ 14.6 billion , or 9 % , compared to the prior year primarily due to net inflows and market appreciation . the following table presents the results of operations of our advice & wealth management segment on an operating basis : replace_table_token_9_th our advice & wealth management segment pretax operating earnings , which exclude net realized investment gains or losses , increased $ 67 million , or 8 % , to $ 859 million for the year ended december 31 , 2015 compared to $ 792 million for the prior year primarily due to strong growth in wrap account assets and continued expense management . pretax operating margin was 17.1 % for the year ended december 31 , 2015 compared to 16.5 % for the prior year . net revenues net revenues exclude net realized investment gains or losses . net revenues increased $ 207 million , or 4 % , to $ 5.0 billion for the year ended december 31 , 2015 compared to $ 4.8 billion for the prior year primarily reflecting growth in wrap account assets . operating net revenue per branded advisor increased to $ 514,000 for the year ended december 31 , 2015 , up 4 % from $ 496,000 for the prior year driven by asset growth . total branded advisors were 9,789 at december 31 , 2015 compared to 9,672 at december 31 , 2014 . 56 management and financial advice fees increased $ 216 million , or 9 % , to $ 2.6 billion for the year ended december 31 , 2015 compared to $ 2.4 billion for the prior year driven by growth in wrap account assets . average advisory
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the ranpak business combination was financed , in part , with debt of approximately $ 534.6 million , which became ranpak 's direct obligation upon the consummation of the ranpak business combination . upon the consummation of the ranpak business combination on june 3 , 2019 , rack holdings ' then-existing debt , which amounted to approximately $ 487.6 million as of such date , was repaid in full . in december 2019 , the company closed a public offering of its class a common stock generating net proceeds of approximately $ 107.7 million that was used to pay down the first lien dollar term facility . following the ranpak business combination , we have hired , and expect to hire additional staff and implement procedures and processes to address regulatory and other customary requirements applicable to operating public companies . we have incurred additional annual expenses for , among other things , directors ' and officers ' liability insurance , director fees , and additional internal and external accounting , legal and administrative resources , including increased audit and legal fees . we estimated that these incremental costs on an annual basis amounted to $ 2.0 million or more per year , resulting in higher operating expenses in future periods . the closing of the ranpak business combination also resulted in the elimination of certain non-recurring expenses incurred prior to the ranpak business combination , which amounted to $ 35.4 million for the year ended december 31 , 2019 . 41 factors affecting the comparability of ranpak 's results of operations the following factors have affected the comparability of ranpak 's results of operations between the periods presented in this annual report on form 10-k and may affect the comparability of its results of operations in future periods . effect of currency fluctuations . as a result of the geographic diversity of ranpak 's operations , it is exposed to the effects of currency translation . currency transaction exposure results when ranpak generates net sales in one currency at one time and incurs expenses in another currency at another time , or when it realizes gain or loss on intercompany transfers . while ranpak seeks to limit its currency transaction exposure by matching the currencies in which it incurs sales and expenses , it may not always be able to do so . in addition , ranpak is subject to currency translation exposure because the operations of its subsidiaries are measured in their functional currency which is the currency of the primary economic environment in which the subsidiary operates . any currency balances that are denominated in currencies other than the functional currency of the subsidiary are re-measured into the functional currency , with the resulting gain or loss recorded in the foreign currency ( gains ) losses line-item in ranpak 's income statement . in turn , subsidiary income statement balances that are denominated in currencies other than the u.s. dollar are translated into u.s. dollars , ranpak 's functional currency , in consolidation using the average exchange rate in effect during each fiscal month during the period , with any related gain or loss recorded as foreign currency translation adjustments in other comprehensive income ( loss ) . the assets and liabilities of subsidiaries that use functional currencies other than the u.s. dollar are translated into u.s. dollars in consolidation using period end exchange rates , with the effects of foreign currency translation adjustments included in accumulated other comprehensive income ( loss ) . ranpak does not currently hedge its foreign currency transaction or translation exposure . as a result , significant currency fluctuations could impact the comparability of its results between periods , while such fluctuations coupled with material mismatches in net sales and expenses could also adversely impact its cash flows . see “ qualitative and quantitative disclosures about market risk . ” acquisitions . on february 28 , 2017 , ranpak acquired e3neo for total consideration of $ 3.3 million , including contingent consideration of $ 1.1 million which was paid in full in 2018 , plus an earn-out opportunity , which remains pending , whereby the seller may be entitled to receive an earn-out payment in an amount up to the greater of ( i ) $ 2.6 million and ( ii ) 48 % of the trailing twelve ( 12 ) month ebitda of e3neo calculated as of december 31 , 2020. the earn-out payment was not earned and in march 2020 , the company entered into an arrangement with the former majority owner of e3neo to provide , among other things , for a payment to the earn-out counterparties in the amount of approximately $ 1.6 million of which $ 1.4 million was accrued at december 31 , 2019 with the remainder , $ 0.2 million , anticipated to be expensed during 2020. see note 8 , `` acquisitions '' to the audited consolidated financial statements included elsewhere in this annual report on form 10-k. while recent acquisitions , such as e3neo , have been relatively small , any significant future business acquisitions may impact the comparability of ranpak 's results in future periods with those for prior periods . seasonality . ranpak estimates that approximately one-third of its net sales , either directly or to distributors , are destined for end-users in the e-commerce sectors , whose businesses frequently follow traditional retail seasonal trends , including a concentration of sales in the holiday period in the fourth quarter . ranpak 's results tend to follow similar patterns , with the highest net sales typically recorded in its fourth fiscal quarter and the slowest sales in its first fiscal quarter of each fiscal year . ranpak expects this seasonality to continue in the future , as a result of which its results of operations between fiscal quarters in a given year may not be directly comparable . story_separator_special_tag ranpak 's key performance indicators and other factors affecting its performance ranpak uses the following key performance indicators and assesses the following other factors to analyze its business performance , determine financial forecasts , and help develop long-term strategic plans : protective packaging systems base . ranpak closely tracks the number of protective packaging systems installed with end-users as it is a leading indicator of underlying business trends and near-term and ongoing net sales expectations . ranpak 's installed base of protective packaging systems also drives its capital expenditure budgets . ranpak 's installed base of protective packaging systems was approximately 104.6 thousand units as of december 31 , 2019 an increase of 7.1 thousand units , or 7.3 % from 97.5 thousand units as of december 31 , 2018 , which in turn was an increase of 7.0 thousand units , or 7.7 % from approximately 90.5 thousand units as of december 31 , 2017 . the following table presents ranpak 's installed base of protective packaging systems : 42 replace_table_token_1_th paper costs . paper is a key component of ranpak 's cost of sales and paper costs can fluctuate significantly between periods . ranpak purchases both 100 % virgin and 100 % recycled paper , as well as blends , from various suppliers for conversion into the paper consumables it sells . the cost of paper supplies is ranpak 's largest input cost , and it negotiates supply and pricing arrangements with most of its paper suppliers annually , with a view towards mitigating fluctuations in paper cost . nevertheless , as paper is a commodity , its price on the open market , and in turn the prices ranpak negotiates with suppliers at a given point in time , can fluctuate significantly , and is affected by several factors outside of ranpak 's control , including supply and demand and the cost of other commodities that are used in the manufacture of paper , including wood , energy and chemicals . the market for ranpak 's solutions is competitive and it may be difficult for ranpak to pass on increases in paper prices to its customers immediately , or at all , which has in the past and could in the future adversely affected its operating results . 43 basis of presentation net sales . revenue from contracts with customers is recognized using a five-step model consisting of the following : ( 1 ) identify the contract with a customer ; ( 2 ) identify the performance obligations in the contract ; ( 3 ) determine the transaction price ; ( 4 ) allocate the transaction price to the performance obligations in the contract ; and ( 5 ) recognize revenue when ( or as ) the company satisfies a performance obligation . performance obligations are satisfied when the company transfers control of a good or service to a customer , which can occur over time or at a point in time . the amount of revenue recognized is based on the consideration to which the company expects to be entitled in exchange for those goods or services , including the expected value of variable consideration . the customer 's ability and intent to pay the transaction price is assessed in determining whether a contract exists with the customer . if collectability of substantially all of the consideration in a contract is not probable , consideration received is not recognized as revenue unless the consideration is nonrefundable and the company no longer has an obligation to transfer additional goods or services to the customer or collectability becomes probable . the company sells its paper products to end users primarily through an established distributor network and direct sales to select end users . the company 's protective packaging solutions fall into four broad categories : void-fill , cushioning , wrapping , and end-of-line automation . the void-fill protective systems convert paper to fill empty spaces in secondary packages and protect objects . the cushioning protective systems convert paper into cushioning pads . the wrapping protective systems create pads or paper mesh to securely wrap and protect fragile items as well as to line boxes and provide separation when shipping multiple objects . the end-of-line automation solutions include capital equipment which can size , pad , fill , flap , lid , tape and or label the product in an integrated fashion with the speed and flow of the customer 's packaging line . charges for rebates and other allowances are recognized as a deduction from revenue on an accrual basis in the period in which the associated revenue is recorded . when we estimate our rebate accruals , we consider customer-specific contractual commitments including stated rebate rates and history of actual rebates paid . ranpak also charges most customers a quarterly/annual fee for the use of its protective packaging systems on a per-unit basis , which is generally billed in advance , recorded as deferred net sales upon billing and subsequently recorded as net sales on a straight-line basis when earned over the period . net sales also include sales of ranpak automation 's highly automated box sizing system to certain higher volume customers . see note 4 , `` revenue recognition , contracts with customers '' to the audited consolidated financial statements included elsewhere in this annual report on form 10-k. cost of sales . cost of sales consists primarily of raw materials , mainly paper , depreciation of protective packaging systems and salaries , wages , benefits and bonuses for employees and contractors engaged in the conversion and production of paper . for ranpak automation cost of sales consists of equipment components and related labor to assemble the end-of-line solutions . costs related to systems maintenance billed to customers are recorded as cost of sales when the related net sales is recognized . selling , general and administrative .
| our financial statements are prepared in accordance with accounting principles generally accepted in the united states ( `` gaap '' ) . we have , however , also disclosed below earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) and adjusted ebitda , which are non-gaap financial measures . we have included ebitda and adjusted ebitda because they are key measures used by our management and board of directors to understand and evaluate our operating performance and trends , to prepare and approve our annual budget and to develop short- and long-term operational plans . in particular , the exclusion of certain expenses in calculating ebitda and adjusted ebitda can provide a useful measure for period-to-period comparisons of our primary business operations . accordingly , we believe that ebitda and adjusted ebitda provide useful information to investors and others in understanding and evaluating the company 's operating results in the same manner as our management and board of directors . ebitda and adjusted ebitda have limitations as analytical tools , and you should not consider them in isolation or as substitutes for analysis of our results as reported under gaap . in particular , ebitda and adjusted ebitda should not be viewed as substitutes for , or superior to , net income ( loss ) prepared in accordance with gaap as a measure of profitability or liquidity . some of these limitations are : although depreciation and amortization are non-cash charges , the assets being depreciated and amortized may have to be replaced in the future , and ebitda and adjusted ebitda do not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements ; ebitda and adjusted ebitda do not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not consider the potentially dilutive impact of equity-based compensation ; ebitda and adjusted ebitda do not reflect the impact of the recording or release of valuation allowances or tax payments that may represent
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in 2018 , 2017 , and 2016 , net revenues generated from our u.k. operations constituted 11 % , 11 % and 12 % , respectively , of total net revenues . in 2018 , 2017 , and 2016 , net revenues generated from the eu ( excluding the u.k. ) constituted less than 20 % of total net revenues . approximately 31 % and 30 % of our gross loans and interest receivables as of december 31 , 2018 and 2017 , respectively , were generated from our u.k. operations . approximately 7 % and 5 % of our gross loans and interest receivables as of december 31 , 2018 and 2017 , respectively , were generated from the eu ( excluding the u.k. ) operations . 40 story_separator_special_tag u.s. as discussed under “ item 1a . risk factors— risk factors that may affect our business , results of operations and financial condition . ” we calculate the year-over-year impact of foreign currency movements on our business using prior period foreign currency exchange rates applied to current period transactional currency amounts . while changes in foreign currency exchange rates affect our reported results , we have a foreign currency exchange exposure management program whereby we designate certain foreign currency exchange contracts as cash flow hedges intended to reduce the impact on earnings from foreign currency exchange rate movements . gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues in the same period the forecasted transactions impact earnings . 42 in the years ended december 31 , 2018 and 2017 , the year-over-year foreign currency movements relative to the u.s. dollar had the following impact on our reported results : replace_table_token_5_th while we enter into foreign currency exchange contracts to help reduce the impact on earnings from foreign currency exchange rate movements , it is impossible to predict or eliminate the total effects of this exposure . additionally , in connection with our services that are paid for in multiple currencies , we generally set our foreign currency exchange rates daily , and may face financial exposure if we incorrectly set our foreign currency exchange rates or as a result of fluctuations in foreign currency exchange rates between the times that we set our foreign currency exchange rates . given that we also have foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries , we have an additional foreign currency exchange exposure management program whereby we use foreign currency exchange contracts to offset the impact of foreign currency exchange rate movements on our assets and liabilities . the foreign currency exchange gains and losses on our assets and liabilities are recorded in other income ( expense ) , net , and are offset by the gains and losses on the foreign currency exchange contracts . these foreign currency exchange contracts reduce , but do not entirely eliminate , the impact of foreign currency exchange rate movements on our assets and liabilities . financial results net revenues due to the diversification of paypal 's business through strategic partnerships , new products , and acquisitions , in the first quarter of 2018 , we updated our definitions of “ active accounts ” and “ total payment volume ( tpv ) ” as described below . active accounts : an active account is an account registered directly with paypal or a platform access partner that has completed a transaction on our payments platform , not including gateway-exclusive transactions , within the past 12 months . the definition of active accounts has been expanded to include payments made or outstanding balances held on our co-branded credit card program . the definition has also been expanded to include accounts from our platform access partners . a platform access partner is a third party whose customers are provided access to paypal 's payments platform through such third party 's login credentials . this expanded definition captures uniquely identifiable accounts for which paypal receives economic benefits for completed transactions processed on behalf of customers who have established a relationship with paypal . total payment volume : the value of payments , net of reversals , successfully completed on our payments platform or enabled by paypal via a partner payment solution , not including gateway-exclusive transactions . the definition of tpv has been expanded to include paypal 's diversification into new partner payment solutions such as certain tokenized transactions and contextual commerce which expand our opportunities for growth . the revised definition also captures tpv from our merchant debit card program . due to their inclusion in tpv , revenues from these transactions were reclassified from “ other value added services ” to “ transaction revenues ” with no change to “ total net revenues. ” these revisions also impacted previously reported results for other non-financial key performance metrics , including number of payment transactions and payment transactions per active account . prior period metrics have been revised in this filing to conform to the new definitions . 43 our revenues are classified into the following two categories : transaction revenues : net transaction fees charged to merchants and consumers on a transaction basis primarily based on the volume of activity , or tpv , completed on our payments platform . growth in tpv is directly impacted by the number of payment transactions that we enable on our payments platform . payment transactions are the total number of payments , net of payment reversals , successfully completed through our payments platform , or enabled by paypal via a partner payment solution not including gateway-exclusive transactions . we earn additional fees on transactions settled in foreign currencies when we enable cross-border transactions ( i.e. , transactions where the merchant or consumer are in different countries ) . other value added services : net revenues derived primarily from revenue earned through partnerships , subscription fees , gateway fees , and other services we provide to our merchants and customers . story_separator_special_tag we also earn revenues from interest and fees earned primarily on our paypal credit portfolio of loans receivable , gain on sale of participation interest in certain loans and advances , and interest earned on certain paypal customer account balances . our revenues can be significantly impacted by the following : the mix of merchants , products , and services ; the mix between domestic and cross-border transactions ; the geographic region or country in which a transaction occurs ; and the amount of our credit loans receivable outstanding with merchants and consumers . net revenues analysis the components of our net revenue for the years ended december 31 , 2018 , 2017 and 2016 were as follows : replace_table_token_6_th ( 1 ) amounts in the prior period were reclassified to conform to current period presentation . transaction revenues transaction revenues increased by $ 2.2 billion , or 19 % , in 2018 compared to 2017 , and by $ 1.9 billion , or 20 % , in 2017 compared to 2016 . the increase in transaction revenues in 2018 and 2017 was due primarily to the growth in tpv , mainly from our paypal and braintree products , and in the number of payment transactions , both of which resulted primarily from an increase in our active accounts . current year acquisitions did not have a material impact on the growth rate of transaction revenues ; however , they contributed approximately 2.9 million new active accounts during the year . net losses from our foreign currency exchange contracts recognized as a component of transaction revenues in 2018 were $ 23 million , compared to net gains of $ 17 million in 2017 . refer to “ note 10—derivative instruments ” to our consolidated financial statements included elsewhere in this annual report on form 10-k for additional information on our foreign currency exposure management program . 44 the following table provides a summary of our active accounts , number of payment transactions , tpv and related metrics : replace_table_token_7_th all amounts in tables are rounded to the nearest million except as otherwise noted . as a result , certain amounts may not recalculate using the rounded amounts provided . ( 1 ) prior period amounts were revised to reflect updated definitions of active accounts and tpv discussed above . ( 2 ) reflects active accounts as of the end of the applicable period . an active account is an account registered directly with paypal or a platform access partner that has completed a transaction on our payments platform , not including gateway-exclusive transactions , within the past 12 months . ( 3 ) number of payment transactions are the total number of payments , net of payment reversals , successfully completed on our payments platform or enabled by paypal via a partner payment solution , not including gateway-exclusive transactions . ( 4 ) number of payment transactions per active account reflects the total number of payment transactions within the previous 12 month period , divided by active accounts at the end of the period . ( 5 ) tpv is the value of payments , net of reversals , successfully completed on our payments platform or enabled by paypal via a partner payment solution , not including gateway-exclusive transactions . * * not meaningful transaction revenues grew more slowly than both tpv and number of payment transactions in 2018 due to a higher proportion of p2p transactions ( primarily from our paypal and venmo products ) from which we earn lower fees and a lower proportion of cross border transactions . transaction revenues grew more slowly than both tpv and the number of payment transactions in 2017 due primarily to a higher proportion of p2p transactions , primarily from our paypal and venmo products . the impact of increases or decreases in prices charged to our customers did not significantly impact transaction revenue growth in 2018 or 2017 . other value added services net revenues from other value added services increased by $ 149 million , or 9 % , in 2018 compared to 2017 , and by $ 336 million , or 27 % , in 2017 compared to 2016 . growth in net revenues from other value-added services in 2018 and 2017 was due primarily to interest and fee income earned on our loans receivable portfolio . in 2018 , net revenue from other value added services was also positively impacted by growth in interest earned on customer balances . the completion of the sale of our u.s. consumer credit receivables portfolio in july 2018 resulted in lower interest and fee income in the second half of 2018 , partially offset by an increase in revenue share with synchrony bank and approximately $ 109 million of revenue earned from transition servicing activities . swift revenues contributed approximately nine percentage points and three percentage points to the 2018 and 2017 growth rates , respectively.the total consumer and merchant loans receivable balance , including loans and receivables , held for sale , as of december 31 , 2018 , 2017 , and 2016 was $ 2.7 billion , $ 7.8 billion , and $ 5.7 billion , respectively , which reflected a year-over-year decrease of 66 % in 2018 compared to 2017 , and an increase of 37 % in 2017 compared to 2016 . the decline in 2018 was primarily driven by the completion of the sale of u.s. consumer credit receivables portfolio . in november 2017 , we reached an agreement to sell our u.s. consumer credit receivables portfolio to synchrony bank to free up balance sheet capacity and cash flow for other uses and mitigate balance sheet risk . historically , this portfolio was reported as outstanding principal balances , net of any participation interest sold and pro rata allowances , including unamortized deferred origination costs and estimated collectible interest and fees . upon approval by our board of directors of the decision to sell these receivables , the portfolio was reclassified as held for sale , and recorded at the lower of cost or fair value .
| the increase in total operating expense in 2017 was due primarily to an increase in transaction expense , sales and marketing , general and administrative , product development , and restructuring and other charges . operating expenses related to tio and swift collectively contributed one percentage point to the 2017 growth rate . operating income increased $ 67 million , or 3 % , in 2018 and increased $ 541 million , or 34 % in 2017 . operating income increased in 2018 and 2017 due primarily to the increase in net revenues , offset by the growth in operating expenses . our acquisitions completed in 2018 and 2017 collectively had a negative impact of approximately seven percentage points to the 2018 growth rate in operating income . our acquisitions in 2017 collectively had a negative impact of four percentage points on our 2017 growth rate in operating income . our operating margin was 14 % , 16 % , and 15 % in 2018 , 2017 , and 2016 , respectively . operating margin in 2018 was negatively impacted by growth in our transaction expense , which increased 26 % in 2018 , compared to net revenues , which increased 18 % in the same period , as well as the negative impact of acquisitions . these impacts in 2018 were partially offset by operating efficiencies in our business . operating margin in 2017 was negatively impacted by growth in our transaction expense , which increased 32 % in 2017 , compared to net revenues , which increased 21 % in the same period , as well as restructuring expense of $ 40 million incurred in 2017 . these impacts in 2017 were offset by operating efficiencies in our business , and a one-time benefit of $ 322 million pertaining to reversal of allowances related to loans and interest receivables due to the designation as held for sale of our u.s. consumer credit portfolio in november 2017. net income increased by $ 262 million , or 15 % , in 2018 and $ 394
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however , if actual physical inventory losses differ significantly from our estimate , our operating results could be adversely affected . asset impairment . in accordance with financial accounting standards board ( fasb ) accounting standard codification ( asc ) 360 , property , plant , and equipment , we evaluate long-lived assets for impairment at the individual store level , which is the lowest level at which individual cash flows can be identified . impairment losses are recorded on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of the assets . when events such as these occur , the impaired assets are adjusted to their estimated fair value and an impairment loss is recorded separately as a component of operating income under loss on impairment of assets . our impairment loss calculations require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values , including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows . we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate long-lived asset impairment losses . however , if actual results are not consistent with our estimates and assumptions , our operating results could be adversely affected . investment securities . in accordance with asc 820 , fair value measurements and disclosures ( asc 820 ) , we measure our investment securities using level 1 , level 2 and level 3 inputs . level 1 and level 2 inputs are valued using quoted market prices while we use a discounted cash flow ( dcf ) model to determine the fair value of our level 3 investments . the assumptions in our dcf model include different recovery periods depending on the type of security and varying discount factors for yield and illiquidity . these assumptions are subjective and they are based on our current judgment and our view of current market conditions . the use of different assumptions would result in a different valuation and related charge . future adverse changes in market conditions , continued poor operating results of underlying investments or other factors could result in further losses that may not be reflected in an investment 's current carrying value , possibly requiring an additional net impairment loss recognized in earnings in the future . we evaluate our investments for impairment in accordance with asc 320 , investments debt and equity securities ( asc 320 ) . asc 320 provides guidance for determining when an investment is considered impaired , whether impairment is other-than-temporary , and measurement of an impairment loss . an investment is considered impaired if the fair value of the investment is less than its cost . if , after consideration of all available evidence to evaluate the realizable value of its investment , impairment is determined to be other-than-temporary , then an impairment loss is recognized in the consolidated statement of operations equal to the difference between the investment 's cost and its fair value . additionally , asc 320 requires additional disclosures relating to debt and equity securities both in the interim and annual periods as well as requires us to present total other-than-temporary impairment ( otti ) with an offsetting reduction for any non-credit loss impairment amount recognized in other comprehensive income ( oci ) . share-based payments . we account for share-based payments in accordance with the provisions of asc 718 , compensation stock compensation ( asc 718 ) . to determine the fair value of our stock option awards , we use the black-scholes option pricing model , which requires management to apply judgment and make assumptions to determine the fair value of our awards . these assumptions include estimating the length of time employees will retain their vested stock options before exercising them ( the expected term ) and the estimated volatility of the price of our common stock over the expected term . we calculate a weighted-average expected term based on historical experience . expected stock price volatility is based on a combination of historical volatility of our common stock and implied volatility . we chose 20 to use a combination of historical and implied volatility as we believe that this combination is more representative of future stock price trends than historical volatility alone . changes in these assumptions can materially affect the estimate of the fair value of our share-based payments and the related amount recognized in our consolidated financial statements . income taxes . we calculate income taxes in accordance with asc 740 , income taxes ( asc 740 ) , which requires the use of the asset and liability method . under this method , deferred tax assets and liabilities are recognized based on the difference between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases as computed pursuant to asc 740. deferred tax assets and liabilities are measured using the tax rates , based on certain judgments regarding enacted tax laws and published guidance , in effect in the years when those temporary differences are expected to reverse . a valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized . changes in our level and composition of earnings , tax laws or the deferred tax valuation allowance , as well as the results of tax audits , may materially impact the effective income tax rate . story_separator_special_tag we evaluate our income tax positions in accordance with asc 740 which prescribes a comprehensive model for recognizing , measuring , presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return , including a decision whether to file or not to file in a particular jurisdiction . under asc 740 , a tax benefit from an uncertain position may be recognized only if it is more likely than not that the position is sustainable based on its technical merits . the calculation of the deferred tax assets and liabilities , as well as the decision to recognize a tax benefit from an uncertain position and to establish a valuation allowance require management to make estimates and assumptions . we believe that our assumptions and estimates are reasonable , although actual results may have a positive or negative material impact on the balances of deferred tax assets and liabilities , valuation allowances or net income . key performance indicators our management evaluates the following items , which are considered key performance indicators , in assessing our performance : comparable store sales comparable store sales provide a measure of sales growth for stores open at least one year over the comparable prior year period . in fiscal years following those with 53 weeks , including fiscal 2007 , the prior year period is shifted by one week to compare similar calendar weeks . a store is included in comparable store sales in the thirteenth month of operation . however , stores that have a gross square footage increase of 25 % or greater due to a remodel are removed from the comparable store sales base , but are included in total sales . these stores are returned to the comparable store sales base in the thirteenth month following the remodel . sales from american eagle , aerie and 77kids stores are included in comparable store sales . sales from aeo direct and franchise stores are not included in comparable store sales . our management considers 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 , store supplies , rent , etc . comparable store sales also have a direct impact on our total net sales , cash and working capital . gross profit gross profit measures whether we are optimizing the price and inventory levels of our merchandise and achieving an optimal level of sales . gross profit is the difference between net sales and cost of sales . cost of sales consists of : merchandise costs , including design , sourcing , importing and inbound freight costs , as well as markdowns , shrinkage , certain promotional costs and buying , occupancy and warehousing costs . buying , occupancy and warehousing costs consist of : compensation , employee benefit expenses and travel for our buyers and certain senior merchandising executives ; rent and utilities related to our stores , corporate headquarters , distribution centers and other office space ; freight from our 21 distribution centers to the stores ; compensation and supplies for our distribution centers , including purchasing , receiving and inspection costs ; and shipping and handling costs related to our e-commerce operation . merchandise profit is the difference between net sales and merchandise costs . the inability to obtain acceptable levels of sales , 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 income our management views operating income as a key indicator of our success . the key drivers of operating income are comparable store sales , gross profit , our ability to control selling , general and administrative expenses and our level of capital expenditures . store productivity store productivity , including net sales per average square foot , sales per productive hour , average unit retail price ( aur ) , conversion rate , the number of transactions per store , the number of units sold per store and the number of units per transaction , is evaluated by our management in assessing our operational performance . inventory turnover our management evaluates inventory turnover as a measure of how productively inventory is bought and sold . inventory turnover is important as it can signal slow moving inventory . this can be critical in determining the need to take markdowns on merchandise . cash flow and liquidity our management evaluates cash flow from operations , investing and financing in determining the sufficiency of our cash position . cash flow from operations has historically been sufficient to cover our uses of cash . our management believes that cash flow from operations will be sufficient to fund anticipated capital expenditures and working capital requirements . story_separator_special_tag to net sales , depreciation and amortization expense decreased to 4.4 % from 4.8 % as a result of higher comparable store sales for the period . realized loss on sale of investment securities there was no realized loss on sale of investment securities this year , compared to $ 24.4 million , or $ 0.12 per diluted share , last year . the loss in fiscal 2010 was primarily due to the liquidation of 95 % of our auction rate security investment portfolio . other income , net other income , net increased to $ 5.9 million from $ 2.2 million last year . the change is primarily due to additional proceeds received from the ars call option this year . provision for income taxes the effective income tax rate from continuing operations decreased to approximately 36.0 % in fiscal 2011 from 38.3 % in fiscal 2010. the higher effective income tax rate in fiscal 2010 was primarily due to losses on the sale of certain ars investments for which no income tax benefit was recognized . refer to note 14 to the consolidated financial statements for additional information regarding our accounting for income taxes .
| the cash from operations was offset by $ 100.1 million of capital expenditures , a $ 34.2 million purchase of intangible assets , and value returned to shareholders through share repurchases of $ 15.2 million and dividend payments of $ 85.6 million . merchandise inventory at the end of fiscal 2011 was $ 378.4 million , an increase of 24 % on a cost per square foot basis . the increase reflects a high single-digit increase in the ending average cost per unit driven by increased cotton costs . 22 the following table shows , for the periods indicated , the percentage relationship to net sales of the listed items included in our consolidated statements of operations . replace_table_token_9_th our operations are conducted in one reportable segment , which includes our 911 u.s. and canadian ae retail stores , 158 aerie by american eagle retail stores , 21 77kids by american eagle retail stores and aeo direct , as of january 28 , 2012. comparison of fiscal 2011 to fiscal 2010 net sales net sales increased 6 % to $ 3.160 billion compared to $ 2.968 billion last year . for fiscal 2011 , comparable stores sales increased 3 % compared to a 1 % decrease last year . by brand , ae comparable store sales increased 3 % and aerie increased 2 % . aeo direct sales increased 15 % . ae men 's comparable store sales increased in the mid single-digits and ae women 's comparable store sales increased in the low single-digits . for the year , a mid single-digit increase in transactions and a low single-digit increase in aur , slightly offset by a low single-digit decrease in the units per transaction , contributed to the overall 3 % comparable store sales increase . gross profit gross profit decreased 4 % to $ 1.128 billion from $ 1.171 billion in fiscal 2010. gross profit as a percent to net sales decreased by 380 basis points to 35.7 % from 39.5 % last year . the percentage decrease was attributed to a 360 basis point decrease
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we offer a variety of season pass products for all of our mountain resorts and ski areas ( collectively , “ resorts ” ) , marketed towards both destination and local guests . our season pass product offerings range from providing access to one or a combination of our resorts to our epic pass , which allows pass holders unlimited and unrestricted access to all of our resorts and ski areas . our season pass program provides a compelling value proposition to our guests , which in turn assists us in developing a loyal base of customers who commit to ski at our resorts generally in advance of the ski season and typically ski more days each season at our resorts than those guests who do not buy season passes . additionally , we have entered into strategic long-term season pass alliance agreements with third-party mountain resorts , including telluride ski resort and arapahoe basin in colorado , hakuba valley in japan and resorts of the canadian rockies in canada , which further increases the value proposition of our season pass products . as such , our season pass program drives strong customer loyalty ; mitigates exposure to more weather sensitive guests ; generates additional ancillary spending ; and provides cash flow in advance of winter season operations . in addition , our season pass program attracts new guests to our resorts . all of our season pass products , including the epic pass , are predominately sold prior to the start of the ski season . season pass revenue , although primarily collected prior to the ski season , is recognized in the consolidated statements of operations throughout the ski season ( see notes to consolidated financial statements ) . 37 lift revenue consists of season pass lift revenue ( “ pass revenue ” ) and non-season pass lift revenue ( “ non-pass revenue ” ) . approximately 47 % , 43 % and 40 % of total lift revenue was derived from pass revenue for fiscal 2018 , fiscal 2017 and fiscal 2016 , respectively . the cost structure of our mountain resort operations has a significant fixed component with variable expenses including , but not limited to , land use permit or lease fees , credit card fees , retail/rental cost of sales and labor , ski school labor and dining operations . as such , profit margins can fluctuate greatly based on the level of revenues associated with visitation . lodging segment operations within the lodging segment include ( i ) ownership/management of a group of luxury hotels through the rockresorts brand proximate to our colorado and utah mountain resorts ; ( ii ) ownership/management of non-rockresorts branded hotels and condominiums proximate to our north american mountain resorts ; ( iii ) national park service ( “ nps ” ) concessionaire properties including grand teton lodging company ( “ gtlc ” ) ; ( iv ) a colorado resort ground transportation company ; and ( v ) mountain resort golf courses . the performance of our lodging properties ( including managed condominium units and our colorado resort ground transportation company ) proximate to our mountain resorts is closely aligned with the performance of the mountain segment and generally experiences similar seasonal trends , particularly with respect to visitation by destination guests . revenues from such properties represented approximately 68 % , 68 % and 69 % of lodging segment net revenue ( excluding lodging segment revenue associated with reimbursement of payroll costs ) for fiscal 2018 , fiscal 2017 and fiscal 2016 , respectively . management primarily focuses on lodging net revenue excluding payroll cost reimbursements and lodging operating expense excluding reimbursed payroll costs ( which are not measures of financial performance under gaap ) as the reimbursements are made based upon the costs incurred with no added margin ; as such , the revenue and corresponding expense have no effect on our lodging reported ebitda , which we use to evaluate lodging segment performance . revenue of the lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our nps concessionaire properties ( as their operating season generally occurs from june to the end of september ) ; mountain resort golf operations and seasonally lower volume from our other owned and managed properties and businesses . real estate segment the principal activities of our real estate segment include the sale of land parcels to third-party developers and planning for future real estate development projects , including zoning and acquisition of applicable permits . we continue undertaking preliminary planning and design work on future projects and are pursuing opportunities with third-party developers rather than undertaking our own significant vertical development projects . additionally , real estate development projects by third-party developers most often result in the creation of certain resort assets that provide additional benefit to the mountain segment . we believe that , due to our low carrying cost of real estate land investments , we are well situated to promote future projects by third-party developers while limiting our financial risk . our revenue from the real estate segment and associated expense can fluctuate significantly based upon the timing of closings and the type of real estate being sold , causing volatility in the real estate segment 's operating results from period to period . recent trends , risks and uncertainties we have identified the following significant factors ( as well as uncertainties associated with such factors ) that could impact our future financial performance : the timing and amount of snowfall can have an impact on mountain and lodging revenue , particularly with regard to skier visits and the duration and frequency of guest visitation . to help mitigate this impact , we sell a variety of pass products prior to the beginning of the ski season , resulting in a more stabilized stream of lift revenue . in march 2018 , we began our pre-season pass sales program for the 2018/2019 north american ski season . story_separator_special_tag through september 23 , 2018 , north american ski season pass sales increased approximately 25 % in units and 15 % in sales dollars as compared to the period in the prior year through september 24 , 2017 , including all military pass sales in both periods and excluding pass sales from stevens pass and triple peaks in both periods and adjusted to eliminate the impact of foreign currency by applying current period exchange rates to the prior period for whistler blackcomb pass sales . growth in our total season pass sales dollars was lower than our unit growth , given the inclusion of the new military epic pass , which is available at a substantial discount to our epic pass . the average price increase on all non-military passes was approximately 4.5 % . excluding sales of military passes to new purchasers who were not pass holders last year , season pass sales increased approximately 9 % in units and 12 % in sales dollars over the comparable period in 2017. we can not predict if this favorable trend will continue for the entire duration of the fall 2018 north american pass sales campaign , 38 nor can we predict the overall impact that season pass sales will have on lift revenue for the 2018/2019 north american ski season . in fiscal 2018 , our lift revenue was favorably impacted by non-pass price increases at our mountain resorts that were implemented for the 2017/2018 north american ski season . non-pass prices for the 2018/2019 north american ski season have not yet been finalized ; and , as such , there can be no assurances as to the level of price increases , if any , which will occur and the impact that pricing may have on visitation or revenue . our fiscal 2018 results for our mountain segment showed improvement over fiscal 2017 largely due to strong pass sales growth for the 2017/2018 north american ski season , the incremental operations of stowe ( acquired in june 2017 ) and excellent conditions at whistler blackcomb throughout most of the season . however , we experienced historically low snowfall levels across our western u.s. resorts for the first half of the 2017/2018 north american ski season , including the key christmas holiday period , which had an adverse impact on skier visitation and our results of operations . we can not predict whether our resorts will experience normal snowfall conditions for the upcoming 2018/2019 north american ski season nor can we estimate the impact there may be to advance bookings , guest travel , season pass sales , lift revenue ( excluding season passes ) , retail/rental sales or other ancillary services revenue next ski season as a result of past snowfall conditions . key north american economic indicators have remained steady into 2018 , including strong consumer confidence and declines in the unemployment rate . however , the growth in the north american economy may be impacted by economic challenges in north america or declining or slowing growth in economies outside of north america , accompanied by devaluation of currencies , rising inflation , trade tariffs and lower commodity prices . given these economic uncertainties , we can not predict what the impact will be on overall travel and leisure spending or more specifically , on our guest visitation , guest spending or other related trends for the upcoming 2018/2019 north american ski season . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tax act ” ) . the tax act transitions the u.s. tax system to a new territorial system and lowers the statutory federal corporate income tax rate from 35 % to 21 % . the reduction of the statutory federal corporate tax rate to 21 % became effective on january 1 , 2018. in fiscal 2018 , our u.s. blended federal statutory income tax rate was approximately 27 % ( august 2017 through december 2017 at 35 % and january 2018 through july 2018 at 21 % ) , which will be reduced to 21 % in the year ending july 31 , 2019 and thereafter . as a result of the tax act , we recorded a one-time , provisional net tax benefit of approximately $ 61.0 million on our consolidated statement of operations during fiscal 2018. due to the reduction in the federal corporate tax rate , we remeasured our u.s. net deferred tax liabilities as of the effective date of the tax act . the u.s. net deferred tax liabilities remeasurement resulted in a one-time tax benefit estimated to be approximately $ 67.0 million , which was recorded during fiscal 2018. also , in transitioning to the new territorial tax system , the tax act requires us to include certain foreign earnings of non-u.s. subsidiaries in our fiscal 2018 taxable income . such foreign earnings are subject to a one-time tax referred to as the “ transition tax , ” which was estimated to be $ 6.0 million , and was recorded during fiscal 2018. the above-mentioned accounting impacts of the deferred tax remeasurement and transition tax are provisional , based on currently available information and technical guidance on the interpretation of the new law . the provisional accounting impacts may change in future reporting periods until the accounting analysis is finalized , which will occur no later than december 22 , 2018 , as permitted by the sec . for further discussion related to the tax act see “ other items ” within md & a and notes to consolidated financial statements . as of july 31 , 2018 , we had $ 178.1 million in cash and cash equivalents , as well as $ 185.1 million available under the revolver component of the vail holdings credit agreement ( which represents the total commitment of $ 400.0 million less outstanding borrowings of $ 130.0 million and certain letters of credit outstanding of $ 84.9 million ) .
| the fiscal 2018 and fiscal 2017 results include $ 10.2 million and $ 10.8 million of acquisition and integration related expenses , respectively . lift revenue increased $ 62.0 million , or 7.6 % , primarily due to an increase in pass revenue and incremental revenue from stowe . pass revenue increased 17.7 % , which was driven by a combination of an increase in both pricing and units sold , which was favorably impacted by increased pass sales to destination guests . non-pass revenue was flat , which was primarily the result of incremental non-pass revenue from stowe and an increase in non-pass revenue from whistler blackcomb , as well as an increase in etp excluding season pass holders of 2.4 % , offset by a decrease in non-pass skier visitation at our western u.s. resorts . total etp increased $ 3.38 , or 5.0 % , primarily due to price increases in both our lift ticket products and season pass products and slightly lower average visitation by season pass holders during the 2017/2018 north american ski season as compared with the 2016/2017 north american ski season . ski school revenue increased $ 12.2 million , or 6.8 % , primarily as a result of increased revenue at whistler blackcomb and park city , as well as incremental revenue from stowe . dining revenue increased $ 10.8 million , or 7.2 % , primarily as a result of incremental revenue from stowe and increased revenue from whistler blackcomb , reflecting a full year of operations as compared to fiscal 2017 , which included operations from the date of acquisition , october 17 , 2016 , through july 31 , 2017. however , these increases were partially offset by lower revenue at our western u.s. resorts , which experienced delays in the opening of certain 41 on-mountain dining venues as a result of challenging weather conditions for the first half of the 2017/2018 north american ski season . retail/rental revenue increased $ 3.0 million , or 1.0 % , of which rental revenue increased $ 2.9 million , or 3.2 % , and retail revenue was relatively flat .
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under the provisions of asc 718 , stock-based compensation costs are measured at the grant date , based on the fair value of the award , and are recognized as expense over the employee 's requisite service period ( generally the vesting period of the equity grant ) . the fair value of our common stock options is estimated using the black scholes option-pricing model with the following assumptions : expected volatility , dividend rate , risk free interest rate and the expected life . we expense stock-based compensation by using the straight-line method . in accordance with asc 718 , excess tax benefits realized from the exercise of stock-based awards are classified in cash flows from financing activities . the future realization of the reserved deferred tax assets related to these tax benefits associated with the exercise of stock options will result in a credit to additional paid in capital if the related tax deduction reduces taxes payable . we have elected the “ with and without approach ” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year . under this approach , the windfall tax benefit would be recognized in additional paid-in-capital only if an incremental tax benefit is realized after considering all other benefits presently available . we account for stock based compensation awards issued to non-employees for services , as prescribed by asc 718-10 , at either the fair value of the services rendered or the instruments issued in exchange for such services , whichever is more readily determinable , using the measurement date guidelines enumerated in asc 505-50. use of estimates the preparation of the financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) requires management to make estimates and assumptions that affect certain reported amounts and disclosures . management bases its estimates on historical experience and on various 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 . the most complex and subjective estimates include recoverability of long-lived assets , including the values assigned to goodwill , intangible assets and property , plant and equipment , fair value calculations for stock based compensation , contingencies , anticipated collection period of accounts receivable , allowance for doubtful accounts , and management 's anticipated liquidity . management reviews its estimates on a regular basis and the effects of any material revisions are reflected in the consolidated financial statements in the period they are deemed necessary . accordingly , actual results could differ from those estimates . 33 comparison of the fiscal year ended september 30 , 2017 to the fiscal year ended september 30 , 2016 revenues product revenues for the fiscal years ended september 30 , 2017 and 2016 , we generated $ 3,733,995 and $ 2,538,202 in revenues from product sales , respectively . the increase in product revenues of $ 1,195,793 or 47 % for the fiscal year ended september 30 , 2017 is attributable to an increase in revenue of approximately $ 1,420,000 in the textile industry for protecting cotton supply chains as well as the addition of new customers in the synthetic supply chains . increases in the textile division were offset partially by decreases in revenue from dna production of $ 132,000. service revenues for the fiscal years ended september 30 , 2017 and 2016 , we generated $ 1,017,265 and $ 1,648,225 in revenues from sales of services , respectively . the decrease in service revenues of $ 630,960 or 38 % for the fiscal year ended september 30 , 2017 is attributable to a decrease in the two government contract awards of approximately $ 1,064,000 , of which one expired on july 14 , 2016 and the other one in august 2016. the revenue decreases associated with these two government contracts were offset by a new government contract award which began during june 2017. revenues under the new government award were approximately $ 249,000 during the fiscal year ended september 30 , 2017. these decreases from the expiration of the two government awards during fiscal 2016 were further offset by an increase in revenues from development projects in industrial materials , textiles , and personal care during fiscal 2017. costs and expenses cost of revenues cost of revenues for the fiscal years ended september 30 , 2017 and 2016 were $ 1,077,232 and $ 1,170,653 , respectively . cost of revenues as a percentage of product revenue were 29 % and 46 % for the fiscal years ended september 30 , 2017 and 2016 , respectively . this decrease in cost of revenues as a percentage of product revenues is due to increased sales to the textile industry which carry higher margins . also , during the prior fiscal year , due to lower product revenue , our production decreased , and , as a result , our fixed production costs , primarily comprised of payroll expenses and rent and utilities allocated to our production facilities , were not absorbed by product sales . selling , general and administrative selling , general and administrative expenses for the fiscal year ended september 30 , 2017 increased by $ 2,516,204 or 23 % to $ 13,324,503 from $ 10,808,299 in the same period in 2016. the increase is primarily attributable to an increase in stock based compensation expense of approximately $ 1,218,000 , primarily associated to grants to employees that vested immediately during fiscal 2017 whereas the grants to employees during fiscal 2016 have a four year vesting period . story_separator_special_tag the increase is also attributable to an increase of approximately $ 1,106,000 , including $ 673,000 of payroll costs , which were allocated to the two government development contract awards in the prior fiscal year being allocated to selling , general and administrative expenses in the current fiscal year due to the expiration of these two contracts . in addition there was an increase of approximately $ 307,000 in bad debt expense as a result of the write off of a portion of our accounts receivable . research and development research and development expenses decreased by $ 1,418,475 or 38 % for the fiscal year ended september 30 , 2017 compared to the same period in 2016 to $ 2,282,362 from $ 3,700,837. the decrease is primarily attributable to development costs incurred in relation to the two government development contract awards , as well as costs related to the cooperative research and development agreement with the usda for enhanced cotton genotyping during fiscal 2016 . 34 depreciation and amortization depreciation and amortization increased by $ 180,809 or 26 % compared to the same period in 2016 from $ 706,496 for the fiscal year ended september 30 , 2016 to $ 887,305 for the fiscal year ended september 30 , 2017.the increase is attributable to impairment of approximately $ 253,000 of internally developed software during the fiscal year ended september 30 , 2017. this increase was offset by $ 69,000 of amortized customer purchase orders acquired from vandalia and fulfilled by the company during the fiscal year ended september 30 , 2016. other ( expense ) income other ( expense ) income for the fiscal year ended september 30 , 2017 , decreased to expense of $ 35,625 from income of $ 23,879 in the same period of 2016. the increase in other expense was due to the return of escrow funds associated with the vandalia asset purchase agreement during the prior fiscal year ended september 30 , 2016. net loss net loss increased $ 679,788 , or 6 % to $ 12,855,767 for the fiscal year ended september 30 , 2017 compared to $ 12,175,979 for the fiscal year ended september 30 , 2016 due to the factors noted above . recent accounting pronouncements see note b , “ recent accounting principles , ” to the accompanying consolidated financial statements for a description of accounting standards which may impact our consolidated financial statements in future reporting periods . liquidity and capital resources our liquidity needs consist of our working capital requirements and research and development expenditure funding . as of september 30 , 2017 , we had working capital of $ 4,945,304. for the fiscal year ended september 30 , 2017 , we had a net cash usage from operating activities of $ 7,479,184 consisting primarily of our loss of $ 12,855,767 , net with non-cash adjustments of $ 887,305 in depreciation and amortization charges , $ 3,257,305 for stock-based compensation , and $ 423,920 of bad debt expense . additionally , we had a net decrease in operating assets of $ 2,888,154 and a net decrease in operating liabilities of $ 2,080,101. cash used in investing activities was $ 145,436 , for the purchase of property and equipment . cash provided by financing activities was $ 6,105,127 , which included net proceeds from the sale of common stock and warrants related to a private placement in november 2016 and the sale of common stock in a private placement during june 2017. we have recurring net losses , which have resulted in an accumulated deficit of $ 236,673,155 as of september 30 , 2017. we have incurred a net loss of $ 12,855,767 for the fiscal year ended september 30 , 2017. at september 30 , 2017 , we had cash and cash equivalents of $ 2,959,781. our current capital resources include cash and cash equivalents , accounts receivable and inventories . historically , we have financed our operations principally from the sale of equity securities . as discussed in note g , to the accompanying consolidated financial statements , on december 22 , 2017 , we closed on a securities purchase agreement with certain institutional investors for the purchase and sale of 2,735,000 shares of our common stock and warrants to purchase an aggregate of 2,735,000 shares of common stock in a registered direct offering with aggregate gross proceeds of $ 4,786,250 exclusive of warrant exercise proceeds . after deducting placement agent 's commissions and other estimated offering expenses total expected net proceeds are $ 4,200,000. we expect to finance operations primarily through cash received from the november 2016 and june 2017 private placements , and the december 2017 registered direct offering , as well as collection of our accounts receivables . we estimate that we will have sufficient cash and cash equivalents to fund operations for the next twelve months from the date of filing of this annual report . we may require additional funds to complete the continued development of our products , product manufacturing , and to fund expected additional losses from operations , until revenues are sufficient to cover our operating expenses . if revenues are not sufficient to cover our operating expenses , and if we are not successful in obtaining the necessary additional financing , we will most likely be forced to reduce operations . 35 we expect capital expenditures to be less than $ 400,000 in fiscal 2018. our primary investments will be in laboratory equipment to support prototyping , manufacturing , our authentication services , and outside services for our detector and reader development . these capital expenditures include one-time set up costs associated with the establishment of our laboratory space located in india . substantially all of the real property used in our business is leased under operating lease agreements .
| we believe that given current facts and circumstances , it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our condensed consolidated results of operations , financial position or liquidity for the periods presented in this report . the accounting policies identified as critical are as follows : · revenue recognition ; and · equity based compensation ; revenue recognition we recognize revenue in accordance with accounting standards codification ( “ asc ” ) 605 , revenue recognition ( “ asc 605 ” ) . asc 605 requires that four basic criteria must be met before revenue can be recognized : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred and or service has been performed ; ( 3 ) the selling price is fixed and determinable ; and ( 4 ) collectability is reasonably assured . determination of criteria ( 3 ) and ( 4 ) are based on management 's judgments regarding the fixed nature of the selling prices of the products delivered or services provided and the collectability of those amounts . provisions for allowances and other adjustments are provided for in the same period the related sales are recorded . we defer any revenue for which the product has not been delivered , service has not been provided , or is subject to refund until such time that we and the customer jointly determine that the product has been delivered , the service has been provided , or no refund will be required . at september 30 , 2017 and 2016 , we recorded total deferred revenue of $ 351,735 and $ 2,737,588 , respectively . revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met , including whether the delivered component has stand-alone value to the customer . consideration received 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 is available . the applicable revenue recognition criteria are
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13 protiviti has successfully diversified its service offerings , built a loyal and growing client base , and is seeing steady demand in all of its major consulting solutions . protiviti serves its clients in areas such as internal audit and financial advisory services , risk and compliance , and information technology consulting , among others . we monitor various economic indicators and business trends in all of the countries in which we operate to anticipate demand for the company 's services . we evaluate these trends to determine the appropriate level of investment , including personnel , which will best position the company for success in the current and future global macroeconomic environment . the company 's investments in headcount are typically structured to proactively support and align with expected revenue growth trends . as such , particularly during the second half of 2015 , we added headcount in all of the company 's lines of business . we have limited visibility into future revenues not only due to the dependence on macroeconomic conditions noted above , but also because of the relatively short duration of the company 's client engagements . accordingly , we typically assess headcount and other investments on at least a quarterly basis . capital expenditures in 2015 totaled $ 75 million , approximately 70 % of which represented investments in software initiatives and technology infrastructure , both of which are important to the company 's future growth opportunities . major software initiatives include upgrades to enterprise resource planning applications and the continued implementation of a global , cloud-based customer relationship management application . infrastructure and computer hardware initiatives in 2015 have focused on delivering mobile technology to the company 's professional staff , upgrading data networks , and enhancing video capabilities and telecommunication systems . our investments in these and other technology initiatives are expected to continue in 2016. capital expenditures also included amounts spent on tenant improvements and furniture and equipment in the company 's leased offices . the company will have more lease expirations in 2016 than in 2015 , so we expect higher capital expenditures related to tenant improvements . we currently expect that 2016 capital expenditures will range from $ 90 million to $ 100 million . critical accounting policies and estimates as described below , the company 's most critical accounting policies and estimates are those that involve subjective decisions or assessments . accounts receivable allowances . the company maintains allowances for estimated losses resulting from ( i ) the inability of its customers to make required payments , ( ii ) temporary placement sales adjustments , and ( iii ) permanent placement candidates not remaining with the client through the 90-day guarantee period , commonly referred to as “ fall offs ” . the company establishes these allowances based on its review of customers ' credit profiles , historical loss statistics and current trends . the adequacy of these allowances is reviewed each reporting period . historically , the company 's actual losses and credits have been consistent with these allowances . as a percentage of gross accounts receivable , the company 's accounts receivable allowances totaled 4.7 % and 4.4 % as of december 31 , 2015 and 2014 , respectively . as of december 31 , 2015 , a five-percentage point deviation in the company 's accounts receivable allowances balance would have resulted in an increase or decrease in the allowance of $ 1.8 million . although future results can not always be predicted by extrapolating past results , management believes that it is reasonably likely that future results will be consistent with historical trends and experience . however , if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , or if unexpected events or significant future changes in trends were to occur , additional allowances may be required . income tax assets and liabilities . in establishing its deferred income tax assets and liabilities , the company makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations . deferred tax assets and liabilities are measured and recorded using current enacted tax rates , which the company expects will apply to taxable income in the years in which those temporary differences are recovered or settled . the likelihood of a material change in the company 's expected realization of these assets is dependent on future taxable income , its ability to use foreign tax credit carryforwards and carrybacks , final u.s. and foreign tax settlements , and the effectiveness of its tax planning in the various relevant jurisdictions . the company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts . management evaluates all positive and negative evidence and uses judgment regarding past and future events , including operating results , to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized . when appropriate , a valuation allowance is recorded against deferred tax assets to offset future tax benefits that may 14 not be realized . valuation allowances of $ 26.3 million and $ 29.6 million were recorded as of december 31 , 2015 and 2014 , respectively . the valuation allowances recorded related primarily to net operating losses in certain foreign operations . if such losses are ultimately utilized to offset future operating income , the company will recognize a tax benefit up to the full amount of the related valuation reserve . while management believes that its judgments and interpretations regarding income taxes are appropriate , significant differences in actual experience may materially affect the future financial results of the company . goodwill impairment . the company assesses the impairment of goodwill annually in the second quarter , or more often if events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with financial accounting standards board ( “ fasb ” ) authoritative guidance . story_separator_special_tag the company completed its annual goodwill impairment analysis as of june 30 , 2015 , and determined that no adjustment to the carrying value of goodwill was required . there were no events or changes in circumstances since the annual goodwill impairment assessment that caused the company to perform an interim impairment assessment . the company follows fasb authoritative guidance utilizing a two-step approach for determining goodwill impairment . in the first step the company determines the fair value of each reporting unit utilizing a present value technique derived from a discounted cash flow methodology . for purposes of this assessment the company 's reporting units are its lines of business . the fair value of the reporting unit is then compared to its carrying value . if the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit , goodwill is not impaired and no further testing is performed . the second step under the fasb guidance is contingent upon the results of the first step . to the extent a reporting unit 's carrying value exceeds its fair value , an indication exists that the reporting unit 's goodwill may be impaired and the company must perform a second more detailed impairment assessment . the second step involves allocating the reporting unit 's fair value to its net assets in order to determine the implied fair value of the reporting unit 's goodwill as of the assessment date . the implied fair value of the reporting unit 's goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date . the company 's reporting units are accountemps , robert half finance & accounting , officeteam , robert half technology , robert half management resources and protiviti , which had goodwill balances at december 31 , 2015 , of $ 126.1 million , $ 26.3 million , $ 0.0 million , $ 7.0 million , $ 0.0 million and $ 49.2 million , respectively , totaling $ 208.6 million . there were no changes to the company 's reporting units or to the allocations of goodwill by reporting unit for the year ended december 31 , 2015 . the goodwill impairment assessment is based upon a discounted cash flow analysis . the estimate of future cash flows is based upon , among other things , a discount rate and certain assumptions about expected future operating performance . the discount rate for all reporting units was determined by management based on estimates of risk free interest rates , beta and market risk premiums . the discount rate used was compared to the rate published in various third party research reports , which indicated that the rate was within a range of reasonableness . the primary assumptions related to future operating performance include revenue growth rates and profitability levels . in addition , the impairment assessment requires that management make certain judgments in allocating shared assets and liabilities to the balance sheets of the reporting units . solely for purposes of establishing inputs for the fair value calculations described above related to its annual goodwill impairment testing , the company made the following assumptions . the company assumed that year-to-date trends through the date of the last assessment would continue for all reporting units through 2015 , using unique assumptions for each reporting unit . in addition , the company applied profitability assumptions consistent with each reporting unit 's historical trends at various revenue levels and , for years 2017 and beyond , used a 5 % growth factor . this rate is comparable to the company 's most recent ten-year annual compound revenue growth rate . the future cash flows used to calculate fair value go out a total of 10 years with a terminal value calculation at the end of the 10 year period . in its most recent calculation , the company used a 10.0 % discount rate , which is slightly lower than the 10.2 % discount rate used for the company 's test during the second quarter of 2014 . this decrease in discount rate is primarily attributable to slight decreases in the risk free rate and equity market risk premium . in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test , the company applied hypothetical decreases to the fair values of each reporting unit . the company determined that hypothetical decreases in fair value of at least 74 % would be required before any reporting unit would have a carrying value in excess of its fair value . given the current economic environment and the uncertainties regarding the impact on the company 's business , there can be no assurance that the company 's estimates and assumptions made for purposes of the company 's goodwill impairment testing will prove to be accurate predictions of the future . if the company 's assumptions regarding forecasted revenue or 15 profitability growth rates of certain reporting units are not achieved , the company may be required to recognize goodwill impairment charges in future periods . it is not possible at this time to determine if any such future impairment charge would result or , if it does , whether such charge would be material . workers ' compensation . except for states which require participation in state-operated insurance funds , the company retains the economic burden for the first $ 0.5 million per occurrence in workers ' compensation claims . workers ' compensation includes ongoing healthcare and indemnity coverage for claims and may be paid over numerous years following the date of injury . claims in excess of $ 0.5 million are insured .
| the company has provided this data because management believes it better reflects the company 's actual revenue growth rates and aids in evaluating revenue trends over time . the company expresses year-over-year revenue changes as calculated percentages using the same number of billing days and constant currency exchange rates . in order to calculate constant currency revenue growth rates , as reported amounts are retranslated using foreign currency exchange rates from the prior year 's comparable period . management then calculates a global , weighted-average number of billing days for each reporting period based upon input from all countries and all lines of business . in order to remove the fluctuations caused by comparable periods having different billing days , the company calculates same billing day revenue growth rates by dividing each comparative period 's reported revenues by the calculated number of billing days for that period , to arrive at a per billing day amount . same billing day growth rates are then calculated based upon the per billing day amounts . the term “ same billing days and constant currency ” means that the impact of different billing days has been removed from the constant currency calculation . the non-gaap financial measures provided herein may not provide information that is directly comparable to that provided by other companies in the company 's industry , as other companies may calculate such financial results differently . the company 's non-gaap financial measures are not measurements of financial performance under gaap , and should not be considered as alternatives to actual revenue growth derived from revenue amounts presented in accordance with gaap . the company does not consider these non-gaap financial measures to be a substitute for , or superior to , the information provided by gaap financial results . a reconciliation of the same-day , constant-currency revenue growth rates to the reported revenue growth rates is provided herein . refer to item 7a . `` quantitative and qualitative disclosures about market risk '' for further discussion of the impact of foreign currency
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31 compass minerals international , inc. 2011 form 10-k year ended december 31 , 2010 compared to the year ended december 31 , 2009 sales sales for the year ended december 31 , 2010 of $ 1,068.9 million increased $ 105.8 million , or 11 % compared to $ 963.1 million for the year ended december 31 , 2009. shipping and handling fees for salt and specialty fertilizer products were $ 268.6 million during the year ended december 31 , 2010 , an increase of $ 19.3 million , or 8 % compared to $ 249.3 million for the year ended december 31 , 2009. the shipping and handling costs increase primarily reflect higher sales volumes for 2010 when compared to 2009. product sales for salt and specialty fertilizer for the year ended december 31 , 2010 of $ 789.2 million increased $ 85.9 million , or 12 % compared to $ 703.3 million for 2009. salt product sales for the year ended december 31 , 2010 of $ 626.1 million increased $ 39.9 million , or 7 % compared to $ 586.2 million in 2009 while specialty fertilizer product sales of $ 163.1 million increased $ 46.0 million , or 39 % compared to $ 117.1 million in 2009. the increase in salt product sales of $ 39.9 million was due primarily to higher combined pricing for our salt products , which contributed approximately $ 38 million to product sales . in addition , the weakening of the u.s. dollar in 2010 when compared to the prior year exchange rate for the canadian dollar , favorably impacted product sales by approximately $ 13 million . these increases were partially offset by the impact of sales volumes , including unfavorable product mix shifts , of approximately $ 12 million . salt sales volumes in 2010 increased by 294,000 tons from 2009 levels , which included an increase to highway deicing products sales volumes of 400,000 tons and a decrease to consumer and industrial sales volumes of 106,000 tons . highway deicing sales volumes were principally impacted by the effects of winter weather . in the first quarter of 2010 , winter weather was milder than average in several of our important north american regions , especially in our canadian regions around the great lakes , but returned to almost average winter weather conditions in the fourth quarter of 2010. however , our fourth quarter 2010 salt sales volumes were negatively impacted by lower pre-season early-fill contract awards and higher customer carryover inventories of highway and consumer and industrial deicing products in north america . offsetting these declines were increases in early restocking activities by customers in the u.k. following the severe 2009-2010 winter season and robust early u.k. 2010-2011 winter season sales . in comparison , winter weather throughout 2009 was milder than average in our north american regions , which negatively influenced consumer and industrial sales volumes , where our presence is entirely in north america . as a result , the entire consumer and industrial product sales volume decline was related to packaged consumer and industrial deicing products , partially offset by modestly higher non-weather dependent product sales . the increase in specialty fertilizer product sales of $ 46.0 million was due to higher sales volumes as demand rebounded significantly following a prolonged period of uncertainty about broader potash pricing throughout 2009. the higher sop sales volumes were partially offset by lower prices in 2010 as our average market price was $ 518 per ton compared to $ 828 per ton in 2009. gross profit gross profit for the year ended december 31 , 2010 of $ 314.9 million decreased $ 39.2 million , or 11 % compared to $ 354.1 million for 2009. as a percent of sales , gross margin was 29 % in 2010 compared to 37 % in 2009. the gross margin for the salt segment contributed approximately $ 26 million to the decline in gross profit . salt price realization increases were offset by higher per-unit production costs and unfavorable product mix . we had lower salt production for 2010 when compared to 2009 at our cote blanche and goderich mines and at certain consumer and industrial salt plants . a portion of the reduced production related to deicing product inventory management following a mild winter in our primary service area . in addition , the strike at our cote blanche mine in the second quarter of 2010 , the impact of the expansion project at our goderich mine , which included a two-month delay in equipment installation in the third quarter of 2010 and the unplanned repairs and maintenance activities late in the year at both north american rock salt mines , significantly reduced salt production volumes throughout 2010. these 2010 events resulted in significantly higher per-unit production costs when compared to prior year per-unit costs . the gross margin for the sop segment contributed approximately $ 14 million to the decline in gross profit due primarily to significantly lower average sales prices which were partially offset by sharply higher sales volumes . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2010 of $ 88.4 million increased $ 4.5 million or 5 % compared to $ 83.9 million in 2009 , and decreased from 8.7 to 8.3 % as a percentage of sales . the increase in expense is primarily due to investments in personnel to support ongoing growth and productivity initiatives in 2010 when compared to 2009 and higher professional services costs , including costs associated with the acquisition of big quill resources , inc. , which was completed in january 2011. interest expense interest expense for the year ended december 31 , 2010 of $ 22.7 million decreased $ 3.1 million compared to $ 25.8 million for 2009. this decrease is primarily due to lower market interest rates on our unhedged floating-rate debt and the refinancing of approximately $ story_separator_special_tag 31 compass minerals international , inc. 2011 form 10-k year ended december 31 , 2010 compared to the year ended december 31 , 2009 sales sales for the year ended december 31 , 2010 of $ 1,068.9 million increased $ 105.8 million , or 11 % compared to $ 963.1 million for the year ended december 31 , 2009. shipping and handling fees for salt and specialty fertilizer products were $ 268.6 million during the year ended december 31 , 2010 , an increase of $ 19.3 million , or 8 % compared to $ 249.3 million for the year ended december 31 , 2009. the shipping and handling costs increase primarily reflect higher sales volumes for 2010 when compared to 2009. product sales for salt and specialty fertilizer for the year ended december 31 , 2010 of $ 789.2 million increased $ 85.9 million , or 12 % compared to $ 703.3 million for 2009. salt product sales for the year ended december 31 , 2010 of $ 626.1 million increased $ 39.9 million , or 7 % compared to $ 586.2 million in 2009 while specialty fertilizer product sales of $ 163.1 million increased $ 46.0 million , or 39 % compared to $ 117.1 million in 2009. the increase in salt product sales of $ 39.9 million was due primarily to higher combined pricing for our salt products , which contributed approximately $ 38 million to product sales . in addition , the weakening of the u.s. dollar in 2010 when compared to the prior year exchange rate for the canadian dollar , favorably impacted product sales by approximately $ 13 million . these increases were partially offset by the impact of sales volumes , including unfavorable product mix shifts , of approximately $ 12 million . salt sales volumes in 2010 increased by 294,000 tons from 2009 levels , which included an increase to highway deicing products sales volumes of 400,000 tons and a decrease to consumer and industrial sales volumes of 106,000 tons . highway deicing sales volumes were principally impacted by the effects of winter weather . in the first quarter of 2010 , winter weather was milder than average in several of our important north american regions , especially in our canadian regions around the great lakes , but returned to almost average winter weather conditions in the fourth quarter of 2010. however , our fourth quarter 2010 salt sales volumes were negatively impacted by lower pre-season early-fill contract awards and higher customer carryover inventories of highway and consumer and industrial deicing products in north america . offsetting these declines were increases in early restocking activities by customers in the u.k. following the severe 2009-2010 winter season and robust early u.k. 2010-2011 winter season sales . in comparison , winter weather throughout 2009 was milder than average in our north american regions , which negatively influenced consumer and industrial sales volumes , where our presence is entirely in north america . as a result , the entire consumer and industrial product sales volume decline was related to packaged consumer and industrial deicing products , partially offset by modestly higher non-weather dependent product sales . the increase in specialty fertilizer product sales of $ 46.0 million was due to higher sales volumes as demand rebounded significantly following a prolonged period of uncertainty about broader potash pricing throughout 2009. the higher sop sales volumes were partially offset by lower prices in 2010 as our average market price was $ 518 per ton compared to $ 828 per ton in 2009. gross profit gross profit for the year ended december 31 , 2010 of $ 314.9 million decreased $ 39.2 million , or 11 % compared to $ 354.1 million for 2009. as a percent of sales , gross margin was 29 % in 2010 compared to 37 % in 2009. the gross margin for the salt segment contributed approximately $ 26 million to the decline in gross profit . salt price realization increases were offset by higher per-unit production costs and unfavorable product mix . we had lower salt production for 2010 when compared to 2009 at our cote blanche and goderich mines and at certain consumer and industrial salt plants . a portion of the reduced production related to deicing product inventory management following a mild winter in our primary service area . in addition , the strike at our cote blanche mine in the second quarter of 2010 , the impact of the expansion project at our goderich mine , which included a two-month delay in equipment installation in the third quarter of 2010 and the unplanned repairs and maintenance activities late in the year at both north american rock salt mines , significantly reduced salt production volumes throughout 2010. these 2010 events resulted in significantly higher per-unit production costs when compared to prior year per-unit costs . the gross margin for the sop segment contributed approximately $ 14 million to the decline in gross profit due primarily to significantly lower average sales prices which were partially offset by sharply higher sales volumes . selling , general and administrative expenses selling , general and administrative expenses for the year ended december 31 , 2010 of $ 88.4 million increased $ 4.5 million or 5 % compared to $ 83.9 million in 2009 , and decreased from 8.7 to 8.3 % as a percentage of sales . the increase in expense is primarily due to investments in personnel to support ongoing growth and productivity initiatives in 2010 when compared to 2009 and higher professional services costs , including costs associated with the acquisition of big quill resources , inc. , which was completed in january 2011. interest expense interest expense for the year ended december 31 , 2010 of $ 22.7 million decreased $ 3.1 million compared to $ 25.8 million for 2009. this decrease is primarily due to lower market interest rates on our unhedged floating-rate debt and the refinancing of approximately $
| 30 compass minerals international , inc. 2011 form 10-k product sales for salt and specialty fertilizer for the year ended december 31 , 2011 of $ 801.1 million increased $ 11.9 million , or 2 % compared to $ 789.2 million for 2010. salt product sales for the year ended december 31 , 2011 of $ 616.8 million decreased $ 9.3 million , or 1 % compared to $ 626.1 million in 2010 while specialty fertilizer product sales of $ 184.3 million increased $ 21.2 million , or 13 % compared to $ 163.1 million in 2010. the decrease in salt product sales of $ 9.3 million was due primarily to lower net sales prices , which were influenced principally by the impacts of customer mix and contributed approximately $ 12 million to the product sales decline . salt sales volumes in 2011 increased by 155,000 tons or 1 % from 2010 levels , which included an increase to highway deicing products sales volumes of 227,000 tons due to higher sales of rock salt used in chemical applications . however , consumer and industrial salt sales volumes decreased 72,000 tons principally due to lower sales volumes to industrial customers and lower sales of potassium-based water care products . these volume changes combined to decrease salt product sales approximately $ 8 million . in the first quarter of 2011 , we estimated the impact on our salt sales due to winter weather to be near average . while the frequency of winter weather events in the first quarter of 2011 was higher than long-term averages , company inventory constraints limited our ability to capitalize on above-average weather in some regions . however , in the first quarter of 2010 we estimated the impact on salt product sales due to winter weather to have been lower from what would have been reported had winter weather been average . in contrast , during the fourth quarter of 2011 , our primary deicing service regions experienced significantly milder than average winter weather which negatively impacted salt product sales when compared to average winter weather and when compared to the fourth quarter of 2010. the decline in consumer and industrial volumes were principally due to
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we also assess incremental changes in our monthly revenue across our operating segments to identify potential areas for improvement . adjusted ebitda and adjusted ebitda margin we define adjusted ebitda as income from continuing operations before net interest income or expense , depreciation and amortization , income tax benefit or expense , asset impairments , gain or loss on sale of assets , foreign currency gain or loss , stock-based compensation , other non-cash adjustments and unusual or non-recurring charges or credits . adjusted ebitda margin reflects our adjusted ebitda as a percentage of our revenues . we review adjusted ebitda and adjusted ebitda margin on both a consolidated basis and on a segment basis . we use adjusted ebitda and adjusted ebitda margin to assess our financial performance because it allows us to compare our operating performance on a consistent basis across periods by removing the effects of our capital structure ( such as varying levels of interest expense ) , asset base ( such as depreciation and amortization ) and items outside the control of our management team ( such as income tax rates ) . adjusted ebitda and adjusted ebitda margin have limitations as analytical tools and should not be considered as an alternative to net income , operating income , cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with generally accepted accounting principles in the u.s. ( `` gaap '' ) . 33 the following table presents a reconciliation of income from continuing operations to adjusted ebitda , our most directly comparable gaap performance measure , as well as adjusted ebitda margin for each of the periods presented ( in thousands ) : replace_table_token_4_th ( 1 ) represents nonrecurring charges incurred in connection with our ipo , primarily those amounts attributable to the restructuring in advance of the ipo . for a reconciliation of our adjusted ebitda on a segment basis to the most comparable measure calculated in accordance with gaap , see “ —operating segment results. ” safety performance maintaining a strong safety record is a critical component of our operational success . many of our larger customers have safety standards we must satisfy before we can perform services for them . we continually monitor our safety culture through the use of employee safety surveys and trend analysis , and we modify existing programs or develop new programs according to the data obtained . one way to measure safety is by tracking the total recordable incident rate ( “ trir ” ) and the lost time incident rate ( “ ltir ” ) , which are reviewed on both a monthly and rolling twelve-month basis . trir is a measure of the rate of recordable workplace injuries , normalized and stated on the basis of 100 workers for an annual period . the factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 and dividing this value by the total man-hours actually worked in the year . ltir measures the rate of lost time recordable workplace injuries . the factor is derived by multiplying the number of lost time recordable injuries in a calendar year by 200,000 and dividing this value by the total man-hours actually worked in the year . a lost time recordable injury is a work related injury that renders an employee unable to work in any capacity beyond the date of injury . a recordable injury includes occupational death , nonfatal occupational illness , and other occupational injuries that involve loss of consciousness , restriction of work or motion , transfer to another job , or medical treatment other than first aid . the table below presents our worldwide trir and ltir for the years ended december 31 , 2014 , 2013 and 2012 : replace_table_token_5_th 34 results of operations the following table presents our consolidated results for the periods presented ( in thousands ) : replace_table_token_6_th ( 1 ) consolidated products revenue includes a small amount of revenues attributable to the u.s. services and international services segments . story_separator_special_tag compensation expense of $ 7.2 million , other non-income based taxes of $ 5.5 million and $ 4.0 million of public company expenses ( of which $ 3.4 million was of a non-recurring nature ) also contributed to the increase . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2013 increased by $ 12.3 million , or 18.6 % , to $ 78.1 million from $ 65.8 million for the year ended december 31 , 2012 . the increase was primarily attributable to a higher depreciable base resulting from property and equipment additions . other income . other income for the year ended december 31 , 2013 decreased by $ 2.7 million , or 22.4 % , to $ 9.5 million from $ 12.2 million for the year ended december 31 , 2012 . the decrease was due to a $ 4.0 million gain on the exchange of an investment and $ 4.9 million in death benefit proceeds from the passing of a related party received in 2012 , partially offset by the receipt in 2013 of $ 3.9 million in additional royalties , a $ 1.6 million value-added tax refund and a workmen 's compensation dividend of $ 1.1 million . foreign currency loss . foreign currency loss for the year ended december 31 , 2013 increased by $ 2.1 million to $ 2.6 million from $ 0.5 million for the year ended december 31 , 2012 . the increase in foreign currency loss was due to unfavorable fluctuations in foreign currency exchange rates . income tax expense . income tax expense for the year ended december 31 , 2013 increased by $ 6.9 million , or 21.5 % , to $ 38.7 million from $ 31.9 million for the year ended december 31 , 2012 primarily due to our domestic operations becoming taxable subsequent to our ipo , as well as a change in mix of earnings among countries with different rates . story_separator_special_tag we are subject to many u.s. and foreign tax jurisdictions and many tax agreements and treaties among the various taxing authorities . our operations in these different jurisdictions are taxed on various bases such as income before taxes , deemed profits ( which is generally determined using a percentage of revenues rather than profits ) , and withholding taxes based on revenues ; consequently , the relationship between our pre-tax income or loss from operations and our income tax benefit or provision varies from period to period . income from discontinued operations . the discussions above reflect only continuing operations for the years ended december 31 , 2013 and 2012. during the year ended december 31 , 2013 , we recognized a gain of $ 39.6 million upon the sale of a component of our tubular sales segment . see note 3 in the notes to consolidated financial statements . 37 operating segment results the following table presents revenues and adjusted ebitda by segment , and a reconciliation of adjusted ebitda to net income from continuing operations , which is the most comparable gaap financial measure ( in thousands ) : replace_table_token_7_th ( 1 ) corporate and other represents amounts not directly associated with an operating segment . ( 2 ) adjusted ebitda is a supplemental non-gaap financial measure that is used by management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies . year ended december 31 , 2014 compared to year ended december 31 , 2013 international services revenue for the international services segment increased by $ 60.2 million , or 12.6 % , compared to 2013 , primarily as a result of extended and renewed contracts in west africa , expansion of our product placement in europe and increasing our market share in the far east and middle east , partially offset by a decrease in latin america due to the termination of certain contracts in late 2013. adjusted ebitda for the international services segment increased by $ 31.8 million , or 16.0 % , compared to 2013 , primarily due to the revenue increase of $ 60.2 million and a $ 16.4 million decrease in bad debt expense , partially offset by increases in compensation related costs of $ 17.9 million , freight and transportation costs of $ 5.0 million , product costs of $ 4.6 million , equipment rentals of $ 3.5 million , custom duty charges of $ 3.4 million , business and travel expenses of $ 3.1 million , rent and warehouse expense of $ 2.5 million , crew expenses of $ 1.8 million , employee benefits and insurance of $ 0.9 million as well as smaller increases in various other costs of $ 2.1 million . 38 u.s. services revenue for the u.s. services segment increased by $ 7.9 million , or 1.7 % , compared to 2013 . our offshore revenue increased $ 9.9 million as a result of increased activity from our customers but was partially offset by drilling delays , rig-related issues and ocean currents lasting longer than previous years . onshore revenue decreased $ 2.0 million due to delays in the renewal of contracts in the first half of 2014 and the exit of customers who switched their concentration to other regions in the u.s. adjusted ebitda for the u.s. services segment decreased by $ 17.9 million , or 9.0 % , compared to 2013 as a result of higher compensation related costs of $ 14.7 million , repairs and maintenance of $ 5.3 million , medical claims of $ 4.2 million , rent expense of $ 0.9 million and smaller increases in several other costs of $ 0.7 million . these increases were partially offset by the $ 7.9 million increase in revenue . tubular sales revenue for the tubular sales segment increased by $ 1.5 million , or 0.6 % , compared to 2013 , primarily due to an increase in customer external pipe sales of $ 8.2 million offset by a decrease in manufactured equipment sales to the international services and u.s. services segments of $ 6.7 million . adjusted ebitda for the tubular sales segment decreased by $ 2.3 million , or 5.6 % , compared to 2013 , primarily as a result of higher tool inspection costs of $ 1.3 million , rent expense of $ 1.2 million and repairs and maintenance of $ 0.9 million , as well as various other costs of $ 0.4 million , partially offset by the revenue increase of $ 1.5 million . year ended december 31 , 2013 compared to year ended december 31 , 2012 international services revenue for the international services segment increased by $ 9.1 million , or 1.9 % , compared to 2012 , primarily as a result of an increased demand for our services in west africa , the middle and far east and canada . we experienced decreases in latin america due to the termination of certain contracts and in europe due to the uncertainty of exportation limits in israel . adjusted ebitda for the international services segment decreased $ 19.6 million , or 8.9 % , compared to 2012 , primarily due to an increase in bad debt expense of $ 13.8 million due to the political and economic turmoil in venezuela and the filing of bankruptcy by a customer in brazil . in addition , compensation related costs of $ 11.9 million and other non-income based taxes of $ 2.9 million contributed to the decrease , which was partially offset by the $ 9.1 million increase in revenue . u.s. services revenue for the u.s. services segment increased $ 10.9 million , or 2.5 % , compared to 2012 , due to $ 32.3 million of higher offshore revenue from our lafayette and houma locations , which provide primarily offshore services . this increase was partially offset by a decrease of $ 19.8 million from our onshore office locations .
| million related to 2013 , which corrected the amortization of expense related to retirement-eligible employees ( see note 1 in the notes to consolidated financial statements for additional detail ) . c ompensation related costs of $ 14.1 million , medical claims of $ 3.5 million , professional fees of $ 3.5 million , rent and utilities expense of $ 3.2 million and insurance costs of $ 1.9 million also contributed to the increase as well as smaller decreases in several other costs of $ 0.8 million . the increase in all other costs is primarily attributable to incurring public company costs for a full year in 2014 compared to only four months in 2013. these increases were partially offset by a decrease in bad debt expense of $ 15.6 million . depreciation and amortization . depreciation and amortization for the year ended december 31 , 2014 increased by $ 12.0 million , or 15.3 % , to $ 90.0 million from $ 78.1 million for the year ended december 31 , 2013 . the increase was primarily attributable to a higher depreciable base resulting from property and equipment additions . other income . other income for the year ended december 31 , 2014 decreased by $ 2.7 million , or 28.8 % , to $ 6.7 million from $ 9.5 million for the year ended december 31 , 2013 . the decrease was primarily attributable to lower royalties received in 2014. foreign currency loss . foreign currency loss for the year ended december 31 , 2014 increased by $ 14.5 million to $ 17.0 million from $ 2.6 million for the year ended december 31 , 2013 . the increase in foreign currency loss was primarily due to foreign currency losses in venezuela of $ 13.0 million ( see note 1 in the notes to consolidated financial statements for additional detail ) in addition to unfavorable fluctuations of $ 1.5 million in other foreign currency rates . income tax
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during the third quarter of 2016 , we began consolidating rambler on as a vie , which was acquired by ycd , our wholly owned subsidiary , during 2017 ; · price reductions on several hard cooler , soft cooler , and drinkware products to reposition these products in the market to create pricing space for planned new product introductions , which reduced gross margin by approximately 160 basis points ; · additional costs related to reworking certain drinkware finished goods inventories to add color as well as customization , which reduced gross margin by approximately 130 basis points ; and · disposition of certain prior generation , excess end-of-life soft cooler inventories through a peripheral bulk sales channel at a low gross margin , which reduced gross margin by approximately 90 basis points . these factors , which contributed to the aggregate reduction of consolidated gross margin , were partially offset by the favorable impact of : · reduced air freight on incoming drinkware product deliveries as a percentage of net sales in fiscal 2017 versus fiscal 2016 , which favorably impacted gross margin by approximately 250 basis points ; and · an increase in the mix of higher margin dtc net sales in fiscal 2017 compared to fiscal 2016 , which favorably impacted gross margin by approximately 80 basis points . selling , general , and administrative expenses replace_table_token_8_th sg & a decreased $ 95.1 million , or 29 % , to $ 230.6 million in fiscal 2017 , compared to $ 325.8 million in fiscal 2016. as a percentage of net sales , sg & a decreased to 36.1 % in 2017 from 39.8 % in 2016. the decrease in sg & a was primarily driven by a non-recurring charge to non-cash stock-based compensation of $ 104.4 million recognized in the first quarter of 2016 , resulting from the accelerated vesting of certain outstanding stock options . after adjusting for the non-recurring charge to non-cash stock-based compensation expense , sg & a increased by $ 9.3 million in fiscal 2017. the increase in sg & a was driven primarily by increases in the following : amazon marketplace fees of $ 16.8 million ; costs for outsourced warehousing and logistics and outbound freight of $ 8.1 million ; depreciation and amortization of $ 5.3 million ; and information technology expenses of $ 4.0 million . these sg & a increases were partially offset by a $ 15.8 million reduction in professional fees , largely related to our fiscal 2016 ipo preparation , and a $ 12.7 million reduction in marketing expense . non-operating expenses interest expense was $ 32.6 million in fiscal 2017 , compared to $ 21.7 million in fiscal 2016. the increase in interest expense was primarily due to additional long-term indebtedness incurred under the credit facility in may 2016 . 35 other income was $ 0.7 million in fiscal 2017 , compared to other expense of $ 1.2 million in fiscal 2016. other income in fiscal 2017 related to settlements received in certain actions to enforce our intellectual property in excess of amounts netted against related intangibles . other expense in fiscal 2016 related to losses on early retirement of debt , primarily from unamortized deferred financing costs on our prior credit facility , which was outstanding at the time of repayment in may 2016. income tax expense was $ 16.7 million in fiscal 2017 compared to $ 16.5 million in fiscal 2016. the effective tax rate increased to 52 % in 2017 from 25 % in fiscal 2016. we recognized additional income tax expense of $ 5.7 million in fiscal 2017 , primarily due to the revaluation of our net deferred tax assets based on the enactment of the tax act . in addition , income tax expense was lower than usual in fiscal 2016 due to a higher benefit from the research and development credit and the consolidation of rambler on as a variable interest entity . rambler on was a partnership , and as a nontaxable pass-through entity , no income tax was recorded on its income . non-gaap financial measures we define adjusted operating income and adjusted net income as operating income and net income , respectively , adjusted for non-cash stock-based compensation expense , asset impairment charges , investments in new retail locations and international market expansion , transition to cortec majority ownership , transition to the ongoing senior management team , and transition to a public company , and , in the case of adjusted net income , also adjusted for accelerated amortization of deferred financing fees and the loss from early extinguishment of debt resulting from early prepayments of debt , and the tax impact of all adjustments . adjusted net income per share is calculated using adjusted net income , as defined above , and diluted weighted average shares outstanding . we define adjusted ebitda as net income before interest expense , net , provision ( benefit ) for income taxes and depreciation and amortization , adjusted for the impact of certain other items , including : non-cash stock-based compensation expense ; asset impairment charges ; accelerated amortization of deferred financing fees and loss from early extinguishment of debt resulting from the early prepayment of debt ; investments in new retail locations and international market expansion ; transition to cortec majority ownership ; transition to the ongoing senior management team ; and transition to a public company . the expenses incurred related to these transitional events include : management fees and contingent consideration related to the transition to cortec majority ownership ; severance , recruiting , and relocation costs related to the transition to our ongoing senior management team ; consulting fees , recruiting fees , salaries and travel costs related to members of our board of directors , fees associated with sarbanes-oxley act compliance , and incremental audit and legal fees in connection with our transition to a public company . all of these transitional costs are reported in sg & a expenses . story_separator_special_tag adjusted operating income , adjusted net income , adjusted net income per diluted share , and adjusted ebitda are not defined by gaap and may not be comparable to similarly titled measures reported by other entities . we use these non-gaap measures , along with gaap measures , as a measure of profitability . these measures help us compare our performance to other companies by removing the impact of our capital structure ; the effect of operating in different tax jurisdictions ; the impact of our asset base , which can vary depending on the book value of assets and methods used to compute depreciation and amortization ; the effect of non-cash stock-based compensation expense , which can vary based on plan design , share price , share price volatility , and the expected lives of equity instruments granted ; as well as certain expenses related to what we believe are events of a transitional nature . we also disclose adjusted operating income , adjusted net income , and adjusted ebitda as a percentage of net sales to provide a measure of relative profitability . we believe that these non-gaap measures , when reviewed in conjunction with gaap financial measures , and not in isolation or as substitutes for analysis of our results of operations under gaap , are useful to investors as they are widely used measures of performance and the adjustments we make to these non-gaap measures provide investors further insight into our profitability and additional perspectives in comparing our performance to other companies and in comparing our performance over time on a consistent basis . adjusted operating income , adjusted net income , and adjusted ebitda have limitations as profitability measures in that they do not include the interest expense on our debts , our provisions for income taxes , and the effect of our expenditures for capital assets and certain intangible assets . in addition , all of these non-gaap measures have limitations as profitability measures in that they do not include the effect of non-cash stock-based compensation expense , the effect of asset impairments , the effect of investments in new retail locations and international market expansion , and the impact of certain expenses related to transitional events that are settled in cash . because of these limitations , we rely primarily on our gaap results . in the future , we may incur expenses similar to those for which adjustments are made in calculating adjusted operating income , adjusted net income , and adjusted ebitda . our presentation of these non-gaap measures should not be construed as a basis to infer that our future results will be unaffected by extraordinary , unusual or non-recurring items . 36 the following table reconciles operating income to adjusted operating income , net income to adjusted net income , and net income to adjusted ebitda for the periods indicated ( in thousands ) : replace_table_token_9_th _ ( 1 ) these costs are reported in sg & a expenses . ( 2 ) represents retail store pre-opening expenses and costs for expansion into new international markets . ( 3 ) represents management service fees paid to cortec , our majority stockholder . the management services agreement with cortec was terminated immediately following the completion of our ipo . ( 4 ) represents severance , recruiting , and relocation costs related to the transition to our ongoing senior management team . 37 ( 5 ) represents fees and expenses in connection with our transition to , and prior to our becoming , a public company , including consulting fees , recruiting fees , salaries , and travel costs related to members of our board of directors , fees associated with sarbanes-oxley act compliance , and incremental audit and legal fees associated with being a public company . the 2017 activity primarily consists of the reversal of a previously recognized consulting fee that was contingent upon the completion of our ipo attempt during 2016 . ( 6 ) represents the loss on extinguishment of debt of $ 0.7 million and accelerated amortization of deferred financing fees of $ 0.6 million resulting from the voluntary repayments and prepayments of the term loans under our credit facility . during the fourth quarter of fiscal 2018 , we voluntarily repaid in full the $ 47.6 million outstanding balance of the term loan b ( as defined below ) and made a voluntary repayment of $ 2.4 million to the term loan a ( as defined below ) . during the third quarter of fiscal 2018 , we made a voluntary prepayment of $ 30.1 million to the term loan b. as a result of the voluntary repayment of the term loan b prior to its maturity on may 19 , 2022 , we recorded a loss from extinguishment of debt relating to the write-off of unamortized financing fees associated with the term loan b . ( 7 ) represents the tax impact of adjustments calculated at an expected statutory tax rate of 23.3 % for fiscal 2018 . ( 8 ) depreciation and amortization expenses are reported in sg & a expenses and cost of goods sold . liquidity and capital resources our cash requirements have principally been for working capital purposes , long-term debt repayments , and capital expenditures . we fund our working capital , primarily inventory , and accounts receivable , and capital investments from cash flows from operating activities , cash on hand , and borrowings available under our revolving credit facility ( as defined below ) . as of december 29 , 2018 , we had $ 29.6 million of working capital ( excluding cash ) , a cash balance of $ 80.1 million , and $ 80.0 million available for borrowing under our revolving credit facility . the recent changes in our working capital requirements generally reflect the growth in our business .
| 32 · coolers & equipment net sales increased $ 19.0 million , or 6 % , to $ 331.2 million in fiscal 2018 from $ 312.2 million in fiscal 2017. the increase in coolers & equipment net sales was primarily driven by the expansion of our hard cooler and soft cooler products , as well as the introduction of several new storage , transport , and outdoor living products during fiscal 2018. gross profit replace_table_token_4_th gross profit increased $ 88.5 million , or 30 % , to $ 383.1 million in fiscal 2018 from $ 294.6 million in fiscal 2017. gross margin increased 310 basis points to 49.2 % in fiscal 2018 from 46.1 % in fiscal 2017. the increase in gross margin was primarily driven by the following : · leveraging fixed costs on higher net sales , which favorably impacted gross margin by approximately 180 basis points ; · cost improvements across our product portfolio , which favorably impacted gross margin by approximately 170 basis points ; · charges incurred in 2017 for inventory reserves that were not repeated in 2018 , which favorably impacted gross margin by approximately 150 basis points ; · increased higher-margin dtc channel sales , which favorably impacted gross margin by approximately 110 basis points ; · charges incurred in 2017 for pricing actions related to our first-generation hopper that were not repeated in 2018 , which favorably impacted gross margin by approximately 30 basis points ; and · decreased provisions for sales returns in 2018 compared to 2017 , which favorably impacted gross margin by approximately 30 basis points the above increases in gross margin were partially offset by price reductions on select hard cooler , soft cooler , and drinkware products in the second half of 2017 and in 2018 to reposition these products in the market to create pricing space for new product introductions , which reduced gross margin by approximately 360 basis points in 2018. selling , general , and administrative expenses replace_table_token_5_th sg & a expenses increased by $ 50.3 million , or 22 % , to $ 281.0 million in fiscal 2018 from $ 230.6 million in fiscal 2017. as a percentage of net sales , sg & a expenses
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the note is non-interest bearing , unsecured and due on the earliest of ( i ) the closing of the business combination , ( ii ) 30 days after the date on which the stock purchase agreement is terminated in accordance with its terms and ( iii ) september 12 , 2019. the company intends to repay the note from the proceeds of the equity financing provided pursuant to the subscription agreements . subscription agreements concurrently with the execution of the stock purchase agreement , one madison entered into subscription agreements with the subscribing parties for the purchase and sale of 14,200,000 shares of the company 's class a shares , par value $ 0.0001 per share , or class c shares , par value $ 0.0001 per share , for an aggregate purchase price of $ 142 million . the closing of the transactions contemplated by the subscription agreements will occur immediately prior to the completion of the business combination . the funding of such amounts is subject to customary conditions , including the satisfaction or waiver of the conditions to closing set forth in the stock purchase agreement . the subscription agreements automatically terminate upon the termination of the stock purchase agreement or upon the mutual written consent of the company and the subscribing parties . fpa assignment and assumption agreement concurrently with the execution of the stock purchase agreement , mr. asali , the assignor , entered into the fpa assignment and assumption agreement with gerard griffin , a managing director of the sponsor , pursuant to which the assignor , on the terms and subject to the conditions set forth therein , ( i ) assigned to mr. griffin the right and obligation to acquire 350,000 class a shares and 116,677 warrants to purchase class a shares under the terms of the assignor 's forward purchase agreement and ( ii ) sold to mr. griffin 87,500 class b shares at the same price per share at which the assignor purchased such class b shares from the company . the assignment contemplated by the fpa assignment and assumption agreement does not relieve the assignor of his obligations with respect to the portion of the forward purchase agreement commitment assigned thereunder . mr. griffin agreed to waive any claim ( as defined in the forward purchase agreement ) in or to any distributions by the company from the trust account and agreed not to seek recourse against the trust account for any reason whatsoever . finally , mr. griffin acknowledged and agreed to the transfer restrictions on the class b shares under the fpa pursuant to which the assignor acquired the class b shares from the company . 44 reallocation agreement on november 12 , 2018 , subsequently amended concurrently with the execution of the stock purchase agreement , the company entered into the reallocation agreement with the parties to the forward purchase agreements for the business combination under the forward purchase agreements and the subscription agreements , pursuant to which the class b shares issued and the rights to acquire warrants to purchase class a shares arising under the forward purchase agreements have been reallocated among all equity financing sources , including two new equity sources , one of whom is a related party , on a pro rata basis on the aggregate amount of equity financing provided by such equity financing source under the forward purchase agreements and the subscription agreements . the reallocation was effective as of the execution of the stock purchase agreement . on november 12 , 2018 , subsequently amended concurrently with the execution of the stock purchase agreement , the company entered into the fpa consent with parties to the forward purchase agreements , as amended , dated october 5 , 2017 and amended on december 15 , 2017 and january 5 , 2018 , that have committed to purchase substantially all of the forward purchase shares pursuant to which , among other things , the consenting fpa parties consented to the entry into the stock purchase agreement . class b share consent concurrently with the execution of the stock purchase agreement , shareholders holding more than two-thirds of the company 's class b shares , par value $ 0.0001 per share ( “ class b shares ” ) , entered into a consent ( the “ class b share consent ” ) pursuant to which such shareholders , on behalf of themselves and all other holders of class b shares , waived the anti-dilution protection benefiting the class b shares under the terms of the company 's amended and restated memorandum and articles of association ( “ charter ” ) with respect to ( i ) the class a shares and class c shares to be issued pursuant to the subscription agreements and ( ii ) any class a shares or class c shares to be issued by the company in connection with the exchange of any of the company 's outstanding private placement warrants . as such , assuming no other equity securities are issued in connection with the business combination and assuming no redemption of class a shares by the company 's shareholders , on the business day following the consummation of the business combination , each class b share will convert into one class a share or class c share as applicable . initial public offering on january 22 , 2018 , we consummated our initial public offering ( the “ initial public offering ” ) of 30,000,000 units . each unit consists of one class a ordinary share and one-half of one warrant . each whole warrant entitles the holder thereof to purchase one class a ordinary share at a price of $ 11.50 per share . story_separator_special_tag the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds , before expenses , of $ 300,000,000. prior to the consummation of the initial public offering , the sponsor purchased 8,625,000 class b shares for an aggregate purchase price of $ 25,000 , or approximately $ 0.003 per share , and the company 's founder , omar m. asali , along with the anchor investors purchased 3,750,000 class b shares for an aggregate purchase price of $ 37,500 , or approximately $ 0.01 per share . the founder shares were issued to the anchor investors in connection with their agreement to purchase an aggregate of 15,000,000 ordinary shares ( 13,025,000 class a shares and 1,975,000 class c shares ) , plus an aggregate of 5,000,000 redeemable warrants for $ 10.00 per share , for an aggregate purchase price of $ 150,000,000 , in a private placement to occur concurrently with the closing of the initial business combination . we also entered into the strategic partnership agreement , pursuant to which the sponsor transferred 525,000 founder shares to bsof master fund l.p. , a cayman islands exempted limited partnership , and bsof master fund ii l.p. , a cayman islands exempted limited partnership , both affiliates of the blackstone group l.p. 45 in january 2018 , the sponsor transferred 240,000 founder shares to the company 's independent directors at their original purchase price . subsequently 60,000 of the 240,000 founder shares were forfeited back to the sponsor due to the resignation of one of the company 's directors in may 2018. in march 2018 , following the expiration of the underwriters ' over-allotment option granted in the initial public offering , the sponsor surrendered 1,125,000 class b shares to the company for no consideration , which the company cancelled . in october 2018 , the sponsor sold 100,000 founder shares to the company 's chief financial officer and 423,000 founder shares to certain employees of the sponsor for aggregate consideration of $ 3,138 , or $ 0.006 per share . as of december 31 , 2018 , the sponsor owned 6,272,000 class b shares . upon execution of the forward purchase agreements , each anchor investor elected to receive a fixed number of class a shares or class c shares . the class c shares have identical terms as the class a shares , except the class c shares do not grant their holders any voting rights . our amended and restated memorandum and articles of association provide that , following the consummation of our initial business combination , the class c shares may be converted into class a shares on a one-for-one basis at the election of the holder with 65 days ' written notice or upon the transfer of such class c ordinary share to a non-affiliate of the holder . pursuant to the strategic partnership agreement , the bsof entities have agreed to act as our strategic partner and may provide debt or equity financing in connection with our initial business combination but are not required to do so . the founder shares held by the bsof entities are subject to certain transfer restrictions , forfeiture and earnout provisions similar to those imposed upon our sponsor and the anchor investors . if we seek shareholder approval of our initial business combination , the bsof entities have agreed to vote any founder shares they may own in favor of such initial business combination . the bsof entities may designate one observer to our board of directors until the consummation of our initial business combination . the bsof entities have also separately purchased an aggregate of 560,000 private placement warrants , at a price of $ 1.00 per warrant , in the initial private placement . such private placement warrants have the same terms and conditions as those purchased by our anchor investors . the bsof entities will be entitled to registration rights with respect to any ordinary shares and warrants held by them . we believe that the combination of capital provided by our anchor investors and a strategic partnership with the bsof entities will provide us with a material advantage in effecting an initial business combination . simultaneously with the closing of the initial public offering , the company consummated the initial private placement of 8,000,000 private placement warrants , each exercisable to purchase one class a ordinary share or class c ordinary share , as applicable , at $ 11.50 per share , at a price of $ 1.00 per private placement warrant , generating gross proceeds of $ 8,000,000. upon the closing of the initial public offering and the initial private placement , $ 300,000,000 ( $ 10.00 per unit ) from the net proceeds thereof was placed in a u.s.-based trust account at morgan stanley & co. , maintained by continental stock transfer & trust company , acting as trustee , and is invested in a money market fund selected by the company until the earlier of : ( i ) the completion of the initial business combination or ( ii ) the redemption of the company 's public shares if the company is unable to complete a business combination within 24 months from the closing of the initial public offering , subject to applicable law . after the payment of underwriting discounts and commissions ( excluding the deferred portion of $ 10,500,000 in underwriting discounts and commissions , which amount will be payable upon consummation of our initial business combination if consummated ) and approximately $ 1,000,000 in expenses relating to the initial public offering , approximately $ 1,000,000 of the net proceeds of the initial public offering and initial private placement was not deposited into the trust account and was retained by us for working capital purposes . the net proceeds deposited into the trust account remain on deposit in the trust account earning interest .
| subject to the terms and conditions set forth in the stock purchase agreement , the company has agreed to pay to seller at the closing of the business combination $ 950,000,000 in cash in consideration for the acquisition of rack holdings , which amount will be ( i ) adjusted by the difference between the net working capital of rack holdings and its subsidiaries as of closing as measured against normalized level of working capital of $ 22,000,000 ( which could be a downward or upward adjustment ) , ( ii ) increased by the amount of cash of rack holdings and its subsidiaries as of closing and ( iii ) reduced by the amount of debt and unpaid transaction expenses of rack holdings and its subsidiaries as of closing . the purchase price paid at closing will be based on an estimate of the amount of the foregoing adjustments and will be subject to a customary post-closing true-up . on january 24 , 2019 , we entered into the stock purchase agreement amendment with seller and rack holdings , pursuant to which , the closing cash consideration is payable in immediately available funds as follows : ( x ) 140,000,000 in euros ( which payment shall be credited against the closing cash consideration in an amount equal to $ 160,825,000 based on an agreed currency exchange ratio of 1.00:1.14875 eur : usd ) and ( y ) an amount in u.s. dollars equal to the closing cash consideration less the euro payment credit . 42 financing for the business combination and for related transaction expenses is expected to consist of ( i ) $ 300,000,000 of proceeds from the company 's initial public offering on deposit in the trust account ( plus any interest income accrued thereon since the initial public offering ) , net of any redemptions of the company 's ordinary shares in connection with the shareholder vote to be held in connection with the transactions contemplated by the stock purchase agreement , ( ii ) $ 150,000,000 of proceeds from the forward purchase agreements entered into in connection with the initial public offering , ( iii ) $ 142,000,000 of proceeds from subscription agreements entered into on december 12 , 2018 in connection with the business combination and ( iv ) up to $ 650,000,000 of
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the court approved disclosure statement summarized hdl 's proposed plan , which provides that all allowed administrative expense claims will be paid in full and that all allowed general unsecured claims will be paid their pro rata portion of funds in a liquidating trust . a hearing to consider confirmation of the plan was held on march 29 , 2016. to the extent the plan is confirmed and our administrative expense claim is allowed , we will receive a full distribution on account of such claim from hdl in the amount of $ 83,356.52 , however , it is uncertain when hdl will make such distribution . further , to the extent the plan is confirmed , it is , as yet , uncertain what distribution , if any , will be made to us on account of our general unsecured claim to offset our provision for doubtful accounts of $ 151,000 on account of allowed claims related to the sale of bgm galectin-3 test kits to hdl prior to their filing for bankruptcy protection under chapter 11. hdl , now true health diagnostics , accounted for 71 % of our product revenues for the fiscal year ended december 31 , 2015. we have evolved from a research and development company to a commercial diagnostics company . our initial transition to a commercial organization began with the fda 510 ( k ) clearance of our first diagnostic product , the bgm galectin-3 test , in november 2010. the first stage of transition was substantially completed in the first half of 2013 with the elimination of research and development activities no longer core to our commercial strategy . the second stage of transition was initiated in anticipation of the u.s. introduction of automated testing for galectin-3 and the commencement of commercialization activities by our automated partners . in order to reduce operating expenses and extend our cash runway in anticipation of the commercial launch of automated testing for galectin-3 , we implemented a reduction in our workforce on september 11 , 2014. in so doing , we primarily eliminated our sales and marketing organizations and removed certain positions in other function areas , while preserving some senior management and other critical roles to support the clinical and commercial adoption of galectin-3 testing by providing support to the marketing and selling efforts of our automated partners , by providing support to clinical research studies that have incorporated galectin-3 testing and by expanding the bgm galectin-3 test 's labeling indications for use through additional clinical studies and clearances by the fda . given the significant cost and resource demands of being a public company , we have determined that it is advisable to terminate the registration of our common stock under the exchange act . we anticipate filing a form 15 with the sec to effect the deregistration in april 2016. after careful consideration , the board of directors decided to deregister based on its belief that the savings we will achieve as a result of deregistration , particularly on costs related to the preparation and filing of sec reports and compliance with sarbanes-oxley obligations , will benefit stockholders , and such benefits will outweigh any advantages of continuing as an sec reporting company . upon the filing of the form 15 , our obligation to file periodic and current reports with the sec , including forms 10-k , 10-q , and 8-k , will be suspended . 53 critical accounting policies and significant judgments and estimates 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 accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates based on historical experience and make various assumptions , which we believe to be reasonable under the circumstances , which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . a summary of our significant accounting policies is contained in the notes to our audited consolidated financial statements , which are included elsewhere in this annual report on form 10-k. we consider our revenue recognition accounting policies to be critical to the understanding of the results of our operations . revenue recognition revenue is recognized when the following criteria have been met : ( i ) persuasive evidence of an arrangement exists ; ( ii ) delivery has occurred and risk of loss has passed ; ( iii ) the seller 's price to the buyer is fixed or determinable , and ; ( iv ) collectability is reasonably assured . revenues we recognize four classes of revenues . product revenues are comprised of payments made to us from the sale of our products to laboratory testing services , hospitals and clinics and diagnostic testing distributors . partnership and product fee revenues are comprised of payments made to us by our automated partners in consideration for the rights and licenses granted by us to our automated partners . service revenues have historically been generated through initiatives , collaborations and biomarker discovery and analysis service agreements . product revenues we sell our products through supply agreements with laboratory testing services and diagnostic testing distributors and directly to hospitals and clinics . we recognize revenue when products are received by customers , at which time both title and risk of loss have passed to the customers . we negotiate credit terms on a customer-by-customer basis and products are shipped at an agreed-upon price . revenues are recorded net of taxes collected from customers that are remitted to governmental authorities , with the collected taxes recorded as current liabilities until remitted to the relevant government authority . story_separator_special_tag freight costs billed to customers are recorded as revenue . we do not currently provide an allowance for sales returns as returns are only allowed for defects in workmanship . allowances for doubtful accounts are provided for those outstanding balances considered to be uncollectible based upon historical experience and management 's evaluation of the outstanding balances at year end . partnership revenues partnership revenues are comprised of payments made to us by our automated partners in consideration for modifications made to our license and distribution agreements or in consideration for achievement of specified commercial milestones . these payments are non-refundable and not to be applied against future product fees owed to us . in the case of contract modifications , we recognize revenue upon receipt of the payments or deferred over an appropriate period based on the nature of the underlying contract changes . we recognize revenue in consideration for achievement of specified commercial milestones as the milestones are met or exceeded . 54 product fee revenues product fee revenues are comprised of contractual payments made to us as consideration for the rights and licenses granted by us to our automated partners . abbott and biomérieux pay to us a product fee , as set forth in their respective agreements , for tests sold to third parties . service revenues our revenues have historically been generated through initiatives , collaborations and biomarker discovery and analysis services agreements . the services we provide under these agreements typically include the integrated analysis of preclinical and or clinical samples to identify biomarkers related to disease mechanisms . in some cases , we have retained certain intellectual property rights to the biomarkers identified in the course of these arrangements . the revenue arrangements have a stated term and we have no obligations or ongoing commitments after the specified term of the arrangement . we did not record service revenues in 2014 or 2015 and do not expect to record service revenues in 2016 or beyond . revenues generated from collaborations and initiatives include revenue from research services and technology licensing agreements . under these arrangements , we are contractually obligated to provide research services and project oversight and administration . the rights to the results of the research , including any intellectual property developed , are licensed to all the members of the collaboration at the inception of the arrangement . we have accounted for all deliverables , which include the research services , oversight and administration and the rights to the intellectual property developed , as a single unit of accounting as there is no standalone value to the individual elements . we consider the terms and conditions of each agreement and recognize revenues based upon a proportional performance methodology . this methodology involves recognizing revenue over the term of the agreement , as underlying research costs are incurred , and measured on the basis of input measures such as labor or instrument hours expended . we believe that these input measures approximate the output measures as the costs incurred are directly proportional to the services that are being provided . we make adjustments , if necessary , to the estimates used in its calculations as work progresses and as such changes are known . the principal costs under these agreements are for personnel and instrumentation expenses to conduct research and development but also include costs for materials and other direct and indirect items necessary to complete the research under these agreements . actual results may vary from our estimates . payments received on uncompleted long-term contracts may be greater than incurred costs and estimated earnings and have been recorded as deferred revenues in the accompanying consolidated balance sheets . payments received prior to commencement of a contract are recorded as customer deposits . story_separator_special_tag primarily derived from sales of our bgm galectin-3 test . our product revenues have been concentrated with a small number of laboratory providers generating a significant percentage of our revenues in any given reporting period . as a result , the timing of orders from these customers may fluctuate significantly from month to month and quarter to quarter . product revenues are comprised primarily of sales of our bgm galectin-3 test and decreased in 2014 by $ 937,000 , to $ 2.7 million from $ 3.6 million in 2013. the decrease in product revenues resulted primarily from a 18 % decline in orders from our largest customer . product fee revenues are comprised of contractual payments made to us as consideration for the rights and licenses granted by us to our automated partners . abbott and biomérieux pay to us a product fee , as set forth in their respective agreements , for tests sold to third parties . product fee revenues increased in 2014 by $ 41,000 , to $ 89,000 from $ 48,000 in 2013. the increase resulted primarily from increased sales by abbott . service revenues our service revenues have historically been generated through initiatives , collaborations and biomarker discovery and analysis services agreements . the services we provided under these agreements typically included the integrated analysis of preclinical and or clinical samples to identify biomarkers related to disease mechanisms . in some cases , we retained certain intellectual property rights to the biomarkers identified in the course of these arrangements . the revenue arrangements had a stated term and we had no obligations or ongoing commitments after the specified term of the arrangement . service revenues were primarily attributable to the activities from the hrp initiative , for which all revenue has been recorded as of december 31 , 2013. we did not record any service revenue in 2014 or 2015 and do not expect to record service revenue in 2016 or beyond .
| in 2015 and 2014 , our top three customers accounted for approximately 86 % and 88 % , respectively , of our galectin-3 test sales , of which our single largest customer accounted for 73 % and 80 % , respectively . because of concentration in the number of our customers , the timing of orders of our galectin-3 test may fluctuate significantly from month to month and quarter to quarter . product and product fee costs our product and product fee costs consist of expenses related to our bgm galectin-3 test and product fees . these expenses include the contract-manufacturing of the tests , the medical device excise tax , freight and royalty expenses payable to the licensor of certain intellectual property relating to galectin-3 based on revenues generated from sales of the test and product fees received from our automated partners . product costs exclude depreciation and amortization included in operating expenses below . replace_table_token_5_th product and product fee costs decreased by $ 451,000 , to $ 505,000 in 2015 as compared to $ 956,000 in 2014. the decrease in product and product fee costs was commensurate with the decrease in product revenue from decreased sales of the bgm galectin-3 test and royalty expenses . the increase in product and product fee gross margin in 2015 relates to the increase in product fee revenues which have a higher gross margin than product revenues . operating expenses replace_table_token_6_th 56 research and development historically , we have incurred research and development expenses in connection with our internal biomarker discovery and development efforts . our research and development expenses consist primarily of direct personnel costs , fees for consultants and outside services , laboratory consumables and overhead expenses . we use consultants and outside services to provide expertise or services which we do not have . research and development expenses decreased by 26 % , or $ 619,000 , to $ 1.8 million in 2015 as compared to
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on january 27 , 2015 , we announced that we had entered into an assignment and revenue sharing agreement with meda to return to us the marketing authorizations for onsolis ® for the u.s. and the right to seek marketing authorizations for onsolis ® in canada and mexico . once the nda has been returned , we will have the right to work directly with the fda and submit a prior approval supplement that responds to fda questions and requests and will hopefully lead to the re-introduction of the product . fda 's review of the application may take up to six months ; therefore , we could receive a decision before the end of 2015. opportunities and trends our franchise currently consists of five products or product candidates , three of which utilize our patented bema ® drug delivery technology . onsolis ® is approved in the u.s. , canada , eu ( where it is marketed as breakyl ) and taiwan ( where it is marketed as painkyl ) , for the management of breakthrough pain in opioid tolerant , adult patients with cancer . the commercial rights to onsolis ® are licensed to meda for all territories worldwide except for taiwan ( licensed to tty and south korea ( licensed to kunwha ) . the company 's second product using the bema ® technology is bunavail ® ( buprenorphine and naloxone ) buccal film , which was approved by the fda in june 2014 for the maintenance treatment of opioid dependence . the company is commercializing bunavail ® and launched the product during the fourth quarter 2014. as with all other buprenorphine containing products for opioid dependence , the approval of bunavail ® carries a standard post-approval requirement by the fda to conduct a study to determine the effect of bunavail ® on qt prolongation ( i.e. , an abnormal lengthening of the heartbeat ) . the clinical study results must be reported to the fda by the end of 2016. the company 's third product using the bema ® technology , belbuca , is for the management of pain severe enough to require daily , around-the-clock , long-term opioid treatment and for which alternative treatment options are inadequate . this product is licensed on a worldwide basis to endo . we and endo reported positive study results for two pivotal phase 3 trials for this product in january and july 2014. in august 2014 , we announced that , along with endo , it engaged in a positive pre-nda meeting with the fda regarding its belbuca product . on december 23 , 2014 , we announced along with endo the submission of a nda for belbuca ( bema ® buprenorphine ) to the fda , which was accepted february 23 , 2015 . 52 our fourth product is clonidine topical gel , which is currently in phase 3 development for the treatment of pnd , which was licensed from arcion in march 2013. in june 2014 , we announced the completion of patient enrollment for our phase 3 study of clonidine topical gel . in august 2014 , we announced our completion of a pre-specified interim analysis of the ongoing initial pivotal phase 3 trial for clonidine topical gel . our fifth product is buprenorphine depot injection , which is in development as an injectable , extended release , microparticle formulation of buprenorphine for the treatment of opioid dependence , the rights to which we secured when we entered into a definitive development and exclusive license option agreement from evonik in october 2014. as we focus on the growth of our existing products and other product candidates , we also continue to position ourselves to execute upon the licensing and acquisition opportunities that will drive our next phase of growth . our organization is fully committed to this effort , and we believe we will be successful in executing upon our corporate strategy in ways that will drive this future growth . in order to do so , we will need to continue to maintain our strategic direction , manage and deploy our available cash efficiently and strengthen our alliance and partner relationships . we believe these actions , combined with the experience and expertise of our management team , position us well to drive the future growth of our revenue and income . we expect to continue research and development of pharmaceutical products and related drug delivery technologies , some of which will be funded by our commercialization agreements . we will continue to seek additional license agreements , which may include upfront payments . we anticipate that funding for the next several years will come primarily from milestone payments and royalties from meda and endo , revenues from sales of bunavail ® , potential sale of securities and collaborative research agreements , including those with pharmaceutical companies . we have a very limited history of commercial operations , having focused the vast majority of our corporate effort on research and development activities . we have , since our founding , received revenue in the form of : ( i ) contract revenue from endo related to an upfront , non-refundable payment for a license of our belbuca product in 2012 ( a portion of which was recorded as deferred revenue that is being recognized as revenue under prevailing revenue recognition rules ) , ( ii ) payment from endo for a certain patent-related milestones ( iii ) royalty revenue from meda for sales of breakyl and onsolis ® , ( iv ) upfront non-refundable license and milestone payments from meda in 2007 , 2008 , 2009 and 2012 ( which were initially classified as deferred revenue and subsequently , a substantial amount was reclassified as recognized revenue under prevailing revenue recognition rules ) , ( v ) product sales revenue related to bunavail ® sales and ( vi ) sponsored research revenue from both endo and meda . only the bunavail ® product sales and breakyl royalty revenues are repeating or predictable . story_separator_special_tag until recurring revenue from product sales ( bunavail ® is the foremost opportunity ) becomes a larger portion of our total revenue , we anticipate that our quarterly results of operations will fluctuate significantly for the foreseeable future . readers are cautioned that period-to-period comparisons of our operating results should not be relied upon as predictive of future performance . our prospects must be considered in light of the risks , expenses and difficulties normally encountered by companies that are involved in the development and commercialization of their products and related technologies , particularly companies in new and rapidly changing markets such as pharmaceuticals , drug delivery and biotechnology . for the foreseeable future , we must , among other things , invest in non-clinical and clinical trials of , and seek regulatory approval for and commercialization of , our product candidates , the outcomes of which are subject to numerous risks , many of which are beyond our control . we must also maintain our relationships with our key commercial partners and address regulatory , legal and or commercial issues and risks that relate to our business from time to time , many of which could impact , perhaps negatively , our planned operations . we may not be able to appropriately address these risks and difficulties . critical accounting policies and estimates impairment testing in accordance with generally accepted accounting principles ( referred to herein as gaap ) , goodwill impairment testing is performed at the reporting unit level annually , or more frequently if indicated by events or conditions . we performed an evaluation and determined that there is only one reporting unit . in the course of the evaluation of the potential impairment of goodwill , either a qualitative or a quantitative assessment may be performed . if a qualitative evaluation determines that no impairment exists , then no further analysis is performed . if a qualitative evaluation is unable to determine whether impairment has occurred , a quantitative evaluation is performed . the quantitative impairment test first identifies potential impairments by comparing the fair value of the reporting unit with its carrying value . if the fair value exceeds the carrying amount , goodwill is not impaired . if the carrying value exceeds the fair value , the implied fair value of goodwill is calculated and an impairment is recorded if the implied fair value is less than the carrying amount . the determination of goodwill impairment is highly subjective . it considers many factors both internal and external and is subject to significant changes from period to period . no goodwill impairment charges have resulted from this analysis for 2014 , 2013 or 2012 . 53 an impairment of a long-lived asset other than goodwill is recognized under gaap if the carrying value of the asset ( or the group of assets of which it is a part ) exceeds ( i ) the future estimated undiscounted cash flow from the use of the asset ( or group of assets ) and ( ii ) the fair value of the asset ( or asset group ) . in making this impairment assessment , we predominately use an undiscounted cash flow model derived from internal forecasts . factors that could change the result of our impairment test include , but are not limited to , different assumptions used to forecast future net sales , expenses , capital expenditures , and working capital requirements used in our cash flow models . in the event that our management determines that the value of intangible assets have become impaired using this approach , we will record an accounting charge for the amount of the impairment . no impairment charges have been recorded for other amortizing intangibles in 2014 , 2013 or 2012. fair market value accounting ( derivative liability ) the most significant estimate that could have a material effect on net ( loss ) gain is the fair market value accounting for our derivative liability . our derivative liability consists of free standing warrants that are recorded as liabilities due to the registration rights agreements and the requirement for continued effectiveness of the warrants . as a result , the warrants must be recorded as a liability at fair value . the changes in fair value are posted to the derivative ( loss ) gain in other ( loss ) income . we utilize the black-scholes method to estimate the fair value of our warrants . the three most significant factors in the black-scholes calculation are ( i ) our stock price , ( ii ) the volatility of our stock price and ( iii ) the remaining term of the warrants . during the year ending december 31 , 2012 , a $ 3.50 increase in the value of our stock was the primary cause of the $ 5.6 million derivative loss . during the year ending december 31 , 2013 , we had a lower average remaining term of the warrants , and the black-scholes volatility of our stock over this remaining term was relatively low compared to 2012. these two factors lowered the black-scholes value of the warrants , even though our stock price increased in 2013 of $ 1.58. the result was a $ 0.1 million derivative gain . during the year ending december 31 , 2014 , a $ 6.13 increase in the value of our stock was the primary cause of the $ 13.2 million derivative loss . stock-based compensation and other stock-based valuation issues ( derivative accounting ) we account for stock-based awards to employees and non-employees using financial accounting standards board accounting standards codification ( fasb ) ( asc ) fasb asc topic 718 accounting for share-based payments , which provides for the use of the fair value based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation . fair values of equity securities issued are determined by management based predominantly on the trading price of our common stock .
| contract revenue in 2014 consisted of two $ 10 million milestone payments received from endo as a result of finalizing our large clinical trials . the remaining $ 2.7 million of 2014 contract revenue is from recognition of a portion of the deferred revenue arising from the $ 30 million upfront payment received in 2012 from endo . of the $ 30 million initially received , $ 14.4 million was deferred and recognized over the life of our research and development spending on the endo-related trials . in 2013 , we recognized a larger portion of this endo upfront payment , over $ 6.5 million . the revenue recognition in 2013 was higher because we had incurred higher research and development spending , as all three of our large trials were in place . cost of sales . we incurred $ 4.9 million and $ 2.1 million in cost of sales during the years ended 2014 and 2013 , respectively . in 2013 , we had a standard , minimum $ 1.5 million contractual royalty due to cdc related to our onsolis ® and breakyl product . the remaining $ 0.6 million in 2013 represents cost of sales for our breakyl europe sales . in 2014 , we incurred the same $ 1.5 million royalty to cdc and $ 1.3 million for our increased breakyl sales in europe . in addition for 2014 , we incurred $ 2.1 million in cost of sales for bunavail ® which included expenses related to our inability to put into commerce certain initial batches from our supplier due to certain validation and batch size scale up challenges and thus , had to be expensed immediately . 58 expenditures for research and development programs bunavail ® we incurred research and development expenses for bunavail ® of approximately $ 2.9 million for the year ended december 31 , 2014 and approximately $ 7.1 million for the year ended december 31 , 2013. we have incurred approximately
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similarly , the diluted income ( loss ) per share calculation also requires an adjustment to net income ( loss ) used in the calculation to remove the change in the fair value of the series b redeemable convertible preferred stock embedded derivative ( if the series b redeemable convertible preferred stock is dilutive ) , including any applicable accretion , and an adjustment to the denominator is required to reflect the related dilutive securities . the company failed to make such adjustments to the diluted income ( loss ) per share calculations for the prior periods discussed above . during the preparation process for this annual report on form 10-k , we recomputed the basic and diluted income ( loss ) per share amounts for all periods to conform with the provisions of asc 260. in connection with this restatement , we revised our consolidated statement of operations for the year ended december 31 , 2014 , and applicable interim periods in 2014 and 2015 to reflect revised basic and diluted income ( loss ) per share . this adjustment had no impact on our balance sheets , reported loss from operations , net income ( loss ) attributable to common stockholders , statements of redeemable convertible preferred stock and stockholders ' equity , or our statements of cash flows and our cash and cash equivalents balances are unchanged for such periods . throughout this annual report on form 10-k , amounts presented from current periods and prior period comparisons have been revised and labeled as “ restated ” and reflect the amounts on a restated basis . tables summarizing the effect of the restatement on the specific line items presented in our historical financial statements for the periods indicated are included in note 3 – significant accounting policies and note 17 – quarterly financial data of the notes to our consolidated financial statements included with this annual report on form 10-k. liquidity , capital resources and financial condition we have prepared the accompanying consolidated financial statements on a going concern basis , which assumes that we will realize our assets and satisfy our liabilities in the normal course of business . however , we have incurred net losses since our inception , had negative operating cash flows and had an accumulated deficit of $ 362.5 million as of december 31 , 2015 , $ 47.0 million of which has been accumulated since january of 2011 , when we began our focus on bacteriophage development . these circumstances raise substantial doubt about our ability to continue as a going concern . the accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning our ability to continue as a going concern . 39 in december 2013 , we raised gross proceeds of approximately $ 18.0 million through a private placement of shares of our common stock . in march 2015 , we raised gross proceeds of approximately $ 13.0 million through a private placement of shares of our common stock . we do not generate any cash from operations and must raise additional funds in order to continue operating our business . we frequently evaluate financing alternatives with the objective of assessing opportunities to raise capital needed for the advancement of our business . we may seek to raise capital through a variety of sources , including the public equity market , private equity financings , collaborative arrangements , licensing arrangements and or public or private debt . we may also seek to establish other funding facilities or pursue opportunities for the divestiture of certain intellectual property and or other assets . if we pursue and successfully raise additional capital through the sale of equity and or debt securities , the rights of our existing stockholders may be adversely impacted and our existing stockholders could suffer dilutions . if additional capital is not available to us when needed or on acceptable terms , we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely . as of december 31 , 2015 , we had cash and cash equivalents of $ 9.4 million . we believe that our existing resources will be sufficient to fund our planned operations through the third quarter of 2016. our ability to raise additional funds will depend , in part , on the status of our product development activities and other business operations , as well as factors related to financial , economic , and market conditions , many of which are beyond our control . in addition , we have a disagreement with one of our principal stockholders , third security , llc , regarding the interpretation of our amended and restated articles of incorporation . the disagreement relates to whether it is technically possible for us to satisfy the requirements for automatic conversion of our outstanding shares of series b preferred pursuant to an underwritten public offering ( a qualified public offering ) . in the fourth quarter of 2015 , third security informed us that , under its interpretation of our amended and restated articles of incorporation , the qualified public offering conditions set forth in article 4 of our amended and restated articles of incorporation can never be satisfied because our stock is publicly traded on the nyse mkt , and that the only way all outstanding series b preferred can be converted into common shares is by obtaining the requisite consent of the series b preferred stockholders . we disagree with third security 's interpretation . story_separator_special_tag our amended and restated articles of incorporation also contain various other ambiguities , such as in the provisions relating to the conversion rate for converting series b preferred into common shares and the stated value of the series b preferred following our 50:1 reverse split of our common shares in august 2015. the stated value of the series b preferred affects other provisions of our amended and restated articles of incorporation , including the anti-dilution rights for the series b preferred as well as the minimum public offering price per share necessary for a public offering to satisfy one of the qualified public offering conditions . these ambiguities , as well as third security 's interpretation of the qualified public offering conditions , create uncertainty around our capital structure , which may adversely affect our ability to raise capital . in order to resolve our disagreement with third security , we may also agree to settlement terms that cause significant dilution to holders of our common shares and require us to pay significant consideration , or engage in expensive and time-consuming litigation where our interpretation of the qualified public offering conditions may not prevail or the matter may otherwise be resolved in a manner unfavorable to us . for additional information , see “ risk factors—we have a disagreement with one of our principal stockholders regarding the interpretation of our amended and restated articles of incorporation ” under item 1a of this annual report . we can not be certain that sufficient funds will be available to us when required or on acceptable terms , if at all . if adequate funds are not available on a timely basis or on acceptable terms , we may be required to significantly reduce or refocus our operations or to obtain funds through additional arrangements that may require us to relinquish rights to certain of our products , technologies or potential markets , any of which could delay or require that we curtail or eliminate some or all of our development programs or otherwise have a material adverse effect on our business , financial condition and results of operations . this uncertainty around our ability to secure additional financing creates substantial doubt about our ability to continue as a going concern . critical accounting policies and use of estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements . on an ongoing basis , we evaluate our estimates and judgments , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . goodwill costs of investments in purchased companies in excess of the underlying fair value of net assets at the date of acquisition are recorded as goodwill and assessed annually for impairment . if considered impaired , goodwill will be written down to fair value and a corresponding impairment loss recognized . as of december 31 , 2015 , we have recorded goodwill of $ 7.6 million due to the 2012 acquisition of sph 's know-how and phage libraries and the 2011 acquisition of biocontrol 's patents and phage library . in management 's opinion , no goodwill has been impaired as of december 31 , 2015. research and development costs in process research & development ( ipr & d ) assets represent capitalized incomplete research projects that we acquired through business combinations . such assets are initially measured at their acquisition date fair values . the fair value of the research projects is recorded as intangible assets on the consolidated balance sheet rather than expensed regardless of whether these assets have an alternative future use . the amounts capitalized are being accounted for as indefinite-lived intangible assets , subject to impairment testing until completion or abandonment of research and development efforts associated with the projects . upon successful completion of each project , we make a determination as to the then remaining useful life of the intangible asset and begin amortization . we test our indefinite-lived intangibles , including ipr & d assets , for impairment at least quarterly . as of december 31 , 2015 , we have recorded ipr & d of $ 12.4 million related to the 2012 acquisition of sph 's know-how and phage libraries and the 2011 acquisition of biocontrol 's know-how and phage library . in management 's opinion , no ipr & d has been impaired as of december 31 , 2015 . 40 stock-based compensation expenses we account for stock options and restricted stock units related to our stock incentive plans under the provisions of asc 718 , which requires the recognition of the fair value of stock-based compensation . the fair value of stock options and restricted stock units was estimated using a black-scholes option valuation model . this model requires the input of subjective assumptions in implementing asc 718 , including expected dividend , expected life , expected volatility and forfeiture rate of each award , as well as the prevailing risk-free interest rate and the fair value of the underlying common stock on the date of grant . the fair value of equity-based awards is amortized over the vesting period of the award , and we have elected to use the straight-line method of amortization .
| severance charge we recorded a severance charge of $ 0.3 million in 2015 related to the departure of an executive , which included severance period cash compensation and benefits and non-cash stock-based compensation expense related to the accelerated vesting of stock options . we also recorded a severance charge in 2014 of $ 1.9 million related to the departure of our former chief executive officer , which included severance-period cash compensation and benefits and non-cash stock-based compensation expense related to the accelerated vesting of stock options other income ( expense ) we recorded gains of $ 0.6 million and $ 9.5 million for the years ended december 31 , 2015 and 2014 , respectively , for the change in fair value on revaluation of our warrant liability . these gains were primarily attributable to a decline in the value of our common stock at december 31 , 2015 and december 31 , 2014 as compared to the prior year end values . we will continue to adjust this liability until the earlier of exercise or expiration of the warrants . for the years ended december 31 , 2015 and 2014 , we recorded a gain of $ 9.3 million and $ 27.8 million , respectively , related to the change in fair value of our series b preferred stock liability . these gains were primarily attributable to a decline in the value of our common stock at december 31 , 2015 and december 31 , 2014 as compared to the prior year-end values . we will continue to adjust this liability until conversion of the series b redeemable convertible preferred stock into common stock . we recorded other expenses of $ 0.3 million in 2015 , which consisted primarily of the costs related to warrants issued to placement agents in conjunction with our march 2015 private placement of common stock . 42 income taxes we incurred net operating losses for the years ended december 31 , 2015 and 2014 and accordingly , we did not pay any u.s. federal or state income taxes . as of december 31 , 2015 , we had u.s. gross
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consumer spending has been increasingly constrained due to a decrease in tourist travel and a shift in consumer spending from luxury products to luxury experiences . in addition , consumer shopping preferences have continued to shift from physical stores to on-line shopping . while this trend has resulted in an increase in our e-commerce sales , it has had a negative impact on our brick and mortar stores . we currently expect that this trend will continue in the foreseeable future . as a result , we recorded impairment charges of $ 199.2 million during fiscal 2017 , as compared to $ 10.9 million during fiscal 2016 and $ 0.8 million in fiscal 2015 , primarily associated with underperforming full-price retail stores ( please refer to notes 11 and 18 to the accompanying consolidated financial statements for additional information ) . we continue to adjust our operating strategy to the changing business environment and on may 31 , 2017 , we announced that we plan to close between 100 and 125 of our full-price retail stores over the next two years in order to improve the profitability of our retail store fleet . over this time period , we expect to incur approximately $ 100 - $ 125 million of one-time costs associated with these store closures . collectively , we anticipate ongoing annual savings of approximately $ 60 million as a result of the store closures and the lower depreciation and amortization associated with the impairment charges recorded during fiscal 2017. currency fluctuation and the strengthening u.s. dollar . our consolidated operations are impacted by the relationships between our reporting currency , the u.s. dollar , and those of our non-u.s. subsidiaries whose functional/local currency is other than the u.s. dollar . our fiscal 2017 results have been negatively impacted by the declines in value of the british pound relative to the u.s. dollar of approximately 13 % , compared to the same prior year period , following the affirmative vote by the united kingdom to leave the european union earlier this fiscal year as well as by the increased volatility of the euro . conversely , our results have been positively impacted by increases in the value of the japanese yen relative to the u.s. dollar of approximately 11 % . disruptions in shipping and distribution . our operations are subject to the impact of shipping disruptions as a result of changes or damage to our distribution infrastructure , as well as due to external factors . any future disruptions in our shipping and distribution network could have a negative impact on our results of operations . costs of manufacturing . our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our products . this volatility applies primarily to costs driven by commodity prices , which can increase or decrease dramatically over a short period of time . these fluctuations may have a material impact on our sales , results of operations and cash flows to the extent they occur . we use commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible . in addition , manufacturing labor costs are also subject to degrees of volatility based on local and global economic conditions . we use commercially reasonable efforts to source from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products . critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( `` u.s. gaap '' ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported amounts of revenue and expenses during the reporting period . critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations and that require our most difficult , subjective and complex judgments to make estimates about the effect of matters that are inherently uncertain . in applying such policies , we must make certain assumptions based on our informed judgments , assessments of probability and best estimates . estimates , by their nature , are subjective and are based on analysis of available information , including current and historical factors and the experience and judgment of management . we evaluate our assumptions and estimates on an ongoing basis . while our significant accounting policies are detailed in note 2 to the accompanying financial statements , our critical accounting policies are discussed below and include revenue recognition , inventories , impairment of long-lived assets , goodwill , share-based compensation , derivatives and income taxes . revenue recognition revenue is recognized when there is persuasive evidence of an arrangement , delivery has occurred , the price has been fixed and determinable and collectability is reasonably assured . we recognize retail store revenue upon sale of our products to retail consumers , net of estimated returns . revenue from sales through our e-commerce sites is recognized at the time of delivery to the customer , reduced by an estimate of returns . wholesale revenue is recognized net of estimates for sales returns , discounts , markdowns and allowances , after merchandise is shipped and title and risk of loss are transferred to our wholesale customers . to arrive at net sales for retail , gross sales are reduced by actual customer returns , as well as by a provision for estimated future 28 customer returns , which is based on management 's review of historical and current customer returns . the amounts reserved for retail sales returns were $ 7.3 million , $ 4.7 million and $ 2.5 million at april 1 , 2017 , april 2 , 2016 and march 28 , 2015 , respectively . story_separator_special_tag to arrive at net sales for wholesale , gross sales are reduced by provisions for estimated future returns based on current expectations , as well as trade discounts , markdowns , allowances , operational chargebacks , and certain cooperative selling expenses . total sales reserves for wholesale were $ 96.7 million , $ 110.9 million and $ 87.5 million at april 1 , 2017 , april 2 , 2016 and march 28 , 2015 , respectively . these estimates are based on such factors as historical trends , actual and forecasted performance , and market conditions , which are reviewed by management on a quarterly basis . our historical estimates of these costs were not materially different from actual results . royalty revenue generated from product licenses , which includes contributions for advertising , is based on reported sales of licensed products bearing our tradenames at rates specified in the license agreements . these agreements are also subject to contractual minimum levels . royalty revenue generated by geography-specific licensing agreements is recognized as it is earned under the licensing agreements based on reported sales of licensees applicable to specified periods , as outlined in the agreements . these agreements allow for the use of our tradenames to sell our branded products in specific geographic regions . inventories our inventory costs include amounts paid to independent manufacturers , plus duties and freight to bring the goods to the company 's warehouses , which are located in the united states , holland , canada , china , hong kong , japan , south korea and taiwan . we continuously evaluate the composition of our inventory and make adjustments when the cost of inventory is not expected to be fully recoverable . the net realizable value of our inventory is estimated based on historical experience , current and forecasted demand and market conditions . in addition , reserves for inventory losses are estimated based on historical experience and inventory counts . our inventory reserves are estimates , which could vary significantly from actual results if future economic conditions , customer demand or competition differ from expectations . our historical estimates of these adjustments have not differed materially from actual results . long-lived assets we evaluate all long-lived assets , including fixed assets and finite-lived intangible assets , for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable . for the purposes of impairment testing , we group our long-lived assets according to their lowest level of use , such as aggregating and capitalizing all construction costs related to a retail store into leasehold improvements and those related to our wholesale business into shop-in-shops . our leasehold improvements are typically amortized over the life of the store lease , including highly probable renewals , and our shop-in-shops are amortized over a useful life of three or four years . our impairment testing is based on our best estimate of the future operating cash flows . if the sum of our estimated undiscounted future cash flows associated with the asset is less than the asset 's carrying value , we recognize an impairment charge , which is measured as the amount by which the carrying value exceeds the fair value of the asset . these estimates of cash flow require significant management judgment and certain assumptions about future volume , sales and expense growth rates , devaluation and inflation . as such , these estimates may differ from actual cash flows and future impairments may result if actual cash flows are lower than our expectations . during fiscal 2017 , we recorded impairment charges of $ 199.2 million , which were primarily related to fixed assets and lease rights for underperforming full-price retail stores . during fiscal 2016 and fiscal 2015 , we recorded fixed asset impairment charges of $ 10.9 million and $ 0.8 million , respectively , primarily related to our retail segment . please refer to notes 6 , 7 , 11 and 18 to the accompanying consolidated audited financial statements for additional information . goodwill we perform an impairment assessment of goodwill on an annual basis , or whenever impairment indicators exist . in the absence of any impairment indicators , goodwill is assessed during the fourth quarter of each fiscal year . these assessments are made with regards to reporting units within our wholesale , retail and licensing segments where our goodwill is recorded , and are based on our current operating projections . judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business . we may assess our goodwill for impairment initially using a qualitative approach ( “ step zero ” ) to determine whether it is more likely than not that the fair value of goodwill is greater than its carrying value . if the results of the qualitative assessment indicate that it is not more likely than not that the fair value of goodwill exceeds its carrying value , a quantitative goodwill analysis would be performed to determine if impairment is required . we may also elect to perform a quantitative analysis of goodwill initially rather than using a qualitative approach . the valuation methods used in the quantitative fair value assessment , discounted cash flow and market multiples methods , require management to make certain assumptions and estimates regarding certain industry trends and future profitability of our reporting units . if the carrying amount of a reporting unit exceeds its fair value , we would compare the implied fair value of the reporting unit goodwill to its carrying value . to compute the implied fair value , we would 29 assign the fair value of the reporting unit to all of the assets and liabilities of that unit ( including any unrecognized intangible assets ) as if the reporting unit had been acquired in a business combination . the excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill .
| 35 the following table details revenues for our three business segments ( dollars in millions ) : replace_table_token_13_th retail net sales from our retail stores increased $ 177.2 million , or 7.4 % , to $ 2.572 billion for fiscal 2017 , compared to $ 2.395 billion for fiscal 2016 , which included unfavorable foreign currency effects of $ 8.7 million . on a constant currency basis , net sales from our retail stores increased $ 185.9 million , or 7.8 % . we operated 827 retail stores , including concessions , as of april 1 , 2017 , compared to 668 retail stores , including concessions , as of april 2 , 2016 . our comparable store sales decreased $ 172.7 million , or 8.3 % , during fiscal 2017 , which included net unfavorable foreign currency effects of $ 3.9 million . our comparable store sales benefited approximately 304 basis points from the inclusion of the north american e-commerce sales in comparable store sales . on a constant currency basis , our comparable store sales decreased $ 168.8 million , or 8.1 % . the decrease in our comparable store sales was primarily attributable to lower sales from our women 's accessories , watches and jewelry product categories during fiscal 2017 compared to fiscal 2016 . our non-comparable store sales increased $ 349.9 million during fiscal 2017 , which included net unfavorable foreign currency effects of $ 4.8 million . on a constant currency basis , our non-comparable store sales increased $ 354.7 million . the increase in non-comparable store sales was primarily attributable to operating 159 additional stores since april 2 , 2016 , including 111 stores associated with our acquisition of the previously licensed operations in greater china . our recently acquired and consolidated businesses contributed approximately $ 226.9 million to our non-comparable store sales for fiscal 2017 , $ 206.7 million of which related to greater china , $ 15.1 million to south korea and $ 5.1 million to latin america . fiscal 2016 included approximately $ 33.7 million of incremental net retail sales attributable to the inclusion of the 53rd week . wholesale net sales to our wholesale customers decreased $ 368.1 million ,
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this disruption has caused employers to lay off or reduce compensation of certain employees , and has caused some people not to receive steady incomes because they are not able to work due to illness or having to care for children or family members , resulting in many households facing reduced income . commercial and consumer borrowers affected by the pandemic may not be able to make timely payments on loans , which may lead to an increase in delinquencies or defaults and may ultimately result in increases in net charge-offs and provision for loan losses . furthermore , collateral values may decline as a result of decreased economic activity and increased uncertainty during the crisis , which may contribute to an increase in loan losses during and after the pandemic . in 2020 , the corporation recorded additional provision for loan losses of approximately $ 8.0 million as a result of asset quality deterioration that is expected to arise as a result of the covid-19 pandemic and related economic disruption . management continues to monitor changes in economic conditions and asset quality resulting from the covid-19 pandemic . if conditions deteriorate further , then additional provision for loan losses may be required in future periods . net interest margin compression . since december 31 , 2019 , the fomc has reduced its benchmark interest rate target to near zero by announcing rate cuts of 50 basis points on march 3 , 2020 and 100 basis points on march 15 , 2020. treasury yields for all maturities are also lower since the outbreak of the covid-19 pandemic . lower market interest rates have resulted in lower average yields on all classes of earning assets . while average costs of deposits and borrowings have also decreased , and we expect the average cost of time deposits to continue to decrease due to the repricing of time deposits at maturity , those factors may not offset the effect on net interest margin of lower yields on earning assets . falling demand for loans . as businesses and consumers have been affected by the pandemic , new investment and consumer spending may decline , resulting in lower demand for loans . our recent performance and strategic planning have depended , in part , on growth in lending at the community banking segment , and we have invested in expanding our commercial lending team . while loans outstanding at the community banking segment grew during 2020 ( which included loans originated under the ppp ) , there can be no assurance that loan growth will continue during or after the pandemic . 34 lower demand for loans in our markets as a result of the covid-19 pandemic , combined with lower interest rates on new loans , may negatively impact interest income from loans . impairment of securities and goodwill . a broad decrease in economic activity as a result of the covid-19 pandemic is expected to affect tax revenues of states and political subdivisions , the pandemic has required increased health and safety expenditures by states and political subdivisions , and increased uncertainty has resulted in volatility in the market price of investments . the corporation holds securities issued by states and political subdivisions that may experience shortfalls in general revenues or an inability to repay obligations when due as a result of the crisis . additionally , the corporation holds debt securities of corporate issuers whose financial condition may be adversely impacted by the economic impacts of the covid-19 pandemic . there is a risk that these securities may become impaired , which would have a negative impact on the corporation 's results of operations . additionally , depending on the severity and duration of the economic consequences of the covid-19 pandemic , the corporation 's goodwill allocated to the community banking segment may become impaired , which would have a negative impact on the corporation 's results of operations . 2021 outlook management 's overall outlook for 2021 is relatively positive given our diversified business strategy ; however , we will be affected by many challenges in 2021 , including the covid-19 pandemic and limited availability and distribution of vaccines , cyber security and fraud prevention , the low interest rate environment and the impacts of the changing social and political landscapes . these uncertainties could potentially lead to a continued economic downturn , fraud losses , further margin compression , asset quality deterioration and regulatory actions . the following additional factors could influence our financial performance in 2021 : ● community banking : growth in higher-yielding earning assets , specifically loans , will continue to be our primary focus at the bank during 2021. despite the issues faced during 2020 , our growing lending team continued focus on commercial lending and our completion of the acquisition of peoples contributed to growth in our loan portfolio during 2020. growth in loans also included ppp loans , many of which may be repaid or forgiven by the sba during 2021. while our asset quality remains strong , we do expect some deterioration in asset quality as a result of the covid-19 pandemic . in 2021 , we will continue to explore expansion opportunities and we will continue to add to our digital services platform by leveraging our treasury solutions team , branch network , and commercial relationship managers to communicate the benefits of our mobile business services to our existing and potential customers . we also intend to introduce contactless debit cards to customers during 2021 , further enhancing our customers ' experience . ● mortgage banking : c & f mortgage generates significant noninterest income from the origination and sale of residential loan products into the secondary market . in 2020 , a favorable interest rate environment and an extremely active housing market contributed to record loan production , subsequent gains on sales of loans and ancillary fee income at the mortgage banking segment . story_separator_special_tag revenue from mortgage lender services offered through c & f mortgage 's lender solutions division also reached record levels due to new customers and higher loan production volume . loan production and revenue in 2021 are highly uncertain and will depend on economic conditions and market factors beyond our control , including the covid-19 pandemic , interest rates , housing inventory and loan demand . in addition , during 2021 , c & f mortgage anticipates it will continue to ( 1 ) compete to retain and attract qualified loan officers , ( 2 ) invest in technology to further enhance our fully digital application and document collection process and ( 3 ) grow our lender solutions division . ● consumer finance : c & f finance provides automobile financing through programs that are designed to serve customers in the non-prime sector and marine and rv financing for borrowers in the prime sector . as has been the case for the last several years , competition in the non-prime automobile loan business remains aggressive , resulting in lower interest rates and in many cases , less restrictive underwriting standards by several of our competitors . we expect organic loan growth to continue to be challenging in 2021. credit quality has consistently improved since we strengthened our underwriting standards in 2016 , and as a result we have experienced a sustained decline in annual charge offs as a percentage of average loans that continued in 2020. however , we do anticipate some deterioration in asset quality in 2021 as a result of the covid-19 pandemic , 35 and particularly the potential impacts of the pandemic on nonprime automobile borrowers . we continued to grow our marine and rv loan portfolio in 2020 and remain committed to only purchasing prime contracts in this segment , which should result in lower loan losses for these higher credit quality borrowers . during the second quarter of 2021 , we plan to relocate our c & f finance corporate headquarters to a new , larger facility in richmond , virginia . principal business segments an overview of the financial results for each of the corporation 's principal segments is presented below . a more detailed discussion is included in the section “ results of operations. ” community banking : the community banking segment reported net income of $ 5.4 million for the year ended december 31 , 2020 , compared to net income of $ 9.9 million for the year ended december 31 , 2019. previously , the community banking segment was referred to as the retail banking segment . there have been no changes to the composition of the community banking segment . the decrease in community banking segment net income for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 was due primarily to ( 1 ) lower average yields on loans ; ( 2 ) higher provision for loan losses resulting from the covid-19 pandemic and related economic disruption ; ( 3 ) higher operating expenses , including the effects of ( a ) assuming certain operating costs of peoples , which was acquired by the corporation on january 1 , 2020 , including costs that have been eliminated following the integration of its operations into the bank 's , ( b ) opening two new financial centers in the third quarter of 2020 and ( c ) investing in technology infrastructure to support continued growth ; ( 4 ) early debt repayment charges of $ 2.2 million incurred in connection with the payoff of borrowings of $ 44.5 million ; ( 5 ) lower interest income on excess cash reserves ; ( 6 ) higher merger related expenses in connection with the acquisition of peoples ; ( 7 ) higher interest expense on deposits as a result of higher average deposit balances ; and ( 8 ) a $ 281,000 write-down of assets in connection with the consolidation of the bank 's former main office in west point , va into a nearby branch office and the donation of the building to the town of west point ; partially offset by ( 1 ) a gain of $ 3.5 million on the sale of a pool of pci loans ; ( 2 ) higher average loans outstanding , which contributed to higher interest income on loans ; ( 3 ) higher interchange income ; and ( 4 ) income tax benefits of $ 326,000 related to prior tax years of peoples as a result of favorable net operating loss carryback treatment under the cares act . average loans increased $ 216.5 million , or 27.8 percent , for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019. these increases included $ 99.1 million for the year ended december 31 , 2020 of average balances of loans acquired in the acquisition of peoples , and $ 59.7 million of average balances of loans originated under the ppp . in addition to increases resulting from the acquisition of peoples and the ppp , the increase in average loans outstanding for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 resulted from growth in the commercial real estate and commercial business lending segments of the loan portfolio . average loan yields were lower for 2020 compared to 2019 due to repricing of variable rate loans and lower average yields on new lending , including ppp loans . the recognition of interest income on pci loans is based on management 's expectation of future payments of principal and interest , which is inherently uncertain . earlier than expected repayments of certain pci loans resulted in the recognition of additional interest income during 2020 and 2019. interest income recognized on pci loans was $ 3.0 million and $ 3.4 million for the years ended december 31 , 2020 and 2019 , respectively .
| tables 12 and 13 present information pertaining to the composition of loans held for investment and the maturity/repricing of certain loans held for investment . table 12 : summary of loans held for investment replace_table_token_21_th 1 includes the corporation 's real estate construction lending and consumer real estate lot lending . 2 includes the corporation 's commercial real estate lending , land acquisition and development lending , builder line lending and commercial business lending ( which includes loans originated under the ppp during 2020 ) . table 13 : maturity/repricing schedule of loans held for investment replace_table_token_22_th beginning in april 2020 , the community banking segment originated loans under the ppp which are guaranteed by the sba , and in some cases borrowers may be eligible to obtain forgiveness of the loans , in which case loans would be repaid by the sba . aggregate fees from the sba of $ 3.7 million , net of direct costs , will be recognized in interest income over the life of the loans , of which $ 2.2 million remains unrecognized as of december 31 , 2020. as repayment of the loans is guaranteed by the sba , the community banking segment does not recognize a reserve for ppp loans in its allowance for loan losses . table 14 presents the outstanding principal of loans originated under the ppp at december 31 , 2020 , which are recorded in the consolidated balance sheet net of unrecognized net deferred fees of $ 2.2 million . 59 table 14 : paycheck protection loans as of december 31 , 2020 replace_table_token_23_th in evaluating the allowance for loan losses , the community banking segment considered its exposure to segments of the economy that it believes have been or will be most sensitive to the impacts of the covid-19 pandemic . table 15 presents balances of loans to borrowers in these sensitive industries at december 31 , 2020 , excluding ppp loans , and the exposure of the community banking segment to those borrowers , which includes available
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on december 22 , 2010 , president obama signed into law the continuing appropriations and surface transportation extensions act , 2011 extending funding for federal surface transportation programs authorized under safetea-lu through march 4 , 2011. on march 4 , 2011 , president obama signed into law the surface transportation extension act of 2011 providing an extension of federal-aid highway , transit and other programs funded out of the highway trust fund through september 30 , 2011. on september 17 , 2011 , obama signed an eighth extension of safetea-lu which authorizes funding at 2011 levels through march 31 , 2012 , pending enactment of a multi-year law reauthorizing such programs . although these extensions help stabilize the federal highway program , the company believes a new multiyear highway program would have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer term projects . 15 in january 2009 , the canadian government announced its economic action plan to stimulate economic growth which included a $ 12 billion two year investment in new infrastructure including roads , bridges and other infrastructure . the company 's financial performance over the past two years has benefited from programs associated with this funding . the economic downturn over the past several years and the lack of a multiyear federal highway bill have resulted in reduced purchasing within the company 's served markets and thus have had a direct impact on sales and pricing pressures on the company 's products resulting in lower pricing and margins . the company 's typical sales of asphalt plants are in the $ 2 to $ 4 million range and may require the company 's customers to obtain financing . on the positive side , the reduced value of the us dollar has resulted in more interest and continued sales from international markets . in addition to government funding and the overall economic conditions , fluctuations in the price of oil , which is a major component of asphalt mix , may affect the company 's financial performance . an increase in the price of oil increases the cost of liquid asphalt and could therefore decrease demand for asphalt and certain of the company 's products . the increase in oil prices over the past year has also driven up the cost of gasoline which has resulted in increased freight costs . where possible , the company will pass these increased freight costs onto its customers . however , the company may not be able to recapture all of the increased costs and thus which could have a negative impact on the company 's financial performance . the magnitude of that impact can not be determined . steel is a major component used in manufacturing the company 's equipment . during the first nine months of fiscal 2011 , the company has experienced increases in prices for the steel beam and plate used in its products . where possible , the company will pass these increased steel costs onto its customers . however , the company may not be able to recapture all of the increased steel costs and thus its financial results could be negatively affected . for the long term , the company believes the strategy of continuing to invest in product engineering and development and its focus on delivering a high-quality product and superior service will strengthen the company 's market position when demand for its products rebound . in response to the short-term outlook , the company has taken aggressive actions to conserve cash , right-size it 's operations and cost structure , and will continue to do so based on its forecasts . these actions included adjustments to workforce and staffing , reduced purchases of raw materials and reductions in selling , general , and administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reductions and will continue scrutinizing its relationships with external suppliers to ensure the company is achieving the highest-quality products and services at the most competitive cost . story_separator_special_tag uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g . contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2011 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition story_separator_special_tag on december 22 , 2010 , president obama signed into law the continuing appropriations and surface transportation extensions act , 2011 extending funding for federal surface transportation programs authorized under safetea-lu through march 4 , 2011. on march 4 , 2011 , president obama signed into law the surface transportation extension act of 2011 providing an extension of federal-aid highway , transit and other programs funded out of the highway trust fund through september 30 , 2011. on september 17 , 2011 , obama signed an eighth extension of safetea-lu which authorizes funding at 2011 levels through march 31 , 2012 , pending enactment of a multi-year law reauthorizing such programs . although these extensions help stabilize the federal highway program , the company believes a new multiyear highway program would have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer term projects . 15 in january 2009 , the canadian government announced its economic action plan to stimulate economic growth which included a $ 12 billion two year investment in new infrastructure including roads , bridges and other infrastructure . the company 's financial performance over the past two years has benefited from programs associated with this funding . the economic downturn over the past several years and the lack of a multiyear federal highway bill have resulted in reduced purchasing within the company 's served markets and thus have had a direct impact on sales and pricing pressures on the company 's products resulting in lower pricing and margins . the company 's typical sales of asphalt plants are in the $ 2 to $ 4 million range and may require the company 's customers to obtain financing . on the positive side , the reduced value of the us dollar has resulted in more interest and continued sales from international markets . in addition to government funding and the overall economic conditions , fluctuations in the price of oil , which is a major component of asphalt mix , may affect the company 's financial performance . an increase in the price of oil increases the cost of liquid asphalt and could therefore decrease demand for asphalt and certain of the company 's products . the increase in oil prices over the past year has also driven up the cost of gasoline which has resulted in increased freight costs . where possible , the company will pass these increased freight costs onto its customers . however , the company may not be able to recapture all of the increased costs and thus which could have a negative impact on the company 's financial performance . the magnitude of that impact can not be determined . steel is a major component used in manufacturing the company 's equipment . during the first nine months of fiscal 2011 , the company has experienced increases in prices for the steel beam and plate used in its products . where possible , the company will pass these increased steel costs onto its customers . however , the company may not be able to recapture all of the increased steel costs and thus its financial results could be negatively affected . for the long term , the company believes the strategy of continuing to invest in product engineering and development and its focus on delivering a high-quality product and superior service will strengthen the company 's market position when demand for its products rebound . in response to the short-term outlook , the company has taken aggressive actions to conserve cash , right-size it 's operations and cost structure , and will continue to do so based on its forecasts . these actions included adjustments to workforce and staffing , reduced purchases of raw materials and reductions in selling , general , and administrative expenses . the company continues to review its internal processes to identify inefficiencies and cost reductions and will continue scrutinizing its relationships with external suppliers to ensure the company is achieving the highest-quality products and services at the most competitive cost . story_separator_special_tag uncertain . accounting policies , in addition to the critical accounting policies referenced below , are presented in note 1 to the consolidated financial statements , accounting policies. estimates and assumptions in preparing the consolidated financial statements , the company uses certain estimates and assumptions that may affect reported amounts and disclosures . estimates and assumptions are used , among other places , when accounting for certain revenue ( e.g . contract accounting ) , expense , and asset and liability valuations . the company believes that the estimates and assumptions made in preparing the consolidated financial statements are reasonable , but are inherently uncertain . assumptions may be incomplete or inaccurate and unanticipated events may occur . the company is subject to risks and uncertainties that may cause actual results to differ from estimated results . revenues & expenses revenues from contracts for the design , manufacture and sale of asphalt plants are recognized under the percentage-of-completion method . the percentage-of-completion method of accounting for these contracts recognizes revenue , net of any promotional discounts , and costs in proportion to actual labor costs incurred as compared with total estimated labor costs expected to be incurred during the entire contract . pre-contract costs are expensed as incurred . changes to total estimated contract costs or losses , if any , are recognized in the period in which they are determined . revenue recognized in excess of amounts billed is classified as current assets under costs and estimated earnings in excess of billings. the company anticipates that all incurred costs associated with these contracts at september 30 , 2011 , will be billed and collected within one year . revenues from all other contracts for the design and manufacture of custom equipment , for service and for parts sales , net of any discounts and return allowances , are recorded when the following four revenue recognition
| fiscal 2011 had an operating loss of $ ( 1,743,000 ) versus an operating loss of $ ( 3,049,000 ) in 2010. overall the reduced losses in 2011 primarily resulted from increased revenues and reduced product engineering and development costs , and reduced selling , general and administrative expenses . in june 2010 , the company was the recipient of ninety-five thousand shares of company common stock as a result of a settlement and release agreement on a lawsuit against certain company shareholders . the lawsuit related to alleged short-swing profits arising from purchases and sales of company common stock by the defendants to the suit . the parties to the suit entered into the agreement for the sole purpose of resolving contested claims and disputes and avoiding the substantial costs associated with litigating the claims and disputes . no wrongdoing or liability was admitted to by the defendants . in 2010 , other non-operating income and treasury stock include $ 738,000 related to the estimated fair value of the stock received . as of september 30 , 2011 and 2010 , the cost basis of the investment portfolio was $ 76.3 million and $ 70.1 million , respectively . for the year ended september 30 , 2011 , net investment interest and dividend income ( investment income ) was $ 2.3 million versus investment income of $ 3.1 million in 2010. the net realized and unrealized losses on marketable securities were $ ( 3.1 ) million in 2011 versus net realized and unrealized gains of $ 1.4 million in 2010. total cash and investment balance at september 30 , 2011 was $ 74.2 million compared to the september 30 , 2010 cash and investment balance of $ 76.3 million . the company recognized income from investees of $ 163,000 during the year ended september 30 , 2010 ( see part 1 , item 1 of this report ) . the effective income tax rate for 2011 was a benefit of 108.8 % whereas the effective income tax rate was a benefit of 25.9 % for 2010. the increase in the tax benefit in fiscal 2011 was primarily due to a decrease of $ 1,724,000 in unrecognized
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we have extended our filtration technologies to meet the demand for liquid purification in other areas , in particular water purification . the following trends , events and uncertainties may have a material impact on our potential sales , revenue and income from operations : · the market acceptance of our products in the united states and of our technologies and products in each of our target markets ; · our ability to effectively and efficiently manufacture , market and distribute our products ; · our ability to sell our products at competitive prices which exceed our per unit costs ; · the consolidation of dialysis clinics into larger clinical groups ; and · the current u.s. healthcare plan is to bundle reimbursement for dialysis treatment which may force dialysis clinics to change therapies due to financial reasons . to the extent we are unable to succeed in accomplishing the foregoing , our sales could be lower than expected and dramatically impair our ability to generate income from operations . recent accounting pronouncements in may 2014 , the financial accounting standards board issued accounting standards update ( “ asu ” ) 2014-09 , `` revenue from contracts with customers , '' related to revenue recognition . the underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services . the standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in prior accounting guidance . asu 2014-09 provides alternative methods of initial adoption , and it is effective for annual reporting periods beginning after december 15 , 2016 , and interim periods within those annual periods . early adoption is not permitted . we are currently reviewing the revised guidance and assessing the potential impact on our consolidated financial statements . in august 2014 , the fasb issued asu no . 2014-15 , “ presentation of financial statements - going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern. ” asu 2014-15 provides guidance about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability to continue as a going concern and sets rules for how this information should be disclosed in the financial statements . asu 2014-15 is effective for annual periods ending after december 15 , 2016 and interim periods thereafter . early adoption is permitted . we are currently evaluating any impact the adoption of asu 2014-15 might have on our consolidated financial statements . in april 2015 , the fasb issued asu no . 2015-03 , “ interest – imputation of interest ( subtopic 2015-03 ) : simplifying the presentation of debt issuance costs ” related to the presentation requirements for debt issuance costs and debt discount and premium . asu 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability , consistent with debt discounts . the recognition and measurement guidance for debt issuance costs are not affected by asu 2015-03. asu 2015-03 is effective for annual and interim periods beginning after december 15 , 2015. early adoption of the amendments in asu 2015-03 is permitted for financial statements that have not been previously issued . we do not believe that the adoption of asu 2015-03 will have a significant impact on our consolidated financial statements . going concern our independent registered public accounting firm has included an explanatory paragraph in their report on our consolidated financial statements included in this form 10-k which expressed doubt as to our ability to continue as a going concern . the accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern . however , there can be no assurance that we will be able to do so . our recurring operating losses and difficulty in generating sufficient cash flow to meet our obligations and sustain our operations raise substantial doubt about our ability to continue as a going concern , and our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty . critical accounting policies and estimates our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of financial statements in accordance with generally accepted accounting principles in the united states requires application of management 's subjective judgments , often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our actual results may differ substantially from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to consolidated financial statements included in this annual report on form 10-k for the year ended december 31 , 2014 , we believe that the following accounting policies require the application of significant judgments and estimates . 24 revenue recognition revenue is recognized in accordance with accounting standards codification ( `` asc '' ) topic 605. four basic criteria must be met before revenue can be recognized : ( i ) persuasive evidence that an arrangement exists ; ( ii ) delivery has occurred or services have been rendered ; ( iii ) the fee is fixed or determinable ; and ( iv ) collectability is reasonably assured . we recognize revenue related to product sales when delivery is confirmed by our external logistics provider and the other criteria of asc topic 605 are met . product revenue is recorded net of returns and allowances . all costs and duties relating to delivery are absorbed by us . shipments for all products are currently received directly by our customers . story_separator_special_tag we are recognizing the remaining deferred revenue under the bellco license agreement on a straight line basis over the remaining eighty-four month expected obligation period which ends on december 31 , 2021. any difference between payments received and recognized revenue is reported as deferred revenue . deferred revenue on the accompanying december 31 , 2014 consolidated balance sheet is approximately $ 487,000 and is related to the bellco license agreement . we have recognized approximately $ 2,589,000 of revenue related to this license agreement to date and approximately $ 834,000 for the year ended december 31 , 2014 , resulting in $ 487,000 being deferred over the remainder of the expected obligation period . we amortize the deferred revenue monthly over the expected obligation period which ends on december 31 , 2021. as a result , expected revenue to be recognized will be approximately $ 70,000 in each of the next seven years . stock-based compensation we account for stock-based compensation in accordance with asc 718 by recognizing the fair value of stock-based compensation in net income . the fair value of our stock option awards are estimated using a black-scholes option valuation model . this model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . in addition , the calculation of compensation costs requires that we estimate the number of awards that will be forfeited during the vesting period . the fair value of stock-based awards is amortized over the vesting period of the award . for stock awards that vest based on performance conditions ( e.g . achievement of certain milestones ) , expense is recognized when it is probable that the condition will be met . warrants we account for stock warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreement . stock warrants that allow for cash settlement or provide for modification of the warrant exercise price under certain conditions are accounted for as derivative liabilities . we classify derivative warrant liabilities on the balance sheet as a liability , which is revalued using a binomial options pricing model at each balance sheet date subsequent to the initial issuance . a binomial options pricing model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award . the changes in fair value of the derivative warrant liabilities resulting from their remeasurement at each balance sheet date are recorded in current period earnings . accounts receivable we provide credit terms to our customers in connection with purchases of our products . we periodically review customer account activity in order to assess the adequacy of the allowances provided for potential collection issues and returns . factors considered include economic conditions , each customer 's payment and return history and credit worthiness . adjustments , if any , are made to reserve balances following the completion of these reviews to reflect our best estimate of potential losses . inventory reserves our inventory reserve requirements are based on factors including the products ' expiration date and estimates for the future sales of the product . if estimated sales levels do not materialize , we will make adjustments to our assumptions for inventory reserve requirements . accrued expenses we are required to estimate accrued expenses as part of our process of preparing financial statements . this process involves identifying services which have been performed on our behalf , and the level of service performed and the associated cost incurred for such service as of each balance sheet date in our consolidated financial statements . examples of areas in which subjective judgments may be required include costs associated with services provided by contract organizations for the preclinical development of our products , the manufacturing of clinical materials , and clinical trials , as well as legal and accounting services provided by professional organizations . in connection with such service fees , our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers . the majority of our service providers invoice us monthly in arrears for services performed . in the event that we do not identify certain costs , which 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 . the date on which certain services commence , the level of services performed on or before a given date and the cost of such services are often determined based on subjective judgments . we make these judgments based upon the facts and circumstances known to us in accordance with generally accepted accounting principles . 25 results of operations ( restated ) story_separator_special_tag style= '' font : 10pt times new roman , times , serif ; margin : 0pt 0 ; text-align : justify ; text-indent : 31.9pt '' > other expense , net , of approximately $ 33,000 for the year ended december 31 , 2013 is primarily due to other expenses of approximately $ 36,000 related to foreign currency transaction losses and approximately $ 14,000 of expenses related to the may 2013 rights offering warrant modification . these expenses were partially offset by other income of approximately $ 17,000 , which consisted primarily of a refund of $ 15,000 received as a result of the steris agreement termination . off-balance sheet arrangements we do not have any off-balance sheet arrangements as of december 31 , 2014 and 2013. liquidity and capital resources ( restated ) the following table summarizes our liquidity and capital resources as of december 31 , 2014 and 2013 and is intended to supplement the more detailed discussion that follows . the amounts stated are expressed in thousands .
| cost of goods sold cost of goods sold was approximately $ 549,000 for the year ended december 31 , 2014 compared to approximately $ 898,000 for the year ended december 31 , 2013. the decrease of approximately $ 349,000 , or 39 % , in cost of goods sold was primarily related to an increase in inventory reserves related to the recall of our point of use and dsu ultrafilters that we announced in october 2013. inventory reserves increased approximately $ 210,000 during the year ended december 31 , 2013 , $ 203,000 of which was a result of the october 2013 voluntary product recall . for the year ended december 31 , 2014 , inventory reserves increased approximately $ 59,000 , a decrease compared to 2013 of $ 151,000. the cost of goods sold related to water filter sales decreased by approximately $ 64,000 due to lower water filter sales . in addition , included in cost of goods sold for the year ended december 31 , 2013 was approximately $ 151,000 related to additional costs as a result of the product recall . partially offsetting these decreases was an additional $ 17,000 in costs of goods sold for the year ended december 31 , 2014 related to the medica royalty payments which began in the second quarter of fiscal year 2014. research and development research and development expenses were approximately $ 781,000 and $ 867,000 , respectively , for the years ended december 31 , 2014 and december 31 , 2013. this decrease of approximately $ 86,000 , or 10 % , is primarily due to lower stock compensation expense of approximately $ 48,000. the decrease in stock compensation expense is related to restricted stock awards granted to employees during the year ended december 31 , 2013. the remainder of the decrease in research and development expenses is due to a decrease of approximately $ 38,000 in project costs primarily related to our olpūr h2h module . depreciation and amortization expense depreciation and amortization expense was approximately $ 217,000 for the year ended december 31 , 2014 compared to approximately $ 223,000 for the year ended december 31 , 2013 , representing a decrease of 3 % . selling , general and administrative expenses selling , general and administrative , or sg & a , expenses were approximately $ 2,870,000 for the year ended december 31 , 2014 compared to approximately $ 3,069,000 for the year ended december 31 , 2013 , representing a decrease of $ 199,000 or 7 % . the decrease is primarily due to a decrease in personnel
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we believe that obtaining a favorable national coverage decision and a favorable reimbursement rate from the centers for medicare & medicaid services ( cms ) for our cologuard test will be a necessary element in achieving material commercial success . with the goal of expediting receipt of a favorable coverage decision , we are working with cms to coordinate the cms coverage review with the fda pre-market approval through a parallel review process . this program provides a pathway to a potential cms national coverage determination shortly after an fda approval , should it occur . with over 50 % of our target patient population being covered by medicare , receipt of a positive coverage decision from cms would help speed adoption of our test after commercial launch . a favorable cms outcome will also be critical to securing positive coverage decisions from major national and regional managed care organizations , insurance carriers , and self-insured employer groups . we also believe that it will be necessary to secure favorable coverage and reimbursement from commercial payors to achieve commercial success . we believe that third-party payors ' reimbursement of our cologuard test will depend on a number of factors , including payors ' determination that it is : sensitive for colorectal cancer ; not experimental or investigational ; approved by major guidelines organizations ; reliable , safe and effective ; medically necessary ; appropriate for the specific patient ; and cost-effective . there are two elements to our targeting strategy for the early adoption of cologuard . first , we are focused on large healthcare systems and groups . these networks employ a high percentage of the physicians in the united states and they typically have strong screening programs . second , we plan to focus on primary care physicians who prescribe a high volume of fobt and fit tests since this physician group has displayed a partiality for stool based screening methods . 25 we have generated limited operating revenues since inception and , as of december 31 , 2013 , we had an accumulated deficit of approximately $ 320.8 million . we expect to continue to incur losses for the next several years , and it is possible we may never achieve profitability . 2014 priorities our top priorities for 2014 include securing fda approval and a favorable national coverage decision from cms for our cologuard test . if for any reason the fda does not approve our pma or such approval is substantially delayed , our business and prospects would likely be materially adversely impacted . likewise it would be a material adverse event for our business if we do not receive a positive national coverage decision and favorable reimbursement rate from cms or if for any other reason we are unable to successfully commercialize our cologuard test . another priority is to secure favorable coverage and reimbursement from commercial payors . in 2014 we also plan to continue implementing our commercialization plan , including building our manufacturing capacity , obtaining clia certification for our processing lab , integrating our it infrastructure for ordering , processing , and billing , and deploying our sales and marketing teams . we also have identified a new opportunity for our sdna colorectal cancer screening technology focused on the inflammatory bowel disease ( ibd ) patient population . we initiated an ibd clinical trial in the first quarter 2013 that will focus on this specific patient group , and plan on enrolling around 300 ibd patients into the trial . furthermore , we will work on developing enhancements to our cologuard test and identifying and conducting research on other potential pipeline products targeting other cancers , such as esophageal and pancreatic cancer . story_separator_special_tag sales and marketing expenses . sales and marketing expenses increased to $ 4.8 million for the year ended december 31 , 2012 from $ 2.9 million for the year ended december 31 , 2011. the increase in sales and marketing expenses was a result of hiring additional marketing personnel and increased expenses incurred as a result of implementing a go-to-market strategy , branding and other marketing expenses . replace_table_token_9_th investment income . investment income increased to $ 262.0 thousand for the year ended december 31 , 2012 from $ 169.0 thousand for the year ended december 31 , 2011. this increase was primarily due to an overall higher cash and marketable securities balance during the year ended december 31 , 2012 as compared to the same period of 2011. interest expense . interest expense increased to $ 41.0 thousand for the year ended december 31 , 2012 from $ 21.0 thousand for the year ended december 31 , 2011. this increase was due to interest expense recognized from a capital lease which was entered into in 2012. liquidity and capital resources we have financed our operations primarily through private and public offerings of our common stock and cash received in january 2009 from genzyme in connection with the genzyme strategic transaction . as of december 31 , 2013 , we had approximately $ 12.9 million in unrestricted cash and cash equivalents and approximately $ 120.4 million in marketable securities . all of our investments in marketable securities are comprised of fixed income investments and all are deemed available-for-sale . the objectives of this portfolio are to provide liquidity and safety of principal while striving to achieve the highest rate of return , consistent with these two objectives . our investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer . 29 net cash used in operating activities was $ 39.3 million , $ 44.2 million , and $ 27.5 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the principal use of cash in operating activities for each of the years ended december 31 , 2013 , 2012 and 2011 was to fund our net loss . story_separator_special_tag the decrease in net cash used in operating activities for the years ended december 31 , 2013 and december 31 , 2012 , as compared to prior years was primarily due to decreased research and development activities . cash flows from operations can vary significantly due to various factors , including changes in our operations , prepaid expenses , accounts payable and accrued expenses . net cash used in investing activities was $ 35.5 million , $ 38.3 million , and $ 43.4 million for the years ended december 31 , 2013 , 2012 , and , 2011 , respectively . the decrease in cash used in investing activities for the year ended december 31 , 2013 when compared to the same period in 2012 was the result of increased maturities of marketable securities . excluding the impact of purchases and maturities of marketable securities , net cash used in investing activities was $ 9.3 million for the year ended december 31 , 2013 , compared to net cash used in investing activities of $ 0.7 million for the year ended december 31 , 2012 which was primarily the result of an increase in purchases of property and equipment . excluding the impact of purchases and maturities of marketable securities , net cash used in investing activities for the year ended december 31 , 2011 was primarily the result of purchases of property and equipment of $ 2.1 million . net cash provided by financing activities was $ 74.3 million , $ 60.0 million and $ 27.9 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the increase in cash provided by financing activities for the year ended december 31 , 2013 when compared to the same period in 2012 was primarily the result of an increase in the proceeds from the sale of common stock from $ 57.8 million in 2012 to $ 73.3 million in 2013. excluding the impact of the sale of common stock , net cash provided by financing activities was $ 1.0 million for the year ended december 31 , 2013 , compared to net cash provided by financing activities of $ 2.3 million for the same period in 2012. this decrease in cash provided by financing activities was primarily due to a decrease in proceeds from the exercise of common stock options for the year ended december 31 , 2013. the increase in cash provided by financing activities for the year ended december 31 , 2012 when compared to the same period in 2011 was primarily the result of an increase in proceeds from the sale of common stock from $ 27.2 million in 2011 to $ 57.8 million in 2012. excluding the impact of the sale of common stock , net cash provided by financing activities was $ 2.3 million for the year ended december 31 , 2012 , compared to net cash provided by financing activities of $ 0.7 million for the same period in 2011. this increase in cash provided by financing activities was primarily due to an increase in proceeds from the exercise of common stock options for the year ended december 31 , 2012. we expect that cash and cash equivalents and marketable securities on hand at december 31 , 2013 , will be sufficient to fund our current operations for at least the next twelve months , based on current operating plans . however , since we have no current sources of material ongoing revenue , it is possible that we may need to raise additional capital to fully fund our current strategic plan , the primary goal of which is commercializing our fda approved non-invasive sdna colorectal pre-cancer and cancer screening test . if we are unable to obtain sufficient additional funds to enable us to fund our operations through the completion of such plan , our results of operations and financial condition would be materially adversely affected and we may be required to delay the implementation of our plan and otherwise scale back our operations . even if we successfully raise sufficient funds to complete our plan , we can not assure that our business will ever generate sufficient cash flow from operations to become profitable . 30 the following table reflects our estimated fixed obligations and commitments as of december 31 , 2013. this table does not include potential milestone payments due upon fda approval or future sales-based royalty obligations : replace_table_token_10_th ( 1 ) includes expected interest payments related to long-term debt obligations . ( 2 ) we have entered into license and collaborative agreements with the mayo foundation , genzyme , mdx health ( formerly oncomethylome sciences ) , and hologic , inc. see note 7 in the notes to our consolidated financial statements for further information . commitments under license agreements generally expire concurrent with the expiration of the intellectual property licensed from the third party . operating leases reflect remaining obligations associated with the leased facilities at our headquarters and lab facility in madison , wi . capital leases reflect obligations under a capital equipment leasing arrangement . net operating loss carryforwards as of december 31 , 2013 , we had federal and state net operating loss carryforwards of approximately $ 300.1 million and $ 115.4 million , respectively . the company also had federal and state research tax credit carryforwards of approximately $ 5.6 million and $ 18.7 million , respectively . the net operating loss and tax credit carryforwards will expire at various dates through 2032 , if not utilized . the internal revenue code and applicable state laws impose substantial restrictions on a corporation 's utilization of net operating loss and tax credit carryforwards if an ownership change is deemed to have occurred . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before we are able to realize their benefit , or that future deductibility is uncertain .
| replace_table_token_4_th general and administrative expenses . general and administrative expenses increased to $ 13.6 million for the year ended december 31 , 2013 from $ 9.9 million for the year ended december 31 , 2012. the increase in general and administrative expenses was primarily a result of increased legal and professional fees in connection with fda filing efforts , increased personnel costs and other general and administrative expenses to support the overall growth of the company as we increased headcount and prepared for commercialization . replace_table_token_5_th sales and marketing expenses . sales and marketing expenses increased to $ 9.6 million for the year ended december 31 , 2013 from $ 4.8 million for the year ended december 31 , 2012. the increase in sales and marketing expense was a result of hiring additional marketing personnel and increased professional fees in connection with the expanded use of consultants as we increased our efforts to prepare for the commercialization of our cologuard test . the increase in stock-based compensation and personnel costs is related to the severance costs as a result of the june 7 , 2013 resignation of laura stoltenberg , the company 's former chief commercial officer . replace_table_token_6_th 27 investment income . investment income increased to $ 316.0 thousand for the year ended december 31 , 2013 from $ 262.0 thousand for the year ended december 31 , 2012. this increase was primarily due to an overall higher cash and marketable securities balance during the year ended december 31 , 2013 as compared to the same period of 2012. interest expense . interest expense increased to $ 69.0 thousand for the year ended december 31 , 2013 from $ 41.0 thousand for the year ended december 31 , 2012. this increase was due to interest expense recognized from a capital lease which was entered into during september 2012. comparison of the years ended december 31 , 2012 and 2011 revenue . total revenue was $
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if an imported water storage component of the project is ultimately implemented in phase ii , the following additional facilities would be required , among other things : · a pumping plant to pump water through the conveyance pipeline from the cra to the project well-field ; and · spreading basins , which are shallow settling ponds that will be configured to efficiently percolate water from the ground surface down to the water table using subsurface storage capacity for the storage of water . 22 back to top in general , several elements are needed to implement such a project : ( 1 ) a water conveyance pipeline right-of-way from the water project area to a delivery system ; ( 2 ) storage and supply agreements with one or more public water agencies or private water utilities ; ( 3 ) environmental/regulatory permits ; and ( 4 ) construction and working capital financing . as described below , the first three elements have been progressed on a concurrent basis . the fourth is dependent on actions arising from the completion of the first three . ( 1 ) a water conveyance pipeline right-of-way from the water project area to a delivery system in september 2008 , we secured a right-of-way for the water project 's water conveyance pipeline by entering into a lease agreement with the arizona & california railroad company ( “ arzc ” ) . the agreement allows for the use of a portion of the railroad 's right-of-way to construct and operate a water conveyance pipeline for a period up to 99 years . the pipeline would be used to convey water between our cadiz valley property and the cra in rice , california . as part of the lease agreement , the arzc would also receive water from the project for a variety of railroad purposes , including fire suppression and other safety and maintenance uses . we are also exploring the potential to utilize an unused natural gas pipeline ( as described in “ overview ” above ) that exists in the project area , to which we hold an ownership right , as a means to access additional distribution systems . initial feasibility studies indicate that this pipeline could be used as a component of the project to distribute water to project participants or import water for storage at the project area in phase ii . the potential use of this pipeline by the project was preliminarily analyzed as part of the project 's environmental impact report ( “ eir ” ) ( see “ other development opportunities ” ) . ( 2 ) storage and supply agreements with one or more public water agencies or private water utilities in 2010 and 2011 , we entered into option and environmental cost sharing agreements with six water providers : santa margarita water district ( “ smwd ” ) , golden state water company ( a wholly-owned subsidiary of american states water [ nyse : awr ] ) , three valleys municipal water district , suburban water systems ( a wholly owned subsidiary of southwest water company ) , jurupa community services district and california water service company , the third largest investor-owned american water utility . the six water providers serve more than one million customers in cities throughout california 's san bernardino , riverside , los angeles , orange and ventura counties . under the terms of the agreements with the six water providers , upon completion of the water project 's ceqa review and certification of the final environmental impact report ( “ final eir ” ) , which occurred on july 31 , 2012 , each agency has the right to acquire an annual supply of 5,000 acre-feet of water at a pre-determined formula competitive with their incremental cost of new water . in addition , the agencies have options to acquire storage rights in the water project to allow them to manage their supplies to complement their other water resources . following ceqa certification , smwd was the first participant to adopt resolutions approving a water purchase and sale agreement for 5,000 acre-fee of water . the structure of the smwd purchase agreement calls for an annually adjusted water supply payment of up to $ 500/af including identified income streams , plus their pro rata portion of the capital recovery charge and operating and maintenance costs . the capital recovery charge is calculated by amortizing the total capital investment by the company over a 30 year term . 23 back to top approximately 80 % of the water to be conserved annually by the project is now either under a water purchase and sale agreement or remains under option . we are currently working with other participating agencies to convert their option agreements to definitive economic agreements . we are also in discussions with additional water providers interested in acquiring rights to the remaining available project supplies , as well as with third parties regarding the imported storage aspect of this project . ( 3 ) environmental permits in order to properly develop and quantify the sustainability of the water project , and prior to initiating the formal permitting process for the water project , we commissioned environmental consulting firm ch2m hill to complete a comprehensive study of the water resources at the project area . following a year of analysis , ch2m hill released its study of the aquifer system in february 2010. utilizing new models produced by the u.s. geological survey in 2006 and 2008 , the study estimated the total groundwater in storage in the aquifer system to be between 17 and 34 million acre-feet , a quantity on par with lake mead , the nation 's largest surface reservoir . the study also identified a renewable annual supply of native groundwater in the aquifer system currently being lost to evaporation . ch2m hill 's findings , which were peer reviewed by leading groundwater experts , confirmed that the aquifer system could sustainably support the water project . story_separator_special_tag further , and also prior to beginning the formal environmental permitting process , we entered into a memorandum of understanding with the natural heritage institute ( “ nhi ” ) , a leading global environmental organization committed to protecting aquatic ecosystems , to assist with our efforts to sustainably manage the development of our cadiz/fenner property . as part of this “ green compact ” , we will follow stringent plans for groundwater management and habitat conservation , and create a groundwater management plan for the water project . as discussed in ( 2 ) , above , we have entered into environmental cost sharing agreements with all participating water providers . the environmental cost sharing agreements created a framework for funds to be committed by each participant to share in the costs associated with the ceqa review work . smwd served as the lead agency for the review process . esa associates , a leading environmental consulting firm , prepared the water project 's environmental review documentation . the ceqa process began in february 2011 with the issuance of a notice of preparation ( “ nop ” ) of a draft environmental impact report ( “ draft eir ” ) by smwd . smwd held two public scoping meetings in march 2011 and released the draft eir in december 2011. the draft eir analyzed potential impacts to environmental resources at the project area , including critical resources of the desert environment such as vegetation , mountain springs , and water and air quality . the analysis of the project considered peer-reviewed technical reports , independently collected data , existing reports and the project 's state of the art groundwater management , monitoring and mitigation plan ( “ gmmmp ” ) . 24 back to top smwd conducted a 100-day public comment period for the draft eir , hosting two public comment meetings and an informational workshop in january and february 2012. the public comment period concluded in march 2012. in may 2012 , we entered into a memorandum of understanding with the county and smwd , creating the framework for finalizing the gmmmp in accordance with the county 's desert groundwater ordinance . at the beginning of july 2012 , smwd released the final eir and responses to public comments . the final eir summarized that , with the exception of unavoidable short-term construction emissions , by implementing the measures developed in the gmmmp , the project will avoid significant impacts to desert resources . a public hearing was held on july 25 , 2012 by the smwd board of directors to take public testimony and consider certification of the final eir . on july 31 , 2012 , the smwd board of directors certified the final eir . following smwd 's certification of the final eir , the san bernardino county board of supervisors voted on october 1 , 2012 to approve the gmmmp for the project and adopted certain findings under ceqa , becoming the first responsible agency to take an approving action pursuant to the certified eir . san bernardino county served as a responsible agency in the ceqa review process as the local government entity responsible for oversight over groundwater resources in the cadiz valley . metropolitan water district of southern california ( “ metropolitan ” ) , also a responsible agency , will take action under ceqa prior to construction regarding the terms and conditions of the project 's use of the cra . project water supplies will enter metropolitan 's cra in accordance with its published engineering and design standards and subject to all applicable fees and charges routinely established by metropolitan for the conveyance of water within its service territory . ( 4 ) construction and working capital as part of the water purchase and sale agreement with smwd referred to in ( 2 ) , above , smwd further authorized to continue next steps with the company , which includes final permitting , design and construction . as described above , construction of phase i of the project would primarily consist of well-field facilities at the water project site , a conveyance pipeline extending approximately 43 miles along the right-of-way described in ( 1 ) , above , from the well-field to the cra , and an energy source to pump water through the conveyance pipeline between the project well-field and the cra . the construction of these facilities will require capital financing , which is expected to be entirely provided with lower-cost senior debt , secured by the new facility assets . the march 2013 refinancing of our corporate term debt ( see item 7 – management 's discussion and analysis of financial condition and results of operations – liquidity and capital resources ) , now provides us the flexibility to incorporate water project construction financing within our current debt structure . existing wells at the cadiz valley property currently in use for our agricultural operations will be integrated into the water project well-field , reducing the number of wells that must be constructed prior to project implementation . these wells will be upgraded from diesel power to natural gas power over the next 12 months to advance the overall construction timeline . 25 back to top existing pipeline asset we currently hold ownership rights to a 96-mile existing idle natural gas pipeline from the cadiz valley to barstow , california that would be converted for the transportation of water . in september 2011 , we entered into two separate agreements with el paso natural gas ( “ epng ” ) , a subsidiary of kinder morgan inc. , and questar corporation ( “ questar ” ) providing us with options to purchase approximately 300-miles of idle , natural gas pipelines for $ 50 million . the questar agreement granted us rights to purchase an 80-mile line in riverside county for $ 10 million . based on our evaluation of these lines we allowed the option agreement with questar to expire and we pursued plans for the epng line as described below .
| 2012 revenues included $ 0.1 million of revenues related to citrus crop sales , which were down $ 0.8 million from the prior year due to significant weather related damage to citrus crops in the 2012 growing season , and $ 0.3 million of revenues related to raisin sales , which were up $ 0.2 million from the prior year primarily due to a larger raisin crop in 2012 in comparison to the 2011 raisin crop . cost of sales . cost of sales totaled $ 0.5 million during the year ended december 31 , 2012 , compared with $ 1.4 million during the year ended december 31 , 2011. the lower cost of sales for the year ended december 31 , 2012 , related largely to the lower lemon harvesting related to the smaller size of the 2012 lemon crop which was due to significant weather-related damage . general and administrative expenses . general and administrative expenses during the year ended december 31 , 2012 , totaled $ 12.6 million compared with $ 10.4 million for the year ended december 31 , 2011. non-cash compensation costs related to stock and option awards are included in general and administrative expenses . compensation costs from stock and option awards for the year ended december 31 , 2012 , totaled $ 0.4 million compared with $ 2.4 million for the year ended december 31 , 2011. the expense reflects the vesting schedules of the stock and option awards under the 2009 equity incentive plan . other general and administrative expenses , exclusive of stock-based compensation costs , totaled $ 12.2 million in the year ended december 31 , 2012 , compared with $ 8.1 million for the year ended december 31 , 2011. the increase in general and administrative expenses in 2012 was primarily due to additional legal and consulting fees related to water development efforts in connection with the certification of the final environmental impact report , litigation costs and due diligence costs associated with the feasibility of converting the natural gas pipelines , which we currently have an ownership right , to water transportation facilities ( see “ existing pipeline asset ” above ) . depreciation . depreciation expenses totaled $ 0.4 million for the year ended december 31 , 2012 , compared to $ 0.4 million for 2011. interest expense , net . net interest expense totaled $ 6.8 million during the year
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such statements include , but are not limited to , statements about future financial and operating results , plans , objectives , expectations and intentions , revenues , costs and expenses , interest rates , outcome of contingencies , business strategies , regulatory filings and requirements , performance and market acceptance of our products , the estimated potential size of markets , capital requirements , the terms of any capital financing agreements and other statements that are not historical facts . you can find many of these statements by looking for words like “ believes , ” “ expects , ” “ anticipates , ” “ estimates , ” “ may , ” “ should , ” “ will , ” “ could , ” “ plan , ” “ intend , ” or similar expressions in this annual report on form 10-k. we intend that such forward-looking statements be subject to the safe harbors created thereby . 15 these forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties . if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize , actual results may differ materially from current expectations and projections . factors that might cause such a difference include those discussed under “ risk factors , ” as well as those discussed elsewhere in the annual report on form 10-k. you are cautioned not to place undue reliance on these forward-looking statements , which speak only as of the date of this annual report on form 10-k or , in the case of documents referred to or incorporated by reference , the date of those documents . all subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section . we do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this annual report on form 10-k or to reflect the occurrence of unanticipated events , except as may be required under applicable u.s. securities law . if we do update one or more forward-looking statements , no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements . 16 overview management 's discussion and analysis provides additional insight into the company and is provided as a supplement to , and should be read in conjunction with , our audited financial statements and accompanying footnotes thereto . we strive to be the leading provider of biopreservation tools for cells , tissues , and organs ; to facilitate basic and applied research and commercialization of new therapies by maintaining the health and function of biologic source material and finished products during manufacturing , distribution and clinical administration . results of operations overview for 201 8 in 2018 , we reported financial results that were consistent with the continued execution of our long-term plans . we believe we are the market leader for pre-formulated , clinical grade biopreservation media products . our patented biopreservation media products are formulated to reduce preservation-induced , delayed-onset cell damage and death . our platform enabling technology provides our customers significant shelf life extension of biologic source material and final cell products , and greatly improved post-preservation cell , and tissue , viability and function . our products continue to be widely adopted by this segment . we believe that our products have been incorporated in over 300 applications for new cell and tissue-based regenerative medicine products and therapies . we continue to implement strategies that will increase awareness of the need for improved biopreservation . story_separator_special_tag and development expenses consist primarily of salaries and other personnel-related expenses , consulting and other outside services , laboratory supplies , and other costs . we expense all research and development costs as incurred . research and development expenses for 2018 increased compared to 2017 due primarily to higher performance-based compensation . sales and marketing . sales and marketing expenses consist primarily of salaries , trade association sponsorships , and other personnel-related expenses , consulting , trade shows and advertising . the increase in sales and marketing expenses in 2018 compared to 2017 was primarily due to higher performance-based compensation , tradeshows , travel and market research . general and administrative expenses . general and administrative expenses consist primarily of personnel-related expenses , non-cash stock-based compensation for administrative personnel and members of the board of directors , professional fees , such as accounting and legal , and corporate insurance . the increase in general and administrative expenses in 2018 compared to 2017 was primarily due to increased investor relations , quality system consulting fees , new hires , higher performance-based compensation and corporate non-income taxes . other income ( expenses ) interest income . we earn interest on our money market account . interest expense . for the year ended december 31 , 2018 , interest expense is related to equipment financing . for the year ended december 31 , 2017 , interest expense is due to equipment financing and to the note payable related to the credit facility financing arrangement entered into in may 2016 which was converted to preferred stock in 2017. amortization of debt discount . the amortization of short-term debt discount for the year ended december 31 , 2017 is due to the amortization of the allocated value of the detachable warrants associated with the credit facility financing on the arrangement entered into in may 2017 which was fully amortized may 31 , 2017. financing costs and write off of deferred financing costs . story_separator_special_tag the financing costs in 2017 were due to various sec filings related to potential stock issuances . loss on equity method investment . the non-cash loss associated with our proportionate share of the net loss in our investment in savsu . liquidity and capital resources on december 31 , 2018 , we had $ 30.7 million in cash and cash equivalents , compared to $ 6.7 million at december 31 , 2017. based on our current expectations with respect to our revenue and expenses , we expect that our current level of cash and cash equivalents will be sufficient to meet our liquidity needs for the foreseeable future in excess of one year . if our revenues do not grow as expected and if we are not able to manage expenses sufficiently , we may be required to obtain additional equity or debt financing if our cash resources are depleted . 19 we continue to monitor and evaluate opportunities to strengthen our balance sheet and competitive position over the long term . these actions may include acquisitions or other strategic transactions ( including , potentially , the exercise of our option to purchase the remaining 56 % of savsu that we do not currently own ) that we believe would generate significant advantages and substantially strengthen our business . the consideration we pay in such transactions may include , among other things , shares of our common stock , other equity or debt securities of our company or cash . we may elect to seek debt or equity financing in anticipation of , or in connection with , such transactions or to fund or invest in any operations acquired thereby . we may also seek equity or debt financing opportunistically for these purposes if we believe that market conditions are conducive to obtaining such financing . net cash provided by operating activities during the year ended december 31 , 2018 , we generated $ 2.3 million in cash from operations compared to $ 605,000 for the year ended december 31 , 2017. the increase in operating cash generated in 2018 was the result of an increase in revenue and gross margin due to an increase in liters sold and a higher average selling price per liter partially offset by an increase in operating expenses . net cash used in investing activities net cash used in investing activities was $ 6.5 million in 2018 compared to $ 144,000 in 2017. cash used by investing activities increased in 2018 due to our $ 6.0 million investment in savsu and an increase in equipment purchases . net cash provided by financing activities net cash provided by financing activities was $ 28.1 million and $ 4.8 million in 2018 and 2017 , respectively . in 2018 , cash provided by financing activities was the result of a $ 20.0 million private investment by casdin capital , $ 12.9 million from the proceeds of stock option and warrant exercises , partially offset by the redemption of series a redeemable preferred stock and payments of preferred dividends , costs associated with the casdin stock issuance and equipment financing and leasing payments . critical accounting policies and significant judgments and estimates management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as reported revenues and expenses during the reporting periods . on an ongoing basis , we evaluate estimates , including , but not limited to those related to accounts receivable allowances , determination of fair value of share-based compensation , contingencies , income taxes , and expense accruals . we base our estimates on historical experience and on 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 . actual results may differ materially from these estimates under different assumptions or conditions . share-based compensation we account for share-based compensation for stock options by estimating the fair value of share-based compensation using the black-scholes option pricing model on the date of grant . we utilize assumptions related to stock price volatility and stock option term that are based upon both historical factors as well as management 's judgment . non-cash compensation expense is recognized on a straight-line basis over the applicable requisite service period of one to four years , based on the fair value of such share-based awards on the grant date . income taxes we follow the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and on the expected future tax benefits to be derived from net operating loss carryforwards measured using current tax rates . a valuation allowance is established if it is more likely than not that some portion or all the deferred tax assets will not be realized . we have not recorded any liabilities for uncertain tax positions or any related interest and penalties . equity method accounting we account for our investment in savsu using the equity method of accounting . this method states that if the investment provides us the ability to exercise significant influence , but not control , over the investee , we account for the investment under the equity method . significant influence is generally deemed to exist if the company 's ownership interest in the voting stock of the investee ranges between 20 % and 50 % , although other factors , such as representation on
| ● redeemed series a redeemable preferred stock ; may 17 , 2018 , we redeemed 25 % of the 4,250 shares of series a redeemable preferred stock outstanding for $ 1,063,000. november 27 , 2018 , we redeemed the remaining 3,187 shares of series a redeemable preferred stock outstanding for $ 3,187,000. there are no series a shares outstanding . ● savsu announcements , increased our ownership in savsu ; january 18 , 2018 , savsu , announced the uspto has issued a notice of allowance of a patent application titled `` biologic stability , delivery logistics and administration of time and or temperature sensitive biologic based materials ” . since the formation of the biolife solutions and savsu technologies llc joint venture in the fourth quarter of 2014 , the companies have submitted 13 other patent applications related to novel innovations incorporated into current , or to be incorporated into future , precision thermal shipping containers under the evo brand . january 23 , 2018 , savsu announced that it will supply savsu smart precision shipping containers throughout the world courier network . may 16 , 2018 , we made a $ 1 million equity investment in savsu . savsu 's majority shareholder has also invested an additional $ 1 million in savsu . september 5 , 2018 , we increased our ownership of savsu from approximately 31 % to 44 % with a $ 5 million investment . in connection with such investment , we also entered into a call option agreement with the majority owner of savsu , savsu origin , llc , pursuant to which we have the option for 18 months to purchase from savsu origin all of its shares of savsu . savsu will use the investment to scale up its operations and inventory to support increased demand for its evo® dry vapor shippers and other precision temperature-controlled shipping containers for cell and gene therapies . 17 financial performance summary for 201 8 ● revenue grew 79 % over 2017 from $ 11.0 million to $ 19.7 million . this increase was driven by a 108 % increase
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interest rate fluctuations , as well as changes in the amount and type of earning assets and liabilities , combine to affect net interest income . we also measure our performance by our efficiency ratio , which is calculated by dividing non-interest expense by the sum of net interest income and non-interest income . critical accounting policies our financial statements are prepared in accordance with gaap . our most complex accounting policies require management 's judgment to ascertain the valuation of assets , liabilities , commitments and contingencies . we have established detailed policies and control procedures intended to ensure that valuation methods are well-controlled and applied consistently from period to period . in addition , the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner . the application of these policies has a significant impact on the company 's consolidated financial statements and financial results could differ materially if different judgments or estimates were to be applied . in the opinion of management , the accompanying consolidated statements of financial condition and related consolidated statements of income , comprehensive income , changes in shareholders ' equity and cash flows reflect all adjustments ( which include reclassification and normal recurring adjustments ) that are necessary for a fair presentation in conformity with gaap . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect amounts reported in the financial statements . our significant accounting policies are described in detail in note 1 , summary of significant accounting policies in “ item 8. financial statements and supplemental data. ” use of estimates — the preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets , liabilities , revenues and expenses . on an ongoing basis , management evaluates the estimates used . estimates are based upon historical experience , current economic conditions and other factors that management considers reasonable under the circumstances and the actual results may differ from these estimates under different assumptions . the allowance for loan losses , the valuation of real estate acquired through foreclosure , deferred income taxes , share-based compensation , and fair values of financial instruments are estimates which are particularly subject to change . 41 allowance for loan and lease losses — the allowance for l oan losses represents our estimate of probable losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . we evaluate our allowance for loan losses quarterly based on a number of quantitative and qualitative factors , including levels and trends of past due and non-accrual loans , asset classifications , loan grades , change in volume and mix of loans , collateral value , historical loss experience , size and complexity of individual credits , loan concentrations and economic conditions . allowance for loan losses is provided on both a specific and general basis . specific allowances are provided for impaired credits for which the expected/anticipated loss is measurable . general valuation allowances are based on a portfolio segmentation based on risk grading , with a further evaluation of various quantitative and qualitative factors noted above . we believe that the level of alll as of december 31 , 2018 and 2017 , were adequate to absorb losses inherent in the loan portfolio . investment securities — gaap requires that investment securities available for sale be carried at fair value which is based on quoted market prices or if quoted market prices are not available , fair values are extrapolated from the quoted prices of similar instruments . management utilizes the services of a reputable third party vendor to assist with the determination of estimated fair values . unrealized holding gains and losses on securities classified as available for sale are excluded from earnings and are reported net of tax as accumulated other comprehensive income ( “ aoci ” ) , a component of shareholders ' equity , until realized . investment securities are evaluated for impairment on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value is other than temporary . management utilizes criteria such as the magnitude and duration of the decline and our intent and ability to retain our investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value , in addition to the reasons underlying the decline , to determine whether the loss in value is other than temporary . the term “ other than temporary ” is not intended to indicate that the decline is permanent , but indicates that the prospect for a near-term recovery of value is not favorable , or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment . once a decline in value is determined to be other-than-temporary and we do not intend to sell the security or it is more likely than not that we will not be required to sell the security before recovery , only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings , with the balance recognized as a charge to other comprehensive income . if management intends to sell the security or it is more likely than not that we will be required to sell the security before recovering its forecasted cost , the entire impairment loss is recognized as a charge to earnings . business combinations — business combinations are accounted for using the acquisition method of accounting and , accordingly , assets acquired and liabilities assumed , both tangible and intangible , and consideration exchanged are recorded at fair value on the acquisition date . the excess purchase consideration over fair value of net assets acquired is recorded as goodwill . story_separator_special_tag expenses resulting from a business combination are expensed as incurred . changes in deferred tax asset valuation allowances related to acquired tax uncertainties are recognized in net income after the measurement period . acquired loans — purchased loans , including loans acquired in business combinations , are recorded at fair value on the acquisition date . credit discounts are included in the determination of fair value ; therefore , an allowance for loan losses is not recorded on the acquisition date . acquired loans are evaluated upon acquisition and classified as either purchased credit-impaired ( “ pci ” ) or purchased non-credit impaired . pci loans reflect credit deterioration since origination such that it is probable at acquisition that the company will be unable to collect all contractually required payments . the non-accretable difference on pci loans is not accreted to interest income . the accounting for pci loans is periodically updated for changes in cash flow expectations , and reflected in interest income over the life of the loans as accretable yield . any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording a provision for loan losses . for purchased non-credit-impaired loans , the difference between the fair value and unpaid principal balance of the loan at the acquisition date is amortized or accreted to interest income over the life of the loans . any subsequent deterioration in credit quality is recognized by recording a provision for loan losses . 42 goodwill — goodwill represents the excess of the purchase considerations paid over the fair value of the assets acquired , net of the fair values of liabilities assumed in a business combination and is not amortized but is reviewed annually , or more frequently as c urrent circumstances and conditions warrant , for impairment . an assessment of qualitative factors is completed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if the qualitative analysis concludes that further analysis is required , then a quantitative impairment test would be completed . the quantitative goodwill impairment compares the reporting unit 's estimated fair values , including goodwill , to its carrying amount . if the carrying amoun t exceeds its reporting unit 's fair value , then an impairment loss would be recognized as a charge to earnings , but is limited by the amount of goodwill allocated to that reporting unit . other intangible assets — other intangible assets consists primarily of core deposit intangibles ( “ cdi ” ) , which are amounts recorded in business combinations or deposit purchase transactions related to the value of transaction-related deposits and the value of the customer relationships associated with the deposits . core deposit intangibles are amortized over the estimated useful life of such deposits . these assets are reviewed at least annually for events or circumstances that could impact their recoverability . these events could include loss of the underlying core deposits , increased competition or adverse changes in the economy . to the extent other identifiable intangible assets are deemed unrecoverable , impairment losses are recorded in other non-interest expense to reduce the carrying amount of the assets . mortgage and other servicing rights — mortgage and other servicing rights are recognized as separate assets when rights are acquired through purchase of such rights or through the sale of loans . generally , purchased servicing rights are capitalized at the cost to acquire the rights . for loans sold , the value of the servicing rights are estimated and capitalized . fair value is based on market prices for comparable servicing rights contracts . capitalized servicing rights are reported in other assets and 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 . income taxes — we file income taxes on a consolidated basis with our subsidiaries and allocate income tax expense ( benefit ) based on each entity 's proportionate share of the consolidated provision for income taxes . deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their respective tax bases . deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . the determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings , which are subject to uncertainty and estimates that may change given economic conditions and other factors . the realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is “ more likely than not ” that all or a portion of the deferred income tax asset will not be realized . “ more likely than not ” is defined as greater than a 50 % probability . all available evidence , both positive and negative is considered to determine whether , based on the weight of that evidence , a valuation allowance is needed . only tax positions that meet the more-likely-than-not recognition threshold are recognized . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority .
| ( 4 ) net interest margin is computed by dividing net interest income by average interest earning assets . 47 rate/volume analysis . the following table shows the change in interest income and interest expense and the amount of change attributable to variances in volume , rates an d the combination of volume and rates based on the relative changes of volume and rates . for purposes of this table , the change in interest due to both volume and rate has been allocated to change due to volume and rate in proportion to the relationship of absolute dollar amounts of change in each . replace_table_token_7_th net interest income increased $ 27.5 million for the year ended december 31 , 2018 compared with the same period in 2017. the increase in net interest income was driven by organic loan growth , the full year impact of $ 362 million of loans purchased from the acquisition of the seven utah branches of banner bank and the merger of town & country bank , and improved loan and investment securities yields , offset by higher cost of funds from interest-bearing deposits and short term borrowings . net interest income increased $ 10.8 million for the year ended december 31 , 2017 compared to the same period in 2016. the increase in net interest income was driven by organic loan growth , one quarter 's impact of $ 362 million of loans purchased from the acquisition of the seven utah branches of banner bank and the merger of town & country bank , and improved loan and investment securities yields , offset by higher cost of funds from interest-bearing deposits . 48 comparison of results of operations for the years ended december 31 , 2018 and 2017 replace_table_token_8_th net income . for the year ended december 31 , 2018 , net income was $ 40.6 million , or $ 2.14 per diluted common share , compared with $ 19.8 million , or $ 1.08 per diluted common share , for the same period a year earlier . in 2017 , the company recorded $ 4.8 million in non-recurring acquisition-related costs for
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we believe that the disruption caused by the pandemic created increased consumer interest in investing in their homes and accelerated trends that we were experiencing prior to the pandemic , such as the shift towards value-priced cabinetry products and a focus on outdoor living . we expect the trend toward focusing on the home to continue . we have also taken proactive steps in our manufacturing supply chain and other areas to drive efficiencies which we expect to allow us to be more competitive both during and after the pandemic . however , due to the continued inherent uncertainty surrounding covid-19 , including governmental directives , public health challenges and market reactions , our results in future periods may be negatively impacted . during 2020 , the u.s. home products market grew due to increases in repair and remodel and new home construction activity . we believe spending for home repair and remodeling increased approximately 6 % and new housing construction experienced approximately 4 % growth in 2020 compared to 2019. in 2020 , net sales grew 5.7 % due to higher volume and price increases to help mitigate the cumulative impact from tariff related costs . these factors were partially offset by unfavorable mix , higher rebate costs and unfavorable foreign exchange of $ 4 million . in 2020 , operating income increased 14.7 % over 2019 primarily due to price increases to help mitigate the impact of higher tariffs , higher sales volume , the benefits from productivity improvements and restructuring actions and lower asset impairment charges . these factors were partially offset by the impact of unfavorable mix , higher employee related costs , higher tariffs , higher transportation costs , higher advertising and marketing costs and higher restructuring and other charges . in december 2020 , we acquired 100 % of the outstanding equity of larson , a leading brand of storm , screen and security doors , for a total purchase price of approximately $ 715.2 million , net of cash acquired and closing date working capital adjustments . the acquisition cost is further subject to the final post-closing working capital adjustment . we financed the transaction with borrowings under our existing credit facilities . this acquisition is expected to strengthen our overall product offering . following the acquisition of larson , our doors & security segment was renamed “ outdoors & security ” to better align with the segment 's strategic focus on the fast-growing outdoor living space and to better represent the brands within the segment , including the newly acquired larson . the outdoors & security segment name change is to the name only and had no impact on the company 's historical financial position , results of operations , cash flow or segment level results previously reported . during june 2020 , we repaid all amounts outstanding on the 3.000 % senior notes issued in june 2015 at their maturity date using borrowings under our 2019 revolving credit agreement ( as defined below ) . in september 2019 , the company issued $ 700 million of 3.25 % senior notes due 2029 ( “ 2019 notes ” ) in a registered public offering . the company used the proceeds from the 2019 notes offering to repay in full a $ 350 million term loan and to pay down outstanding balances under our 2019 revolving credit agreement . in april 2020 , the company entered into a 364-day supplemental , $ 400 million revolving credit facility ( the “ 2020 revolving credit agreement ” ) , and borrowings thereunder will be used for general corporate purposes . in 2018 our plumbing segment entered into a strategic partnership with , and acquired non-controlling equity interests in , flo technologies , inc. ( “ flo ” ) , a u.s. manufacturer of comprehensive water monitoring and shut-off systems with leak detection technologies . in january 2020 , we entered into an agreement to acquire 100 % of the outstanding shares of flo in a multi-phase transaction , which will be completed in 2022. basis of presentation the consolidated financial statements in this annual report on form 10-k have been derived from the accounts of the company and its wholly-owned subsidiaries . the company 's consolidated financial statements are based on a fiscal year 17 ending december 31. certain of the company 's subsidiaries operate on a 52 or 53 week fiscal year ending during the month of december . in december 2020 , the company acquired 100 % of the outstanding equity of larson for a total purchase price of approximately $ 715.2 million , net of cash acquired and closing date working capital adjustments . the acquisition cost is further subject to the final post-closing working capital adjustment . we financed the transaction with borrowings under our existing credit facilities . the financial results of larson were included in the company 's consolidated balance sheet as of december 31 , 2020. larson 's net sales , operating income and cash flows from the date of acquisition to december 31 , 2020 were not material to the company . the results of operations are included in the outdoors & security segment . story_separator_special_tag style= '' text-align : center ; margin-top:12pt ; margin-bottom:0pt ; text-indent:0 % ; font-size:10pt ; font-family : arial ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > 19 net income from continuing operations net income from continuing operations was $ 554.4 million in 2020 compared to $ 431.3 million in 2019. the increase of $ 123.1 million was due to higher operating income , higher other ( income ) expense , net and lower interest expense , partly offset by higher income taxes and equity in losses of affiliate . story_separator_special_tag results by segment plumbing net sales increased by $ 174.9 million , or 8.6 % , due to higher sales volume from retail and e-commerce customers in the u.s. who benefited from strong consumer demand from higher home investments , higher sales volume in china despite temporary closures for covid-19 and price increases to help mitigate the cumulative impact of tariffs . these factors were partly offset by higher rebate costs and lower sales from showroom customers whose locations closed or operated at limited capacity as a result of the covid-19 pandemic as well as unfavorable foreign exchange of approximately $ 1 million . operating income increased by $ 40.3 million , or 9.4 % , due to higher sales volume and the benefit from productivity improvements . these benefits were partly offset by unfavorable channel mix , higher advertising and marketing costs , asset impairment charges ( $ 13.0 million in 2020 ) , higher employee related costs and the impact of higher tariffs as well as unfavorable foreign exchange of approximately $ 2 million . outdoors & security net sales increased by $ 70.3 million , or 5.2 % , due to higher volume for decking and doors products due to strong consumer demand benefiting from higher home investments , price increases to help mitigate tariffs and the benefit from new customers in decking products . these factors were partially offset by lower volume primarily due to covid-19 related weakness in the commercial and international security markets , the discontinuance of a doors product line , higher rebate costs and unfavorable mix . foreign exchange was unfavorable by approximately $ 2 million . operating income increased by $ 29.0 million , or 16.8 % , due to higher sales volume , the benefit from productivity improvements , the absence in 2020 of expenses related to fiberon 's inventory fair value adjustment ( $ 1.8 million in 2019 ) and a fair value adjustment associated with an idle manufacturing facility ( $ 1.7 million in 2019 ) . foreign exchange was favorable by approximately $ 3 million . these factors were partially offset by unfavorable mix , higher employee related costs , the impact of higher tariffs and higher restructuring costs . cabinets net sales increased by $ 80.5 million , or 3.4 % , due to higher volume and price increases to help mitigate the cumulative impact of tariffs . these factors were partly offset by a continued shift to value-priced products from make-to-order products and higher transportation costs , as well as unfavorable foreign exchange of approximately $ 1 million . operating income increased by $ 57.4 million , or 32.2 % , due to higher net sales , lower asset impairment charges ( $ 32.0 million decrease ) and the benefit from productivity improvements . these factors were partly offset by a continued shift to value-priced products from make-to-order products and higher transportation costs . corporate corporate expenses increased by $ 23.8 million , or 29.9 % , due to higher employee related costs , $ 4.5 million of transaction costs associated with the larson acquisition and the impairment of a long-lived asset ( $ 3.6 million ) . liquidity and capital resources our principal sources of liquidity are cash on hand , cash flows from operating activities , cash borrowed under our credit facility and cash from debt issuances in the capital markets . our operating income is generated by our subsidiaries . we believe our operating cash flows , including funds available under the credit facility and access to capital markets , provide sufficient liquidity to support the company 's working capital requirements , capital expenditures and service of indebtedness , as well as to finance acquisitions , repurchase shares of our common stock and pay dividends to stockholders , as the board of directors deems appropriate . our cash flows from operations , borrowing availability and overall liquidity are subject to certain risks and uncertainties , including those described in the section entitled “ item 1a . risk factors. ” in addition , we can not predict whether or when we may enter into acquisitions , joint ventures or dispositions , make any purchases of shares of our common stock under our share repurchase programs , or pay dividends , or what impact any such transactions could have on our results of operations , cash flows or financial condition , whether as a result of the issuance of debt or equity securities , or otherwise . 20 unsecured senior notes at december 31 , 2020 , the company had aggregate outstanding notes in the principal amount of $ 1.8 billion , with varying maturities ( the “ notes ” ) . the notes are unsecured senior obligations of the company . the following table provides a summary of the company 's outstanding notes , including the carrying value of the notes , net of underwriting commissions , price discounts and debt issuance costs as of december 31 , 2020 and december 31 , 2019 : replace_table_token_8_th during june 2020 , we repaid all outstanding 3.000 % senior notes issued in june 2015 at their maturity date using borrowings under our 2019 revolving credit agreement ( as defined below ) . in september 2019 , we issued $ 700 million of the 3.25 % senior notes due 2029 i n a registered public offering . the company used the proceeds from the 2019 notes offering to repay in full the company 's $ 350 million term loan and to pay down outstanding balances under our revolving credit facility . notes payments due during the next five years as of december 31 , 2020 are zero in 2021 through 2022 , $ 600 million in 2023 , zero in 2024 and $ 500 million in 2025. credit facilities in april 2020 , the company entered into a supplemental 364-day , $ 400 million revolving credit facility ( the “ 2020 revolving credit agreement ” ) , and borrowings thereunder will be used for general corporate purposes .
| in 2019 , financial results included : asset impairment charges of $ 41.5 related to impairment of two indefinite-lived tradenames within our cabinets segment , which were primarily the result of a continuing shift in consumer demand from custom and semi-custom cabinetry products to value-priced cabinetry products , which led to reductions in future growth rates related to these tradenames , actuarial losses within our defined benefit plans of $ 34.7 million primarily related to decreases in discount rates and differences between expected and actual returns on plan assets , restructuring and other charges of $ 22.2 million before tax ( $ 16.8 million after tax ) , primarily related to severance costs within all of our segments and costs associated with closing facilities within our plumbing and outdoors & security segments and the impact of foreign exchange primarily due to movement in the canadian dollar , british pound , mexican peso and chinese yuan , which had an unfavorable impact compared to 2018 , of approximately $ 29 million on net sales , approximately $ 10 million on operating income and approximately $ 8 million on net income . 18 total fortune brands net sales net sales increased by $ 325.7 million , or 5.7 % , on higher volume and price increases to help mitigate the cumulative impact from tariff related costs . these factors were partially offset by unfavorable mix , higher rebate costs and unfavorable foreign exchange of $ 4 million . cost of products sold cost of products sold increased by $ 213.7 million , or 5.8 % , due to higher net sales , unfavorable mix and the impact of higher tariffs , partially offset by the benefit from productivity improvements . selling , general and administrative expenses selling , general and administrative expenses increased by $ 26.3 million , or 2.1 % , due to higher employee related costs , higher advertising and marketing cost and higher transportation costs . these increases were partially offset by the benefits from organizational restructuring initiatives . amortization of intangible assets amortization of intangible assets are consistent with
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in all cases , revenue is recognized once the sales price to our customer is fixed or is determinable and we have reasonable assurance as to the collectability . in certain customer arrangements , we provide services such as inventory management . we may perform some or all of the following services for customers : determine inventory stocking levels ; establish inventory reorder points ; launch purchase orders ; receive material ; put away material ; and pick material for order fulfillment . we recognize revenue for services rendered during the period based upon a previously negotiated fee arrangement . we also sell inventory to these customers and recognize revenue at the time title and risk of loss transfers to the customer . selling , general and administrative expenses we include warehousing , purchasing , branch operations , information services , and marketing and selling expenses in this category , as well as other types of general and administrative costs . allowance for doubtful accounts we maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . we have a systematic procedure using estimates based on historical data and reasonable assumptions of collectibles at the local branch level and on a consolidated corporate basis to calculate the allowance for doubtful accounts . excess and obsolete inventory we write down our inventory to its net realizable value based on internal factors derived from historical analysis of actual losses . we identify items at risk of becoming obsolete , which is defined as supply in excess of 36 months relative to demand or movement . we then analyze the ultimate disposition of previously identified excess inventory items , such as sold , returned to supplier , or scrapped . this item by item analysis allows us to develop an estimate of the likelihood that an item identified as being in excess supply ultimately becomes obsolete . we apply the estimate to inventory items currently in excess of 36 months supply , and reduce our inventory carrying value by the derived amount . we revisit and test our assumptions on a periodic basis . historically , we have not had material changes to our assumptions and do not anticipate any material changes in the future . supplier volume rebates we receive rebates from certain suppliers based on contractual arrangements with them . since there is a lag between actual purchases and the rebates received from the suppliers , we must estimate and accrue the approximate amount of rebates available at a specific date . we record the amounts as other accounts receivable in the consolidated balance sheets . the corresponding rebate income is recorded as a reduction of cost of goods sold . the appropriate level of such income is derived 19 from the level of actual purchases made by us from suppliers . supplier volume rebate rates have historically ranged between approximately 0.9 % and 1.4 % of sales depending on market conditions . in 2015 , the rebate rate was 1.0 % . goodwill and indefinite-lived intangible assets goodwill and indefinite-lived intangible assets are tested for impairment annually during the fourth quarter using information available at the end of september , or more frequently if triggering events occur indicating that their carrying value may not be recoverable . we test for goodwill impairment on a reporting unit level and the evaluation involves comparing the fair value of each reporting unit with its carrying value . the fair values of our reporting units are determined using a combination of a discounted cash flow analysis and market multiples . assumptions used for these fair value techniques are based on a combination of historical results , current forecasts , market data and recent economic events . we evaluate the recoverability of indefinite-lived intangible assets using a discounted cash flow analysis based on projected financial information . the determination of fair value involves significant management judgment and could be negatively affected by the current weak market conditions , including the challenging macroeconomic indicators in the markets in which we operate and those where our customers are based . we apply our best judgment when assessing the reasonableness of financial projections . at december 31 , 2015 and 2014 , goodwill and indefinite-lived trademarks totaled $ 1,773.6 million and $ 1,840.0 million , respectively . the estimated fair values of most of our reporting units were at least 25 % greater than their respective carrying values . one reporting unit with goodwill of $ 186.7 million had a fair value that was approximately 5 % greater than its carrying value . in performing our quantitative assessment for this reporting unit , we used revenue growth rates of 2.9 % to 5.7 % , a terminal growth rate of 3 % and a discount rate of 9.3 % . management believes that the terminal growth rate is supported by our historical growth rate , near-term projections and long-term expected market growth . the discount rate reflects marketplace participants ' cost of capital . had we used a discount rate that was 25 basis points higher or a terminal growth rate that was 25 basis points lower than those assumed , the fair value of this reporting unit would have continued to exceed its carrying amount . a possible indicator of goodwill impairment is the relationship of a company 's market capitalization to its book value . as of december 31 , 2015 , our market capitalization exceeded our book value and there were no impairment losses identified as a result of our annual test . fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors . as a result , there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill and indefinite-lived intangible impairment test will prove to be an accurate prediction of future results . intangible assets we account for certain economic benefits purchased as a result of our acquisitions , including customer relations , distribution agreements , technology and trademarks , as intangible assets . story_separator_special_tag most trademarks have an indefinite life . we amortize all other intangible assets over a useful life determined by the expected cash flows produced by such intangibles and their respective tax benefits . useful lives vary between 2 and 20 years , depending on the specific intangible asset . insurance programs we use commercial insurance for auto , workers ' compensation , casualty and health claims as a risk sharing strategy to reduce our exposure to catastrophic losses . our strategy involves large deductible policies where we must pay all costs up to the deductible amount . we estimate our reserve based on historical incident rates and costs . income taxes we account for income taxes under the asset and liability method , which requires the recognition of deferred income taxes for events that have future tax consequences . under this method , deferred income taxes are recognized ( using enacted tax laws and rates ) based on the future income tax effects of differences in the carrying amounts of assets and liabilities for financial reporting and tax purposes . the effect of a tax rate change on deferred tax assets and liabilities is recognized in income in the period of change . we recognize deferred tax assets at amounts that are expected to be realized . to make such determination , we evaluate all positive and negative evidence , including but not limited to , prior , current and future taxable income , tax planning strategies and future reversals of existing temporary differences . a valuation allowance is recognized if it is “ more likely than not ” that some or all of a deferred tax asset will not be realized . we regularly assess the realizability of deferred tax assets . no provision is made for undistributed earnings that are considered to be permanently reinvested to fund growth in foreign markets . we account for uncertainty in income taxes using a `` more-likely-than-not '' recognition threshold . due to the subjectivity inherent in the evaluation of uncertain tax positions , the tax benefit ultimately recognized may materially differ from our estimate . we recognize interest related to uncertain tax benefits as part of interest expense . we recognize penalties related to uncertain tax benefits as part of income tax expense . 20 convertible debentures we separately account for the liability and equity components of our convertible debentures in a manner that reflects our nonconvertible debt borrowing rate . we estimate our non-convertible debt borrowing rate through a combination of discussions with our financial institutions and review of relevant market data . the convertible debenture discount is amortized to interest expense , using the effective interest method , over the implicit life of the debentures . stock-based compensation our stock-based employee compensation plans are comprised of stock-settled stock appreciation rights , restricted stock units , and performance-based awards . compensation cost for all stock-based awards is measured at fair value on the date of grant , and compensation cost is recognized , net of forfeitures , over the service period for awards expected to vest . the fair value of stock-settled appreciation rights and performance-based awards with market conditions is determined using the black-scholes and monte carlo simulation models , respectively . the fair value of restricted stock units with service conditions and performance-based awards with performance conditions is determined by the grant-date closing price of wesco 's common stock . expected volatilities are based on historical volatility of our common stock . we estimate the expected life of stock-settled stock appreciation rights using historical data pertaining to option exercises and employee terminations . the risk-free rate is based on the u.s. treasury yields in effect at the time of grant . the forfeiture assumption is based on our historical employee behavior , which we review on an annual basis . no dividends are assumed for stock-based awards . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; font-style : italic ; '' > selling , general and administrative ( “ sg & a ” ) expenses . sg & a expenses include costs associated with personnel , shipping and handling , travel , advertising , facilities , utilities and bad debts . sg & a expenses increased by $ 80.0 million , or 8.0 % , to $ 1,076.8 million in 2014. the increase in sg & a expenses is primarily due to higher employment related costs resulting from the growth in organic sales and the impact from the laprairie , hazmasters and hi-line acquisitions . sg & a expenses in 2013 include a $ 36.1 million favorable impact from the recognition of insurance coverage for a litigation-related charge recorded in 2012. adjusted sg & a expenses increased $ 43.9 million , or approximately 4.2 % , from 2013. as a percentage of net sales , adjusted sg & a expenses decreased to 13.6 % in 2014 , compared with 13.7 % in 2013 , reflecting ongoing cost controls and incremental cost reduction actions implemented during 2014. the following table sets forth adjusted selling , general and administrative expenses : replace_table_token_11_th note : adjusted sg & a is provided by the company to allow financial statement users to compare the company 's performance from period to period by adjusting for transactions management views as impacting the comparability of results . sg & a payroll expenses for 2014 of $ 758.9 million increased by $ 38.7 million compared to 2013. the increase in sg & a payroll expenses was primarily due to an increase in salary expense of $ 23.6 million and an increase in commissions , incentives and benefits of $ 13.9 million . these increases are primarily due to an increase in headcount , which is the result of both recent acquisitions and organic sales growth .
| as a percentage of net sales , sg & a expenses increased to 14.0 % in 2015 , compared to 13.6 % in 2014 , reflecting lower sales volume and incremental costs related to recent acquisitions , which were not fully offset by cost control actions and initiatives . sg & a payroll expenses for 2015 of $ 735.9 million decreased by $ 23.0 million compared to 2014 . the decrease in sg & a payroll expenses was primarily due to a decrease in commissions , incentives and benefits of $ 16.6 million and a decrease in temporary labor of $ 4.7 million . these decreases are due to a 5.0 % headcount reduction , exclusive of acquisitions , and a reduction in discretionary spending . the remaining sg & a expenses for 2015 of $ 319.1 million increased by $ 1.2 million compared to 2014 . depreciation and amortization . depreciation and amortization de creased $ 3.0 million to $ 65.0 million in 2015 , compared with $ 68.0 million in 2014 . income from operations . income from operations de creased by $ 92.5 million to $ 373.7 million in 2015 , compared to $ 466.2 million in 2014 . income from operations as a percentage of net sales was 5.0 % and 5.9 % in 2015 and 2014 , respectively . interest expense . interest expense totaled $ 69.8 million in 2015 , compared with $ 82.1 million in 2014 , a de crease of 14.9 % . non-cash interest expense , which includes the amortization of debt discount , interest related to uncertain tax positions , the amortization of deferred financing fees and accrued interest was $ 3.5 million and $ 8.1 million for 2015 and 2014 , respectively . the resolution of transfer pricing matters associated with previously filed tax positions resulted in non-cash interest income of $ 9.4 million in the fourth quarter of 2015. cash interest expense decreased primarily as a result of the repayment of the canadian sub-facility of the term loans due 2019 throughout 2015. the following table sets
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revenue from our consignment model accounted for approximately 30.3 % , 24.4 % and 20.9 % , of our total revenue for the years ended september 30 , 2018 , 2017 and 2016 , respectively , and for approximately 77.1 % , 71.4 % and 63.6 % , of our gmv for the years ended september 30 , 2018 , 2017 and 2016 , respectively . the revenue from our consignment model is recognized within the fee revenue line item on the consolidated statements of operations . we also earn non-consignment fee revenue , which prior to the wind-down of our operations under the surplus contract , was largely made up of service revenue related to our surplus contract . this revenue is recognized within the fee revenue line item on our consolidated statements of operations and is discussed in further detail in note 3 - significant contracts . industry trends . we believe there are several industry trends positively impacting the growth of our business including : ( 1 ) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales ; ( 2 ) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets ; ( 3 ) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets as they focus on reducing costs , improving transparency , compliance and working capital flows , and increasingly prefer service providers with a proven track record , innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain , which we expect to increase our seller base ; ( 4 ) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases , which results in lower per unit prices and margins in our retail goods vertical , and ( 5 ) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and , therefore , the supply of surplus assets . our vendor agreements our dod agreements . historically , we had two material vendor contracts with the dod , the scrap contract and the surplus contract . scrap contract . on april 8 , 2016 , the defense logistics agency ( dla ) awarded us the second scrap contract . under the second scrap contract , we acquire scrap property from the dla and pay the dla a revenue-sharing payment equal to 64.5 % of the gross resale proceeds . the scrap contract is a competitive-bid contract under which we acquire , manage and sell all non-electronic scrap property of the dod turned into the dla . scrap property generally consists of items determined by the dod to have no use beyond their base material content , such as metals , alloys , and building materials . we bear all of the costs for the sorting , merchandising and sale of the property . the second scrap contract has a 36-month base term , commencing in the first quarter of 2017 , with two 12-month extension options exercisable by the dla . the base term expires september 30 , 2019. transactions under this contract follow the purchase transaction model described above . resale of scrap property that we purchased under the scrap contract accounted for approximately 10.2 % , 11.1 % , and 10.2 % of our revenue in the years ended september 30 , 2018 , 2017 , and 2016 , respectively . the property sold under the scrap contract accounted for approximately 3.6 % , 4.7 % and 5.0 % , of our gmv in the years ended september 30 , 2018 , 2017 , and 2016 , respectively . this contract is included within our cag segment . surplus contract . the surplus contract was a competitive-bid contract under which we acquired , managed and sold usable dod surplus personal property turned into the dla . surplus property generally consisted of items determined by the dod to be no longer needed , and not claimed for reuse by any federal agency , such as electronics , industrial equipment , office supplies , scientific and medical equipment , aircraft parts , clothing and textiles . the surplus contract required us to purchase all usable surplus property offered to the company by the dod at 4.35 % of the dod 's original acquisition value . we retained 100 % of the profits from the resale of the property and bore all of the costs for the merchandising and sale of the property . on october 11 , 2017 , the dla published a request for technical proposal ( “ rftp ” ) and draft invitation for bid ( “ ifb ” ) for the sale of surplus , useable non-rolling stock property . the rftp and ifb related to the dla 's award of two new term surplus contracts . on december 5 , 2017 , the dla determined that we were not the high bidder for either of the two contracts . as a result , we made our final inventory purchase under the surplus contract during december 2017 , and as of june 30 , 2018 had wound down the surplus contract . the surplus contract accounted for $ 27.9 million , $ 74.6 million , and $ 98.2 million of revenue in the years ended september 30 , 2018 , 2017 , and 2016 , respectively . the property sold under the surplus contract accounted for approximately 12.4 % , 27.6 % , and 31.0 % of our revenue in the years ended september 30 , 2018 , 2017 , and 2016 , respectively . the surplus contract accounted for $ 25.6 million , $ 59.3 million , and $ 81.7 million of our gmv in the years ended september 30 , 2018 , 2017 , and 2016 , respectively . story_separator_special_tag the property sold under the surplus contract accounted for approximately 4.1 % , 9.4 % , and 12.7 % of our gmv in the years ended september 30 , 2018 , 2017 , and 2016 , respectively . transactions under the surplus contract followed the purchase transaction model described above . this contract is included within our cag segment . the lost profits from the wind-down and expiration of the surplus contract were offset by benefits from the reorganization and realignment efforts in 2018 and 2017 ( see note 15 for business realignment expenses ) . the wind-down impact of the surplus contract is offset by the reorganization efforts within our cag commercial business and corporate functions , and our realignment of our truckcenter and irondirect businesses . we recorded approximately $ 1.1 million of severance and occupancy cost during the year ended september 30 , 2018 , as a result of the restructuring and realignment efforts undertaken due to the loss of the surplus contract . the wind-down was completed as of june 30 , 2018. our commercial agreements we have multiple vendor contracts with amazon.com , inc. under which we acquire and sell commercial merchandise . the property we purchased under this contract represented approximately 33.7 % , 21.8 % , and 12.1 % , of cost of goods sold for the years ended september 30 , 2018 , 2017 and 2016 , respectively . this contract is included within our rscg segment . during 2018 , we had over 600 corporate sellers who each sold in excess of $ 10,000 of surplus and salvage assets in our marketplaces . our agreements with these sellers are generally terminable at will by either party . key business metrics our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies , allocation of resources and our capacity to fund capital expenditures and expand our business . these key business metrics include : gross merchandise volume . gross merchandise volume , or gmv , is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time . we review gmv because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces . gmv also provides a means to evaluate the effectiveness of investments that we have made and continue to make , including in the areas of buyer and seller support , value-added services , product development , sales and marketing , and operations . the gmv of goods sold in our marketplace during 2018 totaled $ 626.4 million . total registered buyers . we grow our buyer base through a combination of marketing and promotional efforts . a person becomes a registered buyer by completing an online registration process on one of our marketplaces . as part of this process , we collect business and personal information , including name , title , company name , business address and contact information , and information on how the person intends to use our marketplaces . each prospective buyer must also accept our terms and conditions of use . following the completion of the online registration process , we verify each prospective buyer 's e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the u.s. federal government . after the verification process , which is completed generally within 24 hours , the registration is approved and activated , and the prospective buyer is added to our registered buyer list . total registered buyers , as of a given date , represent the aggregate number of persons or entities who have registered on one of our marketplaces . we use this metric to evaluate how well our marketing and promotional efforts are performing . total registered buyers exclude duplicate registrations , buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database . in addition , if we become aware of registered buyers that are no longer in business , we remove them from our database . as of september 30 , 2018 and 2017 , we had approximately 3,357,000 and 3,171,000 registered buyers , respectively . total auction participants . for each auction we manage , the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction . as a result , a registered buyer who bids , or participates , in more than one auction is counted as an auction participant in each auction in which he or she participates . thus , total auction participants for a given period is the sum of the auction participants in each auction conducted during that period . we use this metric to allow us to compare our online auction marketplaces to our competitors , including other online auction sites and traditional on-site auctioneers . in addition , we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts . during the years ended september 30 , 2018 , 2017 , and 2016 , approximately 2,079,000 , 2,290,000 , and 2,417,000 total auction participants participated in auctions on our marketplaces , respectively . largely as a result of the wind-down of the surplus contract , there has been a decrease in auction participants during 2018 compared with 2017. completed transactions . completed transactions represents the number of auctions in a given period from which we have recorded revenue . similar to gmv , we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces . during the years ended september 30 , 2018 , 2017 , and 2016 , we completed approximately 481,000 , 530,000 , and 574,000 transactions , respectively .
| the wind-down of the surplus contract resulted in a decrease in gmv of approximately $ 33.7 million . approximately $ 15.4 million of the decrease in gmv related to reductions in both our purchase and consignment transaction models in our cag commercial business . furthermore , a lower volume of goods sold under our scrap contract , as well as a change in mix of commodities to lower value commodities sold under that contract , partially offset by improved commodity prices , led to a further $ 7.0 million reduction in gmv . gross profit within the cag segment decreased 32.1 % , or $ 23.1 million , to $ 48.9 million for the year ended september 30 , 2018 , from $ 71.9 million for the year ended september 30 , 2017 . this decrease can be attributed to the wind-down of the surplus contract and lower sales volumes described above . as a percentage of revenue , gross profit increased to 55.5 % , from 49.6 % due to the overall lower revenue . rscg . revenue from our rscg segment increased 7.3 % , or $ 6.9 million for the year ended september 30 , 2018 . the increase is driven by growth in both purchase and consignment model transaction revenue . gmv from our rscg segment increased 12.7 % , or $ 14.7 million for the year ended september 30 , 2018 . the increase is again attributable to growth in both our purchase and consignment model transaction gmv during 2018. the lower overall increase in revenue compared to the increase in gmv is due to a change in mix from purchase to consignment model transactions . gross profit within the rscg segment increased 9.8 % , or $ 3.0 million , to $ 33.0 million for the year ended september 30 , 2018 , from $ 30.1 million for the year ended september 30 , 2017 , due to the overall increase in revenue described above . as a percentage of revenue , gross profit slightly increased
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according to the u.s. census , the number of housing starts increased approximately 20 % through november 2013 as compared to 2012 , and remodeling expenditures increased approximately 7.5 % through november 2013 as compared to the same period in 2012. average timber prices in the u.s. south continued to rise during the fourth quarter , and all categories increased in 2013 as compared to 2012. pine pulpwood and hardwood pulpwood prices increased and are near the highest level in a decade . due to the continued emergence of pellet mills as a buyer of pulpwood and the continued strong demand from paper mills , we expect pine pulpwood prices , which continue to remain attractive by historical standards , to remain steady in 2014. chip-n-saw price had a modest increase during 2013 as a result of improvements in the lumber and wood products markets , which continued to improve from decade lows . we anticipate sawtimber and chip-n-saw prices to further strengthen in 2014. we plan to harvest approximately 1.1 million tons of timber this year , up from the 0.9 million-ton harvest in 2013. our operating and financial plans for 2014 were established to meet volume obligations under the timber agreements and to continue to maximize the production capacity and long-term value of our timberlands . we continue to practice intensive forest management and silvicultural techniques that increase the biological growth of the forest . we intend to capitalize on the operational flexibility afforded to timberland owners in order to take advantage of then-prevailing 33 market prices , including , but not limited to , adjusting harvest levels in context of supply and demand for wood in the local wood markets . liquidity and capital resources overview on december 19 , 2013 , we entered into the amended cobank loan , which amended and restated the cobank loan in its entirety . the amended cobank loan provides for borrowing under credit facilities consisting of : a $ 15.0 million revolving credit facility ( the “ revolving credit facility ” ) , a $ 150.0 million multi-draw term credit facility ( the “ multi-draw term facility ” ) , and the remaining amount outstanding under the cobank term loan ( the “ term loan facility ” , and together with the revolving credit facility and the multi-draw term facility , the “ new credit facilities ” ) , which is $ 52.2 million . the amended cobank loan provides that the new credit facilities may be increased , upon the agreement of lenders willing to increase their loans , by up to $ 75.0 million , consisting of up to a $ 10.0 million increase in the revolving credit facility and the remainder available for incremental term loans . borrowings under the revolving credit facility may be used for working capital , to support letters of credit and other general corporate purposes , but may not be used for timber acquisitions . the revolving credit facility will bear interest at an adjustable rate equal to a base rate plus between 0.50 % and 1.75 % or a libor rate plus between 1.50 % and 2.75 % , in each case depending on our ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 19 , 2018. the multi-draw credit facility may be drawn upon up to five times during the period beginning on december 19 , 2013 through december 19 , 2016 and may be used to finance domestic timber acquisitions and associated expenses . amounts repaid under the multi-draw credit facility may be re-borrowed prior to the third anniversary of the closing date . the multi-draw facility will bear interest at an adjustable rate equal to a base rate plus between 0.75 % and 2.00 % or a libor rate plus between 1.75 % and 3.00 % , in each case depending on the ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 19 , 2020. the multi-draw credit facility is interest only until the maturity date ; however , if the our ltv ratio is equal to or in excess of 35 % , then principal payments will be required to be made beginning on december 31 , 2016 at a per annum rate of 7.5 % of the principal amount outstanding under the multi-draw credit facility . the term loan facility will bear interest at an adjustable rate equal to a base rate plus between 0.50 % and 1.75 % or a libor rate plus between 1.50 % and 2.75 % , in each case depending on the our ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 19 , 2018. the amended cobank loan is secured by a first mortgage in the our timberlands , a first priority security interest in all bank accounts held by us and a first priority security interest on all our other assets . in addition , our obligations under the amended cobank loan are guaranteed by its subsidiaries . as of december 31 , 2013 , the outstanding balance of the amended cobank loan was $ 52.2 million , all of which was outstanding under the term loan facility . on september 18 , 2013 , we entered into the preferred stock redemption agreement that , upon the closing of our ipo , calls for our redemption of the preferred shares for $ 1,000 per share plus accrued but unpaid dividends to the redemption date . pursuant to the preferred stock redemption agreement , the preferred shares continued to accrue dividends daily at an annual rate of 1.0 % of the issue price . story_separator_special_tag on december 12 , 2013 , catchmark timber trust redeemed its outstanding 37,392 preferred shares at the original issue price of approximately $ 37.4 million , plus accrued but unpaid 34 dividends of $ 11.6 million . as of december 31 , 2013 , catchmark timber trust had redeemed all outstanding shares of preferred stock . we expect our primary sources of future capital are ( i ) cash generated from operations , ( ii ) borrowings under our existing and future credit facilities , and ( iii ) proceeds from selective dispositions . the amount of cash available for distribution to stockholders and the level of discretionary distributions declared will depend primarily upon the amount of cash generated from our operating activities , our determination of funding needs for near-term capital and debt service requirements , and our expectations of future cash flows . short-term liquidity and capital resources net cash used in operating activities for the year ended december 31 , 2013 was approximately $ 1.1 million , which was primarily comprised of payments for operating expenses , interest expense , advisor fees and expense reimbursements , forestry management fees , and general and administrative expenses in excess of net cash receipts from timber and timberland sales and recreational leases . in 2013 , we funded certain expenses that are either non-recurring or are recoverable under our insurance policy , including $ 0.9 million in costs and expenses associated with our transition to self-management , listing on the nyse , and ipo ( indirect portion of ipo cost ) ; $ 0.7 million in legal and consulting fees associated with the sec investigation as described in item 1– business ; and $ 0.4 million in compensation costs . we expect to generate positive cash flows from operating activities based on planned increases in harvest volume , planned hbu sales , and decrease in interest expense as a result of reduced debt levels . for the year ended december 31 , 2013 , we spent approximately $ 0.4 million in reforestation and building roads , $ 1.7 million in timberland acquisitions , and received approximately $ 2.1 million that was released from lender-required escrow accounts . net cash used in financing activities for the year ended december 31 , 2013 was approximately $ 1.4 million and primarily represented inflows from the issuance of common stock and outflows of funds used to pay down the outstanding balance on the cobank loan , fund offering costs related to the ipo , redeem the outstanding preferred stock , fund financing costs of securing the new credit facilities , and to redeem our common stock pursuant to the srp . we believe that we have access to adequate liquidity and capital resources , including cash flow generated from operations , cash on-hand and borrowing capacity , necessary to meet our current and future obligations that become due over the next twelve months . the amended cobank loan contains , among others , the following financial covenants : limits the ltv ratio to 45 % at the end of each fiscal quarter and upon the sale or acquisition of any property ; requires a minimum liquidity balance of $ 10.0 million until the date that we have achieved a fixed charge coverage ratio of not less than 1.05:1 ; after such date we must maintain a fixed coverage charge ratio of not less than 1.05:1. we were in compliance with the financial covenants of the amended cobank loan as of december 31 , 2013 . long-term liquidity and capital resources over the long-term , we expect our primary sources of capital to include net cash flows from operations , including proceeds from strategic property sales , proceeds from secured or unsecured financings from banks and other lenders , and public offerings of our common stock . our principal demands for capital include operating expenses , interest expense on any outstanding indebtedness , certain capital expenditures ( other than timberland acquisitions ) , repayment of debt , timberland acquisitions , and stockholder distributions . in determining how to allocate cash resources in the future , we will initially consider the source of the cash . we anticipate using a portion of cash generated from operations , after payments of periodic operating expenses and interest expense , to fund certain capital expenditures required for our timberlands . any remaining cash generated from 35 operations may be used to partially fund timberland acquisitions , and pay distributions to stockholders . therefore , to the extent that cash flows from operations are lower , timberland acquisitions and stockholder distributions are anticipated to be lower as well . proceeds from future equity offerings and debt financings may be used to acquire timberlands , fund capital expenditures , and pay down existing and future borrowings . our bylaws preclude us from incurring debt in excess of 200 % of our net assets . as of december 31 , 2013 , our debt-to-net-assets ratio , defined as our total debt as a percentage of our total gross assets ( other than intangibles ) less total liabilities , was approximately 14 % . our debt-to-net-assets ratio will vary based on our level of current and future borrowings , which will depend on the level of net cash flows from operations , our acquisition activities , and proceeds raised from public offerings of our common stock . before additional borrowings and equity issuances , principal payments , and timberland acquisitions or dispositions , we expect our debt-to-net-assets ratio to remain relatively stable in the near future . contractual obligations and commitments as of december 31 , 2013 , our contractual obligations are as follows : replace_table_token_5_th ( 1 ) represents respective obligations under the amended cobank loan as of december 31 , 2013 . ( 2 ) amounts include impact of an interest rate swap . see note 5 – interest rate swaps of our accompanying consolidated financial statements for additional information .
| general and administrative expenses , excluding non-recurring expenses related to the transition to self-management and the ipo , are expected to increase as a result of employee-related costs and other costs we will incur as a self-managed company , which will be at least partially offset by the elimination of the advisory fees and expenses we paid to wells timo as an externally managed company . the net effect of our increased employee-related costs and the elimination of the advisory fees and expenses is not expected to be material . however , there may be additional and unforeseen cost and expenses attributable to operating as a self-managed company . comparison of the year ended december 31 , 2013 versus the year ended december 31 , 2012 37 revenues . revenues decreased to approximately $ 32.0 million for the year ended december 31 , 2013 from approximately $ 44.2 million for the year ended december 31 , 2012 due to a decrease in timber sales revenue of approximately $ 3.8 million and a decrease in timberland sales revenue of approximately $ 8.5 million . timber sales revenue is lower primarily due to a 13 % planned reduction in harvest volume . timberland sales revenue decreased due to selling fewer acres in 2013. details of timber sales by product for the years ended december 31 , 2013 and 2012 are shown in the following table : replace_table_token_8_th ( 1 ) timber sales are presented on a gross basis . ( 2 ) includes sales of chip-n-saw and sawtimber . operating expenses . contract logging and hauling costs decreased to approximately $ 13.6 million for 2013 from approximately $ 15.8 million for 2012 as a result of an approximately 15 % decrease in delivered sales volume . depletion expense decreased by 27 % to approximately $ 8.5 million in 2013 from approximately $ 11.7 million in 2012 due to a lower blended depletion rate and a 13 % decrease in harvest volumes . our blended depletion rate was lower in 2013 due to a decrease in harvests of timber from the ltc tracts as a percentage of our total harvest in 2013 as compared to 2012 . as a result of an acquisition of approximately 30,000 acres of timberland in 2012 where we previously held ltc
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the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interests is 40 % for 2013 and we expect it to be at a comparable tax rate in 2014. in 2012 , the income tax provision was reduced by $ 350,000 related to a taxable deduction charged to additional-paid-in-capital for the reduction of a subsidiary intercompany loan and included a charge of $ 162,000 for a true-up of our 2011 tax provision . net income attributable to non-controlling interests net income attributable to non-controlling interests was $ 8.5 million in 2013 and $ 8.4 million in 2012. as a percentage of operating income before corporate office costs , net income attributable to non-controlling interests was 13.2 % in 2013 compared to 13.4 % in 2012. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . fiscal year 2012 compared to fiscal 2011 net revenues rose 7.8 % to $ 249.7 million for 2012 from $ 231.5 million for 2011 due to increases in net patient revenues offset partially by a $ 168,000 decrease in other revenues . the 2012 results includes seven months of operations of the may 2012 acquisition . the 2011 results include five months of operations of the july 2011 acquisition . reported net income attributable to common shareholders for 2012 decreased 3.2 % to $ 18.2 million from $ 18.8 million in 2011. diluted earnings per share were $ 1.53 for 2012 and $ 1.57 for 2011. included in the 2011 results is a pretax gain of $ 5.4 million related to a purchase price settlement on the 30 february 2010 acquisition that occurred beyond our purchase price measurement date . excluding this 2011 gain , diluted earnings per share from operations would have been $ 1.17 for 2011. in comparison to adjusted diluted earnings per share of $ 1.17 for 2011 , the 2012 diluted earnings per share of $ 1.53 represents an increase of 30.7 % in 2012 from 2011. see table below ( in thousands ) . replace_table_token_12_th net patient revenues net patient revenues increased to $ 244.1 million for 2012 from $ 225.8 million for 2011 , an increase of $ 18.3 million , or 8.1 % , primarily due to an increase in patient visits from 2.2 million to 2.3 million . the increase in net patient revenues of $ 18.3 million consisted of an increase of $ 12.7 million from mature clinics and $ 5.6 million from new clinics . the $ 12.7 million from mature clinics is primarily due to the july 2011 acquisition . the 2012 results include 12 months of operations of the july 2011 acquisition and the 2011 results include five months of operations . total patient visits increased to 2,314,000 for 2012 from 2,161,000 for 2011. the growth in patient visits was attributable to 51,000 visits in new clinics , primarily due to the may 2012 acquisition , and an increase of 102,000 visits for mature clinics , primarily due to the july 2011 acquisition . net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers ' compensation . net patient revenues reflect contractual and other adjustments , which we evaluate monthly , relating to patient discounts from certain payors . payments received under these programs are based on predetermined rates and are generally less than the established billing rates of the clinics . other revenues other revenues decreased by $ 168,000 from $ 5.7 million to $ 5.6 million due to a management contract termination in december 2011. clinic operating costs clinic operating costs were 74.8 % of net revenues for 2012 and 75.9 % of net revenues for 2011. each component of clinic operating costs is discussed below : clinic operating costssalaries and related costs salaries and related costs increased to $ 131.6 million for 2012 from $ 124.8 million for 2011 , an increase of $ 6.8 million , or 5.4 % . approximately $ 3.7 million of the increase was attributable to new clinics . the remaining $ 3.1 million of the increase was due to $ 5.9 million in higher costs at various 2011 new clinics offset by a decrease of $ 2.8 million in costs at 2011 mature clinics . salaries and related costs as a percentage of net revenues was 52.7 % for 2012 and 53.9 % for 2011. clinic operating costsrent , clinic supplies and other rent , clinic supplies and other costs increased to $ 50.1 million for 2012 from $ 47.0 million for 2011 , an increase of $ 3.1 million , or 6.6 % . for 2012 , new clinics accounted for approximately $ 1.7 million of the 31 increase and 2011 new clinics accounted for approximately $ 4.0 million of the increase due to a full year of activity for clinics developed or acquired in 2011. rent , clinic supplies and other costs for 2011 mature clinics decreased $ 2.6 million in 2012 as compared to 2011 due to cost containment efforts . rent , clinic supplies and other costs as a percent of net revenues was 20.1 % for 2012 and 20.3 % for 2011. clinic operating costsprovision for doubtful accounts the provision for doubtful accounts for net patient receivables of $ 4.7 million as a percentage of net patient revenues was 1.9 % for 2012. the provision for doubtful accounts for net patient receivables of $ 3.8 million was 1.6 % for 2011. during 2012 , we recorded a reserve for a receivable from a management contract of $ 0.1 million . story_separator_special_tag our allowance for bad debts as a percentage of total patient accounts receivable was 5.8 % at december 31 , 2012 and 7.0 % at december 31 , 2011. the allowance for doubtful accounts at the end of each period is based on a detailed , clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience . the accounts receivable days outstanding were 42 days at december 31 , 2012 and 48 days at december 31 , 2011. net patient receivables in the amount of $ 4.9 million and $ 3.0 million were written-off in 2012 and 2011 , respectively . closure costs for 2012 , closure costs amounted to $ 211,000. in 2011 , closure costs amounted to $ 59,000. gross margin in 2012 , the gross margin increased by $ 7.0 million , or 12.6 % , as compared to 2011 due to increased visits and net patient revenue per visit . the gross margin percentage for 2012 was 25.2 % as compared to 24.1 % for 2011. corporate office costs corporate office costs , consisting primarily of salaries , benefits and equity based compensation of corporate office personnel and directors , rent , insurance costs , depreciation and amortization , travel , legal , compliance , professional , marketing and recruiting fees , were $ 24.5 million for 2012 and $ 24.4 million for 2011. corporate office costs were reduced as a percentage of net revenues to 9.8 % for 2012 from 10.6 % for 2011. interest and other income , net interest and other income , net for 2011 included a pretax gain of $ 5.4 million related to a purchase price settlement on the february 2010 acquisition that occurred beyond our purchase price measurement date . the settlement included $ 1.5 million in cash , $ 0.1 million in debt forgiveness and $ 3.8 million in exchange of the remaining non-controlling interest . interest expense interest expense increased to $ 557,000 for 2012 from $ 496,000 for 2011 primarily due to higher average borrowings . at december 31 , 2012 , $ 17.4 million was outstanding under our revolving credit facility . see liquidity and capital resources below for a discussion of the terms of our revolving credit facility . provision for income taxes the provision for income taxes was $ 11.2 million for 2012 and $ 9.7 million for 2011. for 2012 , we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between 32 income from operations and net income attributable to non-controlling interest ) of 38.1 % . in 2012 , the income tax provision was reduced by $ 350,000 related to a taxable deduction charged to additional-paid-in-capital for the reduction of a subsidiary intercompany loan and included a charge of $ 162,000 for a true-up of our 2011 tax provision based on a detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and state deferred tax asset and liability accounts . for 2011 , we accrued state and federal income taxes at an effective tax rate ( provision for taxes divided by the difference between income from operations and net income attributable to non-controlling interest ) of 34.6 % . of the $ 5.4 million gain mentioned above , $ 3.8 million was non taxable . net income attributable to non-controlling interests net income attributable to non-controlling interests was $ 8.5 million in 2012 compared to $ 7.8 million in 2011. as a percentage of operating income before corporate office costs , net income attributable to non-controlling interests was 13.4 % in 2012 compared to 14.1 % in 2011. the reduction is attributable to the company 's increased ownership interest in certain physical therapy partnerships . liquidity and capital resources we believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements , other than those with respect to future significant acquisitions . at december 31 , 2013 , we had $ 12.9 million in cash and cash equivalents compared to $ 11.7 million at december 31 , 2012. although the start-up costs associated with opening new clinics and our planned capital expenditures are significant , we believe that our cash and cash equivalents and availability under our revolving credit facility are sufficient to fund the working capital needs of our operating subsidiaries , future clinic development and single practice acquisitions and investments through at least december 2014. the amount outstanding under our revolving credit facility was $ 40.0 million at december 31 , 2013 compared to $ 17.4 million at december 31 , 2012. at december 31 , 2013 , we had $ 85 million available under our revolving credit facility . significant acquisitions would likely require financing under our revolving credit facility . the increase in cash and cash equivalents of $ 1.2 million from december 31 , 2012 to december 31 , 2013 was due primarily to $ 44.8 million provided by operations , $ 22.6 million net proceeds on our revolving line of credit , $ 0.7 million from the tax benefit of stock options exercised , $ 0.7 million from the sale of business , non-controlling interests and fixed assets . the major uses of cash for investing and financing activities included : purchase of businesses ( $ 46.6 million ) , distributions to non-controlling interests ( $ 9.2 million ) , payments of cash dividends to our shareholders ( $ 4.8 million ) , purchases of fixed assets ( $ 4.6 million ) , acquisitions of non-controlling interests ( $ 1.9 million ) , and payments on notes payable ( $ 0.5 million ) . effective december 5 , 2013 , we entered into an amended and restated credit agreement with a commitment for a $ 125.0 million revolving credit facility with a maturity date of november 30 ,
| 28 other revenues other revenues , consisting primarily of management fees , increased by $ 224,000 from $ 5.6 million to $ 5.8 million , this increase was primarily due to an increase in the number of management contracts . on december 31 , 2013 , we managed 18 third-party physical therapy facilities versus 15 on december 31 , 2012. clinic operating costs clinic operating costs were $ 199.4 million , or 75.5 % of net revenues , for 2013 and $ 186.7 million , or 74.8 % of net revenues , for 2012. the increase was primarily attributable to $ 10.2 million in operating costs of new clinics and an increase in operating costs of $ 6.3 million for 2012 new clinics offset by a decrease in operating costs of $ 3.8 million for 2012 mature clinics . included in the 2013 results is a pre-tax charge of $ 0.9 million related to an estimated refund due to a payor for overpayments to a partnership clinic group over several years . without this charge , operating costs for 2012 mature clinics would have been reduced by $ 4.7 million . each component of clinic operating costs is discussed below : clinic operating costssalaries and related costs salaries and related costs increased to $ 141.8 million for 2013 from $ 131.6 million for 2012 , an increase of $ 10.2 million , or 7.8 % . approximately $ 7.5 million of the increase was attributable to new clinics . the remaining $ 2.7 million of the increase was due to $ 4.4 million in higher costs at various 2012 new clinics offset by a decrease of $ 1.7 million in costs at 2012 mature clinics . salaries and related costs as a percentage of net revenues was 53.7 % for 2013 and 52.7 % for 2012. clinic operating costsrent , clinic supplies and other rent , clinic supplies and other costs increased to $ 52.9 million for 2013 from $ 50.1 million for 2012 , an increase of $ 2.8 million , or 5.6 % . for
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commencing april 1 , 2012 , we have operated under an expanded five year license agreement with the national football league to manufacture and market men 's and women 's outerwear , sportswear , and swimwear products in the united states under a variety of nfl trademarks . in december 2012 , we entered into a license agreement covering a broad range of women 's apparel under the ivanka trump brand . we began shipping ivanka trump apparel in the third quarter of fiscal 2014. in april 2013 , we entered into a license agreement for men 's and women 's swimwear under the calvin klein brand . this license agreement became effective as of december 1 , 2013 and we began shipping swimwear under this agreement for the spring 2014 season . in november 2013 , we expanded our relationship with tommy hilfiger by adding a license for women 's outerwear , our third license for this brand . we expect to begin shipping women 's outerwear under this agreement for fall 2014. we believe that consumers prefer to buy brands they know and we have continually sought licenses that would increase the portfolio of name brands we can offer through different tiers of retail distribution , for a wide array of products and at a variety of price points . we believe that brand owners will look to consolidate the number of licensees they engage to develop product and they will seek licensees with a successful track record of expanding brands into new categories . it is our objective to continue to expand our product offerings and we are continually discussing new licensing opportunities with brand owners . our retail operations segment consists almost entirely of our wilsons and g.h . bass retail stores , substantially all of which are operated as outlet stores . during fiscal 2014 , we increased the number of our wilson stores by 19 and , as of january 31 , 2014 , operated 165 wilsons stores , 156 g.h . bass stores , 3 calvin klein and 5 andrew marc stores . we expect to add approximately 15 new stores in fiscal 2015. we have a license agreement granting us the retail rights to distribute and market calvin klein women 's performance apparel in the united states and china . we operate calvin klein performance stores in scottsdale , arizona , in san francisco , california and las vegas , nevada . in march 2012 , we entered into a joint venture agreement with finity apparel retail limited to open and operate calvin klein performance retail stores in mainland china and hong kong . as of january 31 , 2014 , we operated 27 stores pursuant to this joint venture and plan to open approximately 15 additional stores in fiscal 2015. we own 51 % of this joint venture and consolidate its results of operations in our financial statements . trends significant trends that affect the apparel industry include increases in manufacturing and transportation costs , the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them . 34 retailers are seeking to expand the differentiation of their offerings by devoting more resources to the development of exclusive products , whether by focusing on their own private label products or on products produced exclusively for a retailer by a national brand manufacturer . retailers are placing more emphasis on building strong images for their private label and exclusive merchandise . exclusive brands are only made available to a specific retailer , and thus customers loyal to their brands can only find them in the stores of that retailer . a number of retailers are experiencing financial difficulties , which in some cases has resulted in bankruptcies , liquidations and or store closings . the financial difficulties of a retail customer of ours could result in reduced business with that customer . we may also assume higher credit risk relating to receivables of a retail customer experiencing financial difficulty that could result in higher reserves for doubtful accounts or increased write-offs of accounts receivable . we attempt to lower credit risk from our customers by closely monitoring accounts receivable balances and shipping levels , as well as the ongoing financial performance and credit standing of customers . sales of apparel through the internet continue to increase . we are addressing the increase in online shopping by developing additional marketing initiatives through the internet , our web sites and social media . we have attempted to respond to these trends by continuing to focus on selling products with recognized brand equity , by attention to design , quality and value and by improving our sourcing capabilities . we have also responded with the strategic acquisitions made by us and new license agreements entered into by us that have added additional licensed and proprietary brands and helped diversify our business by adding new product lines , additional distribution channels and a retail component to our business . we believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners . use of estimates and critical accounting policies the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period . significant accounting policies employed by us , including the use of estimates , are presented in the notes to our consolidated financial statements . critical accounting policies are those that are most important to the portrayal of our financial condition and our results of operations , and require management 's most difficult , subjective and complex judgments , as a result of the need to make estimates about the effect of matters that are inherently uncertain . story_separator_special_tag our most critical accounting estimates , discussed below , pertain to revenue recognition , accounts receivable , inventories , income taxes , goodwill and intangible assets and equity awards . in determining these estimates , management must use amounts that are based upon its informed judgments and best estimates . we continually evaluate our estimates , including those related to customer allowances and discounts , product returns , bad debts and inventories , and carrying values of intangible assets . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions and conditions . revenue recognition goods are shipped to retailers in accordance with specific customer orders . we recognize wholesale sales when the risks and rewards of ownership have transferred to the customer , determined by us to be when title to the merchandise passes to the customer . in addition , we act as an agent in brokering sales between customers and overseas factories . on these transactions , we also recognize commission fee income on sales that are financed by and shipped directly to our customers . title to goods shipped by overseas vendors , transfers to customers when the goods have been delivered to the customer . 35 net sales take into account reserves for returns and allowances . we estimate the amount of reserves and allowances based on current and historical information and trends . sales are reported net of returns , discounts and allowances . discounts , allowances and estimates of future returns are recognized when the related revenues are recognized . we recognize commission income upon the completion of the delivery by our vendors to the customer . we recognize retail sales upon customer receipt of our merchandise , generally at the point of sale . our retail sales are recorded net of applicable sales tax . accounts receivable in the normal course of business , we extend credit to our wholesale customers based on pre-defined credit criteria . accounts receivable , as shown on our consolidated balance sheet , are net of allowances and anticipated discounts . in circumstances where we are aware of a specific customer 's inability to meet its financial obligation ( such as in the case of bankruptcy filings , extensive delay in payment or substantial downgrading by credit sources ) , a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected . for all other wholesale customers , an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements , assessments of collectability based on historical trends and an evaluation of the impact of economic conditions . an allowance for discounts is based on reviews of open invoices where concessions have been extended to customers . costs associated with allowable deductions for customer advertising expenses are charged to advertising expenses in the selling , general and administrative section of our consolidated statements of income . costs associated with markdowns and other operational charge backs , net of historical recoveries , are included as a reduction of net sales . all of these are part of the allowances included in accounts receivable . we reserve against known charge backs , as well as for an estimate of potential future deductions by customers . these provisions result from seasonal negotiations with our customers as well as historical deduction trends , net of historical recoveries and the evaluation of current market conditions . inventories wholesale inventories are stated at lower of cost ( determined by the first-in , first-out method ) or market , which comprises a significant portion of our inventory . retail inventories are valued at the lower of cost or market as determined by the retail inventory method . vilebrequin inventories are stated at the lower of cost ( determined by the weighted average method ) or market . we continually evaluate the composition of our inventories , assessing slow-turning , ongoing product as well as fashion product from prior seasons . the market value of distressed inventory is based on historical sales trends of our individual product lines , the impact of market trends and economic conditions , expected permanent retail markdowns and the value of current orders for this type of inventory . a provision is recorded to reduce the cost of inventories to the estimated net realizable values , if required . income taxes as part of the process of preparing our consolidated financial statements , we are required to estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our actual current tax expense , together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes . these differences result in deferred tax assets and liabilities , which are included within our consolidated balance sheet . goodwill and intangible assets asc 350 requires that goodwill and intangible assets with an indefinite life be tested for impairment at least annually and are required to be written down when impaired . we perform our test in the fourth fiscal quarter of each year , or more frequently , if events or changes in circumstances indicate the carrying amount of such assets may be impaired . goodwill and intangible assets with an indefinite life are tested for impairment by comparing the fair value of the reporting unit with its carrying value . fair value is generally determined using discounted cash flows , market multiples and market capitalization . significant estimates used in the fair value methodologies include estimates of future cash flows , future short-term and long-term 36 growth rates , weighted average cost of capital and estimates of market multiples of the reportable unit .
| the gross profit percentage in our non-licensed products segment increased to 33.0 % in fiscal 2014 from 27.8 % in the prior year . this increase in gross profit percentage is primarily attributable to our vilebrequin business which we owned for the full fiscal 2014 year and operates at a higher gross margin than our other non-licensed businesses . the gross profit percentage for our retail operations segment increased to 49.5 % in fiscal 2014 from 47.8 % in the prior year . gross profit percentage for the retail operations segment was positively impacted by less promotional activity and a higher margin product mix . selling , general and administrative expenses increased to $ 440.5 million , or 25.6 % of net sales , in fiscal 2014 from $ 341.2 million , or 24.4 % of net sales , in the prior year . this increase is primarily a result of increases in personnel costs ( $ 49.6 million ) , facility costs ( $ 23.0 million ) and advertising and promotion expenses ( $ 8.4 million ) . personnel costs increased primarily as a result of our recently acquired g.h . bass business , our vilebrequin business , which we owned for a full year in fiscal 2014 compared to less than five months in the prior year , an increase in compensation based on profitability and an increase in personnel to staff additional retail stores . facility costs increased primarily as a result of the acquired g.h . bass stores , rent expense associated with our vilebrequin business , as well as rent for additional wilsons ' retail stores . advertising costs increased because net sales of licensed products increased . we typically pay an advertising fee and are required to participate in customer cooperative advertising under many of our license agreements based on a percentage of net sales of licensed products . 38 depreciation and amortization increased to $ 13.7 million in fiscal 2014 from $ 9.9 million in the prior year primarily as a result of the vilebrequin business being included
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during fiscal 2017 , we recorded a net gain of $ 32.7 million reflecting the elimination of the contingent consideration liability as a result of our decision to exit the ebuys business . during fiscal 2016 , we made fair value adjustments to the contingent consideration liability based on discounted cash flows of the projected earnings performance measure and recorded a net gain of $ 20.2 million as a result of the fair value adjustments net of accretion and other adjustments . 20 non-operating income ( expense ) non-operating income ( expense ) includes recognized gains ( losses ) from the sales of available-for-sale investments and recognized foreign exchange gains ( losses ) resulting from transactions with our canadian investments and the revaluation of cash denominated in cad . income taxes our effective tax rate for fiscal 2017 was 47.0 % compared to 38.8 % for fiscal 2016 and 38.1 % for fiscal 2015 . the effective tax rates reflect the impact of federal , state and local , and foreign taxes , as well as tax on the income or loss from town shoes . the effective tax rate for fiscal 2017 was significantly impacted by the impact of implementing the u.s. tax reform , which resulted in recognizing $ 10.1 million of additional net tax expense . this amount is primarily comprised of the remeasurement of federal net deferred tax assets resulting from the reduction in the federal statutory tax rate from 35 % to 21 % . income ( loss ) from town shoes income ( loss ) from town shoes includes our portion of the loss in town shoes ' operations , offset by the interest income on the notes receivable . liquidity and capital resources overview our primary ongoing operating cash flow requirements are for inventory purchases , capital expenditures for new stores , improving our information technology systems and infrastructure growth . our working capital and inventory levels typically build seasonally . during the first half of fiscal 2018 , we intend to exercise the call option to purchase the remaining interest in town shoes . on february 13 , 2018 , the board of directors increased the quarterly cash dividend from $ 0.20 per share to $ 0.25 per share . on august 17 , 2017 , the board of directors authorized the repurchase of an additional $ 500 million of class a common shares under our share repurchase program , which was added to the $ 33.5 million remaining from the previous authorization . as of february 3 , 2018 , we had $ 524.1 million remaining available under the program . the share repurchase program may be suspended , modified or discontinued at any time , and we have no obligation to repurchase any amount of our common shares under the program . shares will be repurchased in the open market at times and in amounts considered appropriate based on price and market conditions . effective february 2 , 2018 , we entered into a secured loan agreement with town shoes that allows town shoes to borrow up to $ 100 million cad at a variable interest rate , paid monthly , which replaced town shoes ' existing credit facility with a third party bank . also on february 2 , 2018 , we provided town shoes $ 64.3 million cad ( $ 51.7 million united states dollars ( `` usd '' ) ) under this loan agreement . this arrangement allowed us to pay off town shoes ' debt and eliminate its credit facility in advance of our acquisition of town shoes , provides us interest income up to the acquisition date , and provides town shoes liquidity to fund its working capital needs , including merchandise needed for post-acquisition operations . the recently enacted u.s. tax reform significantly changes how the u.s. taxes corporations , which includes the reduction in the federal statutory tax rate from 35 % to 21 % , among other changes . we expect u.s. tax reform to reduce cash taxes paid ; however , state , local or foreign jurisdictions may enact tax laws in response to the u.s. tax reform that could result in further changes to our taxation . we are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business , pursue our growth strategy and withstand unanticipated business volatility . we believe that cash generated from our operations , together with our current levels of cash and investments , as well as availability under our credit facility , are sufficient over the next 12 months and the foreseeable future to maintain our ongoing operations , support seasonal working capital requirements , fund capital expenditures , repurchase common shares under our share repurchase program , and complete the town shoes acquisition . 21 operating activities for fiscal 2017 , our net cash provided by operations was $ 191.0 million compared to $ 212.9 million for fiscal 2016 . the decrease in net cash provided by operating activities was driven by the timing of working capital payments due to the extra week in fiscal 2017 , primarily related to occupancy-related payments . net income was relatively flat after adjusting for non-cash activity , which primarily included impairment charges , the change in the fair value of the contingent consideration liability , depreciation and amortization , stock-based compensation expense , and the change in deferred income taxes . net cash provided by operations in fiscal 2016 decreased to $ 212.9 million from $ 245.4 million for fiscal 2015 . the decrease in net cash provided by operating activities was primarily driven by lower net income when adjusted for non-cash activity , primarily the change in fair value of the contingent consideration liability . investing activities for fiscal 2017 , net cash used in investing activities was $ 59.0 million . story_separator_special_tag during fiscal 2017 , we paid $ 56.3 million for capital expenditures and we had net proceeds from the sale of investments of $ 54.7 million , which was primarily used to provide additional loans to town shoes of $ 57.4 million , including $ 51.7 million during the fourth quarter of fiscal 2017. proceeds from this loan were used by town shoes to pay off their existing debt and for seasonal working capital requirements . for fiscal 2016 , net cash used in investing activities was $ 27.3 million . during fiscal 2016 , we paid $ 87.6 million for capital expenditures and we had net proceeds from the sale of investments of $ 124.8 million , which were used to fund our share repurchases , payment of dividends and the acquisition of ebuys . for fiscal 2015 , net cash used in investing activities was $ 34.9 million . during fiscal 2015 , we paid $ 103.9 million for capital expenditures and we had net proceeds from the sale of investments of $ 73.6 million , which were used to fund our share repurchases and the payment of dividends . financing activities for fiscal 2017 , 2016 and 2015 , net cash used in financing activities of $ 71.4 million , $ 110.5 million and $ 244.2 million , respectively , was primarily related to the payment of dividends and the repurchase of class a common shares under the share repurchase programs . debt credit facility - on august 25 , 2017 , we entered into a senior unsecured revolving credit agreement ( the `` credit facility '' ) with a maturity date of august 25 , 2022 that replaced our previous secured revolving credit agreement and letter of credit agreement . the credit facility provides a revolving line of credit up to $ 300 million , with sub-limits for the issuance of up to $ 50 million in letters of credit , swing loan advances of up to $ 15 million , and the issuance of up to $ 75 million in foreign currency revolving loans and letters of credit . the credit facility may be further increased by up to $ 100 million subject to agreed-upon terms and conditions . the credit facility may be used to provide funds for working capital , capital expenditures , dividends and share repurchases , other expenditures , and permitted acquisitions as defined by the credit facility . loans issued under the revolving line of credit bear interest , at our option , at a base rate or an alternate base rate as defined in the credit facility plus a margin based on our leverage ratio , with any loans issued in cad bearing interest at the alternate base rate plus a margin based on our leverage ratio . interest on letters of credit issued under the credit facility is variable based on our leverage ratio and the type of letters of credit . commitment fees are based on the average unused portion of the credit facility at a variable rate based on our leverage ratio . as of february 3 , 2018 , we had no outstanding borrowings under the credit facility and $ 1.9 million in letters of credit issued , resulting in $ 298.1 million available for borrowings . interest expense related to the credit facility includes letters of credit interest , commitment fees and the amortization of debt issuance costs . debt covenants- the credit facility contains financial and other covenants , including , but not limited to , limitations on indebtedness , liens and investments , as well as the maintenance of a leverage ratio not to exceed 3.25:1 and a fixed charge coverage ratio not to be less than 1.75:1 . a violation of any of the covenants could result in a default under the credit facility that would permit the lenders to restrict our ability to further access the credit facility for loans and letters of credit and require the immediate repayment of any outstanding loans under the credit facility . as of february 3 , 2018 , we were in compliance with all financial covenants . our credit facility allows the payments of dividends by us or our subsidiaries , provided that immediately before and after a dividend payment there is no event of default , as defined in our credit facility . 22 capital expenditure plans we expect to spend approximately $ 77 million for capital expenditures in fiscal 2018 , with half going into new stores , store remodels and store maintenance and the other half going into technology investments and other business projects , and excludes any additional capital expenditures after our acquisition of the remaining interest in town shoes . our future investments will depend primarily on the number of stores we open and remodel , infrastructure and information technology projects that we undertake and the timing of these expenditures . during fiscal 2018 , we plan to open approximately seven to nine new dsw stores in the u.s. and we may open additional stores in canada after our acquisition of the remaining interest in town shoes . during fiscal 2017 , the average investment required to open a new dsw store was approximately $ 1.4 million prior to any tenant allowances we might receive , which averaged $ 0.4 million . of this amount , fixtures and leasehold improvements typically accounted for $ 0.7 million , gross inventory typically accounted for $ 0.5 million , and new store advertising and other expenses typically accounted for $ 0.2 million .
| the impact of implementing the u.s. tax reform resulted in recognizing $ 10.1 million of additional net tax expense , primarily due to the remeasurement of federal net deferred tax assets resulting from the reduction in the federal statutory tax rate from 35 % to 21 % . net income for fiscal 2016 was $ 124.5 million , or $ 1.52 per diluted share , which included net favorable after-tax adjustments of $ 4.4 million , or $ 0.06 per diluted share , related to the acquisition of ebuys , including a reduction of the contingent consideration liability , the amortization of intangibles , and transaction costs , as well as restructuring costs . we have continued making investments in our business that support our long-term growth objectives . during fiscal 2017 , we invested $ 56.3 million in capital expenditures compared to $ 87.6 million during fiscal 2016 . our capital expenditures during fiscal 2017 were primarily related to 15 new store openings , store remodels and business infrastructure . we plan to open approximately seven to nine new stores in fiscal 2018 . during the first half of fiscal 2018 , we intend to exercise the call option to purchase the remaining interest in town shoes . results of operations the following represents selected components of our consolidated results of operations , with associated percentages of net sales : replace_table_token_4_th 18 fiscal 2017 compared to fiscal 2016 and fiscal 2016 compared to fiscal 2015 net sales net sales for fiscal 2017 increased by 3.3 % from fiscal 2016 and net sales for fiscal 2016 increased by 3.5 % from fiscal 2015 . the following summarizes the change in total net sales from the previous fiscal year : replace_table_token_5_th the following summarizes net sales by segment : replace_table_token_6_th ( 1 ) other primarily represents net sales for abg and ebuys . the following summarizes our comparable sales change : replace_table_token_7_th fiscal 2017 vs. fiscal 2016 - the increase in total net sales
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36 allowance for doubtful accounts the company 's policy is to maintain allowances for estimated losses from the inability of its customers to make required payments . credit limits are established through a process of reviewing the financial results , stability and payment history of each customer . where appropriate , the company obtains credit rating reports and financial statements of customers when determining or modifying credit limits . the company 's senior management reviews accounts receivable on a periodic basis to determine if any receivables may potentially be uncollectible . the company includes any accounts receivable balances that it determines may likely be uncollectible , along with a general reserve for estimated probable losses based on historical experience , in its overall allowance for doubtful accounts . an amount would be written off against the allowance after all attempts to collect the receivable had failed . based on the information available to the company , it believes the allowance for doubtful accounts as of december 31 , 2011 is adequate . inventory inventory is valued at the lower of cost or market value , with cost determined by the first-in , first-out method . the company regularly reviews inventory quantities on hand and records a provision for excess and or obsolete inventory primarily based upon estimated usage of its inventory as well as other factors . long lived assets long-lived assets , other than goodwill , are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets . when any such impairment exists , the related assets are written down to fair value . intangible assets subject to amortization consist primarily of patents , technology intangibles , trade names , customer relationships and distribution agreements purchased in the company 's previous acquisitions . these assets , which include assets acquired from xoft , inc. , are amortized on a straight-line basis or the pattern of economic benefit over their estimated useful lives of 5 to 10 years . goodwill in accordance with fasb asc topic 350-20 , intangiblesgoodwill and other , ( asc 350-20 ) , the company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the company is less than the carrying value of the company . the company 's goodwill arose in connection with its acquisitions in june 2002 , december 2003 and december 2010. the company operates in one segment and one reporting unit since operations are supported by one central staff and the results of operations are evaluated as one business unit . in general the company 's medical device products are similar in nature based on production , distribution , services provided and regulatory requirements . the company uses market capitalization as the best evidence of fair value ( market capitalization is calculated using the quoted closing share price of the company 's common stock at its annual impairment testing 37 date of october 1 , multiplied by the number of common shares outstanding ) of the company . the company tests goodwill for impairment by comparing its market capitalization ( fair value ) to its carrying value . the fair value of the company is compared to the carrying amount at the same date as the basis to determine if a potential impairment exists . the company assesses the potential impairment of goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable and at least annually . factors the company considers important , which could trigger an impairment of such asset , include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner or use of the assets or the strategy for the company 's overall business ; significant negative industry or economic trends ; significant decline in the company 's stock price for a sustained period ; and a decline in the company 's market capitalization below net book value . during the quarter ended september 30 , 2011 , as a result of the sustained decline in the market capitalization of the company , an interim step 1 analysis was completed . the interim step 1 test resulted in the determination that the carrying value of equity exceeded the fair value of equity , thus requiring the company to measure the amount of any goodwill impairment by performing the second step of the impairment test . the company corroborated the step 1 analysis using an income approach . the second step ( defined as step 2 ) of the goodwill impairment test , used to measure the amount of impairment loss , compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill . the guidance in fasb asc 350 intangibles goodwill and other was used to estimate the implied fair value of goodwill . the guidance provides that if the carrying amount of the company 's goodwill exceeds the implied fair value of that goodwill , an impairment loss shall be recognized in an amount equal to that excess . the loss recognized can not exceed the carrying amount of goodwill . after a goodwill impairment loss is recognized , the adjusted carrying amount of goodwill shall be its new accounting basis. the implied fair value of goodwill was determined in the same manner as the amount of goodwill recognized in a business combination is determined . the excess of the fair value of the single reporting unit over the amounts assigned to its assets and liabilities is the implied amount of goodwill . the company identified several intangible assets that were valued during this process , including technology , customer relationships , trade names , non-compete agreements , and the company 's workforce . the allocation process was performed only for purposes of testing goodwill for impairment . story_separator_special_tag the company determined the value of the select assets utilizing the income approach . this approach was selected as it measures the income producing assets , primarily technology and customer relationships . this method estimates the fair value based upon the ability to generate future cash flows , which is particularly applicable when future profit margins and growth are expected to vary significantly from historical operating results . 38 other significant assumptions include terminal value margin rates , future capital expenditures , and changes in future working capital requirements . the company also compared and reconciled the overall fair value to the company 's market capitalization . while there are inherent uncertainties related to the assumptions used and to the application of these assumptions to this analysis , the income approach provides a reasonable estimate of the fair value of the company 's single reporting unit . on december 22 , 2011 , the company agreed to a settlement related to the litigation with carl zeiss meditec inc. and carl zeiss surgical gmbh ( see note 2 ) . the company determined that this settlement should be recorded as a measurement period adjustment and accordingly recorded the present value of the litigation , retrospectively to the opening balance sheet of xoft . as a result , goodwill increased from approximately $ 45.7 million as of december 31 , 2010 to $ 46.0 million as of december 31 , 2010. during the quarter ended , september 30 , 2011 , the company recorded an impairment loss of approximately $ 26.8 million . however , as a result of recording a measurement period adjustment , the fair value of goodwill was reevaluated . the step 2 test resulted in determining the fair value of goodwill of $ 21.1 million which resulted in an additional impairment loss of $ 78,000. additional , purchase accounting adjustments , considered to be measurement period adjustments , were recorded in the six months subsequent to the acquisition of xoft and consisted primarily of a $ 1.5 million decrease of the acquired patent asset , a decrease of $ 500,000 in the acquired technology asset , a decrease in the fair value estimate of the royalty obligation of $ 200,000 and a decrease of $ 100,000 related to contingent consideration and an increase of approximately $ 300,000 related to unrecorded liabilities . these measurement period adjustments had no effect on the company 's operations and results and had an immaterial effect on the december 31 , 2010 balance sheet . accordingly , the adjustments were recorded during 2011 , and considered in the impairment analysis during the third quarter of 2011. the changes in the carrying amount of goodwill for the year ended december 31 , 2011 , are as follows : replace_table_token_2_th no goodwill impairment loss was recorded in 2010. for 2011 and 2010 the company performed the annual step one fair value comparison as of october 1 , 2011 and october 1 , 2010. at october 1 , 2010 , the company 's market capitalization ( or market capitalization with a reasonable control premium ) exceeded its carrying value . at october 1 , 2011 , the company 's market 39 capitalization with a reasonable control premium was less than the carrying value of goodwill . however , the company completed a goodwill impairment analysis as of september 30 , 2011 , and concluded that the october 1 , 2011 step one fair value comparison was consistent with the results on september 30 , 2011. at december 31 , 2011 and 2010 the company 's market capitalization ( or market capitalization with a reasonable control premium ) exceeded its carrying value . stock-based compensation the company maintains stock-based incentive plans , under which it provides stock incentives to employees , directors and contractors . the company grants to employees , directors and contractors , restricted stock and or options to purchase common stock at an option price equal to the market value of the stock at the date of grant . the company follows fasb asc topic 718 , compensation stock compensation , ( asc 718 ) , for all stock-based compensation . the company uses the black-scholes option pricing model which requires extensive use of accounting judgment and financial estimates , including estimates of the expected term participants will retain their vested stock options before exercising them , the estimated volatility of its common stock price over the expected term , and the number of options that will be forfeited prior to the completion of their vesting requirements . application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently , the related amounts recognized in the consolidated statements of operations . income taxes the company follows the liability method under fasb asc topic 740 , income taxes ( asc 740 ) . the primary objectives of accounting for taxes under asc 740 are to ( a ) recognize the amount of tax payable for the current year and ( b ) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the company 's financial statements or tax returns . the company has provided a full valuation allowance against its deferred tax assets at december 31 , 2011 and 2010 as it is more likely than not that the deferred tax asset will not be realized . asc 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . asc 740-10 also provides guidance on de-recognition , classification , interest and penalties , disclosure and transition .
| its focus is on the development and marketing of cancer detection products for disease states where there are established or emerging protocols for screening as a standard of care . icad continues to pursue development or acquisition of products for select disease states that demonstrate one or more of the following : it is clinically proven that screening has a significant positive impact on patient outcomes , where there is an opportunity to lower health care costs , where screening is non-invasive or minimally invasive and where public awareness is high . the company also intends to pursue opportunities beyond cad through possible strategic acquisitions as part of its growth strategy , and as such the company continues to actively evaluate strategic opportunities in the oncology market that could leverage its opportunities for growth beyond its historic core markets . icad has applied its patented detection technology and algorithms to the development of cad solutions for use with virtual colonoscopy or ct colonography ( ctc ) to improve the detection of colonic polyps . the company 's pattern recognition and image analysis expertise are readily applicable to colonic polyp detection and the company has developed a ctc cad solution . 33 ctc is a technology that has evolved rapidly in recent years . based on the results of the national ct colonography trial , the company expects that the market for virtual colonoscopy will grow along with the procedures for early detection of colon cancer . this trial demonstrated that ctc is highly accurate for the detection of intermediate and large polyps and that the accuracy of ctc is similar to a colonoscopy . ctc is emerging as an alternative imaging procedure for evaluation of the colon . the company has developed and commenced marketing veralook , a product for computer aided detection of polyps in the colon using ctc and completed the clinical testing of its ctc cad product in the first quarter of 2009. the company filed a 510 ( k ) application with the
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banks have been required to hold minimum levels of capital based on guidelines established by the bank regulatory agencies since 1983. the minimums have been expressed in terms of ratios of “ capital ” divided by “ total assets. ” as discussed below , bank capital measures have become more sophisticated over the years and have focused more on the quality of capital and the risk of assets . bank holding companies have historically had to comply with less stringent capital standards than their bank subsidiaries and have been able to raise capital with hybrid instruments such as trust preferred securities . the dodd-frank act mandated the federal reserve to establish minimum capital levels for holding companies on a consolidated basis as stringent as those required for fdic-insured institutions . a result of this change is that the proceeds of hybrid instruments , such as trust preferred securities , were excluded from capital over a phase-out period . however , if such securities were issued prior to may 19 , 2010 by bank holding companies with less than $ 15 billion of assets , they may be retained , subject to certain restrictions . because we have assets of less than $ 15 billion , we are able to maintain our trust preferred proceeds as capital but we have to comply with new capital mandates in other respects and will not be able to raise capital in the future through the issuance of trust preferred securities . the basel international capital accords . the risk-based capital guidelines for u.s. banks since 1989 were based upon the 1988 capital accord known as “ basel i ” adopted by the international basel committee on banking supervision , a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation , as implemented by the u.s. bank regulatory agencies on an interagency basis . the accord recognized that bank assets for the purpose of the capital ratio calculations needed to be assigned risk weights ( the theory being that riskier assets should require more capital ) and that off-balance sheet exposures needed to be factored in the calculations . basel i had a very simple formula for assigning risk weights to bank assets from 0 % to 100 % based on four categories . in 2008 , the banking agencies collaboratively began to phase-in capital standards based on a second capital accord , referred to as “ basel ii , ” for large or “ core ” international banks ( generally defined for u.s. purposes as having total assets of $ 250 billion or more , or consolidated foreign exposures of $ 10 billion or more ) known as “ advanced approaches ” banks . the primary focus of basel ii was on the calculation of risk weights based on complex models developed by each advanced approaches bank . because most banks were not subject to basel ii , the u.s. bank regulators worked to improve the risk sensitivity of basel i standards without imposing the complexities of basel ii . this “ standardized approach ” increased the number of risk-weight categories and recognized risks well above the original 100 % risk weight . it is institutionalized by the dodd-frank act for all banking organizations , even for the advanced approaches banks , as a floor . on september 12 , 2010 , the group of governors and heads of supervision , the oversight body of the basel committee on banking supervision , announced agreement on a strengthened set of capital requirements for banking organizations around the world , known as basel iii , to address deficiencies recognized in connection with the global financial crisis . the basel iii rules . in july 2013 , the u.s. federal banking agencies approved the implementation of the basel iii regulatory capital reforms in pertinent part , and , at the same time , promulgated rules effecting certain changes required by the dodd-frank act . in contrast to capital requirements historically , which were in the form of guidelines , basel iii was released in the form of enforceable regulations by each of the regulatory agencies . the basel iii rules are applicable to all banking organizations that are subject to minimum capital requirements , including federal and state banks and savings and loan associations , as well as to bank and savings and loan holding companies , other than “ small bank holding companies ” ( generally holding companies with consolidated assets of less than $ 3 billion ) and certain qualifying banking organizations that may elect a simplified framework ( which we have not done ) . thus , the company and the bank are each currently subject to the basel iii rules as described below . the basel iii rules increased the required quantity and quality of capital and , for nearly every class of assets , they require more complex , detailed and calibrated assessment of risk and calculation of risk-weight amounts . not only did the basel iii rules increase most of the required minimum capital ratios in effect prior to january 1 , 2015 , but they introduced the concept of common equity tier 1 capital , which consists primarily of common stock , related surplus ( net of treasury stock ) , retained earnings , and common equity tier 1 minority interests subject to certain regulatory adjustments . the 5 basel iii rules also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered additional tier 1 capital ( primarily non-cumulative perpetual preferred stock that meets certain requirements ) and tier 2 capital ( primarily other types of preferred stock and subordinated debt , subject to limitations ) . a number of instruments that qualified as tier 1 capital under basel i do not qualify , or their qualifications changed . for example , noncumulative perpetual preferred stock , which qualified as simple tier 1 capital under basel i , does not qualify as common equity tier 1 capital , but qualifies as additional tier 1 capital . story_separator_special_tag the basel iii rules also constrained the inclusion of minority interests , mortgage-servicing assets , and deferred tax assets in capital and requires deductions from common equity tier 1 capital in the event that such assets exceed a certain percentage of a banking institution 's common equity tier 1 capital . the basel iii rules require minimum capital ratios as follows : a ratio of minimum common equity tier 1 capital equal to 4.5 % of risk-weighted assets ; an increase in the minimum required amount of tier 1 capital from 4 % to 6 % of risk-weighted assets ; a continuation of the minimum required amount of total capital ( tier 1 plus tier 2 ) at 8 % of risk-weighted assets ; and a minimum leverage ratio of tier 1 capital to total quarterly average assets equal to 4 % in all circumstances . in addition , institutions that seek the freedom to make capital distributions ( including for dividends and repurchases of stock ) and pay discretionary bonuses to executive officers without restriction must also maintain greater than 2.5 % in common equity tier 1 capital attributable to a capital conservation buffer . the purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress . factoring in the conservation buffer increases the minimum ratios depicted above to 7 % for common equity tier 1 capital , 8.5 % for tier 1 capital and 10.5 % for total capital . the failure to maintain a capital conservation buffer greater than 2.5 % will result in restrictions on capital distributions ( including dividends and repurchases of stock ) and discretionary bonus payments to executive officers , unless prior regulatory approval is obtained . if a banking institution 's conservation buffer is less than or equal to 0.625 % , the banking institution may not make any capital distributions or discretionary bonus payments to executive officers . if the conservation buffer is greater than 0.625 % but less than or equal to 1.25 % , capital distributions and discretionary bonus payments are limited to 20 % of net income for the four calendar quarters preceding the current calendar quarter ( net of any capital distributions made during those four quarters ) , or “ eligible retained income. ” if the conservation buffer is greater than 1.25 % but less than or equal to 1.875 % , the limit is 40 % of eligible retained income , and if the conservation buffer is greater than 1.875 % but less than or equal to 2.5 % , the limit is 60 % of eligible retained income . well-capitalized requirements . the ratios described above are minimum standards in order for banking organizations to be considered “ adequately capitalized. ” bank regulatory agencies uniformly encourage banks to hold more capital and be “ well-capitalized ” and , to that end , federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements . for example , a banking organization that is well-capitalized may : ( i ) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities ; ( ii ) qualify for expedited processing of other required notices or applications ; and ( iii ) accept , roll-over or renew brokered deposits . higher capital levels could also be required if warranted by the particular circumstances or risk profiles of individual banking organizations . for example , the federal reserve 's capital guidelines contemplate that additional capital may be required to take adequate account of , among other things , interest rate risk , or the risks posed by concentrations of credit , nontraditional activities or securities trading activities . further , any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios , including tangible capital positions ( i.e . , tier 1 capital less all intangible assets ) , well above the minimum levels . under the capital regulations of the fdic and federal reserve , in order to be well‑capitalized , a banking organization must maintain : a common equity tier 1 capital ratio to risk-weighted assets of 6.5 % or more ; a ratio of tier 1 capital to total risk-weighted assets of 8 % or more ( 6 % under basel i ) ; a ratio of total capital to total risk-weighted assets of 10 % or more ( the same as basel i ) ; and a leverage ratio of tier 1 capital to total adjusted average quarterly assets of 5 % or greater . it is possible under the basel iii rules to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above . as of december 31 , 2019 : ( i ) the bank was not subject to a directive from the fdic to increase its capital and ( ii ) the bank was well-capitalized , as defined by fdic regulations . as of december 31 , 2019 , the company had regulatory capital in excess of the 6 federal reserve 's requirements and met the basel iii rules requirements to be well-capitalized . we are also in compliance with the capital conservation buffer . prompt corrective action . the concept of an institution being “ well-capitalized ” is part of a regulatory enforcement regime that provides the federal banking regulators with broad power to take “ prompt corrective action ” to resolve the problems of institutions based on the capital level of each particular institution . the extent of the regulators ' powers depends on whether the institution in question is “ adequately capitalized , ” “ undercapitalized , ” “ significantly undercapitalized ” or “ critically undercapitalized , ” in each case as defined by regulation .
| the dodd-frank act altered the minimum reserve ratio of the dif , increasing the minimum from 1.15 % to 1.35 % of the estimated amount of total insured deposits , and eliminating the requirement that the fdic pay dividends to fdic-insured institutions when the reserve ratio exceeds certain thresholds . the reserve ratio reached 1.36 % as of september 30 , 2018 , exceeding the statutory required minimum reserve ratio of 1.35 % . as a result , the fdic is providing assessment credits to insured depository institutions , like the bank , with total consolidated assets of less than $ 10 billion for the portion of their regular assessments that contributed to growth in the reserve ratio between 1.15 % and 1.35 % . the share of the aggregate small bank credits allocated to each insured institution is proportional to its credit base , defined as the average of its regular assessment base during the credit calculation period . the fdic is currently applying the credits for quarterly assessment periods beginning july 1 , 2019 , and , as long as the reserve ratio is at least 1.35 % , the fdic will remit the full nominal value of any remaining credits in a lump-sum payment . supervisory assessments . all iowa banks are required to pay supervisory assessments to the iowa division to fund the operations of that agency . the amount of the assessment is calculated on the basis of the bank 's total assets . during the year ended december 31 , 2019 , the bank paid supervisory assessments to the iowa division totaling approximately $ 147,000 . capital requirements . banks are generally required to maintain capital levels in excess of other businesses . for a discussion of capital requirements , see “ the role of capital ” above . liquidity requirements . liquidity is a measure of the ability and ease with which bank assets may be converted to cash . liquid assets are those that can be converted to cash quickly if needed to meet financial obligations . to remain viable , fdic-insured institutions must
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we also acquired substantially all of the assets of a used auto parts business with three stores in seattle , wa , expanding apb 's presence in the northwestern u.s. mrb has a significant presence in tacoma , wa , which will benefit from the synergies of this enhanced access to supply . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2011 . the increases in average net selling price reflected improved , but still weak , demand for finished steel products in western north america . smb had operating income of $ 3 million compared to an operating loss of $ ( 6 ) million in fiscal 2010 . 23 / schnitzer steel industries , inc. form 10-k 2011 results of operations replace_table_token_11_th _ nm = not meaningful ( 1 ) mrb sells recycled ferrous metal to smb at rates per ton that approximate west coast export market prices . in addition , apb sells auto bodies to mrb . these intercompany revenues and cost of goods sold are eliminated in consolidation . ( 2 ) corporate expense consists primarily of unallocated expenses for services that benefit all three business segments . as a consequence of this unallocated expense , the operating income of each segment does not reflect the operating income the segment would have as a stand-alone business . ( 3 ) the joint ventures sell recycled ferrous metal to mrb and then subsequently to smb at rates per ton that approximate west coast export market prices . consequently , these intercompany revenues produce intercompany operating income ( loss ) , which is not recognized until the finished products are sold to third parties ; therefore , intercompany profit is eliminated while the products remain in inventory . ( 4 ) intercompany profits are not recognized until the finished products are sold to third parties ; therefore , intercompany profit is eliminated while the products remain in inventory . 24 / schnitzer steel industries , inc. form 10-k 2011 revenues fiscal 2011 compared with fiscal 2010 revenues for fiscal 2011 increased for all reporting segments primarily due to higher average net selling prices and higher sales volumes resulting from stronger worldwide demand from export markets as well as recovering domestic demand for scrap and recycled metal , increased availability of raw materials , including improved recovery through enhanced processing technologies . incremental revenues from third party sales generated by fiscal 2011 acquisitions were $ 93 million . fiscal 2010 compared with fiscal 2009 revenues in fiscal 2010 increased for all reporting segments primarily due to continuing strong worldwide demand for scrap and recycled metal , which led to higher average net selling prices and sales volumes , and to a lesser extent increased western u.s. demand for finished steel products . operating income ( loss ) fiscal 2011 compared with fiscal 2010 the increase in operating income was primarily due to higher average net selling prices and higher sales volumes as a result of continuing strong export market conditions , increased availability of raw materials , increased yield from higher production and enhanced shredding and sorting technologies , and incremental operating income from acquisitions . operating income reflected an increase of $ 46 million in consolidated selling , general and administrative ( “ sg & a ” ) expense for fiscal 2011 , primarily due to an $ 18 million increase in compensation expenses mainly related to increased headcount from recent acquisitions and a $ 12 million increase in professional and other third party services , including transaction costs associated with acquisitions completed in fiscal 2011. in fiscal 2011 , sg & a expense was reduced by $ 6 million for favorable customer contract settlements , compared to a reduction of $ 3 million in fiscal 2010. in addition , sg & a expense was lower in fiscal 2010 as it included $ 9 million in benefits from favorable legal settlements and environmental cost reimbursements . fiscal 2010 compared with fiscal 2009 as a percentage of revenues , operating income increased by 8.3 percentage points for fiscal 2010 compared to fiscal 2009 . this improvement in operating income was primarily due to higher average net selling prices , which increased more than the average cost of raw materials , and increased availability of raw materials , which improved operating margins . the improvement in consolidated operating income also benefited from a decrease in consolidated sg & a expense of $ 5 million to $ 159 million for fiscal 2010 . the decrease included $ 9 million in higher bad debt expense recognized in the prior year , $ 6 million in fiscal 2010 benefits recognized from favorable customer contract and legal settlements , $ 6 million in environmental and legal cost reimbursements , including $ 3 million in the fourth quarter of fiscal 2010 , and $ 6 million in reduced professional service fees . these decreases were partially offset by an $ 18 million increase in incentive compensation due to improvements in financial performance and the reinstatement of employer contributions to our defined contribution plans effective april 2010 , and by $ 2 million of increased expense related to the amortization of intangibles . interest expense interest expense was $ 8 million , $ 2 million and $ 3 million for fiscal 2011 , 2010 and 2009 , respectively . the increase from fiscal 2010 to fiscal 2011 is the result of higher outstanding debt and higher average interest rates under our amended bank credit facility . for more information about our outstanding debt balances , see note 10 – long-term debt and capital lease obligations in the notes to the consolidated financial statements in part ii , item 8 of this report . other income , net , excluding interest expense other income , net , excluding interest expense was $ 3 million , $ 2 million and $ 7 million for fiscal 2011 , 2010 and 2009 , respectively . story_separator_special_tag other income decreased in fiscal 2010 compared to the prior year because fiscal 2009 included a pre-tax gain from a settlement agreement relating to the dissolution of one of our joint ventures in september 2005. income tax expense ( benefit ) income tax expense ( benefit ) was $ 57 million , $ 41 million and $ ( 20 ) million for fiscal 2011 , 2010 and 2009 , respectively . fiscal 2011 compared with fiscal 2010 our effective tax rate for fiscal 2011 was 31.6 % compared to 32.6 % for fiscal 2010. the effective tax rate differed from the u.s. federal statutory rate of 35 % , primarily due to the lower tax rate for foreign income and domestic production activities deductions . the fiscal 2011 effective tax rate also benefited from certain adjustments recorded in the period , including a recognition of research and development credits and a reduction in a reserve for unrecognized state income tax benefits . in addition , during the fourth 25 / schnitzer steel industries , inc. form 10-k 2011 quarter of fiscal 2011 , we recorded an adjustment to correct an error that originated in a prior period pertaining to deferred tax liabilities related to our investment in a subsidiary . the correction of this error resulted in a reduction of income tax expense and an increase to net income of $ 3 million for the year ended august 31 , 2011. see note 17 - income taxes in the notes to the consolidated financial statements in part ii , item 8 of this report for further discussion of the correction . fiscal 2010 compared with fiscal 2009 our effective tax rate for fiscal 2010 was 32.6 % ( provision on income ) compared to ( 42.3 ) % ( benefit on a loss ) for fiscal 2009 . the level of the decrease in the effective rate primarily reflects the impact of tax credits on lower taxable income ( loss ) in fiscal 2009 compared with fiscal 2010 , a lower state tax rate in fiscal 2010 resulting from the reduction in the reserve for unrecognized tax benefits and a more favorable manufacturing deduction in fiscal 2010 which included the restoration of a previously disallowed deduction due to a newly enacted law . fiscal 2009 also included a reduction in the reserve for unrecognized tax benefits , which increased the effective rate benefit on the loss . 26 / schnitzer steel industries , inc. form 10-k 2011 financial results by reporting segment we operate our business across three reporting segments : mrb , apb and smb . additional financial information relating to these reporting segments is contained in note 20 – segment information in the notes to the consolidated financial statements in part ii , item 8 of this report . metals recycling business replace_table_token_12_th _ lt = long ton , which is 2,240 pounds nm = not meaningful ( 1 ) price information is shown after netting the cost of freight incurred to deliver the product to the customer . ( 2 ) the fiscal 2009 average ferrous recycled metal sales price to smb was significantly higher than the average foreign sales price because when compared to foreign customers , sales to smb were greater in volume during the first quarter of the fiscal year , when sales prices were higher , than in the latter three quarters . fiscal 2011 compared with fiscal 2010 revenues the increase in revenues was primarily attributable to higher average net selling prices and higher sales volumes caused by increased demand , availability of raw materials and incremental volume from acquisitions . the increase in ferrous revenues was primarily driven by higher average net selling prices and higher sales volumes . the average net ferrous selling price increased $ 88 per long ton during fiscal 2011 primarily due to stronger demand from export markets as 27 / schnitzer steel industries , inc. form 10-k 2011 well as gradually recovering domestic demand which drove increases in foreign and domestic selling prices . ferrous sales volumes increased by 1.1 million long tons driven by increased availability of raw materials , our focus on maximizing throughput , which is being accomplished through increased purchases of raw materials , increased production as a result of our investments in technology and continuous improvement programs , and incremental volume from acquisitions . the increase in nonferrous revenues was driven by increases in both the average nonferrous net selling price and sales volumes . the average net selling price increased $ 0.23 per pound during fiscal 2011 primarily due to stronger demand and higher commodity prices . in addition , nonferrous volumes sold increased 90 million pounds for fiscal 2011 , reflecting stronger global market conditions , improved recovery of nonferrous materials processed through our enhanced shredding and sorting technologies , more nonferrous collection activity and incremental volume from acquisitions . segment operating income the increase in operating income in fiscal 2011 was primarily due to higher average net selling prices and higher sales volumes for both ferrous and nonferrous scrap metal as a result of continuing strong export market conditions , increased availability of raw materials , increased yield from higher production and enhanced shredding and sorting technologies , and incremental operating income from acquisitions . while we were able to increase the spread between selling prices and purchase prices , operating income as a percentage of revenues decreased from 6.0 % in fiscal 2010 to 5.4 % in fiscal 2011 , primarily due to the escalation in selling prices . included in fiscal 2011 operating income for mrb was an increase in sg & a expense of $ 26 million compared to the prior year primarily due to a $ 10 million increase in compensation expense as a result of increased headcount from new acquisitions and a $ 6 million increase in expenses for professional and other third party services primarily related to transaction costs associated with acquisitions .
| 22 / schnitzer steel industries , inc. form 10-k 2011 the following items summarize our consolidated cash flow and balance sheet information for fiscal 2011 : net cash provided by operating activities of $ 140 million , compared to $ 89 million in the prior year ; and debt , net of cash , of $ 354 million , compared to $ 70 million as of the prior year-end ( see the reconciliation of debt , net of cash in non-gaap financial measures at the end of item 7 ) , primarily as a result of acquisitions . in fiscal 2011 , our mrb segment generated revenues of $ 3.1 billion , a $ 1.1 billion increase from fiscal 2010 , which included an $ 867 million , or 56 % , increase in ferrous revenues and a $ 207 million , or 50 % , increase in nonferrous revenues due to increased demand from both export and domestic markets , which , together with increased availability of raw materials , contributed to higher average net selling prices and sales volumes . the increase in ferrous revenues was driven by a 27 % increase in average net selling price and a 26 % increase in long tons sold . the increase in nonferrous revenues was driven by a 28 % increase in the average net selling price and a 19 % increase in pounds sold . mrb had operating income of $ 165 million compared to $ 118 million in fiscal 2010 . in fiscal 2011 , our apb segment generated revenues of $ 320 million , a $ 79 million increase from fiscal 2010. the increase over fiscal 2010 was primarily driven by a $ 41 million increase in scrap vehicle revenue and a $ 28 million increase in core revenue mainly due to higher selling prices and sales volumes , and a $ 5 million increase in parts revenues . apb had operating income of $ 64 million compared to $ 51 million in fiscal 2010 . in fiscal 2011 , our smb segment generated revenues of $ 317 million , a
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factors that impacted our cost of revenue for the year ended december 31 , 2018 , and that we expect would impact cost of revenue in future periods , also include : changes in the mix of products delivered , customer location and regional mix , changes in product warranty and incurrence of retrofit costs , changes in the cost of our inventory , including higher costs due to materials shortages , supply constraints or unfavorable changes in trade policies , tariffs and inventory write-downs . cost of revenue also includes fixed expenses related to our internal operations , which could impact our cost of revenue as a percentage of revenue if there are large fluctuations in revenue . during the year ended december 31 , 2018 , our gross profit and gross margin were positively impacted by the customer mix shift , the sale of our new platform offerings and a decrease in our services revenue , which carries a lower than corporate average gross margin , as a mix of total revenue . overall , our gross profit and gross margin fluctuate based on timing of factors such as new product introductions or upgrades to existing products , changes in customer mix , changes in the mix of products demanded and sold ( and any related write-downs of existing inventory ) and may be negatively impacted by increases in mix of revenue towards professional services , increases in mix of revenue from channel sales rather than direct sales or other unfavorable customer or product mix , shipment volumes and any related volume discounts , changes in our product and services costs , pricing decreases or discounts , customer rebates and incentive programs due to competitive pressure or materials shortages , supply constraints , tariffs or unfavorable changes in trade policies . our operating expenses have fluctuated based on the following factors : changes in headcount and personnel costs , which comprise a significant portion of our operating expenses ; timing of variable compensation expenses due to fluctuations in shipment volumes ; timing of research and development expenses , including investments in innovative solutions and new customer segments , prototype builds and outsourced development projects ; investments in our business and information technology infrastructure ; and fluctuations in stock-based compensation expenses due to timing of equity grants or other factors affecting vesting . during the year ended december 31 , 2018 as compared to 2017 , our total operating expenses decreased largely due to the restructuring actions we took in 2017 and early 2018. in march 2017 , we adopted a restructuring plan to realign our business to increase focus towards investments in software platforms and to reduce the expense structure in our traditional systems business . we incurred restructuring charges of $ 4.2 million in 2017 under this plan . in the first quarter of 2018 , we established a new restructuring plan to further align our business resources based on the production releases of our platform offerings and incurred restructuring charges of $ 5.7 million during 2018. our restructuring activities were completed in the second quarter of 2018. our net loss was $ 19.3 million in 2018 , $ 83.0 million in 2017 and $ 27.4 million in 2016 . since our inception , we have incurred significant losses , and as of december 31 , 2018 , we had an accumulated deficit of $ 684.9 million . further , as a result of the fluctuations described above and a number of other factors , many of which are outside our control , our annual operating results fluctuate from period to period . comparing our operating results on a period-to-period basis may not be meaningful , and you should not rely on our past results as an indication of our future performance . product line divestiture in february 2018 , we sold our outdoor cabinet product line to clearfield , inc. for $ 10.4 million in cash as well as the assumption by clearfield of related product warranty liabilities and open purchase order commitments with our contract manufacturer . the divestiture of this non-strategic product line reflects our continued focus on execution on our platforms and business strategy . critical accounting policies and estimates our financial statements are prepared in accordance with u.s. gaap . these accounting principles require us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the date of the financial statements , as well as the reported amounts of revenue and expenses during the periods presented . we base our estimates , assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . to the extent there are material differences between these estimates and actual results , our financial statements may be affected . we evaluate our estimates , assumptions and judgments on an ongoing basis . we believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of our financial statements . 42 revenue recognition revenue is recognized when a performance obligation is satisfied , which occurs when control of the promised goods or services is transferred to the customer , in an amount that reflects the consideration the we expect to be entitled to in exchange for those goods or services . a performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . our hardware products contain both software and non-software components that function together to deliver the products ' essential functionality and therefore constitutes a single performance obligation as the promise to transfer the individual software and non-software components is not separately identifiable and , therefore , not distinct . our contracts may include multiple performance obligations . story_separator_special_tag for such arrangements , we allocate the contract 's transaction price to each performance obligation using the relative stand-alone selling price of each distinct good or service in the contract . we generally determine stand-alone selling prices based on the prices charged to customers or our best estimate of stand-alone selling price . our estimate of stand-alone selling price is established considering multiple factors including , but not limited to , geographies , market conditions , competitive landscape , internal costs , gross margin objectives , characteristics of targeted customers and pricing practices . the determination of estimated stand-alone selling price is made through consultation with and formal approval by management , taking into consideration the go-to-market strategy . for certain revenue arrangements involving delivery of both systems and professional services , each is considered a distinct performance obligation . systems revenue is recognized at a point in time when management has determined that control over systems has transferred to the customer , which is generally when legal title has transferred to the customer . for the same revenue arrangements , we believe that control of the associated professional services is transferred to the customer over time . as such , professional services revenue is recognized over the period in which the services are provided using a cost input measure . we recognize revenue when control of the systems and services has been transferred to the customer , which may be earlier than system installation or customer acceptance , in accordance with the agreed-upon specifications in the contract . inventory valuation inventory , which primarily consists of finished goods purchased from cms or odms , is stated at the lower of cost ( determined by the first-in , first-out method ) and net realizable value . inbound shipping costs and tariffs are included in the cost of inventory . in addition , we , from time to time , procure component inventory primarily as a result of manufacturing discontinuation of critical components by suppliers . we regularly monitor inventory quantities on-hand and record write-downs for excess and obsolete inventory based on our estimate of demand for our products , potential obsolescence of technology , product life cycle and whether pricing trends or forecasts indicate that the carrying value of inventory exceeds our estimated selling price . these factors are impacted by market and economic conditions , technology changes and new product introductions and require estimates that may include elements that are uncertain . actual demand may differ from forecasted demand and may have a material effect on gross profit . if inventory is written down , a new cost basis is established that can not be increased in future periods . the sale of previously reserved inventory has not had a material impact on our gross margin . recent accounting pronouncements not yet adopted leases in february 2016 , the fasb issued asu 2016-02 , “ leases ( topic 842 ) ” , which requires recognition of an asset and liability for lease arrangements longer than twelve months . asu 2016-02 became effective for us beginning in the first quarter of 2019. the standard can be adopted using either a modified retrospective approach , whereby we would recognize and measure leases at the beginning of the earliest period presented , or the effective date approach , whereby we would initially account for the impact of the adoption with a cumulative-effect adjustment to the january 1 , 2019 financial statements . the effective date approach eliminates the need to restate amounts presented prior to january 1 , 2019. we adopted the new standard effective january 1 , 2019 using the effective date approach . upon adoption of the standard , our assets and liabilities increased by approximately $ 16 million as the new standard requires recognition of right-of-use assets and lease liabilities for operating leases , but the new standard does not impact our statements of comprehensive loss or cash flows . story_separator_special_tag style= '' page-break-after : always '' / > to prototype and expendable equipment of $ 5.4 million . we expect our investments in research and development will be relatively consistent in absolute dollars from our current post-restructuring levels over the near term . 2017 compared to 2016 : the increase in research and development expenses during 2017 compared with 2016 was primarily due to an increase in expenses for outside contractors by $ 15.0 million and expenditures relating to prototype and expendable equipment used for research and development activities by $ 0.8 million , primarily for development services including investments in our cloud and software platforms and next generation systems to pursue broader growth opportunities . our personnel for research and development also increased in 2017 as compared to 2016 , which resulted in higher compensation and employee benefits ( other than bonuses ) of $ 4.8 million . this increase was partially offset by lower employee bonuses of $ 0.6 million in 2017 as compared to 2016. sales and marketing expenses sales and marketing expenses consist of personnel costs , employee sales commissions , marketing programs , software tools and travel-related expenses . the following table sets forth our sales and marketing expenses ( dollars in thousands ) : replace_table_token_7_th 2018 compared to 2017 : sales and marketing expenses increased by $ 3.7 million during 2018 compared with 2017 primarily due to an increase in stock-based compensation of $ 2.4 million and an increase in marketing programs of $ 1.4 million to promote our software and cloud platforms . we expect to continue our investments in sales and marketing in order to extend our market reach and grow our business in support of our key strategic initiatives . 2017 compared to 2016 : s ales and marketing expenses decreased by $ 0.9 million during 2017 compared with 2016 primarily due to decreases in personnel costs of $ 1.7 million as headcount decreased and a decrease in stock-based compensation of $ 1.2 million .
| 2017 compared to 2016 : the increase in revenue during 2017 compared with 2016 resulted from an increase in services revenue by $ 58.3 million , or 193 % , primarily driven by the substantial completion of services associated with a significant turnkey network improvement project during the first quarter of 2017 and the completion of the vast majority of sites from previously-awarded caf projects by the fourth quarter of 2017. our product revenue decreased by $ 6.7 million mainly due to lower shipments to one of our large tier 2 customers relative to the prior year period related to a significant turnkey network improvement project in 2016 , which was completed in the first half of 2017. cost of revenue , gross profit and gross margin the following table sets forth our cost of revenue ( dollars in thousands ) : replace_table_token_4_th 2018 compared to 2017 : the decrease in cost of revenue of $ 93.5 million during 2018 as compared to 2017 was primarily attributable to a decrease in cost of service revenue by $ 73.9 million , as we experienced higher levels of service activities in 2017 as well as higher costs attributed to rework , delays , unanticipated costs and overruns ( including third party costs ) for our turnkey network improvement projects in 2017. our cost of systems revenue also decreased by $ 19.6 million as compared with 2017 mainly due to lower systems revenue partially offset by improved regional and new product mix , which have higher gross margins . 2017 compared to 2016 : the increase in cost of revenue of $ 79.9 million during 2017 as compared to 2016 was primarily attributable to an increase in cost of services revenue by $ 72.7 million , as we experienced higher levels of service activities as well as higher costs attributed to rework , delays , unanticipated costs and overruns ( including third party costs ) for our turnkey network improvement projects . our cost of product revenue increased by $ 7.2 million during 2017 compared with 2016 primarily due to a product mix shift to lower margin products , partially offset by the lower volume
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the tcja also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of the company 's foreign subsidiary as of december 31 , 2017. to determine the amount of this transition tax , the company must determine the amount of earnings generated since inception by the relevant foreign subsidiary , as well as the amount of non-u.s. income taxes paid on such earnings , in addition to potentially other factors . see note 12 to the consolidated financial statements for a discussion of the impact the tcja . uncertain tax position under asc 740 , the company must recognize and disclose uncertain tax positions only if it is more-likely-than-not that the tax position will be sustained on examination by the taxing authority , based on the technical merits of the position . the amounts recognized in the financial statements attributable to such position , if any , are recorded if there is a greater than 50 % likelihood of being realized upon the ultimate resolution of the position . the company has analyzed its filing positions in all of the jurisdictions where it is required to file income tax returns . as of december 31 , 2017 and 2016 , the company has identified its federal tax return and its state tax return in new jersey as “ major ” tax jurisdictions , as defined in asc 740 , in which it is required to file income tax returns . additionally , as a result of the commagility acquisition on february 17 , 2017 the company has identified the united kingdom as “ major ” tax jurisdiction as of december 31 , 2017. based on the evaluations noted above , the company has concluded that there are no significant uncertain tax positions requiring recognition or disclosure in its consolidated financial statements . based on a review of tax positions for all open years and contingencies as set out in the company 's notes to the consolidated financial statements , no reserves for uncertain income tax positions have been recorded pursuant to asc 740 during the years ended december 31 , 2017 and 2016 , and the company does not anticipate that it is reasonably possible that any material increase or decrease in its unrecognized tax benefits will occur within the next twelve months . 21 stock-based compensation the company follows the provisions of asc 718 , “ compensation-stock compensation ” which requires that compensation expense be recognized based on the fair value of the stock awards . the fair value of the stock awards is equal to the fair value of the company 's stock on the date of grant . the fair value of options at the date of grant is estimated using the black-scholes option pricing model . when options are granted , the company takes into consideration guidance under asc 718 and sec staff accounting bulletin no . 107 ( sab 107 ) when determining assumptions . the expected option life is derived from assumed exercise rates based upon historical exercise patterns and represents the period of time that options granted are expected to be outstanding . the expected volatility is based upon historical volatility of our shares using weekly price observations over an observation period that approximates the expected life of the options . the risk-free rate is based on the u.s. treasury yield curve rate in effect at the time of grant for periods similar to the expected option life . the company accounts for forfeitures when they occur . management estimates are necessary in determining compensation expense for stock options with performance-based vesting criteria . compensation expense for this type of stock-based award is recognized over the period from the date the performance conditions are determined to be probable of occurring through the date the applicable conditions are expected to be met . if the performance conditions are not considered probable of being achieved , no expense is recognized until such time as the performance conditions are considered probable of being met , if ever . management evaluates whether performance conditions are probable of occurring on a quarterly basis . inventories and inventory valuation inventories are stated at the lower of cost ( average cost ) or market . the company reviews inventory for excess and obsolescence based on best estimates of future demand , product lifecycle status and product development plans . allowances for doubtful accounts the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . a key consideration in estimating the allowance for doubtful accounts has been , and will continue to be , our customer 's payment history and aging of its accounts receivable balance . impairment of long-lived assets long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted cash flows resulting from the use of the assets and their eventual disposition . measurement of an impairment loss for long-lived assets that management expects to hold for sale is based on the fair value of the assets . long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell . comparison of the results of operations for the year ended december 31 , 2017 with the year ended december 31 , 2016 net revenues ( in thousands ) replace_table_token_3_th 22 net consolidated revenues for the year ended december 31 , 2017 were $ 46.1 million as compared to $ 31.3 million for the year ended december 31 , 2016 , an increase of $ 14.8 million or 47.1 % . the year over year increase includes the embedded solutions segment which was acquired on february 17 , 2017 and contributed $ 9.6 million in revenue for the period february 17 , 2017 to december 31 , 2017 as well as $ 5.1 million of revenue increases in our network solutions and test and measurement segments . story_separator_special_tag net revenues from the company 's network solutions products for the year ended december 31 , 2017 were up 14.1 % from the prior year . net revenues from network solutions products accounted for 50.0 % and 64.5 % of net consolidated revenues for the years ended december 31 , 2017 and 2016 , respectively . the increase in revenues in this segment was due to increased demand for the company 's passive radio frequency components and subassemblies , largely as a result of increased capital spending by domestic wireless carriers and tower operators in capacity densification projects and small cell deployments . net revenues from the company 's test and measurement products for the year ended december 31 , 2017 were up 20.2 % over the prior year period . net revenues from test and measurement products accounted for 29.0 % and 35.5 % of net consolidated revenues for years ended december 31 , 2017 and 2016 , respectively . the increase in revenues was primarily due to an increase in military and government spending as compared to the prior year . gross profit ( in thousands ) replace_table_token_4_th gross profit increased to $ 19.3 million resulting from increased revenues , including from commagility . the 2017 net gross profit of 41.8 % compares to 2016 net gross profit percentage of 42.0 % . the company 's gross profit on consolidated net revenues for the year ended december 31 , 2017 was negatively impacted by a non-cash inventory adjustment of $ 1.9 million recorded in the second quarter of 2017. the adjustment was effected as a result of a review of inventory balances and net realizable value of the inventory following the launch of the company 's lean manufacturing initiative and the adoption of product lifecycle acceleration . the lean manufacturing program focuses on inventory reductions , the minimization of product redesign for alternate use , and the acceleration of the evaluation process of slow moving inventory for product redesign and repurpose . this , combined with the need to focus manufacturing , operations and engineering efforts on the then increasing current order flow , dictated the significant write down at the end of the second quarter . the inventory adjustments negatively impacted the network solutions and test and measurement segments gross profit by $ 1.2 million and $ 0.7 million , respectively , for the year ended december 31 , 2017. the impact of the inventory adjustment was offset by the gross profit of the embedded solutions segment which contributed $ 4.3 million to the overall gross profit increase from the prior year as well as improved profitability in the test and measurement segment due to higher sales of products which have a high gross profit margin . operating expenses consolidated operating expenses for the year ended december 31 , 2017 were $ 22.2 million or 48.2 % of consolidated net revenues as compared to $ 15.7 million or 50.1 % of consolidated net revenues for the year ended december 31 , 2016. for the year ended december 31 , 2017 as compared to the prior year , consolidated operating expenses increased by $ 6.5 million or 41.6 % . consolidated operating expenses were higher in the twelve months ended december 31 , 2017 due to the inclusion of $ 4.1 million of operating expenses associated with the embedded solutions segment which was acquired on february 17 , 2017 and included $ 0.9 million of amortization expense related to purchased intangibles . additionally , operating expenses increased from the prior year due to restructuring costs of $ 0.9 million resulting from executive departures , increased commission expense of $ 0.7 million attributable to higher revenues , increased salaries and benefits of $ 0.6 million primarily in sales and marketing and general and administrative functions , increased variable compensation of $ 0.4 million related to our 2017 bonus plan and an increase in integration costs and mergers and acquisition costs of $ 0.6 million associated with the commagility acquisition . the increases were offset by a $ 0.3 million gain recognized in the fourth quarter of 2017 due to the reduction of the commagility contingent consideration liability as well as reductions in third-party research and development costs of $ 0.4 million . 23 other income/expense other income decreased $ 0.4 million due to an insurance settlement in the amount of $ 0.5 million that was recognized in the fourth quarter of 2016 related to the company 's groundwater remediation efforts at a facility previously leased by the company 's boonton operations . the insurance settlement gain was offset in 2016 by related legal and monitoring costs . interest expense interest expense was $ 0.3 million for the year ended december 31 , 2017 comprised of $ 0.1 million of interest related to the company 's credit facility ( see note 3 to the consolidated financial statements for a description of the credit facility ) entered into during 2017 ; $ 0.1 million of amortization of deferred financing costs ; and $ 0.1 million of accretion expense on liabilities recorded in purchase accounting . tax tax expense for the year ended december 31 , 2017 was $ 1.2 million primarily as a result of reduction of our net deferred tax asset largely driven by u.s. tax rate reductions due to the tcja enacted in december 2017. the tax rate reductions as a result of tcja resulted in a $ 2.5 million reduction in our u.s. deferred tax assets for the year ended december 31 , 2017. for the year ended december 31 , 2016 , the company recorded a tax benefit of $ 0.3 million primarily due to losses generated from the company 's operations .
| · tax provision of $ 1.2 million recorded in 2017 primarily as a result of the reduction of deferred tax assets due to tax rate reduction under the tax cuts and jobs act of 2017. the company presents its operations in three reportable segments : ( 1 ) network solutions , ( 2 ) test and measurement and ( 3 ) embedded solutions . the network solutions segment is comprised primarily of the operations of microlab . the test and measurement segment is comprised of the operations of boonton and noisecom . the embedded solutions segment is comprised of commagility . the financial information presented herein includes : ( i ) consolidated balance sheets as of december 31 , 2017 and 2016 ; ( ii ) consolidated statements of operations and comprehensive loss for the years ended december 31 , 2017 and 2016 ; ( iii ) consolidated statement of changes in shareholders ' equity for the years ended december 31 , 2017 and 2016 ; and ( iv ) consolidated statements of cash flows for the years ended december 31 , 2017 and 2016 . 19 critical accounting policies management 's discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america , or u.s. gaap . the preparation of these financial statements requires the company to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses for each period . the following represents a summary of the company 's critical accounting policies , defined as those policies that the company believes are : ( a ) the most important to the portrayal of our financial condition and results of operations , and ( b ) that require management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effects of matters that are inherently uncertain . estimates and assumptions are made by management to assess the overall
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the pharmaceutical industry has been impacted by increased regulatory scrutiny of cleaning and validation processes , mandating that manufacturers improve their processes . within healthcare , there is increased concern regarding the level of hospital acquired infections around the world ; increased demand for medical procedures , including preventive screenings such as endoscopies and colonoscopies ; and a desire by our customers to operate more efficiently , all which are driving increased demand for many of our products and services . we completed several acquisitions and asset purchases in fiscal 2019 , 2018 and 2017 that expanded our product and service offerings to our customers . 26 during fiscal 2018 , we divested our synergy health healthcare consumable solutions ( `` hcs '' ) business with annual revenues of approximately $ 40 million . during fiscal 2017 , we divested our applied infection control ( `` aic '' ) product line and four businesses acquired in the acquisition of synergy health including : all of the linen management services businesses and synergy health laboratory services . we continue to invest in manufacturing in-sourcing projects and lean process improvements for the purpose of improving quality , cost and delivery of our products to our customers . u.s. tax reform . on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the “ tcja ” ) . the tcja made broad and complex changes to the u.s. tax code including , but not limited to , ( 1 ) reduction of the u.s. federal corporate income tax rate ; ( 2 ) elimination of the corporate alternative minimum tax ( `` amt '' ) ; ( 3 ) the creation of the base erosion anti-abuse tax ( `` beat '' ) , a new minimum tax ; ( 4 ) a general elimination of u.s. federal income taxes on dividends from non-u.s. subsidiaries ; ( 5 ) a new provision designed to tax global intangible low-taxed income ( `` gilti '' ) , which allows for the possibility of using foreign tax credits ( `` ftcs '' ) and a deduction of up to 50 percent to offset the income tax liability ( subject to some limitations ) ; ( 6 ) a new limitation on deductible interest expense ; ( 7 ) the repeal of the domestic production activity deduction ; ( 8 ) limitations on the deductibility of certain executive compensation ; ( 9 ) limitations on the use of ftcs to reduce the u.s. income tax liability ; and ( 10 ) limitations on net operating losses ( `` nols '' ) generated after december 31 , 2017 , to 80.0 percent of taxable income . fiscal 2019 restructuring plan . during the third quarter of fiscal year 2019 , we adopted and announced a targeted restructuring plan ( the “ fiscal 2019 restructuring plan ” ) , which included the closure of two manufacturing facilities , one in brazil and one in england , as well as other actions including , the rationalization of certain products . fewer than 200 positions are being eliminated . the company will relocate the production of certain impacted products to other existing manufacturing operations during fiscal 2020. these restructuring actions are designed to enhance profitability and improve efficiency . for additional information on restructuring see the subsection titled `` restructuring expenses '' , located in the results of operations section of this md & a , or note 2 of our consolidated financial statements , titled `` restructuring '' . highlights . revenues increased $ 162.2 million , or 6.2 % , to $ 2,782.2 million for the year ended march 31 , 2019 , as compared to $ 2,620.0 million for the year ended march 31 , 2018 . this increase reflects organic growth in all business segments , which was partially offset by the impact of our fiscal 2018 divestiture of hcs and unfavorable fluctuations in currencies . fiscal 2019 operating income increased 2.9 % to $ 411.5 million over fiscal 2018 operating income of $ 399.9 million . the increase is attributable to increased volume and fluctuations in currencies and the positive impact from our fiscal 2018 divestiture of hcs , which were partially offset by costs associated with our fiscal 2019 restructuring plan . net cash flows from operations were $ 539.5 million and free cash flow was $ 355.4 million in fiscal 2019 compared to net cash flows from operations of $ 457.6 million and free cash flow of $ 294.3 million in fiscal 2018 ( see subsection of md & a titled , `` non-gaap financial measures '' for additional information and related reconciliation of non-gaap financial measures to the most comparable gaap measures ) . the improvement in free cash flow was primarily due to the improved cash from operations , which was partially offset by higher capital expenditures . our debt-to-total capital ratio was 27.1 % at march 31 , 2019 . during the year , we increased our quarterly dividend for the thirteenth consecutive year to $ 0.34 per share per quarter . outlook . fluctuations in currency rates can impact revenues and costs outside of the united states , creating variability in our results for fiscal 2020 and beyond . in fiscal 2020 and beyond , we expect to continue to manage our costs , grow our business with internal product and service development , invest in greater capacity , and augment these value creating methods with potential acquisitions of additional products and services . 27 non-gaap financial measures we , at times , refer to financial measures which are considered to be “ non-gaap financial measures ” under sec rules . we , at times , also refer to our results of operations excluding certain transactions or amounts that are non-recurring or are not indicative of future results , in order to provide meaningful comparisons between the periods presented . story_separator_special_tag these non-gaap financial measures are not intended to be , and should not be , considered separately from or as an alternative to the most directly comparable gaap financial measures . these non-gaap financial measures are presented with the intent of providing greater transparency to supplemental financial information used by management and the board of directors in their financial analysis and operational decision-making . these amounts are disclosed so that the reader has the same financial data that management uses with the belief that it will assist investors and other readers in making comparisons to our historical operating results and analyzing the underlying performance of our operations for the periods presented . we believe that the presentation of these non-gaap financial measures , when considered along with our gaap financial measures and the reconciliation to the corresponding gaap financial measures , provide the reader with a more complete understanding of the factors and trends affecting our business than could be obtained absent this disclosure . it is important for the reader to note that the non-gaap financial measure used may be calculated differently from , and therefore may not be comparable to , a similarly titled measure used by other companies . we define free cash flow as net cash provided by operating activities as presented in the consolidated statements of cash flows less purchases of property , plant , equipment , and intangibles plus proceeds from the sale of property , plant , equipment , and intangibles , which are also presented within investing activities in the consolidated statements of cash flows . we use this as a measure to gauge our ability to pay cash dividends , fund growth outside of core operations , fund future debt principal repayments , and repurchase shares . the following table summarizes the calculation of our free cash flow for the years ended march 31 , 2019 , 2018 and 2017 : replace_table_token_3_th results of operations in the following subsections , we discuss our earnings and the factors affecting them . we begin with a general overview of our operating results and then separately discuss earnings for our operating segments . 28 fiscal 2019 as compared to fiscal 2018 revenues . the following table compares our revenues , in total and by type and geography , for the year ended march 31 , 2019 to the year ended march 31 , 2018 : replace_table_token_4_th revenues increased $ 162.2 million , or 6.2 % , to $ 2,782.2 million for the year ended march 31 , 2019 , as compared to $ 2,620.0 million for the year ended march 31 , 2018 . this increase reflects organic growth in all business segments , which was partially offset by the impact of our fiscal 2018 divestiture of hcs and unfavorable fluctuations in currencies . service revenues for fiscal 2019 increased $ 86.8 million , or 6.2 % over fiscal 2018 , reflecting growth in all business segments . consumable revenues for fiscal 2019 increased $ 24.1 million , or 4.1 % , over fiscal 2018 , reflecting growth in all business segments which was partially offset by the impact of our fiscal 2018 divestiture of hcs . capital equipment revenues for fiscal 2019 increased by $ 51.3 million , or 8.0 % , as compared to fiscal 2018 , reflecting strong shipment volumes in the healthcare products and life science business units . ireland revenues for fiscal 2019 were $ 56.8 million , an increase of $ 8.5 million , or 17.7 % , over fiscal 2018 revenues of $ 48.2 million , reflecting growth in service , consumable and capital equipment revenues . united states revenues for fiscal 2019 were $ 1,976.8 million , an increase of $ 140.4 million , or 7.6 % , over fiscal 2018 revenues of $ 1,836.4 million , reflecting growth in service , consumable and capital equipment revenues . revenues from other foreign locations for fiscal 2019 were $ 748.6 million , an increase of 1.8 % over the fiscal 2018 revenues of $ 735.3 million , reflecting growth in canada and in the asia pacific and latin america regions , which was partially offset by a decline in the europe , middle east and africa ( `` emea '' ) region . gross profit . the following table compares our gross profit for the year ended march 31 , 2019 to the year ended march 31 , 2018 : replace_table_token_5_th our gross profit is affected by the volume , pricing and mix of sales of our products and services , as well as the costs associated with the products and services that are sold . our gross profit increased $ 82.7 million and gross profit percentage increased 50 basis points to 42.2 % for fiscal 2019 as compared to 41.7 % for fiscal 2018 . this increase was attributable to the positive impacts of pricing ( 40 basis points ) , our recent divestitures ( 20 basis points ) , fluctuations in currencies ( 10 basis points ) and other factors , which were offset by costs associated with our fiscal 2019 restructuring plan ( 40 basis points ) . 29 operating expenses . the following table compares our operating expenses for the year ended march 31 , 2019 to the year ended march 31 , 2018 : replace_table_token_6_th nm - not meaningful selling , general , and administrative expenses . significant components of total selling , general , and administrative expenses ( “ sg & a ” ) are compensation and benefit costs , fees for professional services , travel and entertainment , facilities costs , gains or losses from divestitures , and other general and administrative expenses . sg & a increased 6.0 % in fiscal 2019 over fiscal 2018 , largely due to additional expenses associated with our fiscal 2019 restructuring plan . additionally , during the third quarter of fiscal 2019 , we adopted a branding strategy that included phasing out the usage of a tradename associated with certain products in the healthcare products business segment , which resulted in an impairment charge of $ 16.2 million . research and development .
| ( 2 ) acquisition and integration related charges include transaction costs and integration expenses associated with acquisitions . ( 3 ) represents a one-time special employee bonus paid to most u.s. employees and associated professional fees . ( 4 ) costs incurred in connection with the decision to redomicile . ( 5 ) see note 2 titled , `` restructuring '' , for more information . healthcare products revenues increased 4.9 % in fiscal 2019 , as compared to fiscal 2018 , reflecting growth in consumable , service revenues and capital equipment revenues of 0.6 % , 5.5 % and 7.9 % , respectively . the increase was attributable to organic growth which was partially offset by the negative impact of fluctuations in currencies and the fiscal 2018 divestiture of hcs , which directly impacted the consumables revenue growth . at march 31 , 2019 , the healthcare products segment 's backlog amounted to $ 154.5 million , increasing $ 21.5 million , or 16.1 % , compared to the backlog of $ 133.0 million at march 31 , 2018. healthcare specialty services revenues increased 8.7 % in fiscal 2019 , as compared to fiscal 2018. the increase was attributable to organic growth which was partially offset by the negative impact of fluctuations in currencies . life sciences revenues increased 4.7 % in fiscal 2019 , as compared to fiscal 2018 , reflecting growth in consumable , service revenues and capital equipment revenues of 7.4 % , 3.3 % and 2.1 % , respectively . the increase was attributable to organic growth which was partially offset by the negative impact of fluctuations in currencies . life sciences backlog at march 31 , 2019 amounted to $ 60.7 million , essentially flat as compared to backlog of $ 60.8 million at march 31 , 2018. applied sterilization technologies revenues increased 8.2 % in fiscal 2019 , as compared to fiscal 2018. revenues in fiscal 2019 were favorably impacted by increased volume from our core medical device customers which was partially offset by the negative impact of fluctuations in currencies . 32 the healthcare products segment 's operating income increased $ 29.5 million
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our business model is characterized primarily by non-refundable , up-front payments , which lead to recurring revenue and positive operating cash flow . wholesale , primarily branded as opensrs , derives revenue from its domain service and from providing value-added services . the ope nsrs domain service manages 14.9 million domain names under the tucows icann registrar accreditation and for other registrars under their own accreditations . value-added services include hosted email which provides email delivery and webmail access to millions of mailboxes , internet security services , publishing tools and reseller billing services . all of these services are made available to end-users through a network of over 13,000 web hosts , internet service providers ( “ isps ” ) , and other resellers around the world . in addition , we also derive revenue from the bulk sale of domain names and advertising from the opensrs domain expiry stream . retail , primarily our hover website , derives revenues from the sale of domain name registration and email services to individuals and small businesses . retail also includes our personal names services – based on over 36,000 surname domains – that allows roughly two-thirds of americas to purchase an email address based on their last name . portfolio generates advertising revenue from our domain name portfolio and from our advertising-supported website , tucows.com . we also generate revenue by offering names in our domain portfolio for resale via our reseller network and other channels . in addition , we generate revenue from the payments for the sale of rights to gtld strings under the new gtld program . key business metrics and non-gaap measure we regularly review a number of business metrics , including the following key metrics and non-gaap measure to , assist us in evaluating our business , measure the performance of our business model , identify trends impacting our business , determine resource allocations , formulate financial projections and make strategic business decisions . the following tables set forth the key business metrics which we believe are the primary indicators of our performance for the periods presented : adjusted ebitda tucows reports all financial information in accordance with united states generally accepted accounting principles ( gaap ) . along with this information , to assist financial statement users in an assessment of our historical performance , we typically disclose and discuss a non-gaap financial measure , adjusted ebitda , on investor conference calls and related events that exclude certain non-cash and other charges as we believe that this non-gaap information enhances investors ' overall understanding of our financial performance . please see discussion of adjusted ebitda in the results from operations section below . replace_table_token_5_th ( 1 ) for a discussion of these period to period changes in subscribers and devices under management and how they impacted our financial results , see the net revenue discussion below . domain services replace_table_token_6_th ( 1 ) for a discussion of these period to period changes in the domains provisioned and domains under management and how they impacted our financial results see the net revenue discussion below . 39 opportunities , challenges and risks as a mvno our ting service is reliant on our mobile network operators ( `` mnos '' ) providing competitive networks . our mnos each continue to invest in network expansion and modernization to improve their competitive positions . deployment of new and sophisticated technology on a very large scale entails risks . should they fail to implement , maintain and expand their network capacity and coverage , adapt to future changes in technologies and continued access to and deployment of adequate spectrum successfully , our ability to provide wireless services to our subscribers , to retain and attract subscribers and to maintain and grow our subscriber revenues could be adversely affected , which would negatively impact our operating margins . ting has also enjoyed rapid growth in its first four years of operation . during this growth phase we have been able to continue to grow gross customer additions and maintain a consistent churn rate , which has allowed us to maintain net new customer additions despite the impact of churn on a fast growing customer base . we expect price competition to grow more intense in the industry which could result in increased customer churn or reductions of customer acquisition rates either of which could result in slower growth rates or in certain cases , our ability to maintain growth . the communications industry continues to compete on the basis of network reach and performance , types of services and devices offered , and price . the increased competition in the market for internet services in recent years , which we expect will continue to intensify in the short and long term , poses a material risk for us . as new registrars are introduced , existing competitors expand service offerings and competitors offer price discounts to gain market share , we face pricing pressure , which can adversely impact our revenues and profitability . to address these risks , we have focused on leveraging the scalability of our infrastructure and our ability to provide proactive and attentive customer service to aggressively compete to attract new customers and to maintain existing customers . substantially all of our domain services revenue is derived from domain name registrations and related value-added services from wholesale and retail customers using our provisioning and management platforms . the market for wholesale registrar services is both price sensitive and competitive and is evolving with the introduction of new gtlds , 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 . story_separator_special_tag growth in our domain services revenue is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name registration and value-added service renewal rates and to grow our customer relationships through refining , evolving and improving our provisioning platforms and customer service for both resellers and end-users . in addition , we also generate revenue through pay-per-click advertising and the sale of names from our portfolio of domain names and through the opensrs domain expiry stream . the revenue associated with names sales and advertising has recently experienced flat to declining trends due to the uncertainty around the implementation of icann 's new gtld program , lower traffic and advertising yields in the marketplace , which we expect to continue . from time-to-time certain of our vendors provide us with market development funds to expand or maintain the market position for their services . any decision by these vendors to cancel or amend these programs for any reason may result in payments in future periods not being commensurate with what we have achieved during past periods . sales of domain names from our domain portfolio have a negative impact on our advertising revenue as these names are no longer available for advertising purposes . in addition , the timing of larger domain names portfolio sales is unpredictable and may lead to significant quarterly and annual fluctuations in our portfolio revenue . 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 . 40 net revenues network access services mobile we derive revenue from ting 's sale of retail mobile phones and services and provide customers with access to our provisioning and management tools to enable them , via the ting.com website , to purchase retail mobile phones and services nationally . revenues are generated in the united states with a fixed access line charge per device and variable charges based on actual voice , data and text usage . services are provided on a monthly basis with no fixed contract term . other services other services derive revenues from providing fixed high speed internet access to individuals and small businesses in select cities including westminster , maryland and charlottesville , virginia along with internet hosting and network consulting services to customers in charlottesville , virginia . ting provides customers with access to our provisioning and management tools to enable them , via the ting.com website , to purchase our fixed internet access services . revenues are generated from fixed monthly access charges with a primary focus on the 1 gb unlimited data usage package . services are provided on a monthly basis with no fixed contract term . domain services wholesale - 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 reseller will engage us , enabling us to follow on with other services and allowing us to add to our portfolio by purchasing names registered through us upon their expiration . we receive revenues for each domain registration or other internet service processed through our system by service providers . our domain service revenue is principally comprised of registration fees charged to resellers in connection with new , renewed and transferred domain name registrations . the registration 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 ( domain name system ) services , enhanced domain name suggestion tools and access to our premium domain names . 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 . payments for the full term of all services , or billed revenue , are received at the time of activation of service and where appropriate are recorded as deferred revenue and are recognized as earned ratably over the term of provision of service . this accounting treatment reasonably approximates a recognition pattern that corresponds with the provision of the services during the quarters and the year . wholesale – opensrs value-added services we derive revenue from our hosted email service through our global distribution network . our hosted email service is offered on a per account , per month basis , and provides resellers with a reliable , scalable “ white label ” hosted email solution that can be customized to their branding and business model requirements . the hosted email service also includes spam and virus filtering on all accounts .
| in addition , during fiscal 2015 , we realized a gain on foreign exchange of $ 3.0 million compared to a gain of $ 1.3 million during fiscal 2014. these gains in turn were offset by our incurring a loss on foreign exchange revaluation of our foreign denominated assets and liabilities of $ 3.3 million during fiscal 2015 compared to a loss of $ 1.6 million during fiscal 2014. depreciation of property and equipment property and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets . replace_table_token_29_th depreciation costs for fiscal 2015 increased slightly to $ 0.3 million when compared to $ 0.2 million for fiscal 2014. amortization of intangible assets replace_table_token_30_th amortization of intangible assets consists of amounts arising in connection with the acquisition of epag domainservices gmbh ( `` epag '' ) in july 2011 and the acquisition of the bri group in february 2015. amortization of intangible assets decreased by $ 0.4 million to $ 0.2 million , primarily the result of intangible assets related to innerwise , inc. being fully amortized in fiscal 2014 . 62 network rights , brand and customer relationships acquired in connection with the acquisitions of epag and the bri group are amortized on a straight-line basis over seven years . technology acquired in connection with the acquisition of epag is amortized on a straight-line basis over two years . impairment of indefinite life intangible assets replace_table_token_31_th as part of our normal renewal process during fiscal 2015 and fiscal 2014 , we assessed that certain domain names acquired in the june 2006 acquisition of mailbank.com inc. should not be renewed and were allowed to expire . accordingly , these domain names , with a book value of $ 0.2 million and $ 0.6 million , respectively , have been written off and recorded as impairment of indefinite life intangible assets . loss on currency forward contracts although our functional currency is the u.s. dollar , a major portion of our fixed expenses are incurred in canadian dollars . our goal with regard to foreign currency exposure is , to the extent possible , to achieve operational cost certainty , manage financial exposure to
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in determining the cash flows to be included in the discount calculation the company considers the following factors that combine to estimate the probability and severity of potential losses : · the borrower 's overall financial condition ; · resources and payment record ; · demonstrated or documented support available from financial guarantors ; and · the adequacy of collateral value and the ultimate realization of that value at liquidation . at december 31 , 2012 , the specific allowance accounted for 12 % of the total allowance as compared to 16 % at december 31 , 2011. the estimated losses on impaired loans can differ substantially from actual losses . goodwill and other intangible asset impairment goodwill represents the excess purchase price paid over the fair value of the net assets acquired in a business combination . goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired . impairment testing requires that the fair value of each of the company 's reporting units be compared to the carrying amount of the reporting unit 's net assets , including goodwill . the company 's reporting units were identified based upon an analysis of each of its individual operating segments . if the fair values of the reporting units exceed their book values , no write-down of recorded goodwill is required . if the fair value of a reporting unit is less than book value , an expense may be required to write-down the related goodwill to the proper carrying value . the company tests for impairment of goodwill as of october 1 of each year using september 30 data and again at any quarter-end if any triggering events occur during a quarter that may affect goodwill . examples of such events include , but are not limited to , a significant deterioration in future operating results , adverse action by a regulator or a loss of key personnel . determining the fair value of a reporting unit requires the company to use a degree of subjectivity . under current accounting guidance , the company has the option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount . based on the assessment of these qualitative factors , if it is determined that the fair value of a reporting unit is not less than the carrying value , then performing the two-step impairment process , previously required , is unnecessary . however , if it is determined that the carrying value exceeds the fair value the second step , described above , of the two-step process must be performed . the company has elected this accounting guidance with respect to its community banking and investment management segments . at september 30 , 2012 there was no evidence of impairment of goodwill or intangibles in any of the company 's reporting units . other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract , asset , or liability . other intangible assets have finite lives and are reviewed for impairment annually . these assets are amortized over their estimated useful lives on a straight-line basis over varying periods that initially did not exceed 15 years . 25 accounting for income taxes the company accounts for income taxes by recording deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities . the judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws . if actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized , there can be no assurance that additional expenses will not be required in future periods . the company 's accounting policy follows the prescribed authoritative guidance that a minimal probability threshold of a tax position must be met before a financial statement benefit is recognized . the company recognized , when applicable , interest and penalties related to unrecognized tax benefits in other non-interest expenses in the consolidated statements of income . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in applying the applicable reporting and accounting requirements . management expects that the company 's adherence to the required accounting guidance may result in increased volatility in quarterly and annual effective income tax rates due to the requirement that any change in judgment or measurement of a tax position taken in a prior period be recognized as a discrete event in the period in which it occurs . factors that could impact management 's judgment include changes in income , tax laws and regulations , and tax planning strategies . fair value measurements the company measures certain financial assets and liabilities at fair value in accordance with applicable accounting standards . significant financial instruments measured at fair value on a recurring basis are investment securities available-for-sale , residential mortgages held for sale and commercial loan interest rate swap agreements . loans where it is probable that the company will not collect all principal and interest payments according to the contractual terms are considered impaired loans and are measured on a nonrecurring basis . the company conducts a quarterly review for all investment securities that have potential impairment to determine whether unrealized losses are other-than-temporary . story_separator_special_tag valuations for the investment portfolio are determined using quoted market prices , where available . if quoted market prices are not available , valuations are based on pricing models , quotes for similar investment securities , and , where necessary , an income valuation approach based on the present value of expected cash flows . in addition , the company considers the financial condition of the issuer , the receipt of principal and interest according to the contractual terms and the intent and ability of the company to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value . the above accounting policies with respect to fair value are discussed in further detail in “ note 21-fair value ” to the consolidated financial statements . defined benefit pension plan the company has a qualified , noncontributory , defined benefit pension plan . the plan was frozen for existing entrants after december 31 , 2007 and all benefit accruals for employees were frozen as of december 31 , 2007 based on past service . future salary increases and additional years of service will no longer affect the defined benefit provided by the plan although additional vesting may continue to occur . several factors affect the net periodic benefit cost of the plan , including ( 1 ) the size and characteristics of the plan population , ( 2 ) the discount rate , ( 3 ) the expected long-term rate of return on plan assets and ( 4 ) other actuarial assumptions . pension cost is directly related to the number of employees covered by the plan and other factors including salary , age , years of employment , and the terms of the plan . as a result of the plan freeze , the characteristics of the plan population should not have a materially different effect in future years . the discount rate is used to determine the present value of future benefit obligations . the discount rate is determined by matching the expected cash flows of the plan to a yield curve based on long term , high quality fixed income debt instruments available as of the measurement date , which is december 31 of each year . the discount rate is adjusted each year on the measurement date to reflect current market conditions . the expected long-term rate of return on plan assets is based on a number of factors that include expectations of market performance and the target asset allocation adopted in the plan investment policy . should actual asset returns deviate from the projected returns , this can affect the benefit plan expense recognized in the financial statements . 26 consolidated average balances , yields and rates replace_table_token_3_th ( 1 ) tax-equivalent income has been adjusted using the combined marginal federal and state rate of 39.88 % for 2012 and 2011. the annualized taxable-equivalent adjustments utilized in the above table to compute yields aggregated to $ 5.4 million and $ 5.6 million in 2012 and 2011 , respectively . ( 2 ) includes residential mortgage loans held for sale . home equity loans and lines are classified as consumer loans . ( 3 ) non-accrual loans are included in the average balances . ( 4 ) includes only investments that are exempt from federal taxes . 27 net interest income the largest source of the company 's operating revenue is net interest income , which is the difference between the interest earned on interest-earning assets and the interest paid on interest-bearing liabilities . for purposes of this discussion and analysis , the interest earned on tax-exempt investment securities has been adjusted to an amount comparable to interest subject to normal income taxes . the result is referred to as tax-equivalent interest income and tax-equivalent net interest income . the following discussion of net interest income should be considered in conjunction with the review of the information provided in the preceding table . 2012 vs. 2011 net interest income for 2012 was $ 121.2 million compared to $ 112.9 million for 2011. on a tax-equivalent basis , net interest income for 2012 was $ 126.6 million compared to $ 118.5 million for 2011 , an increase of 7 % . the preceding table provides an analysis of net interest income performance that reflects a net interest margin that increased to 3.60 % for 2012 compared to 3.57 % for 2011. average interest-earning assets increased by 6 % while average interest-bearing liabilities increased 2 % in 2012. average noninterest-bearing deposits increased 19 % in 2012 while the percentage of average noninterest-bearing deposits to total deposits also increased to 26 % for 2012 compared to 24 % for 2011 . 2011 vs. 2010 net interest income for 2011 was $ 112.9 million compared to $ 115.6 million for 2010. on a tax-equivalent basis , net interest income decreased by 2 % for 2011 to $ 118.5 million from $ 120.4 million for 2010 while the net interest margin decreased to 3.57 % for 2011 compared to 3.60 % for 2010. average interest-earning assets decreased by 1 % while average interest-bearing liabilities decreased 3 % in 2011. average noninterest-bearing deposits increased 11 % in 2011 while the percentage of average noninterest-bearing deposits to total deposits also increased to 24 % in 2011 compared to 21 % in 2010. effect of volume and rate changes on net interest income the following table analyzes the reasons for the changes from year-to-year in the principal elements that comprise net interest income : replace_table_token_4_th * variances that are the combined effect of volume and rate , but can not be separately identified , are allocated to the volume and rate variances based on their respective relative amounts . 28 interest income 2012 vs. 2011 the company 's total tax-equivalent interest income increased 3 % for 2012 compared to the prior year .
| while the housing markets have improved , this sector is still significantly below levels experienced in prior economic recoveries . the positive trends in housing and consumer spending have been offset by a contraction in manufacturing and stubbornly high unemployment which have caused uncertainty on the part of both large and small businesses which has limited economic expansion . the financial stability of the european union continues to be an underlying volatility factor . together with state and municipal budget challenges across the country , these factors have caused enough economic uncertainty , particularly among individual consumers and small and medium-sized businesses , to suppress confidence and thus constrain the pace of economic expansion and lending . despite this challenging business environment , the company has emphasized the fundamentals of community banking as it has maintained strong levels of liquidity and capital while overall credit quality has continued to improve . the net interest margin increased to 3.60 % in 2012 compared to 3.57 % for 2011. during 2012 , the growth in average interest-earning assets and noninterest-bearing deposits largely offset a decline in the average rates earned on interest-earning assets . average total deposits increased 6 % , compared to the prior year , while average loans increased 12 % compared to 2011. liquidity remained strong due to the borrowing lines with the federal home loan bank of atlanta and the federal reserve and the size and composition of the investment portfolio . the company 's credit quality continued to improve as non-performing assets decreased to $ 63.8 million at december 31 , 2012 from $ 83.6 million at december 31 , 2011. this decrease was due primarily to a combination of the company 's continuing efforts at resolution of non-performing loans and reduced migration of existing loans into nonperforming status , particularly in the commercial real estate portfolio . non-performing assets represented 1.61 % of total assets at december 31 , 2012 compared to 2.25 % at december 31 , 2011. the ratio of net charge-offs to average loans and leases was .42 % for 2012 ,
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while the u.s. drilling activity increased by 2.1 % from 2011 to 2012 , it decreased by ( 8.2 ) % in 2013 compared to 2012. however , the number of wells drilled per rig per quarter in 2013 has increased to 5.23 from 4.92 for the same period in 2012. outlook for 2014 future economic conditions are expected to remain consistent with recent market conditions . increases in drilling rig operating efficiencies noted above are resulting in pricing pressure on rig-based operations . to some extent , those pressures impact drilling suppliers such as flotek , especially in our drilling technologies segment . our tools are being leased for a smaller amount of time per well drilled , which is partially offset by the expansion in the number of wells being drilled per quarter per rig . the company is expanding its energy chemical technologies production capacity in response to increasing customer demand . in addition , the company is continuing to expand drilling technologies ' product offerings . the company continues to pursue and develop new and existing market opportunities associated with the company 's specialty chemical and drilling technology products . the company plans to spend approximately $ 18 million for capital expenditures in 2014. the company may pursue acquisitions when strategic opportunities arise . the company continues to pursue selected strategic relationships , both domestically and internationally , to expand its business : in november 2013 , the company signed a shareholder agreement with tasneea oil and gas technologies , llc ( “ tasneea ” ) to form flotek gulf , llc ( “ flotek gulf ” ) and flotek gulf research , llc ( “ flotek gulf research ” ) , omani-based companies that will develop , market and produce specialty chemistries for the oil and gas industry throughout the middle east and north africa . upon official approval by the omani government , flotek and tasneea will begin the transfer of assets into flotek gulf and flotek gulf research . during 2014 , flotek gulf expects to construct a manufacturing facility designed to develop and produce oilfield chemistries for use throughout the middle east and north africa . effective january 1 , 2014 , the company acquired eclipse ior services , llc ( “ eoga ” ) , a leading enhanced oil recovery design and injection firm . eoga 's expertise in enhanced oil recovery processes and the use of polymers to improve the performance of eor projects will be combined with the company 's existing eor products and services . the combined product and service offering will be well positioned to serve the growing market for eor products and services . in august 2013 , the company entered into an agreement with al mansoori production service company of abu dhabi in the uae to provide certain chemistry technologies . the company believes governmental reaction to constituents ' environmental concerns regarding the hydraulic fracturing process and the use of hazardous chemicals in o & g operations could work to its advantage . these environmental concerns favor the company 's chemistries as economical replacements for more hazardous chemicals currently in use in many drilling and producing operations . several states and countries have grass-roots , citizen movements that are aimed specifically at “ greening ” the hydraulic fracturing process , and management believes it is likely these environmental concerns/reactions will broaden to other states in the quarters to come . the outlook for the company 's consumer and industrial chemistries will be driven by availability and demand for citrus oils and other bio-based raw materials . current inventory and crop expectations for the fourth quarter of 2013 and beyond are sufficient to meet the company 's needs to supply its flavor and fragrance business as well as the industrial markets . however , market price volatility will likely result in revenue and margin fluctuations from quarter to quarter . the company works to maintain a portfolio of products which are adaptable to meet our customers ' demands for customized products for the various drilling and producing environments in which they operate . the company 's commitment to r & d permits the company to remain responsive to increased demand and continued growth . the company remains committed to continued development of its product technologies and believes the new growth of its business through the recent acquisition of florida chemical will strategically advance its existing assets and technologies to better serve its customers ' needs . the company believes that it is well-positioned to respond to increased demand for the company 's suite of hydrocarbon stimulation and completion products , particularly the company 's complex nano-fluid chemistries . in addition , the company anticipates continued strong demand for its teledrift pro-series tool product lines and its recently introduced stemulator tool . changes to global geo-political and economic events could have an impact , either positive or negative , on the company 's business . in the event of significant adverse changes to the demand for o & g production , the market conditions affecting the company could 22 change quickly and materially . should such adverse changes to market conditions occur , management believes the company has adequate liquidity to withstand the impact of such changes . in addition , management believes the company is well-positioned to take advantage of significant increases in demand for its products should market conditions improve dramatically in the near term . story_separator_special_tag the company expects that competition for contracts and margins will remain intense in the future but believes that improvements in existing and developmental products and services will enable the company to realize incremental gains in market share in 2014. results of operations ( in thousands ) : replace_table_token_5_th results for 2013 compared to 2012—consolidated consolidated revenue for the year ended december 31 , 2013 increased $ 58.2 million , or 18.6 % , compared to the year ended december 31 , 2012. the increase in revenue for the period was primarily due to the acquisition of florida chemical , which contributed incremental revenue of $ 50.9 million during 2013. excluding the impact of the acquisition , 2013 revenues increased $ 7.3 million or 2.3 % when compared with 2012 , while the total average north american drilling rig count decreased by 7.4 % . revenue increases in the energy chemical technologies and artificial lift technologies segments were partially offset by revenue declines in the drilling technologies segment . consolidated gross margin for the year ended december 31 , 2013 increased $ 15.9 million , or 12.1 % , compared to the year ended december 31 , 2012. the increase in gross margin was primarily due to the increase in revenue . the gross margin percentage decline was primarily attributable to portfolio mix resulting from the inclusion of florida chemical in 2013 results and proportionately higher sales of non-proprietary products in the energy chemical technologies segment and increasing costs of actuated tools in the drilling technologies segment . this decrease was partially offset by supply chain benefits from the florida chemical acquisition and proportionately higher sales of technology tools in the drilling technologies segment . sg & a costs for the year ended december 31 , 2013 increased by $ 11.8 million , or 17.7 % compared to the year ended december 31 , 2012. excluding incremental sg & a costs of $ 4.9 million associated with the florida chemical business acquired , sg & a costs increased $ 6.9 million primarily due to costs incurred in 2013 related to executive severance ( $ 1.0 million ) , implementation of the company 's new erp system ( $ 0.8 million ) , and expenses related to the pursuit of acquisitions and major initiatives in international markets ( $ 1.7 million ) . excluding these items and the incremental sg & a costs of the florida chemical business , sg & a costs increased $ 3.4 million or 5.1 % primarily due to increases in headcount , general insurance , and travel related costs . sg & a costs as a percentage of revenue decreased from 21.2 % to 21.1 % for the year ended december 31 , 2013 compared to the same period of 2012 . 23 depreciation and amortization expense not included in gross margin , for the year ended december 31 , 2013 increased by $ 2.9 million or 64.9 % compared to the year ended december 31 , 2012. this increase was primarily attributable to incremental depreciation and amortization of assets recognized as part of the acquisition of florida chemical . r & d expense increased $ 0.6 million or 17.9 % for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012. the increase in r & d is primarily attributable to new product development , and flotek 's commitment to remaining responsive to increased demand and continued growth of our product lines . interest and other expense for the year ended december 31 , 2013 decreased by $ 14.0 million , or 88.8 % compared to the year ended december 31 , 2012 the decline in interest expense was primarily due to the repayment of the company 's convertible notes of $ 50.3 million at the end of the fourth quarter of 2012 and $ 5.2 million during the first quarter of 2013. the company recorded an income tax provision of $ 20.8 million yielding an effective tax rate of 36.5 % for the year ended december 31 , 2013 , compared to an income tax benefit of $ 4.3 million reflecting an effective tax rate of ( 9.5 ) % for the year ended december 31 2012. the company 's effective tax rate in 2012 was affected primarily by an $ 18.6 million decrease in the valuation allowance against a deferred tax asset . additionally , fluctuations in effective tax rates have historically been impacted by non-cash changes in the fair value of the company 's warrant liability and permanent tax differences . results for 2012 compared to 2011—consolidated revenue for the year ended december 31 , 2012 increased by $ 54.0 million , or 20.9 % , compared to the year ended december 31 , 2011. the increase in revenue for 2012 was driven primarily by increased sales to new and existing customers of patented cnf® technologies , increased sales volumes of stimulation additives , and increased market share of centralizer products and float equipment . a key driver in the increase of sales was an increase in customer demand for the company 's oil tools resulting from the continued shift away from gas-directed drilling in north america to oil-directed drilling . in reaction to the shift in drilling activity and oil prices , customer product demands increased for company products adapted for the current oil-directed drilling activity and environments . increased sales within the chemicals segment was due to the company 's adaptation of cnf® products which served as effective oil mobility enhancement contributors and within the drilling segment to the company 's teledrift® , pro series® , and prodrift® tools utilized in oil and liquids based drilling activity . as a result the company benefited from the addition of several new strategic customers , expansion of our product offerings with existing customers , increased capacity by shifts in customer demand to higher margin products .
| results for 2012 compared to 2011—energy chemical technologies revenue for the chemicals segment for the year ended december 31 , 2012 , increased $ 43.2 million or 30.6 % compared to the year ended december 31 , 2011. the primary increase in revenue was driven by a $ 27.5 million , or 63.7 % increase in sales of patented cnf® products to existing and new customers and approximately a $ 15.7 million , 36.3 % increase in revenues attributable to increased sales volumes of stimulation liquids . given the shift away from gas-directed drilling in north america to oil-directed drilling , the company 's adaptation of cnf® products to serve as effective oil mobility enhancers resulted in increased sales . oil molecules are larger and more difficult to mobilize through low permeability formation than gas molecules and thus oil reservoirs benefit even more from the use of additives such as flotek 's cnf® products . in general , revenue growth was the result of the company 's development , strategic adaptation and customization of proprietary natural gas effective cnf® additives to oil effective cnf® additives for new and existing customers , increased market demand and incremental domestic and international market 25 penetration . increasing industry recognition of proven production efficiencies and environmental benefits derived from use of flotek 's new and existing products increased demand for cnf® products in both domestic and international markets . the company experienced significant expansion in the rocky mountain regions , primarily the niobrara formation . during 2012 the company continued to experience increased success of cnf® products with the addition of major new customers in oily shale basins where the company 's cnf® products were employed . also contributing to the support of sales expansion was the company 's partnerships with major service companies and the continuous support of operational efforts to educate the end users of cnf® products as to the benefits of the cnf® products . additionally , the company saw growth and expansion in both north dakota , south texas , and the permian basin region , primarily in the bakken , wolfcamp , and eagle ford formations , respectively . gross margin for the year ended december 31 , 2012 was $ 81.4 million , or 44.3 % of revenue , compared to $ 56.1 million , or 39.8 % of revenue for the year ended december 31 , 2011. the increase in gross margin and gross margin percentage was due primarily to a shift to a more
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we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . we also regularly look at acquisition opportunities that would be consistent with or complimentary to our overall business strategies . depending on the size of the acquisition , any such acquisitions could require external financing . as noted above in item 1a , `` risk factors , '' we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concerns about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . recent developments on january 29 , 2016 , we announced that we had submitted a proposal to axiall corporation ( `` axiall '' ) on january 25 , 2016 to acquire all of the outstanding shares of axiall for $ 20.00 per share ( comprised of $ 11.00 in cash and 0.1967 of a westlake share , which represented a value of $ 9.00 based on our closing price on january 22 , 2016 , the last trading day before we made our proposal ) . the total value of the proposed transaction is approximately $ 2.9 billion , including the assumption of certain axiall liabilities , which include approximately $ 1.5 billion of debt outstanding as of september 30 , 2015. our proposal was not subject to a financing contingency . axiall rejected our proposal on january 27 , 2016. on february 16 , 2016 , we announced that we notified axiall of our intention to nominate a slate of ten independent , highly qualified individuals to axiall 's board of directors at axiall 's 2016 annual meeting . as of february 17 , 2016 , we held shares representing approximately 4.4 % of the outstanding shares of common stock of axiall . in january 2016 , opco announced an expansion project to increase the ethylene capacity of its ethylene plant at our calvert city facility . the expansion is expected to increase ethylene capacity by approximately 70 million pounds annually and is targeted for completion during the first half of 2017. combined with other incremental capacity increases , the total ethylene capacity of opco 's ethylene plant at our calvert city facility is expected to increase to 730 million pounds annually at the completion of this project . on june 1 , 2015 , we acquired an additional 35.7 % controlling interest in suzhou huasu plastics co. , ltd. ( `` huasu '' ) , a pvc joint venture based near shanghai , in the people 's republic of china , from ineos chlor vinyls holdings b.v. , increasing our interest in huasu to 95.0 % . prior to the acquisition of this 35.7 % interest , we owned a 59.3 % interest in huasu . huasu has a combined annual capacity of 300 million pounds of pvc resin and 145 million pounds of pvc film and sheet . 30 story_separator_special_tag of lower olefins integrated product margins primarily due to lower sales prices . sales prices decreased an average of 25.3 % for the year ended december 31 , 2015 as compared to 2014 . in addition , gross profit for the year ended december 31 , 2015 was negatively impacted by lost sales , lower production rates , unabsorbed fixed manufacturing costs and other costs associated with turnarounds at our various facilities . the decrease in gross profit for the year ended december 31 , 2015 was partially offset by lower average feedstock and energy costs and higher vinyls integrated product margins , primarily attributable to lower feedstock costs , increased production at our calvert city facilities following the completion of opco 's feedstock conversion and ethylene expansion project and higher production rates at our geismar chlor-alkali plant , as compared to the prior year . selling , general and administrative expenses . selling , general and administrative expenses increase d $ 32.0 million , or 16.5 % , in 2015 as compared to 2014 . the increase was mainly attributable to general and administrative costs incurred by vinnolit and , to a lesser extent , huasu for the year ended december 31 , 2015 , an increase in payroll and related labor costs , including incentive compensation , and an increase in consulting and professional fees , as compared to 2014 . interest expense . interest expense decrease d by $ 2.7 million to $ 34.7 million in 2015 from $ 37.4 million in 2014 , largely as a result of increased capitalized interest on major capital projects in 2015 as compared to 2014 . debt balances during 2015 remained relatively unchanged compared to 2014 . other income ( expense ) , net . other income ( expense ) , net was net income of $ 38.3 million in 2015 compared to net expense of $ 2.7 million in 2014 , primarily attributable to the bargain purchase gain from the acquisition of a controlling interest in huasu , net of related expenses , of approximately $ 20.4 million , gains on foreign exchange , gains from the sales of securities and dividends received from cost method investments , partially offset by an impairment and loss from the disposition of an equity method investment . income taxes . the effective income tax rate was 31.0 % in 2015 as compared to 36.8 % in 2014 . the effective income tax rate for 2015 was below the u.s. story_separator_special_tag federal statutory rate of 35.0 % primarily due to the benefit of state tax credits , the domestic manufacturing deduction , income attributable to noncontrolling interests , the non-recognition of tax related to the bargain purchase of a controlling interest in huasu , the foreign earnings rate differential and the increased benefit in certain prior years ' deductions due to a change in the calculation methodology of the domestic manufacturing deduction and adjustments related to prior years ' tax returns as filed , partially offset by state income taxes . the effective income tax rate for 2014 was above the u.s. federal statutory rate of 35.0 % primarily due to state income taxes , partially offset by state tax credits and the domestic manufacturing deduction . olefins segment net sales . net sales decrease d by $ 463.6 million , or 17.0 % , to $ 2,260.1 million in 2015 from $ 2,723.7 million in 2014 , mainly due to lower sales prices for our major products , partially offset by higher sales volumes for our major products as compared to the prior year . average sales prices for the olefins segment decreased by 29.2 % in 2015 as compared to 2014 , while average sales volumes increased by 12.2 % in 2015 as compared to 2014 . income from operations . income from operations was $ 747.4 million in 2015 as compared to $ 1,013.8 million in 2014 . this decrease was predominantly attributable to lower olefins integrated product margins , primarily as a result of lower sales prices , partially offset by higher sales volumes and lower feedstock and energy costs for 2015 as compared to 2014 . trading activity for 2015 resulted in a loss of $ 11.4 million as compared to a loss of $ 9.7 million for 2014 . vinyls segment net sales . net sales increase d by $ 511.5 million , or 30.2 % , to $ 2,203.2 million in 2015 from $ 1,691.7 million in 2014 . this increase was primarily attributable to sales contributed by vinnolit and , to a lesser extent , huasu and higher sales volumes for caustic soda and pvc resin , partially offset by lower sales prices for our major products . average sales prices for the vinyls segment decreased by 18.9 % in 2015 as compared to 2014 . average sales volumes increased by 49.1 % in 2015 as compared to 2014 , primarily related to sales contributed by vinnolit and , to a lesser extent , huasu , as compared to the prior year . income from operations . income from operations was $ 254.5 million in 2015 as compared to $ 142.7 million in 2014 . this increase was primarily driven by higher vinyls integrated product margins for the year ended december 31 , 2015 , mainly attributable to the contribution from vinnolit , lower feedstock costs and increased production at our calvert city facilities 33 following the completion of opco 's feedstock conversion and ethylene expansion project and higher caustic soda sales volume primarily attributable to higher production rates at our geismar chlor-alkali plant , as compared to 2014 . the increase in income from operations for the year ended december 31 , 2015 was partially offset by lost sales , lower production rates and other costs associated with the turnarounds at our various north american and european facilities , lower sales prices for our major products and reduced sales volume in europe related to an ethylene shortage . income from operations for 2014 was negatively impacted by the effect of selling higher cost vinnolit inventory recorded at fair value as a result of the acquisition , the lost sales , lower production rates and other costs associated with the turnaround at our calvert city facilities and opco 's calvert city ethylene plant 's feedstock conversion and expansion project and , prior to the completion of opco 's calvert city ethylene plant 's feedstock conversion project , lower vinyls integrated product margins attributable to significantly higher propane costs . 2014 compared with 2013 net sales . net sales increased by $ 655.9 million , or 17.4 % , to $ 4,415.4 million in 2014 from $ 3,759.5 million in 2013. this increase was mainly attributable to sales contributed by vinnolit and north american specialty products , higher sales prices for most of our major products and higher ethylene , caustic and polyethylene sales volumes , partially offset by lower ethylene co-products and styrene sales volumes . ethylene co-products sales volumes were lower in 2014 , as compared to the prior year , primarily due to the planned shut-down of opco 's calvert city ethylene plant as a result of the feedstock conversion and ethylene expansion project , and the change to ethane feedstock currently utilized at opco 's calvert city ethylene plant following the completion of such project in early 2014. average sales prices for 2014 increased by 5.2 % as compared to 2013. overall sales volume increased by 12.2 % in 2014 as compared to 2013. gross profit . gross profit margin percentage increased to 29.8 % in 2014 from 29.3 % in 2013. the improvement in gross profit margin percentage was mainly due to the improved olefins integrated product margins , primarily as a result of higher polyethylene sales prices and the increased ethylene production at our lake charles facility after the first quarter 2013 completion of the petro 2 ethylene unit expansion and its conversion to 100 % ethane feedstock capability . in addition , olefins integrated product margins benefited from an increase in sales prices that outpaced increases in feedstock and energy costs in 2014 , as compared to the prior year .
| this represents a decrease in net income of $ 32.5 million , or $ 0.21 per diluted share , from 2014 net income attributable to westlake chemical corporation of $ 678.5 million , or $ 5.07 per diluted share , on net sales of $ 4,415.4 million . net income for the year ended december 31 , 2015 benefited from a net pre-tax gain of $ 20.4 million , or $ 0.16 per diluted share , related to the bargain purchase gain from the acquisition of a controlling interest in huasu , net of related expenses , and a lower effective tax rate primarily due to several discrete tax items and return to provision and other adjustments , which collectively lowered the 2015 effective tax rate to 31.0 % as compared to the 2015 effective tax rate on ordinary income of 33.6 % . these benefits were more than offset by a decrease of $ 164.2 million in income from operations for the year ended december 31 , 2015 . net sales for the year ended december 31 , 2015 increase d $ 47.9 million to $ 4,463.3 million compared to net sales for the year ended december 31 , 2014 of $ 4,415.4 million , primarily due to sales contributed by our specialty pvc resin business , vinnolit , which we acquired on july 31 , 2014 , and higher sales volumes for most of our major products , partially offset by lower sales prices for all our major products . income from operations was $ 959.8 million for the year ended december 31 , 2015 as compared to $ 1,124.0 million for the year ended december 31 , 2014 , a decrease of $ 164.2 million . the decrease in 2015 income from operations was mainly attributable to lower olefins integrated product margins , primarily caused by lower sales prices , as compared to the prior year , and costs related to several turnarounds , partially offset by the contribution from vinnolit , increased production at our
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therefore , key bridge , along with all other captive insurance companies , must completely wind down all business relationships with the fhlb of cincinnati ( “ fhlbc ” ) , including the repayment of all outstanding advances , prior to or simultaneously with the termination of key bridge 's membership with the fhlbc . since the release of the final rule , key bridge has repaid all of its outstanding fhlb advances . the adopting release for the final rule expressly invited congress to address the treatment of captive insurance companies with respect to membership in the fhlb . in october 2015 , reps. blaine luetkemeyer ( r-mo . ) , denny heck ( d-wash. ) , patrick mchenry ( r-n.c. ) and john carney ( d-del . ) introduced h.r . 3808 , a bill that would have preemptively prevented the fhfa from adopting the final rule in such a way that would foreclose membership in the fhlb to captive insurance companies . there can be no way of predicting if any subsequent legislation addressing the status of captive insurance companies with respect to the fhlb will be proposed in either house of congress , the likelihood of passage of any such legislation , and the ultimate effects , if any , on the availability of short-term , low-cost funding provided by the fhlbs to captive insurance companies subsequent to the enactment of any such legislation . in march 2015 , housing and mortgage financial reform legislation , h.r . 1491 , was proposed by congressmen john delaney ( d-md ) , john carney ( d-de ) and james a. himes ( d-ct ) , each of whom is a member of the house financial services committee . the bill is called the partnership to strengthen homeownership act , and is similar to one introduced by the same congressmen in the last congress ( h.r . 5055 ) , which never made it out of committee . under this proposed legislation , all government guaranteed single-family and multi-family mbs would be supported by a minimum of 5 % private sector capital , which would stand in a first loss position . the remaining 95 % of the risk would be shared between ginnie mae and a private reinsurer on a pari passu basis . fees paid to ginnie mae for providing these securities would be allocated to affordable housing programs . under the bill , freddie mac and fannie mae would be wound down over a five-year period , and their multifamily businesses would be spun out as separate entities . ginnie mae would be required to create and implement a workable multifamily guarantee that utilizes private sector pricing consistent with the single family model . the gses ' current multifamily businesses would continue to function within the new multifamily housing market as purely private organizations with an explicit government guarantee provided by ginnie mae and a private sector reinsurer . 33 on june 25 , 2013 , senators bob corker ( r-tn ) and mark warner ( d-va ) sponsored the housing finance reform and taxpayer protection act of 2013 ( the “ corker-warner bill ” ) into the u.s. senate . while the corker-warner bill appeared to have lost momentum after the introduction of a competing bill in 2014 , the corker-warner bill was re-introduced in the u.s. senate in september 2015 by its original sponsors , joined by senators elizabeth warren ( d-ma ) and david vitter ( r-la ) . as originally drafted , the corker-warner bill has three key provisions : the establishment of the federal mortgage insurance corporation ( the “ fmic ” ) ; the creation of a mortgage insurance fund ( the “ fund ” ) ; and the wind-down of fannie mae and freddie mac . the fmic would be a government guarantor modeled after the federal deposit insurance corporation in that it would collect insurance premiums and maintain a deposit fund on all outstanding obligations . every mortgage-backed security issued through the fmic would have a private investor bearing the first risk of loss and holding at least $ 0.10 in equity capital for every dollar of risk . this private capital buffer is intended to protect taxpayers from the risk of default on the mortgages underlying securities issued by the fmic . thus , the ultimate purpose of the fmic would be to require credit investors to bear the initial risk of default on mbs . the fhfa would be abolished after the establishment of the fmic , and all current responsibilities of the fhfa , as well as its resources , would be transferred to the fmic . in particular , the corker-warner bill specifies that the fmic would maintain a database of uniform loan-level information on eligible mortgages , develop standard uniform securitization agreements and oversee the common securitization platform currently being developed by the fhfa . in the event losses due to default on underlying mortgages exceed the first position losses of private credit investors in securities issued by the fmic , the fmic would cover such losses out of the fund . the corker-warner bill specifies that the fmic would endeavor to attain a reserve balance of 1.25 % of the aggregate outstanding principal balance of covered securities within five years of the establishment of the fmic and 2.50 % of such amount within ten years of the establishment of the fmic . the fund would be paid with insurance premiums , akin to user fees , paid by private investors with various reporting requirements . the corker-warner bill would revoke the charters of fannie mae and freddie mac upon the establishment of the fmic . fannie mae and freddie mac would wind down as expeditiously as possible while maximizing returns to taxpayers as their assets are sold off . we expect debate and discussion on residential housing and mortgage reform to continue over the next few years ; however , we can not be certain if or when h.r . story_separator_special_tag 1491 , the corker-warner bill or any other housing finance reform bill will emerge from committee or be approved by congress , and if so , what the effects may be . historically , significant legislation has been difficult to pass in a presidential election year , and we can not predict what effect the 2016 election cycle will have on the progress of housing finance reform legislation . story_separator_special_tag investments on a levered basis . the company continues to believe that its internally managed structure provides benefits to shareholders . operating leverage , elimination of conflicts of interest , and alignment of management compensation to company performance are some examples of the benefits to shareholders of internally managed structures versus alternative structures . these benefits were demonstrated in fiscal year 2015 as management 's cash and stock incentive compensation was meaningfully lower than prior years as the company 's results were below expectations for our shareholders . these lower compensation costs were the key element in driving the company 's fiscal year 2015 operating expenses down 22 % from the prior year . the company continues to utilize its tax benefits afforded to it as a c-corporation that allow it to shield substantially all of its income from taxes . as of december 31 , 2015 , the company had nol carry-forwards of $ 107 million and ncl carry-forwards of $ 241 million . from a gaap accounting perspective , the company had a net deferred tax asset of $ 97.5 million , or $ 4.24 per share , as of december 31 , 2015. the company continues to record a valuation allowance against a portion of its deferred tax asset attributable to ncl carry-forwards that the company believes will likely expire prior to utilization . during fiscal year 2015 , the company recorded an increase to its valuation allowance of $ 56.4 million , or $ 2.45 per diluted share , due largely to an increase in its ncl carryforwards as a result of net capital losses during fiscal year 2015 , primarily from losses on certain of its interest rate derivative instruments . the company declared dividends of $ 3.00 per share in fiscal year 2015. the company continues to maintain a variable dividend policy pursuant to which the board of directors evaluates dividends on a quarterly basis and , in its sole discretion , may approve the payment of dividends . the company considers many factors in determining the amount of its quarterly dividends , including its net income determined in accordance with gaap , non-gaap core operating income measures , the economic costs of its interest rate hedges , book value per share , liquidity , and expectations of future performance , among other factors . non-gaap core operating income in addition to the financial results reported in accordance with gaap , the company calculated non-gaap core operating income for the years ended december 31 , 2015 and 2014. in determining core operating income , the company excludes certain legacy litigation expenses and adjusts net income determined in accordance with gaap for the following non-cash and other items : · compensation costs associated with stock-based awards ; · non-cash accretion of private-label mbs purchase discounts ; · private-label mbs purchase discount accretion realized upon sale or repayment ; · other-than-temporary impairment charges ; · other-than-temporary impairment charges realized upon sale or repayment ; · both realized and unrealized gains and losses on agency mbs ; · unrealized gains and losses and early termination net settlement payments or receipts on interest rate swap agreements ; · both realized and unrealized gains on losses on all other derivative instruments ; and · non-cash income tax provisions . in determining core operating income , the company includes the periodic interest costs of its interest rate swap agreements , which the company first began to enter into during the fourth quarter of 2015 . 36 the company 's investment strategy for its agency mbs portfolio is to generate a net interest margin on the leveraged assets and hedge changes in the market value of the assets attributable to changes in interest rates , expecting that the fluctuations in the market value of the agency mbs and related hedges should largely offset each other over time . as a result , the company excludes both the realized and unrealized fluctuations in the gains and losses in the assets and hedges , except for the periodic interest costs of interest rate swap agreements , on its hedged agency mbs portfolio when assessing the underlying core operating income of the company . however , the company 's investment strategy for its private-label mbs portfolio is to generate a total cash return comprised of both interest income collected and the cash return realized when the private-label mbs are sold that equals the difference between the sale price and the discount to par paid at acquisition . therefore , the company excludes non-cash accretion of private-label mbs purchase discounts from non-gaap core operating income , but includes realized cash gains or losses on its private-label mbs portfolio in core operating income to reflect the total cash return on those securities over their holding period . since the timing of realized cash gains or losses on private-label mbs may vary significantly between periods , the company also reports core operating income excluding gains on private-label mbs . these non-gaap core operating income measurements are used by management to analyze and assess the company 's operating results on its portfolio and assist with the determination of the appropriate level of dividends . the company believes that these non-gaap measurements assist investors in understanding the impact of these non-core items and non-cash expenses on our performance and provides additional clarity around our earnings capacity and trends . a limitation of utilizing this non-gaap measure is that the gaap accounting effects of these events do in fact reflect the underlying financial results of our business and these effects should not be ignored in evaluating and analyzing our financial results .
| for example , the spread between the 10-year u.s. treasury note rate and 10-year interest rate swap rate widened 20 basis points during fiscal year 2015 with the 10-year swap rate ending eight basis points lower than the u.s. treasury rate as of december 31 , 2015. as a result of these factors , the company 's agency mbs portfolio did not increase in market value by an amount sufficient to offset the decrease in value of its hedging instruments , resulting in the recognition of losses on the company 's hedged agency mbs portfolio during the year . the net investment losses on the company 's hedged agency mbs portfolio was the key driver in the $ 7.04 per share decline in the company 's book value from the prior year to $ 21.05 per share as of december 31 , 2015. as of december 31 , 2015 , the company 's agency mbs investment portfolio totaled $ 4,254 million at fair value consisting of $ 3,865 million of agency mbs and $ 389 million of net long tba agency positions . the company 's fixed-rate agency mbs were each specifically selected based upon collateral characteristics that demonstrate a lower than average propensity for prepayments . the three-month constant prepayment rate for the company 's agency mbs was 7.15 % as of december 31 , 2015. as of december 31 , 2015 , the total notional amount of the company 's interest rate hedges on its agency investment portfolio was $ 2,835 million comprised of interest rate swaps and 10-year u.s. treasury note futures . in light of continued expectations for moderate economic growth and more stable interest rates , during fiscal year 2015 the company reduced its overall hedge position and adjusted the composition of its hedges by increasing its exposure to the longer portion of the interest rate curve and reducing its exposure to the shorter portion of the interest rate curve . however , the company believes its interest rate hedges continue to
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we intend to gradually grow these businesses . we believe that there w ill be opportunities to cross-sell these products to our deposit and loan customers which will increase our non-interest income over time . continuing to grow our customer relationships and deposit base by expanding our branch network . as conditions permit , we will expand our branch network through a combination of de novo branching and acquisitions of branches and or other financial services companies . we believe that as we expand our branch network , our customer relationships and deposit base will continue to grow . our branch expansion focus will be primarily within onondaga county , ny , which encompasses the greater syracuse , ny area . we currently have two branches in onondaga county and are actively seeking opportunities for an increased presence within that marketplace as we believe that we have already achieved meaningful brand recognition among potential customers there . consistent with this strategy , we have recently acquired a vacated branch site in suburban syracuse from another financial institution . this branch will be opened , pending regulatory approval , in the fall of 2018. we are also actively exploring the addition of a specific branch site within the city of syracuse and will continue to seek similar opportunities in the future . in 2017 , we opened a loan production office in utica , located in oneida county , ny , to increase our availability to potential commercial and business loan customers within that marketplace . banking platform and technologies . we have committed significant resources to establish a banking platform to accommodate future growth by upgrading our information technology , maintaining a robust risk management and compliance staff , improving credit administration functionality , and upgrading our physical infrastructure . we believe that these investments will enable us to achieve operational efficiencies with minimal additional investments , while providing increased convenience for our customers . managing capital . the company received $ 24.9 million in net proceeds from the sale of approximately 2.6 million shares of common stock as a result of the conversion in october 2014. in october 2015 , the company executed the issuance of the $ 10.0 million non-amortizing subordinated loan and subsequently used those proceeds in february 2016 to substantially fund the full retirement of $ 13.0 million in sblf preferred stock . we have successfully leveraged this $ 27.9 million in net additional capital by growing our assets by $ 300.8 million , or 51.8 % , since october 2014. it is our intent to balance our future growth with capital adequacy considerations in a manner that will continue to allow us to effectively serve all of our key stakeholders . providing quality customer service . our strategy emphasizes providing quality customer service and meeting the financial needs of our customer base by offering a full complement of loan , deposit , financial services and online banking solutions . our competitive advantage is our ability to make decisions , such as approving loans , more quickly than our larger competitors . customers enjoy , and will continue to enjoy , access to senior executives and local decision makers at pathfinder bank and the flexibility it brings to their businesses . application of critical accounting policies the company 's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the united states and follow practices within the banking industry . application of these principles requires management to make estimates , assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes . these estimates , assumptions and judgments are based on information available as of the date of the financial statements ; accordingly , as this information changes , the financial statements could reflect different estimates , assumptions and judgments . certain policies inherently have a greater reliance on the use of estimates , assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported . estimates , assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value or when an asset or liability needs to be recorded contingent upon a future event . carrying assets and liabilities at fair value inherently results in more financial statement volatility . the fair values , and information used to record valuation adjustments for certain assets and liabilities , are based on quoted market prices or are provided by other third-party sources , when available . when third party information is not available , valuation adjustments are estimated in good faith by management . the most significant accounting policies followed by the company are presented in note 1 to the consolidated financial statements . these policies , along with the disclosures presented in the other financial statement notes and in this discussion , provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined . based on the valuation techniques used and the sensitivity of financial statement amounts to the methods , assumptions , and estimates underlying those amounts , management has identified the allowance for loan losses , deferred income taxes , pension obligations , the evaluation of investment securities for other than temporary impairment , the annual evaluation of the company 's goodwill for possible impairment , and the estimation of fair values for accounting and - 34 - disclosure purposes to be the accounting areas that require the most subjective and complex judgments . these areas could be the most subject to revision as new inform ation becomes available . allowance for loan losses . the allowance for loan losses represents management 's estimate of probable loan losses inherent in the loan portfolio . story_separator_special_tag determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment on the use of estimates related to the amount and timing of expected future cash flows on impaired loans , estimated losses on pools of homogeneous loans based on historical loss experience , and environmental factors , all of which may be susceptible to significant change . the company establishes a specific allowance for all commercial loans in excess of the total related credit threshold of $ 100,000 and single borrower residential mortgage loans in excess of the total related credit threshold of $ 300,000 identified as being impaired which are on nonaccrual and have been risk rated under the company 's risk rating system as substandard , doubtful , or loss . the company also establishes a specific allowance , regardless to the size of the loan , for all loans subject to a troubled debt restructuring agreement . in addition , an accruing substandard loan could be identified as being impaired . the measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate , except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral , less costs to sell . at december 31 , 2017 , the bank 's position in impaired loans consisted of 51 loans totaling $ 9.2 million . of these loans , 25 loans , totaling $ 5.3 million , were valued using the present value of future cash flows method ; and 26 loans , totaling $ 3.9 million , were valued based on a collateral analysis . for all other loans , the company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category . note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this report . deferred income tax assets and liabilities . deferred income tax assets and liabilities are determined using the liability method . under this method , the net deferred tax asset or liability is recognized for the future tax consequences . this is attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating and capital loss carry forwards . deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date . if current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized , a valuation allowance is established . the judgment about the level of future taxable income , including that which is considered capital , is inherently subjective and is reviewed on a continual basis as regulatory and business factors change . in prior years , management believed that it may not have been able to generate sufficient future taxable income in the form of capital gains to offset its capital loss carry forward position before those potential tax benefits expired . accordingly , a valuation allowance of $ 150,000 was maintained at december 31 , 2016. during 2017 , the company recognized net capital gains of $ 428,000 , effectively utilizing all capital loss carryforward tax benefits established in prior years and thereby eliminating the need for any valuation allowance related to the future utilization of those carryforwards at december 31 , 2017. as a result , the company maintained no valuation allowance related to future tax benefits related to the utilization of capital loss carryforwards at december 31 , 2017. on december 22 , 2017 the tax act was signed into law . the tax act instituted significant changes to various sections of the internal revenue code that effects the company . most notably , the tax act reduces the company 's marginal federal income tax rate from 34 % to 21 % starting january 1 , 2018. generally accepted accounting principles ( “ gaap ” ) requires that the impact of the provisions of the tax act be accounted for in the period of enactment . accordingly , the company recorded an income tax benefit in the fourth quarter of 2017 related to the tax act in the amount of $ 155,000. the reduction in income tax expense was largely attributable to the reduction in the value of net deferred tax assets and liabilities reflecting lower future tax obligations resulting from the tax act 's enacted lower federal corporate tax rate . the company 's effective tax rate differs from the statutory rate due primarily to non-taxable interest income and other tax-advantaged income derived from investments in bank owned life insurance . in addition to these recurring reductions in the company 's effective tax rates , its effective tax rate for 2017 was increased by the effects of the one-time incremental tax expense related to the tax act , partially offset by the tax-reducing effects of the utilization of its remaining capital loss carryforwards . see note 17 to the consolidated financial statements contained herein . pension obligations . pension and postretirement benefit plan liabilities and expenses are based upon actuarial assumptions of future events , including fair value of plan assets , interest rates , and the length of time the company will have to provide those benefits . the assumptions used by management are discussed in note 14 to the consolidated financial statements contained herein . - 35 - evaluation of investment securities for other-tha n-temporary-impairment ( “ otti ” ) .
| average assets increased in 2017 by $ 134.2 million , or 20.7 % as the company grew its total assets from $ 749.0 million at december 31 , 2016 to $ 881.3 million at december 31 , 2017. the increase in return on average equity in 2017 , as compared to the previous year , was primarily due to the increase in net income in 2017. net interest income before provision for loan losses increased $ 2.8 million , or 14.0 % , to $ 23.1 million in 2017 on average earning assets of $ 779.9 million as compared to net interest income before provision for loan losses of $ 20.3 million in 2016 on - 36 - average earning assets of $ 6 4 5.7 million . interest and dividend income increased $ 5 . 3 million in 2017 to $ 29.4 million , as compared to interest and dividend income of $ 24.1 million in 2016. the a ggregate i ncrease in the average balances of interest-earning assets of $ 134.2 million i n 2017 led to an increase in interest income of $ 4.8 million , that was further enhanced by a n increase of four basis points in the overall average yield earned on those assets that contributed an additional $ 524 ,000 in interest income in 2017 , as compared to the previous year . the $ 5.3 million increase in interest income was partially offset by an increase in interest expense of $ 2.5 million due to an increase in average interest-bearing liabilities of $ 126.4 million and an increase in the average rate pai d on those liabilities of 24 basis points in 2017 as compared to 2016 . the company recorded a provision for loan losses of $ 1.8 million in 2017 as compared to $ 953,000 in the prior year . the $ 816,000 year-over-year increase in provision for loan losses reflects the effects of an 18 % increase in aggregate loan balances from december 31 , 2016 to december 31 , 2017. this increase in year-over-year loan balances necessitated a corresponding increase in the provision for loan losses that was partially offset by the loan portfolio 's generally improving credit quality metrics . in addition , the company recorded a specific reserve of $ 300,000 for a single commercial real estate loan with an outstanding balance of $ 1.7 million . the loan is collateralized by a special-purpose property and the balance of the loan may not be fully realizable in the future . the company recorded $ 890,000 in net charge-offs in 2017 as compared to $ 412,000
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adjusted ebitda is a supplemental measure of our performance that is not presented in accordance with gaap . adjusted ebitda should not be considered as an alternative to net income ( loss ) or 52 any other measure of financial performance calculated and presented in accordance with gaap . in addition , our definition and presentation of adjusted ebitda may not be comparable to similarly titled measures presented by other companies . we use adjusted ebitda : as a measure of operating performance because it does not include the impact of items that we do not consider indicative of our core operating performance ; for planning purposes , including the preparation of our annual operating budget , to allocate resources to enhance the financial performance of our business ; and as a performance measure used under our bonus plan . we also believe that the presentation of adjusted ebitda provides useful information to investors with respect to our results of operations and in assessing the performance and value of our business . various measures of ebitda are widely used by investors to measure a company 's operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods , book values of assets , capital structures and the methods by which assets were acquired . although measures similar to adjusted ebitda are frequently used by investors and securities analysts in their evaluation of companies , we understand that adjusted ebitda has limitations as an analytical tool , and you should not consider it in isolation or as a substitute for gaap , income from operations or an analysis of our results of operations as reported under gaap . some of these limitations are : adjusted ebitda does not reflect our historical cash expenditures or future requirements for capital expenditures or other contractual commitments ; adjusted ebitda does not reflect changes in , or cash requirements for , our working capital needs ; adjusted ebitda does not reflect stock-based compensation expense ; adjusted ebitda does not reflect our tax expense or cash requirements to pay our income taxes ; adjusted ebitda does not reflect our interest expense , or the cash requirements necessary to service interest or principal payments on our debt ; although depreciation , amortization and impairment charges are non-cash charges , the assets being depreciated , amortized or impaired will often have to be replaced in the future , and adjusted ebitda does not reflect any cash requirements for these replacements ; and other companies in our industry may calculate ebitda or adjusted ebitda differently than we do , limiting their usefulness as a comparative measure . because of these limitations , our adjusted ebitda should not be considered as a measure of discretionary cash available to us to reinvest in the growth of our business or as a measure of cash available for us to meet our obligations . to properly and prudently evaluate our business , we encourage you to review the gaap financial statements included elsewhere in this annual report on form 10-k , and not to rely on any single financial measure to evaluate our business . 53 the following table presents a reconciliation of net income ( loss ) , the most directly comparable gaap measure , to adjusted ebitda for the years presented : replace_table_token_5_th ( 1 ) interest expense consists primarily of fair market value adjustments related to our subordinated notes , senior convertible notes , convertible notes and series c warrants , subordinated note and convertible note issuance costs , the amortization of the subordinated note debt discount , and imputed interest on our obligations under our cross license agreement with cabot corporation . ( 2 ) represents non-cash stock-based compensation related to vesting and modifications of stock option grants , vesting of restricted stock units and restricted common stock . the following table presents a reconciliation of net income ( loss ) , the most directly comparable gaap measure , to adjusted ebitda for the quarters presented : replace_table_token_6_th ( 1 ) interest expense ( income ) consists primarily of fair market value adjustments related to our subordinated notes , convertible notes and the issuance of our series c warrants , subordinated note and convertible note issuance costs , the amortization of the subordinated note debt discount and imputed interest on our obligations under our cross license agreements with cabot corporation . 54 ( 2 ) represents non-cash stock-based compensation related to vesting and modifications of stock option grants , vesting of restricted stock units and restricted common stock . our adjusted ebitda is affected by a number of factors including the mix of aerogel products sold , average selling prices , average material costs , our actual manufacturing costs , the costs associated with and timing of expansions and start-up of additional production capacity , and the amount and timing of operating expenses . as we continue to grow our base of product revenue and to build out manufacturing capacity , we expect increased manufacturing expenses will periodically have a negative impact on adjusted ebitda , but will set the framework for improved adjusted ebitda moving forward . accordingly , we expect that our adjusted ebitda will vary from period to period as we expand our manufacturing capacity . emerging growth company status the jobs act permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies . we are choosing to opt out of this provision and , as a result , we will comply with new or revised accounting standards as required when they are adopted . this decision to opt out of the extended transition period under the jobs act is irrevocable . components of our results of operations revenue we recognize product revenue from the sale of our line of aerogel products and research services revenue from the provision of services under contracts with various agencies of the u.s. government and other institutions . story_separator_special_tag product revenue is recognized upon transfer of title and risk of loss , which is generally upon shipment or delivery . the following table sets forth the total revenue for the periods presented : replace_table_token_7_th product revenue accounted for 97 % , 95 % and 95 % of total revenue for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we expect continued growth in product revenue due to increasing market adoption of our line of aerogel blankets within all segments of the energy infrastructure market . we expect that research services revenue will continue to decline as a percentage of total revenue . a substantial majority of our revenue is generated from a limited number of direct customers , including distributors , contractors , oems and end-use customers . our 10 largest customers accounted for approximately 60 % of our total revenue during the year ended december 31 , 2014 , and we expect that most of our revenue will continue to come from a relatively small number of customers for the foreseeable future . in 2014 , sales to a major asian energy company and a north american distributor represented 13 % and 12 % of total revenue , respectively ; in 2013 , sales to a north american and an asian distributor represented 15 % and 11 % of total revenue , respectively ; and in 2012 , sales to a north american distributor represented 13 % of total revenue . for each of the periods discussed above , there were no other customers that represented 10 % or more of our total revenues . 55 we conduct business across the globe , with a substantial portion of our sales outside the united states . in addition , we may expand our operations outside of the united states . total revenue from outside of the united states , based on shipment destination or services location , amounted to $ 62.6 million , or 61 % of our total revenues , $ 55.9 million , or 65 % of our total revenue , and $ 43.5 million or 69 % of our total revenue , in the years ended december 31 , 2014 , 2013 and 2012 , respectively . cost of revenue cost of revenue for our product revenue consists primarily of materials and manufacturing expense , including direct labor and manufacturing overhead , including depreciation . cost of product revenue is recorded when the related product revenue is recognized . cost of product revenue also includes stock-based compensation of manufacturing employees and costs of shipping . material is our most significant component of cost of product revenue and includes fibrous batting , silica materials and additives . material costs as a percentage of product revenue were 46 % , 47 % and 61 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . material costs as a percentage of product revenue vary from product to product due to differences in average selling prices , material requirements , blanket thickness and manufacturing yields . as a result , material costs as a percentage of revenue will vary from period to period due to changes in the mix of aerogel products sold . however , in general , we expect material costs in the aggregate to decline as a percentage of revenue as we seek to achieve higher selling prices , material sourcing improvements and manufacturing yield enhancements for our aerogel products . manufacturing expense is also a significant component of cost of revenue . manufacturing expense as a percentage of product revenue was 38 % , 42 % and 56 % for the years ended december 31 , 2014 , 2013 and 2012 , respectively . we incurred a significant increase in manufacturing expense associated with the operation of our second production line in the east providence facility beginning in 2011. these costs were principally fixed in nature and constituted an increased percentage of product revenue during 2011 and 2012 as we increased production toward nameplate capacity . during 2013 and 2014 , manufacturing expense decreased as a percentage of product revenue as a result of strong revenue growth supported by the expanded manufacturing capacity and improved manufacturing productivity . as we continue to increase manufacturing capacity in our east providence facility and a second plant , we expect manufacturing expense as a percentage of product revenue will increase in the near-term following each expansion but will decrease in the long-term with increased revenues supported by the effect of completed capacity expansions . cost of revenue for our research services revenue consists of direct labor costs of research personnel engaged in the contract research , third-party consulting expense , and associated direct material costs . this cost of revenue also includes overhead expenses associated with project resources , development tools and supplies . cost of revenue for our research services revenue is recorded when the related research services revenue is recognized . gross profit our gross profit as a percentage of revenue is affected by a number of factors , including the mix of aerogel products sold , average selling prices , average material costs , our actual manufacturing costs and the costs associated with expansions and start-up of production capacity . as we continue to build out our manufacturing capacity , we expect increased manufacturing expenses will periodically have a negative impact on gross profit , but will set the framework for improved gross profit moving forward . accordingly , we expect our gross profit in absolute dollars and as a percentage of revenue to vary from period to period as we expand our manufacturing capacity . however , in general , following the completion of our capacity expansions , we expect gross profit to improve as a percentage of revenue in the long-term due to increases in manufacturing productivity , increased production volumes , improved manufacturing yields and material purchasing efficiencies . 56 operating expenses operating expenses consist of research and development , sales and marketing , and general and administrative expenses .
| the average selling price per square foot of our products increased by an effective $ 0.29 , or 13 % , to $ 2.60 per square foot for the year ended december 31 , 2014 from $ 2.31 per square foot for the year ended december 31 , 2013. in volume terms , product shipments increased 2.7 million square feet , or 7 % , to 38.2 million square feet of aerogel products for the year ended december 31 , 2014 , as compared to 35.6 million square feet in the year ended december 31 , 2013. the increase in demand during the year ended december 31 , 2014 included increased sales of $ 13.5 million for use in a petrochemical facility expansion by a major asian energy company and $ 5.9 million for use in offshore projects in the gulf of mexico by an asia-based contractor . research services revenue decreased by $ 0.9 million , or 22 % , to $ 3.1 million in 2014 from $ 4.0 million in 2013. the decrease was primarily due to a reduction in active research contracts during 2014. during 2014 , we provided research services on eight contracts compared to 18 contracts in 2013. this decrease in active contracts is principally the result of certain limitations on our eligibility to receive contract awards under federal guidelines and programs due to a variety of factors including the size of our revenues , the number of our employees and the makeup of our ownership . product revenue as a percentage of total revenue was 97 % and 95 % of total revenue in 2014 and 2013 , respectively . research services revenue was 3 % and 5 % of total revenue in 2014 and 2013 , respectively . we expect that product revenue will continue to increase as a percentage of our total revenue due to the anticipated growth in demand for our products in the energy infrastructure market . cost of revenue replace_table_token_11_th total cost of revenue increased by $ 10.0 million , or 13 % , to $ 85.3 million in 2014 from $ 75.4 million in 2013. the increase in total cost of revenue was the result of an increase of $ 7.0 million in material costs and an increase of $
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our operating results have fluctuated on a quarterly basis in the past , and may vary significantly in future periods due to a number of factors , including customer order activity and backlog . backlog levels vary because of seasonal trends , the timing of customer projects and other factors that affect customer order lead times . many of our customers require prompt delivery of products . this requires us to maintain sufficient inventory levels to satisfy anticipated customer demand . if near-term demand for our products declines , or if potential sales in any quarter do not occur as anticipated , our financial results could be adversely affected . operating expenses are relatively fixed in the short term ; therefore , a shortfall in quarterly revenues could significantly impact our financial results in a given quarter . our operating results may also fluctuate as a result of a number of other factors , including a decline in general economic and market conditions , increased competition , customer order patterns , changes in product and services mix , timing differences between price decreases and product cost reductions , product warranty returns , expediting costs and announcements of new products by us or our competitors . additionally , maintaining sufficient inventory levels to assure prompt delivery of our products increases the amount of inventory that may become obsolete and increases the risk that the obsolescence of this inventory may have an adverse effect on our business and operating results . also , not maintaining sufficient inventory levels to assure prompt delivery of our products may cause us to incur expediting costs to meet customer delivery requirements , which may negatively impact our operating results in a given quarter . accordingly , our historical financial performance is not necessarily a meaningful indicator of future results , and , in general , management expects that our financial results may vary from period to period . see note 14 of notes to consolidated financial statements for additional information . for a discussion of risks associated with our operating results , see item 1a of this report . critical accounting policies and estimates an accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made , if different estimates reasonably could have been used , or if changes in the accounting estimate that are reasonably likely to occur could materially impact the results of financial operations . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . these policies have been consistently applied across our two reportable segments : ( 1 ) carrier networks division and ( 2 ) enterprise networks division . we review customer contracts to determine if all of the requirements for revenue recognition have been met prior to recording revenues from sales transactions . we generally record sales revenue upon shipment of our products , net of any rebates or discounts , since : ( i ) we generally do not have significant post-delivery obligations , ( ii ) the product price is fixed or determinable , ( iii ) collection of the resulting receivable is probable , and ( iv ) product returns are reasonably estimable . we generally ship products upon receipt of a purchase order from a customer . we evaluate shipping terms and we record revenue on products shipped in accordance with the terms of each respective contract where applicable , or under our standard shipping terms for purchase orders accepted without a contract , generally fob shipping point . in the case of consigned inventory , revenue is recognized when the customer assumes ownership of the product . contracts that contain multiple deliverables are evaluated to determine the units of accounting , and the revenue from the arrangement is allocated to each item requiring separate revenue recognition based on the relative selling price and corresponding terms of the contract . we strive to use vendor-specific objective evidence of selling price . when this evidence is not available , we are generally not able to determine third-party evidence of selling price because of the extent of customization among competing products or services from other companies . we record revenue associated with installation services when all contractual obligations are complete . contracts that include both installation services and product sales are evaluated for revenue recognition in accordance with contract terms . as a result , depending on contract terms , installation services may be considered as a separate deliverable item or may be considered an element of the delivered product . either the purchaser , adtran , or a third party can perform installation of our products . revenues related to maintenance services are recognized on a straight line basis over the contract term . sales returns are accrued based on historical sales return experience , which we believe provides a reasonable estimate of future returns . a significant portion of enterprise networks products are sold in the united states through a non-exclusive distribution network of major technology distributors . these organizations then distribute to an extensive network of value- 28 added resellers and system integrators . value-added resellers and system integrators may be affiliated with us as a channel partner , or they may purchase from the distributor on an unaffiliated basis . additionally , with certain limitations , our distributors may return unused and unopened product for stock-balancing purposes when these returns are accompanied by offsetting orders for products of equal or greater value . we participate in cooperative advertising and market development programs with certain customers . we use these programs to reimburse customers for certain forms of advertising , and in general , to allow our customers credits up to a specified percentage of their net purchases . our costs associated with these programs are estimated and accrued at the time of sale and are included in selling , general and administrative expenses in our consolidated statements of income . story_separator_special_tag we also participate in rebate programs to provide sales incentives for certain products . our costs associated with these programs are estimated and accrued at the time of sale and are recorded as a reduction of sales in our consolidated statements of income . prior to issuing payment terms to a new customer , we perform a detailed credit review of the customer . credit limits and payment terms are established for each new customer based on the results of this credit review . collection experience is reviewed periodically in order to determine if the customer 's payment terms and credit limits need to be revised . we maintain allowances for doubtful accounts for losses resulting from the inability of our customers to make required payments . if the financial condition of our customers deteriorates , resulting in an impairment of their ability to make payments , we may be required to make additional allowances . if circumstances change with regard to individual receivable balances that have previously been determined to be uncollectible ( and for which a specific reserve has been established ) , a reduction in our allowance for doubtful accounts may be required . our allowance for doubtful accounts was $ 8 thousand at december 31 , 2011 and $ 0.2 million at december 31 , 2010. we carry our inventory at the lower of cost or market , with cost being determined using the first-in , first-out method . we use standard costs for material , labor , and manufacturing overhead to value our inventory . our standard costs are updated on at least a quarterly basis and any variances are expensed in the current period ; therefore , our inventory costs approximate actual costs at the end of each reporting period . we write down our inventory for estimated obsolescence or unmarketable inventory by an amount equal to the difference between the cost of inventory and the estimated fair value based upon assumptions about future demand and market conditions . if actual future demand or market conditions are less favorable than those projected by management , we may be required to make additional inventory write-downs . our reserve for excess and obsolete inventory was $ 9.4 million and $ 8.9 million at december 31 , 2011 and 2010 , respectively . inventory write-downs charged to the reserve were $ 0.7 million , $ 0.8 million and $ 1.7 million for the years ended december 31 , 2011 , 2010 and 2009 , respectively . the objective of our short-term investment policy is to preserve principal and maintain adequate liquidity with appropriate diversification , while achieving market returns . the objective of our long-term investment policy is principal preservation and total return ; that is , the aggregate return from capital appreciation , dividend income , and interest income . these objectives are achieved through investments with appropriate diversification in fixed and variable rate income securities , public equity , and private equity portfolios . our investment policy provides limitations for issuer concentration , which limits , at the time of purchase , the concentration in any one issuer to 5 % of the market value of our total investment portfolio . we have experienced significant volatility in the market prices of our publicly traded equity investments . these investments are recorded on the consolidated balance sheets at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income , net of tax . the ultimate realized value on these equity investments is subject to market price volatility . in accordance with the fair value measurements and disclosures topic of the fasb asc , we have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows : level 1 values based on unadjusted quoted prices for identical assets or liabilities in an active market ; level 2 values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability ; level 3 values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement . these inputs include information supplied by investees . at december 31 , 2011 , we categorized $ 39.7 million and $ 401.2 million of our available-for-sale investments as level 1 and level 2 , respectively , and $ 13.7 million of our cash equivalents as level 1. at december 31 , 2010 , we categorized $ 53.0 million and $ 315.3 million of our available-for-sale investments as level 1 and level 2 , respectively , and $ 14.5 million of our cash equivalents as level 1 . 29 we review our investment portfolio for potential other-than-temporary declines in value on an individual investment basis . we assess , on a quarterly basis , significant declines in value which may be considered other-than-temporary and , if necessary , recognize and record the appropriate charge to write-down the carrying value of such investments . in making this assessment , we take into consideration qualitative and quantitative information , including but not limited to the following : the magnitude and duration of historical declines in market prices , credit rating activity , assessments of liquidity , public filings , and statements made by the issuer . we generally begin our identification of potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25 % or more for six or more consecutive months . we then evaluate the individual security based on the previously identified factors to determine the amount of the write-down , if any .
| carrier networks sales increased 19.7 % from $ 476.0 million in 2010 to $ 569.6 million in 2011. the increase is primarily attributable to increases in broadband access , optical access and internetworking nte product sales , partially offset by a decrease in hdsl and other legacy product sales . 32 enterprise networks sales increased 13.9 % from $ 129.6 million in 2010 to $ 147.7 million in 2011. the increase is primarily attributable to an increase in sales of internetworking products , partially offset by decreases in sales of legacy products . internetworking product sales attributable to enterprise networks were 87.4 % of the division 's sales in 2011 compared with 77.3 % in 2010. legacy products primarily comprise the remainder of enterprise networks sales . enterprise networks sales as a percentage of total sales decreased from 21.4 % in 2010 to 20.6 % in 2011. international sales , which are included in the carrier networks and enterprise networks amounts discussed above , increased 165.3 % from $ 31.8 million in 2010 to $ 84.4 million in 2011. international sales , as a percentage of total sales , increased from 5.3 % in 2010 to 11.8 % in 2011. the increase in international sales in 2011 was primarily due to an increase in sales to latin america , asia-pacific and europe regions . carrier systems product sales increased $ 131.0 million in 2011 compared to 2010 primarily due to a $ 113.7 million increase in broadband access product sales and a $ 16.3 million increase in optical access product sales . the increase in broadband access product sales was primarily attributable to continued growth in deployments of our total access 5000 and fiber-to-the-node platforms . business networking product sales increased $ 35.0 million in 2011 compared to 2010 primarily due to a $ 40.4 million increase in internetworking product sales across both divisions , partially offset by a $ 5.8 million decrease in legacy product sales . the decrease in sales of legacy products is a result of customers shifting to newer technologies . many of these newer technologies are integral to our internetworking product area . loop access product sales decreased $ 54.4
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until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations with proceeds from outside sources , with a majority of such proceeds to be derived from sales of equity , including the net proceeds from our ipo . we also plan to pursue additional funding from outside sources , including our expansion of , or our entry into , new borrowing arrangements ; research and development incentive payments from the australian government ; and our entry into potential future collaboration agreements for one or more of our programs . we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such agreements as , and when , needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2018 , we had cash and cash equivalents of $ 126.3 million . we believe that our existing cash and cash equivalents as of december 31 , 2018 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2020. we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see liquidity and capital resources. to finance our operations beyond that point , we will need to raise additional capital , which can not be assured . on december 13 , 2018 , we dosed the second patient in our ongoing phase 2 clinical trial of avr-rd-01 for fabry disease . in 2018 , we held a pre-investigational new drug , or pre-ind , meeting with the u.s. food and drug administration , or fda , to discuss the requirements to commence clinical trials in the united states . we expect to open a u.s. site for our ongoing phase 2 clinical trial of avr-rd-01 in the second half of 2019. in addition , on november 22 , 2018 and february 21 , 2019 , the fourth and fifth patients were dosed in the ongoing investigator-sponsored phase 1 clinical trial of avr-rd-01 for fabry disease , respectively . on october 1 , 2018 and february 6 , 2019 , we released clinical data from the investigator-sponsored phase 1 clinical trial and our phase 2 clinical trial of avr-rd-01 for fabry disease . in december 2018 , clearance was received from the fda for the ind application for the planned academic sponsored phase 1/2 clinical trial of avr-rd-04 . in september 2018 , we received acceptance of the clinical trial application , or cta , in canada for the planned phase 1/2 clinical trial for avr-rd-02 . 104 components of our consolidated results of operations revenue we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future . if development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties , we may generate revenue in the future from product sales . operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred . these expenses consist of costs incurred in connection with the development of our product candidates , including : license maintenance fees and milestone fees incurred in connection with various license agreements ; expenses incurred under agreements with contract research organizations , or cros , contract manufacturing organizations , or cmos , as well as investigative sites and consultants that conduct our clinical trials , preclinical studies and other scientific development services ; manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials , including manufacturing validation batches ; employee-related expenses , including salaries , related benefits , travel and stock-based compensation expense for employees engaged in research and development functions ; costs related to compliance with regulatory requirements ; and allocated facilities costs , depreciation and other expenses , which include rent and utilities . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers . our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs , such as fees paid to outside consultants , cros , cmos , and central laboratories in connection with our preclinical development , process development , manufacturing and clinical development activities . our direct research and development expenses by program also include fees incurred under license agreements . we do not allocate employee costs or facility expenses , including depreciation or other indirect costs , to specific programs because these costs are deployed across multiple programs and , as such , are not separately classified . we use internal resources primarily to oversee the research and discovery as well as for managing our preclinical development , process development , manufacturing and clinical development activities . these employees work across multiple programs and , therefore , we do not track their costs by program . story_separator_special_tag the table below summarizes our research and development expenses incurred by program ( in thousands ) : replace_table_token_3_th 105 research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as a result , we expect that our research and development expenses will increase substantially over the next several years , particularly as we increase personnel costs , including stock-based compensation , contractor costs and facilities costs , as we continue to advance the development of our product candidates . we also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates . the successful development and commercialization of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when , if ever , material net cash inflows may commence from any of our product candidates . this uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization , including the uncertainty of : the scope , progress , outcome and costs of our preclinical development activities , clinical trials and other research and development activities ; establishing an appropriate safety profile with ind-enabling studies ; successful patient enrollment in , and the design , initiation and completion of , clinical trials ; the timing , receipt and terms of any marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch ; obtaining , maintaining , defending and enforcing patent claims and other intellectual property rights ; significant and changing government regulation ; launching commercial sales of our product candidates , if and when approved , whether alone or in collaboration with others ; maintaining a continued acceptable safety profile of the product candidates following approval ; and the risks disclosed in the section entitled risk factors of this annual report on form 10-k. we may never succeed in achieving regulatory approval for any of our product candidates . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay or modify clinical trials of some product candidates or focus on others . any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates . for example , if the fda , or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect , or if we experience significant delays in enrollment in any of our planned clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate . identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming , expensive and uncertain process that takes years to complete , and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales . in addition , our product candidates , if approved , may not achieve commercial success . 106 general and administrative expenses general and administrative expenses consist primarily of salaries , related benefits , travel and stock-based compensation expense for personnel in executive , finance and administrative functions . general and administrative expenses also include professional fees for legal , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance , director and officer insurance costs as well as investor and public relations expenses associated with being a public company . we anticipate the additional costs for these services will substantially increase our general and administrative expenses . additionally , if and when we believe a regulatory 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 candidate . other income ( expense ) interest income interest income consists of interest earned on money market funds and other bank deposits . other expense other expense consists of foreign exchange gain or loss . change in fair value of preferred stock warrant liability in connection with entering into our loan agreement , we agreed to issue a warrant to purchase shares of our preferred stock to the lender . prior to the completion of our ipo , we classified the warrant as a liability on our consolidated balance sheet and we were required to remeasure to fair value at each reporting date . we recognized changes in the fair value of the warrant liability as a component of other income ( expense ) , net in our consolidated statements of operations and comprehensive loss . upon the closing of our ipo , the warrant to purchase preferred stock was converted to a warrant to purchase common stock . the carrying amount of the warrant to purchase preferred stock as of the date of our ipo was transferred to additional paid in capital . no further revaluation is needed for the warrant to purchase common stock .
| the increase in unallocated research and development expenses was primarily due to an increase of $ 6.1 million in personnel-related costs , including stock-based compensation as a result of hiring additional personnel in our research and development department , an increase of $ 0.7 million in consulting expenses , an increase in lab supplies and pre-clinical and process development costs of $ 0.8 million and an increase of $ 2.2 million in facility costs , rent expense and other miscellaneous expenses . personnel-related costs for the years ended december 31 , 2018 and 2017 included stock-based compensation expense of $ 0.9 million and less than $ 0.1 million , respectively . general and administrative expenses general and administrative expenses were $ 11.1 million for the year ended december 31 , 2018 , compared to $ 3.2 million for the year ended december 31 , 2017. the increase of $ 8.0 million was primarily due to increases of $ 4.2 million in personnel-related costs , including stock-based compensation , $ 1.4 million in consulting expense , $ 0.6 million in professional fees , $ 0.6 million in legal fees , $ 0.2 million in depreciation expense , $ 0.3 million in facility expense and $ 0.6 million in other miscellaneous expenses . the increase in personnel-related costs was due to the hiring of additional personnel in our general and administrative functions , including the hiring of our former cfo in late 2017. professional fees increased due to costs associated with the preparation of our financial statements as well as ongoing business operations . the increase in facility expense was primarily due to the addition of increased office space as a result of the continued growth of employee headcount . other income ( expense ) , net other income ( expense ) , net was an expense of $ 0.1 million for the year ended december 31 , 2018 , compared to a net expense of $ 0.3 million for the year ended december 31 , 2017. the decrease in other expense of $ 0.2 million was primarily due to a $ 1.7
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in december 2013 , purdue pharma notified us that it intends to discontinue use of the purdue sales force to actively market intermezzo to healthcare professionals during the first quarter of 2014. on november 21 , 2012 , we agreed to contribute $ 10.0 million to purdue pharma 's $ 29.0 million national direct-to-consumer advertising campaign , including digital , print and television advertising to support intermezzo commercialization . we initially recorded the $ 10.0 million payment to purdue pharma as a prepaid expense . we are recognizing this payment as an offset against revenue as the advertising costs are incurred . at december 31 , 2013 , purdue pharma estimates that approximately $ 1.8 million of the company 's original contribution will be returned due to reduced overall dtc campaign spending . accordingly , $ 1.8 million is recorded as a receivable at december 31 , 2013 . for the years ended december 31 , 2013 and 2012 , this revenue offset totaled $ 6.8 million and $ 1.4 million . there are no prepaid advertising costs at december 31 , 2013. to-2070 : a developmental product candidate for migraine treatment in september 2013 , we entered into the license agreement with shin nippon biomedical laboratories ltd. , or snbl , pursuant to which snbl granted us an exclusive worldwide license to commercialize snbl 's proprietary nasal drug delivery technology to develop to-2070 . we are developing to-2070 as a treatment for acute migraine using snbl 's proprietary nasal powder drug delivery system . under the license agreement , we are required to fund , lead and be responsible for product development , preparing and submitting regulatory filings and obtaining and maintaining regulatory approval with respect to to-2070 . pursuant to the license agreement , we have incurred an upfront nonrefundable technology license fee of $ 1.0 million , and we are also obligated to pay : up to $ 6.5 million upon the occurrence of certain development milestones , including nda approval of to-2070 by the fda , up to $ 35.0 million in commercialization milestone payments tied to the achievement of specified annual sales levels of to-2070 , and tiered , low double-digit royalties on annual net sales of to-2070 . we intend to continue to develop to-2070 through the completion of preclinical safety studies , but given the timing of our current strategic process as described herein , we do not currently intend to initiate a phase 1 human pharmacokinetic study . to-2061 : an investigational product for adjunctive therapy in patients with obsessive compulsive disorder in march 2011 , we announced that we had started a phase 2 clinical trial of to-2061 , an investigational product for adjunctive therapy in patients with obsessive compulsive disorder and our only product candidate in active clinical development . in december 2012 , we announced that this trial did not meet its primary endpoint . based on this result , we discontinued the clinical development of to-2061 . net loss and profitability we have incurred net losses since inception as we have devoted substantially all of our resources to research and development , including contract manufacturing and clinical trials . as of december 31 , 2013 , we had an accumulated deficit of $ 139.6 million . our net loss for the years ended december 31 , 2013 , 2012 , and 2011 was $ 27.4 million , $ 12.0 million , and $ 3.9 million , respectively . as of december 31 , 2013 , we had cash , cash equivalents , and marketable securities of $ 70.0 million and working capital of $ 71.7 million . prior to the fourth quarter of 2011 , our only source of revenue has been the receipt in august 2009 of a $ 25.0 million non-refundable license fee received pursuant to our collaboration agreement with purdue pharma . through june 30 , 2011 , we recognized revenue from the license fee ratably over an estimated 24-month period beginning in august 2009 and ending in july 2011 as this represented the estimated period during which we had significant participatory obligations under the collaboration agreement . during the quarter ended september 30 , 2011 , we re-assessed the time period over which the remaining $ 1.04 million of deferred revenue at june 30 , 2011 was recognized , and we recorded the remaining revenue through november 30 , 2011 , based on fda approval of intermezzo and the completion of our participatory obligations under the collaboration agreement . during each of 2011 and 2012 , we received $ 10.0 million in intellectual property milestone payments and during 2012 , we began receiving royalty revenue pursuant to our collaboration agreement with purdue pharma . 40 financial operations overview net revenue we began earning royalty revenue upon commercial launch of intermezzo in april 2012. royalty revenue earned during the years ended december 31 , 2013 and 2012 was $ 1.7 million and $ 0.8 million , respectively . royalty revenue is derived from net sales of intermezzo generated by purdue pharma to wholesalers . royalty revenue was offset by $ 6.8 million and $ 1.4 million for the years ended december 31 , 2013 and 2012 , respectively , related to a $ 10.0 million contribution by transcept in december 2012 to the intermezzo dtc advertising campaign . revenue during 2012 also included a $ 10.0 million milestone payment under our collaboration agreement with purdue pharma for the listing of our method-of-use patents in the fda 's orange book . through june 30 , 2011 , we recognized revenue from the $ 25 million non-refundable license fee ratably over an estimated 24-month period beginning in august 2009 and ending in july 2011 as this represented the estimated period during which we had significant participatory obligations under the collaboration agreement . story_separator_special_tag during the quarter ended september 30 , 2011 , we re-assessed the time period over which the remaining $ 1.04 million of deferred revenue at june 30 , 2011 was recognized , and we recorded the remaining revenue through november 30 , 2011 , based on fda approval of intermezzo and the completion of our participatory obligations under the collaboration agreement . the revenue recognized in connection with the license fee during the year ended december 31 , 2011 was $ 7.3 million . there was no similar license fee during 2013 or 2012. during the fourth quarter of 2011 , we received a $ 10 million milestone payment under our collaboration agreement with purdue pharma for the listing of our formulation patents in the fda 's orange book . we have no additional performance obligations under the collaboration agreement related to these milestone payments . revenue during 2011 also included $ 1.7 million for reimbursement of certain manufacturing-related costs . research and development expense research and development expense represented approximately 31 % , 52 % and 48 % of total operating expenses for the years ended december 31 , 2013 , 2012 , and 2011 , respectively . research and development costs are expensed as incurred . research and development expense consists of expenses incurred in identifying , researching , developing and testing product candidates . these expenses primarily consist of the following : salaries , benefits , travel and related expense for personnel associated with research and development activities ; fees paid to professional service providers for services related to the conduct and analysis of pre-clinical and clinical trials ; contract manufacturing costs for formulations used in clinical trials and pre-commercial manufacturing and packaging costs ; fees paid to consultants to evaluate product in-licensing or acquisition opportunities , to advise us on the development of internally generated new product concepts , the development of to-2070 and the wind down of to-2061 ; laboratory supplies and materials ; depreciation of equipment ; and allocated costs of facilities and infrastructure . general and administrative expense general and administrative expense consists primarily of salaries and related expense for personnel in executive , marketing , finance and accounting , information technology and human resource functions . other costs include facility costs not otherwise included in research and development expense and professional fees for legal and accounting services . 41 story_separator_special_tag style= '' vertical-align : top ; '' > $ 1.4 million of advertising costs paid to purdue pharma recorded as a revenue offset . in december 2012 , we contributed $ 10.0 million to purdue pharma 's intermezzo direct-to-consumer advertising campaign . this contribution is being recognized as an offset against revenue as the advertising costs are incurred . 2011 also included : ◦ recognition of the remaining $ 7.3 million of license fee revenue related to a non-refundable license fee received from purdue pharma . there was no similar revenue during 2012 ; and ◦ $ 1.7 million for the reimbursement of certain manufacturing-related costs . research and development expense research and development expense decreased 1 % to $ 11.2 million for the year ended december 31 , 2012 from $ 11.3 million for the comparable period in 2011. the decrease of approximately $ 0.1 million for the year ended december 31 , 2012 is primarily attributable to : a decrease of $ 2.1 million in personnel costs , related expenses and other general expenses , including severance and benefit continuation expense of approximately $ 0.6 million incurred in 2011 in connection with the restructuring announced in july 2011 , and a decrease of $ 0.3 million in stock-based compensation associated with performance-based options . we 43 began recording compensation expense related to performance-based options upon fda approval of intermezzo on november 23 , 2011 , when the vesting was deemed to be probable ; and a decrease of $ 0.7 million of costs related to the intermezzo development program , principally due to the fda approval of the intermezzo nda in november 2011. these decreases were partially offset by an increase of $ 2.7 million of costs related to the to-2061 development program for our phase 2 clinical trial . general and administrative expense general and administrative expense decreased 16 % to $ 10.3 million for the year ended december 31 , 2012 from $ 12.2 million for the comparable period in 2011. the approximately $ 1.9 million decrease is primarily attributable to : a decrease of $ 2.4 million in personnel costs and related expenses , primarily due to 2011 severance and benefit continuation expense of approximately $ 0.7 million incurred in connection with the restructuring announced in july 2011 , 2011 stock-based compensation expense of approximately $ 0.2 million to modify the terms of certain stock options previously granted to two members of our board of directors to align and extend the exercise period of the options after the directors ' end of service to us in june 2011 and $ 0.8 million of stock-based compensation associated with performance-based options . we began recording compensation expense related to performance-based options upon fda approval of intermezzo on november 23 , 2011 , when the vesting was deemed to be probable ; and a $ 0.1 million reduction in facilities and related costs due to the termination of one of our property leases and reductions in other general facilities costs . these decreases are partially offset by a $ 0.6 million increase in professional fees , including market research , legal and third party consulting . liquidity and capital resources at december 31 , 2013 , we had cash , cash equivalents and marketable securities of $ 70.0 million . sources of liquidity prior to 2009 , we financed our operations primarily through private placements of preferred stock ( subsequently converted to common stock ) , debt financing and interest income . on august 4 , 2009 , we received a $ 25 million non-refundable license fee from purdue pharma in connection with our entry into the collaboration agreement .
| these decreases were partially offset by : $ 2.5 million of expense associated with our to-2070 project ; and $ 0.5 million of severance , related benefit and stock option modification expense related to the january and november 2013 reductions in force . general and administrative expense general and administrative expense has increased by 21 % to $ 12.4 million for the year ended december 31 , 2013 from $ 10.3 million for the comparable period in 2012. the increase of approximately $ 2.1 million is primarily attributable to : $ 1.2 million increase in professional fees , primarily associated with anda patent litigation and a special shareholder meeting ; $ 0.6 million of severance , related benefit and stock option modification expense related to the january and november 2013 reductions in force ; and $ 0.3 million of increased non-cash stock option compensation . goodwill impairment we recorded a goodwill impairment charge of $ 3.0 million during the year ended december 31 , 2013 . during the second quarter of 2013 , several events occurred which indicated that the carrying amount of goodwill exceeded the fair value of the reporting unit , including : the approximately 30 % decline in intermezzo prescriptions at june 30 , 2013 from the peak of the direct-to-consumer ( `` dtc '' ) advertising campaign , which was substantially completed in april 2013 ; and the may 2013 termination by purdue of 90 contract sales representatives dedicated exclusively to promoting intermezzo , resulting in reliance solely on purdue 's existing analgesics sales force of approximately 525 sales representatives . 42 as a result of these factors , we experienced a 37 % decline in our stock price during the quarter ended june 30 , 2013. the decline in stock price resulted in a market capitalization of approximately $ 56.7 million at june 30 , 2013 which , when compared to our stockholders ' equity of $ 79.9 million , and in consideration of the early nature of ongoing internal research and development , the progress of new product search and evaluation efforts and the declining sales
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accordingly , these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations . our accounting policies are more fully described in note 2 of the notes to our audited consolidated financial statements . revenue recognition we generate revenue from sales of our products , license and collaboration arrangements , and government grants . our products consist of instruments and consumables , including ifcs , assays and other reagents , related to our microfluidic systems . product revenue includes services for instrument installation , training , and customer support services . we recognize revenue when persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the customer is fixed or determinable , and collectability is reasonably assured . revenue from the sales of our products that are not part of multiple element arrangements are recognized when no significant obligation remains undelivered and collection is reasonably assured , which is generally when delivery has occurred . delivery occurs when there is a transfer of title and risk of loss passes to the customer . payments received in advance of revenue recognition are classified as deferred revenue in the consolidated balance sheet . the evaluation of these revenue recognition criteria requires significant management judgment . for instance , we use judgment to assess collectability based on factors such as the customer 's creditworthiness and past collection history , if applicable . if we determine that collection is not reasonably assured , revenue recognition is deferred until receipt of payment . we also use judgment to assess whether a price is fixed or determinable , including , but not limited to , reviewing contractual terms and conditions related to payment . certain of our sales contracts involve the delivery or performance of multiple products or services . significant contract interpretation is sometimes required to determine the appropriate accounting for revenue from multiple element arrangements , including whether the deliverables should be treated as separate units of accounting for revenue recognition purposes , how the related sales price should be allocated among the elements , when to recognize revenue for each element , and the period over which revenue should be recognized . revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract . for sales contracts that include multiple deliverables , we allocate the contract consideration at the inception of the contract to each unit of accounting based upon their relative selling prices . we may use our best estimate 44 of selling price for individual deliverables when vendor specific objective evidence or third-party evidence is unavailable . a delivered item is considered to be a separate unit of accounting when it has value to the customer on a stand-alone basis . our products , other than for service contracts , are delivered within a short time frame , generally within one to three months , of the contract date . service contracts are entered into for one to two year terms , following the expiration of the warranty period . for transactions entered into prior to 2011 that include multiple elements , we allocated revenue to each unit of accounting based on its relative fair value , and recognized revenue for each unit of accounting when the applicable revenue recognition criteria were met . when objective and reliable evidence of fair value existed for the undelivered items but not for the delivered items , the residual method was used to allocate arrangement consideration . under the residual method , the amount of arrangement consideration allocated to the delivered items equaled the total arrangement consideration less the aggregate fair value of the undelivered items . when we were unable to establish stand-alone value for delivered items or when fair value of undelivered items had not been established , revenue was deferred until all elements were delivered and services had been performed , or until fair value could objectively be determined for any remaining undelivered elements . our products are sold without the right of return . accruals for estimated warranty expenses are provided at the time the associated revenue is recognized . we use judgment to estimate these accruals and , if we were to experience an increase in warranty claims or if costs of servicing our products under warranty were greater than our estimates , our cost of product revenue could be adversely affected in future periods . we have entered into license and collaboration agreements with third parties that generally provide us with up-front and periodic milestone payments . revenue from license agreements is recognized when received , upfront payments are generally recognized over the term of the underlying agreement and milestone payments are generally recognized based upon the achievement of the milestones as defined in the agreement . revenue from government grants relates to the achievement of agreed upon milestones and expenditures and is recognized in the period in which the related costs are incurred , provided that the conditions under which the government grants are awarded have been substantially met and only perfunctory obligations remain outstanding . with respect to the edb grants , upon satisfaction of grant conditions , we received incentive grant payments equal to a portion of qualifying expenses we incurred in singapore . qualifying expenses included salaries , overhead , outsourcing and subcontracting expenses , operating expenses , and raw material purchases . royalties paid are not qualifying expenses under the incentive grant program . we submitted requests to the edb for incentive grant payments on a quarterly basis , which were subject to the edb 's review and our satisfaction of the grant conditions . our first grant agreement with the edb was completed in july 2010 , at which time we submitted our final progress report and evidence of achievement of our development targets under the letter agreement . story_separator_special_tag in october 2010 , we received confirmation from edb that all of our obligations under the first grant had been met and , in october 2010 , we received our final grant payment relating thereto . our second grant agreement with the edb was completed in may 2011. based on correspondence with edb , we believe we have satisfied our obligations applicable to our edb grant revenue through december 31 , 2012. changes in judgments and estimates regarding application of these revenue recognition guidelines as well as changes in facts and circumstances could result in a change in the timing or amount of revenue recognized in future periods . stock-based compensation we measure the cost of employee services received in exchange for an award of equity instruments , including stock options and restricted stock units , based on the grant date fair value of the award . the fair value of options on the grant date is estimated using the black-scholes option-pricing model , which requires the use of 45 certain subjective assumptions , including expected term , volatility , risk-free interest rate and the fair value of our common stock . these assumptions generally require significant judgment . our board of directors sets the terms , conditions , and restrictions related to the grant of stock options and restricted stock units , including the number of shares underlying the grants and the vesting criteria . with respect to performance-based stock options , depending on the extent to which the vesting criteria are met , our board of directors determines the number of shares that vest under the grants . the resulting costs of our equity awards , net of estimated forfeitures , are recognized over the period during which an employee is required to provide service in exchange for the award , usually a time-based vesting period . we amortize the fair value of stock-based compensation on a straight-line basis over the requisite service periods . for performance-based stock options , we recognize stock-based compensation over the requisite service periods using the accelerated attribution method . our common stock has a limited trading history because our common stock was not publicly traded until our initial public offering , or ipo , in february 2011. accordingly , the expected volatility of our common stock is derived from the historical volatilities of several unrelated public companies within the life science industry . when selecting our industry peer companies , we consider our stage of development , size , and financial leverage . these historical volatilities are weighted based on certain qualitative factors and combined to produce a single volatility factor . the risk-free interest rate is based on the u.s. treasury yield in effect at the time of grant for zero coupon u.s. treasury notes with maturities approximately equal to each grant 's expected life . we estimate the expected lives of employee options using the simplified method as the midpoint of the expected time-to-vest and the contractual term . the calculated fair value of our stock options could change significantly if we determine that another method is more reasonable , or if another method for calculating these input assumptions is prescribed by authoritative guidance . higher volatility and longer expected lives result in an increase in stock-based compensation expense determined at the date of grant . stock-based compensation expense affects our cost of product revenue , research and development expense , and selling , general and administrative expense . we estimate our forfeiture rate based on an analysis of our actual forfeitures and we will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience , analysis of employee turnover behavior , and other factors . quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense , as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed . if a revised forfeiture rate is higher than the previously estimated forfeiture rate , an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements . if a revised forfeiture rate is lower than the previously estimated forfeiture rate , an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements . the effect of forfeiture adjustments was insignificant during 2012 , 2011 , and 2010. we will continue to use judgment in evaluating the expected term , volatility , and forfeiture rate related to our stock-based compensation . also required to compute the fair value calculation of options is the fair value of the underlying common stock . we grant stock options at exercise prices not less than the fair value of our common stock at the date of grant . prior to our ipo , our board of directors obtained contemporaneous valuations from an unrelated third-party valuation firm to determine the estimated fair value of common stock based on an analysis of relevant metrics , such as the price of the most recent convertible preferred stock sales to outside investors , the rights , preferences , and privileges of the convertible preferred stock , our operating and financial performance , the hiring of key personnel , the introduction of new products , the lack of marketability of the common stock , and additional factors relating to our business . there is inherent uncertainty in these estimates and if we or the valuation firm had made different assumptions , the amount of our stock-based compensation expense , net loss , and net loss per share amounts could have been significantly different . following the completion of our ipo in february 2011 , 46 the fair value of options granted is based on the closing price of our common stock on the date of grant as quoted on the nasdaq global market . historically , certain of our stock options were granted to officers , with vesting acceleration features based upon the achievement of certain performance milestones .
| consumables revenue increased by $ 6.9 million , or 45 % , primarily due to increased sales of genotyping and gene expression ifcs , and to a lesser extent , access array ifcs and assays . ifc sales growth was driven by increases in the installed base of our instrument systems , analytical chip pull-through , and to a lesser extent , by higher ifc average selling prices . instrument revenue increased by $ 4.0 million , or 16 % , primarily due to the launch of our c 1 single-cell auto prep system during the third quarter of 2012 , and increased sales of our service offerings and aftermarket instruments . this was partially offset by decreased unit sales of the access array system and , to a much lesser extent , decreased unit sales of our analytical systems . we expect unit sales of both instruments and consumables to continue to increase in future periods as we continue our efforts to grow our customer base and expand our geographic market coverage . however , we expect the average selling prices of our instruments to fluctuate over time based on product mix . license and collaboration revenue license and collaboration revenue decreased by $ 1.5 million to $ 0.2 million for 2012 as compared to $ 1.7 million for 2011 due to the termination of the collaboration agreement with novartis vaccines & diagnostics , inc. ( novartis v & d ) on may 1 , 2012. the collaboration agreement with novartis v & d was entered into in may 2010 to develop a new product and received an up-front payment of $ 0.7 million . additionally , the collaboration agreement provided for payments to us upon the achievement of multiple defined milestones related to the design and development of product prototypes . in march 2011 , we entered into an amendment to the collaboration agreement and received an additional $ 0.3 million . under the amendment , certain milestones were modified and payment terms related to this agreement associated with satisfaction of the milestones were revised . during 2011 , we recognized $ 1.0 million of milestone revenue related to this agreement . all our performance obligations
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the company 's management internally assesses its performance based , in part , on these non-gaap financial measures . critical accounting policies general the company 's financial statements are prepared in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . the financial information contained within our statements is , to a significant extent , financial information that is based on measures of the financial effects of transactions and events that have already occurred . we use historical loss data and the economic environment as factors , among others , in determining the inherent loss that may be present in our loan and lease portfolio . actual losses could differ significantly from the factors that we use . in addition , gaap itself may change from one previously acceptable method to another method . although the economics of our transactions would be the same , the timing of events that would impact our transactions could change . allowance for loan and lease losses the allowance for loan and lease losses is an estimate of probable credit losses inherent in the company 's credit portfolio that have been incurred as of the balance-sheet date . the allowance is based on two basic principles of accounting : ( 1 ) “ accounting for contingencies , ” which requires that losses be accrued when it is probable that a loss has occurred at the balance sheet date and such loss can be reasonably estimated ; and ( 2 ) the “ receivables ” topic , which requires that losses be accrued on impaired loans based on the differences between the value of collateral , present value of future cash flows or values that are observable in the secondary market and the loan balance . the allowance for loan and lease losses is determined based upon estimates that can and do change when the actual risk , loss events , or changes in other factors , occur . the analysis of the allowance uses a historical loss view as an indicator of future losses and as a result could differ from the actual losses incurred in the future . if the allowance for loan and lease losses falls below that deemed adequate ( by reason of loan and lease growth , actual losses , the effect of changes in risk factors , or some combination of these ) , the company has a strategy for supplementing the allowance for loan and lease losses , over the short-term . for further information regarding our allowance for loan and lease losses , see “ allowance for loan and lease losses activity. ” stock-based compensation the company recognizes compensation expense over the service period in an amount equal to the fair value of all share-based payments which consist of stock options and restricted stock awarded to directors and employees . the fair value of each stock option award is estimated on the date of grant and amortized over the service period using a black-scholes-merton based option valuation model that requires the use of assumptions . critical assumptions that affect the estimated fair value of each award include expected stock price volatility , dividend yields , option life and the risk-free interest rate . the fair value of each restricted award is estimated on the date of award and amortized over the service period . 31 goodwill business combinations involving the company 's acquisition of equity interests or net assets of another enterprise or the assumption of net liabilities in an acquisition of branches constituting a business may give rise to goodwill . goodwill represents the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed . the value of goodwill is ultimately derived from the company 's ability to generate net earnings after the acquisition and is not deductible for tax purposes . a decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment . for that reason , goodwill is assessed for impairment at least annually . impairment exists when a reporting unit 's carrying value of goodwill exceeds its fair value . at december 31 , 2016 , the company 's reporting unit had positive equity and the company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value , including goodwill . the qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value , resulting in no impairment . income taxes the company files its income taxes on a consolidated basis with its subsidiaries . the allocation of income tax expense ( benefit ) represents each entity 's proportionate share of the consolidated provision for income taxes . the company accounts for income taxes using the balance sheet method , under which deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases . deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment . on the consolidated balance sheet , net deferred tax assets are included in accrued interest receivable and other assets . deferred tax assets are reduced by a valuation allowance when , in the opinion of management , it is more likely than not that some or all of the deferred tax assets will not be realized . the company conducted an analysis to assess the need for a valuation allowance at december 31 , 2016 , and determined that no valuation allowance was required . as part of this assessment , all available evidence , including both positive and negative , was considered to determine whether based on the weight of such evidence , a valuation allowance on the company 's deferred tax assets was needed . story_separator_special_tag a valuation allowance is deemed to be needed when , based on the weight of the available evidence , it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of a deferred tax asset will not be realized . the future realization of the deferred tax asset depends on the existence of sufficient taxable income within the carryback and carry forward periods . the benefit of a tax position is recognized in the financial statements in the period during which , based on all available evidence , management believes it is more likely than not that the position will be sustained upon examination , including the resolution of appeals or litigation processes , if any . tax positions taken are not offset or aggregated with other positions . tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority . the portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination . only tax positions that meet the more-likely-than-not recognition threshold are recognized . the election has been made to record interest expense related to tax exposures in tax expense , if applicable , and the exposure for penalties related to tax exposures in tax expense , if applicable . overview the company recorded net income in 2016 of $ 6,404,000 , an increase of $ 1,136,000 ( 21.6 % ) from $ 5,268,000 in 2015. diluted earnings per share were $ 0.94 for 2016 and $ 0.70 for 2015. for 2016 , the company realized a return on average equity of 7.60 % and a return on average assets of 1.00 % , as compared to 6.03 % and 0.85 % , respectively , in 2015 . 32 net income for 2015 increased $ 907,000 ( 20.8 % ) from $ 4,361,000 in 2014. diluted earnings per share for 2014 were $ 0.54. for 2014 , the company realized a return on average equity of 4.98 % and return on average assets of 0.72 % . table one below provides a summary of the components of net income for the years indicated ( dollars in thousands ) : table one : components of net income replace_table_token_3_th * fully taxable equivalent basis ( fte ) under accounting principles generally accepted in the united states of america all share and per share data is adjusted for stock dividends and stock splits . there were no stock dividends or stock splits in 2016 , 2015 or 2014. during 2016 , total assets of the company increased $ 16,810,000 ( 2.6 % ) from $ 634,640,000 at december 31 , 2015 to $ 651,450,000 at december 31 , 2016. at december 31 , 2016 , net loans totaled $ 324,086,000 , up $ 34,984,000 ( 12.1 % ) from the ending balance of $ 289,102,000 at december 31 , 2015. deposits increased $ 14,116,000 or 2.7 % from $ 530,690,000 at december 31 , 2015 to $ 544,806,000 at december 31 , 2016. shareholders ' equity decreased $ 2,225,000 or 2.6 % from $ 86,075,000 at december 31 , 2015 to $ 83,850,000 at december 31 , 2016. the company ended 2016 with a leverage capital ratio of 10.5 % and a total risk-based capital ratio of 20.3 % compared to a leverage capital ratio of 11.0 % and a total risk-based capital ratio of 20.6 % at the end of 2015. story_separator_special_tag style= '' font-size : 10pt '' > loan and lease interest includes loan and lease fees of $ 253,000 , $ 322,000 and $ 307,000 in 2016 , 2015 and 2014 , respectively . ( 2 ) includes taxable-equivalent adjustments that primarily relate to income on certain loans and securities that is exempt from federal income taxes . the effective federal statutory tax rate was 34 % in 2016 , 2015 and 2014 . ( 3 ) net interest margin is computed by dividing net interest income by total average earning assets . 35 table three : analysis of volume and rate changes on net interest income and expenses year ended december 31 , 2016 over 2015 ( dollars in thousands ) increase ( decrease ) in interest income and expense due to change in : interest-earning assets : volume rate ( 4 ) net change taxable net loans and leases ( 1 ) ( 2 ) $ 974 $ ( 532 ) $ 442 tax-exempt net loans and leases ( 3 ) 372 133 505 taxable investment securities ( 369 ) ( 156 ) ( 525 ) tax-exempt investment securities ( 3 ) ( 85 ) ( 63 ) ( 148 ) corporate stock ( 1 ) 3 2 federal funds sold & other — — — interest bearing deposits in other banks — 2 2 total 891 ( 613 ) 278 interest-bearing liabilities : demand deposits ( 7 ) ( 91 ) ( 98 ) savings deposits 1 ( 11 ) ( 10 ) time deposits ( 24 ) 45 21 other borrowings 32 4 36 total 2 ( 53 ) ( 51 ) interest differential $ 889 $ ( 560 ) $ 329 year ended december 31 , 2015 over 2014 ( dollars in thousands ) increase ( decrease ) in interest income and expense due to change in : interest-earning assets : volume rate ( 4 ) net change taxable net loans and leases ( 1 ) ( 2 ) $ 904 $ ( 966 ) $ ( 62 ) tax-exempt net loans and leases ( 3 ) 562 ( 110 ) 452 taxable investment securities ( 47 ) 799 752 tax-exempt investment securities ( 3 ) ( 36 ) ( 6 ) ( 42 ) corporate stock — ( 3 ) ( 3 ) federal funds sold & other — — — interest
| this decrease in investment income due to rates can also be attributed to the lower overall rate environment as proceeds from paid down securities were invested at lower rates . the volume increase of $ 891,000 was primarily from the increase of $ 1,346,000 in average loans mentioned above and partially offset by a decrease of $ 454,000 in investments . when compared to 2015 , average investment securities decreased $ 17,168,000 ( 6.1 % ) from $ 281,344,000 in 2015 compared to $ 264,176,000 in 2016 , as a portion of these funds helped fund the increase in loans . 33 the fully taxable equivalent interest income component increased $ 1,098,000 ( 5.4 % ) from $ 20,242,000 in 2014 to $ 21,340,000 in 2015. the increase in the fully taxable equivalent interest income for 2015 compared to the same period in 2014 is comprised of two components - rate ( down $ 285,000 ) and volume ( up $ 1,383,000 ) . the rate decrease primarily occurred in the loan portfolio . while average loans increased by $ 25,830,000 ( 10.2 % ) from $ 253,898,000 during 2014 to $ 279,728,000 during 2015 , due to the overall lower interest rate environment , the new loans added were at lower yields than the existing loans . yield on loans decreased from 5.37 % in 2014 to 5.01 % in 2015 and contributed to a decrease of $ 1,076,000 in loan interest income . the decrease of $ 1,076,000 in interest income created from the decrease in rates on the loan balances was partially offset by an increase in rates on the investment portfolio resulting in an increase of $ 790,000 related to the investments . this increase in investment income due to rates can be attributed to a slowdown in the mortgage refinance market . as mortgage refinancing slows it also reduces the principal prepayments that the company receives on the mortgage backed securities , which reduces the premium amounts amortized on the bonds . a lower amount of amortized premium results in higher
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these sites are content rich , searchable , mobile-ready web properties . we plan to continue the expansion of our website and mobile application business . 2014 overview 2014 was our second consecutive profitable year . over the last eighteen months , we have positioned ourselves to grow revenue and profitability . among the steps we have taken are : completing the transition out of the low margin alot appbar product which contributed as much as $ 23 million of revenue in 2012 and $ 10.5 million in 2013 ; launching seven mobile-ready websites with rich , proprietary content that more than replaced the appbar revenue at better margins and at a lower investment level ; increasing our mobile business from 13 % of our total revenue at the fourth quarter 2013 to 49 % by the last quarter of 2014 ; relocating our corporate headquarters to conway , arkansas , lowering our overhead costs ; building a team of writers to create a proprietary content database to fuel the owned and operated sites ; and developing innovative , programmatic and native ad units . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods . the more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances . we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our audited financial statements for 2014 and 2013 appearing elsewhere in this report . 14 story_separator_special_tag t-size:10pt ; '' > compensation expense declined in the twelve months ended december 31 , 2014 as compared to the same period of 2013 , respectively , due to operational efficiencies and reduced payroll related to the relocation to arkansas . compensation expense included severance charges of $ 82,000 and $ 258,000 in 2014 and 2013 , respectively , related to the relocation to arkansas . our total employment , both full-time and part-time was 53 at december 31 , 2014. we expect compensation expense to increase in 2015 as we expand our ad unit offerings , our publisher network and content database . the decrease in selling , general and administrative costs is primarily due to cost savings related to the relocation to arkansas and other operating efficiencies . the primary reasons for the lower cost in the twelve months ended december 31 , 2014 compared to the same period last year are approximately $ 977,000 lower amortization and depreciation expense ; $ 590,000 lower facilities cost ; and $ 126,000 lower travel and entertainment costs ; partially offset by $ 387,000 higher corporate expenses . we expect selling , general and administrative costs to remain relatively flat throughout 2015. interest expense , net interest expense , net was $ 351,225 and $ 356,956 for the years ended december 31 , 2014 and 2013 , respectively . these charges primarily include interest on the credit facility with bridge bank , which declined as a result of lower balances during 2014 . income ( loss ) from discontinued operations income ( loss ) from discontinued operations includes activity related to the remaining assets and liabilities of discontinued operations in the european union . for the twelve months ended december 31 , 2014 , we recognized a net loss from discontinued operations of $ 40,670 , due primarily to an audit adjustment to accrue a liability in the event that the uk inland revenue does not accept our method of transfer pricing within the affiliated companies partially offset by an adjustment of certain accrued liabilities originating in 2009 and earlier . for the twelve months ended december 31 , 2013 , we recognized income of $ 503,622 , generated primarily by an adjustment of certain accrued liabilities originating in 2009 and earlier and by a favorable resolution of a german tax audit . liquidity and capital resources on september 29 , 2014 , we renewed our business financing agreement with bridge bank , n.a . ( `` bridge bank '' ) ( see note 6 , `` notes payable '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2016 and a new term loan of $ 2 million through september 2017. as of december 31 , 2014 , the revolving line of credit had approximately $ 3.1 million in availability . during the first quarter of 2014 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace the existing , expiring s-3 `` shelf '' registration statement . though we do not expect to need additional funds in the 16 next twelve months , we may still elect to sell stock to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments . we believe the revolving line of credit , cash generated by operations , and anticipated financing will provide sufficient cash for operations over the next twelve months . cash flows - operating net cash provided by operating activities was $ 3,943,793 during 2014 . we produced net income of $ 2,105,114 , which included the non-cash expenses of depreciation and amortization of $ 1,749,538 and stock-based compensation of $ 991,948 . this provision of cash was partially offset by the change in operating assets and liabilities which was a use of cash of $ 953,053 . accounts receivable and accounts payable were both affected by the higher revenue and related payouts in december 2014 as compared to december 2013. during 2013 , we generated cash from operating activities of $ 1,809,623 and story_separator_special_tag these sites are content rich , searchable , mobile-ready web properties . we plan to continue the expansion of our website and mobile application business . 2014 overview 2014 was our second consecutive profitable year . over the last eighteen months , we have positioned ourselves to grow revenue and profitability . among the steps we have taken are : completing the transition out of the low margin alot appbar product which contributed as much as $ 23 million of revenue in 2012 and $ 10.5 million in 2013 ; launching seven mobile-ready websites with rich , proprietary content that more than replaced the appbar revenue at better margins and at a lower investment level ; increasing our mobile business from 13 % of our total revenue at the fourth quarter 2013 to 49 % by the last quarter of 2014 ; relocating our corporate headquarters to conway , arkansas , lowering our overhead costs ; building a team of writers to create a proprietary content database to fuel the owned and operated sites ; and developing innovative , programmatic and native ad units . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. gaap requires management to make estimates and assumptions that affect the reported amount of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods . the more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances . we also have other key accounting policies , which involve the use of estimates , judgments and assumptions that are significant to understanding our results , which are described in note 2 to our audited financial statements for 2014 and 2013 appearing elsewhere in this report . 14 story_separator_special_tag t-size:10pt ; '' > compensation expense declined in the twelve months ended december 31 , 2014 as compared to the same period of 2013 , respectively , due to operational efficiencies and reduced payroll related to the relocation to arkansas . compensation expense included severance charges of $ 82,000 and $ 258,000 in 2014 and 2013 , respectively , related to the relocation to arkansas . our total employment , both full-time and part-time was 53 at december 31 , 2014. we expect compensation expense to increase in 2015 as we expand our ad unit offerings , our publisher network and content database . the decrease in selling , general and administrative costs is primarily due to cost savings related to the relocation to arkansas and other operating efficiencies . the primary reasons for the lower cost in the twelve months ended december 31 , 2014 compared to the same period last year are approximately $ 977,000 lower amortization and depreciation expense ; $ 590,000 lower facilities cost ; and $ 126,000 lower travel and entertainment costs ; partially offset by $ 387,000 higher corporate expenses . we expect selling , general and administrative costs to remain relatively flat throughout 2015. interest expense , net interest expense , net was $ 351,225 and $ 356,956 for the years ended december 31 , 2014 and 2013 , respectively . these charges primarily include interest on the credit facility with bridge bank , which declined as a result of lower balances during 2014 . income ( loss ) from discontinued operations income ( loss ) from discontinued operations includes activity related to the remaining assets and liabilities of discontinued operations in the european union . for the twelve months ended december 31 , 2014 , we recognized a net loss from discontinued operations of $ 40,670 , due primarily to an audit adjustment to accrue a liability in the event that the uk inland revenue does not accept our method of transfer pricing within the affiliated companies partially offset by an adjustment of certain accrued liabilities originating in 2009 and earlier . for the twelve months ended december 31 , 2013 , we recognized income of $ 503,622 , generated primarily by an adjustment of certain accrued liabilities originating in 2009 and earlier and by a favorable resolution of a german tax audit . liquidity and capital resources on september 29 , 2014 , we renewed our business financing agreement with bridge bank , n.a . ( `` bridge bank '' ) ( see note 6 , `` notes payable '' ) . the renewal provided continued access to the revolving line of credit up to $ 10 million through september 2016 and a new term loan of $ 2 million through september 2017. as of december 31 , 2014 , the revolving line of credit had approximately $ 3.1 million in availability . during the first quarter of 2014 , we filed an s-3 registration statement with the securities and exchange commission ( `` sec '' ) to replace the existing , expiring s-3 `` shelf '' registration statement . though we do not expect to need additional funds in the 16 next twelve months , we may still elect to sell stock to the public or to selected investors , or borrow under the current or any replacement line of credit or other debt instruments . we believe the revolving line of credit , cash generated by operations , and anticipated financing will provide sufficient cash for operations over the next twelve months . cash flows - operating net cash provided by operating activities was $ 3,943,793 during 2014 . we produced net income of $ 2,105,114 , which included the non-cash expenses of depreciation and amortization of $ 1,749,538 and stock-based compensation of $ 991,948 . this provision of cash was partially offset by the change in operating assets and liabilities which was a use of cash of $ 953,053 . accounts receivable and accounts payable were both affected by the higher revenue and related payouts in december 2014 as compared to december 2013. during 2013 , we generated cash from operating activities of $ 1,809,623 and
| the balance of the reserve at december 31 , 2014 was $ 567,517 . the owned and operated network represents 48 % of our total net revenue , generates revenue through our consumer-facing alot branded websites and applications . in early 2013 , we decided , as a result of changes in the marketplace , to transition away from the appbar product which we acquired in the vertro acquisition in 2012 and apply the assets purchased in that acquisition towards growing an owned and operated website and mobile applications business . by the fourth quarter , the appbar product revenue had declined to less than $ 2,500 per day and we expect it will expire entirely by early 2015. we have now launched a number of web properties ; including alot health , alot finance , alot careers , alot local , alot travel and alot living . these websites are content-rich and optimized for mobile and desktop devices , and are designed to capitalize on a growing consumer demand for content , delivered both on the desktop and on mobile devices . the revenue from our websites has grown 294 % from $ 2.0 million in the third quarter of last year to $ 7.7 million in the fourth quarter of 2014 ; and 154 % from $ 8.6 million in the twelve months ended december 31 , 2013 to $ 21.8 million in the twelve months ended december 31,2014. we intend to continue to expand our owned and operated network by enhancing our current websites and mobile applications , launching additional mobile applications under the alot brand and expanding the content of the alot sites . cost of revenue replace_table_token_3_th cost of revenue in the partner network is generated by payments to website and application publishers who host our advertisements . the decrease in cost of revenue is directly associated with lower revenue in this segment as well as to the change we made
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management believes that the alll is adequate to cover specifically identifiable loan losses , as well as estimated losses inherent in the bank 's portfolio for which certain losses are probable but not specifically identifiable . although management evaluates available information to determine the adequacy of the alll , the level of allowance is an estimate which is subject to significant judgment and short-term change . because of uncertainties associated with local economic , operating , regulatory and other conditions , the impact of the covid-19 pandemic , collateral values and future cash flows of the loan portfolio , it is possible that a material change could occur in the alll in the near term . the evaluation of the adequacy of loan collateral is often based upon estimates and appraisals . because of changing economic conditions , the valuations determined from such estimates and appraisals may also change . accordingly , the company may ultimately incur losses that vary from management 's current estimates . adjustments to the alll will be reported in the period such adjustments become known or can be reasonably estimated . all loan losses are charged to the alll when the loss actually occurs or when the collectability of the principal is unlikely . recoveries are credited to the allowance at the time of recovery . in addition , various regulatory agencies , as an integral part of their examination process , periodically review the bank 's allowance for loan losses . such agencies may require the bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination . 38 emerging growth company pursuant to the jobs act , an egc is provided the option to adopt new or revised accounting standards that may be issued by the fasb or the sec either ( i ) within the same periods as those otherwise applicable to non-egcs or ( ii ) within the same time periods as private companies . the company elected the option to utilize the delayed effective dates of recently issued accounting standards . as permitted by the jobs act , so long as it qualifies as an egc , the company will take advantage of some of the reduced regulatory and reporting requirements that are available to it , including , but not limited to , not being required to comply with the auditor attestation requirements of section 404 ( b ) of the sarbanes-oxley act , reduced disclosure obligations regarding executive compensation , and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments . recently issued accounting standards for a discussion of the impact of recently issued accounting standards , please see note 3 to the company 's consolidated financial statements . 39 selected financial information the following table includes selected financial information for the company for the periods indicated : replace_table_token_0_th ( 1 ) determined by subtracting the weighted average cost of total interest-bearing liabilities from the weighted average yield on total interest-earning assets . ( 2 ) determined by dividing net interest income by total average interest-earning assets . nm – not meaningful 40 discussion of financial condition story_separator_special_tag differ from that shown below ( in thousands ) . replace_table_token_2_th 43 the following table sets forth the dollar amount of loans at december 31 , 2020 that are due after one year and have either fixed interest rates or floating interest rates ( dollars in thousands ) : replace_table_token_3_th asset quality non-performing assets consist of non-accrual loans , non-accrual troubled debt restructurings ( “ tdrs ” ) , and other real estate that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure . past due status on all loans is based on the contractual terms of the loan . it is generally the bank 's policy that a loan 90 days past due be placed on non-accrual status unless factors exist that would eliminate the need to place a loan in this status . a loan may also be designated as non-accrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower . at the time loans are placed on non-accrual status , the accrual of interest is discontinued and previously accrued interest is reversed . all payments received on non-accrual loans are applied to principal . loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when , in the opinion of management , the company expects to receive all of its original principal and interest . in the case of non-accrual loans where a portion of the loan has been charged off , the remaining balance is kept on non-accrual status until the entire principal balance has been recovered . non-accrual loans increased by $ 1.5 million to $ 5.6 million at december 31 , 2020 , as compared to $ 4.1 million at december 31 , 2019 , primarily due to the addition of one c & i loan , which was adversely affected by covid-19 , in the amount of $ 3.1 million , offset by a one-to-four family loan in the amount of $ 2.4 million , which was placed on non-accrual status in june 2019 and was taken off of non-accrual status following the borrower making current payments for six consecutive months since then . as of december 31 , 2020 , the company had established a specific reserve of $ 2.8 million for the c & i loan . allowance for loan losses the allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans . the allowance is established based on management 's evaluation of the probable incurred losses inherent in the company 's portfolio in accordance with gaap , and is comprised of both specific valuation allowances and general valuation allowances . story_separator_special_tag the allowance for loan losses is increased through a provision for loan losses charged to operations . loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely . management 's evaluation of the adequacy of the allowance for loan losses is performed on a quarterly basis and takes into consideration such factors as the credit risk grade assigned to the loan , historical loan loss experience and review of specific impaired loans . 44 the following tables set forth the allowance for loan losses allocated by loan category for the periods indicated ( dollars in thousands ) : replace_table_token_4_th deposits the tables below summarize the bank 's deposit composition by segment for the periods indicated , and the dollar and percent change from december 31 , 2019 to december 31 , 2020 and december 31 , 2018 to december 31 , 2019 ( dollars in thousands ) : replace_table_token_5_th replace_table_token_6_th the tables below summarize the bank 's average balances and average interest rate paid , by segment , for the periods indicated ( dollars in thousands ) : replace_table_token_7_th 45 as of december 31 , 2020 , the aggregate amount of uninsured deposits ( deposits in amounts greater than or equal to $ 250,000 , which is the maximum amount for federal deposit insurance ) was $ 3.33 billion . in addition , as of december 31 , 2020 , the aggregate amount of the bank 's uninsured time deposits was $ 42.5 million . the following are scheduled maturities of time deposits greater than $ 250,000 as of december 31 , 2020 ( in thousands ) : at december 31 , 2020 three months or less $ 3,379 over three months through six months 10,445 over six months through one year 8,818 over one year 19,830 total $ 42,472 borrowings fhlb advances at december 31 , 2020 , the bank did not have any fhlb borrowings as all of the previous $ 144.0 million of advances matured in 2020. at december 31 , 2020 , the bank had the ability to borrow a total of $ 499.8 million from the fhlb . it also had an available line of credit with the frbny discount window of $ 123.8 million . trust preferred securities payable on december 7 , 2005 , the company established metbank capital trust i , a delaware statutory trust ( “ trust i ” ) . the company received all of the common stock of trust i in exchange for contributed capital of $ 310,000. trust i issued $ 10 million of preferred capital securities to investors in a private transaction and invested the proceeds , combined with the proceeds from the sale of trust i 's common capital securities , in the company through the purchase of $ 10.3 million aggregate principal amount of floating rate junior subordinated debentures ( the “ debentures ” ) issued by the company . the debentures , the sole assets of trust i , mature on december 9 , 2035 and bear interest at a floating rate of 3-month libor plus 1.85 % . the debentures became callable after five years . at december 31 , 2020 , the debentures bore an interest rate of 2.09 % . on july 14 , 2006 , the company established metbank capital trust ii , a delaware statutory trust ( “ trust ii ” ) . the company received all of the common stock of trust ii in exchange for contributed capital of $ 310,000. trust ii issued $ 10 million of preferred capital securities to investors in a private transaction and invested the proceeds , combined with the proceeds from the sale of trust ii 's common capital securities , in the company through the purchase of $ 10.3 million aggregate principal amount of floating rate junior subordinated debentures ( the “ debentures ii ” ) issued by the company . the debentures ii , the sole assets of trust ii , mature on october 7 , 2036 , and bear interest at a floating rate of 3-month libor plus 2.00 % . the debentures ii became callable after five years of issuance . at december 31 , 2020 , the debentures ii bore an interest rate of 2.24 % . subordinated notes payable on march 8 , 2017 , the company issued $ 25 million of subordinated notes at 100 % issue price to accredited institutional investors . the notes mature on march 15 , 2027 and bear an interest rate of 6.25 % per annum . the interests are paid semi-annually on march 15th and september 15th of each year through march 15 , 2022 and quarterly thereafter on march 15th , june 15th , september 15th and december 15th of each year . in accordance with the terms of the subordinated notes , the interest rate from march 15 , 2022 to the maturity date will reset quarterly to an interest rate per annum equal to the then current 3-month libor ( not less than zero ) plus 426 basis points , payable quarterly in arrears . the company may redeem the subordinated notes beginning with the interest payment date of march 15 , 2022 and on any scheduled interest payment date thereafter . the subordinated notes may be redeemed in whole or in part , at a redemption price equal to 100 % of the principal amount of the subordinated notes plus any accrued and unpaid interest .
| total deposits increased by $ 1.03 billion , or 36.8 % , to $ 3.82 billion at december 31 , 2020 from $ 2.79 billion at december 31 , 2019. the year-to-date increase in deposits was due to increases of $ 624.6 million in non-interest-bearing deposits to $ 1.72 billion at december 31 , 2020 , as compared to $ 1.09 billion at december 31 , 2019 and $ 403.2 million in interest-bearing deposits to $ 2.10 billion at december 31 , 2020 , as compared to $ 1.70 billion at december 31 , 2019. the increase in deposits was primarily due to growth in u.s. bankruptcy trustee and property management accounts , as well as deposit growth in the bank 's retail network . non-interest-bearing deposits were 44.9 % of total deposits at december 31 , 2020 , as compared to 39.1 % at december 31 , 2019 . in september 2020 , the bank fully paid down its federal home loan bank ( “ fhlb ” ) advances , a decrease of $ 144.0 million from december 31 , 2019. total stockholders ' equity was $ 340.8 million at december 31 , 2020 , as compared to $ 299.1 million at december 31 , 2019. the increase of $ 41.7 million was primarily due to net income of $ 39.5 million for the year ended december 31 , 2020 . 41 investments the following table sets forth the stated maturities and weighted average yields of investment securities , excluding equity securities , at december 31 , 2020 ( dollars in thousands ) . the table does not include the effect of prepayments or scheduled principal amortization . the weighted average yield for each group of securities was weighted by the par value of the securities in the group . the par values were as of december 31 , 2020. tax exempt-securities , if any , were presented on tax-equivalent basis . replace_table_token_1_th there were no securities pledged as collateral at december 31 , 2020. there were $ 126.2 million of afs securities pledged as collateral for certain deposits at december 31 , 2019. at december 31 , 2020 and 2019 , the company 's securities portfolio primarily consisted of investment grade mortgage-backed securities and collateralized mortgage obligations issued by government agencies . 42 other-than-temporary impairment each reporting period , the bank evaluates its afs and htm securities with a decline in fair value below the amortized cost of the investment to determine whether or not the impairment is deemed to be other-than-temporary . other-than-temporary impairment ( “ otti ” ) is required to be recognized if : ( 1 ) the bank intends to sell the security ; ( 2 ) the
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we anticipate that our expenses will increase substantially if and as we : expand or accelerate our preclinical and clinical development activities , particularly with respect to clinical trials of mydicar for systolic heart failure , including our ongoing cupid 2 trial , preclinical and clinical activities to evaluate mydicar for the treatment of avf maturation failure , an lvad trial , an aav1 nab positive trial and a viral shedding trial , and our preclinical studies and clinical trials of mydicar for the treatment of diastolic heart failure and other indications ; develop of our small molecule modulators of serca2 enzymes ; further develop the manufacturing process for our viral vectors and product candidates , including commercial scale-up , validation and automation of our companion diagnostic ; seek regulatory and marketing approvals for mydicar and any other product candidate that successfully completes clinical trials ; seek regulatory and marketing approvals for our companion diagnostic ; establish a sales , marketing and distribution infrastructure in the united states to commercialize any products for which we obtain marketing approval ; expand and accelerate development of our small molecule program in the fields of diabetes and neurodegenerative diseases ; acquire rights to other product candidates and technologies ; change or add additional manufacturers or suppliers ; maintain , expand and protect our intellectual property portfolio ; continue our research and preclinical development of our product candidates and seek to identify and validate additional product candidates ; make milestone or other payments under any in-license or collaboration agreement ; attract and retain skilled personnel ; create additional infrastructure to support our operations as a public company and our product development and planned future commercialization efforts ; and experience any delays or encounter issues with any of the above . we expect to continue to incur significant expenses and increasing losses for at least the next several years . accordingly , we anticipate that we will need to raise additional capital prior to the commercialization of mydicar , our companion diagnostic , our small molecule program , or any of our other product candidates . until such time that we can generate meaningful revenue from product sales , if ever , we expect to finance our operating activities through public or private equity or debt financings , government or other third-party funding , marketing and distribution arrangements and other collaborations , strategic alliances and licensing arrangements or a combination of these approaches . in any event , we will require additional capital to obtain regulatory approval for , and to commercialize , our product candidates and companion diagnostic . if we are unable to obtain funding on a timely basis , we may be required to significantly curtail , delay or discontinue one or more of our research or development programs or the commercialization of any approved products or be unable to expand our operations or otherwise capitalize on our business opportunities , as desired , which could materially adversely affect our business , financial condition and results of operations . 95 initial public offering and related transactions in february 2014 , we completed our initial public offering in which we sold 6,325,000 shares of common stock at a public offering price of $ 8.00 per share . estimated net proceeds from our initial public offering were determined as follows ( in thousands ) : replace_table_token_4_th in addition , each of the following occurred on february 4 , 2014 in connection with our initial public offering : the conversion of all outstanding shares of convertible preferred stock into 11,151,192 shares of our common stock ; the conversion of $ 1.1 million of outstanding principal and accrued interest on convertible notes into 139,644 shares of our common stock and the write-off of $ 0.1 million of unamortized debt discount related to the convertible notes ; the conversion of warrants to purchase 2,895,570 shares of series a-1 preferred stock into warrants to purchase 234,821 shares of our common stock and the resultant reclassification of the warrant liability to additional paid-in capital ; and the amendment and restatement of our certificate of incorporation , authorizing 200,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock . financial overview research and development expenses to date , we have devoted substantially all of our resources to research and development efforts relating to our product candidates , including conducting clinical trials , developing manufacturing capabilities , in-licensing related intellectual property , providing general and administrative support for these operations and protecting our intellectual property . we recognize research and development expenses as they are incurred . our research and development expenses consist primarily of : salaries and related overhead expenses , which include stock-based compensation and benefits for personnel in research and development functions ; fees paid to consultants and contract research organizations , or cros , including in connection with our preclinical studies and clinical trials and other related clinical trial fees , such as for investigator grants , patient screening , laboratory work , clinical trial material management and statistical compilation and analysis ; costs related to acquiring and manufacturing clinical trial materials , including continued testing such as process validation and stability of drug product ; costs related to compliance with regulatory requirements ; and payments related to licensed products and technologies . from our inception through december 31 , 2013 , we have incurred approximately $ 92.0 million in research and development expenses , of which we estimate $ 86.5 million relates to our development of mydicar . we plan to increase our research and development expenses for the foreseeable future as we continue to develop 96 mydicar for the treatment of systolic heart failure and our companion diagnostic , as well as , subject to the availability of additional funding , further advance the development of our other product candidates and mydicar for additional indications . story_separator_special_tag our direct research and development expenses consist principally of external costs , such as fees paid to investigators , consultants , central laboratories and cros , in connection with our clinical trials , and costs related to acquiring and manufacturing clinical trial materials . we typically use our employee and infrastructure resources across multiple research and development programs . the successful development of our clinical and preclinical product candidates and companion diagnostic is highly uncertain . at this time , we can not reasonably estimate the nature , timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or companion diagnostic or the period , if any , in which material net cash inflows from these product candidates may commence . this is due to the numerous risks and uncertainties associated with the development of our product candidates and companion diagnostic , including : the uncertainty of the scope , rate of progress and expense of our ongoing , as well as additional , clinical trials and other research and development activities ; the potential benefits of our product candidates over other therapies ; our ability to market , commercialize and achieve market acceptance for any product candidate or companion diagnostic that we are developing or may develop in the future ; ongoing and future clinical trial results ; the timing and receipt of any regulatory approvals of mydicar for systolic heart failure , and approval to initiate a clinical trial to evaluate mydicar for the treatment of avf maturation failure , an aav1 nab positive trial and a viral shedding trial ; and the filing , prosecuting , defending and enforcing of patent claims and other intellectual property rights , and the expense of doing so . a change in the outcome of any of these variables with respect to the development of a product candidate or companion diagnostic could mean a significant change in the costs and timing associated with the development of that product candidate or companion diagnostic . for example , if the fda , the ema or other foreign regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or companion diagnostic , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time with respect to the development of that product candidate or companion diagnostic . mydicar the majority of our research and development resources are currently focused on our ongoing cupid 2 trial , commercialization and manufacturing preparations , clinical trials and other work needed to submit mydicar for regulatory approval in the united states and europe . we have incurred and expect to continue to incur significant expense in connection with these efforts , including expenses related to : the development of manufacturing capabilities for the commercial production of mydicar ; conduct of our cupid 2 trial of mydicar and the enrollment and conduct of an avf trial , aav nab positive trial and viral shedding trial for patients with systolic heart failure ; and commercial scale-up , validation and automation activities related to our companion diagnostic . small molecules our research and development expenses for our small molecule program relate primarily to identification and testing of small molecule serca2 enzyme modulators . 97 general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for employees in executive , finance and administration , corporate development and administrative support functions , including stock-based compensation expenses and benefits . other significant general and administrative expenses include accounting and legal services , expenses associated with obtaining and maintaining patents , the cost of various consultants , occupancy costs and information systems costs . other income ( expense ) other expense consists primarily of the amortization of debt discount and interest charges we incur in periods when we had convertible debt outstanding and the change in the fair value of our outstanding warrant liability prior to its reclassification to stockholders ' equity in february 2014 in connection with the closing of our initial public offering . other income consists primarily of interest income earned on our cash , cash equivalents and investments . critical accounting policies and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which we have prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our consolidated financial statements , as well as the reported expenses during the reported periods . we evaluate these estimates and judgments on an ongoing basis . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . 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 our consolidated financial statements appearing elsewhere in this annual report , we believe that the following accounting policies related to clinical trial expenses , valuation of stock-based compensation and valuation of our convertible debt and warrant liability are the most critical for fully understanding and evaluating our financial condition and results of operations . clinical trial accruals as part of the process of preparing our consolidated financial statements , we are required to estimate our expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials .
| we believe that these increases will likely include increased costs for director and officer liability insurance , costs related to the hiring of additional personnel to support product commercialization efforts and increased fees for outside consultants , attorneys and accountants . we also expect to incur increased costs to comply with corporate governance , internal controls , investor relations and disclosures , and similar requirements applicable to public companies . other income ( expense ) . other income ( expense ) was $ ( 0.1 ) million and $ 74,000 for the years ended december 31 , 2013 and 2012 , respectively . the other expense for the year ended december 31 , 2013 consisted primarily of $ 0.2 million of other expense related to an increase in the fair value of our outstanding warrant liability and $ 45,000 of interest expense related to the amortization of debt discount on our outstanding convertible debt , offset by $ 0.1 million of interest income on our investments . the other income for the year ended december 31 , 2012 consisted primarily of interest income on our investments offset by interest expense on outstanding convertible debt . we expect our interest income to increase in 2014 as we invest the proceeds from our initial public offering pending their use in our operations . 102 comparison of the year ended december 31 , 2012 and the six months ended december 31 , 2011 we changed our fiscal year end from june 30 to december 31 , effective for the fiscal period ended december 31 , 2011. consequently , the transitional period ended december 31 , 2011 comprises six months only as compared to 12 months during the year ended december 31 , 2012. the following table summarizes our results of operations for the year ended december 31 , 2012 and the six months ended december 31 , 2011 ( in thousands ) : replace_table_token_7_th research and development expenses . research and development expenses were $ 13.3 million for the year ended december 31 , 2012 and $ 1.3 million
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net sales increased 6.5 % from fiscal 2010 to fiscal 2011. while the company 's revenues showed improvement over the prior year , market conditions still reflect uncertainty regarding the overall business environment and demand for it products and services . gross margin as a percentage of sales decreased 220 basis points year-over-year as a result of lower vendor rebates and increased pricing pressure . the lower vendor rebates reflect the change in the sun direct rebate program since their acquisition by oracle . fiscal 2009 was a transitional year for the company , as the company 's headquarters were relocated back to ohio and new leaders stepped into the company 's executive officer roles . in fiscal 2010 and 2009 , the company experienced a slowdown in sales as a result of the softening of the it market in north america , with net sales decreasing 12.0 % year-over-year . gross margin as a percentage of sales decreased 170 basis points year-over-year to 25.5 % at march 31 , 2010 versus 27.2 % at march 31 , 2009 , primarily due to lower selling margins and lower vendor rebates as a result of the lower sales volumes during fiscal 2010. the company recognized a higher proportion of lower margin hardware revenues during fiscal 2010 versus proprietary software and service revenues , for which margins were higher . in july 2008 , the company decided to exit tsg 's china and hong kong businesses . in january 2009 , the company sold the stock of tsg 's china operations and certain assets of tsg 's hong kong operations , receiving proceeds of $ 1.4 million . hsg continues to operate in hong kong and china . as disclosed in previous filings , the company sold ksg in march 2007 and now operates solely as an it solutions provider . for financial reporting purposes , the current and prior period operating results of tsg 's hong kong and china businesses and ksg have been classified within discontinued operations for all periods presented . accordingly , the discussion and analysis presented below , including the comparison to prior periods , reflects the continuing business of agilysys . beginning in the first quarter of fiscal 2011 , the company allocated certain general and administrative costs related to the accounts receivable , collections , accounts payable , legal , payroll , and benefits functional departments to hsg , rsg , and tsg in order to provide a better reflection of the costs needed to operate the business segments . prior period results have been adjusted to conform to the current period reporting presentation . on may 28 , 2011 , the company agreed to sell tsg to onx , subject to several contingencies . the remainder of the discussion contained in this md & a is without consideration to the effect of this anticipated sale , which is expected to occur in the fiscal 2012 second quarter . 19 story_separator_special_tag style= '' color : # 999999 '' width= '' 100 % '' / > the company recorded asset impairment charges of $ 37.7 million and $ 0.3 million in fiscal 2011 and fiscal 2010 , respectively . during the second quarter of fiscal 2011 , the company concluded that certain software developed technology within hsg was no longer being sold . as a result the company recorded an impairment charge of $ 0.1 million , which impacted hsg . during the fourth quarter of fiscal 2011 , the company concluded that it was no longer using certain indefinite-lived intangible assets related to hsg trade names . accordingly , the company recorded an impairment charge of $ 0.9 million , which impacted hsg . in addition , as a result of the annual goodwill impairment test on february 1 , 2011 , the company concluded that impairment indicators existed with respect to certain of its goodwill and intangible assets related to non-competition agreements , customer relationships , and supplier relationships within tsg . as a result , the company recorded impairment charges of $ 30.1 million related to its goodwill and $ 6.6 million related to its finite-lived intangible assets , which impacted tsg . in fiscal 2011 , the company recorded total goodwill and intangible asset impairment charges of $ 30.1 million and $ 7.6 million , respectively . these charges are discussed further in note 4 to consolidated financial statements titled , restructuring charges and in note 5 to consolidated financial statements titled , goodwill and intangible assets . during fiscal 2010 , the company recorded asset impairment charges of $ 0.3 million , primarily related to capitalized software property and equipment that management determined was no longer being used to operate the business . the company recorded restructuring charges of $ 1.2 million and $ 0.8 million during fiscal 2011 and 2010 , respectively . the restructuring charges recorded in fiscal 2011 consist of settlement costs of $ 0.4 million related to the payment of an obligation under the company 's nonqualified executive retirement defined benefit pension plan for an executive officer ( the serp ) who was part of the fiscal 2009 restructuring actions , as well as , $ 0.8 million of costs related to the canada restructuring . in march 2011 , the company took restructuring actions designed to consolidate its canadian operations and achieve cost savings , including closing its office in montreal , quebec and terminating five employees . in connection with these restructuring actions , the company recorded $ 0.8 million in charges for severance costs , which impacted tsg . the lease for the montreal , quebec facility expired on april 14 , 2011 and was not renewed . no significant additional charges are expected to be incurred with respect to these restructuring actions . story_separator_special_tag the company expects these restructuring actions to result in annualized cost savings of $ 1.0 million and expects to fully realize these cost savings in fiscal 2012. the fiscal 2010 restructuring charges primarily consist of settlement costs related to the payment of obligations under the serp to two executive officers who were part of the restructuring actions taken in fiscal 2009. the company 's restructuring actions are discussed further in the restructuring charges subsection of this md & a and in note 4 to consolidated financial statements titled , restructuring charges . other ( income ) expenses replace_table_token_9_th other ( income ) expenses , net . in fiscal 2011 , the $ 2.3 million in other income primarily included a gain of $ 2.1 million recorded on the $ 2.2 million in proceeds received as a death benefit from certain corporate-owned life insurance policies . in fiscal 2010 , the $ 6.2 million in other income primarily included $ 2.3 million of the total $ 3.9 million in proceeds received from the settlement of the cts litigation , which represented the jury 's damages award , $ 2.5 million of the total $ 4.8 million in proceeds received as a distribution from the reserve fund 's primary fund , and $ 0.8 million in gains incurred related to corporate-owned life insurance policies , which are held to satisfy the company 's obligations under the serp and other employee benefit plans . these amounts are discussed further in the subsection of this md & a below titled , investments , in note 1 to consolidated financial statements titled , operations and summary of significant accounting policies , and in note 12 to the consolidated financial statements titled , commitments and contingencies . interest income . the $ 0.1 million favorable change in interest income from fiscal 2010 to fiscal 2011 was due to the company investing its excess cash balances in interest-bearing accounts with banks in fiscal 2011. in fiscal 2009 , the company adopted a more conservative investment strategy and maintained this strategy throughout fiscal 2010 . 23 interest expense . interest expense consists of costs associated with the company 's current credit facility , the amortization of deferred financing fees , loans on corporate-owned life insurance policies , and capital leases . interest expense increased $ 0.3 million in fiscal 2011 compared to fiscal 2010. the company executed its current credit facility on may 5 , 2009. prior to that date , the company did not have an active credit facility in place since january 20 , 2009. income taxes the following table compares the company 's income tax expense , benefits and effective tax rates for the fiscal years ended march 31 , 2011 and 2010 : replace_table_token_10_th nm not meaningful the company recorded an effective tax rate from continuing operations of ( 4.1 % ) in fiscal 2011 compared with a benefit from continuing operations at an effective rate of 323.5 % in fiscal 2010. the effective tax rate for fiscal 2011 was lower than the statutory rate primarily due to a increase in the valuation allowance for federal and state deferred assets . the effective tax rate for fiscal 2010 was higher than the statutory rate primarily due to a decrease in the valuation allowance for federal and state deferred assets related to the five-year net operating loss carryback law change and certain foreign refund claims . fiscal 2010 compared with fiscal 2009 net sales and operating loss the following table presents the company 's consolidated revenues and operating results for the fiscal years ended march 31 , 2010 and 2009 : replace_table_token_11_th nm not meaningful . 24 the following table presents the company 's revenues and operating results by business segment for the fiscal years ended march 31 , 2010 and 2009 : replace_table_token_12_th nm not meaningful net sales . the $ 86.6 million decrease in net sales during fiscal 2010 compared to fiscal 2009 was primarily driven by declines in both hardware and service revenues due to lower volumes across all products and services offerings , with decreases of $ 22.4 million , $ 8.0 million , and $ 56.2 million in hardware , software , and services , respectively . these revenue decreases reflect a general reduction in customers ' it spending due to weak macroeconomic conditions , which affected all three reportable business segments . 25 hsg 's sales were $ 16.3 million lower in fiscal 2010 compared to fiscal 2009 due to decreases of $ 6.3 million and $ 10.6 million in software and services revenues , respectively . the decline in hsg 's software and services revenues resulted from soft demand in the destination resort and commercial gaming markets . the decrease in hsg 's software and services revenues was partially offset by a $ 0.6 increase in hardware revenues due to a large customer sale . rsg 's sales decreased $ 11.0 million in fiscal 2010 compared to the prior year due to decreases of $ 2.8 million , $ 0.1 million , and $ 8.1 million in hardware , software , and service revenues , respectively . tsg 's sales fell $ 59.3 million year-over-year primarily driven by a decrease of $ 38.2 million in service revenues due to soft demand for high-end proprietary services . tsg 's hardware and software revenues also decreased $ 19.5 million and $ 1.6 million , respectively . during fiscal 2010 , both rsg and tsg were impacted by customers ' reluctance to add it infrastructure projects with pay-back periods longer than 12 months . gross margin . the company 's total gross margin percentage declined 170 basis points to 25.5 % for fiscal 2010 from 27.2 % for fiscal 2009. the decrease in the total gross margin percentage year-over-year was primarily due to a lower service margin , which declined to 57.9 % in fiscal 2010 from 58.2 % in fiscal 2009 , driven by lower volumes of proprietary and remarketed services .
| the decrease in rsg 's hardware and software revenues is primarily due to a large customer order in fiscal 2010 that did not repeat in fiscal 2011. tsg 's sales increased $ 33.2 million year-over-year driven by increases of $ 13.3 million , $ 17.8 million , and $ 2.1 million in hardware , software , and services , respectively , due to higher volumes . gross margin . the company 's total gross margin percentage declined to 23.3 % for fiscal 2011 from 25.5 % for fiscal 2010 , with product gross margins decreasing 230 basis points and services gross margins decreasing 160 basis points . the lower product gross margins resulted from declines in hardware , and to a lesser extent , remarketed software gross margins due to lower vendor rebates and increased pricing pressure . the lower vendor rebates of $ 7.1 million year-over-year were due to the change in the sun direct rebate programs since their acquisition by oracle . software gross margins for fiscal 2011 compared with fiscal 2010 were also unfavorably impacted by amortization expense of $ 0.7 million associated with hsg 's guest 360 software , which was first made available for sale in june 2010. the decline in services gross margins is primarily due to lower proprietary services , which primarily impacted rsg . hsg 's gross margin decreased 300 basis points , primarily attributable to lower product gross margins . the decline in hsg 's product gross margins is due to lower proprietary software gross margins , which were unfavorably impacted by the $ 0.7 million of amortization expense associated with the guest 360 software , which was made available for sale in june 2010. rsg 's gross margin percentage decreased 180 basis points in fiscal 2011 compared with fiscal 2010 , primarily due to lower services gross margins . in fiscal 2011 , rsg 's services gross margins were unfavorably impacted by higher project related costs . tsg 's gross margin percentage decreased 250 basis points in fiscal 2011 compared to fiscal 2010. the decrease in tsg 's gross margin percentage was driven by lower product gross margins , which were affected by declines in both hardware and software gross margins , as a result of the reduction in vendor rebates and competitive pricing pressure . operating expenses .
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in 2009 , we formed a joint venture with cadila pharmaceuticals limited ( cadila ) named cpl biologicals private limited ( cplb ) to develop and manufacture vaccines , biological therapeutics and diagnostics in india . cplb is owned 20 % by us and 80 % by cadila . cplb operates a state-of-the-art manufacturing facility for the production of influenza vaccines and other vaccine candidates and is actively developing a number of vaccine candidates that were genetically engineered by us . clinical product pipeline a current summary of our significant research and development programs and status of related products in development follows : replace_table_token_5_th respiratory syncytial virus ( rsv ) rsv is a widespread disease that causes infections of the lower respiratory tract . while rsv affects persons of all ages , it acutely impacts infants , the elderly , young children and others with compromised immune systems . current estimates indicate that rsv is responsible for over 30 million new acute lower respiratory infection episodes and between 150,000 and 200,000 deaths in children under five years old . 7 in the u.s. , nearly all children become infected with rsv before they are two years old ; it has been associated with 20 % of hospitalizations and 15 % of office visits for acute respiratory infection in young children . 8 the 6 although we initiated development of our pandemic influenza vaccine program under our contract with hhs barda against the a ( h5n1 ) strain , because of concern over the potential mutation and spread of the a ( h7n9 ) influenza strain in china , we independently initiated a second pandemic vaccine program in the first half of 2013 against a ( h7n9 ) . in february 2014 , we amended our contract with hhs barda to re-focus our development of a pandemic influenza vaccine against the a ( h7n9 ) strain with a phase 1/2 clinical trial with our h7n9 candidate and matrix-m tm adjuvant , which began in the first quarter of 2014 ; however , hhs barda has also indicated that the h5n1 vaccine program remains a viable potential development opportunity under the contract . 7 nair , h. , et al . , ( 2010 ) lancet . 375:1545 1555 8 hall , cb , et al . , ( 2009 ) n engl j med . 360 ( 6 ) :588-98 . 41 world health organization ( who ) estimates that the global disease burden for rsv is 64 million cases . because there is no approved prophylactic vaccine , the unmet medical need of an rsv vaccine has the potential to protect millions of patients from this far-reaching disease . we are developing a vaccine candidate to prevent rsv disease , and are looking at three susceptible target populations : infants who may receive protection through antibodies transferred from their mothers who would be immunized during the last trimester of pregnancy , the elderly and young children . maternal immunization development program clinical experience in april 2013 , we announced top-line data from a phase 2 dose-ranging clinical trial in women of childbearing age that were similar to , or exceeded , immune responses seen in our first phase 1 clinical trial . this randomized , blinded , placebo-controlled phase 2 clinical trial evaluated the safety and immunogenicity of two dose levels of our rsv vaccine candidate , with and without an aluminum phosphate adjuvant , in 330 women of childbearing age . we further reported that the vaccine candidate was well-tolerated , the two-dose alum-adjuvanted groups showed a 13 to 16-fold rise in anti-f igg antibodies to the f protein compared to a six to ten-fold rise in the non-alum groups , and palivizumab-like antibody titers rose eight to nine-fold with four-fold rises in 92 % of subjects in the two-dose alum-adjuvanted groups . in october 2013 , we initiated and completed enrollment in a phase 2 dose-confirmation clinical trial in 720 women of childbearing age . the data from this trial , expected in the second quarter of 2014 , will supplement the data from our other clinical trials , and is expected to support the advancement of our maternal immunization program in pregnant women ; we plan to initiate a phase 2 clinical trial of our rsv vaccine candidate in pregnant women in the fourth quarter of 2014. elderly development program clinical experience in july 2013 , we announced top-line data from the phase 1 clinical trial in the elderly that was initiated in october 2012. this clinical trial was a randomized , blinded , placebo-controlled phase 1 clinical trial that evaluated the safety and immunogenicity in 220 enrolled elderly adults , 60 years of age and older , who received a single intramuscular injection of our rsv vaccine candidate ( with and without alum ) or placebo plus a single dose of licensed influenza vaccine or placebo at days 0 and 28. the top-line data further corroborated our previous clinical experiences with our rsv vaccine candidate : we reported that the vaccine candidate was well-tolerated , that the higher dose groups had better overall immune responses than the lower dose groups and that essentially undetectable day 0 levels of antibodies that compete with palivizumab increased to between 80 % and 97 % of active vaccine recipients by day 28. our expected path forward in the elderly would include a dose-confirmation clinical trial in late 2014 or early 2015. pediatric development program pre-clinical experience while the burden of rsv disease falls heavily on newborn infants , rsv is also a prevalent and currently unaddressed problem in pediatric patients . this third market segment for our rsv vaccine candidate remains an important opportunity . we expect to initiate clinical trials in pediatric subjects as step-downs from our past clinical trials in healthy adults . we also expect that our clinical experience in pregnant women will be equally important to understanding a vaccine for this patient population . story_separator_special_tag our preclinical development efforts support such a clinical development plan that is expected to be launched in late 2014. path vaccine solutions ( path ) clinical development agreement in july 2012 , we entered into a clinical development agreement with path to develop our vaccine candidate to protect against rsv through maternal immunization in low-resource countries ( rsv collaboration program ) . we were awarded approximately $ 2.0 million by path for initial funding under the agreement to partially support our phase 2 dose-ranging clinical trial in women of childbearing age as described above . the funding under the agreement was increased by $ 0.4 million to support our reproductive toxicology studies , which are necessary before we conduct clinical trials in pregnant women . in december 2013 , we entered into an amendment with path providing an additional $ 3.5 million in funding to support the phase 2 dose-confirmation clinical trial in 720 women of childbearing age as described above . we retain global rights to commercialize the product and will support path in its goal to make an rsv maternal vaccine product affordable and available in low-resource countries . 42 to the extent path elects to continue to fund 50 % of our external clinical development costs for the rsv collaboration program , but we do not continue development , we would then grant path a fully-paid license to our rsv vaccine technology for use in pregnant women in such low-resource countries . influenza seasonal influenza vaccine developing and commercializing a novavax seasonal influenza vaccine remains an important strategic goal and viable opportunity for us . the advisory committee for immunization practices of the center for disease control and prevention ( cdc ) recommends that all persons aged six months and older should be vaccinated annually against seasonal influenza . in conjunction with these universal recommendations , attention from the 2009 influenza h1n1 pandemic , along with reports of other cases of avian-based influenza strains , has increased public health awareness of the importance of seasonal influenza vaccination , the market for which is expected to continue to grow worldwide in both developed and developing global markets . there are currently four quadrivalent influenza vaccines licensed in the u.s. , but in the coming years , additional seasonal influenza vaccines are expected to be produced and licensed within and outside of the u.s. in a quadrivalent formulation ( four influenza strains : two influenza a strains and two influenza b strains ) , as opposed to trivalent formulations ( three influenza strains : two influenza a strains and one influenza b strain ) . with two distinct lineages of influenza b viruses circulating , governmental health authorities have advocated for the addition of a second influenza b strain to provide additional protection . current estimates for seasonal influenza vaccines growth in the top seven markets ( u.s. , japan , france , germany , italy , spain and uk ) , show potential growth from the current market of approximately $ 3.2 billion ( 2012/13 season ) to $ 5.3 billion by the 2021/2022 season . 9 recombinant seasonal influenza vaccines , like the candidate we are developing , have an important advantage : once licensed for commercial sale , large quantities of vaccines can be quickly and cost-effectively manufactured without the use of either the live influenza virus or eggs . top-line data from our most recent phase 2 clinical trial for our quadrivalent influenza vaccine candidate were announced in july 2012. in that clinical trial , our quadrivalent vlp vaccine candidate demonstrated immunogenicity against all four viral strains based on hai responses at day 21 , and was also well-tolerated , as evidenced by the absence of any observed vaccine-related serious adverse events ( saes ) and an acceptable reactogenicity profile . our vaccine candidate met the fda accelerated approval seroprotection rates criterion for all four viral strains . the potential to fulfill the seroconversion rates criterion was demonstrated for three of the four viral strains . the fourth strain , b/brisbane/60/08 , despite fulfilling the seroprotection criterion , failed to demonstrate a satisfactory seroconversion rate . following our last phase 2 clinical trial , we focused our seasonal influenza vaccine candidate activities on locking the manufacturing process that will ensure consistent and enhanced immune responses in all strains . we completed these activities in september 2013. we have begun manufacturing a and b strain influenza vlps for the next phase 2 clinical trial with our quadrivalent vaccine candidate , which we expect to initiate in the fourth quarter of 2014. pandemic influenza vaccine in the aftermath of the 2009 h1n1 influenza pandemic , recognition of the potential devastation of a human influenza pandemic remains a key priority with both governmental health authorities and influenza vaccine manufacturers . in the u.s. alone , the 2009 h1n1 pandemic led to the production of approximately 126 million doses of monovalent ( single strain ) vaccine . public health awareness and government preparedness for the next potential influenza pandemic are driving development of vaccines that can be manufactured quickly against a potentially threatening influenza strain . until the spring of 2013 , industry and health experts focused attention on developing a monovalent h5n1 influenza vaccine as a potential key defense against a future pandemic threat ; however , recent attention from a significant number of reported cases in china of an avian-based influenza strain of h7n9 has shifted to the potential development of an h7n9 influenza vaccine . in october 2012 , under our collaboration with hhs barda , we reported positive results from two phase 1 clinical trials of our pandemic ( h5n1 ) vaccine candidate in combination with two different adjuvants , 9 influenza vaccines forecass . datamonitor ( 2013 ) 43 both of which are designed to improve the immunogenicity of vaccines at lower doses and thus provide antigen dose-sparing . the top-line data demonstrated safety and immunogenicity of varying dose-levels of the vaccine , with and without adjuvant , and further demonstrated statistically significant robust adjuvant effects on immune response .
| for 2012 , the change in fair value of the warrant liability resulted in a $ 2.4 million decrease in total other income as compared to 2011. the warrants expired unexercised on july 31 , 2013. net loss : replace_table_token_10_th net loss for 2013 was $ 52.0 million , or $ 0.31 per share , as compared to $ 28.5 million , or $ 0.22 per share , for 2012 , an increased net loss of $ 23.5 million . the increased net loss was primarily due to higher research and development spending , including increased costs relating to our rsv and pandemic ( h7n9 ) influenza clinical trials and higher employee-related costs . net loss for 2012 was $ 28.5 million , or $ 0.22 per share , as compared to $ 19.4 million , or $ 0.17 per share , for 2011 , an increased net loss of $ 9.1 million . the increased net loss was primarily due to higher research and development spending , including increased costs relating to our rsv clinical trials , higher employee-related costs and expenses associated with our new manufacturing facility . the increase in weighted average shares outstanding for 2013 and 2012 is primarily a result of sales of our common stock in 2013 and 2012. liquidity matters and capital resources our future capital requirements depend on numerous factors including , but not limited to , the commitments and progress of our research and development programs , the progress of pre-clinical and clinical testing , the time and costs involved in obtaining regulatory approvals , the costs of filing , prosecuting , defending and enforcing patent claims and other intellectual property rights and manufacturing costs . we plan to continue to have multiple vaccines and products in various stages of development , and we believe our operating expenses and capital requirements will fluctuate depending upon the timing of certain events , such as the scope , initiation , rate and progress of our pre-clinical studies and clinical trials and
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as we continue to focus our primary business on selling our led product lines to respond to the rapidly changing market dynamics in the lighting industry , we face intense competition from an increased number of other led product companies , a number of which have substantially greater resources and more experience and history with led lighting products than we do . management restructuring and focus on profitability in early fiscal 2018 , our board of directors restructured our management team . as part of this restructuring , our chief executive officer , john scribante , left our company and mike altschaefl , our then-current board chair , assumed the role of chief executive officer . in addition , scott green , our then-current executive vice president , became our new chief operating officer , with ongoing primary responsibility for improving our revenue generation . mike potts and marc meade , our then-current executive vice presidents , remained in their positions and were assigned primary responsibility for substantially reducing our cost structure and for streamlining operations . bill hull remained in his position as chief financial officer . on august 30 , 2017 , mike potts retired as our chief risk officer and executive vice president and continues to serve as a member of our board of directors and provides consulting services to us on an as needed basis . our market and product strategies have not changed . we have renewed our focus on sales channel execution , and implemented a reduction in our cost structure . our management team continues to implement its plan to achieve breakeven earnings ( excluding employee separation costs ) before interest , taxes , depreciation , and amortization , or ebitda , through the implementation of the following cost reduction measures : constant monitoring and management of manufacturing overhead costs to ensure we continue to deliver strong gross margins amid an increasingly competitive market landscape ; reduction of staff positions through a targeted reduction in existing headcount ; reduced total compensation of our executive management and board of directors ; reductions in operating expenses , including better control of legal spending , elimination of our racing program and removal of various non-critical back office programs and initiatives . we believe that our cost reduction plan taken during fiscal 2018 resulted in annualized cost savings of approximately $ 6.0 million , which we expect to be fully recognized beginning in fiscal 2019. these cost reductions , coupled with our renewed focus on sales channel execution , will help to drive revenue growth and accelerate our path to profitability . during fiscal 2018 , we executed on this cost reduction plan by entering into separation agreements with multiple employees and recognized $ 2.1 million of expense in fiscal 2018 in employee separation related costs . our restructuring expense for fiscal 2018 is reflected within our consolidated statements of operations as follows ( dollars in thousands ) : 26 year ended march 31 , 2018 cost of product revenue $ 34 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:8px ; padding-top:8px ; text-align : justify ; text-indent:30px ; font-size:10pt ; '' > sales and marketing . our sales and marketing expenses decreased 7.4 % , or $ 0.9 million , in fiscal 2018 compared to fiscal 2017. the decrease was primarily due to lower employee costs and reduced consulting and professional fees related to special events and field sales , partially offset by $ 0.2 million in employee separation costs . research and development . research and development expenses decreased by 4.9 % , or $ 0.1 million in fiscal 2018 compared to fiscal 2017 primarily due to a decreased testing and supply costs , partially offset by $ 0.1 million in employee separation costs . other income . other income in fiscal 2018 and fiscal 2017 represented product royalties received from licensing agreements for our patents . interest expense . interest expense in fiscal 2018 increased by 55.7 % , or $ 0.1 million , from fiscal 2017. the increase in interest expense was due to increased third party financing costs . interest income . interest income in fiscal 2018 decreased by 58.3 % , or twenty-one thousand dollars , from fiscal 2017. our interest income decreased as a result of the continued run-off legacy customer financed projects . income taxes . income tax benefit in fiscal 2018 decreased $ 0.2 million from fiscal 2017. in fiscal 2017 , we received refunds from previously filed tax returns and reversed a valuation allowance resulting in a tax benefit in fiscal 2017. in fiscal 2018 we received refunds from previously filed tax returns . both periods include income tax expense for minimum state tax liabilities . in fiscal 2018 , the impact of the tax cuts and jobs act on tax expense was immaterial due to the full valuation allowance . results of operations : fiscal 2017 versus fiscal 2016 the following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period , together with the relative percentage change in such line item between applicable comparable periods ( in thousands , except percentages ) : replace_table_token_5_th revenue . product revenue increased 2.0 % , or $ 1.3 million . the increase in product revenue in fiscal 2017 was primarily a result of strengthening sales volume of led fixtures and sales of new products introduced during the year . story_separator_special_tag our increase in product 29 revenue was partially offset by negative impacts resulting from the transition of our distribution sales channel to an agent driven model , that did not gain traction until late in the second quarter of fiscal 2017. led lighting revenue increased by 16.3 % to $ 53.1 million in fiscal 2017 as compared to $ 45.7 million in fiscal 2016. service revenue increased 45.2 % , or $ 1.2 million , primarily due to more installation project revenue in fiscal 2017 when compared to fiscal 2016. total revenue increased by 3.8 % , or $ 2.6 million , primarily due to the items discussed above . cost of revenue and gross margin . our cost of product revenue remained the same although fiscal 2017 had higher sales and better absorption . our fiscal 2017 gross margin includes the adverse impact of $ 2.2 million of charges to increase the inventory reserve by $ 1.7 million and an adjustment to write off supplies inventory of $ 0.5 million . the increase to the reserve reflects a growing customer preference for higher performing led lighting technologies and the related slowdown in demand for lower priced earlier generation solutions . our cost of service revenue increased 61.0 % , or $ 1.2 million in fiscal 2017 versus fiscal 2016 primarily due to additional costs associated with our increased service revenue in fiscal 2017. gross margin increased from 23.6 % of revenue in fiscal 2016 to 24.7 % in fiscal 2017. lighting gross margin was positively impacted by a favorable mix of higher-priced and higher-margin led high bay fixtures , better absorption due to higher volumes , negotiated price decreases for lighting components , and the benefits of our cost containment initiatives . operating expenses general and administrative . our general and administrative expenses decreased 12.5 % , or $ 2.1 million , in fiscal 2017 primarily due to a reduction in legal costs , depreciation and amortization expense , offset by increases in employee costs , stock compensation , auditing and consulting expenses . impairment of assets . we performed an impairment test as of march 31 , 2017 due to a triggering event for our indefinite-lived intangible asset . as a result of this impairment test , we determined that $ 0.3 million of our intangible asset for the harris trade name was impaired . in 2016 , we performed our annual goodwill impairment test in the fourth quarter and we determined that the entire amount of our recorded goodwill of $ 4.4 million was impaired . also in fiscal 2016 , our long-lived assets related to the pending sale and leaseback of our manufacturing facility were impaired by $ 1.6 million to properly represent the fair value of the property being sold . sales and marketing . our sales and marketing expenses increased 13.1 % , or $ 1.5 million , in fiscal 2017 compared to fiscal 2016. the increase was primarily due to increased commissions related to our agency channel and rebranding costs , offset by a reduction in bad debt expense incurred in fiscal 2017 when compared to fiscal 2016. research and development . our research and development expenses increased 20.1 % or $ 0.3 million , in fiscal 2017 primarily due to our investment in product innovation related to new product development . other income . other income in fiscal 2017 represented product royalties received from licensing agreements for our patents . interest expense . our interest expense in fiscal 2017 decreased by 8.1 % or $ 24,000 from fiscal 2016. the reduction in interest expense is attributable to the decrease in our outstanding debt . interest income . our interest income in fiscal 2017 decreased by 71.9 % or $ 0.1 million from fiscal 2016. our interest income decreased due to an increase in customers opting to utilize outside third party finance providers . income taxes . our income tax benefit decreased $ 0.3 million from fiscal 2017. in fiscal 2017 , we received refunds from previously filed tax returns and reversed a valuation allowance resulting in a tax benefit in fiscal 2017. our income tax expense is typically due to changes in expected minimum state tax liabilities . u.s. markets division the usm segment sells commercial lighting systems and energy management systems to the wholesale contractor markets . usm customers include escos and electrical contractors . during fiscal 2017 and fiscal 2018 , a significant portion of the historic sales of this division have migrated to distribution channel sales as a result of the implementation of our agent distribution strategy . the migrated sales are included in our ods division . the following table summarizes our usm segment operating results ( dollars in thousands ) : replace_table_token_6_th 30 fiscal 2018 compared to fiscal 2017 usm segment revenue decreased from fiscal 2017 by 52.0 % , or $ 9.3 million . the decrease in revenue during fiscal 2018 compared to fiscal 2017 included the continued transition to our distribution sales model through the migration of sales to our ods segment . sales made through independent manufacturer representative agents are reflected within our ods segment . the decrease also reflects a $ 1.3 million decline in sales to select large direct customers . the usm segment 's operating loss increased $ 1.8 million in fiscal 2018 as compared to fiscal 2017. the segment 's operating loss was the result of the significant decline in sales due to the migration of customers to the distribution sales channel resulting in lost operating expense leverage and an intangible asset impairment in the second quarter of fiscal 2018 of $ 0.2 million . fiscal 2017 compared to fiscal 2016 usm segment revenue decreased from fiscal 2016 by 54.0 % , or $ 21.0 million . the decrease in revenue during fiscal 2017 compared to fiscal 2016 was primarily due to our transition to more sales through manufacturer representative agents . these sales are now reflected within ods . usm segment operating loss improved from fiscal 2016 by 72.6 % , or $ 3.6 million .
| the overall goal of the plan is to grow , become more profitable and increase shareholder value , considering this environment as well as our current financial situation . our outlook for fiscal 2019 is positive as we believe that the following factors will directly or indirectly drive customer spending on lighting solutions : led adoption continues to grow in all sectors ; commercial and industrial sentiment remains strong ; utility incentives continue to be available and are increasing as a percent of project costs in many areas ; capital spending is increasing ; business profits are increasing ; and consumer spending remains strong . beyond the benefits of our lighting fixtures , we believe that there is also an opportunity to utilize our system platform as a “ digital ” or “ connected ceiling ” , or a framework or network that can support the installation and integration of other business solutions on our digital platform . this anticipated potential growth opportunity is also known as the “ industrial internet of things ” or iot , and is still early in its development ; however , we have already participated in a few compelling applications that deliver cost savings and efficiency in areas outside of lighting . 27 results of operations : fiscal 2018 versus fiscal 2017 the following table sets forth the line items of our consolidated statements of operations and as a relative percentage of our total revenue for each applicable period , together with the relative percentage change in such line item between applicable comparable periods ( in thousands , except percentages ) : replace_table_token_4_th * nm = not meaningful revenue . product revenue decreased 16.1 % , or $ 10.6 million , for fiscal 2018 versus fiscal 2017. the decrease in product revenue was primarily a result of the continued decline in fluorescent product sales , $ 6.5 million year over year , and a decrease of $ 3.9 million in led lighting revenue . led lighting revenue decreased 6.2 % from $ 53.1 million in fiscal 2017 to $ 49.8 million in fiscal 2018 ,
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as our second-generation satellites are incorporated into the second-generation constellation , we begin depreciating the satellites on the date each satellite is placed into service ( the “ in-service date ” ) over their estimated lives . 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 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 . deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . 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 . the effect of a change in tax rates is recognized as income or expense in the period that the rate is enacted . we are required to 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 . 23 derivative instruments we recognize all derivative instruments as either assets or liabilities on the balance sheet at their respective fair values . recognized gains or losses on derivative instruments are recorded 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 embodies it and the expected means of settlement . the fair value of our interest rate cap is determined using pricing models developed based on the libor rate and other observable market data . that value is adjusted to reflect nonperformance risk of both the counterparty and the company . for our warrants issued in conjunction with the availability fee for the contingent equity agreement we use the black-sholes pricing model to determine fair value . for the conversion rights and features embedded within the 8.00 % notes and the warrants issued with the 8.00 % notes we use the monte carlo valuation technique to determine fair value . for the contingent put feature embedded in the 5.0 % notes , 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 . inventory inventory consists of purchased products , including fixed and mobile user terminals and accessories . we compute cost using the first-in , first-out ( fifo ) method and state inventory transactions at the lower of cost or market . inventory write-downs are measured as the difference between the cost of inventory and market , and are recorded as a cost of subscriber equipment sales - reduction in the value of inventory . at the point of any inventory write-downs to market , a new , lower cost basis for that inventory is established , 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 contact manufacturers and suppliers for quantities in excess of our future demand forecasts consistent with the valuation of our excess and obsolete inventory . 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 . story_separator_special_tag 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 our pension benefit obligation and expense is calculated using actuarial models . critical assumptions and estimates used 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 . discount rates are determined annually and are based on our calculated average of rates of return of long-term corporate bonds . discount rates were based on moody 's and citigroup 's annualized yield curve index as of december 31 , 2011 and 2010. the discount rate used at the measurement date decreased to 4.00 % in 2011 from 5.25 % in 2010. a 100 basis point increase in our discount rate would reduce our benefit obligation by $ 2.1 million . expected long-term rates of return on plan assets are determined and are 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 has remained consistent at 7.50 % from 2010 to 2011. 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 . goodwill and intangible assets the company reviews intangible 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 , the asset is written down to its fair market value . the company reviews goodwill for possible impairment on an annual basis and at any other time if events occur or circumstances indicate that the current carrying amount of goodwill may not be recoverable . our annual testing of goodwill is based on comparing the carrying value of our reporting unit to our estimate of the fair value of the reporting unit at december 31. we estimate the fair value of the company using a market approach and discounted cash flow valuation technique and compare this estimate to the carrying value of the company . a significant amount of judgment is involved in performing these evaluations . 24 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 . 25 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 unit , 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 is an indication 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 , 2011 and 2010 revenue : total revenue increased by $ 4.9 million , or approximately 7 % , to $ 72.8 million for 2011 from $ 67.9 million in 2010. we attribute this increase to higher service and equipment revenues as a result of increases in our spot and simplex subscriber base . the increase in our spot and simplex sales was partially offset by decreases in service revenue and equipment sales in our duplex business , which continues to be affected by our two-way communication issues . the following table sets forth amounts and percentages of our revenue by type of service for 2011 and 2010 ( in thousands ) . replace_table_token_3_th the following table sets forth amounts and percentages of our revenue for equipment sales for 2011 and 2010 ( in thousands ) . replace_table_token_4_th the following table sets forth our average number of subscribers , arpu , and ending number of subscribers by type of revenue for 2011 and 2010. the following numbers are subject to immaterial rounding inherent in calculating averages . replace_table_token_5_th 26 service revenue duplex revenue decreased approximately 15 % in 2011 from 2010. our two-way communication issues continue to adversely affect our duplex revenue .
| increased 14 % during 2010. our arpu for simplex in 2010 increased by 5 % to $ 3.10 from $ 2.96 in 2009. these increases relate primarily to the axonn acquisition in 2009 , which had a full year of impact in 2010. subscriber equipment sales duplex equipment sales decreased by approximately 29 % in 2010 from 2009. this decrease in equipment sales relates primarily to our two-way communication issues . spot equipment sales increased approximately 37 % in 2010 from 2009. this increase relates to our sales of our spot 2 satellite gps messenger and spot communicator products during the year . simplex equipment sales increased approximately 858 % in 2010 from 2009. this increase in sales of our one-way transmission products relates primarily to our axonn acquisition in december 2009. this acquisition resulted in new sales of data machine-to-machine ( m2m ) products , including stx2 , mmt , and smartone asset tracking solutions . other equipment sales decreased approximately 92 % in 2010 from 2009. this decrease relates primarily to revenue recognized under the percentage of completion method of accounting for the sale and construction of gateway assets in 2009. our inventory and advances for inventory balances were $ 55.6 million and $ 9.4 million , respectively , as of december 31 , 2010 , compared with subscriber equipment sales of $ 17.0 million for the year then ended . a significant portion of our inventory consists of duplex products which are designed to operate with both our initial constellation and our second-generation constellation . our advances for inventory relate to our commitment with qualcomm to purchase additional duplex products . as discussed in note 8 to the consolidated financial statements , we are currently seeking to negotiate termination of this commitment . we have not entered into any other purchase commitments to product or purchase the next generation of duplex products . 29 < div style= '' page-break-before : always ; margin-top :
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the guidance goes on to explain that in consultation with the fasb staff that the federal banking agencies conclude that short-term modifications ( e.g. , six months ) made on a good faith basis to borrowers that were current as of the implementation date of a relief program are not tdrs . on march 27 , 2020 , the cares act , a $ 2 trillion stimulus package intended to provide relief to businesses and consumers in the united states struggling as a result of the pandemic , was signed into law . section 4013 of the cares act also addressed covid-19 related modifications and specified that covid-19 related modifications on loans that were current as of december 31 , 2019 are not tdrs . on april 7 , 2020 , the federal banking agencies revised its earlier guidance to clarify the interaction between the march 22 , 2020 interagency statement and section 4013 of the cares act , as well as the agencies ' views on consumer protection considerations . during 2020 , trustmark modified 2,362 individual loans with aggregate principal balances totaling $ 1.266 billion at december 31 , 2020 under this guidance , as well as 61 individual loans with aggregate principal balances totaling $ 4.7 million at december 31 , 2020 which were not eligible under this guidance , but were not classified as a tdr under trustmark 's existing policies . more of these types of modifications are likely to be executed in the first quarter of 2021. commercial concessions were primarily either interest only for 90 days or full payment deferrals for 90 days . consumer concessions were 90-day full payment deferrals . paycheck protection program a provision in the cares act included a $ 349 billion fund for the creation of the ppp through the sba and treasury department . the ppp is intended to provide loans to small businesses to pay their employees , rent , mortgage interest and utilities . ppp loans are forgivable , in whole or in part , if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the ppp . if not forgiven , in whole or in part , these loans carry a fixed rate of 1.00 % per annum with payments deferred until the date the sba remits the borrower 's loan forgiveness amount to the lender ( or , if the borrower does not apply for loan forgiveness , ten months after the end of the borrower 's loan forgiveness covered period ) . originally , the loans carried a term of two years under sba rules implemented by the cares act , but a june 5 , 2020 amendment to the cares act provided for a five-year minimum loan term for loans made beginning as of such date , and permitted lenders and borrowers to mutually agree to amend existing two-year loans to have terms of five years . the loans are 100 % guaranteed by the sba . the sba pays the originating bank a processing fee ranging from 1.0 % to 5.0 % , based on the size of the loan . the sba began accepting submissions for these ppp loans on april 3 , 2020 and reached the limit of funds originally available to disburse under this program on april 16 , 2020. legislation providing an additional $ 320 billion in funding for the ppp was signed into law on april 24 , 2020. the sba began accepting applications for the new funding on april 27 , 2020 and stopped accepting applications on august 8 , 2020. the sba and treasury department have released a series of rules , guidance documents and processes governing all aspects of the ppp , including a streamlined process for loan forgiveness of ppp loans of $ 50 thousand or less . under the cares act and interim and final rules released by the federal banking agencies , ppp loans receive a zero percent risk weight for regulatory capital purposes , and if pledged as part of the paycheck protection program liquidity facility ( ppplf ) , are subtracted from the lender 's tier 1 leverage ratio . the ppplf was established by the frb to provide a liquidity source to ppp lenders , through non-recourse credit secured by ppp loans . the consolidated appropriations act , 2021 , enacted on december 27 , 2020 , extended some of the relief provisions in certain respects of the cares act , and appropriated an additional $ 284.0 billion to the ppp and permitted certain ppp borrowers to make “ second draw ” loans . tnb began submitting applications to the sba on behalf of its customers on april 4 , 2020 and began funding those loans on april 13 , 2020. through the ppp , tnb had 7,398 loans totaling $ 623.0 million outstanding as of december 31 , 2020. net of deferred fees and costs of $ 12.9 million , ppp loans totaled $ 610.1 million at december 31 , 2020. trustmark began submitting applications to the sba on behalf of qualified small businesses under the third appropriation of ppp funds in january 2021. due to the amount and nature of the ppp loans , these loans are not included in trustmark 's lhfi portfolio and are presented separately in the accompanying consolidated balance sheet . at december 31 , 2020 , tnb had no outstanding ppp loans pledged as collateral at the ppplf . trustmark can not predict the amount of ppp loans that will be forgiven in whole or in part by the sba , nor can it predict the magnitude and timing of the impact the ppp loans and related fees will have on trustmark 's net interest margin . however , tnb 's participation in the ppp will likely have a significant impact on trustmark 's asset mix and net interest margin in 2021 as a result of the addition of these low interest rate loans and the related processing fees earned on these loans . story_separator_special_tag executive overview trustmark has been committed to meeting the banking and financial needs of its customers and communities for over 130 years . during the covid-19 pandemic , trustmark remains focused on providing support , advice and solutions to meet its customers ' unique needs . during 2020 , trustmark experienced strong growth in its mortgage banking business , which increased noninterest income by $ 20.2 million and $ 96.0 million , respectively , when the three months and year ended december 31 , 2020 are compared to the same time period in 2019. trustmark continued to maintain and expand customer relationships as reflected by growth in the lhfi portfolio of $ 488.9 million , or 5.2 % , and growth in deposits of $ 2.803 billion , or 24.9 % , during 2020. trustmark is committed to managing the 34 franchise for the long term , supporting investments to promote profitable revenue growth , realigning delivery channels to support changing customer preferences as well as reengineering and efficiency opportunities to enhance long-term shareholder value . trustmark continued to invest in its insurance business with the completion of the acquisition of a mississippi-based agency during the second quarter of 2020. trustmark 's capital position remained solid , reflecting the consistent profitability of its diversified financial services businesses . t he board of directors of trustmark declared a quarterly cash dividend of $ 0.23 per share . the dividend is payable march 15 , 20 2 1 , to shareholders of record on march 1 , 20 2 1 . story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > % and a dividend payout ratio of 39.48 % for the year ended december 31 , 2019 and a return on average tangible equity of 12.86 % , a return on average assets of 1.11 % and a dividend payout ratio of 41.44 % for the year ended december 31 , 2018 . trustmark 's average equity to average assets ratio was 11.05 % , 12.02 % and 11 . 7 8 % for the years ended december 31 , 2020 , 2019 and 2018 , respectively . revenue totaled $ 701.1 million for the year ended december 31 , 2020 , compared to $ 613.6 million and $ 604.3 million for the years ended december 31 , 2019 and 2018 , respectively . the increase in total revenue for 2020 compared to 2019 was principally due to an increase in total noninterest income primarily as a result of the increase in mortgage banking , net . net interest income for the year ended december 31 , 2020 totaled $ 426.5 million , relatively unchanged when compared to the year ended december 31 , 2019 , principally due to declines in interest and fees on lhfs and lhfi of $ 49.4 million , or 11.2 % , interest and fees on acquired loans of $ 8.4 million , interest on securities of $ 7.0 million , or 12.5 % , and other interest income of $ 3.8 million , or 70.9 % , offset by a decline in interest on deposits of $ 41.7 million , or 52.7 % , and the addition of interest and fees on ppp loans of $ 26.6 million . declines in interest and fees on lhfs and lhfi , interest on securities and interest on deposits for 2020 were principally due to the decline in interest rates . the decline in interest and fees on acquired loans for 2020 was due to the reclassification of the remaining balance of acquired loans to lhfi upon the adoption of fasb asc topic 326. see the section captioned “ acquired loans , ” for additional information regarding the acquired loans reclassified to lhfi . the decline in other interest income for 2020 was principally due to a decline in interest earned on deposits held at the federal reserve as a result of the frb 's decision to reduce the interest it pays on excess reserves from 1.60 % to 0.10 % in march of 2020. noninterest income totaled $ 274.6 million for 2020 , an increase of $ 87.5 million , or 46.8 % , when compared to 2019 , principally due to an increase in mortgage banking , net partially offset by a decline in service charges on deposit accounts . mortgage banking , net increased $ 96.0 million when 2020 is compared to 2019 , principally due to increases in gain on sales of loans , net and a positive net hedge ineffectiveness . service charges on deposit accounts declined $ 10.3 million , or 24.2 % , when 2020 is compared to 2019 , principally due to declines in non-sufficient funds ( nsf ) and overdraft fees on consumer demand deposit and interest checking accounts and commercial demand deposit accounts , primarily due to declines in overdraft occurrences as a result of covid-19 related business closures , stay-at-home orders and government stimulus programs . noninterest expense totaled $ 475.2 million for 2020 , an increase of $ 46.2 million , or 10.8 % , when compared to 2019 , principally due to increases in salaries and employee benefits and services and fees , as well as the addition of the credit loss expense related to off-balance sheet credit exposures . salaries and employee benefits expense increased $ 24.5 million , or 9.9 % , when 2020 is compared to 2019. during the first quarter of 2020 , trustmark completed a voluntary early retirement program and incurred $ 4.3 million of non-routine salaries and employee benefits expense related to this program .
| the declines in interest on deposits and interest and fees on lhfs and lhfi for the fourth quarter of 2020 were principally due to lower interest rates . noninterest income for the fourth quarter of 2020 totaled $ 66.1 million , an increase of $ 18.5 million , or 39.0 % , when compared to the fourth quarter of 2019 , principally due to an increase in mortgage banking , net of $ 20.2 million . the increase in mortgage banking , net for the fourth quarter of 2020 was principally due to an increase in gain on sales of loans , net . noninterest expense for the fourth quarter of 2020 totaled $ 118.8 million , an increase of $ 8.8 million , or 8.0 % , when compared to the fourth quarter of 2019 , principally due to increases in salaries and employee benefits of $ 7.3 million , or 11.8 % , and services and fees of $ 2.8 million , or 14.5 % . the increase in salaries and employee benefits when the fourth quarter of 2020 is compared to the fourth quarter of 2019 was principally due to increases in performance based incentives , mortgage origination commissions , general merit increases and additional salaries expense related to the covid-19 pandemic . the increase in services and fees when the fourth quarter of 2020 is compared to the fourth quarter of 2019 was principally due to increases in legal fees related to ongoing litigation matters and data processing charges related to software . trustmark adopted fasb asc topic 326 , in accordance with the amendments of fasb asu 2016-13 , effective january 1 , 2020. the guidance in fasb asc topic 326 replaced trustmark 's previous incurred loss methodology with a methodology that reflects the current expected credit losses ( often referred to as cecl ) and requires consideration of a broader range of reasonable and supportable information to determine credit losses . trustmark 's allowance for credit losses ( acl ) for lhfi is an estimate of expected credit losses inherent within trustmark 's existing lhfi portfolio . the acl , lhfi is adjusted through the provision for
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the aggregate net proceeds from the offering were $ 225.2 million , net of underwriting discounts and commissions and offering expenses payable by us . on july 25 , 2012 , we closed our follow-on offering , in which certain of our stockholders sold 11,744,064 shares of common stock to the public . the aggregate offering price for shares sold in the offering was approximately $ 320.2 million , net of underwriting discounts and commissions . on august 1 , 2012 , the underwriters exercised in full their option to purchase 1,761,609 additional shares of common stock from our selling stockholders . we did not receive any proceeds from the sale of shares in the follow-on offering . 47 for the fiscal years ended january 31 , 2013 , 2012 and 2011 , our revenues were $ 198.9 million , $ 121.0 million and $ 66.2 million , respectively . for the fiscal year ended january 31 , 2013 , approximately 22 % of our revenues were derived from customers located outside the united states . our customers and end-users represent the public sector and a wide variety of industries , including financial services , manufacturing , retail and technology , among others . as of january 31 , 2013 , we had over 5,200 splunk enterprise customers , including over 60 of the fortune 100. for the fiscal years ended january 31 , 2013 , 2012 and 2011 , our gaap operating loss was $ 22.0 million , $ 8.7 million and $ 3.3 million , respectively , and our non-gaap operating loss was $ 1.4 million , $ 4.9 million and $ 1.7 million , respectively . for the fiscal years ended january 31 , 2013 , 2012 and 2011 , our gaap net loss was $ 36.7 million , $ 11.0 million and $ 3.8 million , respectively , and our non-gaap net loss was $ 2.0 million , $ 5.2 million and $ 1.9 million , respectively . our fiscal results reflect seasonality in the sale of our products and services . historically , a pattern of increased license sales in the fourth fiscal quarter as a result of industry buying patterns has positively impacted sales activity in that period , which can result in lower sequential revenue in the first fiscal quarter . our gross margins and operating losses have been affected by these historical trends because the majority of our expenses are relatively fixed in the short term . the majority of our expenses are personnel-related and include salaries , stock-based compensation , benefits and incentive-based compensation plan expenses . as a result , we have not experienced significant seasonal fluctuations in the timing of expenses from period to period . non-gaap financial results to supplement splunk 's consolidated financial statements , which are prepared and presented in accordance with generally accepted accounting principles in the united states ( `` gaap '' ) , splunk provides investors with certain non-gaap financial measures , including non-gaap operating income ( loss ) , non-gaap net income ( loss ) , non-gaap operating margin , and non-gaap income ( loss ) per share ( collectively the `` non-gaap financial measures '' ) . these non-gaap financial measures exclude stock-based compensation expense , employer payroll tax expense related to employee stock plans , and the change in fair value of certain preferred stock warrants previously issued by splunk . in addition , non-gaap financial measures include free cash flow , which represents cash from operations less purchases of property and equipment . the presentation of the non-gaap financial measures is not intended to be considered in isolation or as a substitute for , or superior to , the financial information prepared and presented in accordance with gaap . splunk uses these non-gaap financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons . splunk believes that these non-gaap financial measures provide useful information about splunk 's operating results , enhance the overall understanding of past financial performance and future prospects , and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making . in addition , these non-gaap financial measures facilitate comparisons to competitors ' operating results . splunk excludes stock-based compensation expense and employer payroll tax expense related to employee stock plans from its non-gaap operating income ( loss ) , non-gaap net income ( loss ) , non-gaap operating margin and non-gaap income ( loss ) per share . splunk excludes share-based compensation expense because it is non-cash in nature , and excluding this expense provides meaningful supplemental information regarding splunk 's operational performance . in particular , because of varying available valuation methodologies , subjective assumptions and the variety of award types that companies can use under fasb asc topic 718 , splunk believes that providing non-gaap financial measures that exclude this expense allows investors the ability to make more meaningful comparisons between splunk 's operating results and those of other companies . splunk excludes employer payroll tax 48 expense related to employee stock plans in order for investors to see the full effect that excluding that share-based compensation expense had on splunk 's operating results . these expenses are tied to the exercise or vesting of underlying equity awards and the price of splunk 's common stock at the time of vesting or exercise , which may vary from period to period independent of the operating performance of splunk 's business . splunk also excludes expense attributable to the change in fair value of certain preferred stock warrants from its non-gaap financial measures because it is a non-recurring , non-cash expense . accordingly , splunk believes that excluding these expenses provides investors and management with greater visibility to the underlying performance of its business operations , facilitates comparison of its results with other periods , and may also facilitate comparison with the results of other companies in its industry . story_separator_special_tag splunk considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities , including investing in its business , making strategic acquisitions , and strengthening its balance sheet . there are limitations in using non-gaap financial measures because the non-gaap financial measures are not prepared in accordance with gaap , may be different from non-gaap financial measures used by splunk 's competitors , and exclude expenses that may have a material impact upon splunk 's reported financial results . further , stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in splunk 's business and an important part of the compensation provided to splunk 's employees . the non-gaap financial measures are meant to supplement , and be viewed in conjunction with , gaap financial measures . the following table reconciles gaap operating loss to non-gaap operating loss for the fiscal years ended january 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_6_th the following table reconciles gaap operating margin to non-gaap operating margin for the fiscal years ended january 31 , 2013 , 2012 and 2011 : replace_table_token_7_th 49 the following table reconciles gaap net loss to non-gaap net loss for the fiscal years ended january 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_8_th the following table reconciles gaap net loss per share to non-gaap basic and diluted net loss per share for the fiscal years ended january 31 , 2013 , 2012 and 2011 ( in thousands , except per share amounts ) : replace_table_token_9_th the following table reconciles our net cash provided by operating activities to free cash flow for the fiscal years ended january 31 , 2013 , 2012 and 2011 ( in thousands ) : replace_table_token_10_th components of operating results revenues license revenues . license revenues reflect the revenues recognized from sales of licenses to new customers and additional licenses to existing customers . we are focused on acquiring new customers and increasing revenues from our existing customers as they realize the value of our software by indexing higher volumes of machine data and expanding the use of our software through additional use cases and broader deployment within their organizations . a majority of our license revenues consists of revenues from perpetual licenses , under which we generally recognize the license fee portion of the arrangement upfront , assuming all revenue recognition criteria are satisfied . customers can also purchase term license agreements , under which we recognize the license fee ratably , on a straight-line basis , over the term of the license . due to the differing revenue recognition policies applicable to 50 perpetual and term licenses , shifts in the mix between perpetual and term licenses from quarter to quarter could produce substantial variation in revenues recognized even if our sales remain consistent . in addition , seasonal trends that contribute to increased sales activity in the fourth fiscal quarter often result in lower sequential revenue in the first fiscal quarter , and we expect this trend to continue . for further discussion of seasonality , cyclicality and quarterly trends , as well as the impact on our margins and results , see `` quarterly results of operationsseasonality , cyclicality and quarterly trends , '' below . comparing our revenues on a period-to-period basis may not be meaningful , and you should not rely on our past results as an indication of our future performance . maintenance and services revenues . maintenance and services revenues consist of revenues from maintenance agreements and , to a lesser extent , professional services and training . typically , when purchasing a perpetual license , a customer also purchases one year of maintenance service for which we charge a percentage of the license fee . when a term license is purchased , maintenance service is typically bundled with the license for the term of the license period . 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 recognize the revenues associated with maintenance agreements ratably , on a straight-line basis , over the associated maintenance period . in arrangements involving a term license , we recognize both the license and maintenance revenues over the license period . we have a professional services organization focused on helping some of our largest customers deploy our software in highly complex operational environments and train their personnel . we recognize the revenues associated with these professional services on a time and materials basis as we deliver the services or provide the training . professional services and training revenues as a percentage of total revenues were 7 % for fiscal 2013. we have experienced continued growth in our professional services revenues primarily due to the deployment of our software with some customers that have large , highly complex it environments . we expect maintenance and services revenues to become a larger portion of our total revenues as our installed customer base grows . cost of revenues cost of license revenues . cost of license revenues includes all direct costs to deliver our product , including salaries , benefits , stock-based compensation and related expenses such as employer taxes , allocated overhead for facilities and it and amortization of acquired intangible assets . we recognize these expenses as they are incurred . cost of maintenance and services revenues . cost of maintenance and services revenues includes salaries , benefits , stock-based compensation and related expenses such as employer taxes for our maintenance and services organization , allocated overhead for facilities and it and consulting services . we recognize expenses related to our maintenance and services organization as they are incurred . operating expenses our operating expenses are classified into three categories : research and development , sales and marketing , and general and administrative .
| the timing of revenues in relation to our expenses , much of which does not vary directly with revenues , has an impact on the cost of revenues , research and development expense , sales and marketing expense , and general and administrative expense as a percentage of revenues in each fiscal quarter during the year . the majority of our expenses are personnel-related and include salaries , stock-based compensation , benefits and incentive-based compensation plan expenses . as a result , we have not experienced significant seasonal fluctuations in the timing of expenses from period to period . although these seasonal factors are common in the technology industry , historical patterns should not be considered a reliable indicator of our future sales activity or performance . 58 as is typical in the software industry , we expect a significant portion of our product license orders to be received in the last month of each fiscal quarter . we typically ship products shortly after the receipt of an order . we may have backlog consisting of product license orders that have not shipped and maintenance , professional and training services that have not been billed and for which the services have not yet been performed . historically , our backlog has varied from quarter to quarter and has been immaterial to our total revenues . liquidity and capital resources as of january 31 , 2013 2012 2011 ( in thousands ) cash and cash equivalents $ 305,939 $ 31,599 $ 19,737 replace_table_token_19_th since fiscal 2010 we have funded our operations primarily through cash generated from operations . at january 31 , 2013 , our cash and cash equivalents of $ 305.9 million were held for working capital purposes , a majority of which was invested in money market funds . we intend to increase our capital expenditures in fiscal 2014 , consistent with the growth in our business and operations . we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months . our
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aircraft rent aircraft rent expense decreased by $ 2.1 million , or 1.9 % , in 2014 , as compared to 2013 , primarily due to the full year effect of three boeing 767-300 aircraft leases that ended in 2013 , partially offset by full year effect of the addition of two airbus a330-200 aircraft under operating leases . aircraft rent expense increased by $ 9.7 million , or 9.9 % , in 2013 , as compared to 2012 , primarily due to the addition of two airbus a330-200 aircraft under operating leases ( one in february 2013 and one in april 2013 ) , partially offset by the return of three boeing 767-300 aircraft at the end of their lease terms in april , august , and october 2013. maintenance materials and repairs maintenance materials and repairs expense increased by $ 22.2 million , or 10.9 % , in 2014 , as compared to 2013 , primarily due to the increase in the number and utilization of airbus a330-200 aircraft in our fleet , partially offset by a decrease in the number and utilization of boeing 767-300 aircraft in our fleet . maintenance materials and repairs expense increased by $ 19.8 million , or 10.8 % , in 2013 , as compared to 2012 , primarily due to the increase in the number and utilization of airbus a330-200 aircraft in our fleet . depreciation and amortization depreciation and amortization expense increased by $ 13.3 million , or 16.0 % , in 2014 , as compared to 2013 , primarily due to the increase in the number of owned aircraft ( five a330-200 aircraft offset by the retirement of two b767-300 aircraft ) . depreciation and amortization expense decreased by $ 2.5 million , or 3.0 % , in 2013 , as compared to 2012 , primarily due to our frequent flyer marketing relationship intangible asset which was fully amortized as of december 31 , 2012. this decrease was partially offset by the increase in the number of owned aircraft ( three a330-200 aircraft ) . other rentals and landing fees other rentals and landing fees expense increased by $ 6.6 million , or 8.1 % , in 2014 , as compared to 2013 , primarily due to increased rates and landing frequencies . other rentals and landing fees expense decreased by $ 4.3 million , or 5.0 % , in 2013 , as compared to 2012 , primarily due to decreased rental and landing fee rates at our honolulu operational facility . other expense other expense increased by $ 9.4 million , or 5.4 % , in 2014 , as compared to 2013 , primarily due to costs incurred in connection with our turboprop operations that began in march 2014 . 28 other expense increased by $ 20.1 million , or 13.2 % , in 2013 , as compared to 2012 , due to increased travel related expenses and increased expenses incurred on services outsourced to third-party vendors . both increases were primarily the result of our continued expansion . nonoperating expense net nonoperating expense increased by $ 84.3 million in 2014 , as compared to 2013 , primarily due to our fuel hedge portfolio generating losses of $ 63.5 million in the current period compared to losses of $ 5.3 million in the prior year period . the strengthening of the us dollar resulted in foreign exchange loss of $ 8.7 million in the current period compared to a loss of $ 4.4 million in the prior period . the interest expense incurred in connection with the equipment notes under the eetc financing also contributed to the increase in nonoperating expense for the period . net nonoperating expense increased by $ 3.7 million in 2013 , as compared to 2012 , primarily due to increased interest and amortization of debt discounts and issuance costs of $ 6.9 million and $ 19.0 million , respectively , due to the additional financings we entered into subsequent to december 31 , 2013 and 2012 . income tax expense we recorded income tax expense of $ 44.5 million , $ 34.6 million and $ 32.5 million during the years ended december 31 , 2014 , 2013 , and 2012 , respectively . in 2014 , 2013 and 2012 , we had an effective tax rate of 39.2 % , 40.0 % and 37.9 % , respectively . see note 10 to the consolidated financial statements for further discussion . liquidity and capital resources our liquidity is dependent on the cash we generate from operating activities and our debt financing arrangements . as of december 31 , 2014 , we had $ 264.1 million in cash and cash equivalents and $ 260.1 million in short-term investments , representing an increase of $ 100.8 million from december 31 , 2013 . as of december 31 , 2014 and 2013 , our restricted cash balance of $ 6.6 million and $ 21.0 million , respectively , consisted of cash held as collateral by entities that process our credit card transactions for advanced ticket sales and cash held as collateral for future interest payments owed in connection with the eetc financing which closed in may 2013. we have been able to generate sufficient funds from our operations to meet our working capital requirements and typically finance our aircraft through secured debt and lease financings . at december 31 , 2014 , hawaiian had $ 1,049.6 million of debt and capital lease obligations , including $ 156.3 million classified as a current liability in the consolidated balance sheets . during the quarter ended december 31 , 2014 a condition for conversion of the convertible notes was satisfied , which permits holders of the convertible notes to surrender their notes for conversion during the quarter ending march 31 , 2015. as a result , the carrying value of $ 66.5 million is reflected as a current liability in the consolidated balance sheets . story_separator_special_tag in september 2014 , we terminated our secured revolving credit facility with wells fargo capital finance llc , which provided for a secured revolving credit facility of $ 75 million . in november 2014 , the company entered into a credit agreement with citigroup global markets inc. providing for a secured revolving credit and letter of credit facility ( `` revolving credit facility '' ) in an amount of up to $ 175 million . as of december 31 , 2014 we had no outstanding borrowings under the revolving credit facility . cash flows net cash provided by operating activities was $ 300.4 million , $ 243.3 million and $ 311.0 million in 2014 , 2013 and 2012 , respectively . the increase in 2014 was primarily due to increased net income before the expense associated with unrealized loss positions on our fuel derivative contracts , which do not immediately impact our cash flows from operating activities because the losses were unrealized as of december 31 , 2014. the decrease in 2013 was primarily due to a smaller increase in our air traffic liability as of december 31 , 2013 compared to december 31 , 2012 , primarily because we introduced fewer new routes in 2013 compared to 2012. net cash used in investing activities was $ 686.8 million , $ 327.8 million and $ 290.7 million for 2014 , 2013 and 2012 , respectively . the increase in 2014 was due to the $ 261.5 million in net purchases of investments , and the acquisition of five airbus a330-200 aircraft during the year . the increase in 2013 was primarily due to increases in purchases of property and equipment of $ 79.5 million , offset by decreases in pre-delivery deposits for upcoming aircraft and engine deliveries of $ 28.0 million , and the proceeds received from the disposition of equipment of $ 14.4 million . net cash provided by financing activities was $ 227.1 million , $ 102.0 million and $ 81.4 million for 2014 , 2013 and 2012 , respectively . the increase in 2014 was due to the receipt of $ 368.4 million in proceeds from the eetc financing , partially offset by the $ 54.2 debt extinguishment in october 2014 and the $ 15.1 convertible note repurchase . the increase in the net 29 cash provided by financing activities in 2013 is primarily due to increases in long-term borrowings of $ 110.1 million , offset by increases in cash repayments for debt and capital lease obligations of $ 64.5 million and the collateral payment that was made in connection with the issuance of the eetcs of $ 16.0 million . capital commitments in december 2014 , we entered into a purchase agreement amendment to convert our order for six firm a350xwb-800 aircraft with an additional six purchase rights into an order for six firm a330-800neo aircraft with an additional six purchase rights . the purchase agreement amendment provides for delivery , subject to certain flexibility rights , of six a330-800neo aircraft starting in 2019. these fuel efficient , long-range aircraft will complement our existing fleet of wide-body , twin aisle aircraft used for long-haul flying on our north america and international routes . in december 2014 , we entered into a general terms agreement with rolls-royce for the supply of products and services in support of the trent 7000 engines to be installed on the airbus a330-800neo aircraft . the general terms agreement includes the terms for the supply of spare engines , product warranties and performance guarantees . as of december 31 , 2014 , we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights : replace_table_token_12_th committed expenditures for these aircraft , engines and related flight equipment approximates $ 203 million in 2015 , $ 67 million in 2016 , $ 234 million in 2017 , $ 411 million in 2018 , $ 497 million in 2019 and $ 435 million thereafter . for 2015 , we expect our other non-aircraft related capital expenditures , which include software , improvements , ramp and maintenance equipment to total approximately $ 45 million to $ 55 million . in order to complete the purchase of these aircraft and fund related costs , we must secure acceptable financing . we have backstop financing available from aircraft and engine manufacturers , subject to certain customary conditions . financing will be necessary to satisfy the company 's capital commitments for its firm order aircraft and other related capital expenditures . the company can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to the company on acceptable terms when necessary or at all . see note 13 for further discussion of the purchase assignment and leaseback transactions for our remaining three a330-200 aircraft deliveries in 2015. covenants under our financing arrangements the terms of certain of our financing agreements restrict our ability to , among other things , incur additional indebtedness , issue preferred stock or pay dividends . these agreements also require us to meet certain financial covenants . these financial tests include maintaining a minimum amount of unrestricted cash and achieving certain levels of fixed charge coverage . as of december 31 , 2014 we were in compliance with these covenants . under our bank-issued credit card processing agreements , certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur . these holdbacks , which are included in restricted cash in our consolidated balance sheets , totaled $ 5.0 million as of december 31 , 2014 and 2013 . pension and other postretirement benefit plan funding as of december 31 , 2014 , the excess of the projected benefit obligations over the fair value of plan assets was approximately $ 410.7 million .
| we believe this is a useful measure because it better reflects our controllable costs . see `` non-gaap financial measures '' below for our reconciliation of non-gaap measures . ( c ) includes the operations of our contract carrier under a capacity purchase agreement . operating revenue our revenue is derived primarily from transporting passengers on our aircraft . revenue is recognized when either the transportation is provided or when the related ticket expires unused . we measure capacity in terms of available seat miles , which represent the number of seats available for passengers multiplied by the number of miles the seats are flown . yield , or the average amount one passenger pays to fly one mile , is calculated by dividing passenger revenue by rpms . we strive to increase passenger revenue primarily by increasing our yield per flight or by filling a higher proportion of available seats , which produces higher operating revenue per available seat mile . other revenue primarily consists of baggage fees , cargo revenue , ticket change and cancellation fees , incidental services revenue , sale of frequent flyer miles , inflight revenue , contract services and charter services revenue . operating revenue was $ 2.31 billion , $ 2.16 billion and $ 1.96 billion for the years ended december 31 , 2014 , 2013 and 2012 , respectively , driven primarily by an increase in passenger revenue . 25 passenger revenue passenger revenue was $ 2.05 billion , $ 1.94 billion and $ 1.77 billion for the years ended december 31 , 2014 , 2013 and 2012 , respectively . details of these changes are described in the table below : replace_table_token_8_th north america north america revenue increased by $ 111.4 million in 2014 , as compared to 2013 , due to an increase in the number of revenue passengers flown and the yield generated on these routes . the increase in the number of revenue passengers was driven by an increase in capacity provided by the addition of new airbus a330-200 aircraft delivered during the year ,
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on a dollar basis , total salaries , wages and benefits decreased from $ 108.4 million during 2012 to $ 106.4 million during 2013. partially offsetting the decrease was an increase in costs associated with workers ' compensation benefits during the 2013 as compared to 2012. fuel expense , net of fuel surcharge , decreased from 10.4 % of revenues , before fuel surcharges , during 2012 to 2.7 % of revenues , before fuel surcharges , during 2013. the decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ( “ mpg ” ) experienced . the average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased as a result of more favorable fuel surcharge arrangements made with customers and to an increase in the number of owner operators in our fleet . fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of falling fuel prices . fuel surcharge revenue generated from transportation services performed by owner operators is reflected as a reduction in net fuel expense , while fuel surcharges paid to owner operators for their services is reported along with their base rate of pay in the rent and purchased transportation category . these categorizations have the effect of reducing our net fuel expense while increasing the rent and purchased transportation category , as discussed above . the average mpg experienced increased during 2013 as compared to the mpg experienced during 2012 as a result of replacing older trucks with newer trucks , which are more fuel efficient . rent and purchased transportation increased from 11.3 % of revenues , before fuel surcharges , during 2012 to 21.9 % of revenues , before fuel surcharges , during 2013. the increase relates primarily to an increase in driver lease expense as the average number of owner operators under contract increased from 149 during 2012 to 322 during 2013. the increase in costs in this category , as they relate to the increase in owner operators , are partially offset by a decrease in other cost categories , such as repairs and fuel , which are generally borne by the owner operator . depreciation decreased from 14.0 % of revenues , before fuel surcharges , during 2012 to 13.5 % of revenues , before fuel surcharges , during 2013. the percentage-based decrease relates primarily to the interaction of the fixed-cost characteristic of depreciation expense with an increase in revenues for the periods compared . operating supplies and expenses decreased from 14.3 % of revenues , before fuel surcharges , during 2012 to 12.0 % of revenues , before fuel surcharges , during 2013. the decrease related primarily to a decrease in amounts paid for equipment maintenance costs during 2013 as compared to amounts paid during 2012 as a result of replacing older equipment with new equipment . partially offsetting this decrease was an increase in amounts paid for driver training schools during 2013 as compared to amounts paid during 2012. the increase in driver training and recruiting costs are a result of heightened competition for qualified drivers as industry demand has increased and increased regulations have forced some drivers to exit the profession . - 25 - operating taxes and licenses decreased from 1.8 % of revenues , before fuel surcharges , during 2012 to 1.7 % of revenues , before fuel surcharges , during 2013. the decrease related primarily to a decrease in amounts paid for equipment registration fees from $ 5.0 million during 2012 to $ 4.9 million during 2013. other expenses increased from 1.9 % of revenues , before fuel surcharges , during 2012 to 2.3 % of revenues , before fuel surcharges , during 2013. the increase relates primarily to an increase in amounts expensed for uncollectible revenue , professional services , and for other supplies and expenses . the truckload services division operating ratio , which measures the ratio of operating expenses , net of fuel surcharges , to operating revenues , before fuel surcharges , improved to 96.3 % for 2013 from 99.2 % for 2012. non-operating income decreased from 1.2 % of revenues , before fuel surcharges , during 2012 to 0.5 % of revenues , before fuel surcharges , during 2013. the components of this category consist primarily of dividends earned and gains or losses on the company 's investments in marketable equity securities . the decrease relates primarily to a decrease in the amount of gains recognized between the periods on the company 's investments in marketable equity securities . 2012 compared to 2011 for the year ended december 31 , 2012 , truckload services revenue , before fuel surcharges , increased 2.9 % to $ 273.4 million as compared to $ 265.8 million for the year ended december 31 , 2011. the increase relates primarily an increase in the average number of miles traveled per unit each work day from 434 miles during 2011 to 449 miles during 2012. salaries , wages and benefits decreased from 41.3 % of revenues , before fuel surcharges , during 2011 to 39.7 % of revenues , before fuel surcharges , during 2012. the decrease related primarily to a decrease in expenses associated with workers ' compensation benefits . to a lesser extent , the decrease related to a decrease in company driver wages paid during 2012 as compared to company driver wages paid during 2011. our driver pool consists of both company divers and third-party owner operators . company drivers are employees of the company and perform services in company-owned equipment while owner-operator drivers provide services , under contract , using their own equipment . while each group is generally compensated on a per-mile basis , owner-operator payments are classified in the company 's financial statements under the rent and purchased transportation category . story_separator_special_tag the percentage-based decrease in salaries , wages and benefits resulted from a decrease in the proportion of total miles driven by company drivers during 2012 in comparison to the proportion of total miles driven by company drivers during 2011. this proportional decrease was the result of an increase in the average number of owner operators under contract from 48 during 2011 to 149 during 2012. on a dollar basis , total salaries , wages and benefits decreased from $ 109.7 million during 2011 to $ 108.4 million during 2012. offsetting the majority of the decrease in company driver wages was an increase in general and administrative wages paid during 2012 as compared to 2011. partially offsetting the decrease was an increase in costs associated with group health benefits paid during 2012 as compared to 2011. fuel expense , net of fuel surcharge , decreased from 18.8 % of revenues , before fuel surcharges , during 2011 to 10.4 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel and to an increase in the average miles-per-gallon ( “ mpg ” ) experienced . the average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased as a result of more favorable fuel surcharge arrangements made with customers and to an increase in the number of owner operators in our fleet . fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of falling fuel prices . fuel surcharge revenue generated from transportation services performed by owner operators is reflected as a reduction in net fuel expense , while fuel surcharges paid to owner operators for their services is reported along with their base rate of pay in the rents and purchased transportation category . these categorizations have the effect of reducing our net fuel expense while increasing rents and purchased transportation category , as discussed above . the average mpg experienced increased during 2012 as compared to the mpg experienced during 2011 as a result of replacing older trucks with newer trucks , which are more fuel efficient and to the implementation of driver bonus programs which are tied directly to fuel efficiency . - 26 - rent and purchased transportation increased from 4.7 % of revenues , before fuel surcharges , during 2011 to 11.3 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to an increase in driver lease expense as the average number of owner operators under contract increased from 48 during 2011 to 149 during 2012. the increase in costs in this category , as they relate to the increase in owner operators , are partially offset by a decrease in other cost categories , such as repairs and fuel , which are generally borne by the owner operator . depreciation and amortization increased from 12.8 % of revenues , before fuel surcharges , during 2011 to 14.0 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to purchases of new trucks made during 2012 which replaced older trucks within the fleet . these new truck replacements have a significantly higher purchase price than those trucks that are being replaced and are also being depreciated over a shorter period of time as the company accelerates its truck replacement cycle from every five years to a replacement cycle of every three years . this reduction in replacement cycle , combined with a higher purchase price , results in higher depreciation expense over a shorter period of time . the decrease in the truck replacement cycle time is intended to reduce fuel costs , improve driver and customer satisfaction , and to reduce long-term maintenance costs as well as increase fleet efficiency by reducing maintenance down-time . operating supplies and expenses decreased from 14.5 % of revenues , before fuel surcharges , during 2011 to 14.3 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts paid for equipment maintenance costs during 2012 as compared to amounts paid during 2011 as a result of replacing older equipment with new equipment . partially offsetting this decrease was an increase in amounts paid for driver training schools during 2012 as compared to amounts paid during 2011. the increase in driver training and recruiting costs are a result of heightened competition for qualified drivers as industry demand has increased and increased regulations have forced some drivers to exit the profession . operating taxes and licenses decreased from 1.9 % of revenues , before fuel surcharges , during 2011 to 1.8 % of revenues , before fuel surcharges , during 2012. the decrease , as a percentage of revenue , resulted from the interaction of expenses with fixed-cost characteristics , such as registration fees , with an increase in revenues for the periods compared . on a dollar basis , operating taxes and licenses , which consists primarily of equipment registration fees , increased from $ 4.9 million during 2011 to $ 5.0 million during 2012. insurance and claims expense increased from 4.9 % of revenues , before fuel surcharges , during 2011 to 5.0 % of revenues , before fuel surcharges , during 2012. the increase relates primarily to an increase in auto liability and cargo related claims expenses incurred during 2012 as compared to 2011. other expenses decreased from 2.3 % of revenues , before fuel surcharges , during 2011 to 1.9 % of revenues , before fuel surcharges , during 2012. the decrease relates primarily to a decrease in amounts expensed for uncollectible revenue , professional services , and for other supplies and expenses .
| during 2013 and 2012 , we utilized cash on hand , installment notes , and our lines of credit to finance revenue equipment purchases of approximately $ 70.2 million and $ 95.1 million , respectively . occasionally we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 60 months . at december 31 , 2013 , the company 's subsidiaries had combined outstanding indebtedness under such installment notes of $ 110.5 million . these installment notes are payable in monthly installments , ranging from 36 monthly installments to 60 monthly installments , at a weighted average interest rate of 2.91 % . at december 31 , 2012 , the company 's subsidiaries had combined outstanding indebtedness under such installment notes of $ 102.1 million . these installment notes were payable in 36 monthly installments at a weighted average interest rate of 3.02 % . in order to maintain our truck and trailer fleet count it is often necessary to purchase replacement units and place them in service before trade units are removed from service . the timing of this process often requires the company to pay for new units without any reduction in price for trade units . in this situation , the company later receives payment for the trade units as they are delivered to the equipment vendor and have passed vendor inspection . during the twelve months ended december 31 , 2013 and 2012 , the company received approximately $ 16.3 million and $ 12.7 million , respectively , for units delivered for trade . - 31 - during 2013 , the company maintained a $ 35.0 million revolving line of credit . amounts outstanding under the line bear interest at libor ( determined as of the first day of each month ) plus 1.75 % ( 1.92 % at december 31 , 2013 ) , are secured by our trade accounts receivable and mature on june 1 , 2015. at december 31 , 2013 , outstanding advances on the line were approximately $ 1.1 million , which consisted entirely of letters of credit totaling $ 1.1 million , with availability
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these factors include : · our degree of leverage ; · our access to funding and borrowing capacity ; · our borrowing costs ; · our hedging activities ; · the market value of our investments ; and · the requirements to qualify as a reit and the requirements to qualify for a registration exemption under the investment company act . -43- story_separator_special_tag each period relative to our derivative instruments , and the income statement line item , gains ( losses ) on derivative instruments , calculated in accordance with gaap for the years ended december 31 , 2014 , 2013 and 2012 and for each quarter during 2014 , 2013 and 2012. replace_table_token_5_th -45- economic interest expense and economic net interest income ( in thousands ) interest expense on repurchase agreements gains ( losses ) on derivative instruments net interest income gaap attributed economic gaap economic interest interest to current interest net interest net interest income expense period ( 1 ) expense ( 2 ) income income ( 3 ) three months ended december 31 , 2014 $ 12,146 $ 1,126 $ ( 145 ) $ 1,271 $ 11,020 $ 10,875 september 30 , 2014 9,286 818 ( 25 ) 843 8,468 8,443 june 30 , 2014 6,589 676 ( 3 ) 679 5,913 5,910 march 31 , 2014 3,783 411 ( 30 ) 441 3,372 3,342 december 31 , 2013 2,806 309 ( 42 ) 351 2,497 2,455 september 30 , 2013 2,551 294 ( 28 ) 322 2,257 2,229 june 30 , 2013 2,429 322 ( 4 ) 326 2,107 2,103 march 31 , 2013 1,413 201 ( 65 ) 266 1,212 1,147 december 31 , 2012 473 94 ( 62 ) 156 379 317 september 30 , 2012 697 58 ( 28 ) 86 639 611 june 30 , 2012 769 74 ( 10 ) 84 695 685 march 31 , 2012 759 51 ( 4 ) 55 708 704 years ended december 31 , 2014 $ 31,804 $ 3,031 $ ( 203 ) $ 3,234 $ 28,773 28,570 december 31 , 2013 9,199 1,126 ( 139 ) 1,265 8,073 7,934 december 31 , 2012 2,698 277 ( 104 ) 381 2,421 2,317 ( 1 ) reflects the effect of derivative instrument hedges for only the period presented ( 2 ) calculated by subtracting the effect of derivative instrument hedges attributed to the period presented from gaap interest expense . ( 3 ) calculated by adding the effect of derivative instrument hedges attributed to the period presented to gaap net interest income . net interest income during the year ended december 31 , 2014 , we generated $ 28.8 million of net interest income , consisting of $ 31.8 million of interest income from rmbs assets offset by $ 3.0 million of interest expense on repurchase liabilities . for the year ended december 31 , 2013 , we generated $ 8.1 million of net interest income , consisting of $ 9.2 million of interest income from rmbs assets offset by $ 1.1 million of interest expense on repurchase liabilities . the $ 22.6 million increase in interest income and $ 1.9 million increase in interest expense for the year ended december 31 , 2014 primarily reflects the deployment of the proceeds from our 2014 capital raising activities into the rmbs portfolio on a leveraged basis . for the year ended december 31 , 2012 , we generated $ 2.4 million of net interest income , consisting of $ 2.7 million of interest income from rmbs assets offset by $ 0.3 million of interest expense on repurchase liabilities . the $ 6.5 million increase in interest income and $ 0.8 million increase in interest expense for the year ended december 31 , 2013 primarily reflects the deployment of our ipo proceeds into the rmbs portfolio on a leveraged basis . on an economic basis , our interest expense on repurchase liabilities for the years ended december 31 , 2014 , 2013 and 2012 was $ 3.2 million , $ 1.3 million and $ 0.4 million , respectively , resulting in $ 28.6 million , $ 7.9 million and $ 2.3 million of economic net interest income , respectively . -46- the tables below provide information on our portfolio average balances , interest income , yield on assets , average repurchase agreement balances , interest expense , cost of funds , net interest income and net interest spread for each quarter in 2014 , 2013 and 2012 and for the years ended december 31 , 2014 , 2013 and 2012 on both a gaap and economic basis . replace_table_token_6_th replace_table_token_7_th ( 1 ) portfolio yields and costs of borrowings presented in the tables above and the tables on pages 48 and 50 are calculated based on the average balances of the underlying investment portfolio/repurchase agreement balances and are annualized for the quarterly periods presented . average balances for quarterly periods are calculated using two data points , the beginning and ending balances . average balances for the year to date periods are calculated as the average of the average quarterly periods . ( 2 ) economic interest expense and economic net interest income presented in the table above and the tables on page 50 includes the effect of our derivative instrument hedges for only the periods presented . ( 3 ) represents interest cost of our borrowings and the effect of derivative instrument hedges attributed to the period divided by average rmbs held . ( 4 ) economic net interest spread is calculated by subtracting average economic cost of funds from yield on average rmbs . -47- interest income and average asset yield our interest income for the years ended december 31 , 2014 and 2013 was $ 31.8 million and $ 9.2 million , respectively . we had average rmbs holdings of $ 937.4 million and $ 316.1 million for the years ended december 31 , 2014 and 2013 , respectively . the yield on our portfolio was 3.39 % and 2.91 % for the years ended december 31 , 2014 and 2013 , respectively . story_separator_special_tag for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 , there was a $ 22.6 million increase in interest income due to a $ 621.3 million increase in average rmbs , combined with a 48 basis point increase in the yield on average rmbs for the year ended december 31 , 2014 when compared to the year ended december 31 , 2013. the increase in average rmbs during the year ended december 31 , 2014 reflects the deployment of the proceeds of our capital raising activities during 2014 , on a leveraged basis . for the year ended december 31 , 2012 we had interest income of $ 2.7 million and average rmbs holdings of $ 74.9 million , resulting in a yield on our portfolio of 3.60 % . for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 , there was a $ 6.5 million increase in interest income due to a $ 241.2 million increase in average rmbs , partially offset by a 69 basis point decrease in the yield on average rmbs . the increase in average rmbs during the year ended december 31 , 2013 reflects the deployment of the proceeds of our initial public offering . the table below presents the average portfolio size , income and yields of our respective sub-portfolios , consisting of structured rmbs and pass-through rmbs ( “ pt rmbs ” ) for the years ended december 31 , 2014 , 2013 and 2012 and for each quarter during 2014 , 2013 and 2012. replace_table_token_8_th -48- interest expense and the cost of funds we had average outstanding repurchase agreements of $ 892.1 million and $ 284.5 million and total interest expense of $ 3.0 million and $ 1.1 million for the years ended december 31 , 2014 and 2013 , respectively . our average cost of funds was 0.34 % and 0.40 % for years ended december 31 , 2014 and 2013 , respectively . there was a 6 basis point decrease in the average cost of funds and a $ 607.6 million increase in average outstanding repurchase agreements during the year ended december 31 , 2014 as compared to the year ended december 31 , 2013. the increase in average outstanding repurchase agreements , and the corresponding increase in interest expense , reflects the leveraging of the proceeds of our 2014 capital raising activities . for the year ended december 31 , 2012 , we had average outstanding repurchase agreements of $ 63.9 million and total interest expense of $ 0.3 million , resulting in an average cost of funds of 0.43 % . there was a 3 basis point decrease in the average cost of funds and a $ 220.6 million increase in average outstanding repurchase agreements during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. the increase in average outstanding repurchase agreements , and the corresponding increase in interest expense , reflects the leveraging of the proceeds of our initial public offering . our economic interest expense was $ 3.2 million , $ 1.3 million and $ 0.4 million for the years ended december 31 , 2014 , 2013 and 2012 , respectively . there was an 8 basis point decrease in the average economic cost of funds to 0.36 % for the year ended december 31 , 2014 from 0.44 % for the year ended december 31 , 2013. there was a 16 basis point decrease in the average economic cost of funds to 0.44 % for the year ended december 31 , 2013 from 0.60 % for the year ended december 31 , 2012. since all of our repurchase agreements are short-term , changes in market rates directly affect our interest expense . our average cost of funds calculated on a gaap basis was 17 basis points above average one-month libor and 1 basis points below average six-month libor for the quarter ended december 31 , 2014. our average economic cost of funds was 22 basis points above average one-month libor and 4 basis points above average six-month libor for the quarter ended december 31 , 2014. the average term to maturity of the outstanding repurchase agreements was 27 days and 15 days at december 31 , 2014 and 2013 , respectively . -49- the tables below presents the average balance of repurchase agreements outstanding , interest expense and average cost of funds , and average one-month and six-month libor rates for each quarter in 2014 , 2013 and 2012 and for the years ended december 31 , 2014 , 2013 and 2012 on both a gaap and economic basis . replace_table_token_9_th replace_table_token_10_th -50- gains or losses the table below presents our gains or losses for the years ended december 31 , 2014 , 2013 and 2012. replace_table_token_11_th we invest in rmbs with the intent to earn net income from the realized yield on those assets over their related funding and hedging costs , and not for purposes of making short term gains from sales . however , we have sold , and may continue to sell , existing assets to acquire new assets , which our management believes might have higher risk-adjusted returns in light of current or anticipated interest rates , federal government programs or general economic conditions or to manage our balance sheet as part of our asset/liability management strategy . during the years ended december 31 , 2014 , 2013 and 2012 , the company received proceeds of $ 928.0 million , $ 409.0 million and $ 129.1 million , respectively , from the sales of rmbs . the increase in sales volume reflects the repositioning of our portfolio following our ipo in 2013 and our additional capital raising activities in 2014. the net realized and unrealized gains ( losses ) on rmbs for the years ended december 31 , 2014 , 2013 and 2012 were the result of sales executed to replace securities that no longer offered attractive risk adjusted returns with those that did .
| in the future , the company may use other derivative instruments to hedge its interest expense and or elect to designate its derivative holdings for hedge accounting treatment . for the purpose of computing economic net interest income and ratios relating to cost of funds measures , gaap interest expense has been adjusted to reflect the realized gains or losses on specific derivative instruments that pertain to each period presented . as of december 31 , 2014 , the company had eurodollar futures contracts in place through 2018 , and interest rate swaption agreements in place covering periods beginning in 2015 through 2025. adjusting our interest expense for the periods presented by the gains or losses on all derivative instruments would not accurately reflect our economic interest expense for these periods . for each period presented , the company has combined the effects of the derivative financial instruments in place for the respective period with the actual interest expense incurred on repurchase agreements to reflect total expense for the applicable period . interest expense , including the effect of derivative instruments for the period , is referred to as economic interest expense . net interest income , when calculated to include the effect of derivative instruments for the period , is referred to as economic net interest income . -44- however , because the company has not elected hedging treatment under asc 815 , the gains or losses on all of the company 's derivative instruments held during the period are reflected in our statements of operations . this presentation includes gains or losses on all contracts in effect during the reporting period covering the current period as well as periods in the future . the company believes that economic interest expense and economic net interest income provides meaningful information to consider , in addition to the respective amounts prepared in accordance with gaap . the non-gaap measures help the company to evaluate its financial position and performance without the effects of certain transactions and gaap adjustments that
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research and development ( “ r & d ” ) expenses vary period to period due to the timing of projects , the availability of funds , and the timing , extent and use of outside consulting , design and development firms . in fiscal 2013 , r & d expenses were primarily for in-house development , however , we continue to supplement our in-house development with third party consulting resulting in higher expenses . based on current plans and engineering staffing , we expect fiscal year 2014 r & d expenses to be comparable to expenditures made in fiscal year 2013. critical accounting policies and estimates we have identified the policies below as critical to our business operations and to understanding our results of operations . our accounting policies are more fully described in our financial statements and related notes located in “ item 8. financial statements and supplementary data. ” the impact and any associated risks related to these policies on our business operations are discussed in “ item 1a . risk factors ” and throughout “ item 7. management 's discussion and analysis of financial condition and results of operations ” when such policies affect our reported and expected financial results . the methods , estimates and judgments we use in applying our accounting policies , in conformity with generally accepted accounting principles in the united states , have a significant impact on the results we report in our financial statements . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . these estimates affect the carrying values of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . 17 revenue recognition . we derive our revenues primarily from two sources : ( i ) product revenues and ( ii ) contracts , license fees , other services and freight . product revenues from customers , including resellers and system integrators , are recognized in the periods that products are shipped ( free on board ( “ fob ” ) shipping point ) or received by customers ( fob destination ) , when the fee is fixed or determinable , when collection of resulting receivables is probable and we have no remaining obligations . most revenues to resellers and system integrators are based on firm commitments from the end user , and as a result , resellers and system integrators carry little or no inventory . revenues from associated engineering and installation contracts are recognized based on milestones or completion of the contracted services . our customers do not have the right to return product unless the product is found to be defective . we occasionally license our technology to third parties . revenues from up-front license fees are evaluated for multiple elements , but are generally recognized ratably over the specified term of the particular license or agreement . revenues from ongoing per unit license fees are earned based on units shipped and are recognized in the period when the ultimate customer accepts the product , and collection is reasonably assured . we also sell extended repair and maintenance contracts with terms ranging from one to several years , which provide repair and maintenance services after expiration of the original one year warranty term . revenues from separately priced extended repair and maintenance contracts are recognized on a straight-line basis , over the contract period , and classified as contract and other revenues . share-based compensation . we account for share-based compensation in accordance with the provisions of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 718 , “ compensation—stock compensation ” ( “ asc 718 ” ) using the modified prospective method which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values . asc 718 requires the use of subjective assumptions , including expected stock price volatility and the estimated term of each award . we estimate the fair value of stock options granted using the black-scholes option-pricing model , which is then amortized on a straight-line basis over the requisite service periods of the awards , which is generally the vesting period . this model also utilizes the fair value of our common stock and requires that , at the date of grant , we use the expected term of the share-based award , the expected volatility of the price of our common stock over the expected term , the risk free interest rate and the expected dividend yield of our common stock to determine the estimated fair value . we determine the amount of share-based compensation expense based on awards that we ultimately expect to vest , reduced for estimated forfeitures . asc 718 requires forfeitures to be estimated at the time of grant and revised , if necessary , in subsequent periods if actual forfeitures differ from those estimates . allowance for doubtful accounts . our products are sold to customers in many different markets and geographic locations . we estimate our bad debt reserve on a case-by-case basis due to a limited number of customers . we base these estimates on many factors including customer credit worthiness , past transaction history with the customer , current economic industry trends and changes in customer payment terms . our judgments and estimates regarding collectability of accounts receivable have an impact on our financial statements . valuation of inventory . our inventory is comprised of raw materials , assemblies and finished products . we must periodically make judgments and estimates regarding the future utility and carrying value of our inventory . the carrying value of our inventory is periodically reviewed and impairments , if any , are recognized when the expected future benefit from our inventory is less than its carrying value . valuation of intangible assets . intangible assets consist of patents and trademarks that are amortized over their estimated useful lives . story_separator_special_tag we must make judgments and estimates regarding the future utility and carrying value of intangible assets . the carrying values of such assets are periodically reviewed and impairments , if any , are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value . this generally occurs when certain assets are no longer consistent with our business strategy and whose expected future value has decreased . accrued expenses . we establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized . this reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time . factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs , and anticipated rates of warranty claims . warranty expense is recorded in cost of revenues . we evaluate the adequacy of this reserve each reporting period . we use the recognition criteria of asc 450-20 , “ loss contingencies ” to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period . we accrued bonus expense each quarter based on estimated year-end results , and then adjusted the actual in the fourth quarter based on our final results compared to targets . deferred tax asset . we have provided a full valuation reserve related to our substantial deferred tax assets . in the future , if sufficient evidence of our ability to generate sufficient future taxable income in certain tax jurisdictions becomes apparent , we may be required to reduce our valuation allowances , resulting in income tax benefits in our consolidated statement of operations . we evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance . utilizing the net operating loss ( “ nol ” ) carry forwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control . included in the nol carryforward are deductions from stock options that , if recognized , will be recorded as a credit to additional paid-in capital rather than through our results of operations . 18 recent accounting pronouncements a number of new pronouncements have been issued for future implementation as discussed in note 3 , recent accounting pronouncements , to our consolidated financial statements . segment and related information we are engaged in the design , development and commercialization of directed sound technologies and products . we present our business as one reportable segment due to the similarity in nature of products marketed , financial performance measures ( revenue growth and gross margin ) , methods of distribution ( direct and indirect ) and customer markets ( each product is sold by the same personnel to government and commercial customers , domestically and internationally ) . our chief operating decision making officer reviews financial information on sound products on a consolidated basis . see note 15 to our consolidated financial statements for further discussion . comparison of results of operations for fiscal years ended september 30 , 2013 and 2012 the following table provides for the periods indicated certain items of our consolidated statements of operations expressed in dollars and as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_2_th revenues revenues increased $ 2,295,592 , or 16 % , in the fiscal year ended september 30 , 2013 , as a result of an 84 % increase in international revenue , primarily in the public safety market for crowd and riot control , as well as other diverse markets such as tsunami warning systems , wildlife controls , maritime security , marine surveillance and oil and gas . the international growth is partially offset by a 33 % reduction in u.s. military sales due to federal defense budget constraints and sequestration . gross profit gross profit for the year ended september 30 , 2013 increased by $ 766,723 , or 10.3 % , primarily due to increased revenue , partially offset by unfavorable sales mix , and an increase in contracted annual maintenance costs related to a large foreign military sale in march 2011. the gross profit in the prior year included a reduction in the warranty reserve due to the completion of the one year warranty period for the large foreign military order , which was not repeated in the current year . 19 selling , general and administrative expenses selling , general and administrative expenses for the year ended september 30 , 2013 increased $ 896,812 , or 19.7 % , primarily due to higher sales commissions on certain international sales contracts of $ 346,518 , $ 332,475 for legal and other professional fees related to the derivative lawsuit and threatened proxy contest settled during fiscal 2013 , higher salaries and consulting fees to strengthen our business development team of $ 139,171 , $ 77,158 in non-cash share-based compensation expense , $ 63,882 for trade show and advertising expenses , partially offset by a decrease of $ 62,392 for travel and other expenses . we incurred non-cash share-based compensation expenses of $ 681,147 and $ 603,989 in the fiscal years ended september 30 , 2013 and 2012 , respectively . the increase is due to option grants in may 2012. research and development expenses r & d expenses increased $ 181,696 , or 10.9 % , primarily due to higher prototype development and third party product certification costs of $ 73,535 , higher rent expense of $ 43,535 due to increased square footage in our new facility , $ 64,626 for the impairment of patents and other expenses .
| we increased our working capital by $ 2.4 million during fiscal 2013. future cash flows from operating activities are expected to fluctuate based on working capital requirements , operating expense levels and other factors . we believe we have adequate financial resources to fund operations for the next twelve months . our lrad-x product line uses directionality and focused acoustic output to clearly transmit critical information , instructions and warnings more than 3,500 meters . the lrad-x product line features improved voice intelligibility and is available in a number of packages that meet the military 's stringent environmental requirements in a number of packages and form factors . through the use of powerful voice commands , prerecorded messages in multiple languages and deterrent tones to create large safety zones while determining the intent and influencing the behavior of an intruder . we continue to expand our lrad-x product line to provide a complete range of systems from single operator portable to permanently installed , remotely operated . our lrad products have been competitively selected over other commercially available systems by u.s. and several foreign militaries . our current lrad-x product line includes the following : lrad 2000x—launched in fiscal 2012 to meet the requirements of larger security applications—is our largest and loudest ahd and broadcasts highly intelligible voice communication that can be clearly heard and understood over distances in excess of 3,500 meters . this unit is designed to be highly effective in perimeter and border security applications . lrad 1000x—selected by the u.s. navy as its ahd for block 0 of the shipboard protection system—can be manually operated to provide long distance hailing and warning with highly intelligible communication . this unit is available in both fully-integrated and remotely-operated electronics . lrad 500x—selected by the u.s. navy and u.s. army as their ahd for small vessels and vehicles—is lightweight and can be easily transported to provide security personnel long-range communications and a highly effective hailing and warning capability where needed . lrad 300x—a lightweight mid-range ahd developed for small vessels and
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the gaap measures most directly comparable to ffo and affo is net income . ebitda and adjusted ebitda we define ebitda as net income before interest , income taxes , depreciation and amortization , and we define adjusted ebitda as ebitda before impairments , acquisition‑related expenses , unrealized and realized gains and losses on derivatives , loss on extinguishment of debt , gains and losses on sale of real property interests , unit-based compensation , straight line rental adjustments , amortization of above‑ and below‑market rents plus cash receipts applied toward the repayments of investments in receivable , the deemed capital contribution to fund our general and administrative expense reimbursement and adjustments for investments in unconsolidated joint ventures . during the third quarter of 2019 , we changed our definition of ebitda to exclude adjustments for investments in unconsolidated joint venture to adhere to the definition of ebitda as described in item 10 ( e ) ( 1 ) ( ii ) ( a ) of regulation s-k. during the fourth quarter 2017 , we changed our definition of adjusted ebitda by adding cash receipts applied toward the repayments of investments in receivables . we made this change to better reflect the quarterly amount of operating surplus as determined by our amended and restated partnership agreement . these changes did not have a material impact on our ebitda or adjusted ebitda and prior period amounts have been recasted to conform to current presentation . ebitda and adjusted ebitda are non‑gaap supplemental financial measures that management and external users of our financial statements , such as industry analysts , investors , lenders and rating agencies , may use to assess : our operating performance as compared to other publicly traded limited partnerships , without regard to historical cost basis or , in the case of adjusted ebitda , financing methods ; the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders ; our ability to incur and service debt and fund capital expenditures ; and the viability of acquisitions and the returns on investment of various investment opportunities . we believe that the presentation of ebitda and adjusted ebitda in this annual report on form 10-k provides information useful to investors in assessing our financial condition and results of operations . the gaap measures most directly comparable to ebitda and adjusted ebitda are net income and net cash provided by operating activities . ebitda and adjusted ebitda should not be considered as an alternative to gaap net income , net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with gaap . each of ebitda and adjusted ebitda has important limitations as analytical tools because they exclude some , but not all , items that affect net income and net cash provided by operating activities , and these measures may vary from those of other companies . you should not consider ebitda and adjusted ebitda in isolation or as a substitute for analysis of our results as reported under gaap . as a result , because ebitda and adjusted ebitda may be defined differently by other companies in our industry , ebitda and adjusted ebitda as presented below may not be comparable to similarly titled measures of other companies , thereby diminishing their utility . for a further discussion of the non‑gaap financial measures of ffo , affo , ebitda and adjusted ebitda flow , and a reconciliation of ffo , affo , ebitda and adjusted ebitda to the most comparable financial measures calculated and presented in accordance with gaap , please read “ selected historical financial data – non‑gaap financial measures. ” 59 factors affecting the comparability of our financial results our future results of operations may not be comparable to our historical results of operations for the reasons described below : covid-19 we are not aware of any material trends or uncertainties , other than national economic conditions affecting real estate and development generally and those risks listed in part i , item 1a of this annual report on form 10-k , that may reasonably be expected to have a material impact , favorable or unfavorable , on revenues or income from the acquisition , management and operation of our properties . however , due to the recent outbreak of covid-19 , the partnership 's tenants and their operations may be impacted , including their ability to pay rent . the impact of covid-19 on our future results could be significant and will largely depend on future developments , which are highly uncertain and can not be predicted , including new information that may emerge concerning the severity of covid-19 , the success of actions taken to contain or treat covid-19 and reactions by consumers , companies , governmental entities and capital markets . investment in unconsolidated joint venture on september 24 , 2018 , the partnership completed the formation of an unconsolidated joint venture ( the “ jv ” ) . the partnership contributed 545 tenant site assets to the unconsolidated jv that secured the partnership 's $ 125.4 million series 2018-1 secured notes ( the “ 2018 securitization ” ) , in exchange for a 50.01 % membership interest in the unconsolidated jv and $ 65.5 million in cash ( the “ transaction ” ) . the partnership used $ 59.7 million of the net proceeds to repay a portion of the borrowings under the revolving credit facility . the partnership deconsolidated the 545 tenant sites and real property interests and recognized a gain on contribution of real property interests of $ 100 million . story_separator_special_tag the partnership does not control the unconsolidated jv and therefore , accounts for its investment in the unconsolidated jv using the equity method of accounting prospectively upon formation of the unconsolidated jv . acquisitions and developments we have in the past and intend to continue to pursue acquisitions of real property interests and developments of infrastructure . our significant historical acquisition activity impacts the period to period comparability of our results of operations . during the year ended december 31 , 2018 , the partnership completed one drop-down acquisition from our sponsor and affiliates ( collectively the “ drop-down acquisitions ” or “ drop-down assets ” ) . the drop-down assets acquired by the partnership included an aggregate of 127 tenant sites for the year ended december 31 , 2018 in exchange for total consideration of $ 59.9 million . the drop-down acquisitions are a transfer of net assets between entities under common control as the acquisitions do not meet the definition of a business in accordance with asu no . 2017-01. the transfer of net assets is accounted for prospectively in the period in which the transfer occurs at the net carrying value . any differences between the cash consideration and the net carrying value of the transfer of net assets have been allocated to the general partner . additionally , during the years ended december 31 , 2020 , 2019 and 2018 , the partnership acquired 15 tenant sites , 146 tenant sites and 104 tenant sites from third parties for a total consideration of $ 144.2 million , $ 52.0 million and $ 75.8 million , respectively . see note 3 , acquisitions , to the consolidated financial statements for additional information . in 2020 , we focused on the acquisition of multiple data center properties with long-term triple net leases totaling $ 142.8 million . sales the partnership 's sales of real property interests impacts the period to period comparability of our results of operations . during the year ended december 31 , 2020 , the partnership completed the sale of its interest in the consolidated joint venture that holds its european outdoor advertising portfolio and recognized a gain on sale of real property interest of $ 15.5 million . the operating results of the european outdoor advertising portfolio and the related gain on sale are presented as discontinued operations on the consolidated statements of operations . accordingly , for all prior periods presented , the related assets and liabilities are presented as assets and liabilities held for sale on the consolidated balance sheets . the partnership used proceeds from the sale of the european outdoor advertising portfolio and available cash to repay borrowings totaling $ 115 million on its revolving credit facility , including the £40.5 million of british pound sterling ( “ gbp ” ) denominated borrowings , and terminate usd interest rate swaps with a notional value of $ 145 million and a gbp denominated interest rate swap agreement with a notional value of £38 million for approximately $ 7.6 million . during the year ended december 31 , 2019 , the partnership completed sales of its real property interests and investments in receivables for total consideration of $ 46.4 million and recognized a gain on sale of $ 18.0 million . secured notes on january 15 , 2020 , certain subsidiaries of the partnership entered into a master note purchase and participation agreement ( “ mnppa ” ) pursuant to which such subsidiaries issued and sold an initial $ 170 million aggregate principal amount of 3.90 % series a senior secured notes in a private placement ( the “ 2019 secured notes ” ) . the 2019 secured notes mature on january 14 , 2027 and include an interest-only initial term of three years . the net proceeds were used to repay in full the 2016 secured notes by $ 108 million and the revolving credit facility by $ 59 million . in connection with the issuance of the senior secured notes , the partnership obtained a standby letter of credit arrangement totaling $ 3.4 million . 60 on june 6 , 2018 , the partnership completed the 2018 securitization involving a segregated pool of wireless communication sites and related property interests owned by certain special purpose subsidiaries of the partnership , through the issuance of the 2018-1 secured tenant site contract revenue notes , class c , class d and class f ( the “ 2018 secured notes ” ) , in an aggregate principal amount of $ 125.4 million . the class c , class d and class f 2018 secured notes bear interest at a fixed note rate per annum of 3.97 % , 4.70 % and 5.92 % , respectively . on september 24 , 2018 , the partnership completed the formation of an unconsolidated joint venture by contributing certain special purpose subsidiaries to the unconsolidated joint venture , including the 2018 secured notes . see note 8 , investment in unconsolidated joint venture and consolidated financial statements for additional information . on april 24 , 2018 , a special purpose subsidiary of the partnership entered into a note purchase and private shelf agreement ( the “ note purchase agreement ” ) pursuant to which such subsidiary agreed to sell approximately $ 43.7 million aggregate principal amount of its 4.38 % senior secured notes in a private placement ( the “ 4.38 % senior secured notes ” ) . the 4.38 % senior secured notes are fully amortizing through june 30 , 2036. the 4.38 % senior secured notes are secured by a segregated pool of renewable power generation sites and related property interests owned directly or indirectly by such subsidiary . the secured notes described above are collectively referred to as the “ secured notes. ” see note 9 , debt to the consolidated financial statements for additional information . revolving credit facility on november 15 , 2018 , the partnership completed its third amended and restated
| per tenant site for wireless communication , digital infrastructure , outdoor advertising and renewable power generation segments were $ 2,013 , $ 82,006 , $ 1,907 and $ 9,611 , respectively , during 2020 compared to $ 1,953 , $ 62,761 , $ 1,953 and $ 9,214 , respectively , during 2019. property operating property operating expenses increased $ 0.4 million during 2020 compared to 2019 primarily due to an increase in rent expense on assets subject to a ground lease payment . substantially all of our tenant sites are leased to tenants under triple net or effectively triple net lease arrangements , which require the tenant or the underlying property owner to pay all utilities , property taxes , insurance and repair and maintenance costs . as we deploy our smart enabled infrastructure solutions and other projects , we may incur additional operating expenses associated with ground lease payments and other operating expenses . 67 general and administrative general and administrative expenses decreased $ 0.5 million during 2020 compared to 2019 , primarily due to a decrease in legal related expenses . under our amended partnership agreement , we are required to reimburse our general partner and its affiliates for all costs and expenses that they incur on our behalf for managing and controlling our business and operations . except to the extent specified under our omnibus agreement , our general partner determines the amount of these expenses and such determinations must be made in good faith under the terms of the amended partnership agreement . on january 30 , 2019 , we amended the omnibus agreement and agreed to reimburse landmark for expenses related to certain general and administrative services that landmark will provide to us in support of our business , subject to a quarterly cap equal to 3 % of our revenue during the current calendar quarter . under the amended omnibus agreement , this cap on expenses will last until the earlier to occur of : ( i ) the date on which our revenue for the immediately preceding four consecutive fiscal quarters
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due to our diversified communications site portfolio , our tenant lease rates vary considerably depending upon numerous factors , including , but not limited to , amount and type of tenant equipment on the tower , ground space required by the tenant , remaining tower capacity and 29 tower location . we measure the remaining tower capacity by assessing several factors , including tower height , tower type , environmental conditions , existing equipment on the tower and zoning and permitting regulations in effect in the jurisdiction where the tower is located . in many instances , tower capacity can be increased through tower augmentation . the primary factors affecting the revenue growth in our domestic and international rental and management segments are : recurring organic revenue , which is revenue from tenant leases attributable to sites that existed in our portfolio as of the beginning of the prior year period ( legacy sites ) ; contractual rent escalations on existing tenant leases , net of cancellations ; new revenue attributable to leasing additional space on our legacy sites ; and new revenue attributable to sites acquired or constructed since the beginning of the prior year period ( new sites ) . we continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless communications services and our ability to meet the corresponding incremental demand for our wireless real estate . by adding new tenants and new equipment for existing tenants on our sites , we are able to increase these sites ' utilization and profitability . we believe the majority of our site leasing activity will continue to come from wireless service providers . our legacy site portfolio and our established tenant base provide us with new business opportunities , which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their existing networks , while also deploying next generation wireless technologies . in addition , consistent with our signing of a definitive agreement for the proposed verizon transaction , we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and in new markets where we can achieve our risk-adjusted return on investment objectives . in a majority of our international markets , revenue also includes the reimbursement of direct costs such as ground rent or power and fuel costs . rental and management operations organic revenue growth . consistent with our strategy to increase the utilization and return on investment of our legacy sites , our objective is to add new tenants and new equipment for existing tenants through collocation and lease amendments . our ability to lease additional space on our sites is primarily a function of the rate at which wireless carriers deploy capital to improve and expand their wireless networks . this rate , in turn , is influenced by the growth of wireless communications services , the penetration of advanced wireless devices , the financial performance of our tenants and their access to capital , and general economic conditions . the following key trends within each market that we serve provide opportunities for organic revenue growth : domestic . as a result of the rapid subscriber adoption of bandwidth-intensive wireless data applications and advanced wireless devices , wireless service providers in the united states continue to invest in their wireless networks by adding new cell sites as well as additional equipment to their existing cell sites . growth in wireless data demand has driven wireless providers in the united states to deploy increasing levels of annual wireless capital investment and as a result , we have experienced strong demand for our communications sites . based on industry research and projections , we expect the following key industry trends will result in incremental revenue opportunities for us : the deployment of advanced wireless technology across existing wireless networks will provide higher speed data services and enable fixed broadband substitution . as a result , we expect our tenants to continue deploying additional equipment across their existing networks . wireless service providers compete based on the quality of their existing wireless networks , which is driven by capacity and coverage . to maintain or improve their network performance as overall network usage increases , our tenants continue deploying additional equipment across their 30 existing sites while also adding new cell sites . we anticipate increasing network densification over the next several years , as existing network infrastructure is anticipated to be insufficient to account for rapidly increasing levels of wireless data usage . wireless service providers are also investing in reinforcing their networks through incremental backhaul and the utilization of on-site generators , which typically results in additional equipment or space leased at the tower site , and incremental revenue . wireless service providers continue to acquire additional spectrum , and as a result are expected to add additional sites and equipment to their network as they seek to optimize their network configuration . we have entered into holistic master lease agreements with three of our four largest tenants in the united states , which provide for consistent , long-term revenue and a reduction in the likelihood of churn . typically , these agreements include built-in annual escalators , fixed annual charges which permit our tenants to place a pre-determined amount of equipment on certain of our sites and provisions for incremental lease payments if the equipment levels are exceeded . our holistic master lease agreements build and augment strong strategic partnerships with our tenants and have significantly reduced collocation cycle times , thereby providing our tenants with the ability to rapidly and efficiently deploy equipment on our sites . international . as part of our international expansion initiatives , we have targeted markets in various stages of network development in order to diversify our international exposure and position us to benefit from a number of different wireless technology deployments over the long term . story_separator_special_tag in addition , we have focused on building relationships with large multinational carriers such as mtn group limited , telefónica s.a. , vodafone group plc and bharti airtel limited . we believe that consistent carrier investments in their networks across our international markets position us to generate meaningful organic revenue growth going forward . in emerging markets such as ghana , india and uganda , wireless networks tend to be significantly less advanced than those in the united states , and initial voice networks continue to be deployed in underdeveloped areas . in more developed urban locations within these markets , early-stage data network deployments are underway . carriers are focused on completing voice network build-outs while also investing in initial data networks as wireless data usage and smartphone penetration within their customer bases begin to accelerate . in markets with rapidly evolving network technology , such as south africa and most of the countries in latin america where we do business , initial voice networks , for the most part , have already been built out , and carriers are focused on third generation ( 3g ) network build outs and augmentations , with select initial investments in fourth generation ( 4g ) technology . recent spectrum auctions in these rapidly evolving markets have allowed incumbent carriers to accelerate their data network deployments and have also enabled new entrants to begin initial investments in data networks . smartphone penetration and wireless data usage in these markets are growing rapidly , which mandates that carriers continue to invest in their networks in order to maintain and augment their quality of service . finally , in markets with more mature network technology such as germany , carriers are focused on deploying 4g data networks to account for rapidly increasing wireless data usage . with a more mature customer base , higher smartphone penetration and significantly higher per capita data usage , carrier investment in networks is focused on 4g coverage and capacity . we believe that the network technology migration we have seen in the united states , which has led to significantly denser networks and meaningful new business commencements for us over a number of years , will ultimately be replicated in our less advanced international markets . as a result , we expect to be able to leverage our extensive international portfolio of approximately 46,700 communications sites and the relationships we have built with our carrier customers to drive sustainable , long-term growth . 31 rental and management operations new site revenue growth . during the year ended december 31 , 2014 , we grew our portfolio of communications real estate through the acquisition and construction of approximately 8,450 sites . in a majority of our international markets , the acquisition or construction of new sites results in increased pass-through revenues ( such as ground rent or power and fuel costs ) and expenses . we continue to evaluate opportunities to acquire communications real estate portfolios , both domestically and internationally , to determine whether they meet our risk-adjusted hurdle rates and whether we believe we can effectively integrate them into our existing portfolio . replace_table_token_9_th ( 1 ) the majority of sites acquired or constructed in 2014 were in brazil , india and mexico ; in 2013 were in brazil , colombia , costa rica , india , mexico and south africa ; and in 2012 were in brazil , germany , india and uganda . rental and management operations expenses . direct operating expenses incurred by our domestic and international rental and management segments include direct site level expenses and consist primarily of ground rent and power and fuel costs , some of which may be passed through to our tenants , as well as property taxes , repairs and maintenance . these segment direct operating expenses exclude all segment and corporate selling , general , administrative and development expenses , which are aggregated into one line item entitled selling , general , administrative and development expense in our consolidated statements of operations . in general , our domestic and international rental and management segments ' selling , general , administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year . as a result , leasing additional space to new tenants on our legacy sites provides significant incremental cash flow . we may , however , incur additional segment selling , general , administrative and development expenses as we increase our presence in geographic areas where we have recently launched operations or are focused on expanding our portfolio . our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities . network development services segment revenue growth . as we continue to focus on growing our rental and management operations , we anticipate that our network development services revenue will continue to represent a small percentage of our total revenues . non-gaap financial measures included in our analysis of our results of operations are discussions regarding earnings before interest , taxes , depreciation , amortization and accretion , as adjusted ( adjusted ebitda ) , funds from operations , as defined by the national association of real estate investment trusts ( nareit ffo ) and adjusted funds from operations ( affo ) . we define adjusted ebitda as net income before income ( loss ) on discontinued operations , net ; income ( loss ) on equity method investments ; income tax benefit ( provision ) ; other income ( expense ) ; gain ( loss ) on retirement of long-term obligations ; interest expense ; interest income ; other operating income ( expense ) ; depreciation , amortization and accretion ; and stock-based compensation expense .
| this growth was comprised of : revenue growth from new sites ( excluding mipt ) of approximately 22 % , resulting from the construction or acquisition of approximately 15,150 new sites since january 1 , 2012 ; revenue growth from legacy sites of approximately 12 % , which includes approximately 11 % due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 2 % attributable to contractual rent escalations , net of tenant lease cancellations , partially offset by less than 1 % for the reversal of revenue reserves during the year ended december 31 , 2012 ; revenue growth of less than 1 % attributable to the addition of approximately 510 sites in costa rica and panama in connection with our acquisition of mipt ; and a decrease of approximately 7 % attributable to the negative impact from foreign currency translation , which includes , among others , the negative impact of approximately 3 % related to fluctuations in brl , approximately 2 % related to fluctuations in south african rand ( zar ) and approximately 2 % related to fluctuations in the indian rupee ( inr ) . network development services segment revenue for the year ended december 31 , 2013 increased 3 % to $ 74.3 million . the growth was primarily attributable to an increase in structural engineering services and site acquisition , zoning and permitting services as a result of an increase in tenant lease applications , which are primarily associated with certain tenants ' next generation technology network upgrade projects during the year ended december 31 , 2013 . 40 gross margin replace_table_token_18_th domestic rental and management segment gross margin for the year ended december 31 , 2013 increased 13 % to $ 1,783.9 million , which was comprised of : gross margin growth from legacy sites of approximately 7 % , primarily associated with the increase in revenue , as described above ; gross margin growth of approximately 4 % attributable to the addition of approximately 4,860 domestic sites , as well as managed rooftop and tower sites and land interests under
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in addition , cost of revenues includes tooling , labor and other costs associated with engineering , testing and quality assurance , warranty costs , stock-based compensation , logistics related fees and excess and obsolete inventory . in addition to utilizing contract manufacturers , we outsource our logistics warehousing and order fulfillment functions , which are located primarily in china , and to a lesser extent , taiwan . we also evaluate and utilize other vendors for various portions of our supply chain from time to time . our operations organization consists of employees and consultants engaged in the management of our contract manufacturers , new product introduction activities , logistical support and engineering . gross profit our gross profit has been , and may in the future be , influenced by several factors including changes in product mix , target end markets for our products , pricing due to competitive pressure , production costs , foreign exchange rates and global demand for electronic components . although we procure and sell our products in u.s. dollars , our contract manufacturers incur many costs , including labor costs , in other currencies . to the extent that the exchange rates move unfavorably for our contract manufacturers , they may try to pass these additional costs on to us , which could have a material impact on our future average selling prices and unit costs . 40 operating expenses we classify our operating expenses as research and development and sales , general and administrative expenses . research and development expenses consist primarily of salary and benefit expenses , including stock-based compensation , for employees and costs for contractors engaged in research , design and development activities , as well as costs for prototypes , facilities and travel . over time , we expect our research and development costs to increase as we continue making significant investments in developing new products and developing new versions of our existing products . sales , general and administrative expenses include salary and benefit expenses , including stock-based compensation , for employees and costs for contractors engaged in sales , marketing and general and administrative activities , as well as the costs of legal expenses , trade shows , marketing programs , promotional materials , bad debt expense , professional services , facilities , general liability insurance and travel . as our product portfolio and targeted markets expand , we may need to employ different sales models , such as building a direct sales force . these sales models would likely increase our costs . over time , we expect our sales , general and administrative expenses to increase in absolute dollars due to continued growth in headcount , expansion of our efforts to register and defend trademarks and patents and to support our business and operations . deferred revenues and costs in the event that collectability of a receivable from products we have shipped is not probable , we classify those amounts as deferred revenues on our balance sheet until such time as we receive payment of the accounts receivable . we classify the cost of products associated with these deferred revenues as deferred costs of revenues . as of june 30 , 2013 , $ 2.2 million of revenue was deferred for transactions where we lacked evidence that collectability of the receivables recorded was reasonably assured . the related deferred cost of revenues balance was $ 1.2 million as of june 30 , 2013 . at june 30 , 2012 , we did not have any revenue deferred for transactions where we lacked evidence that collectability of the receivables recorded was reasonably assured . also included in our deferred revenues is a portion related to pcs obligations that we estimate we will perform in the future . as of june 30 , 2013 and 2012 , we had deferred revenues of $ 1.0 million and $ 805,000 respectively , related to these obligations . critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . in many cases , the accounting treatment of a particular transaction is specifically dictated by gaap and does not require management 's judgment in its application . in other cases , management 's judgment is required in selecting among available alternative accounting standards that provide for different accounting treatment for similar transactions . the preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the amounts we report as assets , liabilities , revenues , costs and expenses and affect the related disclosures . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . in many instances , we could reasonably use different accounting estimates , and in some instances changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , our actual results could differ significantly from the estimates made by our management . to the extent that there are differences between our estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows will be affected . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . recognition of revenues revenues consist primarily of revenues from the sale of hardware and management tools , as well as the related implied pcs . we recognize revenues when persuasive evidence of an arrangement exists , delivery has occurred , the sales price is fixed or determinable and the collectability of the resulting receivable is reasonably assured . in cases where we lack evidence that collectability of the resulting receivable is reasonably assured , we defer recognition of revenue until the receipt of cash . for our sales , evidence of the arrangement consists of an order from a customer . story_separator_special_tag we consider delivery to have occurred once our products have been shipped and title and risk of loss have been transferred . for our sales , these criteria are met at the time the products are transferred to the customer 's shipping agent . our arrangements with customers do not include provisions for cancellation , returns , inventory swaps or refunds that would significantly impact recognized revenues . 41 we record amounts billed to distributors for shipping and handling costs as revenues . we classify shipping and handling costs incurred by us as cost of revenues . deposit payments received from distributors in advance of recognition of revenues are included in current liabilities on our balance sheet and are recognized as revenues when all the criteria for recognition of revenues are met . our multi-element arrangements generally include two deliverables . the first deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale . the second deliverable is the implied right to pcs included with the purchase of certain products . pcs is the right to receive , on a when and if available basis , future unspecified software upgrades and features relating to the product 's essential software as well as bug fixes , email and telephone support . we use a hierarchy to determine the allocation of revenues to the deliverables . the hierarchy is as follows : ( i ) vendor-specific objective evidence of fair value ( “ vsoe ” ) , ( ii ) third-party evidence of selling price ( “ tpe ” ) , and ( iii ) best estimate of the selling price ( “ besp ” ) . ( i ) vsoe generally exists only when a company sells the deliverable separately and is the price actually charged by the company for that deliverable . generally we do not sell the deliverables separately and , as such , do not have vsoe . ( ii ) tpe can be substantiated by determining the price that other parties sell similar or substantially similar offerings . we do not believe that there is accessible tpe evidence for similar deliverables . ( iii ) besp reflects our best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis . we believe that besp is the most appropriate methodology for determining the allocation of revenues among the multiple elements . we have allocated revenues between these two deliverables using the relative selling price method which is based on the besp for all deliverables . revenues allocated to the delivered hardware and the related essential software are recognized at the time of sale provided the other conditions for recognition of revenues have been met . revenues allocated to the pcs are deferred and recognized on a straight-line basis over the estimated life of each of these devices which currently is two years . all costs of revenues , including estimated warranty costs , are recognized at the time of sale . costs for research and development and sales and marketing are expensed as incurred . if the estimated life of the hardware product should change , the future rate of amortization of the revenues allocated to pcs would also change . our process for determining besp for deliverables involves multiple factors that may vary depending upon the unique facts and circumstances related to each deliverable . for pcs , we believe our network operators and service providers would be reluctant to pay for such services separately . this view is primarily based on the fact that unspecified upgrade rights do not obligate us to provide upgrades at a particular time or at all , and do not specify to network operators and service providers which upgrades or features will be delivered . we believe that the relatively low prices of our products and our network operators , and service providers ' price sensitivity would add to their reluctance to pay for pcs . therefore , we have concluded that if we were to sell pcs on a stand-alone basis , the selling price would be relatively low . key factors considered by us in developing the besp for pcs include reviewing the activities of specific employees engaged in support and software development to determine the amount of time that is allocated to the development of the undelivered elements , determining the cost of this development effort , and then adding an appropriate level of gross profit to these costs . inventory our inventories are primarily raw materials , which we have consigned to our contract manufacturers , and to a lesser extent , finished goods . our inventories are stated at the lower of cost or market value on a first-in , first-out basis . we reduce the value of our inventory for estimated obsolescence or lack of marketability by the difference between the cost of the affected inventory and the estimated market value . write-downs are not reversed until the related inventory has been subsequently sold or scrapped . product warranties we offer warranties on certain products and record a liability for the estimated future costs associated with potential warranty claims . these warranty costs are reflected in our consolidated statement of operations and comprehensive income within cost of revenues . our warranties are in effect for 12 months from the distributors ' purchase date of the product . our estimates of future warranty costs are largely based on historical experience of product failure rates , material usage and service delivery costs incurred in correcting product failures . our operating results could be materially and adversely affected if future warranty claims exceed historical experiences and we are not able to recover costs from our contract manufacturers . 42 allowance for doubtful accounts we record an allowance for doubtful accounts for estimated probable losses on uncollectible accounts receivable .
| million during fiscal 2013 as compared to fiscal 2012 due to our december 2011 quarter including a large order to a single direct customer and further adoption of our airmax solutions in 2013. we anticipate that our other systems products will decline in future periods as sales of these products are outpaced by airmax and new platform products . embedded radio revenues decreased $ 3.2 million , or 31 % , from $ 10.1 million in fiscal 2012 to $ 6.9 million in fiscal 2013 . we anticipate that embedded radio products will decline as a percentage of revenues in future periods as sales of these legacy products are outpaced by sales of systems products . antennas/other revenues increased $ 1.1 million , or 3 % from $ 38.2 million in fiscal 2012 to $ 39.3 million in fiscal 2013 . the increase in antennas/other revenues during fiscal 2013 was due primarily to continued expansion of core infrastructure build-outs in our wireless markets . we anticipate that antenna/other revenues will continue to increase in absolute dollars in future periods but will decline as a percentage of total revenues due to more rapid growth of systems revenues . 45 revenues by geography we generally forward products directly from our manufacturers to our customers via logistics distribution hubs in asia . beginning in the quarter ended december 31 , 2012 , our products were predominantly routed through a third party logistics provider in china and prior to the quarter ended december 31 , 2012 , our products were predominantly delivered to our customers through distribution hubs in hong kong . our logistics provider , in turn , ships to other locations throughout the world . we have determined the geographical distribution of our product revenues based on our customers ' ship-to destinations . a majority of our sales are to distributors who in turn sell to resellers or directly to
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bxcl701 was previously studied in multiple clinical trials and demonstrated single agent anti-tumor activity in melanoma , an immune-sensitive tumor . the u.s. food and drug administration , or fda , authorized our investigational new drug application , or ind , allowing us to initiate a phase 2 trial evaluating bxcl701 in combination with pembrolizumab ( keytruda® ) in tnepc , and this trial opened to accrual in february 2019 and continues enrolling patients . · pancreatic cancer . preclinical data suggests that fibroblast activation protein positive , or fap , contribute to checkpoint inhibitor resistance , and immunosuppression more generally in pancreatic cancer . we believe these data provide a strong rationale for combining bxcl701 with a checkpoint inhibitor such as avelumab ( bavencio ) or nivolumab ( opdivo ) . furthermore , we have observed synergy between bxcl701 and bempegaldesleukin ( nektar 's pegylated il2 ) , a cd122 based agonist of il-2 , in a preclinical pancreatic model . bxcl701 has been granted orphan drug designation by the fda for the treatment of pancreatic cancer . · basket trial . bxcl701 is being evaluated in an open-label phase 2 basket trial led by md anderson . the investigator led study is designed to evaluate the response rate of orally administered bxcl701 , combined with pembrolizumab ( keytruda® ) in patients with advanced solid cancers . the study will evaluate both patients who are naïve to checkpoint therapy and those who are refractory to checkpoint therapy . · potential for expedited review programs . given that these indications represent high unmet medical needs with few treatment options , we intend to pursue breakthrough therapy designation and accelerated approval for tnepc and pancreatic cancer . · additional indications . we believe bxcl701 may be active at multiple stages of the cancer immunity cycle and therefore we believe bxcl701 offers a “ pipeline in a product ” platform given its potential for evaluation across other cancers . bxcl701 was granted an orphan drug designation for the treatment of acute myeloid leukemia in september 2019 , its third orphan drug designation in addition to pancreatic cancer and melanoma . we believe existing preclinical evidence supports the combination of bxcl701 with checkpoint inhibitors and or agents that act on “ co-stimulatory ” pathways within immune effector cells . moreover , we believe agents that stimulate antibody dependent cell mediated cytotoxicity , ( adcc ) or cell-based therapies such as chimeric antigen receptor t cell ( car t ) therapy , oncolytic viruses or therapeutic vaccines all represent potential combination with bxcl701 . · identify biomarkers to select patients who we believe have the highest likelihood to respond to our product candidates . predicting optimal drug responses in patients requires the identification and validation of predictive biomarkers . we believe that our ability to identify patient subsets most likely to respond to our product candidates will increase the clinical benefit to patients and improve the probability of success of our clinical trials . the indications for our lead product candidate bxcl701 were chosen in part because they are known to overexpress dipeptidyl peptidase , or dpp 8/9 , and fap . our planned proof-of-concept clinical trial of bxcl701 will retrospectively examine biomarkers related to its molecular and cellular targets to identify those that may correlate with clinical efficacy and increase our likelihood of success . · enhance our r & d pipeline by leveraging our therapeutic area expertise with evolverai to identify , develop and commercialize new product candidates in neuroscience and immuno‑oncology . in addition to our leading clinical programs and our emerging and future pipeline , we intend to select our next clinical program during 2020. we have established translational and development expertise , which we believe will help us advance the present and future product candidates in these fields . we may also 83 opportunistically in‑license additional product candidates identified through our ai platform approach within our core areas of expertise . · maximize the commercial potential of our product candidates . we have worldwide development and commercialization rights to our bxcl501 and bxcl701 . if bxcl501 and bxcl701 are approved in the united states , we would consider building a specialty sales force in the united states and or collaborate with third parties to maximize the potential of our product candidates . furthermore , we intend to commercialize bxcl501 and bxcl701 , if approved , outside the united states through collaborations with third parties . our novel drug re-innovation approach our ai‑based discovery and development process is the foundation of our drug re‑innovation model for identifying the next wave of medicines . our therapeutic area experts have over 60 years of experience across the drug discovery and development value chain . we believe evolverai is a novel method of finding potential product candidates because it combines the comprehensiveness and efficiency of machine learning and big data analytics with the expertise and intuition of human experience in drug development . we believe the combination of our therapeutic area expertise and our ability to generate therapeutic candidates in neuroscience and immuno‑oncology through our exclusive collaborative relationship in those areas with bioxcel give us a significant competitive advantage . the pharmacological space spans more than 27,000 active pharmaceutical agents and only approximately 4,000 are approved and marketed drugs benefiting patients . these marketed drugs may be applied to other indications , including rare diseases , and represent an untapped potential for meeting significant unmet medical need and recoupment of research and development investments . a large number of the remaining agents are clinical candidates that are active , shelved or have failed for reasons other than toxicity and can potentially be re‑engineered for different indications or patient segments . they potentially represent an unrealized investment of billions of research and development dollars by the private and public sectors , resulting in an immeasurable amount of patient suffering and sacrificing during clinical development . story_separator_special_tag traditional drug development is plagued with low success rates ( 13.8 % , according to an mit study of 186,000 trials from january 2000 to october 2015 ) , long drug development cycles ( 10-15 years , according to phrma key facts 2016 ) and exorbitant development costs ( $ 2.6 billion per drug , according to phrma key facts ) . furthermore , many serious diseases continue to go unaddressed due to limitations of the current drug discovery paradigm . the recent advent of numerous ‘ omics ' technologies ( genomics , proteomics ) and rapid advances in science and medicine are generating terabytes of valuable unexploited knowledge that is widely distributed in multiple big data lakes with several orders of complexity and variety . much of this data is not being systematically applied to the development of next generation therapeutics , thus preventing the optimization of drug development utilizing the understanding of technology , science , medicine , markets and commercial opportunities . the efficient and intuitive use of big data remains a bottleneck and a challenge to the pharmaceutical industry . taken together , these factors underscore the need for fundamental new approaches to drug discovery and development . the market opportunity to identify new uses for existing pharmacological agents remains substantial , due to the lack of technology driven insights . our parent , bioxcel , has created a proprietary r & d engine , evolverai , for drug re-innovation that provides a proprietary systems-based approach designed to unlock the hidden value in drugs . the combination of our therapeutic area expertise and our exclusive collaborative relationship with bioxcel enables us to screen , analyze , and identify the product candidates that we believe have a high likelihood of benefiting patients . the compounds in our pipeline have been identified using this proprietary platform . evolverai is designed to eliminate human bias by scanning millions of data points from disparate data sources to create network maps . the nodes and connections in the network map are weighted and ranked based on the validity of supporting evidence using disease specific algorithms . they are then further analyzed using artificial intelligence and machine learning approaches supplemented by human domain‑based expertise to uncover novel connections between disease parameters , molecular targets , mechanisms of actions and product candidates . 84 this drug re-innovation model has been exemplified by the successful development and commercialization of drugs such as tecfidera ( biogen , inc. ) , thalomid ( celgene corporation ) and viagra ( pfizer , inc. ) . all of these drugs were identified by insights in biology and disease pathophysiology . the successful business models of biotech companies like axsome-therapeutics , inc. and karuna therapeutics , inc. are based on the re-innovation and combination of existing clinical candidates or marketed drugs to provide novel solutions for patients . unfortunately , such discoveries have been severely limited in scope due to the lack of a genuinely integrated big data analytics based approach . we believe that only evolverai allows a comprehensive and unbiased evaluation of the complete pharmacological space . we believe our drug re-innovation model and exclusive collaborative relationship with bioxcel has the potential to reduce the cost and time of drug development , help us design more efficient trials and accelerate our product candidates ' time to market . this assumption is based on capitalizing product candidates with substantial clinical data and mitigated risk due to well defined safety profiles , known pk/pd properties , and an established manufacturing and regulatory path . our approach is illustrated below : 85 basis of presentation the company 's financial statements are prepared in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) . all amounts are presented in thousands . story_separator_special_tag style= '' margin-left:10.2941176470588 % ; margin-right:10.2941176470588 % ; '' > equivalents as of december 31 , 2019 , and a review of projected project timing , will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this annual report on form 10-k. management 's plans to obtain additional resources for the company include obtaining capital from the sale of its equity securities , entering into strategic partnership arrangements and short-term borrowings from banks , stockholders or other related parties , if needed . however , management can not provide any assurance that the company will be successful in accomplishing any of its plans . sources of liquidity we have focused our efforts on raising capital and building the products in our pipeline . since our inception , and through our initial public offering of our common stock , or ipo , all our operations have been financed by our parent , bioxcel , or the sales of our common stock in a series of private placements , three public offerings and an open market sale agreement . we have not yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods . in january and february 2018 , the company issued 283,452 shares of common stock with an issuance price of $ 6.88 per share for gross and net proceeds of $ 1,950. in march 2018 , we completed our ipo and we issued and sold 5,454,545 shares of common stock at a public offering price of $ 11.00 per share . gross proceeds totaled $ 60,000 , and net proceeds totaled $ 54,102. in may 2019 , we entered into an open market sale agreement , or the sale agreement , with jefferies llc , or jefferies , pursuant to which we could offer and sell shares of our common stock having an initial offering price no greater than $ 20.0 million , from time to time , through an “ at the market offering ” program under which jefferies would act as sales agent .
| we also expect to incur increased costs to comply with corporate 86 governance , internal controls , investor relations and disclosures and similar requirements applicable to public companies . recently issued accounting pronouncements a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in note 4 to the financial statements included in this annual report on form 10‑k . results of operations for a discussion of our results of operations for the year ended december 31 , 2017 , including a year-to-year comparison between 2018 and 2017 , 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. comparison of the years ended december 31 , 2019 and 2018 the following table summarizes our results of operations for the years ended december 31 , 2019 and 2018 : replace_table_token_4_th research and development expense research and development expenses for the years ended december 31 , 2019 and 2018 were $ 25,797 and $ 14,558 , respectively . the increase of $ 11,239 is attributable to the costs described in the table below : replace_table_token_5_th salaries , bonus and related costs increased due to higher bonus accruals , increases in headcount , payroll taxes , recruiting fees and travel related costs . non-cash stock-based compensation decreased due to the adoption of fasb asu 2018-07 as of january 1 , 2019 which allowed non-employee options to be expensed using the adoption date fair value . the adoption date value of the stock price was significantly lower than prior re-measurement dates . in addition , several large option grants became fully 87 vested during the first quarter of 2018 and there was no corresponding charge during the first quarter of 2019. these lower charges were offset in part by increases in expense relating to new hires beginning in the second quarter of 2018. drug acquisition
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kaleyra has more than 3,500 customers and business partners worldwide across industry verticals such as financial services , ecommerce and transportation . in 2020 and 2019 , there were zero and one customer , telecom italia s.p.a. , which individually accounted for more than 10 % of kaleyra 's consolidated total revenues , respectively . kaleyra has multiple , large european commercial banks as business partners , with one of these partners , intesa sanpaolo s.p.a. accounting for more than 10 % of kaleyra 's business volume in 2020 and 2019. for the fiscal year ended december 31 , 2020 , 93 % of revenues came from customers which have been on the platform for at least one year . although kaleyra continues to expand by introducing new customers to the platform , the breadth and stability of its existing customers provide it with a solid base of revenue upon which it can continue to innovate and make investment to strengthen its product portfolio , expand its global presence , and in particular into the north america and asia-pacific markets with the acquired solutions infini and buc mobile businesses , recruit world-class talent and target accretive acquisitions to capitalize on its growing market penetration opportunities and value creation . kaleyra 's underlying technology used in the platform is the same across all of its communication services which can generally be described as “ omnichannel mobile-first interactive notifications via a public or private cloud implementation. ” these services include programmable voice/interactive voice response ( ivr ) configurations , inbound/outbound short message service capabilities , hosted telephone numbers , and other types of ip communications services such as e-mail and whatsapp® . kaleyra 's customers are enterprises which use digital , mobile communications in the conduct of their business . kaleyra 's platform enables these communications by integrating mobile alert notifications and interactive capabilities to reach and engage end-user customers . kaleyra enables its customers and business partners to connect enterprise software and applications to mobile network operators by providing a single simple interface by which kaleyra can undertake as necessary to make upgrades in its service offerings to account for new end-user consumer behavior changes and progress ( such as adding whatsapp ® integration ) . kaleyra services a broad base of customers throughout the world operating in diverse businesses and regions . kaleyra 's business is generated by providing data to the telecommunications provider and transmitting message data from its customers or business partners . kaleyra has a concentration of business within the financial services industry that serves their major european banking end-user customers . with each relationship kaleyra is the link between the financial institutions and their unique , end-user customers . in linking these two parties , kaleyra 's platform leverages the telecommunications provider to transmit critical message data to these end-user customers . 55 for the years 20 20 and 201 9 , all of kaleyra 's revenue was derived from its messaging products in the cpaas market . please see the section below titled “ factors affecting comparability of results ” for further information regarding these acquisitions . kaleyra 's revenue is primarily driven by the number of messages delivered and voice calls connected to its customers and business partners . kaleyra 's fees vary depending on the contract . in 2020 , the number of messages delivered to customers decreased by 6 % , while the number of voice calls connected to customers increased by 15 % , compared to the prior year . the number of messages delivered to customers was affected by the spread of the covid-19 pandemic which resulted in significant fluctuations in kaleyra 's services carrying less revenue-generating traffic in areas subject to “ shelter in place ” restrictions or related government orders , particularly during the second quarter of fiscal year 2020. the increase in voice calls connected to its customers was mainly the result of higher voice activities , particularly during the second half of 2020 , following the reduced covid-19 restrictions in india . kaleyra 's business partners in italy mainly consist of banks and other credit card issuers that connect to their customers ( end-user customers ) sending highly secured and reliable messages through kaleyra 's platform . volume increase has been driven by the increased number of digital payments transactions made by the end-user customers ( such as credit card transactions and other digital payments ) and by the increasing penetration rate of digital payments in the underlying payments markets . kaleyra is exposed to fluctuations of the currencies in which its transactions are denominated . specifically , a material portion of kaleyra 's revenues and purchases are denominated in euro and indian rupees . factors affecting comparability of results the business combination the business combination is accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the u.s. ( “ us gaap ” ) . under this method of accounting , kaleyra , inc. will be treated as the “ acquired ” company for financial reporting purposes . accordingly , for accounting purposes , the business combination is treated as the equivalent of kaleyra s.p.a. issuing stock for the net assets of kaleyra , inc. , accompanied by a recapitalization . the net assets of kaleyra , inc. are stated at historical cost , with no goodwill or other intangible assets recorded . reported amounts from operations included herein prior to the business combination are those of kaleyra s.p.a. the shares and earnings per share available to holders of kaleyra 's common stock , prior to the business combination , have been retrospectively adjusted reflecting the exchange ratio established in the business combination . as consideration for the business combination , on november 25 , 2019 ( the “ business combination date ” ) , kaleyra issued , in the aggregate , 10,687,106 shares of common stock to the sellers . furthermore , on april 29 , 2020 , as additional consideration for the business combination as an earn-out , kaleyra issued 1,763,633 shares of its common stock to the sellers . story_separator_special_tag in addition , as consideration for the business combination , on november 25 , 2019 kaleyra issued unsecured convertible promissory notes to each of esse effe s.p.a ( “ esse effe ” ) and maya investments limited ( “ maya ” ) in the amount of $ 6.0 million and $ 1.5 million , respectively , and also issued other unsecured promissory notes to each of esse effe and maya in the identical respective amounts . see “ liquidity and capital resources ” below . in connection with the business combination , kaleyra incurred direct and incremental costs of approximately $ 7.7 million , consisting of legal and professional fees , which are included in general and administrative expenses in the consolidated statement of operations in 2019. acquisition of solutions infini in june 2018 , kaleyra s.p.a. completed the business combination of solutions infini , a technology developer and platform provider for bulk messaging services , headquartered in bangalore , india ( the “ solutions infini acquisition ” ) . before control was achieved in june 2018 , the investment in solutions infini was accounted for as a joint venture . the acquisition of solutions infini added significant value to kaleyra from a technology , talent and product perspective . 56 the base purchase price payable as consideration for all of the shares of solutions infini was equal to inr 1.0 billion , subject to variations if solutions infini reached targeted levels of earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) and net f inancial p osition for the years ended march 31 , 2018 and a target level of ebitda for the year ended march 31 , 2019. according to the purchase agreement , kaleyra was entitled to acquire all the shares of solutions infini in different stages and with multiples payments . in particular , based on the terms of the purchase agreement , in 2017 kaleyra paid $ 8.1 million , in july 2018 paid $ 6.6 million and in july 2019 paid $ 5.1 million ( including $ 770,000 originally due in july 2020 ) . acquisition of buc mobile on july 31 , 2018 , kaleyra s.p.a. acquired 100 % of the outstanding shares of buc mobile , a company headquartered in vienna , virginia in the u.s. and incorporated under the laws of the state of delaware , operating in the application to person ( a2p ) transactional and promotional messaging business ( the “ buc mobile acquisition ” ) . the acquisition of buc mobile provided an opportunity for kaleyra s.p.a. to acquire a technology platform designed for high-volume transactions and an experienced u.s. based management team . the purchase price for the buc mobile acquisition was an aggregate sum of $ 6.3 million payable as consideration for all of the shares of buc mobile to be paid in cash in three different installments , specifically : $ 2.3 million was paid on july 31 , 2018 , $ 2.0 million was paid on july 31 , 2019 , and $ 2.0 million , originally due in july 2020 , was paid in advance on july 31 , 2019. in addition , kaleyra , inc. agreed to issue 3,543 new shares of common stock to the former stockholders of buc mobile which were provided to them as additional consideration for the transaction at the date of the business combination . covid-19 the current covid-19 pandemic has affected and will continue to affect economies and business around the world . to date , various governmental authorities and private enterprises have implemented numerous measures to contain the pandemic , such as travel bans and restrictions , quarantines , shelter-in-place orders and shutdowns , which have led to severe disruptions to the global economies that may continue for a prolonged duration and trigger a recession or a period of economic slowdown . the magnitude and duration of the resulting decline in business activity and operations can not be measured with any degree of certainty . indeed , during the pandemic , kaleyra experienced fluctuations in its services carrying less revenue-generating traffic in areas subject to “ shelter in place ” restrictions or related government orders . nonetheless , in fiscal year 2020 , kaleyra accounted for increasing revenues once compared to the previous year , despite a negative impact in terms of gross marginality . at this stage , the extent and duration of the pandemic , and its foreseeable unfolding following the worldwide vaccine campaigns , is still uncertain and difficult to predict . kaleyra is actively monitoring and managing its response and assessing actual and potential impacts to its operating results and financial condition , which could also impact trends and expectations . restricted stock units ( “ rsus ” ) in november 2019 , kaleyra adopted its 2019 equity incentive plan ( the “ eip ” ) . following its adoption , in december 2019 , rsus were granted to certain employees , directors and advisory board members of kaleyra for a total of 3,336,095 rsus shares with an aggregate grant date fair value of $ 27.5 million , based on a per share grant date fair value of $ 8.25. in particular : the board of directors adopted a form of restricted stock unit award agreement and agreed to grant to certain employees of kaleyra or its subsidiaries ( i ) 931,243 restricted stock units that would vest in one year from the grant date , ( ii ) 124,723 restricted stock units that would vest upon the final determination , if any , that the business combination 's definition of 2019 targeted adjusted ebitda is achieved , and ( iii ) 124,718 restricted stock units that would vest upon the final determination , if any , that the business combination 's definition of 2020 targeted adjusted ebitda is achieved . the board of directors of kaleyra agreed to grant to certain employees , directors and advisory board members of kaleyra a total of 2,020,411 rsus .
| excluding such costs and the $ 2.4 million capitalized software development costs , compared to $ 583,000 capitalized costs in the year ended december 31 , 2019 , research and development expenses would have increased by $ 2.0 million mainly due to an increase in the headcount compared to the prior year . in 2020 , sales and marketing expenses increased by $ 6.8 million compared to 2019. sales and marketing expenses included $ 3.9 million of stock-based compensation and a net impact of $ 1.1 million for the solutions infini performance bonuses and preference shares amendment in the year ended december 31 , 2020 , compared to $ 115,000 and zero in the year ended december 31 , 2019 , respectively . excluding such costs , sales and marketing expense would have increased by $ 1.9 million . such increase was primarily driven by an increase in headcount compared to the prior year . in 2020 , general and administrative expenses increased by $ 10.8 million , or 62 % , compared to 2019. general and administrative expenses included ( i ) $ 11.2 million of stock-based compensation in the year ended december 31 , 2020 , compared to $ 582,000 in the year ended december 31 , 2019 ; and ( ii ) $ 4.9 million transaction costs , special performance bonus costs and costs pertaining to initial public company compliance in the year ended december 31 , 2020 as compared to $ 8.3 million transaction costs and costs pertaining to initial public company compliance in the year ended december 31 , 2019. excluding such costs , general and administrative expenses would have increased by $ 3.5 million . such increase was primarily driven by an increase in headcount compared to the prior year . 61 other income , net in 2020 , other income , net decreased by $ 24,000 , or 18 % , compared to 2019. such decrease is mainly attributable to the fact that in 2019 this item included certain government incentives received by kaleyra in connection with research and development activities which were
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nevertheless , our ability to achieve our forecast and to implement our strategy effectively is subject to numerous uncertainties and risks , including the risks identified in item 1a of this annual report on form 10-k. we can not assure you that our efforts will be successful . 18 story_separator_special_tag revenue increase in both years was due to continuing favorable market acceptance of our wafersense products . sales of these products increased by $ 1.3 million or 37 % to $ 4.7 million in 2011. wafersense revenue increased by over 100 % to $ 3.4 million in 2010 , from $ 1.6 million in 2009. the increase in revenue in 2010 was also due to improving conditions in the market for semiconductor fabrication equipment resulting from the better economic environment . 20 our wafer mapper and frame grabber products are relatively mature . we anticipate that future growth in our semiconductor revenues , exclusive of changes related to capital procurement cycles , will come from our wafersense products , a family of wireless , wafer-like precision measurement tools for in-situ setup , calibration and process optimization in semiconductor processing equipment . we expect to introduce a new wafersense particle sensor in 2012 , and anticipate introducing additional wafersense products in later periods . export revenue from semiconductor products totaled $ 3.3 million or 48 % of revenue in 2011 , compared to $ 2.1 million or 35 % of revenue in 2010. we anticipate that the percentage of export revenue will continue to grow in the future as a higher proportion of our wafersense sales come from international customers compared to our other semiconductor products . cost of revenue and gross margin electronic assembly cost of revenue for our electronic assembly segment increased by $ 786,000 or 3 % to $ 31.0 million in 2011 , after increasing by 81 % to $ 30.2 million in 2010. the increase in cost of revenue in both periods was due to the higher level of sales . electronic assembly sales increased 6 % in 2011 and 115 % in 2010. cost of revenue items fluctuating with the level of sales include raw materials , direct labor and some factory overhead costs . gross margin as a percentage of electronic assembly sales was 43 % in 2011 , compared to 41 % in 2010. the improvement in gross margin percentage in 2011 , compared to 2010 , was due to increased sales of higher margin products , including the large increase in sales of our qx500 family of aoi systems and se500 sensors to viscom , as well as the favorable impact of cost reduction programs across all of our electronic assembly products . gross margin as a percentage of electronic assembly sales was 41 % in 2010 , compared to 30 % in 2009. the improvement in gross margin percentage in 2010 was due to significantly increased sales of higher margin alignment sensors , better manufacturing leverage resulting from substantially higher production volumes over which to spread fixed manufacturing overhead costs ( due to the much higher sales in 2010 compared to 2009 ) , the favorable impact of cost reduction programs and our new cost reduced smt inspection system products . the electronic assembly market is highly price competitive , resulting in continual pressure on our gross margins . we compensate for pricing pressure by introducing new products with more features and improved performance and through manufacturing cost reduction programs . for example , we believe our next-generation qx500 aoi system products combines a reduction in cost with enhanced performance . other recently introduced products including our solar wafer alignment camera , embedded process verification ( epv ) technology , the embedded solder paste inspection solution we developed for dek , and the se500 sensor we sell to viscom , have more favorable margins than our existing products . semiconductor cost of revenue for our semiconductor segment increased by $ 259,000 or 15 % to $ 2.0 million in 2011 , after increasing by $ 593,000 or 50 % to $ 1.8 million in 2010. the increase in cost of revenue in both 2011 and 2010 was due to the higher level of sales . semiconductor sales increased 16 % in 2011 and 80 % in 2010. gross margin as a percentage of semiconductor sales increased to 71 % in 2011 from 70 % in 2010 and 64 % in 2009. the gross margin benefit from higher wafersense sales in 2011 was mostly offset by an increase in scrap charges , resulting in the one percentage point improvement in gross margin . the gross margin improvement as a percentage of semiconductor sales in 2010 was due to the cost benefit from consolidation of manufacturing for our semiconductor products into our minneapolis , minnesota headquarters , increased sales of higher margin wafersense products and improved manufacturing leverage , resulting from higher production volumes over which to spread fixed manufacturing overhead costs . operating expenses we believe continued investment in research and development of new products , coupled with continued investment in and development of our sales channel is critical to future growth and profitability . we historically have maintained research and development and sales and marketing expenses at relatively high levels , even during periods of recession and downturn in our electronic assembly and semiconductor capital equipment markets , as we continue to fund development of important new products , and continue to invest in our sales channels and develop new sales territories . story_separator_special_tag 21 electronic assembly research and development expenses for our electronic assembly segment were $ 6.6 million or 12 % of revenue in 2011 , $ 6.3 million or 12 % of revenue in 2010 , and $ 6.0 million or 25 % of revenue in 2009. the 5 % increase in research and development expenses in 2011 resulted from increased inspection system development cost in singapore due to the weakened united states dollar , higher recruitment costs , along with additional wages and benefits due to annual pay increases and headcount additions , offset in part by lower project costs for proto-types and consulting . research and development expenses increased 5 % in 2010 compared to 2009. in 2010 we restored pay for our employees to levels prior to a 2009 pay cut implemented in response to the severe recession . we also incurred higher costs for proto-type materials related to new product development and added several new employees to assist with ongoing development efforts . our research and development efforts in 2011 were focused on new products , including a new dual illumination sensor for our se500 platform providing enhanced solder paste measurement performance and repeatability , a new off-line tabletop aoi system , our 2d inspection technology based on our strobe inspection module ( sim ) for both stand-alone and embedded inspection solutions , and next generation smt alignment sensors . we expect research and development costs to increase further in 2012 , as development continues on important new products including next generation stand-alone aoi and spi inspection systems , embedded inspection solutions and next generation smt alignment sensors . selling , general and administrative expenses for our electronic assembly segment were $ 12.7 million or 24 % of revenue in 2011 , $ 12.3 million or 24 % of revenue in 2010 and $ 11.4 million or 48 % of revenue in 2009. the slight increase in selling , general and administrative expense in 2011 was due to additional business development activities and the impact of the weakening united states dollar on the recorded value of costs attributable to our foreign sales offices , was mostly offset by a reduction in commissions for third party sales representatives , as more sales were sold through distribution channels , and a $ 65,000 reduction in our allowance for doubtful accounts . the increase in selling , general and administrative expenses in 2010 reflect higher sales and marketing costs , including commissions for third party sales representatives resulting from higher levels of smt inspection system sales , higher incentive compensation costs due , in part , to our improved financial performance , partially offset by lower expense for doubtful accounts . selling , general and administrative expenses for 2009 include an $ 800,000 provision for doubtful accounts related to a key distributor of our smt inspection system products . the distributor remains in business , and is committed to paying us the amount owed . the $ 60,000 reduction in our allowance for doubtful accounts in 2011 was due to partial collection of this receivable . semiconductor research and development expenses for our semiconductor segment were $ 1.2 million or 17 % of revenue in 2011 , $ 1.1 million or 18 % of revenue in 2010 and $ 1.1 million or 33 % of revenue in 2009. research and development expenses were higher in 2011 due to increased expenditures for proto-types , certification fees and consulting , reflecting our ongoing investment in the wafersense product line , particularly the new particle sensor we expect to introduce in 2012. selling , general and administrative expenses for our semiconductor segment were $ 1.7 million or 25 % of revenue in 2011 , $ 1.5 million or 25 % of revenue in 2010 and $ 1.4 million or 41 % of revenue in 2009. the increase in expense in 2011 reflects the 16 % overall increase in semiconductor sales and higher wafersense sales through third party sales representatives in 2011 , resulting in more third party commission expense . the increase in 2010 reflects higher third party commission payments attributable to the higher level of sales . interest income and other interest income and other includes interest earned on investments , realized gains and losses from sales of investments and gains and losses associated with foreign currency transactions and foreign exchange forward contracts used to hedge against the effects of exchange rate fluctuations on intercompany financing transactions associated with our subsidiaries in the united kingdom and singapore . interest income and other decreased in 2011 and 2010 due to lower interest income resulting from lower rates of interest earned on invested funds . fluctuations in the level of gains and losses associated with foreign currency transactions and foreign exchange forward contracts can also impact the level of interest income and other reported in any given period . we incurred foreign currency transaction gains , net of underlying currency hedges of $ 67,000 in 2011 , compared to foreign currency transaction gains , net of underlying currency hedges , of $ 106,000 in 2010 . 22 income taxes we recorded income tax expense of $ 1.4 million in 2011 reflecting an effective tax rate of 24 % , compared to income tax expense of $ 794,000 in 2010 reflecting an effective tax rate of 20 % . our effective tax rate for 2011 and 2010 reflects the benefit of having a significant portion of our operations in singapore where corporate income tax rates are substantially lower than the united states . fluctuations in the level of income in the united states and singapore will have an impact on our effective tax rate in any given annual period . lower tax rates in foreign jurisdictions favorably impacted our 2011 income tax rate by 11.1 % and our 2010 income tax rate by 11.5 % . other items favorably impacting our income tax rate in 2011 and 2010 include benefits from the federal research and experimentation ( r & d ) tax credit and the domestic manufacturer 's production incentive deduction .
| 19 sales of non-solar smt alignment sensors decreased by $ 4.4 million or 20 % to $ 17.7 million in 2011 , resulting largely from the general weakening in overall economic conditions and a challenging comparison with 2010 , when sales of capital equipment for printed circuit board production benefited from pent-up demand as the global economy was emerging from the deep recession of 2009. sales of solar wafer alignment cameras for the photovoltaic cell market , while up $ 300,000 or 17 % in 2011 to $ 2.1 million , were particularly soft in the last six months of 2011 , reflecting the continued impact of aggressive production capacity expansion in the solar market during 2010 and early 2011. in march 2011 , we entered into an oem agreement with german-based viscom ag , under which we integrated our se500 sensor technology into viscom 's spi platforms . we realized the initial sales of our se500 spi sensors to viscom ag in the second quarter of 2011. we believe viscom 's new platform has enjoyed a strong market acceptance , resulting in additional orders for our se500 sensors that we anticipate will increase in future periods . this new oem partnership has the potential to make a significant contribution to our profitability over the next few years . revenue from sales of our stand-alone smt inspection system products increased by $ 7.9 million or 31 % in 2011 , up from $ 25.4 million in 2010. the revenue increase was driven by favorable market acceptance and significantly higher sales of our family of qx500 aoi system products . sales of aoi systems climbed over 100 % to a record $ 15.7 million from $ 7.2 million in 2010. our qx500 sales were paced by substantial orders from several of the industry 's largest odms in asia , who deployed this new-generation technology on both new and existing production lines . featuring what we believe are the fastest aoi inspection times currently available , the qx500 family is based upon a cost-reduced platform that we believe exceeds the performance metrics of competitors ' systems . we believe the qx500 family of products will continue to receive favorable market acceptance , particularly with odms , where we have a large , established installed base of spi systems and where the fast inspection times of the qx500 are required . increased sales of aoi systems in 2011 were offset slightly by a small
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there is also substantial risk that the ema and regulators in other territories may not agree with our interpretation of the results of act dmd and the totality of clinical data from our trials . for further discussion of act dmd , see `` item 1. businesscompleted clinical trials of translarna in nonsense mutation duchenne muscular dystrophy . '' see `` item 1a . risk factorsrisks related to the development and commercialization of our product and our product candidates '' for further detail regarding how act dmd results could impact our ability to commercialize translarna . during the fourth quarter of 2015 , we announced that enrollment was completed for our global , confirmatory phase 3 clinical trial of translarna for the treatment of cystic fibrosis caused by nonsense mutations , or nmcf . we refer to this trial as act cf . we anticipate top line data from act cf will be available in early 2017. during the third quarter of 2015 , we submitted a variation to our marketing authorization of translarna in the eea , described above , to request approval of translarna for the treatment of nmcf . we are responding to a request for supplementary information from the chmp and expect a recommendation from the chmp with respect to our variation submission in mid-2016 . our variation submission is primarily based upon the safety and efficacy results of our randomized , double-blind , placebo controlled , phase 3 clinical trial evaluating the long-term safety and efficacy of translarna in patients with nmcf completed in 2011 , which we refer to as our prior phase 3 trial . we believe that the collective data from our prior phase 3 trial , including retrospective and subgroup analyses that we have performed , provide strong support for concluding that translarna was active and showed clinically meaningful improvements over placebo , however , the primary efficacy endpoint in the itt population did not achieve statistical significance . approval of the marketing authorization variation will depend on the ema 's assessment of the relative benefits and risks of approval . we may not be able to demonstrate the required relative risk-benefit profile and there is substantial risk that the ema will not grant us a variation approving translarna for the treatment of nmcf . if approved , we expect that the ema will require us , as a post-approval measure , to provide comprehensive clinical data from act cf to the ema . in addition , such authorization , if granted , will continue to be subject to annual review and renewal by the european commission following reassessment by the ema of the 112 risk benefit balance of the authorization , unless and until we are granted full marketing authorization for our primary marketing authorization in the eea for translarna . see `` businessregulation in the european union '' for further detail regarding the variation process and `` risk factorsrisks related to regulatory approval of our product and product candidates '' for further detail regarding the annual ema reassessment , including a description of the risk benefit balance . based on its understood mechanism of action , we believe translarna may have benefit in the treatment of patients with any genetic disorder that arises as a result of a nonsense mutation . we are pursuing proof-of-concept studies for translarna in additional indications : mucopolysaccharidosis type i caused by nonsense mutation , or nmmps i , nonsense mutation aniridia , and nonsense mutation dravet syndrome/cdkl5 . we also continue to advance the development of our spinal muscular atrophy , or sma , collaboration with f. hoffman-la roche ltd and hoffman-la roche inc. , which we refer to collectively as roche , and the spinal muscular atrophy foundation , or sma foundation . two compounds are currently in clinical development within the sma program , rg7800 and rg7916 . the most advanced compound , rg7800 , is the subject of a phase 2 randomized , double-blind , placebo-controlled trial called moonfish in adult and pediatric patients with sma . dosing in the moonfish trial was suspended in april 2015 and the trial was placed on clinical hold to investigate a non-clinical safety finding observed in a longer-term animal study . the initiation of a phase 1 study for rg7916 in healthy volunteers to investigate the safety , tolerability , pharmacokinetics and pharmacodynamics was announced in january 2016. upon completion of this study , we and our collaboration partners expect to utilize data from this phase 1 study to compare the profiles of the rg7800 and rg7916 compounds to determine the best path forward for our sma program . our cancer stem cell program targeting chemotherapy resistant cancers began a phase 1 clinical study in the first half of 2015. in addition , we have a pipeline of product candidates that are in early clinical and preclinical development . overviewfunding the success of translarna , and any other product candidates we may develop , depends largely on obtaining and maintaining reimbursement from governments and third-party insurers . during 2015 , our revenues were primarily generated from sales of translarna for the treatment of nmdmd in territories where we are permitted to distribute translarna under our early access programs , or eaps , and in counties in the eea where we were able to obtain acceptable pricing and reimbursement terms . each country in the eea has its own pricing and reimbursement regulations and many countries in the eea have other regulations related to the marketing and sale of pharmaceutical products in the applicable country . the pricing and reimbursement process varies from country to country and can take over 18 months from initiation to complete . story_separator_special_tag as a result , our commercial launch in the eea has been , and will continue to be , on a country-by-country basis and we generally will not be able to commence commercial sales of translarna for the treatment of nmdmd pursuant to our marketing authorization in the eea in any particular member state of the eea until we conclude the applicable pricing and reimbursement negotiations and comply with any licensing , employment or related regulatory requirements in that country . in some countries , such as france and germany , eap and commercial sales of a product can begin while pricing and reimbursement rates are under discussion with the applicable government health programs . in the event that the negotiated price of the product is lower than the amount reimbursed for sales made prior to the conclusion of price negotiations , we may become obligated to repay such excess amount to the applicable government health program . for example , an arbitration process in german regarding pricing and reimbursement of translarna for the treatment of nmdmd recently concluded . an acceptable agreement for us was not reached . as a result , we expect to delist translarna from the german pharmacy ordering system . we are required to 113 reimburse payors in germany the difference between the commercial price of translarna in germany and the price recently established by the german arbitration board for sales made in germany during the period of december 2015 through such time as we delist translarna from the german pharmacy ordering system . in addition , the price that is approved by local governmental authorities pursuant to commercial pricing and reimbursement processes may be significantly lower than the price that can be charged for purchases of product in that country pursuant to a reimbursed early access program . see `` item 1. businesscommercial mattersmarket access considerations '' for additional information and `` item 1a . risk factorsour initial commercial launch of translarna has begun in , and is expected to continue to take place in , countries that tend to impose strict price controls , which may adversely affect our revenues , if any . failure to obtain and maintain acceptable pricing and reimbursement terms for translarna in the european economic area and other jurisdictions would prevent us from marketing our products in such regions . '' to date , we have financed our operations primarily through our offering of 3.00 % convertible senior notes due august 15 , 2022 , or the convertible notes offering , our public offerings of common stock in february 2014 and in october 2014 , our initial public offering of common stock in june 2013 , private placements of our preferred stock , collaborations , bank debt and convertible debt financings and grants and clinical trial support from governmental and philanthropic organizations and patient advocacy groups in the disease areas addressed by our product candidates . as of december 31 , 2015 , we had an accumulated deficit of $ 593.0 million . we had a net loss of $ 170.4 million and $ 93.8 million for the fiscal years ended december 31 , 2015 and 2014 , respectively . we anticipate that our expenses will increase in connection with the expansion of our commercial infrastructure as we continue to establish an international presence and commercialize translarna for the treatment of nmdmd , including sales and marketing , legal and regulatory , distribution and manufacturing and administrative and employee-based expenses . in addition , we expect to continue to incur significant costs in connection with our ongoing confirmatory phase 3 act cf clinical trial of translarna as well as our phase 2 proof-of-concept studies for nmmps i , nonsense mutation aniridia and nonsense mutation dravet syndrome/cdkl5 . we also expect to incur ongoing research and development expenses for our other product candidates , including our ongoing phase 1 clinical study under our cancer stem cell program . in addition , we may incur substantial costs in connection with our efforts to resolve the issues raised by the fda in its refuse to file letter regarding our nda for translarna for the treatment of nmdmd and our efforts to advance our regulatory submissions , including our recent submissions with the ema related to our marketing authorization for translarna for the treatment of nmdmd and our marketing authorization variation submission with the ema , which seeks to include translarna for the treatment of nmcf . we have begun seeking and intend to continue to seek marketing approval for translarna for the treatment of nmdmd in territories outside of the eea and we may also seek marketing approval for translarna for other indications , and these efforts may significantly impact the timing and extent of our commercialization expenses . furthermore , as a result of our initial public offering in june 2013 , we have incurred and expect to continue to incur additional costs associated with operating as a public company . these costs include significant legal , accounting , investor relations and other expenses that we did not incur as a private company . we will need to generate significant revenues to achieve and sustain profitability , and we may never do so . accordingly , we may need to obtain substantial additional funding in connection with our continuing operations . adequate additional financing may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on attractive terms , we could be forced to delay , reduce or eliminate our research and development programs or our commercialization efforts . 114 story_separator_special_tag command=add_stablerules , '' border-bottom : solid # 000000 1.0pt ; '' -- > selling , general and administrative expense selling , general and administrative expenses consist primarily of salaries and other related costs for personnel , including share-based compensation expenses , in our executive , legal , business development , finance , accounting , information technology and human resource functions .
| from time to time , we receive grant funding from various institutions and governmental bodies . the grants are typically for early discovery research , and generally such grant programs last from two to five years . research and development expense research and development expenses consist of the costs associated with our research activities , as well as the costs associated with our drug discovery efforts , conducting preclinical studies and clinical trials , manufacturing development efforts and activities related to regulatory filings . our research and development expenses consist of : external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites , third-party manufacturing organizations and consultants ; employee-related expenses , which include salaries and benefits , including share-based compensation , for the personnel involved in our drug discovery and development activities ; and 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 and other supplies . we use our employee and infrastructure resources across multiple research projects , including our drug development programs . we track expenses related to our clinical programs and certain preclinical programs on a per project basis . we expect our research and development expenses to increase in connection with our ongoing activities , particularly as we continue our confirmatory phase 3 act cf clinical trial of translarna , our phase 2 proof-of-concept studies of translarna in nmmps i , nonsense mutation aniridia , and nonsense 115 mutation dravet syndrome/cdkl5 and our phase 1 clinical study under our cancer stem cell program . the timing and amount of these expenses will depend upon the outcome of our ongoing clinical trials and the costs associated with our planned clinical trials . the timing and amount of these expenses will also depend on the costs associated with potential future clinical trials of our product candidates and the related expansion of our research and development
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from our inception through december 31 , 2015 , we have generated $ 2.0 billion in cash from these sources , of which $ 1.3 billion was through sales of equity , $ 475.8 million was through payments from collaborators and customers , $ 96.9 million was through the issuance of debt and related financial instruments and $ 77.1 million was from sale and leaseback transactions . at december 31 , 2015 , we had $ 156.2 million in cash and cash equivalents . see the above “ business ” section for a more complete discussion of our business . 55 story_separator_special_tag december 31 , 2015 , compared to $ 6.4 million for the year ended december 31 , 2014 . cost of toll manufacturing . cost of toll manufacturing consists of direct and indirect costs associated with manufacturing drug products , primarily for siegfried ag , or siegfried , under toll manufacturing agreements , including related salaries , other personnel costs , machinery depreciation costs , amortization expense related to our manufacturing facility production licenses , and material costs . cost of toll manufacturing increased by $ 3.2 million to $ 4.6 million for the year ended december 31 , 2015 , from $ 1.4 million for the year ended december 31 , 2014 , primarily due to including costs of materials for drug products in both the sales price and cost of toll manufacturing for products manufactured for siegfried ( in previous years materials for drug products were supplied by siegfried at no cost to us ) , and to a lesser extent , from a new toll manufacturing agreement that we entered into with a third party in april 2015. we may consider entering into additional toll manufacturing agreements in the future to increase revenues and increase utilization of our drug-product manufacturing facility . research and development expenses . research and development expenses , which account for the majority of our expenses , consist primarily of salaries and other personnel costs , clinical trial costs ( including payments to contract research organizations , or cros ) , preclinical study fees , manufacturing costs for non-commercial products , costs for the development of 57 our earlier-stage programs and technologies , research supply costs and facility and equipment costs . we expense research and development costs as they are incurred when these expenditures have no alternative future uses . we generally do not track our earlier-stage , internal research and development expenses by project ; rather , we track such expenses by the type of cost incurred . research and development expenses decreased by $ 11.9 million to $ 88.4 million for the year ended december 31 , 2015 , from $ 100.3 million for the year ended december 31 , 2014 . this decrease was primarily due to a decrease of $ 10.5 million in external clinical and preclinical study fees and internal non-commercial manufacturing costs , primarily a result of completing the phase 2 clinical trial evaluating lorcaserin for smoking cessation in 2014 and lower internal , non-commercial manufacturing costs related to belviq xr . this decrease was partially offset by increases related to our phase 2 programs for apd334 and ralinepag . we expect to incur substantial research and development expenses in 2016 , and for the aggregate amount in 2016 to be higher than the amount incurred in 2015 , primarily due to our external clinical trial costs . we expect our external clinical costs will be higher in 2016 than in 2015 primarily due to our continuing phase 2 clinical trials for apd334 and ralinepag , and salaries and other internal expenses will be lower primarily due to our recent workforce reductions . included in the $ 34.1 million of total external clinical and preclinical study fees and internal non-commercial manufacturing costs noted in the table above in this section for the year ended december 31 , 2015 , were the following : $ 16.2 million related to lorcaserin and non-commercial manufacturing costs , $ 8.7 million related to apd334 and $ 5.1 million related to ralinepag . included in the $ 44.6 million of total external clinical and preclinical study fees and internal non-commercial manufacturing costs noted in the table above in this section for the year ended december 31 , 2014 , were the following : $ 35.3 million related to lorcaserin and non-commercial manufacturing costs , $ 4.2 million related to apd334 and $ 2.8 million related to ralinepag . cumulatively through december 31 , 2015 , we have recognized ( i ) external clinical and preclinical study fees of $ 303.5 million for lorcaserin , $ 43.8 million for nelotanserin , $ 16.5 million for ralinepag , $ 7.3 million for temanogrel , $ 15.9 million for apd334 and $ 6.4 million for apd371 and ( ii ) $ 48.6 million for non-commercial manufacturing and other development costs for lorcaserin and , to a lesser extent , nelotanserin . while expenditures on current and future clinical development programs are expected to be substantial , they are subject to many uncertainties , including whether we have adequate funds and develop our drug candidates with one or more collaborators or independently . as a result of such uncertainties , we can not predict with any significant degree of certainty the duration and completion costs of our research and development projects or whether , when and to what extent we will generate revenues from the commercialization and sale of belviq or any of our drug candidates . story_separator_special_tag the duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during clinical development and a variety of factors , including : the nature and number of trials and studies in a clinical program ; the potential therapeutic indication ; the number of patients who participate in the trials ; the number and location of sites included in the trials ; the rates of patient recruitment , enrollment and withdrawal ; the duration of patient treatment and follow-up ; the costs of manufacturing drug candidates ; and the costs , requirements , timing of , and the ability to secure regulatory approvals . general and administrative expenses . general and administrative expenses increased by $ 1.9 million to $ 36.0 million for the year ended december 31 , 2015 , from $ 34.1 million for the year ended december 31 , 2014 . this increase was primarily due to an increase of $ 1.5 million in salary and other personnel costs , primarily as a result of accrued severance costs following the retirement of our chief executive officer in october 2015 , and an increase of $ 1.1 million in facility and equipment costs primarily resulting from increased depreciation costs following our 2014 purchase of the remaining portion of our building in 58 switzerland and increased costs for our enterprise resource planning , or erp , system . these increases were partially offset by a decreases of $ 0.4 million in legal , accounting and other professional fees and $ 0.6 million in product liability insurance expense primarily related to a refund we received for a prior year 's premium . we expect that our 2016 general and administrative expenses will be lower than in 2015 , primarily due to the recent workforce reductions and other cost control initiatives . restructuring charges . we recognized $ 4.0 million of restructuring charges for the year ended december 31 , 2015 , in connection with employee termination costs , including severance and other benefits , related to the workforce reductions to which we committed in the fourth quarter of 2015 , compared to no restructuring charges for the year ended december 31 , 2014 . interest and other income ( expense ) , net . interest and other income ( expense ) , net , was an expense of $ 4.8 million for the year ended december 31 , 2015 , compared to income of $ 44.8 million for the year ended december 31 , 2014 . this change of $ 49.6 million was primarily due to a gain on sale of available-for-sale securities of $ 49.6 million realized in the year ended december 31 , 2014 , related to our sale of shares we held in taigen biopharmaceuticals holding limited , or taigen , and a $ 3.9 million decrease in non-cash gain on valuation of derivative liabilities , partially offset by $ 2.0 million in foreign currency transaction gains , net for the year ended december 31 , 2015 , compared to $ 2.2 million in foreign currency transaction losses , net for the year ended december 31 , 2014. year ended december 31 , 2014 , compared to year ended december 31 , 2013 revenues . we recognized revenues of $ 37.0 million for the year ended december 31 , 2014 , compared to $ 81.4 million for the year ended december 31 , 2013 . this decrease was primarily due to $ 65.0 million of non-refundable milestone payments from eisai that we earned in the year ended december 31 , 2013 , in connection with the final scheduling designation for belviq by the us drug enforcement administration , partially offset by ( i ) an increase of $ 10.3 million in net product sales of belviq , ( ii ) an increase of $ 8.1 million of reimbursements from eisai for our development expense and patent and trademark expenses and ( iii ) an increase of $ 3.6 million in amortization of upfront payments from eisai resulting from the $ 60.0 million upfront payment we received in connection with expanding our collaboration with eisai in november 2013. cost of product sales . we recognized cost of product sales of $ 6.4 million for the year ended december 31 , 2014 , compared to $ 1.8 million for the year ended december 31 , 2013 . cost of toll manufacturing . cost of toll manufacturing decreased by $ 3.0 million to $ 1.4 million for the year ended december 31 , 2014 , from $ 4.4 million for the year ended december 31 , 2013 . this decrease was primarily due to the reduced volume of toll manufacturing performed and a loss provision recorded for this activity for the year ended december 31 , 2013 . research and development expenses . research and development expenses increased by $ 33.8 million to $ 100.3 million for the year ended december 31 , 2014 , from $ 66.5 million for the year ended december 31 , 2013 . this increase was primarily due to increases of ( i ) $ 28.2 million in external clinical and preclinical study fees and internal non-commercial manufacturing costs , primarily related to manufacturing costs for non-commercial products , camellia and the phase 2 clinical trial evaluating lorcaserin for smoking cessation ( ii ) $ 2.9 million in salary and other personnel costs , primarily due to an increase in headcount and ( iii ) $ 2.8 million in non-cash share-based compensation expense . included in the $ 44.6 million of total external clinical and preclinical study fees and internal non-commercial manufacturing costs noted in the table above in this section for the year ended december 31 , 2014 , were the following : $ 35.3 million related to lorcaserin and non-commercial manufacturing costs , $ 4.2 million related to apd334 and $ 2.8 million related to ralinepag .
| of such amount , $ 86.9 million is attributable to upfront payments we received under our collaboration with eisai , $ 12.5 million is attributable to product supply of belviq and the remaining amount is primarily attributable to the upfront payments we received under our other collaborative agreements for lorcaserin . absent any new collaborations , we expect our 2016 revenues will primarily consist of ( i ) net product sales of belviq , ( ii ) amortization of the upfront payments we have received from our collaborators , ( iii ) toll manufacturing , ( iv ) milestone payments from our collaborators , and ( v ) reimbursements from collaborators for development expenses , patent and trademark expenses and research funding . revenues from sales of belviq and for milestones that may be achieved in the future are difficult to predict , and our revenues will likely vary from quarter to quarter and year to year . in the short term , we do not expect the amount of belviq sales to increase significantly or to receive the majority ( or potentially any ) of such milestone payments . we believe that future sales of belviq will depend on , among other factors , the availability and use of belviq , the effectiveness of our collaborators ' marketing program and other efforts , competition and reimbursement coverage . we also believe that demand for belviq may fluctuate based on various other outside forces , such as economic changes , national and world events , holidays and seasonal changes . we believe that demand for weight-management products may be lower around certain holidays and in the second half of any particular calendar year , and it is unknown whether , or to the extent by which , marketing programs or other efforts will offset favorably any such outside forces that are negative . revenues we generate from sales of belviq depend on net product sales of belviq , which are the gross invoiced sales less certain deductions described in the applicable collaborative agreements . deductions from gross sales to net product sales may vary from period to period , particularly in the near term , depending on the amount and extent of such deductions , which may
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the company recognized a customer-related intangible asset of $ 1.6 million and goodwill of $ 0.6 million . goodwill resulted from expected enhanced product offerings . for further information , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . coloeast bankshares , inc. on august 1 , 2016 , the company acquired coloeast bankshares , inc. ( “ coloeast ” ) and its community banking subsidiary , colorado east bank & trust , which was merged into tbk bank upon closing and offered personal checking , savings , cd , money market , hsa , ira , now and business accounts , as well as commercial and consumer loans throughout colorado and far western kansas . the acquisition expanded the company 's market into colorado and kansas and further diversified the company 's loan , customer , and deposit base . as part of the coloeast acquisition , the company : acquired loans with an unpaid principal balance of $ 473 million and recorded a fair value purchase discount of $ 12 million , reflecting a fair value of $ 461 million , or approximately 97.5 % of the unpaid principal balance . acquired investment securities with a fair value of $ 162 million classified as available-for-sale . assumed $ 653 million of customer deposits . this included $ 445 million of transaction accounts and $ 208 million of time deposits . the company recorded a core deposit intangible asset of $ 7.2 million . assumed junior subordinated debentures with a face value of $ 11.9 million . we recorded these debentures at their estimated fair value of $ 7.7 million . incurred $ 1.6 million of coloeast acquisition-related expenses . these costs included employee severance , system contract termination fees , accounting , consulting , valuation and legal expenses . recorded $ 12.3 million of goodwill . the goodwill in this acquisition resulted from expected synergies and expansion into the colorado and kansas markets . for further information , see note 2 – business combinations and divestitures in the accompanying notes to the consolidated financial statements included elsewhere in this report . commercial finance product lines a key element of our strategy is to supplement the asset generation capacity in our community banking markets with commercial finance product lines which are offered on a nationwide basis and which serve to enhance the overall yield of our portfolio . these products include our factoring services , provided principally in the transportation sector ( though increasingly in other industries as well ) , our asset-based lending and equipment finance products marketed under our triumph commercial finance brand , the healthcare asset-based lending products offered under our triumph healthcare finance brand , and premium finance products marketed under our triumph premium finance brand . our aggregate outstanding balances for these products increased from $ 521.0 million as of december 31 , 2015 to $ 693.7 million as of december 31 , 2016. these increases were driven by organic growth . the following table sets forth our commercial finance product lines as of december 31 , 2016 and 2015 : replace_table_token_7_th 46 in general , we view the long term market fundamentals for our commercial finance product offerings as sound , with continued opportunity to increase our market share within very large markets . in particular , we note continued positive performance in the transportation factored receivables industry in the face of the headwinds caused by lower oil and freight prices , with consistent growth in the number of clients and number of invoices processed , which has contributed to the strong year-over-year growth in our factored receivables which should position us well for a potential rebound in oil and freight prices . in addition , we believe that the fundamentals of the u.s. healthcare industry ( e.g. , an aging population and continued increasing healthcare costs ) will continue to provide growth opportunities for our healthcare asset-based loan portfolio . these positive trends have caused increased competition from existing as well as new lenders that have entered these markets , which resulted in increased pricing pressure . despite competitive conditions , we remain disciplined in our structuring and underwriting parameters . we incurred expense increases during 2016 associated with the growth in our commercial finance lending lines as we continued to invest in additional personnel and resources necessary to grow these products . in general , we believe these expenses , consisting primarily of increased headcount and the occupancy and technology expenses necessary to support such additional headcount , represent costs that may be leveraged or scaled to support increased loan production in these areas . results of operations net income fiscal year ended december 31 , 2016 compared with year ended december 31 , 2015. we earned net income of $ 20.7 million for the year ended december 31 , 2016 compared to $ 29.1 million for the year ended december 31 , 2015 , a decrease of $ 8.4 million . the results for the year ended december 31 , 2016 include the results of operations of coloeast since the august 1 , 2016 acquisition date and were impacted by $ 1.4 million of tax-effected transaction and restructuring costs associated with our acquisition of coloeast and reported as noninterest expense . the results for the year ended december 31 , 2015 were impacted by our acquisition of doral money , inc. ( “ doral money ” ) . the doral money acquisition resulted in a nontaxable bargain purchase gain in the amount of $ 15.1 million included in noninterest income for the year ended december 31 , 2015 , offset by an additional $ 1.8 million bonus accrual and approximately $ 0.3 million of transaction costs recorded in connection with the doral money acquisition and reported as noninterest expense . story_separator_special_tag excluding the impact of the coloeast transaction costs and the doral money acquisition , we earned adjusted net income of $ 22.1 million for the year ended december 31 , 2016 compared to $ 15.1 million for the year ended december 31 , 2015 , an increase of $ 7.0 million . the adjusted increase was primarily the result of a $ 21.7 million increase in net interest income and a $ 3.1 million increase in adjusted noninterest income , offset in part by a $ 2.2 million increase in the provision for loan losses , an $ 11.6 million increase in adjusted noninterest expense and a $ 4.0 million increase in adjusted income tax expense . fiscal year ended december 31 , 2015 compared with year ended december 31 , 2014. we earned net income of $ 29.1 million for the year ended december 31 , 2015 compared to $ 19.8 million for the year ended december 31 , 2014 , an increase of $ 9.3 million . the increase was the result of a $ 10.2 million increase in net interest income , an $ 8.5 million increase in noninterest income , a $ 1.3 million decrease in the provision for loan losses , and a $ 2.0 million decrease in income tax expense , partially offset by a $ 12.7 million increase in noninterest expense . these results were impacted by our acquisition of doral money during the year ended december 31 , 2015 which resulted in a nontaxable bargain purchase gain in the amount of $ 15.1 million included in noninterest income offset by an additional $ 1.8 million bonus accrual and approximately $ 0.3 million of transaction costs recorded in connection with the doral money acquisition and reported as noninterest expense . the results for the year ended december 31 , 2014 were impacted by the recording of a pre-tax gain in the amount of $ 12.6 million , or $ 7.9 million net of tax , associated with the sale of our pewaukee , wisconsin branch in july 2014. excluding the impact of the doral money acquisition , we earned adjusted net income of $ 15.1 million for the year ended december 31 , 2015. excluding the impact of the tax-effected gain associated with the sale of our pewaukee , wisconsin branch , we earned adjusted net income of $ 9.8 million for the year ended december 31 , 2014. details of the changes in the various components of net income are further discussed below . 47 net interest income our operating results depend primarily on our net interest income , which is the difference between interest income on interest earning assets , including loans and securities , and interest expense incurred on interest bearing liabilities , including deposits and other borrowed funds . interest rate fluctuations , as well as changes in the amount and type of interest earning assets and interest bearing liabilities , combine to affect net interest income . our net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities , referred to as a “ volume change. ” it is also affected by changes in yields earned on interest earning assets and rates paid on interest bearing deposits and other borrowed funds , referred to as a “ rate change. ” the following table presents the distribution of average assets , liabilities and equity , as well as interest income and fees earned on average interest earning assets and interest expense paid on average interest bearing liabilities for the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_8_th 1. balance totals include respective nonaccrual assets . 2. net interest spread is the yield on average interest earning assets less the rate on interest bearing liabilities . 3. net interest margin is the ratio of net interest income to average interest earning assets . 48 year ended december 31 , 2016 compared with year ended december 31 , 2015. we earned net interest income of $ 112.4 million for the year ended december 31 , 2016 compared to $ 90.7 million for the year ended december 31 , 2015. this increase in net interest income was driven by increases in average interest earning assets , which increased to $ 1.902 billion for the year ended december 31 , 2016 from $ 1.396 billion for the year ended december 31 , 2015 , an increase of $ 506 million , or 36.2 % . the increase in interest earning assets was impacted by the $ 460.8 million of loans and $ 161.7 million investment securities acquired in the coloeast acquisition on august 1 , 2016 , which were outstanding for five months during the year ended december 31 , 2016. the remaining increase primarily resulted from organic growth in our loan portfolio . our commercial finance product lines , including our factored receivables , asset-based loans , equipment finance loans , and premium finance loans increased on a period over period basis as a result of the continued execution of our growth strategy for such products . our outstanding commercial finance balances increased $ 172.7 million , or 33.1 % , from $ 521.0 million at december 31 , 2015 to $ 693.7 million at december 31 , 2016. we also experienced organic growth in our mortgage warehouse facilities and community banking lending products period over period , including commercial real estate and general commercial and industrial loans . the increases in our net interest income resulting from changes in the interest income generated by the acquired coloeast assets and the organic growth in our loan portfolio discussed above were offset in part by an increase in our interest expense associated with the growth in customer deposits and other borrowings . average total interest bearing deposits increased to $ 1.315 billion for the year ended december 31 , 2016 from $ 1.025 billion for the year ended december 31 , 2015 , an increase of $ 290 million , or 28.3 % .
| the following tables present our primary operating results for our operating segments as of and for the years ended december 31 , 2016 , 2015 , and 2014 : replace_table_token_12_th 57 replace_table_token_13_th replace_table_token_14_th replace_table_token_15_th year ended december 31 , 2016 compared with year ended december 31 , 2015. factoring replace_table_token_16_th our factoring segment 's operating income for the year ended december 31 , 2016 was $ 10.5 million , compared with $ 11.5 million for the year ended december 31 , 2015. this decrease was primarily due to reductions in net interest income and increases in noninterest expenses . 58 factored receivables in our factoring segment grew 14 % from $ 186.5 million as of december 31 , 2015 to $ 212.8 million as of december 31 , 2016. our average number of clients increased from 1,858 for the year ended december 31 , 2015 to 2,266 for the year ended december 31 , 2016 and the corresponding factored accounts receivable purchases increased from $ 1.625 billion during the year ended december 31 , 2015 to $ 1.828 billion during the year ended december 31 , 2016. our average invoice size decreased 11 % from $ 1,465 for the year ended december 31 , 2015 to $ 1,303 for the year ended december 31 , 2016 , however , the number of invoices purchased increased 26 % period over period . net interest income was $ 28.2 million for the year ended december 31 , 2016 compared to $ 29.0 million for the year ended december 31 , 2015. the decrease in net interest income is partly due to pricing pressure on factored receivable balances in the current period due to increased competition and market conditions , resulting in slightly lower yields on net funds employed at our factoring segment . in addition , a change in the mix within our factored receivables portfolio period over period contributed to the decrease , as our transportation factoring balances , which generate a higher yield than our non-transportation factoring balances , decreased as a
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factors that significantly affect our results our cash flow and resulting ability to pay dividends will be dependent upon the partnership 's ability to make distributions to its partners , including us . the actual amount of cash that the partnership will have available for distributions will depend primarily on the amount of cash that it generates from its operations . as of february 15 , 2013 , our interests in the partnership consist of the following : · a 2 % general partner interest , which we hold through our 100 % ownership interest in the general partner of the partnership ; · all of the outstanding idrs ; and · 12,945,659 of the 101,788,617 outstanding common units of the partnership , representing a 12.7 % limited partnership interest . factors that significantly affect the partnership 's results the partnership 's results of operations are substantially impacted by the volumes that move through its gathering , processing and logistics assets , changes in commodity prices , contract terms , the impact of hedging activities and the cost to operate and support assets . 62 volumes in the partnership 's gathering and processing operations , plant inlet volumes and capacity utilization rates generally are driven by wellhead production , its competitive and contractual position on a regional basis and more broadly by the impact of prices for oil , natural gas and ngls on exploration and production activity in the areas of its operations . the factors that impact the gathering and processing volumes also impact the total volumes that flow to the partnership 's downstream business . in addition , fractionation volumes are also affected by the location of the resulting mixed ngls , available pipeline capacity to transport ngls to the partnership 's fractionators and the partnership 's competitive and contractual position relative to other fractionators . commodity prices the following table presents selected annual and quarterly industry index prices for natural gas , selected ngl products and crude oil for the periods presented : replace_table_token_9_th ( 1 ) natural gas prices are based on average quarterly and annual prices from henry hub i-ferc commercial index prices . ( 2 ) ngl prices are based on quarterly and annual averages of prices from mont belvieu non-tet monthly commercial index prices . illustrative targa ngl contains 44 % ethane , 30 % propane , 11 % natural gasoline , 5 % isobutane and 10 % normal butane . ( 3 ) crude oil prices are based on quarterly and annual averages of daily prices from west texas intermediate commercial index prices as measured on the nymex . 63 contract terms , contract mix and the impact of commodity prices because of the significant volatility of natural gas and ngl prices , the contract mix of the partnership 's gathering and processing segment can also have a significant impact on its profitability , especially those contracts that create exposure to changes in energy prices ( “ equity volumes ” ) . set forth below is a table summarizing the mix of the partnership 's gathering and processing contracts for 2012 and the potential impacts of commodity prices on operating margins : percent of contract type throughput impact of commodity prices percent-of-proceeds/percent-of-liquids 43 % decreases in natural gas and or ngl prices generate decreases in operating margins . fee-based 3 % no direct impact from commodity price movements . wellhead purchases/keep-whole 21 % increases in natural gas prices relative to ngl prices generate decreases in operating margin . hybrid 33 % in periods of favorable processing economics ( 1 ) , similar to percent-of-liquids or to wellhead purchases/keep-whole in some circumstances , if economically advantageous to the processor . in periods of unfavorable processing economics , similar to fee-based . ( 1 ) favorable processing economics typically occur when processed ngls can be sold , after allowing for processing costs , at a higher value than natural gas on a btu equivalent basis . negotiated contract terms are based upon a variety of factors , including natural gas quality , geographic location , competitive commodities and the pricing environment at the time the contract is executed , and customer requirements . the gathering and processing contract mix and , accordingly , the exposure to natural gas and ngl prices may change as a result of producer preferences , competition , changes in production as wells decline at different rates or are added , the partnership 's expansion into regions where different types of contracts are more common and other market factors . the contract terms and contract mix of the downstream business can also have a significant impact on its results of operations . during periods of low relative demand for available fractionation capacity , rates were low and frac-or-pay contracts were not readily available . currently , demand for fractionation services is near existing industry capacity , rates have increased , contract lengths have increased and reservation fees are required . these fractionation contracts in the logistics assets segment are primarily fee-based arrangements while the marketing and distribution segment includes both fee-based and percent-of-proceeds contracts . impact of the partnership 's commodity price hedging activities in an effort to reduce the variability of its cash flows , the partnership has hedged the commodity price associated with a portion of its expected natural gas equity volumes through 2015 and ngl and condensate equity volumes through 2014 by entering into derivative financial instruments including swaps and purchased puts ( or floors ) . with these arrangements , the partnership has attempted to mitigate its exposure to commodity price movements with respect to its forecasted volumes for these periods . the partnership also actively manages the downstream business product inventory and other working capital levels to reduce exposure to changing ngl prices . for additional information regarding the partnership 's hedging activities , see “ item 7a . quantitative and qualitative disclosures about market risk — commodity price risk. ” operating expenses variable costs such as fuel , utilities , power , service and repairs can impact the partnership 's results as volumes fluctuate through its systems . story_separator_special_tag continued expansion of existing assets will also give rise to additional operating expenses , which will affect the partnership 's results . general and administrative expenses under the omnibus agreement we have with the partnership , which initial term expires in april 2013 , we provide general and administrative and other services associated with ( 1 ) the partnership 's existing assets and any future conveyances by us and ( 2 ) subject to mutual agreement , future acquisitions from third parties . since october 1 , 2010 , after the final conveyance of assets by us to the partnership , substantially all of our general and administrative costs have been and , so long as our only cash generating assets are ownership interests in the partnership , will continue to be allocated to the partnership , other than our direct costs of being a public reporting company . the partnership agreement will govern these matters after the omnibus agreement expires . see “ item 13. certain relationships and related transactions , and director independence – omnibus agreement. ” 64 general trends and outlook we expect the midstream energy business environment to continue to be affected by the following key trends : demand for our services , commodity prices , volatile capital markets and increased regulation . these expectations are based on assumptions made by us and information currently available to us . to the extent our underlying assumptions about or interpretations of available information prove to be incorrect , our actual results may vary materially from our expected results . demand for the partnership 's services fluctuations in energy prices can affect production rates and investments by third parties in the development of oil and natural gas reserves . generally , drilling and production activity will increase as energy prices increase . we believe that the current strength of oil , condensate and ngl prices as compared to natural gas prices has caused producers in and around the partnership 's gathering and processing areas of operation to focus their drilling programs on regions rich in liquid forms of hydrocarbons . this focus is reflected in increased drilling permits and higher rig counts in these areas , and we expect these activities to lead to higher inlet volumes in the field gathering and processing segment over the next several years . while we expect demand for the partnership 's ngl products to remain strong , a reduction in demand for ngl products or a significant increase in ngl product supply relative to this demand , could impact the partnership 's business . increases in demand for international grade propane , along with expansion in the petrochemical industry , which relies on ethane as a feedstock , point towards sustained demand for the partnership 's terminaling and storage services in the downstream business . producer activity in areas rich in oil , condensate and ngls is currently generating increased demand for the partnership 's fractionation services and for related fee-based services provided by the downstream business . while we expect development activity to remain robust with respect to oil and liquids rich gas development and production , currently depressed natural gas prices have resulted in reduced activity levels surrounding comparatively dry natural gas reserves , whether conventional or unconventional . commodity prices current forward commodity prices as of december 31 , 2012 show natural gas and crude oil prices strengthening while ngl prices remain relatively flat . various industry commodity price forecasts based on fundamental analysis may differ significantly from forward market prices . both are subject to change due to multiple factors . there has been , and we believe there will continue to be , significant volatility in commodity prices and in the relationships among ngl , crude oil and natural gas prices . in addition , the volatility and uncertainty of natural gas , crude oil and ngl prices impact drilling , completion and other investment decisions by producers and ultimately supply to the partnership 's systems . the partnership 's operating income generally improves in an environment of higher natural gas , ngl and condensate prices , primarily as a result of its percent-of-proceeds contracts . the partnership 's processing profitability is largely dependent upon pricing , the supply of and market demand for natural gas , ngls and condensate , which are beyond its control and have been volatile . recent weak economic conditions have negatively affected the pricing and market demand for natural gas , ngls and condensate , which caused a reduction in profitability of the partnership 's processing operations . in a declining commodity price environment , without taking into account the partnership 's hedges , it will realize a reduction in cash flows under its percent-of-proceeds contracts proportionate to average price declines . the partnership has attempted to mitigate its exposure to commodity price movements by entering into hedging arrangements . for additional information regarding hedging activities , see “ quantitative and qualitative disclosures about market risk—commodity price risk. ” volatile capital markets we and the partnership are dependent on our abilities to access equity and debt capital markets in order to fund acquisitions and expansion expenditures . global financial markets have been , and are expected to continue to be , volatile and disrupted and weak economic conditions may cause a significant decline in commodity prices . as a result , we and the partnership may be unable to raise equity or debt capital on satisfactory terms , or at all , which may negatively impact the timing and extent to which we and the partnership execute growth plans . prolonged periods of low commodity prices or volatile capital markets may impact our and the partnership 's ability or willingness to enter into new hedges , fund organic growth , connect to new supplies of natural gas , execute acquisitions or implement expansion capital expenditures . 65 increased regulation additional regulation in various areas has the potential to materially impact the partnership 's operations and financial condition .
| other operating ( income ) expense reflects a $ 15.4 million loss due to a write-off of the partnership 's investment in the yscloskey joint venture processing plant in southeastern louisiana . following hurricane isaac , the joint venture owners elected not to restart the plant . additionally , other operating ( income ) expense includes $ 3.6 million in costs associated with the clean-up and repairs necessitated by hurricane isaac at the partnership 's coastal straddle plants . the increase in interest expense was the result of higher borrowings ( $ 22.3 million ) , offset by a lower effective interest rate ( $ 3.0 million ) and higher capitalized interest ( $ 10.2 million ) attributable to major expansion capital projects . operations at the partnership 's non-operated equity investment , gcf , were impacted by the planned shutdown of operations that started during the second quarter and completed in the third quarter of 2012. the planned shutdown was associated with gcf 's 43 mbbl/d capacity expansion . the facility 's operations were also hampered by start-up issues associated with the expansion . this resulted in lower equity earnings from this equity investment for 2012 compared to 2011. losses on a debt redemption and early debt extinguishments during 2012 are largely attributable to premiums and write-offs of debt issue costs in connection with the redemption of the partnership 's 8¼ % notes due 2016 ( the “ 8¼ % notes ” ) and the amendment of the revolving credit facilities . see note 10 of the “ consolidated financial statements ” of this annual report for additional details . the mark-to-market loss in 2011 was attributable to interest rate swaps that were de-designated during the second quarter of that year . consequently , the partnership discontinued hedge accounting on those swaps , and changes in fair value and cash settlements were recorded as mark-to-market loss . the partnership terminated all of its interest rate swaps in 2011 and therefore no comparable loss was recognized in 2012. the increase in other expenses is attributable to fees and
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we believe that these metrics are indicative of our overall level of analytical activity and the underlying growth in our business . replace_table_token_5_th _ ( 1 ) more 2 registry ® dataset metrics and trailing 12 month pam , each of which is presented in the table , are key operating metrics that management uses to assess our level of operational activity . while we believe that each of these metrics is indicative of our overall level of analytical activity and the underlying growth in our business , increases or decreases in these metrics do not necessarily correlate to proportional increases or decreases in revenue , or net income . for instance , although increased levels of analytical activity historically have corresponded to increases in revenue over the long term , differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability 36 of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , or net income ( and vice versa ) . accordingly , while we believe the presentation of these operating metrics is helpful to investors in understanding our business , these metrics have limitations and should not be considered as substitutes for analysis of our financial results reported under generally accepted accounting principles ( “ gaap ” ) . in addition , we believe that other companies , including companies in our industry , do not present similar operating metrics and that there is no commonly accepted method of calculating these metrics , which may reduce their usefulness as comparative measures . ( 2 ) unique patient count is defined as each unique , longitudinally matched , de-identified natural person represented in our more 2 registry ® as of the end of the period presented . ( 3 ) medical event count is defined as the total number of discrete medical events as of the end of the period presented ( for example , a discrete medical event typically results from the presentation of a patient to a physician for the diagnosis of diabetes and congestive heart failure in a single visit , the presentation of a patient to an emergency department for chest pain , etc. ) . ( 4 ) pam is defined as the sum of the analytical processes performed on each respective patient within patient populations covered by clients under contract . as used in the metric , an “ analytical process ” is a distinct set of data calculations undertaken by us which is initiated and completed by our analytical platform to examine a specific question such as whether a patient is believed to have a condition such as diabetes , or worsening of the disease , during a specific time period . trends and factors affecting our future performance a number of factors influence our growth and performance . we see many of these factors as being more quantitatively driven , such as the rate of growth of the underlying data counts within our datasets , the ongoing investment in innovation , and our level of analytical activity . additionally , there are several factors that influence our growth and performance that are less quantitatively driven , including seasonality , macro-economic forces , and trends within healthcare ( such as payment models , incentivization , and regulatory oversight ) , that can be driven by changes in federal and state laws and regulations , as well as private sector market forces . growth of datasets . healthcare costs in the united states have been increasing significantly for many years . this rise in healthcare costs has driven a broad transition from consumption-based payment models to quality and value-based payment models across the healthcare landscape . as a result , the specific disease and comorbidity status , clinical and quality outcomes , resource utilization , and care details of the individual patient have become increasingly relevant to the various constituents across the healthcare delivery system . concurrently , the count and complexity of diseases , diagnostics , and treatments—as well as payment models and regulatory oversight requirements—have soared . in this setting , granular data has become critical to determining and improving quality and financial performance in healthcare . our more 2 registry ® is our largest principal dataset and serves as a proxy for our general growth of datasets within inovalon . the growth of our datasets that inform our analytical capabilities and comparative analytics is a key aspect of our provision of value to our clients and is indicative of our overall growth and capabilities . 37 innovation and platform development . our business model is based upon our ability to deliver value to our clients through the combination of advanced , cloud-based data analytics and data-driven intervention platforms focused on the achievement of meaningful and measurable improvements in clinical quality outcomes and financial performance in healthcare . our ability to deliver this value is dependent in part on our ability to continue to innovate , design new capabilities , enter into new agreements with clients for new platforms , and bring these capabilities to market in an enterprise scale . our continued ability to innovate our platform and bring differentiated capabilities to market is an important aspect of our business success . our investment in innovation includes costs for research and development , capitalized software development , and capital expenditures related to hardware and software platforms on which our data analytics and data-driven interventions capabilities are deployed as summarized below ( in thousands , except percentages ) . replace_table_token_6_th _ ( 1 ) research and development primarily includes employee costs related to the development and enhancement of our service offerings . ( 2 ) capitalized software development includes capitalized costs incurred to develop and enhance functionality for our data analytics and data-driven intervention platforms . ( 3 ) research and development infrastructure investments include strategic capital expenditures related to hardware and software platforms under development or enhancement . data analytics and data-driven intervention mix . story_separator_special_tag our business and operational models are highly scalable and leverage variable costs to support revenue generating activities . our data analytic service costs are less variable in nature and require lower incremental capital expenditures . as a result , following initial development and deployment investments , our big data analytics platform and data technology capabilities allow us to process significant volumes of transactions with lower incremental costs . conversely , our data-driven intervention costs are generally variable in nature and require incremental costs to generate additional revenue . as a result , the mix of our data analytics and data interventions activities affects our financial performance . client and analytical process count growth . our business is generally driven by the number of underlying patients for which our analytics and data-driven intervention platforms are being utilized . as such , we track the number of analytical processes that we run on patients each month in fulfillment of our client contracts , as totaled for the trailing 12 months . we believe that pam is indicative of our overall level of analytical activity , and we expect our period-to-period comparisons of our pam to be indicative of underlying growth of our business , although changes in levels of analytical activity do not always directly translate to changes in financial performance of our business . differences in fees charged for different analytical packages exist and differences in how analytics trigger the applicability of our data-driven intervention platforms may result in increases in analytical activity that do not result in proportional increases in revenue , or net income ( and vice versa ) . therefore , in situations in which a new engagement is initiated for analytical processes that have a higher than average fee rate , revenue could expand disproportionately faster than the increase in pam . likewise , if engagements for analytical processes that have a higher than average fee rate are concluded then such conclusions can negatively affect revenue disproportionately more than pam . seasonality . the nature of our customers ' end-market results in partial seasonality reflected in both revenue and cost of revenue differences during the year . regulatory impact of data submission deadlines in , for example , march , june , september , and january drive some degree of predictable timing of analytics and data processing activity variances from quarter to quarter . further , regulatory clinical encounter deadlines of june 30th and december 31st drive predictable intervention concentrations variances from quarter to quarter . the timing of these factors results in analytical and intervention activity mix variances which have limited predictable impact in the aggregate on our financial performance from quarter to quarter . finally , quarter to quarter 38 financial performance may increasingly vary from historical seasonal trends as we continue to expand into adjacent markets and increase the portion of our revenue generated from new offerings . regulatory , economic and industry trends . our clients are affected , sometimes directly , and sometimes counter-intuitively , by macro-economic trends such as economic growth ( or economic recession ) , inflation , and unemployment . further , industry trends in federal and state laws and regulations , as well as emerging trends in private sector payment models , affect our clients ' businesses and their need for technologies and services to support these challenges . these factors have various effects on our business , and on occasion have resulted in the slowing or cessation of the decision-making process by clients adopting our technologies and services . on the other hand , changes in macro-economic trends and the industry landscape have accelerated the need for our technologies and services from time-to-time , particularly as regulators introduce complex requirements with which our clients must comply . shift to fully automated data-driven intervention platform services . we view the decreased proportion of revenue derived from partially automated data-driven intervention platform services as a positive reflection of our cloud-based interconnectivity and automation capabilities . the proportion of our revenue derived from pure data analytics and fully automated data-driven intervention platform services revenue is expected to continue to expand over time as a percentage of total revenue as a result of our continued expansion of our cloud-based interconnectivity technologies and the continued expansion of interconnectivity within the healthcare landscape . in order to drive value for our clients and serve them irrespective of their level of connectivity , we continue to provide cloud-based partially automated data-driven intervention platform services , converting the performance of such services to cloud-based fully automated data-driven intervention platform services wherever possible . as the healthcare infrastructure becomes more interconnected and our integration and interconnectivity technologies continue to expand , we believe that we will be able to achieve more rapid implementation , and greater value impact , at more efficient costs . components of results of operations revenue we earn revenue primarily through the sale or subscription licensing of our cloud-based data analytics , data-driven intervention platform services , our advisory services and business intelligence solutions . our cloud-based data analytics services are performed either at the beginning of a data-driven intervention process , which typically aligns with regulatory submission deadlines , or on a monthly basis , depending on the particular client 's needs . cloud-based data analytics revenue is driven primarily by the number of unique patients in a client 's dataset , a minimum data analytics processing fee , the number of identified gaps in care , quality , data integrity , and financial performance identified in a client 's dataset , and a contractually negotiated transactional price for each identified gap or unique patient . subscription licensing revenue is driven primarily by the number of clients , the number of unique patients in a client 's population dataset , the number of analytical services contracted for by a client , and the contractually negotiated price of such services . cloud-based data-driven intervention platform service revenue represents revenue that is generated from fully automated processes ( i.e. , those processes that require no material variable-based labor components ) and partially automated processes ( i.e.
| this decrease was primarily attributable to a net decrease of approximately $ 75.0 million in revenue from existing clients , partially offset by approximately $ 44.5 million in revenue within the acquired businesses of avalere and creehan , through the anniversary date of the acquisition , and an increase in revenue from new clients signed of approximately $ 20.8 million . the change in revenue from new and existing clients resulted from a combination of factors including a product transition , sales and marketing capacity , and the business performance of certain aca-focused clients ( including co-ops ) . cost of revenue 2017 compared with 2016 . during the year ended december 31 , 2017 , cost of revenue decreased by approximately $ 8.1 million , or 5 % , compared with the year ended december 31 , 2016 . the decrease in cost of revenue was primarily attributable to a decrease of employee-related expenses of $ 30.6 million driven by technology-enabled platform efficiency initiatives , which was partially offset by the combined incremental cost of revenue of $ 17.5 million attributable to the acquired businesses of creehan and ccs , an increase in fulfillment of $ 2.3 million , an increase in professional third-party costs of $ 1.6 million , and an increase in stock-based compensation expense of $ 1.2 million . cost of revenue as a percentage of revenue was 34 % and 37 % for the years ended december 31 , 2017 and 2016 , respectively . 2016 compared with 2015 . during the year ended december 31 , 2016 , cost of revenue increased by approximately $ 13.0 million , or 9 % , compared with the year ended december 31 , 2015. approximately $ 8.9 million of the increase was driven by the composition of a greater volume of data-driven intervention platform services as a percentage of revenue and 43 approximately $ 4.1 million was attributable to the acquisition of creehan . cost of revenue as a percentage of revenue was 37 % , and 33 % , for the years ended december 31 , 2016 and 2015 , respectively . sales and marketing
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following this restructuring , our systems business will be engaged solely in manufacturing of ( i ) re-deployable ocean-bottom cable seismic data acquisition systems and shipboard recorders ; ( ii ) towed streamer acquisition , positioning and control systems and energy sources ; and ( iii ) analog geophone sensors . 39 inova geophysical . we conduct our land seismic equipment business through inova geophysical equipment limited ( “ inova geophysical ” or “ inova ” ) , which is a joint venture with bgp inc. ( “ bgp ” ) . bgp is a subsidiary of china national petroleum corporation , and is generally regarded as the world 's largest land geophysical service contractor . bgp owns a 51 % equity interest in inova geophysical , and we own the remaining 49 % interest . inova manufactures cable-based , cableless and radio-controlled seismic data acquisition systems , digital sensors , vibroseis vehicles ( i.e. , vibrator trucks ) and source controllers for detonator and energy sources business lines . inova 's research and development centers are located primarily in the u.s. and canada , although the joint venture intends to evaluate lower-cost manufacturing opportunities in china . in addition , we and bgp often field-test , and we expect to field-test further , inova 's new technologies and related equipment for operational feedback and quality improvements . during the third quarter of 2013 , inova geophysical restructured its business and related product lines in order to reduce costs in light of current market fundamentals and competitive pressures . see “ — restructuring and other charges ” below . investment in oceangeo in february 2013 , we purchased from reservoir exploration technology asa for $ 1.5 million its 30 % interest in oceangeo b.v. ( formerly known as georxt b.v. ) . oceangeo is headquartered in rio de janeiro , brazil , and specializes in seismic acquisition operations using ocean-bottom cables deployed from vessels leased by oceangeo . we were originally granted an option , exercisable at any time on or before may 15 , 2013 , to increase our ownership percentage to 50 % by making additional capital contributions to oceangeo . we also at that time provided oceangeo with an $ 8.0 million working capital loan , the repayment of which was guaranteed by our majority joint venture partner in oceangeo , georadar levantamentos geofisicos s/a ( “ georadar ” ) . no repayments were made under the loan , and the full $ 8.0 million indebtedness under the loan remained outstanding as of december 31 , 2013. in addition , during 2013 we sold certain seismic equipment to oceangeo , and georadar guaranteed the payment of the equipment purchase price . as of december 31 , 2013 , oceangeo owed $ 7.0 million to us for the equipment . during 2013 , oceangeo experienced a sharp pull-back in business in its home market of brazil , which resulted in its anticipated backlog being reduced to zero . we assisted oceangeo with its move into the international market , in meeting prequalification requirements in order to obtain work from international e & p companies through the tender cycle , and with bid preparation . although we had expected to increase our ownership interest in oceangeo from our 30 % level , we delayed doing so to give the joint venture an opportunity to secure backlog within brazil and beyond . we remained fully committed to putting our calypso seabed acquisition technology to work in a service model to meet the growing demand for seabed seismic . in october 2013 , we reached agreement with georadar , which gave us the option to increase our ownership percentage in oceangeo to 70 % in lieu of the earlier option granted to us . to further assist oceangeo in acquiring backlog , in october 2013 we agreed to loan oceangeo additional funds for working capital , subject to our agreement on the necessity and purpose for each advance and certain other conditions , up to a maximum of $ 25.0 million . as of december 31 , 2013 , we had advanced an additional $ 15.3 million to oceangeo under this additional loan . in november 2013 , oceangeo was awarded a new seismic acquisition project by a customer , but oceangeo and the customer did not complete the project contract and all prerequisites to commence the project until late december 2013. in january 2014 , we exercised our option to increase our ownership interest in oceangeo to 70 % , with georadar owning the remaining 30 % . in connection with our increase in ownership , we converted into additional equity interests of oceangeo the indebtedness owed to us under the $ 8.0 million working capital loan and approximately $ 3.0 million of the original $ 7.0 million owed to us for the purchase of equipment by oceangeo . the guaranties provided to us by georadar with regard to the loan and the equipment purchase obligations were also terminated . restructuring and other charges geophysical contractors have traditionally been significant customers of our products and services . however , due to current marketplace pressures that have resulted principally from further consolidation in the geophysical contractor industry in recent years , we initiated a restructuring of our systems business and related product lines so that we could be more oriented toward providing services and selling directly to e & p customers . we anticipate that for the foreseeable future , our systems business will focus all of its development efforts on ocean-bottom cable systems . we plan to continue to manufacture towed streamer systems , but will no longer invest in the development of a next-generation towed streamer system . through this restructuring , we are closing certain manufacturing facilities and have reduced headcount in systems personnel by approximately 31 % , reducing their costs by approximately $ 12 million per year . story_separator_special_tag 40 in addition , during the third quarter of 2013 , inova geophysical initiated a restructuring of its product lines in response to continued softness in the land seismic equipment market and competition among the land equipment providers for both cabled and cableless acquisition systems . the restructuring within inova geophysical was intended to enable the business to operate profitably at lower revenue levels . the restructuring primarily involves reducing headcount in order to reduce inova geophysical 's cost structure ; since the third quarter of 2013 , inova geophysical has reduced its employee headcount by approximately 20 % . as a result of inova geophysical 's restructuring , inova geophysical has reduced its annual operating costs by approximately $ 12 million , and we will share in 49 % of those savings . see note 17 “ restructuring activities ” of notes to consolidated financial statements . senior secured second-priority notes in may 2013 , we sold $ 175 million aggregate principal amount of 8.125 % senior secured second-priority notes due 2018 ( the “ notes ” ) in a private offering . the notes represent senior secured second-priority obligations guaranteed by our material u.s. subsidiaries , and mature on may 15 , 2018. interest on the notes accrues at the rate of 8.125 % per annum and is payable semiannually on may 15 and november 15 of each year during their term . the first interest payment on the notes was made on november 15 , 2013. we used the net proceeds from the offering to repay outstanding indebtedness under our senior secured credit facility with china merchants bank co. , ltd. , new york branch , as administrative agent and lender ( “ cmb ” ) , and for general corporate purposes . for further information regarding these notes and our credit facility , see note 4 “ long-term debt and lease obligations ” of notes to consolidated financial statements . westerngeco legal proceedings as described above in part i , item 3 . “ legal proceedings , ” an august 2012 jury verdict in the westerngeco l.l.c . v. ion geophysical corporation lawsuit found that we had willfully infringed claims contained in four patents and awarded westerngeco the sum of $ 105.9 million in damages , consisting of $ 12.5 million in reasonable royalty and $ 93.4 million in lost profits . in june 2013 , the presiding judge in the westerngeco lawsuit entered a memorandum and order rejecting the jury 's finding of willfulness and denying westerngeco 's motions for willfulness and enhanced damages , but also denying our post-verdict motions that challenged the jury 's infringement findings and the damages amount . based on our analysis after the trial court 's memorandum and order , we increased our loss contingency accrual related to this case from $ 10.0 million to $ 120.0 million as of june 30 , 2013. the loss contingency accrual amount consisted of jury verdict damages , court costs and estimates of prejudgment interest and supplemental damages . on october 24 , 2013 , the judge entered another memorandum and order , ruling on the number of digifin ® units that are subject to supplemental damages and also ruling that the supplemental damages applicable to the additional units should be calculated by adding together the jury 's previous reasonable royalty and lost profits damages awards per unit , resulting in supplemental damages of $ 73.1 million . the total damages award in the case now consists of the jury award of $ 105.9 million and the supplemental damages award of $ 73.1 million , plus prejudgment interest and court costs . the october 2013 memorandum and order also concluded that our infringement involving the supplemental units was not willful and that westerngeco was not entitled to receive enhanced damages . based on our analysis of the trial court 's october 2013 memorandum and order , we concluded that we should increase our loss contingency accrual related to this case . at december 31 , 2013 , our loss contingency accrual totaled $ 193.3 million , which consists of jury verdict damages , supplemental damages , court costs and estimates of prejudgment interest . upon any further rulings or developments in the case , we will evaluate whether the accrual should be further adjusted . see further discussion at part i , item 3 . “ legal proceedings . ” estimated amounts of loss contingency accruals disclosed in this annual report on form 10-k or elsewhere are based on currently available information and involve elements of judgment and significant uncertainties . actual losses may exceed or be less than these accrual amounts . economic conditions demand for our seismic data acquisition services and products has traditionally been cyclical and substantially dependent upon activity levels in the oil and gas industry , particularly our customers ' willingness and ability to expend their capital for oil and natural gas exploration and development projects . this demand is sensitive to current and expected future crude oil and natural gas prices . in 2013 , wti spot crude oil prices remained in a range of approximately $ 90 to $ 110 per barrel , finishing the year near $ 95 per barrel . brent crude oil prices remained in a range of $ 97 to $ 118 per barrel , finishing the year near $ 110 per barrel . energy price forecasts are by their nature highly uncertain , but external reports indicate that wti crude oil prices and brent crude oil prices are expected to remain in price ranges of $ 80 to $ 110 and $ 100 to $ 130 per barrel , respectively , for 2014 . 41 u.s. henry hub natural gas prices traded in a range of $ 3.15 to $ 4.50 per mmbtu , ending the year at approximately $ 4.30 per mmbtu . we believe demand for natural gas will continue to grow because it is increasingly being used to supplant coal as the preferred fuel for the generation of u.s. electric power .
| gross profit decreased by $ 16.4 million to $ 116.6 million , as adjusted , representing a 30 % gross margin , compared to $ 133.0 million , or a 38 % gross margin , for 2012 . this decrease was attributable to ( i ) cost overruns on our 3-d marine program during the first half of 2013 and ( ii ) the negative impact of approximately $ 14.0- $ 16.0 million of unrecorded revenues tied to a customer contract pending final execution . 45 systems — net revenues for 2013 decreased by $ 9.6 million , or 7 % , to $ 122.4 million , compared to $ 132.0 million for 2012 . fourth quarter 2013 sales accounted for $ 40.5 million , or 33 % , of total annual systems revenues for 2013. sales in the fourth quarter of each year typically account for the largest share of sales each year . this decrease in revenues in 2013 was principally due to reduced demand from the shrinking marketplace and spare capacity in the industry resulting from recent further consolidation of marine geophysical contractors ; these conditions contributed to a decrease in sales of new towed streamer systems . this decrease was partially offset by increasing levels of repair work from the existing installed product base with our customers . gross profit for 2013 decreased by $ 6.4 million to $ 45.7 million , as adjusted , representing a 37 % gross margin , compared to $ 52.1 million , as adjusted , representing a 39 % gross margin , for 2012 . the decrease in gross profits was due to the change in revenues , as described above . software — net revenues for 2013 decreased by $ 3.7 million , or 9 % , to $ 39.4 million , compared to $ 43.1 million for 2012 . this decrease in revenues was due in part to decreased revenues from our gator seabed software and declines in
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we will continue to evaluate new adjacent market opportunities that are consistent with our strategic goals where we believe we can capture competitive advantages and achieve attractive returns for our shareholders . these would include sustainable new opportunities that align with long-term macro trends ; opportunities that can contribute meaningfully to our long-term growth and return on equity ; and , generally , businesses where we feel we can capture and maintain a long-term competitive advantage ( e.g. , advantages related to operating efficiencies , our cost of capital or our tax structure ) . with respect to our servicing business , our recent regulatory settlements have significantly limited our ability to grow our servicing portfolio , which naturally decreases over time through portfolio runoff . in order to grow our servicing portfolio through acquisitions , we will need to satisfy the conditions set forth in our consent orders with the ny dfs and ca dbo . it is not clear that there is a significant market for non-agency msr purchases , even if we are given the approval from ny dfs and ca dbo to resume those types of transactions . nonetheless , we believe our significant investments in our servicing operations , risk and compliance infrastructure over the recent years will position us favorably relative to our peers should such transactions become available . our business continues to be impacted by our recent regulatory settlements and the current regulatory environment . we have faced , and expect to continue to face , regulatory and public scrutiny as well as stricter and more comprehensive regulation of our business . we continue to work diligently to assess the implications of the regulatory environment in which we operate and to meet the requirements of the current environment . we devote substantial resources to regulatory compliance , while , at the same time , striving to meet the needs and expectations of our customers , clients and other stakeholders . story_separator_special_tag style= '' line-height:120 % ; padding-top:8px ; text-align : left ; font-size:10pt ; '' > year ended december 31 , 2014 versus 2013 servicing and subservicing fees for 2014 were 4 % higher than 2013 primarily as a result of 2014 including a full year of revenue attributed to the rescap acquisition , which settled on february 15 , 2013 , and various asset acquisitions completed throughout 2013 , and consistent with the 4 % increase in the total average portfolio upb . gains on loans held for sale increased in 2014 largely due to gains recognized in connection with three ebo transactions whereby we purchased delinquent fha-insured loans out of ginnie mae guaranteed securitizations and immediately sold the loans and related advances . gains on loans held for sale from our lending operations declined slightly in 2014 where lower origination volumes were largely offset by shifts in the origination mix from the lower margin correspondent channel to the higher margin retail channel . operating expenses increased 56 % in 2014 as compared to 2013 due primarily to goodwill impairment losses , higher professional services expenses , including settlements , as well as platform integration costs and msr valuation related impacts . we recognized a goodwill impairment loss of $ 420.2 million in 2014. in response to certain events , including significant declines in the market price of our common stock in reaction to the ny dfs settlement announced in december 2014 and the subsequent resignation of our former executive chairman , and the ca dbo settlement announced in january 2015 that related to events in 2014 , we determined it was necessary to reassess goodwill impairment as of december 31 , 2014. this reassessment resulted in the full impairment of the carrying value of goodwill in our servicing and lending segments . see note 12 — goodwill for additional information . professional services increased primarily because of the $ 150.0 million charge we recognized in connection with a settlement reached with the ny dfs in december 2014 ( 2013 included the $ 53.5 million loss we recognized in connection with the ocwen national mortgage settlement ) , which are recorded in the corporate items and other segment , and higher monitoring and compliance costs . see note 27 — contingencies for additional information regarding these settlements . higher servicing and origination expenses and technology and communication expenses offset by lower compensation and benefits expense are primarily attributable to the platform integrations during 2014 . 48 we recognized losses of $ 22.1 million in connection with changes in the value of our fair value elected msrs during 2014 as primary mortgage rates decreased and recognized gains of $ 30.8 million during 2013 as primary mortgage rates increased . amortization of msrs decreased as a result of the effects of the change in accounting estimate in the first quarter of 2014 , offset in part by the effects of asset and platform acquisitions completed throughout 2013. we completed the integration of the rescap platform onto the realservicing platform in the fourth quarter of 2014 , and therefore , continued to incur the operating costs of maintaining the rescap platform throughout the year . operating expenses for 2014 also include a full twelve months of costs attributed to the rescap acquisition , which closed february 15 , 2013. interest expense for 2014 increased primarily as a result of the increase in outstanding borrowings . the average balance of borrowings increased as a result of the nrz/hlss transactions completed during 2013 , the issuance of ocwen asset servicing income series ( oasis ) , series 2014-1 notes in february 2014 ( oasis transaction ) and the $ 350.0 million senior unsecured notes issued in may 2014. these increases were partly offset by a decline in interest on our match funded liabilities as we replaced facilities in 2013 with new facilities that featured lower spreads over libor . story_separator_special_tag interest expense for 2013 included additional interest resulting from the accelerated write-off of facility costs in connection with the early termination of match funded facilities in connection with the nrz/hlss transactions and payments made in connection with interest rate swaps , which were terminated in may 2013. the effective tax rate for 2014 was ( 6.0 ) % as compared to 11.9 % for 2013. this change occurred because although we incurred a pre-tax loss for 2014 , we recognized income tax expense rather than a benefit because a greater proportion of our pre-tax earnings were earned in higher tax rate jurisdictions and because the $ 150.0 million ny dfs settlement , the $ 2.5 million ca dbo settlement and $ 263.0 million of the goodwill impairment loss were not deductible for tax purposes . income tax expense for 2014 also includes a provision of $ 3.6 million to increase the valuation allowance on net deferred tax assets . this compares to a provision of $ 15.8 million recorded in 2013 to establish a valuation allowance on net deferred tax assets . ocwen avails itself of certain tax benefits in the usvi and other international jurisdictions , which may have a favorable impact on our effective tax rate . to the extent that our pre-tax earnings are weighted more heavily in these lower tax rate jurisdictions , the effective tax rate decreases . if a greater proportion of our pre-tax earnings are earned in higher tax rate jurisdictions , the effective tax rate increases . see note 20 — income taxes to the consolidated financial statements for additional information . 49 financial condition summary the following table summarizes our consolidated balance sheets at the dates indicated . replace_table_token_8_th changes in the composition and balance of our assets and liabilities during 2015 are primarily attributable to the execution of our strategy to sell certain of our agency msrs and related advances and repayments of the related borrowings . during 2015 , we sold msrs with a carrying value of $ 658.6 million and the related advances and match funded advances with a carrying value of $ 562.3 million . we prepaid $ 865.8 million of the sstl principal balance during 2015 , including $ 585.8 million of mandatory prepayments from proceeds of completed sales of msrs and related advances and $ 280.0 million of voluntary prepayments . loans held for investment and related financing liabilities increased as a result of our reverse mortgage securitizations accounted for as secured financings . segment results of operations 50 servicing we earn contractual monthly servicing fees pursuant to servicing agreements ( which are typically payable as a percentage of upb ) as well as ancillary fees , including hamp fees , float earnings , reo referral commissions , speedpay ® fees and late fees , in connection with owned msrs . we also earn fees under both subservicing and special servicing arrangements with banks and other institutions that own the msrs . we typically earn these fees either as a percentage of upb or on a per loan basis . per loan fees typically vary based on delinquency status . we recognize servicing fees as revenue when the fees are earned , which is generally when the borrower makes a payment or when a delinquent loan is resolved through modification ( hamp or non-hamp ) , repayment plan , payoff or through the sale of the underlying mortgaged property following foreclosure . loan resolutions ( modifications , repayment plans and reo sales ) loan resolution activities are important to our financial performance . we recognize delinquent servicing fees and late fees as revenue when we collect cash on resolved loans , where permitted . loan resolution activities address the pipeline of delinquent loans and generally lead to ( i ) modification of the loan terms , ( ii ) repayment plan alternatives , ( iii ) a discounted payoff of the loan ( e.g. , a “ short sale ” ) or ( iv ) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting reo . loan modifications must be made in accordance with the applicable servicing agreement as such agreements may require approvals or impose restrictions upon , or even forbid , loan modifications . the majority of loans that we modify are delinquent , although we do pro-actively modify some performing loans under the american securitization forum guidelines . to select the best loan modification option for a delinquent loan , using a proprietary model , we perform a structured analysis of all options using information provided by the borrower as well as external data , including recent broker price opinions to value the mortgaged property . our proprietary model includes , among other things , an assessment of re-default risk . the delinquency rate of our serviced portfolio as a percentage of upb increased to 14 % december 31 , 2015 following a decline from 15 % at december 31 , 2013 to 13 % at december 31 , 2014 . the increase in our delinquency rate in 2015 is primarily due to the sale of performing loans as part of our sales of agency msrs . advance obligation as a servicer , we are generally obliged to advance funds in the event borrowers are delinquent on their monthly mortgage related payments . we advance principal and interest ( p & i advances ) , taxes and insurance ( t & i advances ) and legal fees , property valuation fees , property inspection fees , maintenance costs and preservation costs on properties that have been foreclosed ( corporate advances ) . for loans in non-agency securitization trusts , if we determine that our p & i advances can not be recovered from the projected future cash flows , we generally have the right to cease making p & i advances , declare advances , where permitted including t & i and corporate advances , in excess of net proceeds to be non-recoverable and , in most cases , immediately recover any such excess advances from the general collection accounts of the respective trust .
| however , to the extent we were to sell msrs for proceeds in excess of their carrying value , we would recognize net gains that would partly offset these declines in servicing fees . gain on loans held for sale from our lending operations increased $ 10.8 million primarily due to higher margin rates in all three forward lending channels and an increase in reverse lending origination volume . in our servicing business , gains on sales of loans repurchased from ginnie mae guaranteed securitizations declined by $ 10.5 million . expenses were $ 557.0 million or 27 % lower in 2015 as compared to 2014 . results for 2014 include a $ 420.2 million goodwill impairment loss and a $ 150.0 million charge in connection with the ny dfs settlement . the decline from 2014 related to these expenses was offset in part by higher regulatory monitoring and compliance costs , litigation expenses and fees paid to advisers assisting us with strategic initiatives . legal expenses increased primarily due to the costs of defending ourselves in proceedings alleging violations of federal , state and local laws and regulations , including proceedings relating to our lender placed insurance arrangements , proceedings brought under the false claims act by private citizens and proceedings brought derivatively by purported shareholders . in 2015 , we engaged financial and legal advisers to assist us in evaluating and executing on adjustments to our capital structure and exploring other strategic options and incurred $ 25.1 million in connection with these initiatives . msr amortization and valuation adjustments , including both fair value adjustments and impairment charges , decreased $ 57.7 million due to portfolio runoff and the effect of msr sales offset in part by an impairment charge of $ 17.3 million . interest expense for 2015 decreased as compared to 2014 primarily as a result of reductions in the value of the nrz financing liability based on
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the company believes this information helps investors understand underlying trends in the company 's business more easily . the differences between these non-gaap financial measures and the most comparable gaap measures are reconciled in the following tables : 17 replace_table_token_9_th operating income-water systems water systems operating income , after non-gaap adjustments , was $ 125.6 million in 2012 , an increase of 18 percent versus 2011. the 2012 operating income margin after non-gaap adjustments was 17.6 percent and increased by 130 basis points compared to 2011. this increased profitability was the result of operating leverage , increases in pricing , and productivity improvements . operating income-fueling systems fueling systems operating income after non-gaap adjustments was $ 37.0 million in 2012 compared to $ 32.1 million after non-gaap adjustments in 2011 , an increase of 15 percent . the 2012 operating income margin after non-gaap adjustments was 21.0 percent and increased by 180 basis points compared to the 19.2 percent of net sales in 2011. this increased profitability was the result of operating leverage , increases in pricing , and productivity improvements . operating income-other operating income-other is composed primarily of unallocated general and administrative expenses . general and administrative expenses were higher due to increases related to information technology expenditures for software , telephone and other erp integration costs as well as to higher performance based and stock based compensation expenses . interest expense interest expense for 2012 and 2011 was $ 10.2 million and $ 10.5 million , respectively . other income or expense other income or expense was a gain of $ 14.9 million in 2012 and a gain of $ 5.7 million in 2011. included in other income in 2012 was a one-time gain on the pioneer transaction worth $ 12.2 million . the gain on the original investment the company held in pioneer arose as a the result of a new enterprise valuation of the pioneer entity compared to the book value of franklin 18 electric 's equity investment in pioneer . also included in other income in 2012 was income from equity investments of $ 0.6 million and interest income of $ 2.3 million , primarily derived from the investment of cash balances in short-term securities . included in other income or expense in 2011 was income from equity investments of $ 2.3 million and interest income of $ 2.6 million , primarily derived from the investment of cash balances in short-term securities . in conjunction with the impo acquisition , the company entered into a forward purchase contract for turkish lira for a portion of the estimated acquisition price . the contract was outstanding as of the end of the first quarter of 2011 and resulted in a pre-tax gain included in other income of approximately $ 0.6 million . foreign exchange foreign currency-based transactions produced a loss for 2012 of $ 1.7 million , primarily due to the mexican peso , the euro , south african rand , brazilian real and czech koruna relative to the u.s. dollar , none of which individually were significant . foreign currency-based transactions produced a loss in 2011 of $ 1.4 million , primarily due to the turkish lira . income taxes the provision for income taxes in 2012 and 2011 was $ 32.2 million and $ 23.4 million , respectively . the tax rate for 2012 was 27.8 percent and 2011 was 26.9 percent . the projected tax rate may differ from the statutory rate primarily due to the indefinite reinvestment of foreign earnings taxed at rates below the u.s. statutory rate as well as recognition of foreign tax credits . the company has the ability to indefinitely reinvest these foreign earnings based on the earnings and cash projections of its other operations as well as cash on hand and available credit . net income net income for 2012 was $ 83.7 million compared to 2011 net income of $ 63.7 million . net income attributable to franklin electric co. , inc. for 2012 was $ 82.9 million , or $ 3.46 per diluted share , compared to 2011 net income attributable to franklin electric co. , inc. of $ 63.1 million or $ 2.65 per diluted share . net income attributable to franklin electric co. , inc. after non-gaap adjustments for 2012 was $ 75.3 million , or $ 3.14 per diluted share , compared to 2011 net income attributable to franklin electric co. , inc. after non-gaap adjustments of $ 64.3 million or $ 2.70 per diluted share . there were specific items in 2012 and 2011 that impacted net income attributable to franklin electric co. , inc. that were not operational in nature . the company refers to these items as “ non-gaap adjustments ” for purposes of presenting the non-gaap financial measures of net income attributable to franklin electric co. , inc. and adjusted eps . the company believes this information helps investors understand underlying trends in the company 's business more easily . the differences between these non-gaap financial measures and the most comparable gaap measures are reconciled in the following tables : replace_table_token_10_th 19 replace_table_token_11_th 2011 vs. 2010 overview sales and earnings in 2011 were up from last year . the sales increase was related to the company 's acquisitions , as well as sales volume and price increases and the impact of foreign currency translation . the company 's consolidated gross profit was $ 272.3 million for 2011 , an increase of $ 42.1 million or about 18 percent from 2010. the gross profit as a percent of net sales increased 100 basis points to 33.2 percent in 2011 from 32.2 percent in 2010. the gross profit margin improvement was due to leveraging fixed costs on higher sales and lower labor and burden cost , partially offset by higher material costs . results of operations net sales net sales in 2011 were $ 821.1 million , an increase of $ 107.3 million or 15 percent compared to 2010 sales of $ 713.8 million . story_separator_special_tag the incremental impact of sales from acquired businesses was $ 43.3 million or about 6 percent . sales revenue increased by $ 18.8 million or about 3 percent in 2011 due to foreign currency translation . the sales change in 2011 , excluding acquisitions and foreign currency translation , was an increase of $ 45.2 million or about 6 percent . replace_table_token_12_th during the fourth quarter 2011 , a long term submersible motor supply agreement with a major fueling equipment competitor expired and was not renewed . over the past several years sales under this agreement have represented about 1 percent of the company 's consolidated sales and these sales have been reflected in the water systems segment . net sales-water systems water systems sales were $ 654.1 million in 2011 , an increase of $ 70.8 million or 12 percent versus 2010. the incremental impact of sales from acquired businesses was $ 18.9 million or about 3 percent . foreign currency translation rate changes increased sales $ 17.8 million , or about 3 percent , compared to sales in 2010. the sales change in 2011 , excluding acquisitions and foreign currency translation , was an increase of $ 34.1 million or about 6 percent . water systems sales in the u.s. and canada were 39 percent of consolidated sales and grew by 9 percent compared to 2010. leading the company 's growth in the u.s. and canada were sales of pumping systems for industrial and irrigation applications , which increased sales by about 28 percent during 2011. the combination of high crop prices , which have led to more discretionary capital for farmers , along with dry conditions in portions of the southwest and midwest , has resulted in strong demand for agricultural irrigation products . sales of pumping systems for residential and light commercial and wastewater applications in the u.s. and canada grew by about 8 percent compared to the prior year as the company continued to gain 20 share in this market . the 8 percent increase includes an increase in submersible motor sales under the supply agreement mentioned above . water systems sales in emena , which is europe , the middle east , and north africa , were 15 percent of consolidated sales and grew by 29 percent compared to the prior year . acquisition related sales during 2011 were about $ 19 million . excluding acquisitions , emena sales grew by about 10 percent during 2011. emena sales have been impacted by the political and financial uncertainty throughout the region . water systems sales in latin america were about 13 percent of consolidated sales for 2011 and grew by 14 percent compared to the prior year . sales continued to be strong in brazil , mexico , argentina and chile with sales increases in these regions at about 16 percent . water systems sales in the asia pacific region were 7 percent of consolidated sales and grew by 12 percent compared to the prior year . sales in china continued to grow , increasing about 25 percent from the prior year . the year-on-year sales increased 19 percent in the southeast asian region . australia , one of the largest regions , increased at a slower growth rate of 6 percent . water systems sales in southern africa represented 6 percent of consolidated sales and declined by 7 percent compared to the prior year . heavy rains and flooding in south africa 's farm belt and reduced large pump sales in african export markets resulted in lower agricultural and industrial pump and motor sales this year . net sales-fueling systems fueling systems sales were $ 167.0 million in 2011 and increased $ 36.5 million or about 28 percent from 2010. the incremental impact of sales from acquired businesses was $ 24.4 million or about 19 percent . foreign currency translation rate changes increased sales $ 1.0 million , or less than 1 percent , compared to sales in 2010. the sales change in 2011 , excluding acquisitions and foreign currency translation , was an increase of $ 11.1 million or about 9 percent . fueling systems achieved solid organic sales gains . pumping systems sales grew by 15 percent during 2011 as station owners worldwide continue their conversion from suction to pressure pumping technology for dispensing gasoline . pipe and containment sales grew by 16 percent , excluding the petrotechnik acquisition , and by 70 percent including the acquisition . cost of sales cost of sales as a percent of net sales for 2011 and 2010 was 66.8 percent and 67.8 percent , respectively . correspondingly , the gross profit margin increased to 33.2 percent from 32.2 percent , a 100 basis point improvement . the gross profit margin improvement was due to leveraging fixed costs on higher sales , lower labor and burden costs , partially offset by higher material costs . direct materials as a percentage of sales increased by 150 basis points compared to last year . the company 's consolidated gross profit was $ 272.3 million for 2011 , up $ 42.1 million from 2010. selling , general and administrative ( “ sg & a ” ) selling , general , and administrative ( sg & a ) expenses were $ 177.3 million in 2011 and increased by $ 16.4 million or about 10 percent in 2011 compared to last year . during 2010 , fueling systems incurred $ 4.3 million in sg & a expenses for various legal matters . also in 2010 , sg & a was reduced by a $ 1.2 million gain on the sale of land and building in south africa . in 2011 , increases in sg & a attributable to acquisitions were $ 8.3 million . additional increases in sg & a costs during 2011 resulted from information technology ( `` it '' ) related expenditures for acquisition integrations , higher research , development , and engineering ( `` rd & e '' ) expenses , and increased costs for marketing and selling-related expenses .
| 15 water systems sales in emena , which is europe , the middle east , and north africa , were 15 percent of consolidated sales and grew by about 2 percent compared to the prior year . acquisition related sales during 2012 were about $ 13 million in emena . foreign currency translation rate changes decreased sales $ 12 million , or about 9 percent , compared to sales in 2011. excluding acquisitions and foreign currency translation , emena sales grew by about 1 percent during 2012. emena sales have been impacted by the political and financial uncertainty throughout the region . water systems sales in latin america were about 13 percent of consolidated sales for 2012 and grew by about 6 percent compared to the prior year . foreign currency translation rate changes decreased sales $ 11 million , or about 10 percent , compared to sales in 2011. excluding foreign currency translation , sales in latin america grew by about 16 percent during 2012. sales continued to be strong in brazil and mexico with sales increases in these regions at about 20 percent . an important contributor to this growth was the launch of our groundwater pump and motor product line in brazil . sales gained in mexico as ongoing dry weather increased the demand of irrigation pumping systems . in addition latin america benefited from a new distribution center in chile . water systems sales in the asia pacific region were 7 percent of consolidated sales and grew by about 15 percent compared to the prior year . acquisition related sales during 2012 were about $ 4 million in asia . foreign currency translation rate changes had little impact in 2012 compared to sales in 2011 in the asia pacific region . excluding acquisitions and foreign currency translation sales grew by about 7 percent during 2012. the year-on-year sales increased 22 percent in the southeast asian region , with strong sales in thailand , philippines
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operating expenses increased for the year ended december 31 , 2019 compared to the prior year primarily due to the following : higher outside service expenses related to co-promotional activities and scientific contract expenses ; higher stock-based compensation related to the cumulative impact of stock option grant activities ; amortization of finance lease rou assets and higher depreciation expenses related to the adoption of lease accounting guidance under asc 842 ; higher legal expenses mainly associated with patent-related and international activities ; and higher employee-related expenses resulting from higher average compensation level . the increases were partially offset by : lower clinical trial expenses related to lower activities for roxadustat offset by higher activities for pamrevlumab ; and lower drug development expenses associated with drug substance manufacturing activities related to pamrevlumab , and capitalization of inventory manufacturing costs . our research and development expenses were $ 209.3 million , $ 235.8 million and $ 196.5 million for the years ended december 31 , 2019 , 2018 and 2017 , respectively . since inception and through december 31 , 2019 , we have incurred a total of approximately $ 2 billion in research and development expenses , a majority of which relates to the development of roxadustat , pamrevlumab and other hif-ph inhibitors . we expect to continue to incur significant expenses and operating losses over at least the next several years and we expect our research and development expenses to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio . in addition , we expect to incur significant expenses relating to seeking regulatory approval for our product candidates and commercializing those products in various markets , including china . we consider the active management and development of our clinical pipeline to be particularly crucial to our long-term success . the process of conducting the necessary clinical research to obtain regulatory approval is costly and time consuming . the actual probability of success for each of our product candidates and clinical programs , and our ability to generate product revenue and become profitable , depends upon a variety of factors , including the quality of the product candidate , clinical results , investment in the program , competition , manufacturing capability , commercial viability , and our and our partners ' ability to successfully execute our development and commercialization plans . for a description of the numerous risks and uncertainties associated with product development , refer to “ risk factors . ” during the year ended december 31 , 2019 , we had a net loss of $ 77.0 million , or net loss per basic and diluted share of $ 0.89 , as compared to a net loss of $ 86.4 million , or net loss per basic and diluted share of $ 1.03 for the prior year , primarily due to an increase in revenue , partially offset by an increase in operating expenses . cash and cash equivalents , investments and accounts receivable totaled $ 623.3 million at december 31 , 2019 , a decrease of $ 117.6 million from december 31 , 2018 , primarily due to cash used in operations . 86 programs roxadustat , our most advanced product , is an oral small molecule inhibitor of hif-ph activity that has received marketing authorization in china for the treatment of anemia caused by ckd in non-dialysis-dependent patients ( adding the non-dialysis indication to the label for dialysis-dependent patients , which was approved in december 2018 ) . in september 2019 , roxadustat ( evrenzo ® ) was approved in japan for the treatment of anemia associated with ckd in dialysis-dependent patients . in january 2020 , astellas submitted a supplemental nda in japan for the treatment of anemia in non-dialysis ckd patients . our u.s. nda filing for roxadustat for the treatment of anemia patients with dialysis-dependent ckd and non-dialysis-dependent ckd was accepted for review by the fda in february 2020 , and astellas is in the process of preparing an maa for submission to the ema in the second quarter of 2020 for the same indications . roxadustat is in phase 3 clinical development in the u.s. and europe and in phase 2/3 development in china for anemia associated with mds . roxadustat is in phase 2 clinical development for chemotherapy-induced anemia . pamrevlumab , an anti-ctgf human monoclonal antibody , is in phase 3 clinical development for the treatment of both ipf and pancreatic cancer . pamrevlumab is also currently in a phase 2 trial for dmd . collaboration partnerships for roxadustat our current and future research , development , manufacturing and commercialization efforts with respect to roxadustat and our other product candidates currently in development depend on funds from our collaboration agreements with astellas and astrazeneca as described below . astellas in june 2005 , we entered into a collaboration agreement with astellas for the development and commercialization ( but not manufacture ) of roxadustat for the treatment of anemia in japan ( “ japan agreement ” ) . in april 2006 , we entered into the europe agreement with astellas for roxadustat for the treatment of anemia in europe , the commonwealth of independent states , the middle east , and south africa . under these agreements , we provide astellas the right to develop and commercialize roxadustat for anemia indications in these territories . we share responsibility with astellas for clinical development activities required for the u.s. and the europe regulatory approval of roxadustat and share equally those development costs under the agreed development plan for such activities . astellas will be responsible for clinical development activities and all associated costs required for regulatory approval in all other countries in the astellas territories . astellas will own and have responsibility for regulatory filings in its territories . we are responsible , either directly or through our contract manufacturers , for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the agreements . the astellas agreements will continue in effect until terminated . story_separator_special_tag either party may terminate the agreements for certain material breaches by the other party . in addition , astellas will have the right to terminate the agreements for certain specified technical product failures , upon generic sales reaching a particular threshold , upon certain regulatory actions , or upon our entering into a settlement admitting the invalidity or unenforceability of our licensed patents . astellas may also terminate the agreements for convenience upon advance written notice to us . in the event of any termination of the agreements , astellas will transfer and assign to us the regulatory filings for roxadustat and will assign or license to us the relevant trademarks used with the products in the astellas territories . under certain terminations , astellas is also obligated to pay us a termination fee . consideration under these agreements includes a total of $ 360.1 million in upfront and non-contingent payments , and milestone payments totaling $ 557.5 million , of which $ 542.5 million are development and regulatory milestones and $ 15.0 million are commercial-based milestones . total consideration , excluding development cost reimbursement and product sales-related payments , could reach $ 917.6 million . the aggregate amount of such consideration received , through december 31 , 2019 totals $ 500.1 million . additionally , under these agreements , astellas pays 100 % of the commercialization costs in its territories . astellas will pay fibrogen a transfer price , based on net sales , in the low 20 % range for our manufacture and delivery of roxadustat . in september 2019 , japan 's ministry of health , labour and welfare approved roxadustat for the treatment of anemia associated with dialysis ckd patients . accordingly , the consideration of $ 12.5 million associated with this milestone was included in the transaction price and allocated to performance obligations under the japan agreement in the third quarter of 2019. this milestone payment was received in october 2019 . 87 during the second quarter of 2019 , we received positive topline results from analyses of pooled major adverse cardiac event ( “ mace ” ) and mace+ data from its phase 3 trials evaluating roxadustat as a treatment for dialysis and non-dialysis ckd patients , enabling astellas to prepare for an maa submission to the ema in the second quarter of 2020 , following our nda submission to the fda in 2019 and acceptance for review in february 2020. we evaluated the two regulatory milestone payments associated with the planned maa submission and concluded that these milestones became probable of being achieved in the second quarter of 2019. accordingly , the total consideration of $ 130.0 million associated with these milestones was included in the transaction price and allocated to performance obligations under the europe agreement in the second quarter of 2019. during the second quarter of 2018 , astellas reported positive results from the final phase 3 ckd-dialysis trial of roxadustat in japan , indicating that astellas was ready to make an nda submission for the treatment of anemia with roxadustat in ckd-dialysis patients in 2018. we evaluated the regulatory milestone payment associated with nda submission in japan based on variable consideration requirements under the current revenue standards and concluded that this milestone became probable of being achieved in the second quarter of 2018. accordingly , the consideration of $ 15.0 million associated with this milestone was included in the transaction price and allocated to performance obligations under the japan agreement , substantially all of which was recognized as revenue in 2018. on november 30 , 2018 , fibrogen and astellas entered into an amendment to the japan agreement that will allow astellas to manufacture roxadustat drug product for commercialization in japan ( the “ japan amendment ” ) . under this amendment , fibrogen would continue to manufacture and deliver to astellas roxadustat api . the commercial terms of the japan agreement relating to the transfer price for roxadustat for commercial use remain substantially the same , reflecting an adjustment for the manufacture of drug product by astellas rather than fibrogen . this amendment obligated astellas to purchase a total of $ 64.7 million api from fibrogen , all of which was delivered to astellas in 2018. in 2019 , a change in estimated variable consideration resulted in a $ 36.3 million reduction to revenue , at the time the listed price for roxadustat was issued by the japanese ministry of health , labour and welfare , which reflected the total difference between estimated and actual listed price and yield from the manufacture of bulk product tablets . in the fourth quarter of 2018 , we were engaged in the final stages of review with our partners over the proposed development of roxadustat for the treatment of chemotherapy-induced anemia . astrazeneca and astellas approved the program in december 2018 and january 2019 , respectively . costs associated with the development of this indication are shared 50-50 between our two partners . for revenue recognition purposes , we concluded that this new indication represents a modification to the europe agreements and will be accounted for separately , meaning the development costs associated with the new indications are distinct from the original development costs . the development service period for roxadustat for the treatment of cia under the europe agreement is estimated to continue through the end of 2023 to allow for development of this indication . in addition , as of december 31 , 2019 , astellas had separate investments of $ 80.5 million in the equity of fibrogen , inc. astrazeneca in july 2013 , we entered into the u.s./row agreement a collaboration agreement with astrazeneca for roxadustat for the treatment of anemia in the u.s. and all territories not previously licensed to astellas , except china . in july 2013 , through our china subsidiary and related affiliates , we entered into the china agreement a collaboration agreement with astrazeneca for roxadustat for the treatment of anemia in china . under these agreements we provide astrazeneca the right to develop and commercialize roxadustat for anemia in these territories .
| product revenue is recognized when our customer obtains control of promised goods or services in an amount that reflects the consideration we expect to receive in exchange for those goods or services . product revenue represented ( 13 ) % and 30 % of total revenue for the year ended december 31 , 2019 and 2018. there was no product revenue for the year ended december 31 , 2017. in the future , we will continue generating revenue from collaboration agreements in the form of license fees , milestone payments , reimbursements for collaboration services and royalties on product sales , and from product sales . we expect that any revenues we generate will fluctuate from quarter to quarter due to the uncertain timing and amount of such payments and sales . total revenue increased $ 43.6 million , or 20 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 for the reasons discussed in the sections below . license revenue replace_table_token_9_th license revenue increased $ 154.8 million , or 695 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . license revenue recognized under our collaboration agreements with astellas increased $ 115.1 million , or 803 % for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. license revenue recognized under our collaboration agreements with astellas for the year ended december 31 , 2019 represented the allocated revenue of $ 117.5 million related to two regulatory milestones totaling $ 130.0 million associated with the planned maa submission in europe that were included in the transaction price during the second quarter of 2019 when these milestones became probable of being achieved ; and the allocated revenue of $ 11.9 million related to a regulatory milestone of $ 12.5 million associated with the nda approval in japan achieved during the third quarter of 2019. license revenue recognized under our collaboration agreements with astellas for the year ended december 31 ,
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32 united insurance holdings corp. definitions of non-gaap measures we believe that investors ' understanding of upc insurance 's performance is enhanced by our disclosure of the following non-gaap measures . our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited . combined ratio excluding the effects of current year catastrophe losses and prior year reserve development ( underlying combined ratio ) is a non-gaap measure , that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio . we believe that this ratio is useful to investors , and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses and prior year development . current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their frequency of occurrence and magnitude , and can have a significant impact on the combined ratio . prior year development is caused by unexpected loss development on historical reserves . we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance . the most directly comparable gaap measure is the combined ratio . the underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business . net loss and lae excluding the effects of current year catastrophe losses and prior year reserve development ( underlying loss and lae ) is a non-gaap measure that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and lae . we use underlying loss and lae figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves . as discussed previously , these two items can have a significant impact on our loss trends in a given period . we believe it is useful for investors to evaluate these components both separately and in the aggregate when reviewing our performance . the most directly comparable gaap measure is net loss and lae . the underlying loss and lae measure should not be considered a substitute for net loss and lae and does not reflect the overall profitability of our business . 33 united insurance holdings corp. story_separator_special_tag additional information regarding non-gaap financial measures presented in this form 10-k can be found in the “ definitions of non-gaap measures ” section , above . the calculations of the company 's expense ratios are shown below . replace_table_token_8_th loss and lae increased by $ 108,823,000 , or 21.8 % , to $ 608,316,000 for the year ended december 31 , 2020 , from $ 499,493,000 for the year ended december 31 , 2019. loss and lae expense as a percentage of net earned premiums increased 13.0 points to 79.4 % for the year ended december 31 , 2020 , compared to 66.4 % for the year ended december 31 , 2019. during the year ended december 31 , 2020 there was a higher frequency of catastrophe events when compared to prior years . excluding catastrophe losses and reserve development , our gross underlying loss and lae ratio for the year ended 35 united insurance holdings corp. december 31 , 2020 would have been 22.8 % , an decrease of 4.9 points from 27.7 % during the year ended december 31 , 2019 , representing an improvement in current year non-catastrophe loss and lae expense . policy acquisition costs decreased by $ 2,266,000 , or 1.0 % , to $ 236,002,000 for the year ended december 31 , 2020 , from $ 238,268,000 for the year ended december 31 , 2019. the primary driver of the decrease in costs was a decrease in assumed ceding commission expense of $ 12,465,000 , as a result of the decline in our assumed line of business during 2020 , which was offset in part by an increase in managing general agent commissions related to commercial premiums of $ 10,786,000. operating and underwriting expenses increased by $ 8,566,000 , or 19.3 % , to $ 52,876,000 for the year ended december 31 , 2020 , from $ 44,310,000 for the year ended december 31 , 2019 , primarily due to increased expenses related to our investment in technology of $ 8,637,000. general and administrative expenses increased by $ 6,068,000 , or 9.2 % , to $ 72,057,000 for the year ended december 31 , 2020 , from $ 65,989,000 for the year ended december 31 , 2019 , primarily due to increased salary and benefit related costs of $ 3,210,000 from an increase in employee headcount and an increase in professional services expenses of $ 2,763,000 , from costs incurred to plan construction of a new headquarters building , which was subsequently discontinued . we experienced favorable reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table . replace_table_token_9_th ( 1 ) underlying net loss and lae ratio is a non-gaap measure and is reconciled above to the consolidated net loss and lae ratio , the most directly comparable gaap measure . additional information regarding non-gaap financial measures presented in this form 10-k can be found in the “ definitions of non-gaap measures ” section , above . 36 united insurance holdings corp. analysis of financial condition the following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and related notes in part ii , item 8 in this form 10-k. investments the primary goals of our investment strategy are to preserve capital , maximize after-tax investment income , maintain liquidity and minimize risk . to accomplish our goals , we purchase debt securities in sectors that represent the most attractive relative value , and we maintain a moderate equity exposure . story_separator_special_tag limiting equity exposure manages risks and helps to preserve capital for two reasons : first , bond market returns are less volatile than stock market returns , and second , should the bond issuer enter bankruptcy liquidation , bondholders generally have a higher priority than equity holders in a bankruptcy proceeding . we must comply with applicable state insurance regulations that prescribe the type , quality and concentrations of investments our insurance subsidiaries can make ; therefore , our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock , common stock and mortgage notes receivable . we do not invest in derivative securities . two outside asset management companies , which have authority and discretion to buy and sell securities for us , manage our investments subject to ( i ) the guidelines established by our board of directors and ( ii ) the direction of management . the investment committee of our board of directors reviews and approves our investment policy on a regular basis . our cash and investment portfolios totaled $ 1,296,549,000 at december 31 , 2020 compared to $ 1,298,780,000 at december 31 , 2019. the following table summarizes our investments , by type : replace_table_token_10_th we classify all of our investments as available-for-sale . our investments at december 31 , 2020 and 2019 consisted mainly of u.s. government and agency securities , states , municipalities and political subdivisions , mortgage-backed securities and securities of investment-grade corporate issuers . our equity holdings in 2020 and 2019 consisted mainly of securities issued by companies in the energy , consumer products , financial , technology and industrial sectors . most of the corporate bonds we hold 37 united insurance holdings corp. reflected a similar diversification . at december 31 , 2020 , approximately 87.6 % of our fixed maturities were u.s. treasuries , or corporate bonds rated “ a ” or better , and 12.4 % were corporate bonds rated “ bbb ” or “ bb ” . the most significant impact of covid-19 on our business during the year ended december 31 , 2020 was the fluctuations in our investment portfolios due to volatility in the equity securities markets that we were unable to predict . during the second half of the year ended december 31 , 2020 , we decreased our equity portfolio from 9.1 % of our total invested assets ( including cash , restricted cash and cash equivalents ) at june 30 , 2020 to 0.6 % of our total invested assets ( including cash , restricted cash and cash equivalents ) at december 31 , 2020. as a result of this decrease , we experienced a decreased impact from fluctuations in the equity securities markets on our financial statements for the second half of the year ended december 31 , 2020. we may continue seeing volatile swings in the markets through 2021 if economic stresses persist . management is working closely with our investment asset managers to monitor the fluctuations in the markets and the corresponding impact to our portfolios . future declines in the markets due to covid-19 may have a negative impact on our investment returns ; however , we have taken a conservative approach and have limited our exposure to the volatility in the equity markets to less than 10 % of our invested assets . reinsurance we follow industry practice of reinsuring a portion of our risks . reinsurance involves transferring , or “ ceding ” , all or a portion of the risk exposure on policies we write to another insurer , known as a reinsurer . to the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements , we remain primarily liable for the entire insured loss under the policies we write . our reinsurance program is designed , utilizing our risk management methodology , to address our exposure to catastrophes . according to the insurance service office ( iso ) , a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $ 25,000,000 or more in u.s. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers ( iso catastrophes ) . in addition to iso catastrophes , we also include as catastrophes those events ( non-iso catastrophes ) , which may include losses , that we believe are , or will be , material to our operations which we define as incidents that result in $ 1,000,000 or more in losses for multiple policyholders . effective january 1 , 2020 , we renewed our all other perils catastrophe excess of loss agreement ( aop ) agreement . the agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $ 110,000,000 , an increase of $ 10,000,000 from 2019. additionally , we increased our aggregate protection provided under this agreement by adding a prepaid reinstatement to the $ 30,000,000 of limit provided by second layer of the program . during the second quarter of 2020 , we placed our reinsurance program for the 2020 hurricane season . we purchased catastrophe excess of loss reinsurance protection of $ 3,300,000,000. the treaties reinsure personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes , tropical storms , and tornadoes . the treaties were effective as of june 1 , 2020 , for a one-year term and incorporate the mandatory coverage required by and placed with the florida hurricane catastrophe fund ( fhcf ) . the fhcf covers florida risks only and we participate at 90 % . in addition , effective june 1 , 2020 , we renewed our quota share agreement for a one-year term expiring may 31 , 2021. effective december 31 , 2020 , we extended our quota share reinsurance agreement that was set to expire on may 31 , 2021. this quota share reinsurance agreement has a cession rate of 30.5 % for all subject business and provides coverage for all catastrophe perils and attritional losses .
| ( 2 ) “ northeast ” is comprised of connecticut , massachusetts , new jersey , new york and rhode island ; “ gulf ” is comprised of hawaii , louisiana and texas ; and “ southeast ” is comprised of georgia , north carolina and south carolina . ceded premiums earned increased by $ 60,191,000 , or 10.4 % , to $ 641,317,000 for the year ended december 31 , 2020 from $ 581,126,000 for 2019. the increase is primarily driven by a $ 53,301,000 increase in ceded premiums earned from our quota share agreement . during the first five months of 2019 , the agreement covered only upc at a cession rate of 20 % . effective june 1 , 2019 and through the entirety of the year ended december 31 , 2020 , the agreement was renewed to also include fsic and to increase the cession rate to 22.5 % for both companies . this resulted in more ceded premiums earned year-over-year . in addition , upon renewal of the quota share agreement effective june 1 , 2020 , we no longer include an offset for unearned reinsurance commission from the provisional ceding commission related to our quota share agreement increasing ceded earned premiums by $ 7,227,000 year-over-year . 34 united insurance holdings corp. net investment income decreased by $ 6,020,000 , or 20.0 % , to $ 24,125,000 for the year ended december 31 , 2020 from $ 30,145,000 for 2019. the decrease is driven by a $ 2,789,000 decrease in income from our cash and cash equivalents as a result of lower yields in 2020 from volatility in the interest market as a result of the covid-19 pandemic . our alternative investments have produced lower returns during the year ended december 31 , 2020 causing a $ 1,215,000 decrease in net investment income . in addition , the net investment yield of our fixed maturities portfolio decreased from 2.1 % at december 31 , 2019 to 1.0 % at december 31 , 2020 , resulting in a decrease of $ 1,478,000 in investment income generated from our fixed maturity portfolio . net realized investment gains and net unrealized gains ( losses ) on equity securities increased by $ 13,140,000 , or 50.6 % , to a net gain of $ 39,129,000 for the year
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the demand for timber also is affected by the demand for wood chips in the pulp and paper markets and for hardwood in the furniture and other hardwood industries . the u.s. economy continued to recover in 2014. according to the u.s. bureau of economic analysis , the real gross domestic product increased by 2.4 % in 2014 , as compared to an increase of 2.2 % in 2013. u.s. census bureau estimated that 1.0 million housing units were started in 2014 , up by 8.8 % from 2013 ; an estimated 0.9 million housing units were completed in 2014 , up by 15.5 % from 2013. economic recovery , especially the housing market recovery , strengthened the timber market conditions nationwide . in the markets in which we operate , average timber prices continued the upward trend and all categories increased in 2014 as compared to 2013. pine pulpwood and hardwood pulpwood prices increased and are near the highest level in a decade primarily due to supply shortages in the first half of 2014 as a result of unusually wet weather . upturns in housing starts and housing completions drove up lumber production in the region , and in turn , led to higher sawlog prices . for 2015 , we anticipate pulpwood prices to remain steady and sawtimber prices to see modest improvements . 32 index to consolidated financial statements liquidity and capital resources equity capital on december 12 , 2013 , we listed our class a common stock on the nyse under the symbol `` ctt '' . we completed the initial listed public offering on december 17 , 2013 , issuing approximately 10.5 million shares of our class a common stock and received gross proceeds of $ 142.1 million . after deducting underwriter discounts and commissions of $ 9.9 million and direct offering costs of $ 1.6 million , $ 80.2 million of the net proceeds were used to repay our outstanding debt , and $ 49.0 million were used to redeem all of the outstanding shares of our preferred stock and to pay the accrued but unpaid dividends . on january 9 , 2014 , the underwriters for the initial listed public offering exercised their overallotment option to purchase approximately 1.6 million shares of our class a common stock in full . after deducting $ 1.5 million of underwriting discounts and commissions , we received net proceeds of $ 19.8 million , $ 18.2 million of which was used to pay down our outstanding debt . on june 20 , 2014 , we filed a registration statement on form s-3 with the sec for future public offerings of up to $ 600 million in an undefined combination of common stock , preferred stock , debt securities , depositary shares , or warrants . the form s-3 was declared effective by the sec on july 2 , 2014. on july 16 , 2014 , we completed the follow-on listed public offering , receiving gross proceeds of approximately $ 146.9 million from issuing 12.5 million shares of the class a common stock . after deducting underwriting discounts and commissions of $ 7.0 million , we received net proceeds of $ 139.9 million , $ 118.5 million of which was used to pay off our outstanding debt . on july 23 , 2014 , the underwriters for the follow-on listed public offering exercised their overallotment option to purchase approximately 1.9 million shares of our class a common stock in full . after deducting underwriting discounts and commissions of $ 1.0 million , we received net proceeds of $ 21.0 million , which was added to our working capital reserve and used to fund timberland acquisitions . debt capital on december 23 , 2014 , we entered into a fourth amended and restated credit agreement ( the “ 2014 amended credit agreement '' ) with cobank , agfirst farm credit bank , ( “ agfirst ” ) , cooperatieve centrale raiffeisen-boerenleenbank , b.a . ( “ rabobank ” ) , and certain other financial institutions . the 2014 amended credit agreement amended and restated the existing credit agreement in its entirety . the 2014 amended credit agreement provides for borrowing under credit facilities consisting of : a $ 35 million revolving credit facility ( the “ 2014 revolving credit facility ” ) , a $ 275 million multi-draw term credit facility ( the “ 2014 multi-draw term facility ” ) , and a $ 100 million term loan ( the “ 2014 term loan facility ” , and together with the revolving credit facility and the multi-draw term facility , the “ 2014 amended credit facilities ” ) . the 2014 amended credit agreement provides that the 2014 amended credit facilities may be increased , upon the agreement of lenders willing to increase their loans , by up to $ 200 million . borrowings under the 2014 revolving credit facility may be used for general working capital , to support letters of credit , to fund cash earnest money deposits , to fund acquisitions in an amount not to exceed $ 5 million , and other general corporate purposes . the 2014 revolving credit facility will bear interest at an adjustable rate equal to a base rate plus between 0.50 % and 1.50 % or a libor rate plus between 1.50 % and 2.50 % , in each case depending on our ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 23 , 2019 . 33 index to consolidated financial statements the 2014 multi-draw term facility may be drawn upon up to eight times during the period beginning on december 23 , 2014 through december 23 , 2017 and may be used to finance domestic timber acquisitions and associated expenses , refinance loan amounts under the 2014 revolving credit facility , and purchase up to $ 25 million in our common stock . amounts repaid under the 2014 multi-draw term facility may be re-borrowed prior to the third anniversary of the closing date . story_separator_special_tag the 2014 multi-draw term facility will bear interest at an adjustable rate equal to a base rate plus between 0.75 % and 1.75 % or a libor rate plus between 1.75 % and 2.75 % , in each case depending on the ltv ratio , and will terminate and all amounts under the facility will be due and payable on december 23 , 2021 . the 2014 multi-draw term facility is interest only until the maturity date ; however , if the our ltv ratio is equal to or in excess of 40 % , then principal payments will be required to be made beginning on december 31 , 2017 at a per annum rate of 5 % of the principal amount outstanding under the 2014 multi-draw term facility . the 2014 term loan facility shall be used solely to refinance the balance outstanding under the multi-draw term facility under the amended cobank loan . the 2014 term loan facility will bear interest at an adjustable rate equal to a base rate plus 1.75 % or a libor rate plus 1.75 % , and will terminate and all amounts under the facility will be due and payable on december 23 , 2024 . we are now eligible to receive annual patronage refunds , which are profit distributions made by cobank and other farm credit system banks . the annual patronage refund is dependent on the weighted average debt balance for the fiscal year under the 2014 term loan facility and the 2014 multi-draw term facility , as well as the financial performance of cobank and other farm credit system banks . no amounts were received in the current year . we pay the lenders an unused commitment fee on the unused portion of the 2014 multi-draw term facility and 2014 revolving credit facility , at an adjustable rate ranging from 0.20 % to 0.35 % , depending on the ltv ratio . as of december 31 , 2014 , the outstanding balance of the 2014 amended credit facilities was $ 118 million , $ 100 million of which was outstanding under the 2014 term loan facility and $ 18 million of which was outstanding under the 2014 multi-draw term facility . short-term liquidity and capital resources net cash provided by operating activities for the year ended december 31 , 2014 was $ 19.8 million , a $ 20.9 million increase from the year ended december 31 , 2013 , primarily driven by a $ 10.2 million increase in net cash receipts from timber sales , a $ 7.8 million increase in net cash receipts from timberland sales , and a $ 2.6 million decrease in general and administrative expenses . for the year ended december 31 , 2014 , we used $ 237.5 million ( including transaction costs ) to acquire 121,600 acres of timberland properties with net proceeds from equity offerings , borrowings under our credit facilities , and cash on-hand . we spent $ 0.9 million in reforestation , building roads , and purchase of other assets . net cash provided by financing activities for the year ended december 31 , 2014 was $ 227.3 million , resulting from inflows of $ 160.9 million of net proceeds from the follow-on listed public offering , $ 19.8 million of net proceeds from the initial listed public offering , and net borrowings of $ 65.8 million under our credit facilities , offset by $ 15.3 million of dividend payments to our stockholders , $ 3.3 million of debt issuance costs , and $ 10.0 million of stock issuance costs for the equity offerings . we believe that we have access to adequate liquidity and capital resources , including cash flow generated from operations , cash on-hand , and borrowing capacity , necessary to meet our current and future obligations that become due over the next twelve months . the 2014 amended credit agreement contains , among others , the following financial covenants : limits the ltv ratio to 45 % at the end of each fiscal quarter and upon the sale or acquisition of any property ; 34 index to consolidated financial statements requires a minimum liquidity balance of $ 20 million until the date that we have achieved a fixed charge coverage ratio of not less than 1.05:1 ; after such date we must maintain a fixed coverage charge ratio of not less than 1.05:1. we were in compliance with the financial covenants of the 2014 amended credit agreement as of december 31 , 2014 . long-term liquidity and capital resources over the long-term , we expect our primary sources of capital to include net cash flows from operations , including proceeds from strategic property sales , proceeds from secured or unsecured financings from banks and other lenders , and public offerings of our common stock . our principal demands for capital include operating expenses , interest expense on any outstanding indebtedness , certain capital expenditures ( other than timberland acquisitions ) , repayment of debt , timberland acquisitions , and stockholder distributions . in determining how to allocate cash resources in the future , we will initially consider the source of the cash . we anticipate using a portion of cash generated from operations , after payments of periodic operating expenses and interest expense , to fund certain capital expenditures required for our timberlands . any remaining cash generated from operations may be used to partially fund timberland acquisitions , and pay distributions to stockholders . therefore , to the extent that cash flows from operations are lower , timberland acquisitions and stockholder distributions are anticipated to be lower as well . proceeds from future equity offerings and debt financings may be used to acquire timberlands , fund capital expenditures , and pay down existing and future borrowings . our bylaws preclude us from incurring debt in excess of 200 % of our net assets .
| timberland sales revenue increased due to selling more acres 36 index to consolidated financial statements in 2014. details of timber sales by product for the years ended december 31 , 2014 and 2013 are shown in the following table : replace_table_token_12_th ( 1 ) timber sales are presented on a gross basis . ( 2 ) includes sales of chip-n-saw and sawtimber . operating expenses . contract logging and hauling costs increased to $ 17.3 million for 2014 from $ 13.6 million for 2013 as a result of a 31 % increase in delivered sales volume . delivered sales volume as a percentage of our total harvest volume decreased to 70 % in 2014 from 80 % in 2013. depletion expense increased by 74 % to $ 14.8 million in 2014 from $ 8.5 million in 2013 , due to a 49 % increase in harvest volume and higher blended depletion rates . our blended depletion rates were higher in 2014 , primarily because 22 % of our harvest came from newly acquired properties , which are depleting at higher rates than our long-term fee timber . cost of timberland sales increased due to selling more acres . forestry management fees increased to $ 3.6 million for the year ended december 31 , 2014 from $ 2.8 million for the year ended december 31 , 2013 . frc management fees are earned based on number of acres under management and timber sales revenue generated . the increase in 2014 was a result of having more acres under management and generating higher timber sales revenue driven by the growth of our timberland portfolio . land rent expense decreased to $ 0.8 million in 2014 from $ 1.0 million in 2013 primarily due to expirations of leases . general and administrative expenses decreased to $ 6.2 million for the year ended december 31 , 2014 from $ 10.2 million for the year ended december 31 , 2013 , primarily due to the elimination of advisory fees and expense reimbursements ,
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basis of presentation all financial information presented in this section has been prepared in u.s. dollars in accordance with generally accepted accounting principles in the united states of america ( “ gaap ” ) and includes the accounts of adt inc. and its subsidiaries . all intercompany transactions have been eliminated . we report financial and operating information in one segment . however , we expect the manner in which the codm evaluates results to change during the first quarter of 2021 , and as a result , we anticipate a change in our operating and reportable segment structure . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-style : italic ; font-weight:400 ; line-height:120 % '' > commercial agreement in addition to the issuance and sale of class b common stock to google , we entered into the commercial agreement , pursuant to which google has agreed to supply us with certain google devices as well as certain google video and analytics services ( “ google services ” ) , for sale to our customers . subject to customary termination rights related to breach and change of control , the commercial agreement has an initial term of seven years from the date that the google service is successfully integrated into our end-user security and automation platform , which is targeted for no later than june 30 , 2022. if the integrated service is not launched by june 30 , 2022 then we will be required to offer google services without integration for professional installations except for existing customers who already have adt pulse or adt control interactive services until such integration has been made . further , subject to certain carve-outs , we have agreed to exclusively sell google end‐user video and sensing analytics services and smart-home , security and safety devices to our customers . the exclusivity restriction does not apply to , among others , sales of blue by adt diy products and services , providing services to customers on certain of our legacy platforms , sales to large commercial customers , and sales of certain devices that google does not supply to us . the commercial agreement also contains customary termination rights for both parties . in addition , google has rights to terminate the commercial agreement if ( i ) we divest any part of our direct to consumer business and the acquiring entity does not agree to assume all obligations under the commercial agreement , or ( ii ) we breach certain provisions of the commercial agreement and do not cure such breaches . in the event that we breach the commercial agreement in a manner reasonably likely to result in a material adverse effect on google 's business or brand , or we breach certain data security and privacy obligations under the commercial agreement , we must suspend the sale of google services and certain devices during the applicable cure period . upon termination of the commercial agreement , we will no longer have rights to sell the google service or devices to new customers , subject to an applicable transition period . in addition , the google services may not be accessible by our customers through our integrated end-user application during any cure period for our breach of certain data security and privacy provisions of the commercial agreement or upon termination of the agreement for a breach of such provisions . the commercial agreement specifies that each party will contribute $ 150 million towards the joint marketing of devices and services , customer acquisition , training of our employees for the sales , installation , customer service , and maintenance for the product and service offerings , and technology updates for products included in such offerings . each party is required to contribute such funds in three equal tranches , subject to the attainment of certain milestones . 50 next generation platform in november 2020 , we announced the ongoing development of our adt-owned next-generation professional security and automation technology platform , which is currently being developed in coordination with google . our comprehensive interactive platform is expected to provide customers with a seamless experience across security , life safety , automation , and analytics through a common application . additionally , our platform is expected to integrate the user experience , customer service experience , and back-end support . we expect to incur approximately $ 50 million during 2021 associated with the development of our next generation platform . these initiatives are in the early stages , and it is possible that we could experience a material increase in the costs associated with these initiatives . significant events the comparability of our results of operations has been impacted by the following : initial public offering during january 2018 , we completed our ipo in which we issued and sold 105,000,000 shares of common stock at an initial public offering price of $ 14.00 per share . net proceeds from the ipo were $ 1.4 billion , after deducting underwriting discounts , commissions , and offering expenses . the proceeds received from the ipo were used to reduce our debt and redeem the mandatorily redeemable preferred securities in full , which resulted in an aggregate loss on extinguishment of debt of $ 275 million . in addition , we modified certain share-based compensation awards as well as granted one-time awards in connection with the ipo , which represented approximately $ 116 million of share-based compensation expense during 2018. as a result of our ipo , we incur additional legal , accounting , board compensation , and other expenses that we did not previously incur prior to becoming a public company , including costs associated with sec reporting and corporate governance requirements . these requirements include compliance with the sarbanes-oxley act of 2002 , as amended , as well as other rules implemented by the sec and the national securities exchanges . our consolidated financial statements following our ipo reflect the impact of these expenses . story_separator_special_tag red hawk acquisition during december 2018 , we acquired all of the issued and outstanding capital stock of red hawk , a leader in commercial fire , life safety , and security services , for total consideration of approximately $ 316 million and cash paid of $ 299 million , net of cash acquired . we funded the red hawk acquisition from a combination of debt financing and cash on hand . this acquisition accelerated our growth in the commercial security market and expanded our product portfolio with the introduction of commercial fire safety related solutions . disposition of canadian operations during november 2019 , we sold adt canada to telus for a selling price of $ 514 million ( cad $ 676 million ) . in connection with the sale of adt canada , we entered into a transition services agreement with telus whereby we provide certain post-closing services to telus related to the business of adt canada . additionally , we entered into a non-competition and non-solicitation agreement with telus pursuant to which we will not have any operations in canada , subject to limited exceptions for cross-border commercial customers and mobile safety applications , for a period of seven years . finally , we entered into a patent and trademark license agreement with telus granting ( i ) the use of our patents in canada for a period of seven years and ( ii ) exclusive use of our trademarks in canada for a period of five years and non-exclusive use for an additional two years thereafter . the sale of adt canada did not represent a strategic shift that will have a major effect on our operations and financial results , and therefore , did not meet the criteria to be reported as discontinued operations . defenders acquisition during january 2020 , we acquired our largest independent dealer , defender holdings , inc. ( “ defenders ” ) ( the “ defenders acquisition ” ) , for total consideration of approximately $ 290 million , which consisted of cash paid of $ 173 million , net of cash acquired , and the issuance of approximately 16 million shares of our common stock with a fair value of $ 114 million . in connection with the defenders acquisition , we recorded a loss from the settlement of a pre-existing relationship with defenders in the amount of $ 81 million in merger , restructuring , integration , and other in the consolidated statements of operations . 51 equipment ownership model change during february 2020 , we launched a new revenue model initiative for certain residential customers which ( i ) revised the amount and nature of fees due at installation , ( ii ) introduced a 60 month monitoring contract option , and ( iii ) introduced a new retail installment contract which allows qualifying residential customers to repay the fees due at installation over the course of a 24 , 36 , or 60 month interest-free period . due to the requirements of our initial third-party consumer financing program , we also transitioned our security system ownership model from a predominately company-owned model to a predominately customer-owned model ( the “ equipment ownership model change ” ) . during march 2020 , we entered into the receivables facility . under the terms of the receivables facility , we may receive up to $ 200 million of financing secured by retail installment contract receivables from transactions involving security systems that were sold under a customer-owned model . during april 2020 , we amended the receivables facility to also permit financing secured by retail installment contract receivables from transactions occurring under the company-owned model . during may 2020 , we started to transition our security system ownership model back to a predominately company-owned model . in connection with the above , and with respect to transactions arising through defenders , which has historically used a customer-owned ownership model , subsequent to the defenders acquisition , our residential transactions during 2020 included an increase in transactions based on a customer-owned model . we expect our transition to a company-owned model to negatively impact revenue during 2021 due to different revenue recognition policies applicable to each ownership model . we are in the early stages of our revenue model initiative and we can not be certain that this initiative or our transition back to a predominately company-owned model , which is anticipated to include transactions arising through defenders for a portion of 2021 , will achieve the desired outcomes . accordingly , the results of the new revenue model initiative and impact of our transition back to a predominately company-owned model could have a material adverse effect on our business , financial condition , results of operations , cash flows , and key performance indicators . key performance indicators in evaluating our results , we utilize key performance indicators which include non-gaap measures as well as certain other operating metrics such as recurring monthly revenue and gross customer revenue attrition . our computations of key performance indicators may not be comparable to other similarly titled measures reported by other companies . additionally , our operating metric key performance indicators are approximated as there may be variations to reported results in each period due to certain adjustments we might make in connection with the integration over several periods of acquired companies that calculated these metrics differently , or otherwise , including periodic reassessments and refinements in the ordinary course of business . these refinements , for example , may include changes due to systems conversions or historical methodology differences in legacy systems . recurring monthly revenue ( “ rmr ” ) rmr is generated by contractual recurring fees for monitoring and other recurring services provided to our customers . we believe the presentation of rmr is useful because it measures the volume of revenue under contract at a given point in time . gross customer revenue attrition a portion of our customer base can be expected to cancel its service every year .
| customers may choose not to renew or may terminate their contracts for a variety of reasons , including relocation , cost , loss to competition , or service issues . attrition has a direct impact on our financial results , including revenue , operating income , and cash flows . covid-19 pandemic during march 2020 , the world health organization declared the outbreak of a novel coronavirus as a pandemic ( the “ covid-19 pandemic ” ) , which has become increasingly widespread in the u.s. containment efforts and responses to the covid-19 pandemic have varied by individuals , businesses , and state and local municipalities , and in certain areas of the u.s , initial and precautionary measures helped mitigate the spread of the coronavirus . however , subsequent easing of such measures resulted in the re-emergence of the coronavirus . the covid-19 pandemic has had a notable adverse impact on general economic conditions , including the temporary closures of many businesses , increased governmental regulations , and reduced consumer spending due to significant unemployment and other effects attributable to the covid-19 pandemic . in order to continue to both protect our employees and serve our customers , we have adjusted and are continuously evolving certain aspects of our operations , which includes ( i ) detailed protocols for infectious disease safety for employees , ( ii ) daily wellness checks for employees , and ( iii ) certain work from home actions , including for the majority of our call center professionals . while the covid-19 pandemic has impacted our commercial channel to a greater extent than our residential channel , we believe our overall recurring revenue and highly variable subscriber acquisition cost model provides a solid financial foundation for strong cash flow generation . accordingly , we anticipate having sufficient liquidity and capital resources to continue ( i ) providing essential services , ( ii ) satisfying our debt requirements , and ( iii ) having the ability to return capital to our stockholders in the
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administrative and other costs decreased $ 2.1 million , or 6.7 % , from $ 31.5 million for the year ended december 27 , 2012 to $ 29.4 million for the year ended december 26 , 2013. the decrease was primarily due to $ 1.5 million decrease in personnel costs due primarily to lower share-based compensation expense and a decrease of $ 0.5 million in legal and professional expenses due to a one-time fee paid in 2012 to consultants that assisted us with the restructuring of the fathom events business . depreciation and amortization . depreciation and amortization expense increased $ 6.2 million , or 30.4 % , from 20.4 million for the year ended december 27 , 2012 to $ 26.6 million for the year ended december 26 , 2013. the increase was due to higher amortization of intangible assets related to new affiliate agreements and ncm llc founding member common unit adjustments , as well as , an increase in depreciation expense resulting from greater average property , plant and equipment balances year-over-year related primarily to equipment installed into new network affiliate theatres . non-operating expenses . total non-operating expenses for the year ended december 26 , 2013 were $ 52.0 million , a decrease of 47.9 % , from $ 99.8 million for the 2012 period due primarily to the $ 25.4 million gain on the sale of the fathom events business and loss on terminations of interest rate swap agreements in 2012. the 45 following table shows the non-operating expense breakout for the years ended december 26 , 2013 and december 27 , 2012 ( in millions ) : replace_table_token_15_th interest on borrowings decreased $ 5.1 million due primarily to lower average interest rates in 2013 , compared to 2012 , as a result of the company 's debt refinancings in 2012 and 2013. interest due to ncm llc 's founding members under the tax receivable agreement increased $ 3.9 million due to changes in tax rates and ncm llc ownership rates period over period . in connection with the termination of interest rate swaps during 2012 , the company recorded a loss in 2012 of $ 26.7 million , recorded higher amortization on terminated derivatives of $ 6.3 million in 2013 and no longer recorded changes in derivative fair value , all of which decreased non-operating expenses by $ 17.4 million in 2013 , compared to 2012. in 2013 , we recorded a gain of $ 25.4 million , net of direct expenses , for the sale of our fathom events business on december 26 , 2013. during 2013 , we also recorded an impairment charge on a cost method investment of $ 0.8 million and had lower other non-operating expense primarily due to a decrease in write-offs of debt issuance costs during 2013. net income . net income increased $ 27.8 million , or 207.5 % , from $ 13.4 million for the year ended december 27 , 2012 to $ 41.2 million for the year ended december 26 , 2013. the increase in net income was driven by a decrease in non-operating expenses of $ 47.8 million , an increase in operating income of $ 10.2 million , as described further above , and a decrease in tax expense of $ 6.5 million due primarily to the reversal of a valuation allowance on a capital loss carryforward that the company now expects to utilize because of capital gains associated with the sale of the fathom events business . these increases to net income were partially offset by a $ 36.7 million increase in income attributable to noncontrolling interests due to higher ncm llc net income . years ended december 27 , 2012 and december 29 , 2011 revenue . total revenue for the year ended december 27 , 2012 increased $ 13.4 million , or 3.1 % to $ 448.8 million , compared to $ 435.4 million for the 2011 period . the increase was driven by an increase in total advertising revenue of $ 23.3 million , or 6.0 % , from $ 386.2 million for the year ended december 29 , 2011 to $ 409.5 million for the year ended december 27 , 2012. the increase is primarily due to a 7.9 % increase in national advertising revenue ( excluding beverage ) , a 0.6 % increase in local advertising revenue and a 4.5 % 46 increase in beverage revenue . total advertising revenue ( including beverage revenue ) per attendee for the year ended december 27 , 2012 decreased 2.1 % from the year ended december 29 , 2011. replace_table_token_16_th national advertising revenue . national advertising revenue ( including beverage revenue from ncm llc 's founding members ) of $ 328.4 million for the year ended december 27 , 2012 increased $ 22.8 million , or 7.5 % , from $ 305.6 million for the 2011 period . excluding beverage revenue from ncm llc 's founding members , national advertising revenue increased $ 21.1 million , or 7.9 % to $ 288.7 million compared to $ 267.6 million for the 2011 period . the growth in national advertising revenue was driven by total attendance increasing 8.4 % for the year ended december 27 , 2012 , with ncm llc 's founding members increasing 4.4 % and network affiliates increasing 35.2 % , which includes 15 new network affiliates added to our network in 2011 and 2012. in addition , online and mobile revenue increased $ 1.7 million , or 52.4 % during 2012 compared to 2011 as the company continues to place more focus on the online and mobile market , including selling advertising that combines on-screen , lobby and online and mobile marketing components . branded content revenue increased 44.7 % during 2012 compared to 2011 , due to more branded content contracts sold . national inventory utilization decreased to 98.8 % for the year ended december 27 , 2012 compared to 100.3 % for the 2011 period as a result of a larger impression base in 2012 relating to an 8.4 % attendance increase . story_separator_special_tag inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show , which can be expanded , should market demand dictate . national advertising cpms ( excluding beverage revenue ) decreased 2.5 % during 2012 due to pricing pressure in the broader advertising marketplace and a higher number of long-form ( longer than 30 seconds ) advertisements . local advertising revenue . local advertising revenue increased $ 0.5 million , or 0.6 % to $ 81.1 million for the year ended december 27 , 2012 compared to $ 80.6 million for the 2011 period . the company 's number of local advertising contracts increased 4.6 % as our smaller clients began to spend again with the improving economic climate . the number of our network screens increased 3.7 % , and the average contract value increased 1.0 % due to an increase in the number of higher value regional contracts . founding member beverage revenue . ncm llc 's founding members ' advertising revenue from beverage concessionaire agreements increased 4.5 % due to a 4.4 % increase in ncm llc 's founding members ' attendance . fathom events revenue . fathom events revenue decreased $ 9.9 million , or 20.1 % to $ 39.3 million for the year ended december 27 , 2012 compared to $ 49.2 million for the 2011 period . the decrease was primarily due to a decrease in fathom business events revenue to $ 9.1 million as this division was wound-down and shifted back to ncm llc 's founding member circuits during the first quarter of 2012 per the terms of the esa , and a decrease in fathom consumer events revenue of $ 0.8 million , or 2.3 % , from $ 34.2 million for the year ended december 27 , 2012 to $ 35.0 million for the year ended december 29 , 2011. the decrease in fathom consumer revenue was due to a 13.5 % decrease in events and 6.8 % decrease in average event ticket price , offset by a 5.0 % increase in paid event attendance , related to a focus on higher quality events . 47 operating expenses . total operating expenses for the year ended december 27 , 2012 were $ 257.0 million , an increase of 6.3 % , from $ 241.7 million for the 2011 period . the following table shows the operating expense breakout for the years ended december 27 , 2012 and december 29 , 2011 ( in millions ) : replace_table_token_17_th advertising operating costs . advertising operating costs increased $ 6.7 million , or 27.2 % , from $ 24.6 million for the year ended december 29 , 2011 to $ 31.3 million for the year ended december 27 , 2012. this increase was primarily the result of a $ 6.5 million increase in payments made to our network affiliates primarily due to a 3.7 % increase in network affiliate screens , as well as the increase in national advertising revenue ( excluding beverage revenue ) . as a percentage of total network screens , affiliate screens increased from 18.2 % as of december 29 , 2011 to 19.7 % as of december 27 , 2012. fathom events operating costs . fathom events operating costs decreased $ 5.1 million , or 15.0 % , from $ 34.1 million for the year ended december 29 , 2011 to $ 29.0 million for the year ended december 27 , 2012. the decrease was primarily due to a decrease in costs associated with the fathom business events division which declined $ 5.0 million as this division was wound-down in the first quarter of 2012. the fathom consumer events division operating costs were approximately the same as 2011 , consistent with the relatively flat year to year revenue . network costs . network costs increased $ 1.2 million , or 6.5 % , from $ 18.6 million for the year ended december 29 , 2011 to $ 19.8 million for the year ended december 27 , 2012. the increase was primarily due to an increase in year-end performance bonuses due to a better performance against internal goals than 2011 , and an increase in the average number of total network screens during 2012 compared to 2011. theatre access fees . theatre access fees increased $ 9.1 million , or 16.4 % , from $ 55.4 million for the year ended december 29 , 2011 to $ 64.5 million for the year ended december 27 , 2012. the increase was due in part to contractual rate increases specified in the esa , including an annual 5 % rate increase per digital screen and an 8 % increase in the payment per patron fee which occurs every five years with the first such increase taking effect in 2012. theatre access fees also increased due to ncm llc 's founding member attendance increasing by 8.4 % for 2012 , compared to 2011. in addition , payments to ncm llc 's founding members to obtain access to higher quality digital cinema equipment increased due to a higher number of ncm llc 's founding member theatres equipped with this technology . selling and marketing costs . selling and marketing costs increased $ 0.7 million , or 1.2 % , from $ 59.8 million for the year ended december 29 , 2011 to $ 60.5 million for the year ended december 27 , 2012. this increase was primarily due to an increase in advertising related selling and marketing costs of $ 5.1 million , offset by a decrease in selling and marketing costs associated with the fathom events of $ 3.6 million , and a decrease in stock-based compensation expense of $ 0.6 million . advertising related selling and marketing costs increased due to an increase in online publisher expense ( related to the increase in online and mobile revenue ) , increase in commission expense related to higher online and mobile revenue , and an increase in promotional and merchandising expense .
| the $ 8.8 million , or 10.9 % , increase in local advertising revenue was driven by an increase in local advertising contract volume of 9.7 % and an increase in the average contract value of 1.1 % in 2013 , compared to 2012. the increase in contract volume was driven by an increase in sales to smaller local clients . the average dollar value of our local advertising contracts under $ 100,000 increased 6.2 % and the number of contracts under $ 100,000 increased 9.8 % , with contracts between $ 50,000 and $ 100,000 driving the increase with growth of 41.7 % in the number of contracts in 2013. the increase in smaller contracts was driven in part by a 2.4 % increase in the number of average network screens in 2013 , compared to 2012 and an improving economic outlook in many of the local markets that we serve . sales to larger ( > $ 100,000 ) regional contracts remained consistent period over period . founding member beverage revenue . the $ 1.7 million , or 4.3 % , increase in national advertising revenue from ncm llc 's founding members ' beverage concessionaire agreements was due primarily to a 3.7 % increase in founding member attendance in 2013 , compared to 2012. the increase in founding member attendance related primarily to the acquisition of 109 theatres ( with 1,437 screens ) by ncm llc 's founding members late in 2012 and in 2013. these acquisitions expanded our network by 12 theatres ( 192 screens ) as 97 theatres ( with 1,245 screens ) were operated by existing network affiliate theatre circuits . fathom events revenue . fathom events revenue , which is comprised of fathom consumer revenue and fathom business revenue , decreased $ 2.8 million , or 7.1 % , from $ 39.3 million in 2012 to $ 36.5 million in 2013. the decrease was primarily due to a decrease in fathom business revenue of $ 3.0 million as this business was wound-down in the early part of 2012 and thus we only executed business meeting events on a periodic basis as requested by long-term fathom clients or ncm llc 's founding members . fathom consumer revenue remained consistent increasing $ 0.2 million , or 0.6 % , year-over-year despite the number of events decreasing
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15 story_separator_special_tag style= '' text-align : justify ; margin-top:6pt ; margin-bottom:0pt ; text-indent:0 % ; font-family : times new roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > revenues decreased 7.2 % , or $ 49.9 million , to $ 640.9 million in fiscal 2013 compared to fiscal 2012. domestic revenues decreased by 3.7 % , or $ 14.6 million , to $ 374.4 million in fiscal 2013 and international revenues decreased 11.7 % , or $ 35.3 million , to $ 266.5 million in fiscal 2013. revenues decreased primarily due to the completion of certain complex domestic and international petrochemical and oil and gas construction projects that were in process during fiscal 2012. however , revenues in fiscal 2013 were favorably impacted by the recovery of $ 3.8 million related to cost overruns on a large industrial project at powell canada . this canadian project experienced execution challenges in the first half of fiscal 2012 , which negatively impacted revenue and gross profit in fiscal 2012. revenues from public and private utilities increased $ 22.8 million to $ 138.6 million in fiscal 2013. revenues from industrial customers decreased $ 70.7 million to $ 455.6 million in fiscal 2013. revenues from municipal and transit projects decreased $ 2.0 million to $ 46.6 million in fiscal 2013. gross profit increased 4.3 % , or $ 5.7 million , to $ 138.5 million in fiscal 2013. gross profit as a percentage of revenues increased to 21.6 % in fiscal 2013 , compared to 19.2 % in fiscal 2012. these increases were primarily driven by the recovery from the canadian contract settlement discussed above , the margins associated with the mix of projects in process during fiscal 2012 and 2013 , as well as the increased focus on cost reduction activities . selling , general and administrative expenses selling , general and administrative expenses increased $ 2.7 million to $ 79.7 million in fiscal 2013. selling , general and administrative expenses , as a percentage of revenues , increased to 12.4 % in fiscal 2013 from 11.1 % in fiscal 2012. this increase was primarily related to increased personnel costs and increased long-term incentive compensation resulting from higher levels of operating performance over the three-year performance cycle . this increase in selling , general and administrative expenses was offset by a decrease in depreciation expense as our business systems became fully depreciated in december 2012. additionally , selling , general and administrative costs for fiscal 2013 were favorably impacted by the capitalization of certain personnel costs in fiscal 2013 associated with the development and implementation of our new business systems . however , the favorable impact of depreciation expense and capitalization of certain personnel costs will no longer be realized as the business systems were implemented in fiscal 2014. amortization of intangible assets amortization of intangible assets decreased to $ 1.7 million in fiscal 2013 , compared to $ 2.6 million in fiscal 2012 , as certain intangible assets became fully amortized . restructuring and relocation costs during fiscal 2013 , we recorded restructuring and relocation charges totaling $ 3.9 million . we incurred approximately $ 2.8 million in fiscal 2013 related to relocation efforts in connection with the construction of our new facility in houston , texas and our new facility in acheson , alberta , canada . these costs were primarily related to the relocation of our operations , the loss on the sublease , and the abandonment of leasehold improvements on the previously occupied facilities in the second half of fiscal 2013. the construction of our two new facilities was substantially completed in september 2013 and we relocated the majority of our operations and personnel from their previously leased facilities . in the third quarter of fiscal 2013 , we recorded and paid $ 1.1 million related to severance at our united kingdom operations . these operations were negatively impacted by market conditions and competitive pressures in the international markets in which they operate ; therefore , we exited certain non-core operations and eliminated certain positions to better align our workforce with current market conditions . 17 gain on settlement in march 2013 , we settled a lawsuit we had filed against the previous owners of powell canada in the amount of $ 1.7 million , which was received in april 2013. there was no gain on settlement in fiscal 2012. income tax provision our provision for income taxes reflected an effective tax rate on earnings before income taxes of 15.7 % in fiscal 2013 compared to 38.6 % in fiscal 2012. the effective tax rate for fiscal 2013 was favorably impacted by the release of the $ 7 million valuation allowance recorded as an offset to the prior years ' canadian pre-tax losses . we believe that it is more likely than not that the market conditions and our operating results going forward will allow us to realize the deferred tax assets associated with the prior year losses in canada . the rate for fiscal 2013 was also favorably impacted by the federal research and development tax credit and the utilization of certain foreign tax credits . the effective tax rate for fiscal 2012 was negatively impacted by our inability to record a tax benefit related to pre-tax losses in canada . for further information on the effective tax rate for fiscal 2013 , see note h of the notes to consolidated financial statements included elsewhere in this annual report . income from continuing operations in fiscal 2013 , we recorded income from continuing operations of $ 39.7 million , or $ 3.32 per diluted share , compared to $ 28.7 million , or $ 2.41 per diluted share , in fiscal 2012. income from continuing operations in fiscal 2013 was positively impacted by the recovery of $ 3.8 million from the canadian contract settlement and the favorable tax benefits discussed above . story_separator_special_tag income from discontinued operations in fiscal 2013 , we recorded $ 2.3 million , or $ 0.19 per diluted share , of income from discontinued operations compared to $ 0.9 million , or $ 0.08 per diluted share , in fiscal 2012. for additional information about this disposition , see note n of the notes to consolidated financial statements . backlog the order backlog at september 30 , 2013 , was $ 437.9 million , compared to $ 365.9 million at september 30 , 2012. new orders placed during fiscal 2013 totaled $ 715.7 million compared to $ 659.9 million in fiscal 2012. the backlog for fiscal 2013 increased primarily due to continued strength in oil and gas production projects , refining projects and transportation markets . liquidity and capital resources cash and cash equivalents decreased to $ 103.1 million at september 30 , 2014 , compared to $ 107.4 million at september 30 , 2013. as of september 30 , 2014 , current assets exceeded current liabilities by 2.3 times and our debt to total capitalization ratio was 0.85 % . we have a $ 75.0 million revolving credit facility in the u.s. , which expires in december 2016. as of september 30 , 2014 , there were no amounts borrowed under this line of credit . we also have a $ 9.0 million revolving credit facility in canada . at september 30 , 2014 , there was no balance outstanding under the canadian revolving credit facility . total long-term debt and capital lease obligations , including current maturities , totaled $ 3.2 million at september 30 , 2014 , compared to $ 3.6 million at september 30 , 2013. total letters of credit outstanding were $ 21.5 million and $ 20.1 million at september 30 , 2014 and 2013 , respectively , which reduce our availability under our u.s. credit facility and our canadian revolving credit facility . amounts available at september 30 , 2014 under the u.s. and canadian revolving credit facilities were $ 53.5 million and $ 9.0 million , respectively . for further information regarding our debt , see notes f and g of the notes to consolidated financial statements included elsewhere in this annual report . approximately $ 5.9 million of our cash at september 30 , 2014 was held outside of the united states for international operations . it is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital and support and expand these international operations . in the event that we elect to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the u.s. , under current tax laws we would incur additional tax expense upon such repatriation . we believe that cash available and borrowing capacity under our existing credit facilities should be sufficient to finance anticipated operating activities , capital improvements and expansions , as well as debt repayments , for the foreseeable future . we continue to monitor the factors that drive our markets and strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions . 18 operating activities during fiscal 2014 , net cash provided by operating activities was $ 9.1 million . during fiscal 2013 , net cash provided by operating activities was $ 91.4 million and in fiscal 2012 , net cash used in operating activities was $ 6.0 million . cash flow from operations is primarily influenced by demand for our products and services and is impacted as our progress payment terms with our customers are matched with the payment terms with our suppliers . during fiscal 2014 , our cash from operations decreased over fiscal 2013 , primarily due to the timing of billing and collection of contracts receivable based on the progress billing milestones , an increase in inventories and a decrease in accounts payable and income taxes payable . the increase in inventories resulted in part from supply chain inefficiencies resulting from the re-implementation of our business systems . these uses of cash were partially offset by the $ 10.0 million received from the amended supply agreement . for further information regarding the amended supply agreement , see note e of the notes to consolidated financial statements included elsewhere in this annual report . additionally in fiscal 2013 , we received $ 6.8 million in contract settlements related to fiscal 2012 matters . during fiscal 2012 , the cash used in operations of $ 6.0 million was primarily the result of increased unbilled contract receivables based on progress billing milestones . investing activities purchases of property , plant and equipment during fiscal 2014 totaled $ 16.5 million compared to $ 74.4 million and $ 29.1 million in fiscal 2013 and 2012 , respectively . a significant portion of the investments in fiscal 2012 and 2013 were to acquire land and build facilities in the united states and canada to support our continued expansion in our key markets , including the oil and gas markets and canadian oil sands region . costs related to the re-implementation and additional software added to our business systems were incurred during fiscal 2013 and were placed into service in the third quarter of fiscal 2014. financing activities net cash used in financing activities was $ 12.5 million in fiscal 2014 and $ 0.5 million in fiscal 2013. net cash provided by financing activities was $ 1.3 million during fiscal 2012 due to cash being received from the exercise of stock options . the increase in the use of cash in fiscal 2014 was primarily driven by the payment of $ 12.0 million in cash dividends . contractual and other obligations at september 30 , 2014 , our long-term contractual obligations were limited to debt and leases . the table below details our commitments by type of obligation , including interest if applicable , and the period that the payment will become due ( in thousands ) .
| selling , general and administrative expenses selling , general and administrative expenses increased by $ 8.0 million to $ 87.8 million in fiscal 2014 , compared to fiscal 2013 , primarily due to increased personnel costs , travel and administrative expenses and bad debts . selling , general and administrative expenses , as a percentage of revenues , increased to 13.5 % in fiscal 2014 , compared to 12.4 % in fiscal 2013. this increase in selling , general and administrative expense was partially offset by a decrease in depreciation expense as our existing business systems became fully depreciated in december 2012 and the favorable impact of the capitalization of certain personnel costs associated with the development and implementation of our new business systems , which went live in may 2014. however , going forward , the favorable impact of depreciation expense and capitalization of certain personnel costs will no longer be realized . amortization of intangible assets amortization of intangible assets decreased to $ 0.8 million in fiscal 2014 compared to $ 1.7 million in fiscal 2013 primarily due to the amendment to the supply agreement which is discussed in note e of the notes to consolidated financial statements included elsewhere in this annual report . other income we recorded other income of $ 1.5 million in fiscal 2014 which represents the amortization of the deferred gain from the amendment to the supply agreement discussed above . we did not record other income in fiscal 2013. income tax provision our provision for income taxes for continuing operations was $ 11.1 million in fiscal 2014 , compared to $ 7.4 million in fiscal 2013. the effective tax rate in fiscal 2014 was 36.1 % , which approximates the combined u.s. federal and state statutory rates as the majority of our income is attributable to the u.s. additionally , the federal research and development tax credit ( r & d credit ) expired december 31 , 2013. the effective tax rate for fiscal 2013 was 15.7 % and was favorably impacted by the release of the $ 7 million valuation allowance
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the key elements of our strategy are : to use our broad network of over 1,800 active institutional investor and broker-dealer participants to drive more clients to our platforms ; to increase the secondary market liquidity on our trading platform by deploying innovative technology solutions , such as our open trading protocols , to increase the number of potential trading counterparties on our platforms and to address different trade sizes , bond liquidity characteristics and trading preferences ; to continue to develop innovative next-generation technologies that will allow our clients to further automate and improve the performance of their trading desks through increased liquidity , enhanced trading efficiencies and the ability to identify trends within the bond market ; to expand and strengthen our existing service , data and analytical offerings throughout the trading cycle so that we are more fully integrated into the workflow of our broker-dealer and institutional investor clients ; and 42 to increase and supplement our internal growth by entering into strategic alliances , or acquiring businesses or technologies that will enable us to enter new markets , provide new products or services , or otherwise enhance the value of our platform to our clients . w e acquired regulatory services gmbh , the pan-european regulatory reporting business of deutsche börse group in the fourth quarter of 2020 . critical factors affecting our industry and our company economic , political and market factors the global fixed-income securities industry is risky and volatile and is directly affected by a number of economic , political and market factors that may result in declining trading volume . these factors could have a material adverse effect on our business , financial condition and results of operations . these factors include , among others , credit market conditions , the current interest rate environment , including the volatility of interest rates and investors ' forecasts of future interest rates , economic and political conditions in the united states , europe and elsewhere , and the consolidation or contraction of our broker-dealer and institutional investor clients . during the first half of 2020 , the global economy experienced a period of significant turmoil due to the outbreak of covid-19 ( the “ pandemic ” ) . the pandemic triggered a steep drop in economic activity that had an immediate and substantial impact on global credit markets . credit yield spreads in u.s. corporate bonds , as measured by the credit suisse liquid u.s. corporate index ( “ luci index ” ) , increased from 1.1 % over u.s treasuries in december 2019 to 1.5 % in march 2020 and credit spread volatility in u.s. corporate bonds , as measured by the luci index , increased from 1.1 % in december 2019 to 11.6 % in march 2020. drastic measures taken by central banks and governments helped restore confidence in the credit markets in the second half of 2020 , which led to a tightening in credit spreads that helped stimulate record new issuance in u.s. investment-grade and high-yield corporate bonds . during the second half of 2020 , the credit markets continued to improve as credit yield spreads and credit spread volatility tightened to pre-pandemic levels . the volatile market conditions in 2020 led to an active credit trading environment as the average daily trading volume of u.s. high-grade and high-yield corporate bonds for the year ended december 31 , 2020 , as measured by trade reporting and compliance engine ( “ trace ” ) , increased by 13.7 % and 19.7 % , respectively , compared to the year ended december 31 , 2019. as a result of the pandemic , we have experienced significant changes in our daily operations . in mid-march 2020 , we successfully implemented a global work from home mandate for all our employees and we were able to continue to provide our trading platforms and other services to our clients without interruption . in particular , we believe that open trading liquidity has been increasingly essential to the functioning of credit markets during the pandemic , and marketaxess has played a valuable role keeping our clients connected to the market as traders moved from their centralized trading floors to home offices . during the first several months of the pandemic , we helped over 10,000 individual users connect to our trading platforms from their homes . although we have reprioritized certain technology projects due to the changing needs of our clients in the current market environment , we have largely continued with our hiring plans , capital expenditures and the expansion of our trading platforms and services into new jurisdictions . the global spread of the pandemic is complex and rapidly-evolving , with authorities around the world implementing numerous measures to try to contain the coronavirus , such as travel bans and restrictions , social distancing , quarantines , stay at home orders , business limitations and , beginning in the fourth quarter of 2020 , vaccinations . while we remain confident that we can continue to maintain business continuity , serve our clients and provide efficient execution in a virtual environment as necessary , we have re-opened our offices and have allowed our employees to return to work , on a voluntary basis , where local regulations permit . the re-opening of offices has created additional risks and operational challenges relating to maintaining the health and safety of our employees . we also anticipate that the full re-opening of our offices may require investments in the design , implementation and enforcement of new workplace safety protocols . these efforts may divert management attention , and the protocols may create logistical challenges for our employees which could adversely impact employee productivity and morale . we believe that we have sufficient liquidity and flexibility to operate during any future disruptions caused by the pandemic . story_separator_special_tag while we have experienced increased market volumes and market share since the outbreak , we are cautious of the damaging impact the pandemic may have on the global economy in the longer-term and the adverse impact that a global recession could have on liquidity and market volumes in the global credit markets . we expect that current cash and investment balances , in combination with cash flows that are generated from operations and the ability to borrow under our credit agreement ( as defined below ) , will be sufficient to meet our liquidity needs and planned capital expenditure requirements for at least the next twelve months . we have not altered our capital management programs and we have increased our dividend for the 12 th consecutive year . we ended the quarter with a strong balance sheet , no borrowings under our credit agreement and with capital significantly in excess of our regulatory requirements . in response to the current economic conditions , the federal reserve bank of new york ( the “ frbny ” ) established a secondary market corporate credit facility ( the “ facility ” ) that lent money , on a recourse basis , to a special purpose vehicle ( “ spv ” ) that 43 purchase d corporate debt issued by eligible issuers in the secondary market . the spv purchase d eligible individual corporate bonds in the secondary market , as well as eligible corporate bond portfolios in the form of exchange-traded funds ( “ etfs ” ) . in september 2020 , we were designated by the frbny as an eligible seller for the facility , which allow ed us to p rovide end investors and broker-dealers the opportunity to use open trading to respond directly and anonymously to the frbny 's requests to purchase bonds . competitive landscape the global fixed-income securities industry generally , and the electronic financial services markets in which we engage in particular , are highly competitive , and we expect competition to intensify in the future . sources of competition for us will continue to include , among others , bond trading conducted directly between broker-dealers and their institutional investor clients over the telephone or electronically and other multi-dealer or all-to-all trading platforms . competitors , including companies in which some of our broker-dealer clients have invested , have developed or acquired electronic trading platforms or have announced their intention to explore the development of electronic platforms or information networks that may compete with us . in general , we compete on the basis of a number of key factors , including , among others , the liquidity provided on our platform , the magnitude and frequency of price improvement enabled by our platform , total transaction costs and the quality and speed of execution . we believe that our ability to grow volumes and revenues will largely depend on our performance with respect to these factors . our competitive position is also enhanced by the familiarity and integration of our broker-dealer and institutional investor clients with our electronic trading platform and other systems . we have focused on the unique aspects of the credit markets we serve in the development of our platform , working closely with our clients to provide a system that is suited to their needs . regulatory environment our business is subject to extensive regulations in the united states and internationally , which may expose us to significant regulatory risk and cause additional legal costs to ensure compliance . the existing legal framework that governs the financial markets is periodically reviewed and amended , resulting in the enactment and enforcement of new laws and regulations that apply to our business . for example , t he new administration elected in the 2020 u.s. presidential election may enact regulatory changes that may affect our business . in 2017 , the sec established a fixed income market structure advisory committee in order to provide the sec with diverse perspectives on the structure and operations of the u.s. fixed-income markets , as well as advice and recommendations on matters related to fixed-income market structure . the impact of any reform efforts on us and our operations remains uncertain . in addition , the u.k. ceased to be a member of the e.u . on january 31 , 2020 , triggering a transition period in which the u.k. continued to observe applicable e.u . regulations through december 31 , 2020 ( commonly referred to as “ brexit ” ) . in preparation for brexit , we obtained authorizations from the netherlands authority for the financial markets for our subsidiaries in the netherlands in 2019. following brexit , we now provide regulated services to our clients within the e.u . in reliance on the cross-border services passport held by our dutch subsidiaries . brexit has led to legal uncertainty and potentially divergent national laws and regulations as the u.k. determines which e.u . laws to replace or replicate , which may impact our ability to comply with the extensive government regulation to which we are subject . in addition , the cost and complexity of operating across increasingly divergent regulatory regimes is likely to increase following brexit . compliance with regulations may require us to dedicate additional financial and operational resources , which may adversely affect our profitability . however , we believe new regulations may also increase demand for our platforms and we believe we are well positioned to benefit from those regulatory changes that cause market participants to seek electronic platforms that meet the various regulatory requirements and help them comply with their regulatory obligations . on august 10 , 2020 , marketaxess corporation , our broker-dealer subsidiary , converted to self-clearing for the u.s bond trades to which marketaxess corporation is a counterparty via its open trading functionality . previously , these bond transactions were settled through a third-party clearing broker .
| high-grade volume was principally due to an increase in estimated overall market volume coupled with growth in our estimated market share . our estimated market share of total u.s. high-grade corporate bond volume increased to 21.6 % for the year ended december 31 , 2020 from 19.0 % for the year ended december 31 , 2019. estimated u.s. high-grade trace volume increased by 14.2 % to $ 6.3 trillion for the year ended december 31 , 2020 from $ 5.6 trillion for the year ended december 31 , 2019 . 49 other cr edit volumes increased by 29.5 % for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 , prim arily due to increases of 68.4 % in u.s. high-yield bond volume , 21.3 % in eur obond volume and 14.8 % in emerging markets bond volume on a combination of higher estimated u.s. high-yield market volume and higher u.s. high-yield , emerging markets and eur o bond estimated market share . our estimated market share of u.s. high-yield trace volume increased to 14.6 % for the year ended december 31 , 2020 from 10.4 % for the year ended december 31 , 2019. the significant increase in rates volume was attributable to the inclusion of u.s. treasuries trading volumes following the november 1 , 2019 acquisition of liquidityedge . our average variable transaction fee per million for the years ended december 31 , 2020 and 2019 was as follows : replace_table_token_6_th the increase in u.s. high-grade average variable transaction fee per million was mainly due to an increase in the duration of bonds traded on the platforms . the increase in other credit average variable transaction fee per million was mainly due to a larger percentage of trading volume in high-yield bonds that command higher fees per million . the significant decrease in the average variable transaction fee per million for rates products was primarily attributable to the inclusion of u.s. treasuries
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the acquisition of pgw autoglass expanded our addressable market in north america and provided distribution synergies with our existing network . in october 2016 , we acquired substantially all of the business assets of andrew page limited ( `` andrew page '' ) , a distributor of aftermarket automotive parts in the united kingdom . the u.k. competition and markets authority ( `` cma '' ) concluded its review of this acquisition on october 31 , 2017 and required us to divest less than 10 % of the acquired locations . we divested the required locations during 2018 . 34 in addition to the significant acquisitions mentioned above , during the years ended december 31 , 2018 , 2017 , and 2016 , we acquired various smaller businesses across our north america , europe , and specialty segments . on december 1 , 2016 , we acquired a 26.5 % equity interest in mekonomen ab ( `` mekonomen '' ) , the leading independent car parts and service chain in the nordic region of europe , offering a wide range of quality products including spare parts and accessories for cars , and workshop services for consumers and businesses . we acquired additional shares in the fourth quarter of 2018 , increasing our equity interest to 26.6 % . we are accounting for our interest in mekonomen using the equity method of accounting , as our investment gives us the ability to exercise significant influence , but not control , over the investee . see note 2 , `` business combinations , '' and `` investments in unconsolidated subsidiaries '' in note 4 , `` summary of significant accounting policies , '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for additional information related to our acquisitions and investments . sources of revenue we report our revenue in two categories : ( i ) parts and services and ( ii ) other . our parts revenue is generated from the sale of vehicle products , including replacement parts , components and systems used in the repair and maintenance of vehicles , and specialty products and accessories to improve the performance , functionality and appearance of vehicles . our service revenue is generated primarily from the sale of service-type warranties , fees for admission to our self service yards , and processing fees related to the secure disposal of vehicles . during the year ended december 31 , 2018 , parts and services revenue represented approximately 95 % of our consolidated revenue . revenue from other sources includes scrap sales , bulk sales to mechanical manufacturers ( including cores ) and sales of aluminum ingots and sows from our furnace operations . other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold . see note 5 , `` revenue recognition `` to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k for additional information related to our sources of revenue . selling , general and administrative expenses in our annual report on form 10-k for the year ended december 31 , 2017 , we reported the following categories of operating expenses : ( i ) facility and warehouse expenses ; ( ii ) distribution expenses ; and ( iii ) selling , general and administrative expenses . to better reflect the changing profile of our business , and to align our financial statement presentation with other automotive parts and distribution companies , beginning with our quarterly report on form 10-q for the three months ended march 31 , 2018 , these three categories have been consolidated into one line item : selling , general and administrative ( `` sg & a '' ) expenses . other than the consolidation of these financial statement line items and the changes due to the adoptions of accounting standards update asu 2014-09 , `` revenue from contracts with customers '' ( `` asu 2014-09 '' ) , and asu 2017-07 , `` improving the presentation of net periodic pension cost and net periodic postretirement benefit cost , '' as discussed in note 4 , `` financial statement information '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k , there have been no changes to the classification of revenue or expenses on our consolidated statements of income . our sg & a expenses continue to include : personnel costs for employees in selling , general and administrative functions ; costs to operate our selling locations , corporate offices and back office support centers ; costs to transport our products from our facilities to our customers ; and other selling , general and administrative expenses , such as professional fees , supplies , and advertising expenses . critical accounting policies and estimates the discussion and analysis of our 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 ( `` gaap '' ) . the preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , assumptions , and judgments , including those related to revenue recognition , inventory valuation , business combinations and goodwill impairment . we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances . the results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue . actual results may differ from these estimates . story_separator_special_tag revenue recognition in may 2014 , the financial accounting standards board ( `` fasb '' ) issued asu 2014-09. this update outlines a new comprehensive revenue recognition model that supersedes the prior revenue recognition guidance and requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the fasb has issued several updates to asu 35 2014-09 , which collectively with asu 2014-09 , represent the fasb accounting standards codification topic 606 ( “ asc 606 ” ) . on january 1 , 2018 , we adopted asc 606 for all contracts using the modified retrospective method . for more information regarding the adoption of the new revenue standard as well as our critical accounting policies related to revenue , refer to note 5 , `` revenue recognition , '' to the consolidated financial statements in part ii , item 8 of this annual report on form 10-k. inventory accounting salvage and remanufactured inventory . our salvage inventory cost is established based upon the price we pay for a vehicle , including auction , towing and storage fees , as well as expenditures for buying and dismantling vehicles . inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility 's inventory at expected selling prices , the assessment of which incorporates the sales probability based on a part 's days in stock and historical demand . the average cost to sales percentage is derived from each facility 's historical profitability for salvage vehicles . remanufactured inventory cost is based upon the price paid for cores , and also includes expenses incurred for freight , direct manufacturing costs and overhead related to our remanufacturing operations . all inventory . for all inventory , carrying value is recorded at the lower of cost or net realizable value and is reduced to reflect current anticipated demand . if actual demand differs from our estimates , additional reductions to inventory carrying value would be necessary in the period such determination is made . business combinations we record our acquisitions using the purchase method of accounting , under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values . we utilize management estimates and , in some instances , independent third-party valuation firms to assist in determining the fair values of assets acquired , liabilities assumed and contingent consideration granted . there are inherent assumptions and estimates used in developing the future cash flows and fair values of tangible and intangible assets , such as projecting revenues and profits , discount rates , income tax rates , royalty rates , customer attrition rates and other various valuation assumptions . we use various valuation methods to value property , plant and equipment . when valuing real property , we typically use the sales comparison approach for land and the income approach for buildings and building improvements . when valuing personal property , we typically use either the income or cost approach . we used the relief-from-royalty method to value trade names , trademarks , software and other technology assets , and we used the multi-period excess earnings method to value customer relationships . the relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset . the multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges . goodwill and indefinite-lived intangibles impairment we are required to test our goodwill and indefinite-lived intangible assets for impairment at least annually . when testing goodwill for impairment , we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value . developing the estimated future cash flows and fair value of the reporting unit requires management 's judgment in projecting revenues and profits , allocation of shared corporate costs , tax rates , capital expenditures , working capital requirements , discount rates and market multiples . many of the factors used in assessing fair value are outside the control of management , and it is reasonably likely that assumptions and estimates can change in future periods . if these assumptions or estimates change in the future , we may be required to record impairment charges for these assets . in response to changes in industry and market conditions , we may be required to strategically realign our resources and consider restructuring , disposing of , or otherwise exiting businesses , which could result in an impairment of goodwill . we perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist . during 2018 , we did not identify any events or changes in circumstances that would more likely than not reduce the fair value of our reporting units below their carrying amounts . therefore , we did not perform any impairment tests other than our annual test in the fourth quarter of 2018 as of october 31. our goodwill impairment assessment is performed by reporting unit . a reporting unit is an operating segment , or a business one level below an operating segment ( the `` component '' level ) , for which discrete financial information is prepared and regularly reviewed by segment management . however , components are aggregated as a single reporting unit if they have similar economic characteristics . for the purpose of aggregating our components into reporting units , we review the long-term performance of segment ebitda .
| the change in parts and services revenue of 13.1 % represented increases in segment revenue of 6.7 % in north america , 24.5 % in europe , and 6.7 % in specialty . the increase in other revenue of 20.2 % primarily consisted of an $ 86 million organic increase in other revenue , which was largely attributable to our north america segment . refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during 2017 compared to the prior year . cost of goods sold . cost of goods sold remained flat at 61.0 % of revenue for the years ended december 31 , 2017 and 2016. cost of goods sold decreased 0.3 % as a result of our north america segment , primarily related to our salvage operations . offsetting this decrease were roughly equal increases in cost of goods sold in our europe and specialty segments . refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the year ended december 31 , 2017 compared to the year ended december 31 , 2016. selling , general and administrative expenses . our sg & a expenses as a percentage of revenue for the year ended december 31 , 2017 increased to 27.9 % in 2017 from 27.5 % in 2016 , primarily as a result of a 0.4 % increase from our europe segment and a 0.2 % increase from our north america segment . partially offsetting these increases was a decrease in sg & a expense as a percentage of revenue in our specialty segment . refer to the discussion of our segment results of operations for factors contributing to the changes in sg & a expenses as a percentage of revenue by segment for the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . 41 restructuring and acquisition related expenses . the following table summarizes restructuring and acquisition related expenses for the periods indicated ( in thousands ) : replace_table_token_8_th ( 1 ) restructuring expenses
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the separation will result in two standalone companies : ingersoll rand , a world leader in creating comfortable , sustainable and efficient environments through its industrial , transport refrigeration , and hvac businesses ; and the new security company , a leading global provider of electronic and mechanical security products and services , delivering comprehensive solutions to commercial and residential customers . this new company 's portfolio of brands will include schlage , lcn ® , von duprin ® , interflex ® , cisa ® , briton ® , bricard ® , bocom ® systems , dexter ® , kryptonite ® , falcon ® and fusion ® hardware group . we expect the spin-off , which is intended to be tax free to shareholders , to be completed prior to year-end 2013. however , the completion of the spin-off is subject to certain customary conditions , including receipt of regulatory approvals , receipt of a ruling from the u.s. internal revenue service as to the tax-free nature of the spin-off , as well as certain other matters relating to the spin-off , receipt of legal opinions , execution of intercompany agreements , effectiveness of appropriate filings with the u.s. securities and exchange commission , and final approval of the transactions contemplated by the spin-off , as may be required under irish law . there can be no assurance that any separation transaction will ultimately occur , or , if one does occur , its terms or timing . upon completion of the spin-off , ingersoll-rand plc ( ir-ireland ) will cease to have any ownership interest in the new security company , and the new security company will become an independent publicly traded company . the new security company is anticipated to be an irish public limited company ( plc ) . the disclosures within this management 's discussion and analysis of financial condition and results of operations do not take into account the proposed spin-off of the commercial and residential security businesses . 2012 dividend increase and 2013 share repurchase program in december 2012 , we announced an increase in our quarterly stock dividend from $ 0.16 to $ 0.21 per share beginning with our march 2013 payment . the dividend is payable march 28 , 2013 , to shareholders of record on march 12 , 2013. in december 2012 , our board of directors authorized the repurchase of up to $ 2.0 billion of our ordinary shares under a new share repurchase program upon completion of the current share repurchase program . the new share repurchase program is expected to begin in 2013. these repurchases will be accounted for as a reduction of ordinary shares and capital in excess of par value as they will be canceled upon repurchase . 2011 share repurchase program in april 2011 , our board of directors authorized the repurchase of up to $ 2.0 billion of our ordinary shares under a new share repurchase program . on june 8 , 2011 , we commenced share repurchases under this program . during the year ended december 31 , 2012 , we repurchased 18.4 million shares for approximately $ 0.8 billion , excluding commissions . during the year ended december 31 , 2011 , we repurchased 36.3 million shares for approximately $ 1.2 billion , excluding commissions . these repurchases were accounted for as a reduction of ordinary shares and capital in excess of par value as they were canceled upon repurchase . pension and other postretirement plan amendments on june 8 , 2012 , our board of directors approved amendments to our retirement plans for certain u.s. and puerto rico non-bargained employees . eligible non-bargained employees hired prior to july 1 , 2012 were given a choice of remaining in their respective defined benefit plan until the plan freezes on december 31 , 2022 or freezing their accrued benefits in their respective defined benefit plan as of december 31 , 2012 and receiving an additional 2 % non-matching company contribution into the company 's applicable defined contribution plan . eligible employees hired or rehired on or after july 1 , 2012 will automatically receive the 2 % non-matching company contribution into the applicable defined contribution plan in lieu of participating in the defined benefit plan . beginning january 1 , 2023 , all eligible employees will receive the 2 % non-matching contribution into the applicable defined contribution plan . on february 1 , 2012 , our board of directors approved amendments to our postretirement medical plan with respect to post-65 retiree medical coverage . effective january 1 , 2013 , we discontinued offering company-sponsored retiree medical coverage for certain individuals age 65 and older . we transitioned affected individuals to coverage through the individual medicare market and will provide a tax-advantaged subsidy to those retirees eligible for subsidized company coverage that can be used toward reimbursing premiums and other qualified medical expenses for individual medicare supplemental coverage that is purchased through our third-party medicare coordinator . see note 11 to the consolidated financial statements for a further discussion of these amendments . 25 significant events in 2011 dividend increase in april 2011 , we increased our quarterly stock dividend from $ 0.07 to $ 0.12 per share beginning with our june 2011 payment . in december 2011 , we announced an increase in our quarterly stock dividend from $ 0.12 per share to $ 0.16 per share beginning with our march 2012 payment . discontinued operations on december 30 , 2011 , we completed the divestiture of our security installation and service business , which was sold under the integrated systems and services brand in the united states and canada , to kratos public safety & security solutions , inc. as a result of the sale , we have reported this business as a discontinued operation for all periods presented . see `` divestitures and discontinued operations '' within management 's discussion and analysis of financial condition and results of operations and also note 18 to the consolidated financial statements for a further discussion of our discontinued operations . story_separator_special_tag divested operations on september 30 , 2011 and november 30 , 2011 , we completed transactions to sell our hussmann refrigerated display case business to a newly-formed affiliate ( hussmann parent ) of private equity firm clayton dubilier & rice , llc ( cd & r ) . these transactions included the equipment business and certain of the service branches in the u.s. and canada , and the equipment , service and installation businesses in mexico , chile , australia , new zealand , and japan ( hussmann business ) and the remaining north american hussmann service and installation branches ( hussmann branches ) . we negotiated the final terms of the transaction to include our ownership of a portion of the common stock of hussmann parent , which represents significant continuing involvement . therefore , the results of hussmann are included in continuing operations for all periods presented , with our ownership interest reported using the equity method of accounting subsequent to september 30 , 2011. see `` divestitures and discontinued operations '' within management 's discussion and analysis of financial condition and results of operations and also note 18 to the consolidated financial statements for a further discussion of our divested operations . significant events in 2010 discontinued operations on december 30 , 2010 , we completed the divestiture of our gas microturbine generator business , which was sold under the energy systems brand , to flex energy , inc. as a result of the sale , we have reported this business as a discontinued operation for all periods presented . on october 4 , 2010 , we completed the divestiture of our european refrigerated display case business , which was sold under the koxka brand , to an affiliate of american industrial acquisition corporation ( aiac group ) . as a result of the sale , we have reported this business as a discontinued operation for all periods presented . see `` divestitures and discontinued operations '' within management 's discussion and analysis of financial condition and results of operations and also note 18 to the consolidated financial statements for a further discussion of our discontinued operations . healthcare reform in march 2010 , the patient protection and affordable care act and the healthcare and education reconciliation bill of 2010 ( collectively , the healthcare reform legislation ) were signed into law . as a result , effective 2013 , the tax benefits available to us are reduced to the extent our prescription drug expenses are reimbursed under the medicare part d retiree drug subsidy program . although the provisions of the healthcare reform legislation relating to the retiree drug subsidy program did not take effect until 2013 , we were required to recognize the full accounting impact in our financial statements in the reporting period in which the healthcare reform legislation was enacted . as retiree healthcare liabilities and related tax impacts were already reflected in our financial statements , the healthcare reform legislation resulted in a non-cash charge to income tax expense in the first quarter of 2010 of $ 40.5 million . currently , our retiree medical plans receive the retiree drug subsidy under medicare part d. no later than 2014 , a significant portion of the drug coverage will be moved to a medicare-approved employer group waiver plan while retaining the same benefit provisions . this change resulted in an actuarial gain which decreased our december 31 , 2010 retiree medical plan liability , as well as the net actuarial losses in other comprehensive income by $ 41.1 million . 26 results of operations - for the years ended december 31 replace_table_token_6_th net revenues net revenues for the year ended december 31 , 2012 decreased by 5.1 % , or $ 747.1 million , compared with the same period of 2011 , which primarily resulted from the following : pricing 1.6 % volume/product mix 0.3 % currency exchange rates ( 1.5 ) % hussmann ( 5.5 ) % total ( 5.1 ) % the decrease in revenues was primarily driven by the absence of hussmann for the year ended december 31 , 2012 , which contributed $ 818.5 million of revenue in the same period in 2011. this decrease was partially offset by improved pricing across all segments and higher volumes within the residential solutions and industrial technologies business segments . 27 net revenues for the year ended december 31 , 2011 increased by 5.6 % , or $ 780.9 million , compared with the same period of 2010 , which primarily resulted from the following : volume/product mix 2.7 % pricing 2.7 % currency exchange rates 1.6 % acquisitions/divestitures 0.1 % hussmann * ( 1.5 ) % total 5.6 % * represents the impact of a partial year of operations for the hussmann business and branches in 2011. the increase in revenues was primarily driven by higher volumes and product mix experienced within the climate solutions and industrial technologies business segments , as well as improved pricing and favorable foreign currency impacts across all segments . operating income/margin operating margin for the year ended december 31 , 2012 increased to 10.7 % from 5.8 % for the same period in 2011 . included in operating income for 2011 is a $ 646.9 million loss on sale/asset impairment charge related to the divestiture of hussmann , which had a 4.4 point impact on 2011 operating margin . excluding the loss on sale/asset impairment , operating margin increased by 0.5 points . the increase was primarily due to improved pricing in excess of material inflation and realization of productivity benefits in excess of other inflation across all sectors . these increases were partially offset by increased investment spending , lower volumes in our climate solutions and security technologies business segments , and unfavorable foreign currency impacts . also included in operating income for 2011 is a $ 23 million gain associated with the sale of assets from a restructured business in china .
| these charges , as well as related adjustments recorded in 2012 , have been excluded from segment operating income within the climate solutions segment as management excludes these charges from operating income when making operating decisions about the business . see `` divestitures and discontinued operations '' within management 's discussion and analysis of financial condition and results of operations and also note 18 to the consolidated financial statements for a further discussion of our divested operations . 29 2011 net revenues and segment operating income for the climate solutions segment includes the operating results of the hussmann business and branches prior to the sale . the operating results for the hussmann business and branches are included in net revenues and segment operating income for the climate solutions segment for the years ended december 31 as follows : replace_table_token_8_th on october 4 , 2010 , we completed the divestiture of our european refrigerated display case business , which was sold under the koxka brand , to an affiliate of american industrial acquisition corporation ( aiac group ) . as a result of the sale , we have reported this business as a discontinued operation for all periods presented . segment information has been revised to exclude the results of this business for all periods presented . segment results for the years ended december 31 were as follows : replace_table_token_9_th 2012 vs 2011 net revenues for the year ended december 31 , 2012 decreased by 10.6 % or $ 875.5 million , compared with the same period of 2011 , which primarily resulted from the following : pricing 1.4 % volume/product mix ( 0.6 ) % currency exchange rates ( 1.5 ) % hussmann ( 9.9 ) % total ( 10.6 ) % our trane commercial hvac business continues to be impacted by weakness in the worldwide commercial building markets . trane commercial hvac revenues increased as growth within our parts , services and solutions markets offset declines in equipment and systems in europe and asia . net revenues in our transport businesses decreased driven by declines in
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as a result of the sale , the company significantly reduced its exposure to sectors that experienced economic weakness and significant declines in collateral valuations and has substantially reduced the amount of non-accruing loans . ● growing our loan portfolio and resuming commercial real estate and construction and development lending . we plan to resume , on a relatively modest basis , the origination of commercial real estate loans and construction and development loans in our market area . such loans will be underwritten in accordance with our strengthened loan underwriting standards and our enhanced credit review and administration procedures . we continue to believe that we can be a successful niche lender to small and mid-sized commercial borrowers and homebuilders in our market area . in light of the improvements in economic conditions and real estate values , we believe that a resumption of commercial real estate and construction and development lending in a planned , deliberative fashion with the loan underwriting and administration enhancements that we have implemented in recent periods , together with modest loan growth , will increase our interest income and our returns in future periods . ● i ncreasing market share penetration . we operate in a competitive market area for banking products and services . in recent years , we have been working to increase our deposit share in chester and delaware counties and we increased our marketing and promotional efforts . however , as a result of the shrinkage of our balance sheet and the reduction in total deposits in fiscal 2011 and 2013 , our deposit market share in chester county decreased from 5.13 % in 2010 to 4.69 % in 2013. in our effort to increase market share as well as non-interest income , we plan to evaluate increasing our business in non-traditional products , such as wealth management . ● continuing to provide exceptional customer service . as a community-oriented savings bank , we take pride in providing exceptional customer service as a means to attract and retain customers . we deliver personalized service to our customers that distinguish us from the large regional banks operating in our market area . our management team has strong ties to and deep roots in , the local community . we believe that we know our customers ' banking needs and can respond quickly to address them . 49 this management 's discussion and analysis section is intended to assist in understanding the financial condition and results of operations of malvern bancorp . the information contained in this section should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements contained in item 8 of this annual report on form 10-k. critical accounting policies in reviewing and understanding financial information for malvern bancorp , inc. , you are encouraged to read and understand the significant accounting policies used in preparing our consolidated financial statements . these policies are described in note 2 of the notes to our consolidated financial statements included elsewhere in item 8 of this annual report on form 10-k. the accounting and financial reporting policies of malvern bancorp conform to accounting principles generally accepted in the united states of america ( “ u.s . gaap ” ) and to general practices within the banking industry . accordingly , the consolidated financial statements require certain estimates , judgments , and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may affect our reported results and financial condition for the period or in future periods . allowance for loan losses . the allowance for loan losses consists of the allowance for loan losses and the reserve for unfunded lending commitments . the allowance for loan losses represents management 's estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans . the reserve for unfunded lending commitments represents management 's estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated statement of financial condition . the allowance for loan losses is increased by the provision for loan losses , and decreased by charge-offs , net of recoveries . loans deemed to be uncollectible are charged against the allowance for loan losses , and subsequent recoveries , if any , are credited to the allowance . all , or part , of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all , or part , of the principal balance is highly unlikely . non-residential consumer loans are generally charged off no later than when they become 120 days past due on a contractual basis or earlier in the event of the borrower 's bankruptcy , or if there is an amount deemed uncollectible . because all identified losses are immediately charged off , no portion of the allowance for loan losses is restricted to any individual loan or groups of loans , and the entire allowance is available to absorb any and all loan losses . the allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated . management performs a quarterly evaluation of the adequacy of the allowance . story_separator_special_tag the allowance is based on the company 's past loan loss experience , known and inherent risks in the portfolio , adverse situations that may affect the borrower 's ability to repay , the estimated value of any underlying collateral , the composition of the loan portfolio , current economic conditions and other relevant factors . this evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available . the allowance consists of specific , general and unallocated components . the specific component relates to loans that are classified as impaired . for loans that are classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan is lower than the carrying value of that loan . the general component covers pools of loans by loan class including commercial loans not considered impaired , as well as smaller balance homogeneous loans , such as residential real estate , home equity and other consumer loans . these pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans , as adjusted for qualitative factors . an unallocated component is maintained to cover uncertainties that could affect management 's estimate of probable losses . the unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio . once all factor adjustments are applied , general reserve allocations for each segment are calculated , summarized and reported on the alll summary . alll final schedules , calculations and the resulting evaluation process are reviewed quarterly by the asset classification committee and the board of directors . 50 in addition , federal bank regulatory agencies , as an integral part of their examination process , periodically review the company 's allowance for loan losses and may require the company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination , which may not previously have been available to management . based on management 's comprehensive analysis of the loan portfolio , management believes the level of the allowance for loan losses at september 30 , 2013 was appropriate under u.s. gaap . a loan is considered impaired when , based on current information and events , it is probable that the company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . factors considered by management in determining impairment include payment status , collateral value and the probability of collecting scheduled principal and interest payments when due . loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired . management determines the significance of payment delays and payment shortfalls on a case-by-case basis , taking into consideration all of the circumstances surrounding the loan and the borrower , including the length of the delay , the reasons for the delay , the borrower 's prior payment record and the amount of the shortfall in relation to the principal and interest owed . impairment is measured on a loan by loan basis for commercial and industrial loans , commercial real estate loans and commercial construction loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate or the fair value of the collateral if the loan is collateral dependent . the allowance is adjusted for other significant factors that affect the collectibility of the loan portfolio as of the evaluation date including changes in lending policy and procedures , loan volume and concentrations , seasoning of the portfolio , loss experience in particular segments of the portfolio , and bank regulatory examination results . other factors include changes in economic and business conditions affecting our primary lending areas and credit quality trends . loss factors are reevaluated each reporting period to ensure their relevance in the current economic environment . we review key ratios such as the allowance for loan losses to total loans receivable and as a percentage of non-performing loans ; however , we do not try to maintain any specific target range for these ratios . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . in addition , the occ , as an integral part of its examination processes , periodically reviews our allowance for loan losses . the occ may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely impact earnings in future periods . other real estate owned . assets acquired through foreclosure consist of other real estate owned and financial assets acquired from debtors . other real estate owned is carried at the lower of cost or fair value , less estimated selling costs . the fair value of other real estate owned is determined using current market appraisals obtained from approved independent appraisers , agreements of sale , and comparable market analysis from real estate brokers , where applicable . changes in the fair value of assets acquired through foreclosure at future reporting dates or at the time of disposition will result in an adjustment in assets acquired through foreclosure expense or net gain ( loss ) on sale of assets acquired through foreclosure , respectively . fair value measurements . the company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures . investment and mortgage-backed securities available for sale are recorded at fair value on a recurring basis .
| the decrease in interest earned on loans in fiscal 2012 was due primarily to a $ 51.7 million , or 9.7 % , decrease in the average balance of our outstanding loans as well as a 29 basis point decrease in the average yield earned on our loan portfolio in fiscal 2012 compared to fiscal 2011. interest income on investment securities increased by $ 164,000 , or 10.9 % , in fiscal 2012 over the comparable prior fiscal year period . the increase in interest income on investment securities in fiscal 2012 was due to an $ 8.6 million , or 11.0 % , increase in the average balance of our investment securities portfolio . interest expense . our interest expense for the year ended september 30 , 2012 was $ 8.4 million , a decrease of $ 1.8 million from the year ended september 30 , 2011. the reason for the decrease in interest expense in fiscal 2012 compared to fiscal 2011 was a 26 basis point decrease in average rate paid on total deposits together with a decrease in the average balance of our total deposits of $ 25.9 million , or 4.8 % , in fiscal 2012 compared to fiscal 2011 due primarily to a $ 21.0 million decrease in the average balance of certificates of deposit . the average rate paid on total deposits decreased to 1.29 % for fiscal 2012 from 1.55 % for fiscal 2011. our expense on borrowings amounted to $ 1.7 million in fiscal 2012 , which was substantially unchanged from fiscal 2011. the average balance of our borrowings decreased by $ 1.3 million in fiscal 2012 compared to fiscal 2011 , however the average rate paid on borrowed funds increased to 3.54 % in fiscal 2012 compared to 3.50 % in fiscal 2011. provision for loan losses . the provision for loan losses was $ 810,000 for the year ended september 30 , 2012 , compared to $ 12.4 million for the year ended september 30 , 2011. the $ 11.6 million difference in the provision for loan losses for the year ended september 30 , 2012 , compared to fiscal 2011 , among other things , reflected the overall improvement in the trend of our levels of delinquent , impaired and non-performing loans during fiscal 2012. at september 30 , 2012 , our total loans more than 30
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0-10004 ) dated june 29 , 2012 ex 4.05 second amended and restated swing line note exhibit 4.05 to report on form 8-k story_separator_special_tag overview the company is a diversified manufacturer and service provider of security products , encompassing access control systems , door security products , intrusion and fire alarm systems , video surveillance products for commercial and residential use and wireless communication service for intrusion and fire alarm systems . these products are used for commercial , residential , institutional , industrial and governmental applications , and are sold worldwide principally to independent distributors , dealers and installers of security equipment . international sales accounted for approximately 2 % of our revenues for each of the fiscal years ended june 30 , 2019 and 2018. during fiscal 2019 , recurring revenue from service was $ 17,427,000 , representing approximately 17 % of net sales . the company owns and operates manufacturing facilities in amityville , new york and the dominican republic . a significant portion of our operating costs are fixed , and do not fluctuate with changes in production levels or utilization of our manufacturing capacity . as production levels rise and factory utilization increases , the fixed costs are spread over increased output , which may contribute to increasing profit margins . conversely , when production levels decline our fixed costs are spread over reduced levels , which may contribute to decreasing margins . the security products market is characterized by constant incremental innovation in product design and manufacturing technologies . generally , the company devotes 6-8 % of revenues to research and development ( r & d ) on an annual basis . the company does not expect products resulting from our r & d investments in a given fiscal year to contribute materially to revenue during that same fiscal year , but should benefit the company over future years . in general , the new products introduced by the company are initially shipped in limited quantities , and increase over time . prices and manufacturing costs tend to decline over time as products and technologies mature . economic and other factors we are subject to the effects of general economic and market conditions . in the event that the u.s. or international economic conditions deteriorate , our revenue , profit and cash-flow levels could be materially adversely affected in future periods . in the event of such deterioration , many of our current or potential future customers may experience serious cash flow problems and as a result may , modify , delay or cancel purchases of our products . additionally , customers may not be able to pay , or may delay payment of , accounts receivable that are owed to us . if such events do occur , they may result in our fixed and semi-variable expenses becoming too high in relation to our revenues and cash flows . seasonality the company 's fiscal year begins on july 1 and ends on june 30. historically , the end users of napco 's products want to install its products prior to the summer ; therefore sales of its products historically peak in the period april 1 through june 30 , the company 's fiscal fourth quarter , and are reduced in the period july 1 through september 30 , the company 's fiscal first quarter . in addition , demand is affected by the housing and construction markets . the timing of any significant deterioration of the current economic conditions may also affect this trend . critical accounting policies and estimates the company 's significant accounting policies are fully described in notes 1 and 2 to the company 's consolidated financial statements included in its 2019 annual report on form 10-k. management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . net sales the company is engaged in one major line of business : the development , manufacture , and distribution of security products , encompassing access control systems , door security products , intrusion and fire alarm systems , alarm communication services , and video surveillance products for commercial and residential use . the company also provides wireless communication service for intrusion and fire alarm systems on a monthly basis . these products are used for commercial , residential , institutional , industrial and governmental applications , and are sold worldwide principally to independent distributors , dealers and installers of security equipment . sales to unaffiliated customers are primarily shipped from the united states . the company has customers worldwide with major concentrations in north america . revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those products or services . for product sales the company typically transfers control at a point in time upon shipment or delivery of the product . for monthly communication services the company satisfies its performance obligation as the services are rendered and therefore recognizes revenue over the monthly period . typically timing of revenue recognition coincides with the timing of invoicing to the customers , at which time the company has an unconditional right to consideration . as such , the company typically records a receivable when revenue is recognized . the contract with the customer states the final terms of the sale , including the description , quantity , and price of each product purchased . payment for product sales is typically due within 30 and 180 days of the delivery date . story_separator_special_tag payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service . the company provides limited standard warranty for defective products , usually for a period of 24 to 36 months . the company accepts returns for such defective products as well as for other limited circumstances . the company also provides rebates to customers for meeting specified purchasing targets and other coupons or credits in limited circumstances . the company establishes reserves for the estimated returns , rebates and credits and measures such variable consideration based on the expected value method using an analysis of historical data . changes to the estimated variable consideration in subsequent periods are not material . the company analyzes sales returns and is able to make reasonable and reliable estimates of product returns based on the company 's past history . estimates for sales returns are based on several factors including actual returns and based on expected return data communicated to it by its customers . accordingly , the company believes that its historical returns analysis is an accurate basis for its allowance for sales returns . actual results could differ from those estimates . as a percentage of gross sales , sales returns , rebates and allowances were 8 % and 7 % for the fiscal years ended june 30 , 2019 and 2018 , respectively . concentration of credit risk an entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers . such risks of loss manifest themselves differently , depending on the nature of the concentration , and vary in significance . the company had one customer with an accounts receivable balance that comprised 19 % and 22 % of the company 's accounts receivable at june 30 , 2019 and 2018 , respectively . sales to this customer comprised 10 % of net sales in each of the fiscal years ended june 30 , 2019 and 2018. the company had another customer with an accounts receivable balance that comprised 11 % of the company 's accounts receivable at june 30 , 2019 and june 30 , 2018. sales to this customer did not exceed 10 % of net sales in either of the fiscal years ended june 30 , 2019 and 2018. in the ordinary course of business , we have established a reserve for doubtful accounts and customer deductions in the amount of $ 88,000 and $ 195,000 as of june 30 , 2019 and 2018 , respectively . our reserve for doubtful accounts is a subjective critical estimate that has a direct impact on reported net earnings . this reserve is based upon the evaluation of accounts receivable agings , specific exposures and historical or anticipated events . inventories inventories are valued at the lower of cost or net realizable value , with cost being determined on the first-in , first-out ( fifo ) method . the reported net value of inventory includes finished saleable products , work-in-process and raw materials that will be sold or used in future periods . inventory costs include raw materials , direct labor and overhead . the company 's overhead expenses are applied based , in part , upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products . these proportions , the method of their application , and the resulting overhead included in ending inventory , are based in part on subjective estimates and actual results could differ from those estimates . in addition , the company records an inventory obsolescence reserve , which represents the difference between the cost of the inventory and its estimated realizable value , based on various product sales projections . this reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age , historical trends , requirements to support forecasted sales , and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand . there is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage . in addition , and as necessary , the company may establish specific reserves for future known or anticipated events . the company also regularly reviews the period over which its inventories will be converted to sales . any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current . intangible assets impairment of long-lived assets– the company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future net undiscounted cash flows expected to be generated by the asset group . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell . as of june 30 , 2019 and 2018 , the company has determined that no impairment of long-lived assets exists .
| the company 's provision for income taxes for fiscal 2019 increased by $ 538,000 to $ 1,222,000 as compared to $ 684,000 for the same period a year ago . the company 's effective tax rate remained relatively constant at 9 % for fiscal 2019 as compared to 8 % for fiscal 2018. net income for fiscal 2019 increased by $ 4,574,000 to $ 12,223,000 as compared to $ 7,649,000 in fiscal 2018. this resulted primarily from the items discussed above . forward-looking information this annual report on form 10-k and the information incorporated by reference may include `` forward-looking statements '' within the meaning of section 27a of the securities act of 1933 and section 21e of the exchange act of 1934. the company intends the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements . all statements regarding the company 's expected financial position and operating results , its business strategy , its financing plans and the outcome of any contingencies are forward-looking statements . the forward-looking statements are based on current estimates and projections about our industry and our business . words such as `` anticipates , '' `` expects , '' `` intends , '' `` plans , '' `` believes , '' `` seeks , '' `` estimates , '' or variations of such words and similar expressions are intended to identify such forward-looking statements . the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth or implied by any forward-looking statements . for example , the company is highly dependent on its chief executive officer for strategic planning . if he is unable to perform his services for any significant period of time , the company 's ability to grow could be adversely affected . in addition , factors that could cause actual results to differ materially from the forward-looking statements include , but are not limited to , uncertain economic , military and political conditions in the world , our ability to maintain
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