document stringlengths 8.64k 13.4k | summary stringlengths 179 2.97k | __index_level_0__ int64 0 16.8k |
|---|---|---|
it is a dual cohort clinical trial that has two independently recruiting strata : the first are patients who have recently experienced a myocardial infarction , or mi ( 30-90 days post mi ) ; the second are patients who have suffered an mi within one year ( 90 days to one-year post mi ) to see if the cells can reduce the size of older , more established scar . in addition to measuring scar size , allstar will also look at a variety of clinical and quality of life endpoints . phase i of the allstar trial was a 14 patient trial conducted at three sites to determine if allogeneic cdcs are safe for patients . phase i of the trial was funded in large part by a grant received from the national institutes of health , or nih . the primary endpoints focused on acute effects of cell delivery and potential immune consequences of allogeneic cell delivery . patient enrollment was completed for the phase i portion of the trial on october 11 , 2013. on december 15 , 2013 , capricor received notification from the national heart lung and blood institute ( nhlbi ) gene and cell therapy ( gst ) data safety monitoring board ( dsmb ) that the 14-patient phase i portion had met its safety endpoints and that capricor was cleared to begin the phase ii portion of the trial . capricor began enrollment of the phase ii portion of the allstar study in the first quarter of 2014. phase ii is an estimated 300 patient , double-blind , randomized , placebo-controlled trial which is powered to detect a reduction in infarct ( scar ) size as measured by mri in both groups of patients , those with recent and chronic mi , at the one year follow-up . as infarct size was reduced significantly in the caduceus patients at six months , capricor intends to get a preliminary readout of allstar at six months post infusion . phase ii of allstar is being funded in large part through the support of the california institute for regenerative medicine , or cirm . capricor has been awarded a grant from the nih to support further development of the cap-1002 product . dr. eduardo marbán of csmc , and capricor 's founder , has received approval on a new ind for a trial named “ dynamic ” ( dilated cardiomyopathy intervention with allogeneic myocardially-regenerative cells ) . presently , capricor is in discussions with the nih with respect to the possible use of the funds subject to the grant for other clinical purposes . it is possible that capricor will deploy this grant to fund the phase i portion of the dynamic trial . the phase i portion of the dynamic trial would use cap-1002 to treat patients with advanced heart failure and a recent hospitalization for such . capricor 's decision to become involved in the dynamic trial will depend on multiple factors , including , but not limited to : approval by the nhlbi to utilize the grant monies to fund the dynamic trial , the ability of capricor to reach an agreement with csmc regarding the clinical operations aspect of the trial , and the assessment by capricor of the appropriateness of dynamic with respect to the company 's pipeline development plan . · cap-1001 : cap-1001 consists of autologous cdcs . this product was used in the phase i caduceus clinical trial , which was sponsored and conducted by csmc in collaboration with jhu . in that study , 25 patients were enrolled , of which 17 patients received autologous cdcs . 16 of the 17 treated patients showed a mean reduction of approximately 45 % in scar mass and an increase in viable heart muscle one-year post heart attack . the eight patients in the control group had no significant change in infarct ( scar ) size . at present there is no plan for another clinical trial for cap-1001 . the data from caduceus , using autologous cdcs , suggests that the cells are effective in reducing scar within several months of a heart attack . the allstar trial is designed to validate the results of caduceus using an allogeneic product while also looking for potential efficacy in patients between 90 days and one year post mi with a more chronic scar , a patient population that caduceus was not designed to study . · csps : csps are multicellular clusters called cardiospheres , a 3d micro-tissue from which cdcs are derived and have shown significant healing effects in pre-clinical models of heart failure . while capricor considers the csps an important product , at present there is no plan for a clinical trial for csps . · cenderitide ( cd-np ) : cenderitide is a chimeric natriuretic peptide that is being considered for the treatment of heart failure . to date , we have explored the use of cenderitide in acute heart failure admissions as well as in the setting of patients in the vulnerable post-hospitalization phase . the current clinical plan is to consider cenderitide for the treatment of patients for up to 90 days at home following admission for acute decompensated heart failure , or adhf . we refer to this setting as the “ post-acute ” period . in 2011 , we completed a 58-patient phase i clinical trial of cenderitide in the post-acute setting . we conducted this clinical trial in collaboration with medtronic , inc. , or medtronic , delivering cenderitide through continuous intravenous infusion using medtronic 's pump technology . following that phase i clinical trial , we had planned to initiate a phase ii clinical trial of cenderitide , pending availability of capital resources . any further development of cenderitide is subject to our ability to either raise additional capital or enter into a strategic transaction in which a strategic partner provides the capital necessary to continue development activities . in addition to treating heart failure , we believe cenderitide may be useful in several other cardiovascular and renal indications . story_separator_special_tag we are currently evaluating whether to proceed with further clinical development of this product . 31 · cu-np : cu-np is a pre-clinical rationally-designed natriuretic peptide that consists of amino acid chains identical to those produced by the human body , specifically the ring structure of c-type natriuretic peptide , or cnp , and the n- and c-termini of urodilatin , or uro . any further development of cu-np is subject to our ability to either raise additional capital or enter into a strategic transaction in which a strategic partner provides the capital necessary to continue development activities . we are currently evaluating whether to proceed with further clinical development of this product . we have no product sales to date and will not have the ability to generate any product revenue until after we have received approval from the u.s. food and drug administration , or the fda , or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates . developing pharmaceutical products is a lengthy and very expensive process . even if we obtain the capital necessary to continue the development of our product candidates , whether through a strategic transaction or otherwise , we do not expect to complete the development of a product candidate for many years , if ever . to date , most of our development expenses have related to our product candidates , cap-1002 and cenderitide . as we proceed with the clinical development of cap-1002 and other potential indications for cap-1002 , or if we further develop cenderitide or other additional products , our expenses will further increase . to the extent that we are successful in acquiring additional product candidates for our development pipeline , our need to finance further research and development activities will continue increasing . accordingly , our success depends not only on the safety and efficacy of our product candidates , but also on our ability to finance the development of the products . our major sources of working capital have been proceeds from private and public equity sales , grants received from the nih , and a loan award from cirm . research and development , or r & d , expenses consist primarily of salaries and related personnel costs , clinical patient costs , consulting fees , costs of manufacturing personnel and supplies , and costs of service providers for pre-clinical , clinical and certain legal expenses resulting from intellectual property prosecution , and other expenses relating to the design , development , testing and enhancement of our product candidates . except for certain capitalized patent expenses , r & d costs are expensed as incurred . general and administrative , or g & a , expenses consist primarily of salaries and related expenses for executive , finance and other administrative personnel , stock compensation expense , accounting , legal and other professional fees , consulting expenses , rent for corporate offices , business insurance and other corporate expenses . our results have included non-cash compensation expense as a result of the issuance of stock options and warrants , as applicable . we expense the fair value of stock options and warrants over their vesting period as applicable . when more precise pricing data is unavailable , we determine the fair value of stock options using the black-scholes option-pricing model . the terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee . generally , the awards vest based upon time-based or performance-based conditions . performance-based conditions generally include the attainment of goals related to our financial performance and product development . stock-based compensation expense is included in the statements of operations under g & a or r & d expenses , as applicable . we expect to record additional non-cash compensation expense in the future , which may be significant . story_separator_special_tag cellspacing= '' 0 '' style= '' font : 10pt times new roman , times , serif ; margin-top : 0pt ; margin-bottom : 0pt '' width= '' 100 % '' > · the costs of manufacturing our drug candidates ; and · the costs , requirements , timing of , and the ability to secure , regulatory approvals . investment income ( loss ) . investment income ( loss ) for the years ended december 31 , 2013 and 2012 was $ ( 11,890 ) and $ 28,785 , respectively . this decrease in investment income over the same period in 2012 is primarily due to realized losses on the marketable securities account as securities held were sold in 2013 due to additional operational cash needs . 33 interest expense . interest expense for the years ended december 31 , 2013 and 2012 was $ 58,134 and $ 0 , respectively . this increase in interest expense over the same period in 2012 is due to the interest on the cirm loan award , which was not disbursed until 2013. impairment of goodwill . goodwill impairment for the years ended december 31 , 2013 and 2012 was approximately $ 1.9 million and $ 0 , respectively . this impairment is a result of goodwill recorded at the consummation of the merger of approximately $ 1.9 million which the company deemed fully impaired as of december 31 , 2013. grant income . grant income for the years ended december 31 , 2013 and 2012 was approximately $ 0.5 million and $ 1.9 million , respectively . this decrease in grant income in 2013 as compared to 2012 is primarily due to the timing of activities under certain research and development projects that are covered under grant awards . these activities are not necessarily consistent from project to project and period to period . additionally , in 2013 capricor 's primary grants were approaching the ends of their respective project periods . liquidity and capital resources the following table summarizes the company 's liquidity and capital resources as of and for each of the last two fiscal years , and is intended to supplement the more detailed discussion that follows . the amounts stated are expressed in thousands .
| on december 15 , 2013 the nhlbi gene and cell therapy ( gst ) data safety monitoring board ( dsmb ) gave capricor approval to move into the phase ii portion of the allstar trial . we expect to spend approximately $ 7.5 to $ 10.0 million during 2014 on the development of cap-1002 , which is primarily related to our phase ii allstar trial . the phase i portion of the trial was funded in large part through a grant received from the nih . we began enrollment of the phase ii portion of the allstar trial in the first quarter of 2014. phase ii is an estimated 300 patient , double blind , placebo controlled , multi-centered study in which cap-1002 is administered to patients via intracoronary infusion within 30 days to one year following a heart attack . phase ii is substantially funded through the support of a loan award from cirm for approximately $ 19.8 million . the trial will measure several endpoints , including infarct size . additional endpoints include left ventricular end-systolic and diastolic volume and ejection fraction at six and twelve months . our strategy for further development of cap-1002 will depend to a large degree on the outcome of these planned studies . cap-1001 – in 2011 , csmc , in collaboration with jhu , completed a phase i , 25 patient clinical trial called caduceus . in this study , 25 patients were enrolled who had suffered a heart attack within a mean of 65 days . 17 of those patients received cap-1001 and the remaining eight received standard of care . 12 months after the study was completed , no measurable safety effects occurred in the 17 patients who were treated with cap-1001 . 16 of the 17 treated patients showed a mean reduction of approximately 45 % in scar mass and an increase in viable heart muscle one-year post heart attack . the eight patients in the control group had no significant change in infarct ( scar ) size . at present , there is no plan for another clinical
| 14,580 |
we have a robust intellectual property portfolio with issued composition of matter patents in the united states for our suite of 15 aavhscs and we believe the breadth and depth of our intellectual property is a strategic asset that has the potential to provide us with a significant competitive advantage . we continue to build on our intellectual property estate through our ongoing product and platform development efforts . since our inception in 2015 , we have raised approximately $ 444 million in aggregate net proceeds through our ipo in april 2018 , a follow-on public offering of common stock in april 2019 , proceeds from the sale of common stock under an “ at-the-market ” sales agreement and preferred stock financings . we received $ 50.0 million from novartis , our collaboration partner , including an up-front payment of $ 35.0 million and a $ 15.0 million equity investment . we will require additional capital in order to advance hmi-102 and our other product candidates through clinical development and commercialization . we believe that our compelling preclinical data , encouraging initial clinical data , scientific expertise , product development strategy , manufacturing capabilities , and robust intellectual property position us as a leader in the development of genetic medicines . we were incorporated and commenced operations in 2015. since our incorporation , we have devoted substantially all of our resources to organizing and staffing our company , business planning , raising capital , developing our technology platform , advancing our lead product candidate , hmi-102 for the treatment of pku , through ind-enabling studies and into a phase 1/2 clinical trial , advancing hmi-103 and hmi-202 into ind-enabling studies , researching and identifying additional product candidates , developing and implementing manufacturing processes and internal manufacturing capabilities , building out our manufacturing and research and development space , enhancing our intellectual property portfolio , and providing general and administrative support for these operations . to date , we have financed our operations primarily through the sale of common stock , through the sale of preferred stock , and through funding from our collaboration partner . to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future , if at all . we recognized $ 1.7 million and $ 5.3 million ( as revised ) in collaboration revenue for the years ended december 31 , 2019 and 2018 , respectively . since inception , we have incurred significant operating losses . our net losses for the years ended december 31 , 2019 and 2018 were $ 103.9 million and $ 55.6 million ( as revised ) , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 199.7 million . our total operating expenses were $ 111.6 million and $ 65.2 million for the years ended december 31 , 2019 and 2018 , respectively . we expect our operating expenses to continue to increase substantially in connection with our ongoing development activities related to our product candidates . specifically , we anticipate that our expenses will increase substantially due to costs associated with our phase 1/2 phenix clinical trial with hmi-102 , development activities including ind-enabling studies associated with our other gene therapy and gene editing product candidates , including hmi-202 , our gene therapy product candidate for mld , and hmi-103 , our gene editing product candidate for pku , research activities in additional therapeutic areas to expand our pipeline , hiring additional personnel in manufacturing , research , clinical and regulatory , quality and other functional areas , increased expenses incurred with cmos to supply us with product for our clinical studies , costs to manufacture product for preclinical and clinical studies in our internal manufacturing facility and other costs including the maintenance and expansion of our intellectual property portfolio . in addition , we expect to incur additional costs associated with operating as a public company . we have incurred significant capital expenditures for the buildout of a new facility we have leased , including research and development labs , office space and manufacturing suites and the procurement of equipment and furniture for this facility and in support of our product development candidates and research initiatives . we expect to incur additional capital expenditures in 2020 and beyond in support of our research and development activities and our manufacturing facility . because of the numerous risks and uncertainties associated with the development of our current and any future product candidates and our platform and technology and because the extent to which we may enter into collaborations with third parties for development of any of our product candidates is unknown , we are unable to predict the timing and amount of increased operating expenses and capital expenditures associated with completing the research and development of our product candidates . our future capital requirements will depend on many factors , including : the costs , timing , and results of our ongoing research and development efforts , including clinical trials , on hmi-102 ; 82 the costs , timing , and results of our ongoing research and development efforts on hmi-103 and hmi-202 , both of which are in ind-enabling studies ; the costs , timing , and results of our research and development efforts on current and future product candidates in our gene therapy and gene editing pipeline ; the costs and timing of process development and manufacturing scale-up activities , and the adequacy of supply of our product candidates for preclinical studies and clinical trials through cmos and internal manufacturing ; the costs and timing of capital expenditures for potential additional manufacturing capacity and related equipment and furniture ; the costs and timing of preparing , filing , and prosecuting patent applications , maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims , including any claims by third parties that we are infringing upon their intellectual property rights ; the effect of competitors and market developments ; and our ability to story_separator_special_tag establish and maintain strategic collaborations , licensing or other agreements and the financial terms of such agreements for our product candidates . we believe that our existing cash , cash equivalents and short-term investments will enable us to fund our current projected operating expenses and capital expenditures into the fourth quarter of 2021. we have based these estimates on assumptions that may prove to be imprecise , and we may use our available capital resources sooner than we currently expect . see “ liquidity and capital resources. ” adequate additional funds may not be available to us on acceptable terms , or at all . to the extent that we raise additional capital through the sale of equity or convertible debt securities , the ownership interests of our shareholders will be diluted , and the terms of these securities may include liquidation or other preferences that adversely affect rights as a shareholder . any future debt financing or preferred equity or other financing , if available , may involve agreements that include covenants limiting or restricting our ability to take specific actions , such as incurring additional debt , making capital expenditures or declaring dividends and may require the issuance of warrants , which could potentially dilute the ownership interests of our shareholders . if we raise additional funds through collaborations , strategic alliances , or licensing arrangements with third parties , we may have to relinquish valuable rights to our technologies , future revenue streams , research programs or product candidates or grant licenses on terms that may not be favorable to us . if we are unable to raise additional funds through equity or debt financings when needed , we may be required to delay , limit , reduce , or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves . because of the numerous risks and uncertainties associated with drug development , we are unable to predict when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . components of our results of operations revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future . we recorded $ 1.7 million in collaboration revenue for the year ended december 31 , 2019 ( see note 15 to our financial statements for additional information regarding novartis revenue recognition discussion ) . operating expenses our operating expenses since inception have consisted solely of research and development costs and general and administrative costs . 83 research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our discovery efforts , and the development of our product candidates , and include : salaries , benefits and other related costs , including stock-based compensation expense , for personnel engaged in research and development functions ; expenses incurred under agreements with third parties , including cros and other third parties that conduct research , preclinical activities and clinical trials on our behalf as well as cmos and our internal technical operations team that manufacture our product candidates for use in our preclinical testing , our phase 1/2 phenix clinical trial and additional potential future clinical trials ; costs of outside consultants , including their fees and related travel expenses ; the costs of laboratory supplies and acquiring , developing and manufacturing preclinical study and clinical trial materials ; and facility-related expenses , which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs . we expense research and development costs as incurred . we typically use our employee and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates . these costs are included in other research and development expenses in the table below . the following table summarizes our research and development expenses by product candidate or development program : replace_table_token_3_th research and development activities are central to our business model . we expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance clinical trials of hmi-102 , for the treatment of pku , including our phase 1/2 phenix clinical trial , continue to advance both hmi-103 and hmi-202 through ind-enabling studies and into clinical trials and continue to discover and develop additional product candidates . we can not determine with certainty the duration and costs of future clinical trials of hmi-102 and ind-enabling studies and future clinical trials of our other product candidates in development or any other future product candidate we may develop or if , when , or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval . we may never succeed in obtaining marketing approval for any product candidate .
| platform and manufacturing capabilities . general and administrative expenses general and administrative expenses were $ 22.2 million for the year ended december 31 , 2019 , compared to $ 17.3 million for the year ended december 31 , 2018. the increase of $ 4.9 million was primarily due to a $ 3.5 million increase in employee-related costs , a $ 1.8 million increase in consulting costs , a $ 1.1 million increase in legal costs and a $ 0.8 million increase in insurance and other public company related expenses . these increases were partially offset by a $ 2.4 million decrease in facilities costs , primarily as a result of a larger portion of facilities costs allocated to research and development expense in the year ended december 31 , 2019. interest income interest income was $ 6.0 million for the year ended december 31 , 2019 compared to approximately $ 4.3 million for the year ended december 31 , 2018. the increase was the result of interest income generated on our higher average cash , cash equivalent and short-term investment balances and higher yields on invested funds for the year ended december 31 , 2019 compared to the year ended december 31 , 2018. net loss net loss for the year ended december 31 , 2019 was $ 103.9 million , compared to $ 55.6 million for the year ended december 31 , 2018. the increase in net loss was primarily due to the increases in research and development and general and administrative expenses discussed above . liquidity and capital resources since our inception , we have incurred significant operating losses . we expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates . we expect that our research and development and general and administrative costs and our capital expenditures will increase in connection 89 with conducting preclinical
| 14,581 |
our industry is subject to technological change , new product development , and product technological obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand . therefore , any significant unanticipated changes in demand or technological developments in excess of our current estimates could have a significant impact on the value of our inventory and our reported operating results . warranty costs we provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue . we offer warranty coverage for a majority of our precision power products for periods typically ranging from 12 to 24 months after shipment . we warranted our inverter products for five to ten years and provided the option to purchase additional warranty coverage up to 20 years . the warranty expense accrued related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded as such on our consolidated balance sheets . see note 3. discontinued operations in item 8 `` financial statements and supplementary data '' for more information on our discontinued operations and note 12. warranties in item 8 `` financial statements and supplementary data '' for more information on our warranties from continuing operations . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs . the assumptions we use to estimate warranty accruals are reevaluated periodically , in light of actual experience , and when appropriate , the accruals are adjusted . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . 26 intangible assets , goodwill and other long-lived assets as a result of our acquisitions , we recorded intangible assets and goodwill . goodwill and indefinite-lived intangible assets are subject to annual impairment testing , as well as testing upon the occurrence of any event that indicates a potential impairment . the annual impairment test can be performed using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired . if this assessment indicates that it is more likely than not that goodwill is impaired , then the next step of impairment testing compares the fair value of a reporting unit to its carrying value . goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill . finite-lived intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows and other fair value measurements . the carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use . if our expectations of future results and cash flows are significantly diminished , intangible assets , long-lived assets , and goodwill may be impaired and the resulting charge to operations may be material . additionally , the estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control . changes in these estimates could result in significant revisions to our carrying value of these assets and may result in material charges to our results of operations . in 2016 , we performed an assessment of qualitative factors for our annual impairment test of the goodwill . the factors reviewed included macroeconomic conditions , industry and market conditions , cost factors , and overall financial performance . this assessment resulted in the conclusion that there was no impairment of goodwill in 2016 . income taxes we are subject to income taxes in the united states and numerous foreign jurisdictions . significant judgment is required in determining our provision for income taxes and income tax assets and liabilities , including evaluating uncertainties in the application of accounting principles and complex tax laws . we record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method . under this method , we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities , as well as for operating loss and tax credit carryforwards . deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled . we calculate tax expense consistent with intraperiod tax allocation methodology resulting in an allocation of current year tax expense/benefit between continuing operations and discontinued operations . we record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized . we recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position . although we believe that we have adequately reserved for our uncertain tax positions , we can provide no assurance that the final tax outcome of these matters will not be materially different . we make adjustments to these reserves when facts and circumstances change , such as the closing of a tax audit or the refinement of an estimate . story_separator_special_tag to the extent that the final tax outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . the provision for income taxes includes the effects of any reserves that we believe are appropriate , as well as the related net interest and penalties . for more details see note . 4 income taxes in item 8 `` financial statements and supplementary data . '' business environment and trends semiconductors investment in semiconductor capital equipment increased approximately 8.1 % year over year in 2016. sales to our semiconductor eom customers continued to increase quarter over quarter throughout the year . sales in the fourth quarter of 2016 represented a record for our semiconductor business . the semiconductor market is being driven by the rapid adoption of solid-state drives ( ssd ) deploying the latest 3d-nand memory devices and a ramp of advanced logic devices at the 10nm technology node . the industry 's transition to 3d memory devices and advanced logic is generating increasing demand for rf power supplies , matches and accessories . the growing number of steps associated with the deposition and etch processes is driving an increase in the number of process chambers per fab and higher content of more advanced power solutions per chamber . as etching processes become more challenging due to increasing aspect ratios in advanced 3d devices , more advanced rf technology that includes pulsing and increased control and instrumentation is needed . we are capitalizing on these trends and providing a broader 27 range of more complex combinations of rf power and frequencies and launching more capable matching networks to manage and control the delivered power . industrial power customers in the industrial capital equipment market incorporate our industrial process power and specialty power products into a wide variety of equipment used in applications such as thin films , advanced material fabrication , and analytical instrumentation . in industrial applications , we remain focused on taking our products into new applications and world regions , increasing our penetration into asia , europe and north america . in 2016 , we made gains across an array of industries . the flat panel display market was strong with 2016 , fueled by the significant ramp of oled mobile screen capacity . demand for our products used in many industrial thin film coating and specialty power markets increased , particularly in manufacturing areas for products such as solar panels , flat panel displays and analytical instrumentation . our thermal process control and measurement instruments are also making gains in north america , where we have focused for regional expansion . results of operations our analysis presented below is organized to provide the information we believe will facilitate an understanding of our historical performance and relevant trends going forward , and should be read in conjunction with our consolidated financial statements , including the notes thereto , in item 8 `` financial statements and supplementary data '' of this annual report on form 10-k. our results of operations include the results of pcm , hitek , and ultravolt from their respective acquisition dates of : january 27 , 2014 , april 12 , 2014 , and august 4 , 2014 . as of december 31 , 2015 , advanced energy is organized as a single business unit , which principally serves oem and end customers in the semiconductor , flat panel display , high voltage , solar panel , and other capital equipment markets . as of december 31 , 2015 we discontinued our inverter products manufacturing and sales . all prior periods disclosed have been recast to reflect continuing operations . results of discontinued operations are reflected as `` income ( loss ) from discontinued operations , net of income taxes '' in our consolidated statements of operations . see note 3. discontinued operations in item 8 `` financial statements and supplementary data . '' the following table sets forth , for the periods indicated , certain data derived from our consolidated statements of operations ( in thousands ) : replace_table_token_4_th 28 the following table sets forth , for the periods indicated , the percentage of sales represented by certain items reflected in our consolidated statements of operations ( in thousands ) : replace_table_token_5_th sales the following tables summarize annual net sales , and percentages of net sales , by product line for each of the years ended 2016 , 2015 , and 2014 ( in thousands ) : replace_table_token_6_th replace_table_token_7_th operating expense the following table summarizes our operating expenses as a percentage of sales for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands ) : replace_table_token_8_th 2016 results compared to 2015 sales total sales for the twelve months ended december 31 , 2016 increased 16.6 % to $ 483.7 million from $ 414.8 million for the twelve months ended december 31 , 2015 . the increase in sales was due to the rebound in the semiconductor market after a pause in the fourth quarter of 2015 as well as continued growth in our global support business . 29 in 2016 , sales in our semiconductor market increased 22.5 % to $ 326.3 million , and 67.5 % of sales , from $ 266.5 million , and 64.2 % of sales in 2015 . these increases were driven by strong market conditions across the semiconductor market driven by our leadership in etch applications , specifically related to advanced memory and transition to 3dnand , along with advances in logic technology . sales to the industrial capital equipment markets remained flat at $ 84.3 million in 2016 from $ 84.2 million in 2015 . the industrial markets we serve include solar panels , flat panel display , architectural glass , analytical instrumentation and other industrial manufacturing markets . our customers in these markets are primarily global and regional original equipment manufacturers .
| global support revenue increased by 17.6 % to $ 64.1 million , and 15.5 % of sales from $ 54.5 million , and 14.8 % of sales in 2014 . this increase in sales was due to market share gains as key end users move back to advanced energy and away from third-party repairs . additionally , we experienced accelerated growth in upgrades and retrofits of older advanced energy products experienced in 2014 continue into 2015. sales to applied materials inc. and lam research , our two largest customer , increased $ 25.4 million to $ 207.7 million , and 50.1 % of sales , in 2015 from $ 182.3 million , and 49.6 % of sales in 2014 . our sales to applied materials inc. and lam research included sales for the semiconductor capital equipment market , as well as the solar and flat panel display markets . gross profit gross profit increased $ 28.8 million to $ 216.9 million , and 52.3 % of revenue in 2015 from $ 188.1 million , and 51.2 % of revenue in 2014 . the increase was primarily driven by an increase in sales as we expand into new markets with higher margins and continue to drive design wins . operating expenses research and development the markets we serve constantly present opportunities to develop products for new or emerging applications and require technological changes driving for higher performance , lower cost , and other attributes that will advance our customers ' products . we believe that continued and timely development of new and differentiated products , as well as enhancements to existing products to support customer requirements , are critical for us to compete in the markets we serve . accordingly , we devote significant personnel and financial resources to the development of new products and the enhancement of existing products , and we expect these investments to continue . all of our research and development costs have been expensed as incurred . research and development expenses in 2015 increased $ 2.6 million to $
| 14,582 |
of this amount , mge has accumulated $ 55.6 million in 2012. atc : mge transco contributed $ 2.1 million for voluntary capital contributions to atc for the year ended december 31 , 2012. smart grid investment grant : mge was approved in 2010 by the u.s. department of energy ( doe ) under the federal stimulus program for a $ 5.5 million grant for smart grid projects . the doe grant requires mge to match the grant funding , bringing the total cost of the projects to more than $ 11 million . the projects involve the installation of technologies to boost efficiency , enhance service and improve reliability for customers . the stimulus grant is being used to fund the following projects : advanced metering infrastructure , plug-in hybrid electric vehicles support , and distribution management . as of december 31 , 2012 , mge has spent $ 8.4 million related to these projects and has outstanding agreements to purchase $ 1.3 million in smart grid related products for 2013 . 25 during 2013 , several items may affect us , including : 2013 rate filing : in december 2012 , the pscw authorized mge to increase 2013 rates for retail electric customers by 3.8 % and to increase rates for gas customers by 1.0 % . the change in retail electric rates was driven by costs for new environmental equipment at columbia , final construction costs for the elm road units , transmission reliability enhancements , and purchased power costs . in december 2012 , as part of wepco 's ( the operator and primary owner of the elm road units ) 2013 wisconsin rate case , the pscw determined that 100 % of the construction costs for the elm road units were prudently incurred , and approved the recovery in rates of more than 99.5 % of these costs . in addition , the pscw deferred the final decision regarding the $ 1.8 million fuel flexibility project ( mge power elm road 's share ) until a future rate proceeding . environmental initiatives : there are proposed legislation , rules and initiatives involving matters related to air emissions , water effluent , hazardous materials and greenhouse gases , all of which affect generation plant capital expenditures and operating costs as well as future operational planning . such legislation and rulemaking could significantly affect in particular the costs of owning and operating fossil-fueled generating plants , such as columbia and the elm road units , from which we derive approximately 43 % of our electric generating capacity . we would expect to seek and receive recovery of any such costs in rates ; however , it is difficult to estimate the amount of such costs due to the uncertainty as to the timing and form of the legislation and rules , and the scope and time of the recovery of costs in rates . in addition , mge is involved in claims surrounding the alleged failure , among other things , to obtain necessary air permits and implement necessary emission controls associated with past activities at columbia . mge and the other co-owners are defending against these claims . see columbia discussion in footnote 18.e in notes to consolidated financial statements . columbia environmental project : during 2013 , our share of the capital expenditures associated with the columbia environmental project will be approximately $ 68 million . we intend to fund any remaining capital commitments with funds generated from normal operations , and the issuance of long-term and short-term debt . general economic conditions : economic conditions both inside and outside our service area are expected to continue to affect the level of demand for our utility services and may affect the collection of our accounts receivable and the creditworthiness of counterparties with whom we do business . we have in place lines of credit aggregating $ 115.0 million for mge energy ( including mge ) and $ 75.0 million for mge to address our liquidity needs . the following discussion is based on the business segments as discussed in footnote 23. story_separator_special_tag background-color : # ffffff '' valign= '' bottom '' width= '' 165 '' > gas deliveries ( 7.7 ) transportation and other effects ( 0.2 ) total $ ( 25.5 ) · gas costs/rates . the average retail rate per therm for the year ended december 31 , 2012 , decreased 11.4 % compared to the same period in 2011 , reflecting lower natural gas commodity costs . · retail gas deliveries . for the year ended december 31 , 2012 , retail gas deliveries decreased 4.8 % compared to the same period in 2011 , as a result of milder weather during the winter months . 28 cost of gas sold for the year ended december 31 , 2012 , cost of gas sold decreased by $ 21.3 million , compared to the same period in the prior year . the cost per therm of natural gas decreased 17.2 % , which resulted in $ 16.2 million of reduced expense . in addition , the volume of purchased gas decreased 5.1 % , which resulted in $ 5.1 million of reduced expense . gas operating and maintenance expenses gas operating and maintenance expenses increased $ 2.4 million for the year ended december 31 , 2012 , compared to the same period in 2011. the following changes contributed to the net change . ( in millions ) increased administrative and general costs $ 1.3 increased customer service costs 0.6 increased customer accounts costs 0.3 increased distribution costs 0.2 total $ 2.4 for the year ended december 31 , 2012 , increased administrative and general costs were primarily due to increased pension costs , reflecting changes in the discount rate and assumptions regarding investment returns used in calculating such costs . increased customer service costs are due to higher energy conservation spending . story_separator_special_tag other income ( deductions ) , net - mge energy and mge for the year ended december 31 , 2012 , other income , net for the electric and gas segments increase by $ 1.4 million , compared to the same period in the prior year related to afudc equity recognized on the columbia environmental project . nonregulated energy operations - mge energy and mge for the years ended december 31 , 2012 and 2011 , net income at the nonregulated energy operations segment was $ 18.1 million and $ 17.9 million , respectively . the nonregulated energy operations are conducted through mge energy 's subsidiaries : mge power elm road and mge power west campus . these subsidiaries have been formed to construct , own and lease electric generating capacity to assist mge . transmission investment operations - mge energy and mge transmission investment other income for the years ended december 31 , 2012 and 2011 , other income at the transmission investment segment was $ 9.1 million and $ 8.6 million , respectively . the transmission investment segment holds our interest in atc , and its income reflects our equity in the earnings of atc . see footnote 4.b for additional information concerning atc and summarized financial information regarding atc . consolidated other general taxes - mge energy and mge mge energy 's and mge 's other general taxes increased $ 1.0 million or 5.9 % for the year ended december 31 , 2012 , when compared to the same period in 2011 , partially due to increased wisconsin license fee tax . the annual license fee tax expense is based on the prior year 's adjusted operating revenues . tax rates have not changed . consolidated income taxes - mge energy and mge mge energy 's effective income tax rate for the year ended december 31 , 2012 , was 37.7 % compared to 37.1 % for the same period in 2011 , and mge 's effective income tax rate for the year ended december 31 , 2012 , was 37.7 % compared to 37.0 % for the same period in 2011. the effective income tax rate differences for both mge energy and mge are primarily due to a lower estimated domestic manufacturing deduction . 29 for 2011 tax return purposes , mge energy and mge changed their income tax method of accounting for electric transmission and distribution repairs and accounting for depreciation . the 2012 financial statement impact pertaining to finalization of the electric transmission and distribution repairs is an increase to deferred tax expense and a corresponding decrease in the current tax provision in the amount of $ 4.8 million . the 2012 financial statement impact pertaining to finalization of the depreciation adjustment is an increase to deferred tax expense and a corresponding decrease in the current tax provision in the amount of $ 38.6 million . noncontrolling interest , net of tax - mge the noncontrolling interest , net of tax , reflects the accounting required for mge energy 's interest in mge power elm road ( the elm road units ) and mge power west campus ( wccf ) . mge energy owns 100 % of mge power elm road and mge power west campus ; however , due to the contractual agreements for these projects with mge , the entities are considered vies and their results are consolidated with those of mge , the primary beneficiary of the vies . also included in noncontrolling interest , net of tax , is mge energy 's interest in mge transco . the following table shows mge energy 's noncontrolling interest , net of tax , reflected on mge 's consolidated statement of income : replace_table_token_15_th results of operations year ended december 31 , 2011 , versus the year ended december 31 , 2010 electric utility operations - mge energy and mge electric sales and revenues the following table compares mge 's electric revenues and electric kwh sales by customer class for each of the periods indicated : replace_table_token_16_th electric operating revenues increased $ 15.1 million or 4.2 % for the year ended december 31 , 2011 , due to the following : ( in millions ) rate changes $ 8.2 adjustments to revenues 4.6 volume 2.9 sales to the market ( 0.3 ) other revenues ( 0.3 ) total $ 15.1 30 · rates changes . rates charged to retail customers for the year ended december 31 , 2011 , were 2.2 % or $ 8.2 million higher than those charged during the same period in the prior year . in january 2011 , the pscw authorized mge to increase 2011 rates for retail electric customers by 2.3 % or $ 8.0 million . the increase in retail electric rates is driven by costs for mge 's share of the elm road units . · adjustments to revenues . the adjustments to revenues amount includes the elimination of carrying costs for elm road units and wccf that were collected in electric rates , which are recognized as nonregulated energy operating revenues in our nonregulated energy operations segment . the amount eliminated was $ 6.0 million and $ 7.0 million for the years ended december 31 , 2011 and 2010 , respectively . during the year ended december 31 , 2010 , mge recovered in electric rates the costs associated with the estimated commencement of lease payments for elm road unit 2 , which did not commence until the commercial operation of the unit in 2011. these amounts were deferred on mge 's balance sheet . at december 31 , 2010 , $ 3.6 million was included in adjustments to revenues to defer these revenues and will be returned to customers in mge 's next base rate case . · volume . during the year ended december 31 , 2011 , there was a 0.8 % increase in total retail sales volumes compared to the same period in the prior year , reflecting increased commercial customer demand . · sales to the market .
| the adjustments to revenues amount includes the elimination of carrying costs for elm road units and wccf that were collected in electric rates , which are recognized as nonregulated energy operating revenues in our nonregulated energy operations segment . · sales to the market . sales to the market represent wholesale sales made to third parties who are not ultimate users of the electricity . these sales may include spot market transactions on the markets operated by miso and pjm . these sales may also include bilateral sales to other utilities or power marketers . electric fuel and purchased power the expense for fuel for electric generation decreased $ 4.3 million or 8.5 % during the year ended december 31 , 2012 , compared to the same period in the prior year . internal electric generation costs decreased $ 3.2 million as a result of a 6.3 % decrease in the per-unit cost ( largely due to lower natural gas prices ) , and lower generation volumes of 1.1 % or $ 1.1 million . excluding the fuel rules adjustments discussed below , purchased power expense increased $ 3.6 million during the year ended december 31 , 2012 , compared to the same period in the prior year . this increase in expense reflects a $ 3.0 million or 4.7 % increase in per-unit cost of purchased power and a $ 0.6 million or 0.9 % increase in the volume of power purchased from third parties . the pscw adopted new fuel rules effective january 1 , 2011 , that require mge to defer electric fuel-related costs that fall outside a 2 % cost tolerance band around the amount used in the most recent rate proceeding . any fuel rules adjustments are reflected in purchased power expense . during the year ended december 31 , 2012 , mge 's actual fuel costs fell below the lower end of this tolerance band , which resulted in mge deferring $ 6.2 million in fuel-related cost savings to be returned to customers and increased purchased power costs . any over/under recovery of the deferred costs is determined on an annual basis and adjusted in future billings to customers . after combining the fuel rules adjustments with the actual
| 14,583 |
critical accounting policies and estimates our financial statements are prepared in conformity with accounting principles generally accepted in the united states of america ( “ gaap ” ) , which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ from those estimates . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . this summary should be read in conjunction with a more complete discussion of our accounting policies included in note 2 – story_separator_special_tag results of operations – year ended december 31 , 2019 compared to december 31 , 2018 rental revenues rental revenues were $ 226,350,000 in the year ended december 31 , 2019 , compared to $ 232,825,000 in the prior year , a decrease of $ 6,475,000. this decrease was primarily due to the sears vacancy effective october 2018 at our rego park i property . operating expenses operating expenses were $ 89,738,000 in the year ended december 31 , 2019 , compared to $ 93,775,000 in the prior year , a decrease of $ 4,037,000. this decrease was primarily due to bad debt expense in the prior year of $ 4,459,000 , primarily due to the sears bankruptcy and lease termination . depreciation and amortization depreciation and amortization was $ 31,351,000 in the year ended december 31 , 2019 , compared to $ 33,089,000 in the prior year , a decrease of $ 1,738,000. this decrease was primarily due to acceleration of depreciation and amortization in the prior year related to the toys “ r ” us , inc. ( “ toys ” ) bankruptcy and lease termination at our rego park ii property . general and administrative expenses general and administrative expenses were $ 5,772,000 in the year ended december 31 , 2019 , compared to $ 5,343,000 in the prior year , an increase of $ 429,000. this increase was primarily due to higher professional fees . interest and other income , net interest and other income , net was $ 8,244,000 in the year ended december 31 , 2019 , compared to $ 12,546,000 in the prior year , a decrease of $ 4,302,000. this decrease was primarily due to ( i ) $ 7,126,000 of interest income in the prior year from our rego park ii loan participation ( on december 12 , 2018 , we refinanced our $ 252,544,000 rego park ii shopping center mortgage loan and gaap required that our $ 195,708,000 loan participation be treated as an extinguishment of debt ) , partially offset by ( ii ) $ 1,364,000 of higher interest income due to an increase in average interest rates and ( iii ) $ 1,600,000 of expense in the prior year from a litigation settlement . interest and debt expense interest and debt expense was $ 38,901,000 in the year ended december 31 , 2019 , compared to $ 44,533,000 in the prior year , a decrease of $ 5,632,000. this decrease was primarily due to $ 7,178,000 of lower interest expense due to the refinancing of our rego park ii shopping center loan , partially offset by $ 1,810,000 of higher interest expense resulting from an increase in average interest rates . change in fair value of marketable securities change in fair value of marketable securities was an expense of $ 8,757,000 in the year ended december 31 , 2019 , resulting from macerich 's closing share prices of $ 26.92 and $ 43.28 as of december 31 , 2019 and 2018 , respectively , on 535,265 shares owned . change in fair value of marketable securities was an expense of $ 11,990,000 in the prior year , resulting from macerich 's closing share prices of $ 43.28 and $ 65.68 as of december 31 , 2018 and 2017 , respectively . loss from discontinued operations loss from discontinued operations was $ 23,797,000 in the year ended december 31 , 2018. the loss was due to an expense for potential additional real property transfer taxes from the 2012 sale of kings plaza . see note 6 – discontinued operations , to our consolidated financial statements in this annual report on form 10-k. 28 results of operations – year ended december 31 , 2018 compared to december 31 , 2017 rental revenues rental revenues were $ 232,825,000 in the year ended december 31 , 2018 , compared to $ 230,574,000 in the prior year , an increase of $ 2,251,000. this increase was primarily due to ( i ) higher revenue from a new restaurant tenant at our 731 lexington property and ( ii ) higher expense reimbursements , partially offset by ( iii ) lower revenue from sears at our rego park i property and toys at our rego park ii property . operating expenses operating expenses were $ 93,775,000 in the year ended december 31 , 2018 , compared to $ 85,127,000 in the prior year , an increase of $ 8,648,000. this increase was primarily due to ( i ) higher bad debt expense of $ 4,406,000 , ( ii ) higher real estate taxes of $ 2,180,000 and ( iii ) higher operating expenses of $ 1,664,000. depreciation and amortization depreciation and amortization was $ 33,089,000 in the year ended december 31 , 2018 , compared to $ 34,925,000 in the prior year , a decrease of $ 1,836,000. this decrease was primarily due to additional depreciation and amortization of tenant improvements and deferred leasing costs of $ 2,444,000 related to a tenant lease termination at our 731 lexington avenue property in 2017. general and administrative expenses general and administrative expenses were $ 5,343,000 in the year ended december 31 , 2018 , compared to $ 5,255,000 in the prior year , an increase of $ 88,000. interest and other income , net interest and other income , net was $ 12,546,000 in the year ended december story_separator_special_tag 31 , 2018 , compared to $ 6,716,000 in the prior year , an increase of $ 5,830,000. this increase was primarily due to ( i ) $ 4,673,000 of higher interest income from the rego park ii loan participation entered into in july 2017 and ( ii ) $ 3,693,000 of higher interest income due to an increase in average interest rates , partially offset by ( iii ) $ 1,600,000 of expense in 2018 from a litigation settlement and ( iv ) $ 760,000 of lower interest income due to lower average investment balances . interest and debt expense interest and debt expense was $ 44,533,000 in the year ended december 31 , 2018 , compared to $ 31,474,000 in the prior year , an increase of $ 13,059,000. this increase was primarily due to ( i ) $ 8,482,000 resulting from an increase in average interest rates , ( ii ) $ 2,620,000 resulting from the refinancing of the office portion of 731 lexington avenue on june 1 , 2017 for $ 500,000,000 at libor plus 0.90 % ( previously a $ 300,000,000 loan at libor plus 0.95 % ) and ( iii ) $ 1,641,000 of higher amortization of debt issuance costs . change in fair value of marketable securities change in fair value of marketable securities was an expense of $ 11,990,000 in the year ended december 31 , 2018 , resulting from macerich 's closing share prices of $ 43.28 and $ 65.68 as of december 31 , 2018 and 2017 , respectively , on 535,265 shares owned . loss from discontinued operations loss from discontinued operations was $ 23,797,000 in the year ended december 31 , 2018. the loss was due to an expense for potential additional real property transfer taxes from the 2012 sale of kings plaza . see note 6 – discontinued operations , to our consolidated financial statements in this annual report on form 10-k. 29 related party transactions vornado as of december 31 , 2019 , vornado owned 32.4 % of our outstanding common stock . we are managed by , and our properties are leased and developed by , vornado , pursuant to various agreements , which expire in march of each year and are automatically renewable . these agreements are described in note 4 – related party transactions , to our consolidated financial statements in this annual report on form 10-k. steven roth is the chairman of our board of directors and chief executive officer , the managing general partner of interstate properties ( “ interstate ” ) , a new jersey general partnership , and the chairman of the board of trustees and chief executive officer of vornado . as of december 31 , 2019 , mr. roth , interstate and its other two general partners , david mandelbaum and russell b. wight , jr. ( who are also directors of the company and trustees of vornado ) owned , in the aggregate , 26.1 % of our outstanding common stock , in addition to the 2.3 % they indirectly own through vornado . joseph macnow , our treasurer , is the executive vice president - chief financial officer and chief administrative officer of vornado . matthew iocco , our chief financial officer , is the executive vice president - chief accounting officer of vornado . toys our affiliate , vornado , owned 32.5 % of toys as of december 31 , 2018. on february 1 , 2019 , in connection with the toys chapter 11 bankruptcy , the plan of reorganization for toys was declared effective and vornado 's ownership in toys was canceled and toys ' board of directors was dissolved . joseph macnow , vornado 's executive vice president and chief financial officer and wendy a. silverstein , a member of our board of directors , represented vornado as members of toys ' board of directors . also in connection with the toys chapter 11 bankruptcy , toys rejected its 47,000 square foot lease at our rego park ii shopping center ( $ 2,600,000 of annual revenue ) effective june 30 , 2018 and possession of the space was returned to us . liquidity and capital resources property rental income is our primary source of cash flow and is dependent on a number of factors including the occupancy level and rental rates of our properties , as well as our tenants ' ability to pay their rents . our properties provide us with a relatively consistent stream of cash flow that enables us to pay our operating expenses , interest expense , recurring capital expenditures and cash dividends to stockholders . other sources of liquidity to fund cash requirements include our existing cash , proceeds from financings , including mortgage or construction loans secured by our properties and proceeds from asset sales . we anticipate that cash flows from continuing operations over the next twelve months , together with existing cash balances , will be adequate to fund our business operations , cash dividends to stockholders and capital expenditures . dividends on january 15 , 2020 , we set our regular quarterly dividend to $ 4.50 per share ( an indicated annual rate of $ 18.00 per share ) . the dividend , if declared by the board of directors for all of 2020 , would require us to pay out approximately $ 92,100,000. financing activities and contractual obligations on october 3 , 2018 , we extended our mortgage loan on our paramus property . the $ 68,000,000 interest-only loan has a fixed rate of 4.72 % and matures in october 2021. previously the loan bore interest at a fixed rate of 2.90 % . the tenant pays all of the interest on this mortgage loan as part of its rent .
| for our development properties , estimates of future cash flows also include all future expenditures necessary to develop the asset , including interest payments that will be capitalized as part of the cost of the asset . an impairment loss is recognized only if the carrying amount of the asset is not recoverable and is measured based on the excess of the property 's carrying amount over its estimated fair value . if our estimates of future cash flows , anticipated holding periods , or fair values change , based on market conditions or otherwise , our evaluation of impairment charges may be different and such differences could be material to our consolidated financial statements . estimates of future cash flows are subjective and are based , in part , on assumptions regarding future occupancy , rental rates and capital requirements that could differ materially from actual results . plans to hold properties over longer periods decrease the likelihood of recording impairment losses . 26 critical accounting policies and estimates - continued revenue recognition our rental revenues include revenues from the leasing of space to tenants at our properties and revenues from parking and tenant services . we have the following revenue recognition policies : lease revenues from the leasing of space to tenants at our properties . revenues derived from base rent are recognized over the non-cancelable term of the related leases on a straight-line basis which includes the effects of rent steps and rent abatements . we commence rental revenue recognition when the underlying asset is available for use by the lessee . in addition , in circumstances where we provide a tenant improvement allowance for improvements that are owned by the tenant , we recognize the allowance as a reduction of rental revenue on a straight-line basis over the term of the lease . revenues derived from the reimbursement of real estate taxes , insurance expenses and common area maintenance expenses are generally recognized in the same period as the related expenses are
| 14,584 |
the increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $ 49 million , increased sales volumes of approximately $ 36 million , and the favorable impact of price and product mix of approximately $ 20 million , partially offset by costs associated with investments in new product development , sales personnel , and marketing of approximately $ 18 million , increased employee costs of approximately $ 9 million , increased material costs of approximately $ 6 million , and the net impact of unfavorable foreign exchange rates of approximately $ 3 million . flooring na segment —operating income was $ 505.1 million ( 13.1 % of segment net sales ) for 2016 reflecting an increase of $ 240.8 million , or 91.1 % , compared to operating income of $ 264.3 million ( 7.3 % of segment net sales ) for 2015 . the increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $ 64 million , lower material costs of approximately $ 49 million , increased sales volumes of approximately $ 46 million , and the favorable impact of lower restructuring , acquisition and integration-related , and other costs of approximately $ 157 million , partially offset by approximately $ 27 million of costs associated with investments in new product development , sales personnel , and marketing , the unfavorable impact of price and product mix of approximately $ 27 million , costs associated with investments in expansion of production capacity of approximately $ 6 million and increased employee costs of $ 5 million . restructuring , acquisition and integration-related , and other costs were lower primarily due to the non-recurring 2015 charge of approximately $ 122 million related to the settlement and defense of the polyurethane foam litigation and the $ 90 million received in the third quarter of 2016 related to a contract dispute , partially offset by a charge for approximately $ 48 million related to the write-off of the lees tradename . flooring row segment —operating income was $ 333.1 million ( 17.4 % of segment net sales ) for 2016 reflecting an increase of $ 129.7 million , or 63.8 % , compared to operating income of $ 203.4 million ( 14.0 % of segment net sales ) for 2015 . the increase in operating income was primarily attributable to higher sales volumes of approximately $ 77 million , savings from capital investments and cost reduction initiatives of approximately $ 27 million , lower material costs of approximately $ 23 million , lower restructuring , acquisition and integration-related , and other costs of approximately $ 23 million , and the favorable impact of reduced costs from investments in expansion of production capacity of approximately $ 6 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 16 million , the unfavorable net impact of price and product mix of approximately $ 6 million and approximately $ 5 million of costs associated with investments in new product development , sales personnel , and marketing . most of the uniclic family of patents will expire in 2017. the licensing earnings from patents included in the flooring row segment 's results were approximately $ 148 million in 2016 , only a portion of which will be retained following the uniclic expiration . while the company continues to explore additional opportunities to generate revenue from its patent portfolio , only a portion of the licensing earnings will be retained following the expiration of the uniclic patents . the company expects its earnings from patents to range from $ 65 million to $ 70 million in 2017 , with the amount declining to a $ 35 million annual run rate starting in june . 26 index to financial statements interest expense interest expense was $ 40.5 million for 2016 , reflecting a decrease of $ 30.5 million compared to interest expense of $ 71.1 million for 2015 . the decrease was primarily attributable to the company paying the remaining balance of its 6.125 % senior notes in january 2016 utilizing cash on hand and lower interest rate commercial paper borrowings . other ( income ) expense other income was $ 1.7 million for 2016 , reflecting a favorable change of $ 19.3 million compared to other expense of $ 17.6 million for 2015 . the change was primarily due to the prior year release of an indemnification receivable related to the reversal of uncertain tax positions recorded with the ivc group acquisition of approximately $ 11 million . income tax expense for 2016 , the company recorded income tax expense of $ 307.6 million on earnings before income taxes of $ 1,241.1 million for an effective tax rate of 24.8 % , as compared to an income tax expense of $ 131.9 million on earnings before income taxes of $ 748.9 million , resulting in an effective tax rate of 17.6 % for 2015 . the increase in effective tax rates was partially due to benefits recorded in 2015 , that did not recur in 2016 : the expiration of the statute of limitations on european-related tax exposures of approximately $ 18 million and a favorable multi-year tax study yielding a benefit of approximately $ 8.5 million . the balance of the year-over-year increase is the direct result of the geographic dispersion of the company 's earnings for 2016 , which are up approximately 94 % in the u.s. ( partially due to the absence of the 2015 $ 122.5 million charge related to the settlement and defense of the polyurethane foam litigation ) and almost 45 % outside the u.s. see note 12-income taxes . story_separator_special_tag year ended december 31 , 2015 , as compared with year ended december 31 , 2014 net sales net sales for 2015 were $ 8,071.6 million , reflecting an increase of $ 268.1 million , or 3.4 % , from the $ 7,803.4 million reported for 2014. the increase was primarily attributable to higher sales volume of approximately $ 785 million , or 10 % , which includes sales volumes attributable to acquisitions of approximately $ 396 million and legacy sales volume of approximately $ 389 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 490 million , or 6 % , and the unfavorable net impact of price and product mix of approximately $ 28 million . global ceramic segment —net sales decreased $ 2.4 million , or 0.1 % , to $ 3,012.9 million for 2015 , compared to $ 3,015.3 million for 2014. the decrease was primarily attributable to the net impact of unfavorable foreign exchange rates of approximately $ 252 million , or 8 % , partially offset by higher sales volume of approximately $ 150 million , or 5 % , which includes sales volume attributable to acquisitions of approximately $ 65 million and legacy sales volume of approximately $ 85 million , and the favorable net impact of price and product mix of approximately $ 99 million , or 3 % . flooring na segment —net sales increased $ 161.1 million , or 4.7 % , to $ 3,602.1 million for 2015 , compared to $ 3,441.0 million for 2014. the increase was primarily attributable to higher sales volume of approximately $ 275 million , or 8 % , which includes sales volume attributable to acquisitions of approximately $ 77 million and legacy sales volume of approximately $ 198 million , partially offset by the unfavorable net impact of price and product mix of approximately $ 114 million , or 3 % . flooring row segment —net sales increased $ 102.9 million , or 7.6 % , to $ 1,456.9 million for 2015 , compared to $ 1,354.0 million for 2014. the increase was primarily attributable to higher volume of approximately $ 354 million , or 26 % , which includes sales volume attributable to acquisitions of approximately $ 254 million and legacy sales volume of approximately $ 100 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 238 million , or 18 % , and the unfavorable net impact of price and product mix of approximately $ 13 million , or 1 % . 27 index to financial statements quarterly net sales and the percentage changes in net sales by quarter for 2015 versus 2014 were as follows ( dollars in millions ) : replace_table_token_5_th gross profit gross profit for 2015 was $ 2,410.7 million ( 29.9 % of net sales ) , an increase of $ 256.5 million or 11.9 % , compared to gross profit of $ 2,154.2 million ( 27.6 % of net sales ) for 2014. as a percentage of net sales , gross profit increased 230 basis points . the increase in gross profit dollars was primarily attributable to higher sales volume of approximately $ 254 million , savings from capital investments and cost reduction initiatives of approximately $ 127 million , and lower input costs of approximately $ 101 million , including lower material costs of approximately $ 87 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 151 million , the unfavorable net impact of price and product mix of approximately $ 30 million , the unfavorable impact of higher restructuring , acquisition and integration-related costs of approximately $ 28 million , and costs associated with investments in expansion of production capacity of approximately $ 15 million . selling , general and administrative expenses selling , general and administrative expenses for 2015 were $ 1,573.1 million ( 19.5 % of net sales ) , an increase of $ 191.7 million compared to $ 1,381.4 million ( 17.7 % of net sales ) for 2014. as a percentage of net sales , selling , general and administrative expenses increased 180 basis points . the increase in selling , general and administrative expenses in dollars was primarily attributable to a charge of approximately $ 122 million related to the settlement and further defense of the polyurethane foam litigation described in more detail herein , approximately $ 83 million of costs due to higher sales volume , approximately $ 44 million of costs associated with investments in new product development , sales personnel , and marketing , and increased employee costs of approximately $ 27 million , partially offset by the positive impact of foreign exchange rates of approximately $ 77 million and savings from capital investments and cost reduction initiatives of approximately $ 6 million . operating income operating income for 2015 was $ 837.6 million ( 10.4 % of net sales ) reflecting an increase of $ 64.8 million , or 8.4 % , compared to operating income of $ 772.8 million ( 9.9 % of net sales ) for 2014. the increase in operating income was primarily attributable to higher sales volume of approximately $ 172 million , savings from capital investments and cost reduction initiatives of approximately $ 133 million , and lower input costs of approximately $ 101 million , including lower material costs of approximately $ 87 million , partially offset by a charge of approximately $ 122 million related to the settlement and defense of the polyurethane foam litigation described in more detail herein , the net impact of unfavorable foreign exchange rates of approximately $ 74 million , costs associated with investments in new product development , sales personnel and marketing of approximately $ 44 million , the unfavorable net impact of price and product mix of approximately $ 29 million , increased employee costs of approximately $ 27 million , the unfavorable impact of higher restructuring , acquisition and integration-related costs of approximately $ 30 million which includes approximately $
| the increase was primarily attributable to higher sales volumes of approximately $ 305 million , or 8 % , which includes sales volume attributable to acquisitions of approximately $ 76 million and legacy sales volume of approximately $ 229 million , partially offset by the unfavorable net impact of price and product mix of $ 42 million , or 1 % flooring row segment —net sales increase d $ 461.7 million , or 31.7 % , to $ 1,918.6 million for 2016 , compared to $ 1,456.9 million for 2015 . the increase was primarily attributable to higher sales volume of approximately $ 481 million , or 33 % , which includes sales volume attributable to acquisitions of approximately $ 405 million and legacy sales volume of approximately $ 76 million and the favorable net impact of price and product mix of approximately $ 7 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 26 million , or 2 % . quarterly net sales and the percentage changes in net sales by quarter for 2016 versus 2015 were as follows ( dollars in millions ) : replace_table_token_4_th gross profit gross profit for 2016 was $ 2,812.8 million ( 31.4 % of net sales ) , an increase of $ 402.1 million or 16.7 % , compared to gross profit of $ 2,410.7 million ( 29.9 % of net sales ) for 2015 . as a percentage of net sales , gross profit increased 150 basis points . the increase in gross profit dollars was primarily attributable to higher sales volume of approximately $ 254 million , savings from capital investments and cost reduction initiatives of approximately $ 113 million , lower material costs of approximately $ 67 million and the favorable impact of lower restructuring , acquisition and integration-related , and other costs of approximately $ 21 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 28 million , and the unfavorable net impact of price and product mix of approximately $ 11 million . selling , general and administrative expenses selling , general and administrative expenses for 2016 were $ 1,532.9 million ( 17.1 % of
| 14,585 |
we continued to execute on our strategy during 2017 as follows : acquisition of the outreach laboratory service business of peacehealth laboratories on may 1 , 2017 , we completed the acquisition of the outreach laboratory services operations of peacehealth laboratories ( `` phl '' ) , in an all-cash transaction for $ 101 million . the acquired outreach laboratory service business of phl is included in our dis business . under a professional laboratory services agreement , quest will also manage 11 laboratories , which phl will continue to own . acquisition of med fusion and clearpoint on july 14 , 2017 , we completed the acquisition of med fusion , llc and clearpoint diagnostic laboratories , llc ( `` med fusion '' ) in an all-cash transaction for $ 150 million . med fusion provides precision medicine diagnostics to aid cancer treatment nationwide and the acquired businesses form the company 's center of excellence in precision diagnostics for oncology . the acquired laboratory service businesses are included in our dis business . acquisition of the outreach laboratory service business of the william w. backus hospital and the hospital of central connecticut on september 28 , 2017 , we completed the acquisition of the outreach laboratory service businesses of two hospitals of hartford healthcare corporation , the william w. backus hospital and the hospital of central connecticut in an all-cash transaction for $ 30 million . the acquired outreach laboratory service businesses are included in our dis business . acquisition of cleveland heartlab , inc. on december 1 , 2017 , we completed the acquisition of cleveland heartlab , inc. ( `` chl '' ) in an all-cash transaction for $ 94 million , net of $ 12 million cash acquired . chl is a specialty clinical laboratory and disease management company , which forms the basis for our advanced diagnostics center of excellence in cardiovascular testing . the acquired business is included in our dis business . acquisition of the clinical and anatomic pathology laboratory business of shiel holdings , llc on december 7 , 2017 , we completed the acquisition of certain assets of the clinical and anatomic pathology laboratory business of shiel holdings , llc ( `` shiel '' ) in an all-cash transaction for $ 176 million , which consisted of cash consideration of $ 170 million and contingent consideration estimated at $ 6 million . the contingent consideration arrangement is dependent upon the achievement of certain testing volume benchmarks . shiel serves the new york-new jersey metropolitan area . the acquired business is included in our dis business . for further details regarding our acquisitions , see note 5 to the consolidated financial statements . 60 collaboration with wal-mart in june 2017 , we announced our collaboration with wal-mart stores , inc. ( `` wal-mart '' ) to help improve access to care and , over time , help lower healthcare costs through providing basic healthcare services . the collaboration has launched with a select number of co-branded sites opening within wal-mart stores that are initially providing laboratory testing services . over time , service offerings are expected to expand to include other basic healthcare services . invigorate program we are engaged in a multi-year program called invigorate , which is designed to reduce our cost structure and improve our performance . we delivered more than $ 700 million in run-rate savings ( compared to 2011 ) as we exited 2014 , and delivered more than $ 1.3 billion in run rate savings ( compared to 2011 ) as we exited 2017 , exceeding our goal that we announced in november 2014. invigorate has consisted of several flagship programs , with structured plans in each , to drive savings and improve performance across the customer value chain . these flagship programs include : organization excellence ; information technology excellence ; procurement excellence ; field and customer service excellence ; lab excellence ; and revenue services excellence . in addition to these programs , we identified key themes to change how we operate in order to meet our goal of delivering the $ 1.3 billion of run-rate savings as we exited 2017. these additional key themes include : standardizing our processes , information technology systems , equipment and data ; enhancing electronic enabling services ; and enhancing reimbursement for work we perform . we believe that our efforts to standardize our information technology systems , equipment and data also foster our efforts to strengthen our foundation for growth and support the value creation initiatives of our clinical franchises by enhancing our operational flexibility , empowering and enhancing the customer experience , facilitating the delivery of actionable insights and bolstering our large data platform . in january 2015 , we adopted a course of action related to this multi-year program . we developed a high-level estimate of the total pre-tax charges expected to be incurred in 2015 through 2017 in connection with the course of action for the program : $ 300 million . in february 2017 , we developed high-level estimates of the pre-tax charges expected to be incurred in 2017 totaling $ 60 million to $ 80 million , consisting of up to $ 10 million of employee separation costs and $ 60 million to $ 70 million of systems conversion and integration costs . during 2017 we incurred $ 90 million of pre-tax charges including $ 23 million of employee separation costs and other restructuring related costs with the remainder primarily consisting of systems conversion and integration costs . from 2015 through december 31 , 2017 , the cumulative pre-tax charges incurred in connection with the invigorate program were $ 242 million , including $ 73 million of cumulative employee separation costs and other restructuring related costs . for further details of the invigorate program and associated costs , see note 4 to the consolidated financial statements . outlook and trends the healthcare system in the united states is evolving ; significant change is taking place in the system . story_separator_special_tag we expect that the evolution of the healthcare industry will continue , and that industry change is likely to be extensive . there are a number of key trends that are having , and that we expect will continue to have , a significant impact on the diagnostic information services business in the united states and on our business . these trends present both opportunities and risks . however , because diagnostic information services is an essential healthcare service , we believe that the industry will continue to grow over the long-term and that we are well-positioned to benefit from the long-term growth expected in the industry . healthcare market participants , including governments , are focusing on controlling costs , including potentially by changing reimbursement for healthcare services ( including but not limited to a shift from fee for service to capitation ) , changing medical coverage policies ( e.g . , healthcare benefits design ) , preauthorization of laboratory testing , requiring co-pays , introducing laboratory spend management utilities and payment and patient care innovations such as acos and patient-centered medical homes . as health plans and government programs require greater levels of patient cost-sharing , our patient collections could be negatively impacted and adversely impact our results of operations . as previously mentioned , there could be a shift to capitation arrangements where we agree to a predetermined monthly reimbursement rate for each member enrolled in a restricted plan , generally regardless of the number or cost of services provided by us . in both 2017 and 2016 , we derived approximately 11 % of our testing volume and 4 % of our dis revenues from capitated payment arrangements . historically , the medicare clinical laboratory fee schedule ( `` clfs '' ) and the medicare physician fee schedule established under part b of the medicare program have been subject to change , including each year . on november 17 , 2017 , 61 the centers for medicare and medicaid services ( `` cms '' ) finalized the 2018 medicare reimbursement rates for clinical laboratory tests under the clfs pursuant to protecting access to medicare act ( `` pama '' ) . the company expects the impact on our clfs based revenues ( in 2017 clfs revenues comprised 12 % of our consolidated net revenues ) as a result of pama to be a reduction of approximately 4 % in 2018 , and approximately 10 % in both 2019 and 2020. pama calls for further revision of the medicare clinical laboratory fee schedule for years after 2020 , based on future surveys of market rates ; further reduction in reimbursement may result from such revisions . excluding the impact of pama we expect reimbursement pressure for our dis business in 2018 to remain less than 1 % , with pama adding an additional 0.5 % . on december 22 , 2017 , the president signed the tcja into law . pursuant to the law , among other changes to u.s. corporate income tax laws , the federal corporate statutory income tax rate is reduced from 35 % to 21 % effective for 2018 ; and a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits will result in a repatriation toll charge . our activities are primarily in the united states , and , as a result , we expect the impact of the reduction of the federal corporate statutory tax rate to have a positive impact on our results of operations and cash flows . the estimated provisional repatriation toll charge of $ 9 million was not significant due to our limited international operations . in addition , the trend of consolidating , converging and diversifying among our customers and payers has continued . consolidation is increasing price transparency and bargaining power , and encouraging internalization of clinical testing . we also believe that pama may be a further catalyst for consolidation as diagnostic information services providers realize lower medicare reimbursement rates and large diagnostic information services providers may be able to increase their share of the overall diagnostic information services industry due to their large networks and lower cost structures . for additional information on our key trends , see `` item 1. business : the united states clinical testing industry . '' critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions and select accounting policies that affect our reported financial results and the disclosure of contingent assets and liabilities . while many operational aspects of our business are subject to complex federal , state and local regulations , the accounting for most of our business is generally straightforward , with net revenues primarily recognized upon completion of the testing process . our revenues are primarily comprised of a high volume of relatively low-dollar transactions , and about one-half of our total costs and expenses consist of employee compensation and benefits . due to the nature of our business , several of our accounting policies involve significant estimates and judgments : revenues and accounts receivable associated with dis ; reserves for general and professional liability claims ; reserves for other legal proceedings ; accounting for and recoverability of goodwill ; and accounting for stock-based compensation expense . revenues and accounts receivable associated with dis the process for estimating the ultimate collection of receivables associated with our dis business involves significant assumptions and judgments . we primarily recognize revenue for services rendered upon completion of the testing process . billings for services reimbursed by third-party payers , including medicare and medicaid , are generally recorded as revenues net of allowances for differences between amounts billed and the estimated receipts from such payers . adjustments to the allowances , based on actual receipts from the third-party payers , are recorded upon settlement as an adjustment to net revenues .
| and costs incurred related to certain legal matters , partially offset by gain on the sale of an interest in an equity method investment . results for the year ended december 31 , 2016 were affected by certain items that on a net basis reduced earnings per diluted share by a net $ 0.20 as follows : excess tax benefits associated with stock-based compensation arrangements of $ 9 million , or $ 0.06 per diluted share , recorded in income tax expense ; pre-tax gain of $ 118 million , or $ 0.24 per diluted share , related to the focus sale recorded in gain on disposition of business ; pre-tax charges of $ 82 million ( $ 40 million in cost of services , $ 37 million in selling , general and administrative expenses , $ 1 million in other operating expense ( income ) , net and $ 4 million in equity in earnings of equity method investees , net of taxes ) , or $ 0.35 per diluted share , primarily associated with systems conversions and integration costs in connection with further restructuring and integrating our business ; 68 pre-tax charges of $ 48 million , or $ 0.21 per diluted share , related to the 2016 loss on retirement of debt associated with the march 2016 cash tender offer ( `` 2016 tender offer '' ) , in which we purchased $ 73 million of our senior notes due 2037 and $ 127 million of our senior notes due 2040 , recorded in other income ( expense ) , net ; and pre-tax costs of $ 6 million in selling , general and administrative expenses , a net pre-tax gain of $ 13 million in other operating expense ( income ) , net and pre-tax costs of $ 7 million in other income ( expense ) , net that on a combined basis benefited diluted earnings per share by $ 0.06 , primarily a result of a non-taxable gain on an escrow
| 14,586 |
in addition , each of the company 's executive officers entered into an employment agreement with the company and became employees of the company , and , at the same time , approximately 11 additional former employees of the advisor and its affiliates became employees of the company . in connection with the closing of the transactions under the stock purchase agreement , a subsidiary of the company entered into an administrative services agreement ( the administrative services agreement ) with second city capital ii corporation and second city real estate ii corporation , related entities controlled by samuel belzberg , who served as a member of our board of directors until march 1 , 2017. the administrative services agreement has a three year term and pursuant to the agreement , the company will provide various administrative services and support to the related entities managing the second city funds . the company 's subsidiary will receive annual payments for these services under the administrative services agreement as follows : first 12 months $ 1.5 million , second 12 months $ 1.15 million and third 12 months $ 0.625 million , for a total of $ 3.275 million over the three-year term . on april 5 , 2016 , the company completed a public offering pursuant to which we sold 8,050,000 shares of our common stock to the public at a price of $ 11.40 per share , inclusive of the overallotment option . we raised $ 91.8 million in gross proceeds , resulting in net proceeds to us of approximately $ 86.7 million after deducting $ 5.1 million in underwriting discounts and other expenses related to the offering . on june 15 , 2016 , the company sold the corporate parkway property in allentown , pennsylvania for a sales price of $ 44.9 million , resulting in an aggregate net gain of $ 15.9 million , net of $ 2.0 million in costs , which has been classified as net gain on sale of real estate property in the condensed consolidated statements of operations . in connection with the sale of the property , certain debt repayments were made . in accordance with asu 2014-08 , the sale was not considered a discontinued operation . proceeds from the sale were applied subsequently in a like-kind exchange so as to qualify for tax-deferred treatment under section 1031 of the code . on june 29 , 2016 , the company , through a wholly-owned subsidiary of the operating partnership , closed on the acquisition of carillon point , a 124,187 square foot class a office building in tampa , florida for $ 26.3 million . on july 12 , 2016 , the company , through two joint ventures , closed on the acquisition of the frp collection located in orlando , florida for $ 49.8 million , exclusive of closing costs and working capital adjustments . the company acquired a 95 % interest in the frp collection , with the remaining 5 % interest held by the joint venture partners . one of the company 's subsidiaries is acting as the general partner of each joint venture . on july 14 , 2016 , the company issued a total of 3,126,084 shares of its common stock to certain members of second city in connection with second city 's redemption of a total of 3,126,084 common units of limited partnership interest in the operating partnership . in september 2016 , the company entered into an agreement to sell the washington group plaza property in boise , idaho for a sales price of $ 86.5 million which is scheduled to close in april 2018. a $ 5.0 million non-refundable deposit was received in december 2016 , $ 0.25 million in the form of earnest money deposit and $ 4.75 million as an irrevocable letter of credit . on october 4 , 2016 , the company completed a public preferred stock offering pursuant to which we sold 4,000,000 shares of our 6.625 % series a cumulative redeemable preferred stock , par value $ 0.01 per share ( series a preferred stock ) to the public at a price of $ 25.00 per share . the company raised $ 100.0 million in 38 gross proceeds , resulting in net proceeds to the company of approximately $ 96.5 million after deducting $ 3.5 million in underwriting discounts and expenses related to the offering . on october 28 , 2016 , the company issued an additional 480,000 shares of series a preferred stock pursuant to the partial exercise of the underwriters ' overallotment option , raising an additional $ 12.0 million in gross proceeds before underwriting discounts and expenses . on november 2 , 2016 , the company , in a joint venture with tampa street feldman tower , llc , a florida limited liability company , closed on the acquisition of park tower , a 472,596 square foot tower located in tampa , florida , for $ 79.8 million , exclusive of closing costs . the company acquired a 95 % interest in the joint venture . on november 30 , 2016 , the company , through a wholly-owned subsidiary of the operating partnership , closed on the acquisition of 5090 n 40th st , a 175,835 square foot class a multi-tenant property in phoenix , arizona for $ 42.6 million . on december 15 , 2016 , the company , through two wholly-owned subsidiaries the operating partnership , closed on the acquisition of santan , a 266,531 square foot , two-building class a office complex located in phoenix , arizona , for $ 58.5 million , exclusive of closing costs . on january 12 , 2017 , the company , through a wholly-owned subsidiary of the operating partnership closed on the acquisition of 2525 mckinnon , a 111,334 square foot tower located in dallas , texas , for $ 46.8 million , exclusive of closing costs . story_separator_special_tag on january 13 , 2017 , the company completed a public offering pursuant to which the company sold 5,750,000 shares of its common stock to the public at a price of $ 12.40 per share , inclusive of the overallotment option . the company raised $ 71.3 million in gross proceeds , resulting in net proceeds to us of approximately $ 68.1 million after deducting $ 3.2 million in underwriting discounts and other expenses related to the offering . indebtedness on september 2 , 2016 , the company closed on a $ 30.9 million loan secured by a first mortgage lien on the frp collection property , in orlando , florida . the loan matures in september 2023 and provides for monthly payments of principal and interest . interest is payable at a fixed rate of 3.85 % per annum . on october 12 , 2016 , the company closed on a $ 17.1 million loan secured by a first mortgage lien on the carillon point property in tampa , florida . the loan matures in october 2023 and provides for monthly payments of principal and interest . interest is payable at a fixed rate of 3.5 % per annum . on october 26 , 2016 , the company exercised its option under its amended and restated credit agreement ( the secured credit facility ) to utilize the accordion feature to increase the authorized borrowing capacity under the secured credit facility from $ 75 million to $ 100 million . on january 4 , 2017 , the company closed on a $ 22.0 million loan secured by a first mortgage lien on the 5090 n 40th st property in phoenix , arizona . the loan matures in january 2027 and provides for monthly payments of principal and interest . interest is payable at a fixed rate of 3.92 % per annum . on february 9 , 2017 , the company closed on a $ 35.1 million loan secured by a first mortgage lien on the santan property in phoenix , arizona . the loan matures in march 2027 and provides for monthly payments of principal and interest . interest is payable at a fixed rate of 4.56 % per annum . for additional information regarding these mortgage loans and the secured credit facility , please refer to liquidity and capital resources below . revenue base as of december 31 , 2016 , we owned 18 properties comprised of 37 office buildings with a total of approximately 4.4 million square feet of net rentable area ( nra ) . as of december 31 , 2016 , our properties were approximately 91.0 % leased . 39 office leases historically , most leases for our properties were on a full-service gross or net lease basis , and we expect to continue to use such leases in the future . a full-service gross lease generally has a base year expense stop , whereby we pay a stated amount of expenses as part of the rent payment while future increases ( above the base year stop ) in property operating expenses are billed to the tenant based on such tenant 's proportionate square footage in the property . the property operating expenses are reflected in operating expenses ; however , only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations . in a triple net lease , the tenant is typically responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expenses , but rather all such expenses are billed to or paid by the tenant . the full amount of the expenses for this lease type is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . the tenants in the lake vista pointe , frp ingenuity drive and superior pointe properties have triple net leases . frp collection has triple net leases for three of its tenants . we are also a lessor for a fee simple ground lease at the amberglen property . most of our remaining leases are full-service gross leases . factors that may influence our operating results and financial condition business and strategy we focus on owning and acquiring office properties in our target markets . our target markets generally possess what we believe are favorable economic growth trends , growing populations with above-average employment growth forecasts , a large number of government offices , large international , national and regional employers across diversified industries , are generally low-cost centers for business operations , and exhibit favorable occupancy trends . we utilize our management 's market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation . our target markets are attractive , among other reasons , because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public reits and there is a relatively low level of participation of large institutional investors . we believe that these factors result in attractive pricing levels and risk-adjusted returns . rental revenue and tenant recoveries the amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations . as of december 31 , 2016 , our properties were approximately 91.0 % leased . the amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties . we believe that the average rental rates for our portfolio of properties are generally in-line or slightly below the current average quoted market rates . negative trends in one or more of these factors could adversely affect our rental revenue in future periods .
| rental income includes net rental income and income from a ground lease . total rental income increased $ 15.7 million , or 33 % , to $ 63.7 million for the year ended december 31 , 2016 compared to $ 48.0 million for the year ended december 31 , 2015. the increase in rental income was primarily due to the acquisitions described above . the acquisitions of carillon point , frp collection , park tower , 5090 n 40th st and santan properties contributed an additional $ 1.8 million , $ 2.7 million , $ 1.6 million , $ 0.4 million and $ 0.3 million in rental income , respectively , to the 2016 period rental income . rental income in 2016 increased by $ 0.2 million from the acquisition of logan tower in february 2015 , $ 1.0 million from the acquisition of superior pointe in june 2015 , $ 2.1 million from the acquisition of dtc crossroads in june 2015 , $ 4.8 million from the acquisition of 190 office center in september 2015 and $ 3.3 million from the acquisition of intellicenter in september 2015. plaza 25 increased $ 0.3 million due to early termination fees received from tenants who departed the property early . central fairwinds increased by $ 0.4 million due to increased occupancy at the property over the prior year . offsetting these increases , washington group plaza and amberglen decreased by $ 1.1 million and $ 0.4 million , respectively , due to the tenant departures described above . corporate parkway decreased by $ 1.7 million due to the sale of the property in june 2016. expense reimbursement . total expense reimbursement increased $ 1.3 million , or 23 % , to $ 7.1 million for the year ended december 31 , 2016 compared to $ 5.8 million for the same period in 2015 , primarily due to the acquisition of the carillon point , frp collection , park tower , 5090 n 40th st
| 14,587 |
drilling group fourth-quarter revenue of $ 4.1 billion increased $ 88 million or 2 % sequentially . pretax operating income of $ 696 million was 5 % lower sequentially . revenue increased on international and offshore demand for drilling & measurements and m-i swaco products and services . drilling tools & remedial services activity also contributed to growth with a full-quarter of revenue for radius services . ipm revenue grew slightly , as increased projects in australia and new start-ups in iraq and argentina were partly offset by project completions in north africa . the overall revenue increase was tempered by a decline in drilling-related services , mainly in north america land , due to a seasonal decline in deviated and horizontal drilling activity coupled with pricing weakness . pretax operating margin of 16.8 % decreased 128 bps sequentially . among the group technologies , sequential margins in drilling & measurements and drilling tools & remedial services were flat , while margin contractions were recorded at m-i swaco and ipm due to geographical mix and operational and start-up delays . production group fourth-quarter revenue of $ 3.9 billion increased $ 249 million or 7 % sequentially . pretax operating income of $ 590 million was 8 % higher sequentially . the increase in revenue resulted primarily from stronger completions and artificial lift product year-end sales coupled with new framo subsea projects in the us gulf of mexico and in the north sea and angola geomarkets . well intervention services revenue increased on higher activity in the mexico & central america and saudi arabia & bahrain geomarkets . well services revenue grew mainly due to higher activity in the international and the north america offshore markets . international activities were strong from stimulation vessel operations in brazil , unconventional fracturing activity in mexico , and new projects in kuwait and iraq . well services stage count in north america land also grew but land revenue declined on continued pricing weakness from the oversupply of hydraulic horsepower . pretax operating margin increased 13 bps sequentially to 15 % . the increase was largely attributable to the favorable impact of year-end completions and artificial lift product sales coupled with improved profitability from new framo subsea projects . this margin increase was largely offset by continued well services pricing weakness . 18 full-year 2012 results product groups replace_table_token_5_th geographic areas replace_table_token_6_th ( 1 ) effective january 1 , 2012 , a component of the drilling group was reallocated to the production group . historical information has been reclassified to conform to this presentation . ( 2 ) comprised principally of corporate expenses not allocated to the segments , interest on postretirement medical benefits , stock-based compensation costs , amortization expense associated with intangible assets recorded as a result of the acquisition of smith and certain other nonoperating items . ( 3 ) excludes interest income included in the segments ' income ( 2012 $ - million ; 2011 $ 3 million ) . ( 4 ) excludes interest expense included in the segments ' income ( 2012 $ 8 million ; 2011 $ 8 million ) . ( 5 ) charges and credits are described in detail in note 3 to the consolidated financial statements . oilfield services full-year 2012 revenue of $ 42.15 billion increased 14 % versus the same period last year with north america area 9 % higher and international activity 16 % higher . internationally , higher exploration and development activities in a 19 number of geomarkets both offshore and in key land markets contributed to the increase . the increase was led by the europe/cis/africa area which increased 18 % , mainly in russia and in the nigeria & gulf of guinea , angola , the east africa and north sea africa geomarkets . latin america was higher by 17 % , mainly in the mexico & central america ; venezuela , trinidad & tobago ; and ecuador geomarkets driven by strong integrated project management ( ipm ) activity on land and robust offshore activity for wireline and drilling group services and products . middle east & asia increased 13 % on strong results in the saudi arabia & bahrain ; australasia ; brunei , malaysia & philippines ; and china geomarkets . the increase in north america was due to strong growth in north america offshore driven by robust deepwater and exploration activity that benefited the reservoir characterization and drilling groups technologies . there was also an improvement in activity in north america land for the production group technologies although the increase slowed in the second half of the year due to the weakness in the hydraulic fracturing market . full-year 2012 pretax operating income of $ 8.3 billion increased 14 % year-on-year as international pretax operating income of $ 5.8 billion increased 31 % while north america pretax operating income of $ 2.7 billion declined by 10 % year-on-year . pretax operating margin was essentially flat at 19.8 % as international pretax operating margin expanded 226 bps to 20.5 % while north america pretax operating margin declined 448 bps to 20.3 % . europe/cis/africa posted a 435 bps improvement to reach 19.6 % and latin america increased 175 bps to 18.4 % and middle east & asia reported a 27 bps increase to 23.4 % . north america margin decline was due to well services production technologies , as a result of pricing pressure and cost inflation . reservoir characterization group full-year revenue of $ 11.42 billion was 15 % higher than the same period last year led by wireline , testing services , westerngeco and sis technologies driven by improved offshore exploration activities across all areas pretax operating margin increased 345 bps to 28.1 % largely due to the higher-margin exploration activities that benefited wireline and testing services , higher sis software sales , higher westerngeco marine vessel utilization and improved uniq land seismic productivity . story_separator_special_tag drilling group full-year revenue of $ 15.97 billion was 15 % higher than the previous year primarily due to the significantly improved exploration and development activities of m-i swaco , drilling & measurements , and the other drilling group technologies in north america offshore and in the international markets . pretax operating margin increased 142 bps to 17.7 % primarily due to the increase in higher-margin activities of drilling & measurements , m-i swaco and drilling tools & remedial technologies all of which benefited from exploration activities in north america offshore and in the international markets mainly in the europe/cis/africa area . production group full-year revenue of $ 14.88 billion increased 13 % year-on-year , both in north america and the international markets . well intervention , artificial lift and completions technologies posted strong growth across all areas . well services grew both in north america and internationally , with international growth led by latin america and by europe/cis/africa . pretax operating margin decreased 414 bps to 15.9 % mainly due to a decline in margins for well services production technologies , primarily in north america , as a result of pricing pressure and cost inflation . this was mitigated by margin expansion for the other production group technologies led by well intervention services and completions . 20 full-year 2011 results product groups replace_table_token_7_th geographic areas replace_table_token_8_th ( 1 ) effective january 1 , 2012 , a component of the drilling group was reallocated to the production group . historical information has been reclassified to conform to this presentation . ( 2 ) comprised principally of corporate expenses not allocated to the segments , interest on postretirement medical benefits , stock-based compensation costs , amortization expense associated with intangible assets recorded as a result of the acquisition of smith and certain other nonoperating items . ( 3 ) excludes interest income included in the segments ' income ( 2011 $ 3 million ; 2010 $ 7 million ) . ( 4 ) excludes interest expense included in the segments ' income ( 2011 $ 8 million ; 2010 $ 5 million ) . ( 5 ) charges and credits are described in detail in note 3 to the consolidated financial statements . 21 oilfield services full-year 2011 revenue of $ 37.0 billion was 39 % higher than 2010 primarily reflecting the acquisition of smith on august 27 , 2010 as well as the significantly improved activity , pricing and asset efficiency for well services technologies in north america as the market transitioned to liquid-rich plays demanding increasing service intensity in drilling and completing horizontal wells . year-on-year pretax operating margin increased 79 bps to 19.8 % largely due to the improved pricing and asset efficiency for well services technologies in north america and the resumption of higher-margin activity in the us gulf of mexico . however , the margin expansion was tempered by activity disruptions from the geopolitical unrest in north africa and in the middle east during the first quarter of 2011. reservoir characterization group full-year revenue of $ 9.93 billion was 7 % higher than the previous year on stronger wireline activity , higher westerngeco marine and multiclient sales , and increased sis software sales . year-on-year , pretax operating margin decreased 23 bps to 24.7 % led by margin declines in wireline and testing services , largely due to the revenue mix , as well as the impact of geopolitical events which prevailed during the first quarter of 2011. the margin decline however was partially offset by a favorable westerngeco multiclient sales mix and improved marine vessel utilization . drilling group full-year revenue of $ 13.86 billion was 75 % higher than the previous year reflecting the acquisitions of smith , in august 2010 , and geoservices , in april 2010 , partially offset by a decrease in ipm activities in mexico . the ramp-up of ipm projects in iraq also contributed to the revenue increase . year-on-year , pretax operating margin decreased 32 bps to 16.3 % largely due to the addition of the smith and geoservices activities as well as the effects of the geopolitical events . production group full-year revenue of $ 13.14 billion was 40 % higher than the previous year while pretax operating margin increased 525 bps to 20.1 % . well services revenue and margins expanded strongly in north america on higher pricing , capacity additions and improved asset utilization and efficiency as the market transitioned to liquid-rich plays . internationally , well services also posted growth on the strength of higher activity , despite the exceptional geopolitical events that occurred during the first quarter of 2011. interest and other income interest and other income consisted of the following : replace_table_token_9_th equity income from the m-i swaco joint venture in 2010 represented eight months of equity income through the closing of the smith transaction . interest expense interest expense of $ 340 million in 2012 increased by $ 42 million compared to 2011 primarily due to the $ 1 billion of $ 1.25 % senior notes due 2017 and $ 1 billion of 2.40 % senior notes due 2022 that schlumberger issued during 2012. interest expense of $ 298 million in 2011 increased by $ 91 million compared to 2010 primarily due to the $ 4.6 billion of long-term debt that schlumberger issued during 2011 . 22 other research & engineering and general & administrative expenses , as a percentage of revenue , were as follows : replace_table_token_10_th although research & engineering decreased as a percentage of revenue in 2011 as compared to 2010 , it increased in absolute dollars by $ 154 million . this increase in absolute dollars was driven in large part by the impact of the smith acquisition . income taxes the schlumberger effective tax rate was 24.0 % in 2012 , 24.2 % in 2011 , and 17.1 % in 2010. the schlumberger effective tax rate is sensitive to the geographic mix of earnings . when the percentage of pretax earnings generated outside of north america increases , the schlumberger effective tax rate will generally decrease .
| westerngeco increased slightly as the end-of-year multiclient sales and uniq * land seismic technology direct sale in russia were partly offset by a sharp seasonal decline in marine revenue on lower vessel utilization following the seasonal transits out of the north sea . wireline revenue grew from increased activity in the us gulf of mexico but this was largely offset by a seasonal activity decline in asia . drilling group revenue increased on international and offshore demand for drilling & measurements and m-i swaco technologies . drilling tools & remedial services also contributed to growth with the full-quarter revenue from radius services . ipm improved slightly as the combination of an increase in projects in australia and new start-ups in iraq and argentina was partly offset by project completions in north africa . the increase in production group revenue resulted primarily from stronger completions and artificial lift product year- end sales coupled with new framo subsea projects in the us gulf of mexico and in the north sea and angola geomarkets . well intervention services revenue also increased on higher activity in the mexico & central america and saudi arabia & bahrain geomarkets . well services revenue grew mainly due to higher activity in international and offshore north america markets . well services stage count in north america land also increased , but revenue declined from continued pricing weakness as a result of hydraulic horsepower oversupply . among the areas , middle east & asia revenue of $ 2.6 billion grew 10 % sequentially led by the start of new ipm turnkey projects in iraq ; higher testing , well intervention and drilling group services in addition to year-end product sales in the saudi arabia & bahrain geomarket ; the start of the jurassic seismic project as well as strong product and year-end software sales in kuwait ; and the increase in ipm onshore projects and strong drilling activity in the australasia geomarket . in latin america , revenue of $ 2.1 billion increased
| 14,588 |
the fair values of the domestic , import , and premium luxury reporting units were substantially in excess of their carrying values as of april 30 , 2011 , the date of our most recent quantitative impairment test . other intangible assets our principal identifiable intangible assets are individual store rights under franchise agreements with vehicle manufacturers , which have indefinite lives and are tested for impairment annually on april 30 or more frequently when events or changes in circumstances indicate that impairment may have occurred . under accounting standards , we chose to make a qualitative evaluation about the likelihood of franchise rights impairment to determine whether it was necessary to perform a quantitative impairment test . we completed our qualitative assessment of franchise rights impairment as of april 30 , 2013 and we determined that it was not more likely than not that the fair values of our franchise rights were less than their carrying amounts . the quantitative impairment test for intangibles with indefinite lives is dependent on many variables used to determine the fair value of our franchise rights . see note 5 of the notes to consolidated financial statements for additional information on how fair value measurements are derived for our franchise rights for the quantitative impairment test . long-lived assets we estimate the depreciable lives of our property and equipment , including leasehold improvements , and review them for impairment when events or changes in circumstances indicate that their carrying amounts may be impaired . such events or changes may include a significant decrease in market value , a significant change in the business climate in a particular market , a current expectation that more-likely-than-not a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life , or a current-period operating or cash flow loss combined with historical losses or projected future losses . when evaluating potential impairment of long-lived assets held and used , we first compare the carrying amount of the asset group to the asset group 's estimated future undiscounted cash flows . if the estimated future undiscounted cash flows are less than the carrying amount of the asset group , we then compare the carrying amount of the asset group to the asset group 's estimated fair value to determine if impairment exists . the fair value measurements for our long-lived assets held and used were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources . see note 17 of the notes to consolidated financial statements for more information about our fair value measurements . we recognize an impairment loss if the amount of the asset group 's carrying amount exceeds the asset group 's estimated fair value . if we recognize an impairment loss , the adjusted carrying amount of the asset group becomes its new cost basis . for a depreciable long-lived asset , the new cost basis will be depreciated over the remaining useful life of that asset . during 2013 and 2012 , we fully impaired certain long-lived assets held and used in continuing operations and recorded non-cash impairment charges of $ 0.7 million in 2013 and $ 0.8 million in 2012. these charges are recorded as a component of other expenses ( income ) , net in the consolidated statements of income and are reported in the “ corporate and other ” category of our segment information . when property and equipment is identified as held for sale , we reclassify the held for sale assets to other current assets and cease recording depreciation . we measure each long-lived asset or disposal group at the lower of its carrying amount or fair value less cost to sell and recognize a loss for any initial adjustment of the long-lived asset 's or disposal group 's carrying amount to fair value less cost to sell in the period the “ held for sale ” criteria are met . we periodically evaluate the carrying value of assets held for sale to determine if , based on market conditions , the values of these assets should be adjusted . any subsequent change in the fair value less cost to sell ( increase or decrease ) of each asset held for sale is reported as an adjustment to its carrying amount , except that the adjusted carrying amount can not exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale . such valuations include estimations of fair values and incremental direct costs to transact a sale . the fair value measurements for our long- 23 lived assets held for sale were based on level 3 inputs , which considered information obtained from third-party real estate valuation sources , or , in certain cases , pending agreements to sell the related assets . we had assets held for sale in continuing operations of $ 59.8 million at december 31 , 2013 , and $ 70.4 million at december 31 , 2012 . we recorded no impairment charges in 2013 or 2012 associated with assets held for sale in continuing operations . we had assets held for sale in discontinued operations of $ 34.5 million at december 31 , 2013 , and $ 43.2 million at december 31 , 2012 . we recorded no impairment charges during 2013 and a $ 0.1 million non-cash impairment charge in 2012 associated with assets held for sale in discontinued operations to reduce the carrying value of these assets to fair value less cost to sell . this charge is recorded as a component of loss from discontinued operations in the consolidated statements of income . our impairment loss calculations contain uncertainties because they require us to make assumptions and to apply judgment to estimate future undiscounted cash flows and asset fair values , including forecasting useful lives of the assets . story_separator_special_tag although we believe our property and equipment and assets held for sale are appropriately valued , the assumptions and estimates used may change and we may be required to record impairment charges to reduce the value of these assets . chargeback reserve revenue on finance and insurance products represents commissions earned by us for : ( i ) loans and leases placed with financial institutions in connection with customer vehicle purchases financed , ( ii ) vehicle service contracts sold , and ( iii ) other protection products sold . we primarily sell these products on a straight commission basis ; however we also participate in future underwriting profit on certain extended service contracts pursuant to retrospective commission arrangements , which are recognized as earned . we may be charged back for commissions related to financing , vehicle service contracts , or other protection products in the event of early termination , default , or prepayment of the contracts by customers ( “ chargebacks ” ) . however , our exposure to loss generally is limited to the commissions that we receive . these commissions are recorded at the time of the sale of the vehicles , net of an estimated liability for chargebacks . we estimate our liability for chargebacks on an individual product basis using our historical chargeback experience , based primarily on cancellation data we receive from third parties that sell and administer these products . our estimated liability for chargebacks totaled $ 67.6 million at december 31 , 2013 , and $ 56.0 million at december 31 , 2012 . chargebacks are influenced by the volume of vehicle sales in recent years and increases or decreases in early termination rates resulting from cancellation of vehicle service contracts and other protection products , defaults , refinancings , payoffs before maturity , and other factors . while we consider these factors in the estimation of our chargeback liability , actual events may differ from our estimates , which could result in a change in our estimated liability for chargebacks . the increase in our liability for chargebacks is largely attributable to higher volume of vehicle sales in recent years , as well as an increase in the cancellation rate of finance and insurance products . a 10 % change in our estimated cancellation rates would have changed our estimated liability for chargebacks at december 31 , 2013 , by approximately $ 6.8 million . see note 19 of the notes to consolidated financial statements for further information regarding chargeback liabilities . self insurance reserves under our self insurance programs , we retain various levels of aggregate loss limits , per claim deductibles , and claims-handling expenses as part of our various insurance programs , including property and casualty , employee medical benefits , automobile , and workers ' compensation . costs in excess of this retained risk per claim may be insured under various contracts with third-party insurance carriers . we review our claim and loss history on a periodic basis to assist in assessing our future liability . the ultimate costs of these retained insurance risks are estimated by management and by third-party actuarial evaluation of historical claims experience , adjusted for current trends and changes in claims-handling procedures . our results could be materially impacted by claims and other expenses related to our self insurance programs if future occurrences and claims differ from these assumptions and historical trends . self insurance reserves totaled $ 66.3 million at december 31 , 2013 , and $ 61.5 million at december 31 , 2012 . we believe our actual loss experience has not been materially different from our recorded estimates . 24 revenue recognition revenue consists of the sales of new and used vehicles , sales of parts and services , commissions from finance and insurance products , and sales of other products . we recognize revenue in the period in which products are sold or services are provided . we recognize vehicle and finance and insurance revenue when a sales contract has been executed , the vehicle has been delivered , and payment has been received or financing has been arranged . rebates , holdbacks , floorplan assistance , and certain other incentives received from manufacturers are recorded as a reduction of the cost of the vehicle and recognized into income upon the sale of the vehicle or when earned under a specific manufacturer program , whichever is later . see note 1 of the notes to consolidated financial statements for further information regarding revenue recognition . income taxes estimates and judgments are used in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets . in assessing the realizability of deferred tax assets , we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . we regularly evaluate the recoverability of our deferred tax assets and provide valuation allowances to offset portions of deferred tax assets due to uncertainty surrounding the future realization of such deferred tax assets . valuation allowances are based on historical taxable income , projected future taxable income , the expected timing of the reversals of existing temporary differences , and the implementation of tax-planning strategies . we adjust the valuation allowance in the period we determine it is more likely than not that deferred tax assets will or will not be realized . if a change in circumstances results in a change in our ability to realize our deferred tax assets , our tax provision would be adjusted in the period when the change in circumstances occurs . accounting for our income taxes also requires significant judgment in the evaluation of our uncertain tax positions and in the calculation of our provision for income taxes . accounting standards prescribe a two-step approach to recognizing and measuring uncertain tax positions .
| we currently anticipate full-year u.s. industry new vehicle unit sales will increase to above 16 million units in 2014 driven by replacement need , attractive products , and continued access to affordable credit . we also believe that improved conditions in the housing market may be supportive of sales . however , actual sales may materially differ . while we expect that the annual rate of u.s. new vehicle unit sales will improve in 2014 as compared to 2013 , we expect that the rate of growth for the industry selling rate will be lower as compared to recent years . if new vehicle production exceeds the new vehicle industry selling rate , our new vehicle margins could be adversely impacted by excess supply and any resulting changes in consumer incentive , marketing , and other programs of vehicle manufacturers . after several years of decline , the number of recent-model-year vehicles in operation has begun to grow due to increases in the annual rate of new vehicle sales in the united states since 2009. the growth in that portion of our service base , together with our customer retention efforts , has benefited the customer-pay service and warranty components of our parts and service business , and we believe that it will continue to benefit those components for the next several years . while the number of older vehicles in operation is expected to decline over the next few years , we believe that overall our parts and service business will benefit from the mix shift in our service base toward newer vehicles . inventory management our new and used vehicle inventories are stated at the lower of cost or market in our consolidated balance sheets . we monitor our vehicle inventory levels closely based on current economic conditions and seasonal sales trends . we have generally not experienced losses on the sale of new vehicle inventory , in part due to incentives provided by manufacturers to promote sales of new vehicles and our
| 14,589 |
we will also incur increased costs to provide free services to consumers including increased customer support costs . insurance coverage . we maintain $ 125 million of cybersecurity insurance coverage , above a $ 7.5 million deductible , to limit our exposure to losses such as those related to the cybersecurity incident . as of december 31 , 2017 , the company has recorded a receivable of $ 35.0 million and received payments of $ 15 million for costs incurred to date that are reimbursable and probable of recovery under our insurance coverage . segment and geographic information segments . the usis segment , the largest of our four segments , consists of three service lines : online information solutions ; mortgage solutions ; and financial marketing services . online information solutions and mortgage solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring , identity management , fraud detection and modeling services . usis also markets certain decisioning software services , which facilitate and automate a variety of consumer and commercial credit-oriented decisions . financial marketing services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers , cross selling to existing customers and managing portfolio risk . the international segment consists of asia pacific , europe , latin america and canada . canada 's services are similar to our usis offerings . asia pacific , europe and latin america are made up of varying mixes of service lines that are generally in our usis reportable segment . we also provide information and technology services to support lenders and other creditors in the collections and recovery management process . the workforce solutions segment consists of the verification services and employer services business lines . verification services revenue is transaction-based and is derived primarily from employment and income verification . employer services revenues are derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings . these services include unemployment claims management , employment-based tax credit services and other complementary employment-based transaction services . global consumer solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products , which we deliver electronically to consumers primarily via the internet in the u.s. , canada , and the u.k. we reach consumers directly and indirectly through partners . we also sell consumer and credit information to resellers who combine our information with other information to provide direct to consumer monitoring , reports and scores . due to the cybersecurity incident we ceased advertising our consumer business in the u.s. in september 2017. as part of our response to the cybersecurity incident announced in september 2017 , we began offering in the u.s. our trustedid premier service , an identity theft protection and credit file monitoring product , for free to all consumers who signed up through january 31 , 2018. additionally , in january 2018 , the company introduced in the u.s. , lock & alert tm , a new service that allows customers to quickly lock and unlock their equifax credit report for free , for life . equifax also will provide the ability for u.s. consumers to freeze and unfreeze their equifax credit file for free through june 30 , 2018. we provide u.s. consumers with a free annual credit report in accordance with the fact act . for consumers impacted by the cybersecurity incident in canada and the u.k. , we are providing free credit reports and scores , credit monitoring and identity theft protection for 12 months for those consumers who signed up by january 31 , 2018 . 35 geographic information . we currently have significant operations in the following countries : argentina , australia , canada , chile , costa rica , ecuador , el salvador , honduras , india , mexico , new zealand , paraguay , peru , portugal , the republic of ireland , spain , the u.k. , uruguay and the u.s. we also offer equifax branded credit services in india and russia through joint ventures , we have investments in consumer and or commercial credit information companies through joint ventures in cambodia , malaysia , singapore and dubai , and have an investment in a consumer and commercial credit information company in brazil . approximately 71 % of our revenue was generated in the u.s. during the twelve months ended december 31 , 2017 . key performance indicators . management focuses on a variety of key indicators to monitor operating and financial performance . these performance indicators include measurements of operating revenue , change in operating revenue , operating income , operating margin , net income , diluted earnings per share , cash provided by operating activities and capital expenditures . key performance indicators for the twelve months ended december 31 , 2017 , 2016 and 2015 , include the following : replace_table_token_5_th * amounts above exclude changes in accruals for capital expenditures . business environment and company outlook demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity , small commercial credit and marketing activity . demand is also enhanced by our initiatives to expand our products , capabilities , and markets served . story_separator_special_tag in the united states we expect 2018 economic activity , as measured by gdp , to be about flat with levels seen in the second half of 2017. we expect modest growth in consumer credit , excluding mortgage , over the course of 2018. u.s. mortgage market originations are expected to be down for the full year of 2018 versus 2017. we anticipate 2018 economic activity , as measured by gdp , in canada and australia to be at or slightly below the levels seen in the second half of 2017. in the european markets we serve , the u.k. and spain , we are expecting 2018 economic activity , as measured by gdp , to be at or slightly below the levels in calendar year 2017. in argentina and chile , our two largest markets in our latin american region , we are expecting 2018 economic activity , again as measured by gdp , to increase from the levels in calendar year 2017. the cybersecurity incident announced in the third quarter of 2017 is expected to negatively impact revenue , principally in our u.s. businesses , and to a lesser extent in canada and the u.k. , in 2018. we will also incur , in 2018 , legal , consulting and other costs related to the analysis and response to the cybersecurity incident . in 2018 , we will incur costs and capital expenditures for providing the free trustedid credit file monitoring and identity theft protection , and free lock & alert tm , to u.s. consumers , as well as services to u.k. and canadian consumers . additionally , in 2018 and beyond , we will incur increased information technology and security costs and capital expenditures related to actions to improve information technology security and network resilience globally . in 2018 and beyond , we will have increases in the ongoing run-rate of it and security spending . we also expect to incur increased expenses for insurance , finance , compliance activities , and to meet increased legal and regulatory requirements . we also expect to incur increased costs to provide free services to consumers , including increased customer support costs . the ultimate amount of these increases is yet to be determined but we expect them to be significant . as a result of the cybersecurity incident , we are subject to a significant number of proceedings and investigations as described in part i , `` item 3. legal proceedings . '' while we believe it is reasonably possible that we will incur losses associated 36 with these proceedings and investigations , it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments , settlements , penalties or other resolution of such proceedings and investigations based on the early stage of these proceedings and investigations , that alleged damages have not been specified , the uncertainty as to the certification of a class or classes and the size of any certified class , as applicable , and the lack of resolution on significant factual and legal issues . the tax cuts and jobs act of 2017 ( “ tax act ” ) , as signed by the president of the united states on december 22 , 2017 , significantly revises u.s. tax law . the legislation will positively impact the company 's ongoing effective tax rate due to the reduction of the u.s. federal corporate tax rate from 35 % to 21 % . the tax act makes major changes to the u.s. international tax system . under previous law , foreign earnings were subject to u.s. tax when repatriated to the u.s. under the tax act , foreign earnings are generally exempt from u.s. tax . additionally , there is a one-time deemed repatriation tax on undistributed foreign earnings and profits ( the “ transition tax ” ) . the tax act imposes other u.s. taxes on “ global intangible low taxed income ” and “ base erosion anti-abuse transactions. ” other significant changes include limitations on the deductibility of interest expense and executive compensation , and repeal of the deduction for domestic production activities . as a result of the current interpretation and estimated impact of the tax act , the company recorded adjustments totaling a net tax benefit of $ 48.3 million in the fourth quarter of 2017 to provisionally account or the estimated impact . refer to note 7 of the notes to the consolidated financial statements in this form 10-k for additional information . results of operations — twelve months ended december 31 , 2017 , 2016 and 2015 consolidated financial results operating revenue replace_table_token_6_th revenue for 2017 increased by 7 % compared to 2016. the growth was driven by our international and workforce solutions segments . international had strong growth across all regions , which reflects broad based organic growth and the veda acquisition . workforce solutions saw strong growth driven by verification services . usis had an increase in revenue compared to 2016 , reflecting growth in core credit decisioning , financial marketing services , mortgage and identity and fraud solutions . revenue in our usis , global consumer solutions and workforce solutions segments were negatively impacted by the cybersecurity incident . the effect of foreign exchange rates reduced revenue by $ 6.0 million in 2017 compared to 2016. revenue for 2016 increased by 18 % compared to 2015. the growth was driven by broad-based organic growth due to revenue increases in mortgage , government , healthcare , and direct to consumer reseller verticals as well as the veda acquisition . the effect of foreign exchange rates reduced revenue by $ 75.2 million or 3 % in 2016 compared to 2015 . 37 operating expenses replace_table_token_7_th cost of services .
| international replace_table_token_13_th international revenue increased by 16 % in 2017 as compared to 2016. local currency organic revenue growth for 2017 , excluding veda , was 11 % , driven by growth across all regions . local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 4.3 million , or 1 % . international revenue increased by 41 % in 2016 as compared to 2015. local currency organic revenue growth for 2016 , which excludes veda , was 12 % , primarily driven by strong growth in europe and latin america . local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 69.8 million , or 12 % . asia pacific . local currency growth was 24 % in 2017 primarily due to the veda acquisition . local currency fluctuations against the u.s. dollar positively impacted revenue by $ 6.1 million , or 3 % , in 2017. reported revenue increased 26 % in 2017 . 41 revenue growth of $ 235.2 million in 2016 was due to the veda acquisition . europe . local currency revenue growth was 12 % in 2017 primarily due to growth in u.k. debt management services and other growth in the u.k. and spain . local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 9.1 million , or 4 % , for 2017. reported revenue increased 8 % in 2017. local currency revenue growth was 18 % in 2016 primarily due to growth in u.k. debt management services and analytical services in both the u.k. and spain . local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 25.9 million , or 11 % , for 2016. reported revenue increased 7 % in 2016. latin america . local currency revenue increased 18 % in 2017 driven by growth primarily in argentina and chile . local currency fluctuations against the u.s. dollar negatively impacted revenue by $ 3.9 million , or 2 % , in 2017 , most notably due to depreciation in the foreign exchange rate of the argentine peso , partially offset by appreciation of the chilean peso . reported revenue increased 16 %
| 14,590 |
for all of these policies , we caution that future events rarely develop exactly as forecast , and even the best estimates routinely require adjustment . revenue recognition a substantial portion of our revenues is derived from long-term contracts requiring development and delivery of complex equipment built to customer specifications . sales related to these contracts are accounted for under the authoritative guidance for the percentage-of-completion method of accounting ( accounting standards codification ( asc ) 605-35 ) . sales and earnings under these contracts are recorded either based on the ratio of actual costs incurred to date to total estimated costs expected to be incurred related to the contract , or as products are shipped under the units-of-delivery method . the percentage-of-completion method of accounting requires management to estimate the profit margin for each individual contract and to apply that profit margin on a uniform basis as sales are recorded under the contract . the estimation of profit margins requires management to make projections of the total sales to be generated and the total costs that will be incurred under a contract . these projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs , performance of subcontractors , availability and cost of materials , labor productivity and cost , overhead and capital costs , and manufacturing efficiency . these contracts often include purchase options for additional quantities and customer change orders for additional or revised product functionality . purchase options and change orders are accounted for either as an integral part of the original contract or separately depending upon the nature and value of the item . for contract claims or similar items , we apply judgment in estimating the amounts and assessing the potential for realization . these amounts are only included in contract value when they can be reliably estimated and realization is considered probable . anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable . during fiscal years 2013 , 2012 and 2011 , we recorded losses of approximately $ 3.1 million , $ 1.4 million and $ 12.1 million , respectively , related to loss contracts . 41 assuming the initial estimates of sales and costs under a contract are accurate , the percentage-of-completion method results in the profit margin being recorded evenly as revenue is recognized under the contract . changes in these underlying estimates due to revisions in sales and future cost estimates or the exercise of contract options may result in profit margins being recognized unevenly over a contract as such changes are accounted for on a cumulative basis in the period estimates are revised . we believe we have established appropriate systems and processes to enable us to reasonably estimate future costs on our programs through regular evaluations of contract costs , scheduling and technical matters by business unit personnel and management . historically , in the aggregate , we have not experienced significant deviations in actual costs from estimated program costs , and when deviations that result in significant adjustments arise , we disclose the related impact in management 's discussion and analysis of financial condition and results of operations . however , these estimates require significant management judgment and a significant change in future cost estimates on one or more programs could have a material effect on our results of operations . a one percent variance in our future cost estimates on open fixed-price contracts as of march 29 , 2013 would change our loss before income taxes by approximately $ 0.6 million . we also derive a substantial portion of our revenues from contracts and purchase orders where revenue is recorded on delivery of products or performance of services in accordance with the authoritative guidance for revenue recognition ( asc 605 ) . under this standard , we recognize revenue when an arrangement exists , prices are determinable , collectability is reasonably assured and the goods or services have been delivered . we also enter into certain leasing arrangements with customers and evaluate the contracts in accordance with the authoritative guidance for leases ( asc 840 ) . our accounting for equipment leases involves specific determinations under the authoritative guidance for leases , which often involve complex provisions and significant judgments . in accordance with the authoritative guidance for leases , we classify the transactions as sales type or operating leases based on : ( 1 ) review for transfers of ownership of the equipment to the lessee by the end of the lease term , ( 2 ) review of the lease terms to determine if it contains an option to purchase the leased equipment for a price which is sufficiently lower than the expected fair value of the equipment at the date of the option , ( 3 ) review of the lease term to determine if it is equal to or greater than 75 % of the economic life of the equipment , and ( 4 ) review of the present value of the minimum lease payments to determine if they are equal to or greater than 90 % of the fair market value of the equipment at the inception of the lease . additionally , we consider the cancelability of the contract and any related uncertainty of collections or risk in recoverability of the lease investment at lease inception . revenue from sales type leases is recognized at the inception of the lease or when the equipment has been delivered and installed at the customer site , if installation is required . revenues from equipment rentals under operating leases are recognized as earned over the lease term , which is generally on a straight-line basis . story_separator_special_tag in accordance with the authoritative guidance for revenue recognition for multiple element arrangements , the accounting standards update ( asu ) 2009-13 ( asu 2009-13 ) , revenue recognition ( asc 605 ) multiple-deliverable revenue arrangements , which updates asc 605-25 , revenue recognition-multiple element arrangements , of the financial accounting standards board ( fasb ) codification , for substantially all of the arrangements with multiple deliverables , we allocate revenue to each element based on a selling price hierarchy at the arrangement inception . the selling price for each element is based upon the following selling price hierarchy : vendor specific objective evidence ( vsoe ) if available , third party evidence ( tpe ) if vsoe is not available , or estimated selling price ( esp ) if neither vsoe nor tpe are available ( a description as to how we determine vsoe , tpe and esp is provided below ) . if a tangible hardware systems product includes software , we determine whether the tangible hardware systems product and the software work together to deliver the product 's essential functionality and , if so , the entire product is treated as a nonsoftware deliverable . the total arrangement consideration is allocated to each separate unit of accounting for each of the nonsoftware deliverables using the relative selling prices of each unit based on the aforementioned selling price hierarchy . revenue for each separate unit of accounting is recognized when the applicable revenue recognition criteria for each element have been met . to determine the selling price in multiple-element arrangements , we establish vsoe of the selling price using the price charged for a deliverable when sold separately and for software license updates , product support 42 and hardware systems support , based on the renewal rates offered to customers . for nonsoftware multiple-element arrangements , tpe is established by evaluating similar and or interchangeable competitor products or services in standalone arrangements with similarly situated customers and or agreements . if we are unable to determine the selling price because vsoe or tpe does n't exist , we determine esp for the purposes of allocating the arrangement by reviewing historical transactions , including transactions whereby the deliverable was sold on a standalone basis and considering several other external and internal factors including , but not limited to , pricing practices including discounting , margin objectives , competition , the geographies in which we offer our products and services , the type of customer ( i.e . distributor , value added reseller , government agency or direct end user , among others ) and the stage of the product lifecycle . the determination of esp considers our pricing model and go-to-market strategy . as our or our competitors ' pricing and go-to-market strategies evolve , we may modify our pricing practices in the future , which could result in changes to our determination of vsoe , tpe and esp . as a result , our future revenue recognition for multiple-element arrangements could differ materially from those in the current period . collections in excess of revenues and deferred revenues represent cash collected from customers in advance of revenue recognition and are recorded in accrued liabilities for obligations within the next twelve months . amounts for obligations extending beyond the twelve months are recorded within other liabilities in the consolidated financial statements . warranty reserves we provide limited warranties on our products for periods of up to five years . we record a liability for our warranty obligations when we ship the products or they are included in long-term construction contracts based upon an estimate of expected warranty costs . amounts expected to be incurred within twelve months are classified as a current liability . for mature products , we estimate the warranty costs based on historical experience with the particular product . for newer products that do not have a history of warranty costs , we base our estimates on our experience with the technology involved and the types of failures that may occur . it is possible that our underlying assumptions will not reflect the actual experience , and in that case , we will make future adjustments to the recorded warranty obligation . property , equipment and satellites satellites and other property and equipment are recorded at cost or in the case of certain satellites and other property acquired , the fair value at the date of acquisition , net of accumulated depreciation . capitalized satellite costs consist primarily of the costs of satellite construction and launch , including launch insurance and insurance during the period of in-orbit testing , the net present value of performance incentives expected to be payable to the satellite manufacturers ( dependent on the continued satisfactory performance of the satellites ) , costs directly associated with the monitoring and support of satellite construction , and interest costs incurred during the period of satellite construction . we also construct gateway facilities , network operations systems and other assets to support our satellites , and those construction costs , including interest , are capitalized as incurred . at the time satellites are placed in service , we estimate the useful life of our satellites for depreciation purposes based upon an analysis of each satellite 's performance against the original manufacturer 's orbital design life , estimated fuel levels and related consumption rates , as well as historical satellite operating trends . we own two satellites : viasat-1 ( our high-capacity ka-band spot-beam satellite , which was successfully launched into orbit in october 2011 and commenced commercial operation in january 2012 ) and wildblue-1 ( which was placed into service in march 2007 ) , and we recently announced the entry into a satellite construction contract for viasat-2 , a second high-capacity ka-band satellite . in addition , we have an exclusive prepaid lifetime capital lease of ka-band capacity over the continental united states on telesat canada 's anik f2 satellite ( which was placed into service in april 2005 ) and own related gateway and networking equipment on all of our satellites .
| additionally , in fiscal year 2013 we experienced an increase of cost of service revenues associated with our viasat-1 satellite , data center , billing system and costs in connection with our exede broadband services , which commenced commercial operation in january 2012. cost of product revenues increased from $ 402.8 million to $ 485.0 million during fiscal year 2013 when compared to fiscal year 2012 primarily due to increased product revenues , which caused an increase of approximately $ 90.9 million in cost of product revenues on a constant margin basis , mainly related to consumer broadband products in our commercial networks segment and government satellite communications systems in our government systems segment . this increase in cost of product revenues was partially offset by improved margins in our commercial networks segment mainly related to consumer broadband products . selling , general and administrative expenses fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) march 29 , 2013 march 30 , 2012 ( in millions , except percentages ) selling , general and administrative $ 240.9 $ 181.7 $ 59.1 32.5 % the increase in selling , general and administrative ( sg & a ) expenses of $ 59.1 million during fiscal year 2013 compared to fiscal year 2012 was primarily attributable to higher selling costs of $ 44.7 million , as well as 46 higher support costs of $ 14.0 million . of the higher selling costs , $ 40.9 million related to our satellite services segment as we continue to grow our consumer broadband subscriber base . these higher support costs consisted of $ 7.7 million related to our satellite services segment , $ 4.4 million related to our commercial networks segment , and $ 1.9 million related to our government systems segment . sg & a expenses consisted primarily of personnel costs and expenses for business development , marketing and sales , bid and proposal , facilities , finance , contract administration and general management . independent research and development fiscal years ended dollar increase ( decrease ) percentage increase ( decrease ) march 29 , 2013 march 30 , 2012 ( in millions , except percentages ) independent research and development $ 35.4 $ 25.0 $ 10.5 41.8 % the increase in ir & d expenses of approximately $ 10.5 million represents a year-over-year increase in our commercial networks segment of approximately $ 5.9 million ( primarily
| 14,591 |
rental income includes contractual lease payments that generally include the following : fixed lease payments , which include fixed payments associated with expense reimbursements from tenants for common area maintenance , taxes and insurance from tenants in shopping centers , are recognized on a straight-line basis over the non-cancelable term of the lease , which generally ranges from one month to 30 years , and include the effects of applicable rent steps and abatements . variable lease payments , which include percentage and overage income , which are recognized after a tenant 's reported sales have exceeded the applicable sales breakpoint set forth in the applicable lease . variable lease payments associated with expense reimbursements from tenants for common area maintenance , taxes , insurance and other property operating expenses , based upon the tenant 's lease provisions , which are recognized in the period the related expenses are incurred . lease termination payments , which are recognized upon the effective termination of a tenant 's lease when the company has no further obligations under the lease . ancillary and other property-related rental payments , primarily composed of leasing vacant space to temporary tenants , kiosk income and parking income , which are recognized in the period earned . management fees are recorded in the period earned . fee income derived from the company 's unconsolidated joint venture investments is recognized to the extent attributable to the unaffiliated ownership interest . historically , the majority of the company 's lease commission revenue was recognized 50 % upon lease execution and 50 % upon tenant rent commencement . beginning january 1 , 2018 , lease commission revenue is generally recognized in its entirety upon lease execution . payments received from the company 's 34 insurance company related to its claims for business interruption losses incurred as a result of hurricane losses are recorded as business interruption income . the company makes estimates of the collectability of its accounts receivable related to base rents , including straight-line rentals , expense reimbursements and other revenue or income . upon adoption of topic 842 , rental income for the periods beginning on or after january 1 , 2019 , has been reduced for amounts the company believes are not probable of being collected . the company analyzes accounts receivable , tenant credit worthiness and current economic trends when evaluating the probability of collection . in addition , with respect to tenants in bankruptcy , the company makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the probability of collection of the related receivable . the time to resolve these claims may exceed one year . these estimates have a direct impact on the company 's earnings because once the amount is considered not probable of being collected , earnings are reduced by a corresponding amount until the receivable is collected . consolidation all significant inter-company balances and transactions have been eliminated in consolidation . investments in real estate joint ventures in which the company has the ability to exercise significant influence , but does not have financial or operating control , are accounted for using the equity method of accounting . accordingly , the company 's pro rata share of the earnings ( or loss ) of these joint ventures is included in consolidated net income . the company has a number of joint venture arrangements with varying structures . the company consolidates entities in which it owns less than a 100 % equity interest if it is determined that it is a variable interest entity ( “ vie ” ) , and the company has a controlling interest in that vie or is the controlling general partner . the analysis to identify whether the company is the primary beneficiary of a vie is based upon which party has ( a ) the power to direct activities of the vie that most significantly affect the vie 's economic performance and ( b ) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the vie . in determining whether it has the power to direct the activities of the vie that most significantly affect the vie 's performance , the company is required to assess whether it has an implicit financial responsibility to ensure that a vie operates as designed . this qualitative assessment has a direct impact on the company 's financial statements , as the detailed activity of off-balance sheet joint ventures is not presented within the company 's consolidated financial statements . real estate and long-lived assets properties are depreciated using the straight-line method over the estimated useful lives of the assets . the company is required to make subjective assessments as to the useful lives of its properties to determine the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on the company 's net income . if the company were to extend the expected useful life of a particular asset , it would be depreciated over more years and result in less depreciation expense and higher annual net income . on a periodic basis , management assesses whether there are any indicators that the value of real estate assets , including undeveloped land and construction in progress , and intangibles may be impaired . a property 's value is impaired only if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges ) to be generated by the property are less than the carrying value of the property . the determination of undiscounted cash flows requires significant estimates by management . in management 's estimate of cash flows , it considers factors such as expected future operating income ( loss ) , trends and prospects , the effects of demand , competition and other factors . story_separator_special_tag if the company is evaluating the potential sale of an asset or development alternatives , the undiscounted future cash flows analysis is probability-weighted based upon management 's best estimate of the likelihood of the alternative courses of action . subsequent changes in estimated undiscounted cash flows arising from changes in anticipated actions could affect the determination of whether an impairment exists and whether the effects could have a material impact on the company 's net income . to the extent an impairment has occurred , the loss will be measured as the excess of the carrying amount of the property over the fair value of the property . the company is required to make subjective assessments as to whether there are impairments in the value of its real estate properties and other investments . these assessments have a direct impact on the company 's net income because recording an impairment charge results in an immediate negative adjustment to net income . if the company 's estimates of the projected future cash flows , anticipated holding periods or market conditions change , its evaluation of the impairment charges may be different , and such differences could be material to the company 's consolidated financial statements . plans to hold properties over longer periods decrease the likelihood of recording impairment losses . the company allocates the purchase price to assets acquired and liabilities assumed at the date of acquisition . in estimating the fair value of the tangible and intangible assets and liabilities acquired , the company considers information obtained about each property as a result of its due diligence , marketing and leasing activities . it applies various valuation methods , such as estimated cash flow projections using appropriate discount and capitalization rates , estimates of replacement costs net of depreciation and available market information . if the company determines that an event has occurred after the initial allocation of the asset or liability that 35 would change the estimated useful life of the asset , the company will reassess the depreciation and amortization of the asset . the company is required to make subjective estimates in connection with these valuations and allocations . the company generally considers assets to be held for sale when the transaction has been approved by the appropriate level of management and there are no known significant contingencies relating to the sale such that the sale of the property within one year is considered probable . this generally occurs when a sales contract is executed with no contingencies and the prospective buyer has significant funds at risk to ensure performance . measurement of fair value—real estate and unconsolidated joint venture investments the company is required to assess for impairment the value of certain consolidated and unconsolidated joint venture investments as well as the underlying collateral for its preferred equity interests and certain financing notes receivable . the fair value of real estate investments used in the company 's impairment calculations is estimated based on the price that would be received for the sale of an asset in an orderly transaction between marketplace participants at the measurement date . investments without a public market are valued based on assumptions made and valuation techniques used by the company . the availability of observable transaction data and inputs can make it more difficult and or subjective to determine the fair value of such investments . as a result , amounts ultimately realized by the company from investments sold may differ from the fair values presented , and the differences could be material . the valuation of real estate assets , investments and real estate collateral for impairment is determined using widely accepted valuation techniques including the income capitalization approach or discounted cash flow analysis on the expected cash flows of each asset considering prevailing market capitalization rates , analysis of recent comparable sales transactions , actual sales negotiations , bona fide purchase offers received from third parties and or consideration of the amount that currently would be required to replace the asset , as adjusted for obsolescence . in general , the company considers multiple valuation techniques when measuring fair value of an investment . however , in certain circumstances , a single valuation technique may be appropriate . for operational real estate assets , the significant assumptions include the capitalization rate used in the income capitalization valuation as well as the projected property net operating income and expected hold period . for investments in unconsolidated joint ventures , the company also considers the valuation of any underlying joint venture debt . valuation of real estate assets is calculated based on market conditions and assumptions made by management at the measurement date , which may differ materially from actual results if market conditions or the underlying assumptions change . preferred equity interests—impairment assessment the company evaluates the collectability of both the principal and interest on these investments based upon an assessment of the underlying collateral value to determine whether the investment is impaired . as the underlying collateral for the investments is real estate investments , the same valuation techniques are used to value the collateral as those used to determine the fair value of real estate investments for impairment purposes . in addition , the company performs an additional present value of cash flows for the underlying collateral value that is probability-weighted based upon management 's estimate of the repayment timing . the preferred equity interests are considered impaired if the company 's estimate of the fair value of the underlying collateral is less than the carrying value of the preferred equity interests . interest income on impaired investments is recognized on a cash basis . the company monitors the investments and related valuation allowance , which could be increased or decreased in future periods , as appropriate . investments in joint ventures and affiliates—impairment assessment the company has a number of off-balance sheet joint ventures with varying structures . on a periodic basis , management assesses whether there are any indicators that the value of the company 's investments in unconsolidated joint ventures or affiliates may be impaired .
| 31 operational accomplishments the company continued to improve cash flow and the quality of its portfolio in 2019 , as evidenced by the achievement of the following : signed leases and renewals for approximately 3.0 million square feet of gla , which included 0.9 million square feet of new leasing volume , both on a pro rata share ; achieved a blended leasing spread of 6.3 % for new leases and renewals at the company 's pro rata share ; increased the annualized base rent per occupied square foot on a pro rata basis to $ 18.25 at december 31 , 2019 , as compared to $ 17.86 at december 31 , 2018 , an increase of 2.2 % and continued to maintain strong aggregate occupancy on a pro rata basis of 90.8 % at december 31 , 2019 , as compared to 89.9 % at december 31 , 2018. retail environment the company continues to see demand from a broad range of tenants for its space , particularly as retailers incorporate omni-channel strategies that leverage brick and mortar infrastructure to drive incremental business . value-oriented retailers continue to take market share from conventional and national chain department stores . as a result , while certain of those conventional and national department stores have announced bankruptcies , store closures and or reduced expansion plans , other retailers , specifically those in the value and convenience category , continue to have store opening plans for 2020. many of the company 's largest tenants , including tjx companies , ross , burlington , five below and ulta , have reported increased same-store sales on an annual basis and remained well capitalized while outperforming other retail categories on a relative basis . the company has also been increasing its leasing to specialty grocers and service tenants , such as fitness , restaurant and medical users , which are expanding categories with strong traffic generation . company fundamentals the following table lists the company 's 10 largest tenants based on total annualized rental revenues of the wholly-owned properties and the company 's proportionate share of unconsolidated joint venture properties combined as of december 31 , 2019 : replace_table_token_18_th ( a ) includes t.j. maxx , marshalls , homegoods , sierra trading post , homesense and combo store ( b ) includes bed bath & beyond , cost plus world market , buybuy baby and christmas tree shops ( c ) includes dick 's sporting goods and golf galaxy ( d ) includes gap , old navy , banana republic and janie & jack ( e ) includes ross dress for less and dd 's discounts 32 the following table lists the company 's 10 largest tenants based on total annualized
| 14,592 |
the following table sets forth our gross placements and disconnects for the periods stated : replace_table_token_10_th 25 the following table sets forth information on our direct units in service by account size for the periods stated : replace_table_token_11_th the following table sets forth information on the direct net disconnect rate by account size for our direct customers for the periods stated : replace_table_token_12_th the other factor that contributes to revenue , in addition to the number of units in service , is the monthly charge per unit . as previously discussed , the monthly charge per unit is dependent on the subscriber 's service , extent of geographic coverage , whether the subscriber leases or owns the messaging device , and the number of units the customer has in the account . the ratio of revenue for a period to the average units in service , for the same period , commonly referred to as average revenue per unit ( `` arpu '' ) , is a key revenue measurement as it indicates whether charges for similar services and distribution channels are increasing or decreasing . arpu by distribution channel and messaging service are monitored regularly . the following table sets forth arpu by distribution channel for the periods stated : replace_table_token_13_th while arpu for similar services and distribution channels is indicative of changes in monthly charges and the revenue rate applicable to new subscribers , this measurement on a consolidated basis is affected by several factors , including the mix of units in service and the pricing of the various components of our services . we expect future sequential annual revenues to decline in line with recent trends . the change in arpu in the direct distribution channel is the most significant indicator of rate-related changes in our revenue . the decrease in consolidated arpu during the years 2013 through 2015 was due to the change in composition of our customer base as the percentage of units in service attributable to larger customers continues to increase . these larger customers benefit from lower pricing associated with their larger number of units-in-service . we believe that without further price adjustments , arpu would trend lower for both the direct and indirect distribution channels in 2016. price increases could mitigate , but not completely offset , the expected declines in both arpu and revenue . 26 the following table sets forth information on direct arpu by account size for the periods stated : replace_table_token_14_th software revenue we enter into agreements whereby our customers purchase products and services including software , professional services ( primarily installation and training ) , equipment ( to be used in conjunction with the software ) , and maintenance support ( post-contract support ) . the software is licensed to end-users under an industry standard software license agreement . software revenue consists of two primary components : operations revenue and maintenance revenue . operations revenue consists of subscription services revenue , software license revenue , professional services revenue , and equipment sales . maintenance revenue is for ongoing support of a software application or equipment ( typically for one year ) . we recognize equipment revenue when it is shipped or delivered to the customer depending on delivery method of free on board ( `` fob '' ) shipping or fob destination , respectively . as of january 1 , 2014 , license , professional services and maintenance revenue is recognized ratably over the longer of the period of professional services delivery to the customer or the contractual term of the maintenance agreement . if the period of delivery to the customer is not known , license and professional services revenue will be recognized when software and professional services are fully delivered to the customer and maintenance revenue will be recognized ratably over the remaining contractual term of the maintenance agreement . prior to january 1 , 2014 , license and professional services revenue was recognized when the services were fully delivered to the customer and maintenance revenue was recognized ratably over the term of the maintenance agreement . after the initial maintenance term , customers typically renew their maintenance support . the maintenance renewal rates for the years ended december 31 , 2015 , 2014 and 2013 were 99.7 % , 99.5 % and 99.1 % , respectively . the breakout of revenue by component was as follows for the periods stated : replace_table_token_15_th on a regular basis , we enter into contractual arrangements with our customers to provide software licenses , professional services , and equipment . in addition , we enter into contractual arrangements for maintenance with our customers on new solutions or renewals on existing solutions . these contractual arrangements are reported as bookings and represent future revenue . bookings decreased by 5.7 % for the year ended december 31 , 2015 compared to the same period in 2014. the decrease primarily reflects slower growth than planned in our international sales . we currently plan to continue expansion in the european , middle eastern , australian and asia pacific markets in 2016 . 27 the following table summarizes total bookings for the periods stated : replace_table_token_16_th operations and new maintenance orders in 2014 reflect $ 6.7 million of one-time bookings related to a u.s. government entity . we reported a software backlog of $ 38.7 million for the year ended december 31 , 2015 , which represented all purchase orders received from customers not yet recognized as revenue . backlog december 31 , 2015 ( dollars in thousands ) beginning balance at january 1 , 2015 $ 42,391 operations bookings for the year 38,577 maintenance renewals for the year 35,446 available backlog $ 116,414 operations revenue for the year ( 36,187 ) maintenance revenue for the year ( 34,427 ) other ( 1 ) ( 7,150 ) total backlog at december 31 , 2015 $ 38,650 decrease in backlog from january 1 , 2015 ( 8.8 ) % ( 1 ) other reflects cancellations and adjustments to backlog . backlog is reviewed periodically during the year . story_separator_special_tag adjustments to backlog reflect customer cancellations , changes in customer requirements and company cancellations due to credit or other payment issues . the breakout of backlog by source was as follows at each quarter end in 2015 : replace_table_token_17_th operations - consolidated our operating expenses are presented in functional categories . certain of our functional categories are especially important to overall expense control and management . these operating expenses are categorized as follows : cost of revenue . these are expenses primarily for hardware , third-party software , outside service expenses and payroll and related expenses for our professional services , logistics , customer support and maintenance staff . service , rental and maintenance . these are expenses associated with the operation of our paging networks and development of our software . expenses consist largely of site rent expenses for transmitter locations , telecommunication expenses to deliver messages over our paging networks , and payroll and related expenses for our engineering , pager repair functions and development and maintenance of our software products . selling and marketing . these are expenses associated with our direct sales force and indirect sales channel and marketing expenses in support of those sales groups . this classification consists primarily of payroll and related expenses and commission expenses . 28 general and administrative . these are expenses associated with information technology and administrative functions . this classification consists primarily of payroll and related expenses , outside service expenses , taxes , licenses and permit expenses , and facility rent expenses . we review the percentages of these operating expenses to revenue on a regular basis . even though the operating expenses are classified as described above , expense control and management are also performed by expense category . approximately 75 % of the operating expenses referred to above were incurred in payroll and related expenses , cost of sales , site and facility rent expenses and telecommunication expenses for each of the years ended december 31 , 2015 , 2014 and 2013. payroll and related expenses for the year ended december 31 , 2015 included an expense of $ 0.3 million due to a change in the service period under the 2015 ltip associated with the departure of a former executive . our largest expense , payroll and related expenses , includes wages , commissions , incentives , employee benefits and related taxes . on a monthly basis , we review the number of employees in major functional categories and the design and physical locations of functional groups to continuously improve efficiency , to simplify organizational structures , and to minimize the number of physical locations for the company . we have 600 full-time equivalent employees ( “ ftes ” ) at december 31 , 2015 , an increase of 2.2 % from 587 ftes at december 31 , 2014. the increase in the number of ftes reflects the additional headcount associated with our software revenues . cost of sales includes distribution costs for equipment and products sold and or licensed , operating costs related to product implementation , training , and product support services , and costs associated with the delivery of third party implementation services and third party license , and or maintenance support . site rent expenses for transmitter locations are largely dependent on our paging networks . we operate local , regional , and nationwide one-way and two-way paging networks . these networks each require locations on which to place transmitters , receivers , and antennae . site rent expenses for transmitter locations are highly dependent on the number of transmitters , which in turn is dependent on the number of networks . in addition , these expenses generally do not vary directly with the number of subscribers or units in service , which is detrimental to our operating margins as revenue declines . in order to reduce these expenses , we have an active program to consolidate the number of paging networks , and thus transmitter locations , which we refer to as network rationalization . we have reduced the number of active transmitters by 2.2 % to 4,243 active transmitters at december 31 , 2015 from 4,339 active transmitters at december 31 , 2014. telecommunication expenses are incurred to interconnect our paging networks and to provide telephone numbers for customer use , points of contact for customer service , and connectivity among our offices . these expenses are dependent on the number of units in service , the number of customers we support and the number of office and network locations that we maintain . however , the number or duration of telephone calls to call centers may vary from period to period based on factors other than the number of units in service or customers , which could cause telecommunication expenses to vary . due to the integration of the management structure and consolidation of our organization effective january 1 , 2014 , certain prior years ' interim revenue and operating expenses were reclassified to conform to the current year 's presentation . in 2014 , we reported wireless and software revenue , and had reclassified the revenue previously reported in the annual report on form 10-k for 2013 ( the `` 2013 form 10-k '' ) to conform with the current year 's presentation . in 2013 , wireless revenue of $ 149.45 million was reported as $ 143.63 million in service , rental and maintenance , net of service credits , and $ 5.82 million in software revenue and other , net . also in 2013 , software revenue of $ 60.30 million was reported in software revenue and other , net . we reclassified payroll and related expenses among functional departments and eliminated general and administrative overhead expenses previously allocated to cost of revenue , service , rental and maintenance and selling and marketing .
| 33 other — the decrease of $ 1.4 million in other expenses was due primarily to a non-recurring charge of $ 0.8 million related to future billing credits , and higher relocation expenses and refunds of $ 0.5 million and net other changes of $ 0.1 million for the year ended december 31 , 2014 , which were not incurred during the current year . severance and restructuring . severance and restructuring expenses increased to $ 2.7 million for the year ended december 31 , 2015 compared to $ 1.5 million for the same period in 2014. approximately $ 1.8 million was due to charges related to the departure of two executives during the year ended december 31 , 2015. charges recorded for other planned staffing reductions remained flat for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014. we accrued post-employment benefits if certain specified criteria are met . post-employment benefits include salary continuation , severance benefits and continuation of health insurance benefits . ( see note 1 for further discussion on our severance and restructuring policies . ) depreciation , amortization and accretion . depreciation , amortization and accretion expenses were $ 14.0 million for the year ended december 31 , 2015 compared to $ 16.7 million for the same period in 2014. the decrease was primarily due to $ 1.6 million in lower depreciation expense for the period for non-paging device assets and $ 1.0 million in lower amortization expense for intangible assets associated with the change in the useful life of amcom related intangibles due to our rebranding in 2014 , net of $ 0.1 million in other changes . ( see note 1 for further discussion on our depreciation expense policies . ) interest expense , net , other income , net and income tax expense interest expense , net . there was no interest expense for the year ended december 31 , 2015 , which represents a decrease of
| 14,593 |
the increase in selling , general and administrative expenses was primarily due to increased personnel costs , including equity based compensation expense , marketing expenses , and to a lesser extent , increases in other selling , general and administrative costs . the increase in equity based compensation expense was largely driven by the increase in our share price . depreciation and amortization depreciation and amortization expense includes depreciation of fixed assets and amortization of finite-lived intangible assets . depreciation and amortization expense increased $ 159 million . the increase was due to the amortization of intangible assets related to business combinations during 2013 . ( see note 3 to the accompanying consolidated financial statements . ) restructuring charges restructuring charges increased $ 10 million in 2013 . the increase is mostly due to restructuring the company 's existing operations in the nordic region following the acquisition of sbs nordic . ( see note 16 to the accompanying consolidated financial statements . ) interest expense interest expense increased $ 58 million due to an increase in outstanding debt . losses from equity investees , net losses from our equity method investees decreased $ 104 million in 2013 , due primarily to improved operating results at own . additionally , own incurred significant content impairment and restructuring charges in 2012 for which no similar expense was incurred in 2013 . 32 other income ( expense ) , net other income ( expense ) , net , increased $ 29 million . during 2013 , we purchased an additional 30 % ownership interest in discovery japan , which was previously a 50 % owned equity method investee . we recognized a $ 92 million remeasurement gain upon consolidation to account for the difference between the carrying value and the fair value of the 50 % previously held equity interest . ( see note 3 to the accompanying financial statements . ) this increase was partially offset by losses on derivative instruments of $ 62 million in 2013 . the losses on derivative contracts resulted from foreign exchange strategies implemented to hedge the purchase of sbs nordic ( see note 3 to the accompanying consolidated financial statements ) , which was denominated in euro and closed on april 9 , 2013 . although effective from an economic perspective , this hedging strategy did not qualify for hedge accounting treatment because the forecasted transaction was a business combination . there was a $ 2 million loss on derivative instruments in 2012 . provision for income taxes our provisions for income taxes on income from continuing operations were $ 659 million and $ 562 million and the effective tax rates were 38 % and 37 % for 2013 and 2012 , respectively . the net 1 % increase in the effective tax rate was primarily due to the effect of foreign operations , which increased 3 % from 2012 due to the tax effect of inter-company transactions subject to foreign income tax rates that vary compared with u.s. rates . changes in the tax law regarding the domestic production activity deduction in 2013 and other tax differences resulted in an additional 2 % increase in the effective tax rate . these increases were partially offset by decreases in the tax rate due to changes in apportionment for state income taxes of 2 % and the $ 92 million remeasurement gain on previously held equity interest of 2 % which is not taxable in the current year because the company intends to defer indefinitely the realization of this gain for tax purposes . we also increased our unrecognized tax benefits reserve in 2013 due to uncertainties regarding the valuation of certain assets , and , to a lesser extent , in approximately equivalent amounts , the taxation of income among multiple jurisdictions and provisions related to uncertainties regarding tax incentives and credits . ( see note 17 to the accompanying consolidated financial statements . ) segment results of operations – 2013 vs. 2012 we evaluate the operating performance of our segments based on financial measures such as revenues and adjusted oibda . adjusted oibda is defined as revenues less costs of revenues and selling , general and administrative expenses excluding : ( i ) mark-to-market equity-based compensation , ( ii ) depreciation and amortization , ( iii ) amortization of deferred launch incentives , ( iv ) exit and restructuring charges , ( v ) certain impairment charges , and ( vi ) gains ( losses ) on business and asset dispositions . we use this measure to assess the operating results and performance of our segments , perform analytical comparisons , identify strategies to improve performance , and allocate resources to each segment . we believe adjusted oibda is relevant to investors because it allows them to analyze the operating performance of each segment using the same metric management uses . we exclude mark-to-market equity-based compensation , exit and restructuring charges , certain impairment charges , and gains and losses on business and asset dispositions from the calculation of adjusted oibda due to their volatility . we also exclude the depreciation of fixed assets and amortization of intangible assets and deferred launch incentives as these amounts do not represent cash payments in the current reporting period . adjusted oibda should be considered in addition to , but not a substitute for , operating income , net income and other measures of financial performance reported in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . additionally , certain corporate expenses are excluded from segment results to enable executive management to evaluate segment performance based upon the decisions of segment executives . additional financial information for our segments and geographical areas in which we do business is discussed in note 22 to the accompanying consolidated financial statements included in item 8 , “ financial statements and supplementary data ” in this annual report on form 10-k. 33 the table below presents the calculation of total adjusted oibda ( in millions ) . replace_table_token_8_th ( a ) selling , general and administrative expenses exclude mark-to-market equity-based compensation . story_separator_special_tag ( b ) amortization of deferred launch incentives are included as a reduction of distribution revenue for reporting in accordance with gaap but are excluded from adjusted oibda . the table below presents our adjusted oibda by segment , with a reconciliation of total adjusted oibda to consolidated operating income ( in millions ) . replace_table_token_9_th 34 u.s. networks the table below presents , for our u.s. networks segment , revenues by type , certain operating expenses , contra revenue amounts , adjusted oibda and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_10_th revenues distribution revenue increased $ 72 million . the increase in distribution revenue , excluding the impact of digital distribution revenue , was 5 % . the increase in distribution revenue , excluding digital distribution revenue , was primarily due to annual contractual rate increases on existing contracts . there was also a slight increase in the number of paying subscribers , principally for our networks carried on the digital tier . the subscriber base for the u.s. pay television distribution market has flattened over recent periods . digital distribution revenue , which is earned under agreements to license selected library titles , is recognized when the content has been delivered and is available for use by the customer . digital distribution revenue is therefore prone to quarterly fluctuations based on the timing and volume of content deliveries . digital distribution revenue contributed 1 % of the increase in total distribution revenue . advertising revenue increased $ 120 million . the increase was equally attributable to increases in advertiser demand and pricing . other revenue increased $ 12 million . the increase was mostly attributable to increases in sales of branded merchandise , and to a lesser extent , increases in content production contracts , content downloads , and digital advertising . costs of revenues costs of revenues increased $ 83 million . the increase was primarily attributable to an increase in content expense , which is consistent with our commitment to content development , and , to a lesser extent , sales commissions associated with increasing advertising revenues . selling , general and administrative selling , general and administrative expenses increased $ 33 million . the increase was mostly attributable to increased personnel expenses , and , to a lesser extent , increased marketing costs . adjusted oibda adjusted oibda increased $ 86 million . revenue for 2013 increased due to improved pricing and advertiser demand , and contractual rate increases with our distributors . these increases were partially offset by higher costs of revenues and selling , general and administrative expenses . 35 international networks the following table presents , for our international networks segment , revenues by type , certain operating expenses , contra revenue amounts , adjusted oibda , and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_11_th revenues excluding the impact of foreign currency fluctuations and newly acquired businesses , distribution revenue increased 15 % , or $ 148 million . the increase was attributable in equivalent amounts to revenue growth in latin america and the consolidation of discovery japan . the growth in latin america was due to increases in subscribers and affiliate rates , which is consistent with the continued development of the pay television market in that region . excluding the impact of foreign currency fluctuations and newly acquired businesses , advertising revenue increased 23 % , or $ 138 million . most of the increase was due to improved ratings and pricing on our free-to-air networks in western europe and , to a lesser extent , our pay television networks in latin america . excluding the impact of foreign currency fluctuations and newly acquired businesses , other revenue decreased 23 % , or $ 17 million . the decrease was attributable to the consolidation of discovery japan . service fee revenue from discovery japan was eliminated following the consolidation of discovery japan on january 10 , 2013 . ( see note 3 to the accompanying consolidated financial statements . ) costs of revenues excluding the impact of foreign currency fluctuations and newly acquired businesses , costs of revenues increased 14 % , or $ 73 million . the increase was mostly attributable to increased content expense and , to a lesser extent , increases in sales commissions and various other costs . the increase in costs of revenues supports the growth in distribution and advertising revenues . selling , general and administrative excluding the impact of foreign currency fluctuations and newly acquired businesses , selling , general and administrative expenses increased 18 % , or $ 79 million . the increase was mostly attributable to increased personnel costs due to a transition of certain activities from regional hubs to various international locations , and to a lesser extent , increased marketing expenses and the consolidation of discovery japan . 36 adjusted oibda excluding the impact of foreign currency fluctuations and newly acquired businesses , adjusted oibda increased 16 % , or $ 117 million . the increase was due to increases in advertising revenue on our free-to-air networks in western europe , distribution revenue growth in latin america , and the consolidation of discovery japan , in equivalent amounts , partially offset by higher costs of revenues and selling , general and administrative expenses . education the following table presents , for our education segment revenues , certain operating expenses , adjusted oibda , and a reconciliation of adjusted oibda to operating income ( in millions ) . replace_table_token_12_th adjusted oibda was consistent with the prior year due to increases in revenues and the effect of the operating results of a business combination , offset by increased personnel costs incurred to develop new products . corporate and inter-segment eliminations the following table presents , for our unallocated corporate amounts , revenues , certain operating expenses , adjusted oibda , and a reconciliation of adjusted oibda to operating loss ( in millions ) .
| as a result , newly acquired businesses have impacted the comparability of our results of operations between 2013 and 2012 . accordingly , to assist the reader in understanding the changes in our results of operations , the following tables present the calculation of comparative adjusted operating income before depreciation and amortization ( `` adjusted oibda '' ) excluding the newly acquired businesses , as reported within our consolidated financial statements and international networks segment for the year ended december 31 , 2013 ( in millions ) . the comparability of the results of the u.s. networks segment was not impacted by these acquisitions . discovery japan was not included in the definition of newly acquired businesses , because we previously owned a 50 % equity interest and its consolidation on january 10 , 2013 , did not materially impact the comparability of operations , except as otherwise noted in management 's discussion and analysis of results of operations . ( see note 3 to the accompanying consolidated financial statements . ) adjusted oibda is defined and a reconciliation to operating income is presented below in the `` segment results of operations '' section . replace_table_token_5_th replace_table_token_6_th 30 consolidated results of operations – 2013 vs. 2012 our consolidated results of operations for 2013 and 2012 were as follows ( in millions ) . replace_table_token_7_th nm - not meaningful revenues distribution revenue includes affiliate fees and digital distribution revenue and is largely dependent on the rates negotiated in our distribution agreements , the number of subscribers that receive our networks or content , and the market demand for the content that we provide . excluding the impact of foreign currency fluctuations and newly acquired businesses , consolidated distribution revenue increased 10 % , or $ 220 million , as a result of increases of $ 72 million at our u.s. networks segment and $ 148 million at our international networks segment . the increase in distribution revenue at u.s. networks , excluding the impact of digital distribution revenue was 5 % . digital distribution revenue , which is earned under agreements to license selected library
| 14,594 |
in august 2010 , we established jiuxin qianhong as a wholly-owned subsidiary to operate this cultivation project . currently , more than ten herbal plants , including fructus rubi , white atractylodes rhizome and atractylodes macrocephala , are being cultivated on approximately 48 acres , which we expect to harvest in the latter half of 2011 through early 2012 . 33 we have also been operating an online drugstore ( www.dada360.com ) that sells non-prescription drugs ( including over-the-counter drugs and nutritional supplements ) , since may 2010. in july 2010 , we established shouantang technology as a wholly-owned subsidiary and acquired quannuo technology in november 2010 to operate the website and provide software and technical support . as a part of our acquisition of quannuo technology , we also acquired its wholly-owned subsidiary , hangzhou quannuo , and the “ quannuo grand pharmacy ” store . other than activities relating to investing and financing the working capital of quannuo technology , shouantang has had no separate operations of its own as of march 31 , 2011. critical accounting policies and estimates in preparing our consolidated financial statements in accordance with accounting principles generally accepted in the united states , we are required to make judgments , estimates and assumptions that affect : ( i ) the reported amounts of our assets and liabilities ; ( ii ) the disclosure of our contingent assets and liabilities at the end of each reporting period ; and ( iii ) the reported amounts of revenue and expenses during each reporting period . we continually evaluate these estimates based on our own historical experience , knowledge and assessment of current business and other conditions , our expectations regarding the future based on available information and reasonable assumptions , which together form our basis for making judgments about matters that are not readily apparent from other sources . since the use of estimates is an integral component of the financial reporting process , our actual results could differ from those estimates . we believe that any reasonable deviation from those judgments and estimates would not have a material impact on our financial condition or results of operations . to the extent that the estimates used differ from actual results , however , adjustments to the statement of operations and corresponding balance sheet accounts would be necessary . these adjustments would be made in future financial statements . when reading our financial statements , you should consider : ( i ) our critical accounting policies ; ( ii ) the judgment and other uncertainties affecting the application of such policies ; and ( iii ) the sensitivity of reported results to changes in conditions and assumptions . we believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements . we have not made any material changes in the methodology used in these accounting policies during the past eighteen months . revenue recognition revenue from sales of prescription medicine at the drugstores is recognized when the prescription is filled and the customer picks up and pays for the prescription . revenue from sales of other merchandise at the drugstores is recognized at the point of sale , which is when the customer pays for and receives the merchandise . revenue from medical services ( which is nominal ) is recognized after the service has been rendered to the customer . revenue from sales of merchandise to non-retail customers is recognized when the following conditions are met : 1 ) persuasive evidence of an arrangement exists ( sales agreements and customer purchase orders are used to determine the existence of an arrangement ) ; 2 ) delivery of goods has occurred and risks and benefits of ownership have been transferred , which is when the goods are received by the customer at its designated location in accordance with the sales terms ; 3 ) the sales price is fixed or determinable ; and 4 ) collectability is probable . historically , sales returns have been immaterial . our revenue is net of value added tax ( “ vat ” ) collected on behalf of tax authorities in respect of the sale of merchandise . vat collected from customers , net of vat paid for purchases , is recorded as a liability in the balance sheet until it is paid to the tax authorities . vendor allowances we account for vendor allowances according to the accounting standard , accounting by a customer ( including a reseller ) for certain consideration received from a vendor , and by reseller to sales incentives offered to consumers by manufacturers . vendor allowances reduce the carrying value of inventories and subsequently transferred to cost of goods sold when the inventories are sold , unless those allowances are specifically identified as reimbursements for advertising , promotion and other services , in which case they are recognized as a reduction of the related advertising and promotion costs . slotting allowances are a major portion of total allowances . with slotting allowances , vendors reimburse us for the cost of placing new products on our shelves . we have no obligation or commitment to keep any such products on our shelves for a minimum period . a small portion of vendor allowance also includes advertising and promotion allowances for the promotion of vendors ' products in our stores . the promotion may be any combination of a temporary price reduction or a feature in print ads . depreciation and amortization our non-current assets include property and equipment , including leasehold improvements , long term deposits and long term advances to suppliers . we depreciate our equipment assets using the straight-line method over the estimated useful lives of the assets . story_separator_special_tag we make estimates of the useful lives of the equipment ( including the salvage values ) , in order to determine the amount of depreciation expense to be recorded during any reporting period . we amortize leasehold improvements of our retail drugstores and other business premises over the shorter of five years or lease term . a majority of our leases have a five-year term . we estimate the useful lives of our other property and equipment at the time we acquire the assets based on our historical experience with similar assets as well as anticipated technological and other changes . if technological changes were to occur more rapidly than anticipated or in a different form than anticipated , we may shorten the useful lives assigned to these assets as appropriate , which will result in the recognition of increased depreciation and amortization expense in future periods . there was no change to the estimated useful lives and salvage values during the years ended march 31 , 2011 and 2010 . 34 impairment of long-lived assets we evaluate our long lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows . recoverability is measured by comparing the asset 's net book value to the related projected undiscounted cash flows from these assets , considering a number of factors including past operating results , budgets , economic projections , market trends and product development cycles . if the net book value of the asset exceeds the related undiscounted cash flows , the asset is considered impaired , and a second test is performed to measure the amount of impairment loss . no significant indication of impairment noted as of march 31 , 2011. inventories we state our inventory at the lower of cost or market . cost is determined using the first in first out method . market is the lower of replacement cost or net realizable value . we carry out physical inventory counts on a monthly basis at each store and distribution location to ensure that the amounts reflected in the consolidated financial statements at each reporting period are properly stated and valued . we record write-downs to inventory for shrinkage losses and damaged merchandise that are identified during the inventory counts . the inventory write downs for the years ended march 31 , 2011 and 2010 have been immaterial . story_separator_special_tag as of june 27 , 2011 , we had cash of $ 6,190,312. our total current assets as of march 31 , 2011 were $ 39,456,654 and our total current liabilities were $ 11,717,481 which resulted in a net working capital of $ 27,739,173 as of march 31 , 2011. capital resources in april 2010 , we completed a public offering of 3.5 million shares of our common stock at a price of $ 5.00 per share resulting in gross proceeds of $ 17.5 million and net proceeds of $ 15.7 million after deducting commissions and all other expenses . during the next 90 days , we may complete our acquisition of jiuxin medicine that may require an all cash payment and have an obligation to contribute rmb 8,000,000 to complete the registered capital requirement for quannuo technology . we believe that with our current working capital , we will be able to meet these obligations . however , if we are to acquire additional businesses or further expand our operations , we may need additional capital . contractual obligations and off-balance sheet arrangements contractual obligations when we open store locations , we typically enter into lease agreements that are generally between four to five years . our commitments for minimum rental payments under our leases for the next five years and thereafter are as follows : replace_table_token_5_th logistics services commitments as of march 31 , 2011 , we used a third party service provider , yingte logistics , to accept goods from our suppliers and to deliver the goods to our store locations . pursuant to our one-year agreement with yingte logistics entered into on january 1 , 2011 , we are obligated to pay 1 % of the purchase price of the goods received from our suppliers by yingte logistics during the term of the agreement , from january 1 , 2011 to december 31 , 2011 , with a contractual minimum of 3.9 million rmb . 36 we terminated our agreement with yingte logistics in april 2011 , and now use jiuxin medicine 's facility as our distribution center . we are , however , still using yingte logistics for delivery of goods to our stores . off-balance sheet arrangements we do not have any outstanding financial guarantees or commitments to guarantee the payment obligations of any third parties . we have not entered into any derivative contracts that are indexed to our shares and classified as stockholder 's equity or that are not reflected in our consolidated financial statements . furthermore , we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit , liquidity or market risk support to such entity . we do not have any variable interest in any unconsolidated entity that provides financing , liquidity , market risk or credit support to us or engages in leasing , hedging or research and development services with us . exchange rates our prc subsidiaries and vies maintain their books and records rmb , the lawful currency of the prc . in general , for consolidation purposes , we translate their assets and liabilities into u.s. dollars using the applicable exchange rates prevailing at the balance sheet date , and the statement of income is translated at average exchange rates during the reporting period . adjustments resulting from the translation of their financial statements are recorded as accumulated other comprehensive income . until july 21 , 2005 , rmb had been pegged to usd at
| selling expenses as a percentage of our revenue increased to 6.9 % for the year ended march 31 , 2011 from 4.8 % for the year ended march 31 , 2010. we expect that our selling expenses will increase as we continue to expand our store network within zhejiang province as well as shanghai . general and administrative expenses . our general and administrative expenses increased by $ 3,213,789 or 212.0 % to $ 4,723,943 for the year ended march 31 , 2011 from $ 1,510,154 for the year ended march 31 , 2010. general and administrative expenses as a percentage of our revenue increased to 6.8 % from 2.7 % for the year ended march 31 , 2011. the increases in absolute dollars as well as a percentage of revenue related to professional fees incurred as a u.s. publicly traded company , increased salaries , and warehousing costs . as we continue to open drugstores , further develop our infrastructure , and incur expenses related to being a u.s. public company , we anticipate that our general and administrative expenses will increase in absolute dollars as well as a percentage of total revenue . 35 income from operations . as a result of higher selling and general and administrative expenses , our income from operations decreased by $ 1,178,148 or 9.0 % to $ 11,579,406 for the year ended march 31 , 2011 from $ 12,757,554 for the year ended march 31 , 2010. our operating margin for the years ended march 31 , 2011 and 2010 was 16.5 % and 23.1 % , respectively . income taxes . our income tax expense increased to $ 3,523,345 for the year ended march 31 , 2011 from $ 2,880,293 for the year ended march 31 , 2010 as a result of certain expenses incurred in the united states not being deductible for prc income tax purposes . net income . as a result of the foregoing , our net income decreased to $ 8,432,458 for the year ended march 31 , 2011 from $ 9,821,741 for the year ended march 31 , 2010. liquidity in summary , our cash flows for
| 14,595 |
we also experience favorable purchasing leverage from buying large quantities of raw materials . still , our costs can vary significantly as market prices for raw materials ( many of which are commodities ) fluctuate . we typically have short-term commitments from our suppliers ; accordingly , our raw material costs generally move with the market . our ability to recover higher costs ( through selling price increases ) is crucial . when we experience significant increases in raw material costs , we typically implement price increases to recover the higher costs . conversely , when costs decrease significantly , we generally pass those lower costs through to our customers . the timing of our price increases or decreases is important ; we typically experience a lag in recovering higher costs , and we also realize a lag as costs decline . steel is our principal raw material . at various times in past years we have experienced significant cost fluctuations in this commodity . in most cases , the major changes ( both increases and decreases ) were passed through to customers with selling price adjustments . throughout 2015 , market prices for steel scrap , rod , and flat-rolled products decreased significantly , leading to downward pressure on selling prices . we realized a beneficial pricing lag during 2015 , as costs generally decreased at a faster rate than selling prices . in 2016 , steel costs have once again become volatile . steel inflation during the first half of the year was followed by deflation in the third quarter , and significant inflation late in the year . with the normal lag in selling price increases , this cost inflation led to margin pressure in the fourth quarter . we are implementing price increases in early 2017 to begin recovering the higher costs . as a producer of steel rod , we are also impacted by changes in metal margins ( the difference between the cost of steel scrap and the market price for steel rod ) . metal margins within the steel industry have been volatile in past years and were moderately compressed in late 2016. our other raw materials include woven and non-woven fabrics , foam scrap , and chemicals . we have experienced changes in the cost of these materials in past years and generally have been able to pass them through to our customers . when we raise our prices to recover higher raw material costs , this sometimes causes customers to modify their product designs and replace higher cost components with lower cost components . we must continue providing product options to our customers that enable them to improve the functionality of their products and manage their costs , while providing higher profits for our operations . competition many of our markets are highly competitive , with the number of competitors varying by product line . in general , our competitors tend to be smaller , private companies . many of our competitors , both domestic and foreign , compete primarily on the basis of price . our success has stemmed from the ability to remain price competitive , while delivering innovation , better product quality , and customer service . we continue to face pressure from foreign competitors as some of our customers source a portion of their components and finished products offshore . in addition to lower labor rates , foreign competitors benefit ( at times ) from lower raw material costs . they may also benefit from currency factors and more lenient regulatory climates . we typically remain price competitive , even versus many foreign manufacturers , as a result of our highly efficient operations , low labor content , vertical integration in steel and wire , logistics and distribution efficiencies , and large scale purchasing of raw materials and commodities . however , we have also reacted to foreign competition in certain cases by selectively adjusting prices , and by developing new proprietary products that help our customers reduce total costs . 32 part ii since 2009 , there have been antidumping duty orders on innerspring imports from china , south africa and vietnam , ranging from 116 % to 234 % . in march 2014 , the department of commerce ( doc ) and the international trade commission ( itc ) determined that the duties should be continued . in april 2014 , the doc published its final order continuing the duties through february 2019 ( for china ) and december 2018 ( for south africa and vietnam ) . an antidumping and countervailing duty case filed in january 2014 by major u.s. steel wire rod producers was concluded in december 2014 , resulting in the imposition of duties on imports of chinese steel wire rod . the antidumping duties range from 106 % to 110 % and the countervailing duties range from 178 % to 193 % . both remain in effect through december 2019. because of the documented evasion of antidumping orders by certain importers , typically shipping goods through third countries and falsely identifying the countries of origin , leggett and several other u.s. manufacturers formed a coalition to seek stronger enforcement of existing antidumping and or countervailing duty orders . as a result of these efforts , the u.s. congress passed the enforcing orders and reducing customs evasion ( enforce ) act . the enforce act requires u.s. customs and border protection to implement a transparent , time-limited process to investigate allegations of duty evasion and to assess duties where appropriate . leggett settles claims as plaintiff we previously disclosed that we were a plaintiff in an antitrust case against the dow chemical company . we , along with other plaintiffs , alleged that several defendants conspired to fix prices and allocate customers and markets for certain urethane chemical products . we reached a settlement for our antitrust claims against the dow chemical company in 2016 by agreeing to release our claims regarding this matter for a net cash payment of approximately $ 38 million ( pretax , after deducting expenses ) . story_separator_special_tag we received payment in 2016 and recorded after-tax income of $ 25 million . because the settlement is largely attributable to our former prime foam products business , $ 20 million was reflected in discontinued operations . change in segment reporting for 2017 our reportable segments are the same as our operating segments , which also correspond with our management organizational structure . in conjunction with a change in executive officers , our management organizational structure and all related internal reporting changed as of january 1 , 2017. effective january 1 , 2017 , perry e. davis became president of the residential products and industrial products segments , and j. mitchell dolloff became president of the specialized products and furniture products segments . the composition of our four segments also changed effective january 1 , 2017. the table below outlines the new segment structure . we will report under this new structure when we file our 2017 first quarter10-q . residential products industrial products furniture products specialized products bedding group wire group work furniture group automotive group fabric & carpet cushion group home furniture group aerospace products group machinery group consumer products group cvp group the new structure will be largely the same as in prior years except that the home furniture group will be moved from residential products ( formerly residential furnishings ) to furniture products ( formerly commercial products ) , and the machinery group will be moved from specialized products to residential products . the industrial products segment ( formerly industrial materials ) will have no changes . 33 part ii results of operations—2016 vs. 2015 sales decreased 4 % in 2016 , with slightly higher unit volume and acquisitions more than offset by divestitures , raw material-related price deflation , and currency impact . sales growth continued in automotive , reflecting content gains and new program awards , but several other businesses experienced soft market demand and lower unit volume during the year . earnings from continuing operations increased from several factors , including divestiture gains . the benefit from increased unit volume and lower income taxes was partially offset by steel inflation and the non-recurrence of a pricing lag benefit associated with deflation late in 2015. further details about our consolidated and segment results are discussed below . consolidated results ( continuing operations ) the following table shows the changes in sales and earnings from continuing operations during 2016 , and identifies the major factors contributing to the changes . replace_table_token_8_th sales decreased 4 % , with unit volume growth and small acquisitions more than offset by divestitures , raw material-related price decreases , and currency impact . strong growth in automotive was partially offset by soft demand in several other markets , including bedding and home furniture . during 2016 , we divested two wire products operations , a cvp business and a machinery operation . these businesses had total combined annual sales of approximately $ 100 million . as indicated in the table above , earnings from continuing operations increased from divestiture gains ( related to a cvp business and a wire products business ) , a litigation settlement gain , and the non-recurrence of the prior 34 part ii year 's lump-sum pension buyout . operationally , earnings also benefited from higher unit volume and lower income taxes related to a new accounting standard for stock-based compensation . these improvements were partially offset by steel inflation that began to occur in late 2016 and the non-recurrence of the prior year pricing lag benefit ( that occurred as steel costs deflated in late 2015 ) . lifo impact all of our segments use the first-in , first-out ( fifo ) method for valuing inventory . in our consolidated financials , an adjustment is made at the corporate level ( i.e. , outside the segments ) to convert about 50 % of our inventories to the last-in , first-out ( lifo ) method . these are primarily our domestic , steel-related inventories . in 2016 , increasing steel costs , particularly in the fourth quarter , resulted in a full-year pretax lifo expense of $ 11 million . in 2015 , significant deflation in steel costs , particularly in the fourth quarter , resulted in a full-year pretax lifo benefit of $ 46 million . for further discussion of inventories , see note a to the consolidated financial statements on page 75. interest and income taxes net interest expense in 2016 decreased slightly due to the repayment of a $ 200 million 5 % note in august 2015. our tax rate is determined by a combination of items , some recurring and some discrete . recurring items include things like income earned in various tax jurisdictions , and differences in tax rates in those jurisdictions . these items tend to be relatively stable from year to year . conversely , discrete items are things that may not be as consistent from year to year . while the u.s. statutory federal income tax rate was 35 % in both years , our worldwide effective income tax rate on continuing operations was 25 % in 2016 , compared to 27 % for 2015. in both years our tax rate benefited from earnings in non-u.s. jurisdictions , which reduced our effective tax rate by 6 % in each year . in addition , the 2016 tax rate benefited by 3 % related to the tax effects of stock-based compensation deductions in the year , and 1 % ( net ) from other items . the 2015 tax rate benefited by 1 % related to the reduction of a tax accrual for chinese earnings that we decided to reinvest within china to acquire the remaining interest in a joint venture and 1 % ( net ) from other items . in the first quarter of 2016 we adopted accounting standards update ( asu ) 2016-09 , improvements to employee share-based payment accounting ( see note a to the consolidated financial statements on page 79 ) .
| earnings from continuing operations increased significantly in 2015 , primarily from higher sales and pricing discipline . as indicated in the table above , earnings also benefited from the reduction in foam litigation expense ( $ 3 38 part ii million in 2015 versus $ 33 million in 2014 ) . partially offsetting these improvements was a one-time lump-sum pension buyout funded from pension plan assets late in 2015. lifo impact all of our segments use the first-in , first-out ( fifo ) method for valuing inventory . in our consolidated financials , an adjustment is made at the corporate level ( i.e. , outside the segments ) to convert about 50 % of our inventories to the last-in , first-out ( lifo ) method . these are primarily our domestic , steel-related inventories . in 2014 , steel costs were relatively stable and we ended the year with lifo expense of $ 1 million . significant deflation in steel costs during 2015 , particularly in the fourth quarter , resulted in a full-year pretax lifo benefit of $ 46 million . for further discussion of inventories , see note a to the consolidated financial statements on page 75. interest and income taxes net interest expense in 2015 increased slightly versus 2014. our tax rate is determined by a combination of items , some recurring and some discrete . recurring items include things like income earned in various tax jurisdictions , and differences in tax rates in those jurisdictions . these items tend to be relatively stable from year to year . conversely , discrete items are things that may not be as consistent from year to year . while the u.s. statutory federal income tax rate was 35 % in both years , our worldwide effective income tax rate on continuing operations was 27 % in 2015 , compared to 24 % for 2014. in both years our tax rate benefited from earnings in non-u.s. jurisdictions , which reduced our effective tax rate by 6 % in 2015 , and 7 % in 2014. in addition , the 2015 tax rate benefited by
| 14,596 |
actual results may differ ( perhaps significantly ) from these estimates under different assumptions or conditions . while all the accounting policies impact the consolidated financial statements , certain policies may be viewed to be critical . our management believes that the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial statements , include revenue recognition , inventories , liability related to certain warrants , and accounting for production lines and its related useful life and impairment . revenue recognition we derive revenues from the sale of our device-specific disposables test strip cartridges , lancets and our dario smart meters through distributors or directly to end users . the dario software application is offered for a free download and we do not have a recurring hosting commitment with our end users relating specifically to the application . revenues from product sales are recognized in accordance with asc 605-10 , “ revenue recognition ” , when delivery has occurred , persuasive evidence of an agreement exists , the vendor 's fee is fixed or determinable , no further obligation exists and collectability is probable . we generally do not grant a right of return . we assess whether the fee is fixed or determinable based on the nature of the fee charged for the products delivered , the existing contractual arrangements and the distributor 's consistency of payments . when evaluating collectability , we consider whether we have sufficient history to reliably estimate the distributor 's payment patterns . we also generate revenues from arrangements with health care providers which include supply of dario smart meters and software platform that requires certain customization followed by monthly service , support and maintenance . when a sales arrangement contains multiple elements , such as software and non-software components , we allocate revenue to each element based on a selling price hierarchy as required according to asc 605-25 , “ multiple-element arrangements ” , or asc 605-25. the selling price for a deliverable is based on its vendor specific objective evidence , or vsoe , or , if available , third party evidence , or tpe , if vsoe is not available , or estimated selling price , or esp , if neither vsoe nor tpe is available . the best estimate of selling price is established considering several internal factors including , but not limited to , historical sales , pricing practices and geographies in which we offer our products . the determination of esp is judgmental . revenues from software components in sales arrangements containing multiple elements are recognized when all criteria outlined in asc 985-605 , “ software revenue recognition ” , or asc 985-605 , are met ( when persuasive evidence of an arrangement exists , delivery of the product has occurred or the services have been rendered , the fee is fixed or determinable and collectability is probable ) . for multiple element arrangements within asc 985-605 , revenues are allocated to the different elements in the arrangement under the “ residual method ” when vsoe of fair value exists for all undelivered elements and no vsoe exists for the delivered elements . under the residual method , at the outset of the arrangement with the customer , we defer revenue for the fair value of its undelivered elements and recognize revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement when the basic criteria in asc 985-605 have been met . any discount in the arrangement is allocated to the delivered element . 48 since vsoe does not exist for undelivered elements , revenues are recognized as one unit of accounting , on a straight-line basis over the term of the last deliverable based on asc 605-15 and asc 985-605. liability related to certain warrants the fair value of the liability for certain warrants issued to investors and our previous placement agents in connection with our financings to date was calculated using the binomial option-pricing model . we accounted for these warrants according to the provisions of asc 815 , “ derivatives and hedging - contracts in entity 's own equity ” and , based on the anti-dilution protections contained in part of the warrants and net settlement cash feature contained in other warrants , we classified them as non-current liabilities , measured at fair value each reporting period until they will be exercised or expired , with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense . the anti-dilution protections feature for certain warrants was valued by calculating a put option . the value of these warrants was calculated using the call option value in addition with the put option value , which reflects the anti-dilution protection , multiplied by the probability that a down round will occur . the value of warrants with net settlement cash feature and liquidated damages penalties which do not include anti-dilution provision was calculated using a call option value . fair value for each reporting period was calculated based on the following assumptions : ( 1 ) risk-free interest rate - based on yield rates of non-index linked u.s. federal reserve treasury bonds . ( 2 ) expected volatility - was calculated based on actual historical stock price movements of the company together with companies in the same industry over a term that is equivalent to the expected term of the option . ( 3 ) expected life - the expected life was based on the expiration date of the warrants . ( 4 ) expected dividend yield - was based on the fact that the company has not paid dividends to its shareholders in the past and does not expect to pay dividends to its shareholders in the future . our net loss for the year ended december 31 , 2016 and 2015 included finance income in the amount of $ 260,000 and $ 571,000 , respectively , with connection to the above-mentioned warrants . story_separator_special_tag inventories inventory write-down is also measured as the difference between the cost of the inventory and net realized value based upon assumptions about future demand , and is charged to the cost of sales . at the point of the loss recognition , a new , lower-cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . if there were to be a sudden and significant decrease in demand for our products or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to increase our inventory write-downs and our gross margin could be adversely affected . inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility , to help ensure competitive lead times with the risk of inventory obsolescence . during the year ended december 31 , 2016 , total inventory write-off expenses amounted to $ 315,000. production lines capitalization of costs . we capitalize direct incremental costs of third party manufacturers related to the equipment in our production lines . we cease construction cost capitalization relating to our production lines once they are ready for its intended use and held available for occupancy . all renovations and betterments that extend the economic useful lives of assets and or improve the performance of the production lines are capitalized . 49 useful lives of assets . we are required to make subjective assessments as to the useful lives of our production lines for purposes of determining the amount of depreciation to record on an annual basis with respect to our construction of the production lines . these assessments have a direct impact on our net income ( loss ) . production lines are usually depreciated on a straight-line basis over a period of up to five years , except any renovations and betterments which are depreciated over the remaining life of the production lines . impairment of production lines . we are required to review our production lines for impairment in accordance with asc 360 , “ property , plant and equipment , ” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets . 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 . during the year ended december 31 , 2016 , we recorded a non-cash charge with respect to an impairment of production equipment in the amount of $ 269,000. extended transition period for “ emerging growth companies ” we have elected to use the extended transition period for complying with new or revised accounting standards under section 102 ( b ) ( 1 ) of the jobs act . this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies . as a result of this election , our financial statements may not be comparable to companies that comply with public company effective dates . because our financial statements may not be comparable to companies that comply with public company effective dates , investors may have difficulty evaluating or comparing our business , performance or prospects in comparison to other public companies , which may have a negative impact on the value and liquidity of our common stock . story_separator_special_tag approximately $ 6,961,000. the net operating losses may be carried forward and offset against taxable income in the future for an indefinite period . in accordance with gaap , it is required that a deferred tax asset be reduced by a valuation allowance if , based on the weight of available evidence it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized . as a result , we recorded a valuation allowance with respect to our deferred tax asset . under sections 382 and 383 of the internal revenue code , if an ownership change occurs with respect to a “ loss corporation ” ( as defined in the internal revenue code ) , there are annual limitations on the amount of the net operating loss and other deductions which are available to us . 51 liquidity and capital resources as of december 31 , 2016 , we had approximately $ 1,093,000 in cash and cash equivalents compared to $ 2,671,000 at december 31 , 2015. we have experienced cumulative losses of $ 55,000,000 from inception ( august 11 , 2011 ) through december 31 , 2016 , and have a stockholders ' deficiency of $ 6,541,000 at december 31 , 2016. in addition , we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future . there is no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and commercialization of our product . these conditions raise substantial doubt about our ability to continue as a “ going concern ” .
| research and development expenses consist mainly of payroll expenses to employees involved in research and development activities , expenses related to our dario software application and related smart meter device , labor contractors and engineering expenses , depreciation and maintenance fees related to equipment and software tools used in research and development , clinical trials performed in the united states to satisfy the fda product approval requirements and facilities expenses associated with and allocated to research and development activities . sales , marketing and pre-production costs our sales , marketing and pre-production costs increased by $ 3,409,000 to $ 4,739,000 for the year ended december 31 , 2016 compared to $ 1,330,000 for the year ended december 31 , 2015. this increase was mainly due to the increase in our expenses on digital marketing campaigns primarily in the u.s. since we commenced sales in the u.s. in march 2016. sales and marketing expenses consist mainly of payroll expenses , trade show expenses , customer support expenses and on-line marketing campaigns . general and administrative expenses our general and administrative expenses increased by $ 430,000 to $ 3,378,000 for the year ended december 31 , 2016 compared to $ 2,948,000 for the year ended december 31 , 2015. the increase is mainly due to an increase in payroll expenses , patent registration expenses and professional expenses offset partially by a reduction in stock-based compensation expenses . our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management , employees , directors and consultants , legal fees , patent registration , expenses related to investor relations , as well as our office rent and related expenses . finance income ( expenses ) , net our finance income , net , decreased by $ 342,000 to $ 214,000 for the year ended december 31 , 2016 compared to $ 556,000 for the year ended december 31 , 2015. finance income includes mainly the results of revaluation of warrants to investors and a former placement agent , which are recorded as a liability
| 14,597 |
- provision for loan losses of 0.58 % as a percentage of total gross loans - net loan charge-offs of 0.31 % as a percentage of average total gross loans - allowance for loan losses of 1.29 % as a percentage of period-end total gross loans + this is a non-gaap financial metric . ( see the non-gaap reconciliation under “ results of operations—noninterest income ” ) 38 a summary of our performance in 2015 compared to 2014 is as follows : replace_table_token_3_th 39 ( 1 ) during the second quarter of 2015 we adopted new accounting guidance related to our consolidated variable interest entities ( asu 2015-02 ) . amounts prior to january 1 , 2015 have not been revised for the adoption of this guidance . see note 2— `` summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 of this report for additional details . ( 2 ) see “ results of operations–noninterest income ” below for a description and reconciliation of non-gaap core fee income and noninterest income . ( 3 ) see “ results of operations–noninterest expense ” below for a description and reconciliation of non-gaap noninterest expense and non-gaap operating efficiency ratio . ( 4 ) average held-to-maturity securities balance is reflective of the re-designation from available-for-sale to held-to-maturity effective june 1 , 2014 . ( 5 ) ratio represents consolidated net income available to common stockholders divided by average assets . ( 6 ) ratio represents consolidated non-gaap net income available to common stockholders divided by average assets . ( 7 ) ratio represents consolidated net income available to common stockholders divided by average svbfg stockholders ' equity . ( 8 ) ratio represents consolidated non-gaap net income available to common stockholders divided by average svbfg stockholders ' equity . ( 9 ) ratios reflect the adoption of the rules implementing the `` basel iii '' regulatory capital reforms and changes required by the dodd-frank act ( `` basel iii capital rules '' ) in effect beginning january 1 , 2015. ratios for prior periods represent the previous capital rules under basel i . ( 10 ) see “ capital resources–capital ratios ” for a reconciliation of non-gaap tangible common equity to tangible assets and tangible common equity to risk-weighted assets . ( 11 ) the operating efficiency ratio is calculated by dividing total noninterest expense by total net interest income plus noninterest income . ( 12 ) book value per common share is calculated by dividing total svbfg stockholders ' equity by total outstanding common shares at period-end . non-gaap net income , non-gaap diluted earnings per common share , and non-gaap return on average assets and svbfg stockholders ' equity we use and report non-gaap net income and non-gaap diluted earnings per common share and non-gaap return on average assets and stockholders ' equity , which excludes , in the year applicable net losses from the sale of the bank 's subsidiary , svb india finance private limited , a non-banking financial company in india ( “ svbif ” ) . we believe these non-gaap financial measures , when taken together with the corresponding gaap financial measures , provide meaningful supplemental information regarding our performance by excluding certain items that do not occur every reporting period . our management uses , and believes that investors benefit from referring to , these non-gaap financial measures in assessing our operating results and related trends , and when planning , forecasting and analyzing future periods . however , these non-gaap financial measures should be considered in addition to , not as a substitute for or preferable to , financial measures prepared in accordance with gaap . a reconciliation of gaap to non-gaap net income available to common stockholders and non-gaap diluted earnings per common share for 2015 and 2014 is as follows : replace_table_token_4_th ( 1 ) pre-tax net losses of $ 13.9 million on the then-pending sale of svbif are included in other noninterest income at december 31 , 2014 . 40 a reconciliation of gaap to non-gaap return on average assets and return on average svbfg stockholders ' equity for 2015 and 2014 is as follows : replace_table_token_5_th critical accounting policies and estimates our accounting policies are fundamental to understanding our financial condition and results of operations . we have identified four policies as being critical because they require us to make particularly difficult , subjective and or complex judgments about matters that are inherently uncertain , and because it is likely that materially different amounts would be reported under different conditions or using different assumptions . we evaluate our estimates and assumptions on an ongoing basis and we base these estimates on historical experiences and various other factors and assumptions that are believed to be reasonable under the circumstances . actual results may differ materially from these estimates under different assumptions or conditions . our critical accounting policies include those that address the adequacy of the allowance for loan losses and reserve for unfunded credit commitments , measurements of fair value , the valuation of equity warrant assets and the recognition and measurement of income tax assets and liabilities . our senior management has discussed and reviewed the development , selection , application and disclosure of these critical accounting policies with the audit committee of our board of directors . we disclose our method and approach for each of our critical accounting policies in note 2- “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 in this report . allowance for loan losses and reserve for unfunded credit commitments allowance for loan losses the allowance for loan losses is management 's estimate of credit losses inherent in the loan portfolio at the balance sheet date . we consider our accounting policy for the allowance for loan losses to be critical as estimation of the allowance involves material estimates by us and is particularly susceptible to significant changes in the near term . story_separator_special_tag determining the allowance for loan losses requires us to make forecasts that are highly uncertain and require a high degree of judgment . our loan loss reserve methodology is applied to our loan portfolio and we maintain the allowance for loan losses at levels that we believe are appropriate to absorb estimated probable losses inherent in our loan portfolio . a committee comprised of senior management evaluates the adequacy of the allowance for loan losses . our allowance for loan losses is established for loan losses that are probable but not yet realized . the process of anticipating loan losses is inherently imprecise . we apply a systematic process for the evaluation of individual loans and pools of loans for inherent risk of loan losses . at the time of approval each loan in our portfolio is assigned a credit risk rating through an evaluation process , which includes consideration of such factors as payment status , the financial condition of the borrower , borrower compliance with loan covenants , underlying collateral values , potential loan concentrations , and general economic conditions . the credit risk ratings for each loan are monitored and updated on an ongoing basis . the allowance for loan losses is based on a formula allocation for similarly risk-rated loans by client industry sector and individually for impaired loans . our formula allocation is determined on a quarterly basis by utilizing a historical loan loss migration model , which is a statistical model used to estimate an appropriate allowance for outstanding loan balances by calculating the likelihood of a loan being charged-off based on its credit risk rating using historical loan performance data from our portfolio . the formula allocation provides the average loan loss experience for each portfolio segment , which considers our quarterly historical loss experience since the year 2000 , both by risk-rating category and client industry sector . the resulting loan loss factors for each risk-rating category and client industry sector are ultimately applied to the respective period-end client loan balances for each corresponding risk-rating category by client industry sector to provide an estimation of the allowance for loan losses . 41 our allowance for loan losses is also sensitive to changes in economic factors . we apply qualitative allocations to the results we obtained through our historical loan loss migration model to ascertain the total allowance for loan losses . these qualitative allocations are based upon management 's assessment of the risks that may lead to a loan loss experience different from our historical loan loss experience . these risks are aggregated to become our qualitative allocation . refer to note 2- “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 in this report for a summary of the factors management considers for its qualitative allocation as part of management 's estimate of the changing risks in the lending environment . reserve for unfunded credit commitments the level of the reserve for unfunded credit commitments is determined following a methodology that parallels that used for the allowance for loan losses . we consider our accounting policy for the reserve for unfunded credit commitments to be critical as estimation of the reserve involves material estimates by our management and is particularly susceptible to significant changes in the near term . we record a liability for probable and estimable losses associated with our unfunded credit commitments . each quarter , every unfunded client credit commitment is allocated to a credit risk-rating category in accordance with each client 's credit risk rating . we use the historical loan loss factors described under our allowance for loan losses to calculate the possible loan loss experience if unfunded credit commitments are funded . separately , we use historical trends to calculate the probability of an unfunded credit commitment being funded . we apply the loan funding probability factor to risk-factor adjusted unfunded credit commitments by credit risk-rating to derive the reserve for unfunded credit commitments . the reserve for unfunded credit commitments also includes certain qualitative allocations as deemed appropriate by management . fair value measurements we use fair value measurements to record fair value for certain financial instruments and to determine fair value disclosures . we disclose our method and approach for fair value measurements of assets and liabilities in note 2- “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 in this report . asc 820 , fair value measurements and disclosures , establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the significant inputs to the valuation methodology used for measurement are observable or unobservable and the significance of the level of the input to the entire measurement . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels for measuring fair value are defined in note 2- “ summary of significant accounting policies ” of the “ notes to the consolidated financial statements ” under part ii , item 8 in this report . the degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters . for financial instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value ( level 1 measurements ) . when observable market prices and parameters are not fully available , management judgment is necessary to estimate fair value . for inactive markets , there is little information , if any , to evaluate if individual transactions are orderly .
| overall , the increase in our net interest income was primarily due to higher average loan balances and growth in our fixed income investment securities portfolio , driven by the continued growth in deposits . these increases were partially offset by lower overall loan yields as well as the increase in interest expense reflective of the $ 350 million issuance of our 3.50 % senior notes in late january 2015 ( `` 3.50 % senior notes '' ) . the main factors affecting interest income and interest expense for 2015 , compared to 2014 , are discussed below : interest income for 2015 increased by $ 154.7 million primarily due to : ◦ an $ 82.2 million increase in interest income from loans to $ 693.1 million in 2015 , compared to $ 610.9 million in 2014 . this increase was reflective of an increase in average loan balances of $ 3.3 billion , partially offset by a decrease of 61 basis points in the overall yield on our loan portfolio . the decrease in loan portfolio yield was reflective of a continued shift in the mix of our overall loan portfolio . our loan growth in 2015 primarily came from our private equity/venture capital loan portfolio which , on average , tends to have higher credit quality , lower yielding loans . our yields were also impacted by the increased price competition and the overall low market rate environment throughout 2015 . ◦ a $ 72.9 million increase in interest income from our fixed income investment securities to $ 349.1 million in 2015 , compared to $ 276.2 million in 2014 with the majority of the increase due to a $ 5.7 billion increase in average balances due to strong deposit growth . interest income was offset by a decrease in the overall yield on our fixed income investment securities portfolio , which decreased 9 basis points to 1.57 percent . lower reinvestment yields , reflective of an increase in our purchases of u.s. treasury
| 14,598 |
as of december 31 , 2013 , commercial leases which comprise approximately 10.3 percent of the company 's annualized base rent are scheduled to expire during the year ended december 31 , 2014. with the decline of rental rates in the company 's office markets over the past few years , as leases expire in 2014 , assuming no further changes in current market rental rates , the company expects that the rental rates it is likely to achieve on new leases will generally be lower than the rates currently being paid , thereby resulting in less revenue from the same space . as a result of the above factors , the company 's future earnings and cash flow may continue to be negatively impacted by current market conditions effecting its commercial portfolio . 49 the company expects that the impact of the current state of the economy , including high unemployment will continue to have a negative effect on the fundamentals of its business , including lower occupancy , reduced effective rents , and increases in defaults and past due accounts in respect of the company 's commercial properties . these conditions would negatively affect the company 's future net income and cash flows and could have a material adverse effect on the company 's financial condition . as a result of the continued weakness in the company 's core office markets , the company intends to expand its holdings in the multi-family rental sector , which it believes has traditionally been a more stable product type . the company believes that the opportunity to invest in multi-family development properties at higher returns on cost will position the company to potentially produce higher levels of net operating income than if the company were to only purchase stabilized multi-family rental properties at market returns . the company anticipates that it will be several years before its multi-family development projects are income-producing . the long-term nature of the company 's multi-family strategy coupled with the continued weakness in the company 's core office markets and the disposition of income producing non-core office properties , to fund the company 's multi-family rental acquisitions and development will likely result in declining net operating income and cash flows relative to historical returns . as the company continues to execute its multi-family residential strategy , the company believes that over the long-term its net operating income and cash flows will stabilize at levels less than historical or current returns . the remaining portion of this management 's discussion and analysis of financial condition and results of operations should help the reader understand our : · recent transactions ; · critical accounting policies and estimates ; · results of operations for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 ; · results of operations for the year ended december 31 , 2012 as compared to the year ended december 31 , 2011 and · liquidity and capital resources . 50 recent transactions in october 2012 , the company acquired the real estate development and management businesses of roseland partners , l.l.c . ( `` roseland partners '' ) , a premier multi-family rental property developer and manager based in short hills , new jersey , and the roseland partners ' interests , principally through unconsolidated joint venture interests in various entities which , directly or indirectly , own or have rights with respect to various multi-family rental , commercial properties and vacant land ( collectively , the “ roseland transaction ” ) . acquisitions the following multi-family rental properties were acquired during the year ended december 31 , 2013 ( dollars in thousands ) : replace_table_token_15_th ( a ) the acquisition cost was funded primarily through borrowings under the company 's unsecured revolving credit facility . ( b ) the acquisition cost consisted of $ 43,421,000 in cash consideration and future purchase price earn out payment obligations , subsequent to conditions related to a real estate tax appeal , recorded at fair value of $ 2,955,000 at closing . $ 42,613,355 of the cash consideration was funded from funds held by a qualified intermediary , which were proceeds from the company 's prior property sales . the remaining cash consideration was funded primarily from available cash on hand . $ 2,550,000 of the earn-out obligation amount was paid in january 2014 , with the remaining balance still potentially payable in the future . ( c ) $ 12,701,925 of the acquisition cost was funded from funds held by a qualified intermediary , which were proceeds from the company 's prior property sales . the remaining acquisition cost was funded primarily from available cash on hand . consolidation on august 22 , 2013 , the company contributed an additional $ 4.9 million and the operating agreement of eastchester was modified which increased the company 's effective ownership to 76.25 percent , with the remaining 23.75 percent owned by hvlh . the agreement also provided the company with control of all major decisions . accordingly , effective august 22 , 2013 , the company consolidated eastchester under the provisions of asc 810 , consolidation . as the carrying value approximated the fair value of the net assets acquired , there was no holding period gain or loss recognized on this transaction . on october 23 , 2012 , as part of the roseland transaction , the company had acquired a 26.25 percent interest in a to-be-built , 108-unit multi-family rental property located in eastchester , new york ( the “ eastchester project ” ) for approximately $ 2.1 million . the remaining interests in the development project-owning entity , 150 main street , l.l.c . ( “ eastchester ” ) was owned 26.25 percent by jmp eastchester , l.l.c . and 47.5 percent by hudson valley land holdings , l.l.c . ( “ hvlh ” ) . story_separator_special_tag the eastchester project began construction in late 2013. estimated total development costs of $ 46 million are expected to be funded with a $ 27.5 million construction loan and the balance of $ 18.5 million to be funded with member capital . properties commencing initial operations the following properties commenced initial operations during the year ended december 31 , 2013 ( dollars in thousands ) : replace_table_token_16_th ( a ) development costs included approximately $ 13.0 million in land costs and $ 4.3 million in leasing costs . amounts are as of december 31 , 2013 . ( b ) development costs included approximately $ 13.1 million in land costs . amounts are as of december 31 , 2013 . 51 property sales the company sold the following office properties during the year ended december 31 , 2013 ( dollars in thousands ) : see note 7 : discontinued operations to the company 's financial statements . replace_table_token_17_th ( a ) the company recognized a valuation allowance of $ 7.1 million on this property identified as held for sale at december 31 , 2012. in connection with the sale , the company provided an interest-free note receivable to the buyer of $ 5 million ( with a net present value of $ 3.7 million at closing ) which matures in 2023 and requires monthly payments of principal . see note 5 : deferred charges , goodwill and other assets . ( b ) the company recorded an $ 8.4 million impairment charge on these properties at december 31 , 2012. the company has retained a subordinated interest in these properties . ( c ) the property was encumbered by a mortgage loan which was satisfied by the company at the time of the sale . the company incurred $ 0.7 million in costs for the debt satisfaction , which was included in discontinued operations : loss from early extinguishment of debt for the year ended december 31 , 2013 . ( d ) in order to reduce the carrying value of five of the properties to their estimated fair market values , the company recorded impairment charges of $ 23,851,000 at june 30 , 2013. the fair value used in the impairment charges was based on the purchase and sale agreement for the properties ultimately sold . ( e ) the company completed the sale of this office portfolio and three developable land parcels for approximately $ 233 million : $ 201 million in cash ( $ 55.3 million of which was held by a qualified intermediary until such funds were used in acquisitions ) , a $ 10 million mortgage on one of the properties ( $ 8 million of which was funded at closing ) and subordinated equity interests in each of the properties being sold with capital accounts aggregating $ 22 million . net sale proceeds from the sale aggregated $ 207 million which was comprised of the $ 233 million gross sales price less the subordinated equity interests of $ 22 million and $ 4 million in closing costs . the purchasers of the pennsylvania office portfolio are joint ventures formed between the company and affiliates of the keystone property group ( the “ keystone affiliates ” ) . the mortgage loan has a term of two years with a one year extension option and bears interest at libor plus six percent . the company 's equity interests in the joint ventures will be subordinated to keystone affiliates receiving a 15 percent internal rate of return ( “ irr ” ) after which the company will receive a ten percent irr on its subordinated equity and then all profit will be split equally . in connection with these partial sale transactions , because the buyer receives a preferential return , the company only recognized profit to the extent that they received net proceeds in excess of their entire carrying value of the properties , effectively reflecting their retained subordinate equity interest at zero . as part of the transaction , the company has rights to own , after zoning-approval-subdivision , land at the 150 monument road property located in bala cynwyd , pennsylvania , for a contemplated multi-family residential development . ( f ) this amount excludes approximately $ 535,000 of net closing prorations and related adjustments received from sellers at closing . ( g ) this amount , net of impairment charges recorded in 2013 of $ 23,851,000 on certain of the properties prior to their sale ( per note [ d ] above ) , comprises the $ 59,520,000 of realized gains ( losses ) and unrealized losses on disposition of rental property and impairments , net , for the year ended december 31 , 2013. see note 7 : discontinued operations . on february 24 , 2014 , the company entered into agreements with affiliates of keystone property group ( “ keystone entities ” ) to sell 15 of its office properties in new jersey , new york and connecticut , aggregating approximately 2.3 million square feet , for approximately $ 230.8 million , comprised of : $ 201.7 million in cash from a combination of keystone entities senior and pari-passu equity and mortgage financing ; company subordinated equity interests in each of the properties being sold with capital accounts aggregating $ 22.2 million ; and pari passu equity interests in three of the properties being sold aggregating $ 6.9 million . the purchasers of the office properties will be joint ventures to be formed between the company and the keystone entities . the senior and pari-passu equity will receive a 15 percent internal rate of return ( “ irr ” ) after which the subordinated equity will receive a ten percent irr and then all distributable cash flow will be split equally between the keystone entities and the company . as part of the transaction , the company will participate in management , leasing and construction fees for the portfolio , and the company and the keystone entities will jointly provide leasing representation for the properties .
| on february 18 , 2014 , the company repaid its $ 200 million face amount of 5.125 percent senior unsecured notes at their maturity , using available cash and borrowing on the company 's unsecured revolving credit facility . 68 unsecured revolving credit facility : on july 16 , 2013 , the company amended and restated its unsecured revolving credit facility with a group of 17 lenders . the $ 600 million facility is expandable to $ 1 billion and matures in july 2017. it has two six month extension options each requiring the payment of a 7.5 basis point fee . the interest rate on outstanding borrowings ( not electing the company 's competitive bid feature ) and the facility fee on the current borrowing capacity payable quarterly in arrears are based upon the operating partnership 's unsecured debt ratings , as follows : replace_table_token_24_th the facility has a competitive bid feature , which allows the company to solicit bids from lenders under the facility to borrow up to $ 300 million at interest rates less than those above . the terms of the unsecured facility include certain restrictions and covenants which limit , among other things the incurrence of additional indebtedness , the incurrence of liens and the disposition of real estate properties ( to the extent that : ( i ) such property dispositions cause the company to default on any of the financial ratios of the facility described below , or ( ii ) the property dispositions are completed while the company is under an event of default under the facility , unless , under certain circumstances , such disposition is being carried out to cure such default ) , and which require compliance with financial ratios relating to the maximum leverage ratio ( 60 percent ) , the maximum amount of secured indebtedness ( 40 percent ) , the minimum amount of fixed charge coverage ( 1.5 times ) , the maximum amount of unsecured indebtedness ( 60 percent ) , the minimum amount of unencumbered property interest coverage ( 2.0 times ) and certain investment limitations ( generally 15 percent of total capitalization ) . if an
| 14,599 |
our total revenue for 2019 was $ 1,214.0 million , which represents an 11.1 % increase from revenue of $ 1,092.6 million for 2018. domestic revenue grew $ 42.6 million , or 7.6 % , and international revenue increased by $ 78.8 million , or 14.8 % , primarily as a result of sales of new products that have been launched since the second half of 2018. fiscal periods we operate and report using a 52-53 week fiscal year ending on the saturday closest to december 31. accordingly , our fiscal quarters will end on the saturday that falls closest to the last day of the third month of each quarter . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles in the united states requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses and the disclosure of contingent assets and liabilities in the consolidated financial statements . these estimates and judgments , include but are not limited to , revenue recognition including performance obligations , variable consideration and other obligations such as product returns and incentives ; warranty costs ; valuation of goodwill and acquired intangible assets ; valuation of financial instruments ; accounting for business combinations ; evaluating loss contingencies ; accounting for stock-based compensation including performance-based assessments ; and accounting for income taxes and related valuation allowances . we base these estimates and judgments on historical experience , market participant fair value considerations , projected future cash flows and various other factors that we believe are reasonable under the circumstances . actual results may differ from our estimates . we believe that of our significant accounting policies , which are described in the notes to our consolidated financial statements , the following accounting policies involve a greater degree of judgment and complexity . accordingly , we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations . revenue recognition we primarily derive our revenue from product sales . we sell products directly to consumers through on-line stores and indirectly through resellers and distributors . revenue is recognized upon transfer of control of promised products or services to customers , generally as title and risk of loss pass , in an amount that reflects the consideration we expect to receive in exchange for those products or services . revenue is recognized only to the extent that it is probable that a significant reversal of revenue will not occur . taxes collected from customers , which are subsequently remitted to governmental authorities , are excluded from revenue . shipping and handling expenses are considered fulfillment activities and are expensed as incurred . our product portfolio includes various consumer robots , many of which are wi-fi connected . the consumer robots are generally highly dependent on , and interrelated with , the embedded software and can not function without the software . as such , the consumer robots are accounted for as a single performance obligation , and the revenue is recognized at a point in time when the control is transferred to distributors , resellers or directly to end customers through online stores . for consumer robots with wi-fi capability ( `` connected robots '' ) , each sale represents an arrangement with multiple promises consisting of the robot , an app , cloud services and potential future unspecified software upgrades . we have determined that the app , cloud services and potential future unspecified software upgrades represent one promised service to the customer to enhance the functionality and interaction with the robot ( referred to collectively as `` cloud services '' ) . prior to the adoption of asu no . 2014-09 , `` revenue from contracts with customers , '' ( `` asc 606 '' ) on december 31 , 2017 , the beginning of fiscal year 2018 , the revenue allocated to the cloud services was deferred and recognized on a straight-line basis over the expected life of the robot . on december 31 , 2017 , we adopted asc 606 using the modified retrospective method applied to those contracts that were not completed as of the adoption date . upon the adoption of asc 606 , we concluded that , on a quantitative and qualitative basis , the cloud services did not constitute a material performance obligation for the then existing products and , as such , these services were not considered a separate performance obligation that required allocation of transaction price . under the modified retrospective method , we recognized the cumulative effect of the adoption and recorded a net increase of $ 1.0 million to the beginning retained earnings as of december 31 , 2017. during the third quarter of 2018 , we launched roomba i7 and i7+ which brought a new level of intelligence and automation to robotic vacuum cleaners with the ability to learn , map and adapt to a home 's floor plan . we have concluded that beginning with this launch , the cloud services related to these new products are a material performance obligation . for contracts that contain multiple performance obligations , the transaction price is allocated to each performance obligation based on a relative standalone selling price ( `` ssp '' ) . the ssp reflects our best estimate of what the selling prices of elements would be if they were sold regularly on a standalone basis . revenue allocated to the robots is recognized at a point in time when 28 control is transferred . revenue allocated to the cloud services is deferred and recognized on a straight-line basis over the estimated period the software upgrades and services are expected to be provided . our products generally carry a one-year or two-year limited warranty that promises customers that delivered products are as specified . we do not consider these assurance-type warranties as a separate performance obligation and therefore , we account for such warranties under asc 460 , `` guarantees . '' story_separator_special_tag we provide limited rights of returns for direct-to-consumer sales generated through our on-line stores as well as certain resellers and distributors . in addition , we may provide other credits or incentives , including price protection , which are accounted for as variable consideration when estimating the amount of revenue to recognize . where appropriate , these estimates take into consideration relevant factors such as our historical experience , current contractual requirements , specific known market events and trends and forecasted inventory level in the channels . overall , these reserves reflect our best estimates , and the actual amounts of consideration ultimately received may differ from our estimates . returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available . as of december 28 , 2019 , we had reserves for product returns of $ 55.2 million and other credits and incentives of $ 134.0 million . as of december 29 , 2018 , we had reserves for product returns of $ 53.9 million and other credits and incentives of $ 97.7 million . business combinations we account for transactions that represent business combinations under the acquisition method of accounting . we allocate the total consideration paid for each acquisition to the assets we acquire and liabilities we assume based on their fair values as of the date of acquisition , including identifiable intangible assets . we base the fair value of identifiable intangible assets acquired in a business combination on valuations that use information and assumptions determined by management and which consider management 's best estimates of inputs and assumptions that a market participant would use . while we use best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the business combination date , the estimates and assumptions are inherently uncertain and subject to refinement . as a result , during the measurement period , which is generally one year from the acquisition date , any adjustment to the assets acquired and liabilities assumed is recorded against goodwill in the period in which the amount is determined . any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined . inventory inventory is stated at the lower of cost or net realizable value with cost being determined using the first-in , first-out method . we maintain a reserve for inventory items to provide for an estimated amount of excess or obsolete inventory . warranty we typically provide a one-year or two-year warranty against defects in materials and workmanship and will either repair the goods , provide replacement products or refund amounts to the customer for defective product . we record estimated warranty costs based on historical experience , at the time revenue is recognized . actual results could differ from these estimates , which could cause increases or decreases to the warranty reserves in future periods . goodwill and other long-lived assets goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired . goodwill is not amortized but rather is assessed for impairment at the reporting unit level annually during our fourth quarter of each fiscal year or more frequently if we believe indicators of impairment exist . goodwill impairment , if any , is determined by comparing the reporting unit 's fair value to its carrying value . an impairment loss is recognized in an amount equal to the excess of the reporting unit 's carrying value over its fair value , up to the amount of goodwill allocated to the reporting unit . other long-lived assets consist principally of completed technology , tradename , customer relationships , reacquired distribution rights and non-competition agreements . reacquired distribution rights are amortized on an accelerated basis , while all other intangible assets are amortized over their respective estimated useful lives on a straight-line basis , consistent with the pattern in which the economic benefits are being utilized . we periodically evaluate the recoverability of other long-lived assets whenever events and changes in circumstances , such as reductions in demand or significant economic slowdowns in the industry , indicate that the carrying amount of an asset may not be fully recoverable . when indicators of impairment are present , the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business . the net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than book value . fair values are based on estimates of 29 market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates , reflecting varying degrees of perceived risk . the impairment assessment of goodwill and other long-lived assets involves significant estimates and assumptions , which may be unpredictable and inherently uncertain . these estimates and assumptions include identification of reporting units and asset groups , long-term growth rates , profitability , estimated useful lives , comparable market multiples , and discount rates . any changes in these assumptions could impact the result of the impairment assessment . there was no impairment of goodwill or other long-lived assets during fiscal 2019 , 2018 and 2017. stock-based compensation we account for stock-based compensation through recognition of the fair value of the stock-based compensation as a charge against earnings . the fair value of employee stock options is estimated at the grant date using the black-scholes option-pricing model . the fair value for time-based restricted stock units and performance-based restricted stock units is based on the closing share price of our common stock on the date of grant . for performance-based restricted stock units , the compensation cost is recognized based on the number of units expected to vest upon the achievement of the performance conditions . we recognize stock-based compensation as an expense on a straight-line basis , over the requisite service period .
| the increase in average selling price was primarily driven by the launch of our new products during the second half of fiscal 2018 and throughout 2019. total robots shipped in fiscal 2019 increased 10.0 % to approximately 5.0 million units compared to approximately 4.5 million units in fiscal 2018. in fiscal 2019 , domestic revenue increased $ 42.6 million , or 7.6 % , and international revenue increased $ 78.8 million , or 14.8 % , compared to fiscal 2018. the international revenue growth was driven primarily by increases in revenue from japan and revenue from emea of 21 % and 15 % , respectively , compared to fiscal 2018. year ended december 29 , 2018 as compared to the year ended december 30 , 2017 revenue increased 23.6 % to $ 1,092.6 million in fiscal 2018 from $ 883.9 million in fiscal 2017. the $ 208.7 million increase in revenue was driven by a 21.6 % increase in units shipped , primarily related to growth of sales of our roomba 900 and 600 series robots , and a 6.5 % increase in average selling price , partially due to the acquisition of robopolis . total robots shipped in fiscal 2018 were approximately 4.5 million units compared to approximately 3.7 million units in fiscal 2017. in fiscal 2018 , domestic revenue increased $ 108.4 million , or 24.0 % , and international revenue increased $ 100.2 million , or 23.2 % , compared to fiscal 2017. cost of product revenue cost of product revenue includes the cost of materials , labor and overhead costs that go into the manufacture of our products . overhead primarily includes costs such as freight , import duties , depreciation , warranty , tools and quality assurance costs . material costs , which are our most significant cost items , can fluctuate materially on a periodic basis , although many components have been historically stable . there can be no assurance that our costs of materials will not increase . contract manufacturer labor costs also comprise a significant portion of our cost of materials . we outsource the manufacture of our robots to contract manufacturers in southern china and added manufacturing capacity in malaysia during november 2019. while labor costs in these regions traditionally have been favorable compared to labor costs elsewhere in the world , including the united states , they have been increasing for the last few years . in addition , because our purchase contract with our contract manufacturers in china and malaysia are typically denominated in u.s. dollars , changes in currency exchange rates may impact our suppliers and increase our prices . the following table shows cost of product revenue for fiscal years 2019 , 2018 and 2017 ( dollars in thousands ) : replace_table_token_5_th year ended december 28 ,
| 14,600 |
a large proportion of our revenues ( approximately 58 % ) and costs are incurred outside of the usa with a significant part ( 50 % of our total revenues ) of that in the united kingdom ( “ uk ” ) . in addition , a significant part of our assets ( both current and fixed ) are held in british pounds by our foreign subsidiaries . b. on june 23 , 2016 , the united kingdom voted to exit the european union . this resulted in significant currency exchange rate fluctuations and volatility in global stock markets including a sharp fall of the british pound against the us dollar . the british government has commenced negotiations to determine the terms of the exit from the european union ( so-called “ brexit ” ) . the united kingdom 's separation could , among other things , disrupt trade and the free movement of goods , services and people between the united kingdom and the european union or other countries as well as create legal and global economic uncertainty . currencies could remain volatile for the foreseeable future . c. since the brexit vote , we have suffered adverse currency movements affecting our uk businesses . in summary , since our reporting currency is the us dollar , the fall in the british pound impacts on our revenues , costs and balance sheet valuation . d. given the lack of comparable precedent , the implications of brexit or how such implications might affect the company in the medium to long term are unclear . further areas of impact include : i. the price of commodities , in particular o & g . the decline in o & g prices since 2014 with a partial recovery since 2016 has resulted in large scale reductions in capital and operational expenditures , which directly impact on the sales of our products into these and related markets and also our gross margins ; ii . the allocation of funds to defense procurement by governments in the united states and the united kingdom ; iii . volatility of the markets including the currency market ; iv . approximately 50 % of the company revenues are transacted and generated in british pounds by the company 's subsidiaries in the united kingdom and therefore we have a currency exposure .. the depreciation of the british pound against major currencies adversely impacts our revenues as a whole which are reported in u.s. dollars . furthermore , a large part of our assets is held in british pounds while the majority of our liabilities ( which comprise our senior secured debentures – see note 8 of the audited consolidated financial statements ) are maintained in u.s. dollars . in the 2017 period as compared to the same 2016 period , we realized a balance sheet gain on our assets due to a slight gain in the british pound against the us dollar prevailing at the balance sheet date of october 31 , 2017. in fiscal year 2017 compared to the 2016 period , we incurred a loss from the exchange rate translations in respect of our profit and loss account . see note 2 , paragraph n , of the audited consolidated financial statements october 31 , 2017 and 2016 regarding our foreign currency translation policy . v. global -political uncertainties affecting the markets into which we sell our goods and services ; vi . global trends which make certain geographical regions more competitive in providing engineering solutions because of lower labor costs ( e.g . india and china ) are likely to affect our engineering businesses in the group ; vii . being a small technology company , we are unable to compete for certain specialized electronic engineering skills as our remuneration package is not as competitive as those offered by bigger companies ; viii . t he company has issued and outstanding a promissory note ( see note 8 of the audited consolidated financial statements october 31 , 2017 and 2016 ) . this note is secured by all of the company 's assets in the usa and is also guaranteed by its overseas subsidiaries ; 23 ix . we lack the financial resources to advance our flagship technology at the commercially appropriate pace required to capture new markets and increase our sales which could facilitate new entrants to the market . for example , teledyne technologies incorporated , a multi-billion company , has recently acquired a number of subsea companies that may speed up their entry into our market ; x a significant part of our growth strategy is predicated on our patented real time 3d sonar technology . the technology space is inherently uncertain due to the fast pace of innovations and therefore we can give no assurance that we can maintain our leading position in the real time 3d imaging sonar market or that innovations in other areas may not surpass our unique capability that we currently supply to subsea market ; and xi . t he company has limited external sources of capital available , and as such is reliant upon its ability to sell its products and services to provide sufficient working capital for its operations and obligations . critical accounting policies this discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements in conformity with us gaap requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period . actual results could materially differ from those estimates . below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain . story_separator_special_tag a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 2 , “ summary of accounting policies ” of our consolidated financial statements . revenue recognition our revenue is derived from sales of underwater technologies and equipment for imaging , mapping , defense and survey applications and from the engineering services which we provide . revenue is recognized when evidence of a contractual arrangement exists , delivery has occurred or services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . no right of return privileges are granted to customers after delivery . for arrangements with multiple deliverables , we recognize product revenue by allocating the revenue to each deliverable based on the relative fair value of each deliverable , and recognize revenue when equipment is delivered , and for installation and other services as they are performed . 24 our contracts sometimes require customer payments in advance of revenue recognition . these amounts are reflected as liabilities and recognized as revenue when the company has fulfilled its obligations under the respective contracts . for software license sales for which any services rendered are not considered essential to the functionality of the software , we recognize revenue upon delivery of the software , provided ( 1 ) there is evidence of a contractual arrangement for this , ( 2 ) collection of our fee is considered probable and ( 3 ) the fee is fixed and determinable . for arrangements that are generated from time and material contracts where there is a signed agreement and approved purchase order in place that specifies the fixed hourly rate and other reimbursable costs to be billed based on material and direct labor hours incurred , revenue is recognized on these contracts based on material and direct labor hours incurred . revenues from fixed-price contracts are recognized on the percentage-of-completion method , measured by the percentage of costs incurred ( materials and direct labor hours ) to date to estimated total services ( materials and direct labor hours ) for each contract . this method is used as expenditures for direct materials and labor hours are considered to be the best available measure of progress on these contracts . losses on fixed-price contracts are recognized during the period in which the loss first becomes apparent based upon costs incurred to date and the estimated costs to complete as determined by experience from similar contracts . variations from estimated contract performance could result in adjustments to operating results . rental revenue is recognized monthly over the term of the rental period . recoverability of deferred costs we defer costs on projects for service revenue . deferred costs consist primarily of direct and incremental costs to customize and install systems , as defined in individual customer contracts , including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties . we recognize such costs in accordance with our revenue recognition policy by contract . for revenue recognized under the completed contract method , costs are deferred until the products are delivered , or upon completion of services or , where applicable , customer acceptance . for revenue recognized under the percentage of completion method , costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation . for revenue recognized ratably over the term of the contract , costs are recognized ratably over the term of the contract , commencing on the date of revenue recognition . at each balance sheet date , we review deferred costs , to ensure they are ultimately recoverable . any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue . stock based compensation we recognize the expense related to the fair value of stock based compensation awards within the consolidated statements of income and comprehensive income . we use the fair value method for equity instruments granted to non-employees and use the black-scholes model for measuring the fair value . the stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed ( measurement date ) and is recognized over the periods in which the related services are rendered . income taxes the company accounts for income taxes in accordance with accounting standards codification 740 , income taxes ( asc 740 ) . under asc 740 , deferred income tax assets and liabilities are recorded for the income tax effects of differences between the bases of assets and liabilities for financial reporting purposes and their bases for income tax reporting . the company 's differences arise principally from the use of various accelerated and modified accelerated cost recovery system for income tax purposes versus straight line depreciation used for book purposes and from the utilization of net operating loss carry-forwards . deferred tax assets and liabilities are the amounts by which the company 's future income taxes are expected to be impacted by these differences as they reverse . deferred tax assets are based on differences that are expected to decrease future income taxes as they reverse . correspondingly , deferred tax liabilities are based on differences that are expected to increase future income taxes as they reverse . note 7 to the consolidated financial statements discusses the amounts of deferred tax assets and liabilities , and also presents the impact of significant differences between financial reporting income and taxable income . 25 for income tax purposes , the company uses the percentage of completion method of recognizing revenues on long-term contracts which is consistent with the company 's financial reporting under u.s. generally accepted accounting principles . intangible assets intangible assets consist principally of the excess of cost over the fair value of net assets acquired ( or goodwill ) , customer relationships , non-compete agreements and licenses .
| the reason for the decline in our revenues during the 2017 period is the delay by the new us administration in approving defense spending ( and budget ) . this has resulted in prime defense contractors not finalizing contracts with coda octopus colmek ( a part of our services segment ) that were anticipated in our business plan for the 2017 period . accordingly , during the 2017 period , revenues generated by our services segment were $ 7,038,905 as compared to $ 10,534,178 during the 2016 period ( a decline of 33.2 % ( see break out in segment analysis on page f-25 of this report ) ) . although these opportunities which were projected in the 2017 period have not gone away , this segment continues to be impacted by the uncertainty around the timescales for the approval of the defense budget by the new administration . our outlook for this segment in the first quarter of fiscal 2018 is that its results will be significantly impacted by this ongoing delay , thus resulting in an overall decline in the group 's revenues during the first quarter of 2018 fiscal year . during the 2017 period , the company had one customer from whom it generated sales greater than 10 % of net revenues . revenue from this customer was $ 4,036,591 , or 22 % of net revenues during the period . total accounts receivable from this customer at october 31 , 2017 was $ 289,571 or 21 % of accounts receivable . gross margin : margins were 66.4 % in the 2017 period ( gross profit of $ 11,967,725 ) compared to 59.9 % ( gross profit of $ 12,652,997 ) in the 2016 period representing an increase of 6.6 percentage points . the increase in gross margin reflects the different mix of sales in the 2017 period , in particular , the products segment generated more revenues than the services segment and the products segment in general yields a greater gross margin on the sale or rental of its products . research and development ( r & d ) : r & d expenditures increased by 36.2 % from $ 1,013,125 in the 2016 period to $ 1,380,381 in the 2017 period and
| 14,601 |
antero midstream is a growth-oriented master limited partnership 52.8 % owned by antero resources corporation ( nyse : ar ) ( “ antero resources ” ) that was formed to own , operate and develop midstream energy infrastructure primarily to service antero resources ' increasing production and completion activity in the appalachian basin 's marcellus shale and utica shale located in west virginia and ohio . we believe that antero midstream 's strategically located assets and integrated relationship with antero resources position it to be a leading appalachian midstream provider across the full midstream value chain . our revenues are generated solely from the cash distributions we receive from antero midstream through our interests in idr llc . because our success is dependent upon the operations and management of antero midstream and its resulting performance , antero midstream 's annual report on form 10‑k for the year ended december 31 , 2018 , has been included in this filing as exhibit 99.1 and incorporated herein by reference . simplification agreement on february 26 , 2018 , we announced that the board of directors of our general partner formed a conflicts committee composed solely of independent directors in conjunction with the formation of a conflicts committee at antero midstream and a special committee at antero resources . in connection with our conflict committee 's efforts to explore , review and evaluate potential transactions involving us , on october 9 , 2018 , we announced that we and certain of our affiliates entered into a simplification agreement ( as may be amended from time to time , the “ simplification agreement ” ) , pursuant to which , among other things , we will be converted from a limited partnership to a corporation ( the “ conversion ” ) , which we refer to as “ new am , ” and new am will acquire all of the outstanding common units of antero midstream . each of our issued and outstanding common shares will be converted into an equivalent number of shares of new am 's common stock at the effective time of the conversion . based on the number of outstanding antero midstream common units and amgp common shares and their respective closing sales prices as of october 8 , 2018 ( the last trading day before the day the simplification agreement was announced ) , the approximately 17.35 million shares of new am common stock expected to be transferred pursuant to an exchange of the issued and outstanding series b units ( the “ series b exchange ” ) in the series b exchange represent approximately 4.4 % of the pro forma market capitalization of new am in excess of $ 2 billion ( representing approximately 3.4 % of the total pro forma market capitalization of new am ) . further , one of our indirect , wholly-owned subsidiaries will merge with and into antero midstream with antero midstream surviving as an indirect , wholly-owned subsidiary of new am ( the “ merger ” ) . at the effective time of the merger , each outstanding common unit of antero midstream held by antero midstream 's unitholders other than antero resources ( “ am public unitholders ” ) , will be converted into the right to receive , at such unitholder 's election and subject to proration as set forth in the simplification 22 agreement , one of : ( i ) $ 3.415 in cash without interest and 1.6350 shares of new am 's common stock for each of antero midstream 's common units held ( the “ public mixed consideration ” ) , ( ii ) 1.6350 shares of new am 's common stock plus an additional number of shares of new am 's common stock equal to the quotient of ( a ) $ 3.415 and ( b ) the average of the 20-day volume-weighted average trading price per amgp common share prior to the final election day for am public unitholders ( the “ amgp vwap ” ) , for each of antero midstream 's common units held ( the “ public stock consideration ” ) , or ( iii ) 3.415 in cash plus an additional amount of cash equal to the product of ( a ) 1.6350 and ( b ) the amgp vwap for each of antero midstream 's common units held ( the “ public cash consideration ” ) . at the effective time of the merger , antero resources will be entitled to receive $ 3.00 in cash without interest and 1.6023 shares of new am 's common stock ( the “ ar mixed consideration ” ) for each of antero midstream 's common units held by antero resources , subject to adjustment as described in the simplification agreement . the conversion , the merger , the series b exchange and the other transactions contemplated by the simplification agreement are collectively referred to as the “ transactions. ” for additional information on the simplification agreement and the transactions , see “ item 13. certain relationships and related transactions and director independence. ” our sources of revenue our revenues are generated solely from the cash distributions we receive from antero midstream through our interests in idr llc . as a result of our ownership interest in idr llc , we are positioned to grow our distributions disproportionately relative to the growth rate of antero midstream 's common unit distributions . accordingly , our primary business objective is to increase our cash available for distribution to our shareholders through the execution by antero midstream of its business strategy . unless we directly acquire and hold assets or businesses in the future , our revenues will continue to be generated solely from the cash distributions we receive from antero midstream through our interests in idr llc . story_separator_special_tag financial presentation we own the general partner interest in antero midstream through our interest in amp gp and own all of the capital interests in idr llc , which we control as managing member . we have no separate operating activities apart from those conducted by antero midstream , and our cash flows consist solely of distributions we receive relating to antero midstream 's distributions on its idrs . our financial statements are based on the equity method of accounting for our investment in antero midstream . cash distributions we distribute cash available for distribution to our shareholders . cash available for distribution is the cash distribution received from antero midstream reduced by reserves for estimated federal and state income taxes , general and administrative expenses , and reserves for other purposes deemed necessary by the board of directors of our general partner . distributable cash for the three months ended december 31 , 2018 was as follows : three months ended ( in thousands ) december 31 , 2018 cash distributions from antero midstream partners lp $ 43,492 cash reserved for distributions to unvested series b units of idr llc ( 710 ) cash distribution to vested series b units of idr llc ( 1,419 ) cash distributions to antero midstream gp lp 41,363 general and administrative expenses ( 3,184 ) interest expense , net ( 55 ) conflicts committee legal and advisory fees included in g & a expense ( 1 ) 2,753 provision and reserve for income taxes ( 10,240 ) cash available for distribution $ 30,637 ( 1 ) general and administrative expenses related to the formation and ongoing evaluations of the conflicts committee . see note 2—summary of significant accounting policies to the consolidated financial statements . the board of directors of our general partner has declared a cash distribution of $ 0.164 per share , or a total of approximately $ 31 million , for the quarter ended december 31 , 2018. the distribution will be payable on february 21 , 2019 to shareholders of record as of february 1 , 2019 . 23 items affecting comparability of our financial results certain of the historical financial results discussed below may not be comparable to future financial results primarily as a result of the significant increase in antero midstream 's cash distributions described below . as our sole source of income , any change in antero midstream 's cash distributions will have a direct financial impact on us . distributions to the idrs began in the fourth quarter of 2015 and have increased significantly since that time as the idrs are entitled to a greater marginal percentage interest in distributions . in addition , our results of operations prior to the completion of our initial public offering ( the “ ipo ” ) do not reflect the incremental expenses we are now incurring as a result of being a publicly traded company , and such results include the non-recurring costs we incurred in connection with the ipo . our historical results of operations for the year ended december 31 , 2017 also reflect a u.s. federal corporate tax rate of 35 % . effective january 1 , 2018 , the u.s. federal corporate tax rate was reduced from 35 % to 21 % . accordingly , our historical results of operations will reflect a higher u.s. federal corporate tax rate in comparison to our current and future financial results . certain of the historical financial results discussed below may not be comparable to future financial results primarily as a result of the significant increase in the scope of antero midstream 's operations over the last several years . antero midstream 's gathering and compression and water handling and treatment systems are relatively new , as a substantial portion of these assets have been built within the last five years . accordingly , antero midstream 's revenues and expenses over that time reflect the significant increase in its operations . similarly , antero resources has experienced significant changes in its production and drilling and completion schedule over that same period . as our income is predicated on antero midstream 's cash available for distribution , any change in antero midstream 's revenue and expenses could have a direct impact on us . accordingly , it may be difficult to project trends from our historical financial data going forward . story_separator_special_tag ended december 31 , 2017. antero midstream 's per-unit distribution increased in the year ended december 31 , 2017 from the year ended december 31 , 2016 , resulting in an increase in distributions on the idrs . in addition , idr llc receives a portion of antero midstream distributions based on a tiered approach , in which the percentage received of the total distribution increases at certain levels . the highest tier , in which cash distributions to antero midstream 's unitholders exceeds $ 0.255 per common unit it any quarter , entitles idr llc to 50 % of said distribution . this tier was met in each quarter of 2017 , opposed to only the third and fourth quarter of 2016 , which contributed to the increase in our equity in earnings of antero midstream . general and administrative expenses . general and administrative expenses increased from $ 0.8 million for the year ended december 31 , 2016 to $ 6.2 million for the year ended december 31 , 2017. during the year ended december 31 , 2016 , we did not incur any significant general and administrative costs ; however , during the year ended december 31 , 2017 , we incurred approximately $ 5.1 million of general and administrative costs in connection with our ipo and $ 1.1 million of expenses related to being a public company . 25 equity-based compensation expenses .
| equity-based compensation expenses remained relatively consistent at $ 34.9 million and $ 35.1 million for the years ended december 31 , 2017 and 2018 , respectively . see note 5—long-term incentive plans— to the consolidated financial statements . interest expense , net . interest expense , net was $ 136 thousand for the year ended december 31 , 2018 , including $ 150 thousand of interest expense and $ 14 thousand of interest income . interest expense in 2018 is primarily due to the amortization of deferred financing costs incurred under the credit facility ( defined below ) , which was entered into on may 9 , 2018. see note 3—credit facility— to the consolidated financial statements . income tax expense . income tax expense increased from $ 26.3 million for the year ended december 31 , 2017 to $ 32.3 million for the year ended december 31 , 2018. the increase is primarily due to higher taxable income as a result of the increase in equity in earnings of antero midstream related to the idrs , partially offset by the decrease in the u.s. corporate income tax rate from 35 % to 21 % beginning in 2018. the difference between income tax expense and expected income tax expense for financial statement purposes computed by applying the federal statutory rate of 21 % to pre-tax income is caused by nondeductible equity-based compensation and the effect of state income taxes . net income and comprehensive income . net income and comprehensive income increased from $ 2.3 million for the year ended december 31 , 2017 to $ 66.6 million for the year ended december 31 , 2018. the increase was primarily due to an increase in equity in earnings of antero midstream , partially offset by an increase in general and administrative expenses and income tax expenses . year ended december 31 , 2016 compared to year ended december 31 , 2017 replace_table_token_4_th * not meaningful or applicable . equity in earnings of antero midstream partners lp . equity in earnings of antero midstream increased from $ 16.9 million
| 14,602 |
we have not experienced any material disruptions to date and our strong balance sheet continues to provide us with the financial stability and flexibility to operate during these unprecedented times . additionally , we are evaluating options to condense real estate facilities as a result of remote work arrangements along with geographically expanding our recruiting efforts . we continue to monitor the impact of covid-19 on our university operations for future impacts of a potential worsening of global economic conditions as well as other unanticipated consequences . title iv programs a significant majority of our students rely on title iv programs to finance their education and therefore a significant proportion of our cash receipts come from title iv programs . as discussed throughout this annual report on form 10-k , our participation in title iv programs subjects us to extensive regulation . significant resources and management time are devoted to monitoring compliance with this complex regulatory framework . the scrutiny of the for-profit postsecondary education sector and the results of the 2020 presidential and congressional elections , including the resulting changes in department administration and policy objectives , could lead to significant regulatory changes . regulatory change is also likely to continue to be considered by the states and other governmental and regulatory agencies . we regularly evaluate opportunities to grow and benefit our business , including diversifying our educational offerings to increase the portion of our students who do not rely on title iv programs , which reduces the potential impact of future regulatory changes on our business . we will continue to evaluate these opportunities , including acquisition of quality educational institutions and programs and internally developing new programs where the students are less dependent upon title iv programs to finance their education , committing additional resources to grow our corporate partnership program and enhancing our efforts to recruit international students for our ground-based campuses following the covid-19 pandemic . we will continue to closely monitor potential regulatory changes while we endeavor to manage our business in a way that enhances our ability to comply with any future regulatory changes . however , depending on the nature of any future regulatory changes , we may be required to alter the manner in which we conduct our business in order to preserve our students ' ability to benefit from financial assistance for their education pursuant to title iv programs . any necessary business changes could impact our future operating results and opportunities for growth . please see item 1a , “ risk factors – risks related to the highly regulated field in which we operate , ” for more information about the risks and uncertainties relating to our highly regulated industry and potential regulatory changes . consolidated results of operations the summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the years ended december 31 , 2020 and 2019 ( dollars in thousands ) , including comparisons of our year-over-year performance between these years . please refer to item 7 , “ management 's discussion and analysis of financial condition and results of operation ” in our annual report on form 10-k for the year ended december 31 , 2019 for a discussion of our results for the year ended december 31 , 2018 , as well as the year-over-year comparison of our 2019 financial performance to 2018 . 40 replace_table_token_6_th _ ( 1 ) educational services and facilities expense includes costs attributable to the educational activities of our universities , including : salaries and benefits of faculty , academic administrators and student support personnel , and costs of educational supplies and facilities , such as rents on leased facilities and certain costs of establishing and maintaining computer laboratories . also included in educational services and facilities expense are rents on leased administrative facilities , such as our corporate headquarters , and costs of other goods and services provided by our campuses , including costs of textbooks and laptop computers . ( 2 ) general and administrative expense includes salaries and benefits of personnel in corporate and campus administration , marketing , admissions , information technology , financial aid , accounting , human resources , legal and compliance . other expenses within this expense category include costs of advertising and production of marketing materials and bad debt expense . year ended december 31 , 2020 as compared to the year ended december 31 , 2019 revenue revenue for the year ended december 31 , 2020 ( “ current year ” ) increased 9.5 % or $ 59.6 million , primarily driven by the trident acquisition . the revenue growth was also supported by a 16.7 % increase in total student enrollments and various operating initiatives that contributed to an increase of 20.2 % in new student enrollments . ctu 's and aiu 's new and total student enrollments are discussed in the segment results of operations section below . educational services and facilities expense ( dollars in thousands ) replace_table_token_7_th the educational services and facilities expense for the current year increased by 9.6 % or $ 9.8 million as compared to the prior year . academics and student related costs increased by 15.4 % or $ 12.1 million for the current year as compared to the prior year , primarily as a result of the trident acquisition . additionally , we invested in our faculty and advising functions during 2020 as our 41 student enrollments increase d . occupancy expenses for the current year improved by 9.8 % or $ 2.3 million as compared to the prior year , primarily driven by decreases associated with our closed campuses as those leased facilities reach the en d of their lease terms . general and administrative expense ( dollars in thousands ) replace_table_token_8_th the general and administrative expense for the current year decreased by 3.0 % or $ 12.9 million as compared to the prior story_separator_special_tag we have not experienced any material disruptions to date and our strong balance sheet continues to provide us with the financial stability and flexibility to operate during these unprecedented times . additionally , we are evaluating options to condense real estate facilities as a result of remote work arrangements along with geographically expanding our recruiting efforts . we continue to monitor the impact of covid-19 on our university operations for future impacts of a potential worsening of global economic conditions as well as other unanticipated consequences . title iv programs a significant majority of our students rely on title iv programs to finance their education and therefore a significant proportion of our cash receipts come from title iv programs . as discussed throughout this annual report on form 10-k , our participation in title iv programs subjects us to extensive regulation . significant resources and management time are devoted to monitoring compliance with this complex regulatory framework . the scrutiny of the for-profit postsecondary education sector and the results of the 2020 presidential and congressional elections , including the resulting changes in department administration and policy objectives , could lead to significant regulatory changes . regulatory change is also likely to continue to be considered by the states and other governmental and regulatory agencies . we regularly evaluate opportunities to grow and benefit our business , including diversifying our educational offerings to increase the portion of our students who do not rely on title iv programs , which reduces the potential impact of future regulatory changes on our business . we will continue to evaluate these opportunities , including acquisition of quality educational institutions and programs and internally developing new programs where the students are less dependent upon title iv programs to finance their education , committing additional resources to grow our corporate partnership program and enhancing our efforts to recruit international students for our ground-based campuses following the covid-19 pandemic . we will continue to closely monitor potential regulatory changes while we endeavor to manage our business in a way that enhances our ability to comply with any future regulatory changes . however , depending on the nature of any future regulatory changes , we may be required to alter the manner in which we conduct our business in order to preserve our students ' ability to benefit from financial assistance for their education pursuant to title iv programs . any necessary business changes could impact our future operating results and opportunities for growth . please see item 1a , “ risk factors – risks related to the highly regulated field in which we operate , ” for more information about the risks and uncertainties relating to our highly regulated industry and potential regulatory changes . consolidated results of operations the summary of selected financial data table below should be referenced in connection with a review of the following discussion of our results of operations for the years ended december 31 , 2020 and 2019 ( dollars in thousands ) , including comparisons of our year-over-year performance between these years . please refer to item 7 , “ management 's discussion and analysis of financial condition and results of operation ” in our annual report on form 10-k for the year ended december 31 , 2019 for a discussion of our results for the year ended december 31 , 2018 , as well as the year-over-year comparison of our 2019 financial performance to 2018 . 40 replace_table_token_6_th _ ( 1 ) educational services and facilities expense includes costs attributable to the educational activities of our universities , including : salaries and benefits of faculty , academic administrators and student support personnel , and costs of educational supplies and facilities , such as rents on leased facilities and certain costs of establishing and maintaining computer laboratories . also included in educational services and facilities expense are rents on leased administrative facilities , such as our corporate headquarters , and costs of other goods and services provided by our campuses , including costs of textbooks and laptop computers . ( 2 ) general and administrative expense includes salaries and benefits of personnel in corporate and campus administration , marketing , admissions , information technology , financial aid , accounting , human resources , legal and compliance . other expenses within this expense category include costs of advertising and production of marketing materials and bad debt expense . year ended december 31 , 2020 as compared to the year ended december 31 , 2019 revenue revenue for the year ended december 31 , 2020 ( “ current year ” ) increased 9.5 % or $ 59.6 million , primarily driven by the trident acquisition . the revenue growth was also supported by a 16.7 % increase in total student enrollments and various operating initiatives that contributed to an increase of 20.2 % in new student enrollments . ctu 's and aiu 's new and total student enrollments are discussed in the segment results of operations section below . educational services and facilities expense ( dollars in thousands ) replace_table_token_7_th the educational services and facilities expense for the current year increased by 9.6 % or $ 9.8 million as compared to the prior year . academics and student related costs increased by 15.4 % or $ 12.1 million for the current year as compared to the prior year , primarily as a result of the trident acquisition . additionally , we invested in our faculty and advising functions during 2020 as our 41 student enrollments increase d . occupancy expenses for the current year improved by 9.8 % or $ 2.3 million as compared to the prior year , primarily driven by decreases associated with our closed campuses as those leased facilities reach the en d of their lease terms . general and administrative expense ( dollars in thousands ) replace_table_token_8_th the general and administrative expense for the current year decreased by 3.0 % or $ 12.9 million as compared to the prior
| new student enrollments represent students who have started class at one of our academic institutions during the period , excluding students who were previously active at any point in time within the 365 days prior to the start of their course . beginning in 2021 , we are redesigning ctu 's academic calendar to strategically place breaks between sessions and provide more opportunities for students to continue with their academic programs . we believe this redesign will improve student experiences and engagement . ctu 's academic calendar redesign , along with the previous academic calendar redesign at aiu , may impact the comparability of revenue-earning days and enrollment days as well as future new enrollment results to historical periods and may not be reflective of operating performance and enrollment growth . as a result , we will no longer report new student enrollment results and will focus our discussions on total student enrollment in future quarters . replace_table_token_11_th _ ( 1 ) aiu includes new and total student enrollments relating to the trident acquisition commencing on the march 2 , 2020 date of acquisition and as of december 31 , 2020. year ended december 31 , 2020 as compared to the year ended december 31 , 2019 ctu . current year revenue increased by 3.4 % or $ 13.2 million as a result of the total student enrollment growth during 2020. for the year , ctu experienced positive new student enrollment growth of 7.4 % supporting a total student enrollment increase of 4.2 % as compared to the prior year . we believe this growth was supported by consistent levels of prospective student interest which were well served by ctu 's student enrollment processes and technology enhancements . current year operating income for ctu increased by 27.5 % or $ 29.9 million as compared to the prior year , primarily due to the increase in revenue discussed above . the current year improvement also benefitted from lower legal settlement expense as compared to the prior year , which included $ 18.6 million of expense related to the ftc settlement . the increased advertising and marketing , academics and admissions expenses for the current year as compared
| 14,603 |
non-food grade oils and fats produced and marketed by the company are principally sold to third parties to be used as ingredients in animal feed and pet food , as an ingredient for the production of biodiesel and renewable diesel , or to the oleo-chemical industry to be used as an ingredient in a wide variety of industrial applications . protein meals produced and marketed by the company are sold to third parties to be used as ingredients in animal feed , pet food and page 39 aquaculture . blood plasma powder and hemoglobin produced and marketed by the company are sold to third parties to be used as ingredients in animal feed , pet food and aquaculture . the food ingredients operating segment includes the company 's global activities related to ( i ) the collection and processing of beef and pork bone chips , beef hides , pig skins , and fish skins into gelatin and hydrolyzed collagen in europe , china , south america and north america , ( ii ) collection and processing of porcine and ovine intestines into natural casings in europe , china and north america , ( iii ) the extraction and processing of porcine mucosa into crude heparin in europe , ( iv ) the collection and refining of animal fat into food grade fat in europe , and ( v ) the processing of bones to bone chips for the gelatin industry and bone ash . gelatins produced and marketed by the company are sold to third parties to be used as ingredients in the pharmaceutical , nutriceutical , food , and technical ( i.e , photographic ) industries . natural casings produced and marketed by the company are sold to third parties to be used as an ingredient in the production of sausages and other similar food products . the fuel ingredients operating segment includes the company 's global activities related to ( i ) the conversion of animal fats and recycled greases into biodiesel in north america , ( ii ) the conversion of organic sludge and food waste into biogas in europe , ( iii ) the collection and conversion of fallen stock and certain animal by-products pursuant to applicable e.u . regulations into low-grade energy sources to be used in industrial applications , ( iv ) commencing in the second quarter of 2014 , the processing of manure into natural bio-phosphate in europe , and ( v ) the company 's share of the results of its equity investment in diamond green diesel holdings llc , a joint venture with valero energy corporation ( `` valero '' ) to convert animal fats , recycled greases , used cooking oil , inedible corn oil , soybean oil , or other feedstocks that become economically and commercially viable into renewable diesel ( the “ dgd joint venture ” ) as described in note 7 to the company 's consolidated financial statement for the period ended january 3 , 2015 included herein . corporate activities principally includes unallocated corporate overhead expenses , acquisition-related expenses , interest expense net of interest income , and other non-operating income and expenses . operating performance indicators the company is exposed to certain risks associated with a business that is influenced by agricultural-based commodities . these risks are further described in item 1a of this report under the heading `` risk factors . '' the company 's feed ingredients segment animal by-products , bakery residuals , used cooking oil recovery , and blood operations are each influenced by prices for agricultural-based alternative ingredients such as corn , soybean oil , soybean meal , and palm oil . in these operations , the costs of the company 's raw materials change with , or in certain cases are indexed to , the selling price or the anticipated selling price of the finished goods produced from the acquired raw materials and or in some cases , the price spread between various types of finished products . the company believes that this methodology of procuring raw materials generally establishes a relatively stable gross margin upon the acquisition of the raw material . although the costs of raw materials for the feed ingredients segment are generally based upon actual or anticipated finished goods selling prices , rapid and material changes in finished goods prices , including competing agricultural-based alternative ingredients , generally have an immediate and often times , material impact on the company 's gross margin and profitability resulting from the lag effect or lapse of time from the procurement of the raw materials until they are processed and the finished goods sold . in addition , the amount of raw material volume acquired , which has a direct impact on the amount of finished goods produced , can also have a material effect on the gross margin reported , as the company has a substantial amount of fixed operating costs . the prices available for the company 's food ingredients segment gelatin and natural casings products are influenced by other competing ingredients including plant-based and synthetic hydrocolloids and artificial casings . in the gelatin operation , in particular , the cost of the company 's animal-based raw material moves in relationship to the selling price of the finished goods . the processing time for gelatin and casings is generally 30 to 60 days , which is substantially longer than the company 's animal by-products operations . consequently , the company 's gross margin and profitability in this segment can be influenced by the movement of finished goods prices from the time the raw materials were procured until the finished goods are sold . the reporting currency for the company 's financial statements is the u.s. dollar . the company operates in over 15 countries and therefore , certain of the company 's assets , liabilities , revenues and expenses are denominated in functional currencies other than the u.s. dollar , primarily in the euro , brazilian real , chinese renminbi , canadian dollar , argentine peso , japanese yen and polish zloty . story_separator_special_tag to prepare the company 's consolidated financial statements the company must translate those assets , liabilities , revenues , and expenses into u.s. dollars at the applicable exchange rate . as a result , increases or decreases in the value of the u.s. dollar against these other currencies will affect the amount of these items recorded in the company 's consolidated financial statements , even if their value has not changed in the functional currency . this could have a significant impact on the company 's results , if such increase or decrease in the value of the u.s. dollar relative to these other currencies is substantial . page 40 the company monitors the performance of its business segments using key financial metrics such as segment operating income , metric tons of raw material processed , gross margin percentage , foreign currency , and adjusted ebitda . the company 's operating results can vary significantly due to changes in factors such as the fluctuation in energy prices , weather conditions , crop harvests , government policies and programs , changes in global demand , changes in standards of living , protein consumption , and global production of competing ingredients . due to these unpredictable factors that are beyond the control of the company , the company does not provide forward-looking financial or operational estimates . fiscal year ended january 3 , 2015 compared to fiscal year ended december 28 , 2013 fiscal 2014 includes an additional week of operations which occurs every five to six years . in fiscal 2014 the additional week increased net sales and operating income by approximately $ 71 million and $ 3 million , respectively . as a result of the vion acquisition and the rothsay acquisition , the company 's results for the twelve months of fiscal 2014 include 52 weeks of operations from the vion acquisition and 53 weeks from the rothsay acquisition , as compared to no operations from the vion acquisition and 9 weeks from the rothsay acquisition in the twelve months of fiscal 2013. net income attributable to darling for the fiscal year ended january 3 , 2015 was $ 64.2 million , or $ 0.39 per diluted share , as compared to net income of $ 109.0 million , or $ 0.91 per diluted share , for the fiscal year ended december 28 , 2013. the results for the fiscal years of fiscal 2014 and 2013 , respectively , include the following after-tax costs : fiscal 2014 $ 31.3 million ( $ 0.19 per diluted share ) related to a non-cash inventory step-up associated with the required purchase accounting for the vion acquisition related to the portion of acquired inventory sold during the period ; $ 19.9 million ( $ 0.12 per diluted share ) related to the redemption premium and write-off of deferred loan costs associated with the retirement of the company 's 8.5 % senior notes on february 7 , 2014 ; $ 21.0 million ( $ 0.13 per diluted share ) associated with the acquisition and integration of rothsay and vion ingredients during the period ; and $ 7.9 million ( $ 0.05 per diluted share ) related to certain euro forward contracts entered into to hedge against foreign exchange risks related to the closing of the vion acquisition . fiscal 2013 $ 15.3 million ( $ 0.13 per diluted share ) associated with the acquisition costs of the rothsay acquisition , the acquisition costs related to the acquired shares of terra holding company , a delaware corporation , and its wholly owned subsidiaries , terra renewal services , inc. , an arkansas corporation ( `` trs '' ) , and ev acquisition , inc. , an arkansas corporation ( the `` terra transaction '' ) and the incurred costs related to the vion acquisition during the period ; $ 8.0 million ( $ 0.07 per diluted share ) related to an unused bridge financing facility commitment associated with the vion acquisition ; and $ ( 16.9 ) million ( $ 0.14 per diluted share ) related to an unrealized gain on certain euro forward contracts entered into to hedge against foreign exchange risks related to the closing of the vion acquisition . without the inventory step-up cost , the redemption premium and deferred loan write-off associated with the 8.5 % senior notes , the acquisition and integration costs and the euro forward contract hedge , net income and diluted earnings per common share would have been $ 144.3 million and $ 0.88 per diluted share , respectively , for the fiscal year ended january 3 , 2015 , as compared to $ 115.4 million and $ 0.97 per share , respectively , for the fiscal year ended december 28 , 2013. segment operating income for the fiscal year ended january 3 , 2015 was $ 164.5 million , which reflects a decline of $ 5.1 million , or 3.0 % , as compared to the fiscal year ended december 28 , 2013. the results for fiscal year 2014 include an increase to cost of sales of $ 49.8 million related to the inventory step-up associated with the required purchase accounting for the vion acquisition . without these costs , segment operating income for fiscal year 2014 would have been $ 214.3 million , or 26.4 % higher than the same period in 2013. including the company 's share of net income of unconsolidated subsidiaries , primarily the dgd joint venture , segment income for the year ended january 3 , 2015 would have been $ 279.9 million , or $ 102.6 million ( 57.9 % ) higher than the same period in 2013. the dgd joint venture has not yet distributed any earnings to its venture partners . page 41 non-u.s. gaap measures adjusted ebitda is presented here not as an alternative to net income , but rather as a measure of the company 's operating performance and is not intended to be a presentation in accordance with gaap .
| during the first quarter of fiscal 2012 , the jacobsen stopped reporting bbp , which is the end product of the company 's bakery segment . as a result , the company monitored prices for corn , which is a substitute commodity for bbp and generally indicative of bbp price performance . the company regularly monitored jacobsen reports on mbm , pm , bft , pg , yg and corn because they provide a daily indication of the company 's u.s. revenue performance against business plan benchmarks . although the jacobsen provides one useful metric of performance , the company 's 2013 finished products are commodities that compete with other commodities such as corn , soybean oil , inedible corn oil , palm oils , soybean meal and heating oil on nutritional and functional values and therefore actual pricing for the company 's finished products , as well as competing products , can be quite volatile . in addition , the jacobsen does not provide data regarding international markets or forward or future period u.s. pricing . the jacobsen prices quoted below are for delivery of the finished product at a specified u.s. location . although the company 's u.s. prices generally move in concert with reported jacobsen prices , the company 's actual sales prices for its finished products may vary significantly from the jacobsen because of delivery timing differences and because the company 's finished products are delivered to multiple locations in different geographic regions which utilize different price indexes . in addition , certain of the company 's premium branded u.s. finished products may also sell at page 47 prices that may be higher than the closest related product quoted by the jacobsen . during fiscal 2013 , the company 's actual sales prices by product trended with the reported jacobsen prices . average jacobsen prices ( at the specified delivery point ) for fiscal 2013 , compared to average jacobsen prices for fiscal 2012 follow : replace_table_token_10_th the overall decrease in average pm ( pet food ) , bft , pg , yg and corn prices in fiscal 2013 had an unfavorable impact on revenue that was partially offset
| 14,604 |
14 inventory valuation allowance in conjunction with the company 's ongoing analysis of inventory valuation , management constantly monitors projected demand on a product-by-product basis . based on these projections , management evaluates the levels of write-downs required for inventory on hand and inventory on order from contract manufacturers . although the company believes that it has been reasonably successful in identifying write-downs in a timely manner , sudden changes in buying patterns from customers , either due to a shift in product interest and or a complete pull back from their expected order levels , may result in the recognition of larger-than-anticipated write-downs . story_separator_special_tag the company is also working with a new supplier that will be producing renacidin in a new single-dose container , which the company hopes will increase its sales of this product in future years . in august 2014 the company filed an application with the fda to market the new product , is hoping to receive fda approval by the end of the first quarter of 2015 , and hopes to have the new product on the market in the third quarter of 2015. however , any delays in fda approval could change that timetable . meanwhile , the company is continuing to receive new shipments of the current dosage form of renacidin , and expects to have adequate inventory to last until the new single-dose form is approved . the increase in sales of the company 's pharmaceutical products was reduced by an increase of $ 49,462 in allowances for distribution fees , product returns , and chargebacks paid to the u.s. department of veterans affairs . 16 ( c ) medical ( non-pharmaceutical ) products : sales of the company 's medical products decreased by $ 534,454 ( 17.6 % ) in 2014 compared with 2013. approximately 83 % of the decrease for 2014 was attributable to the discontinuation of sales to a customer that had eliminated the company 's product as an ingredient in one of its products at the end of 2013. the balance of the decrease is believed to be due to the timing of orders from certain customers . ( d ) industrial and other products : sales of the company 's industrial products , as well as other miscellaneous products , increased by $ 5,471 ( 3.3 % ) in 2014 when compared with 2013. cost of sales cost of sales as a percentage of net sales in 2014 increased to 39.5 % from 36.4 % in the prior year . the increase was primarily the result of the company 's fixed overhead costs being allocated over a smaller number of production units , due to the decrease in demand for the company 's products during the third quarter of 2014 ( see “ net sales ” above ) . due to a reduction in the number of units produced some of the fixed overhead costs , which are usually absorbed as production costs , were included in cost of sales as period costs during the third quarter of 2014. changes in the company 's product sales mix and additional sales discounts provided to customers also contributed to the increase . operating expenses operating expenses increased by $ 136,471 ( 5.4 % ) in 2014 compared with the prior year . the increase was mainly attributed to increases in freight expense , insurance , payroll and payroll-related expenses . the increase in freight expense was a result of an increase in shipments of renacidin in 2014 compared with 2013. portions of the company 's operating expenses are directly attributable to the research and development that the company performs . in 2014 and 2013 , the company incurred approximately $ 730,000 and $ 717,000 respectively , in research and development expenses , which are included in operating expenses . the increase in r & d costs incurred in 2014 was primarily attributable to increases in payroll costs . in 2014 approximately $ 20,000 was received from two customers for r & d work on the development of new products . the payment was mainly for salary expense and is included in the 2014 r & d expense above . other income ( expense ) other income ( net ) decreased by $ 1,066,313 ( 80.2 % ) for the year ended december 31 , 2014 when compared with 2013. the decreases were mainly attributable to the cessation of the renacidin settlement payments in 2014. as a result , income from those payments decreased $ 1,046,158 for the year ended 2014 as compared to 2013. the company earns interest income from money market funds and bonds , and dividend income from both stock and bond mutual funds . other income was reduced in 2014 by a decrease in investment income of $ 20,155 ( 7.8 % ) , which primarily resulted from the loss on the sale of mutual funds . 17 provision for income taxes the provision for income taxes decreased by $ 1,023,999 ( 37.5 % ) in 2014 compared with 2013. this decrease was mainly due to a decrease in income from operations and from the cessation of the renacidin damage settlement . the company 's effective income tax rate was approximately 30 % in 2014 and 32 % in 2013 , and is lower than the federal statutory rate of 34 % primarily due to the additional tax deduction for domestic production activities as well as the utilization of research and development tax credits . liquidity and capital resources working capital increased from $ 13,061,866 at december 31 , 2013 to $ 13,688,101 at december 31 , 2014 , an increase of $ 626,235 ( 4.8 % ) . the current ratio increased from 11.5 to 1 at december 31 , 2013 to 15.0 to 1 at december 31 , 2014. the increases in working capital and the current ratio were mainly due to additional purchases of marketable securities , increases in cash , and story_separator_special_tag 14 inventory valuation allowance in conjunction with the company 's ongoing analysis of inventory valuation , management constantly monitors projected demand on a product-by-product basis . based on these projections , management evaluates the levels of write-downs required for inventory on hand and inventory on order from contract manufacturers . although the company believes that it has been reasonably successful in identifying write-downs in a timely manner , sudden changes in buying patterns from customers , either due to a shift in product interest and or a complete pull back from their expected order levels , may result in the recognition of larger-than-anticipated write-downs . story_separator_special_tag the company is also working with a new supplier that will be producing renacidin in a new single-dose container , which the company hopes will increase its sales of this product in future years . in august 2014 the company filed an application with the fda to market the new product , is hoping to receive fda approval by the end of the first quarter of 2015 , and hopes to have the new product on the market in the third quarter of 2015. however , any delays in fda approval could change that timetable . meanwhile , the company is continuing to receive new shipments of the current dosage form of renacidin , and expects to have adequate inventory to last until the new single-dose form is approved . the increase in sales of the company 's pharmaceutical products was reduced by an increase of $ 49,462 in allowances for distribution fees , product returns , and chargebacks paid to the u.s. department of veterans affairs . 16 ( c ) medical ( non-pharmaceutical ) products : sales of the company 's medical products decreased by $ 534,454 ( 17.6 % ) in 2014 compared with 2013. approximately 83 % of the decrease for 2014 was attributable to the discontinuation of sales to a customer that had eliminated the company 's product as an ingredient in one of its products at the end of 2013. the balance of the decrease is believed to be due to the timing of orders from certain customers . ( d ) industrial and other products : sales of the company 's industrial products , as well as other miscellaneous products , increased by $ 5,471 ( 3.3 % ) in 2014 when compared with 2013. cost of sales cost of sales as a percentage of net sales in 2014 increased to 39.5 % from 36.4 % in the prior year . the increase was primarily the result of the company 's fixed overhead costs being allocated over a smaller number of production units , due to the decrease in demand for the company 's products during the third quarter of 2014 ( see “ net sales ” above ) . due to a reduction in the number of units produced some of the fixed overhead costs , which are usually absorbed as production costs , were included in cost of sales as period costs during the third quarter of 2014. changes in the company 's product sales mix and additional sales discounts provided to customers also contributed to the increase . operating expenses operating expenses increased by $ 136,471 ( 5.4 % ) in 2014 compared with the prior year . the increase was mainly attributed to increases in freight expense , insurance , payroll and payroll-related expenses . the increase in freight expense was a result of an increase in shipments of renacidin in 2014 compared with 2013. portions of the company 's operating expenses are directly attributable to the research and development that the company performs . in 2014 and 2013 , the company incurred approximately $ 730,000 and $ 717,000 respectively , in research and development expenses , which are included in operating expenses . the increase in r & d costs incurred in 2014 was primarily attributable to increases in payroll costs . in 2014 approximately $ 20,000 was received from two customers for r & d work on the development of new products . the payment was mainly for salary expense and is included in the 2014 r & d expense above . other income ( expense ) other income ( net ) decreased by $ 1,066,313 ( 80.2 % ) for the year ended december 31 , 2014 when compared with 2013. the decreases were mainly attributable to the cessation of the renacidin settlement payments in 2014. as a result , income from those payments decreased $ 1,046,158 for the year ended 2014 as compared to 2013. the company earns interest income from money market funds and bonds , and dividend income from both stock and bond mutual funds . other income was reduced in 2014 by a decrease in investment income of $ 20,155 ( 7.8 % ) , which primarily resulted from the loss on the sale of mutual funds . 17 provision for income taxes the provision for income taxes decreased by $ 1,023,999 ( 37.5 % ) in 2014 compared with 2013. this decrease was mainly due to a decrease in income from operations and from the cessation of the renacidin damage settlement . the company 's effective income tax rate was approximately 30 % in 2014 and 32 % in 2013 , and is lower than the federal statutory rate of 34 % primarily due to the additional tax deduction for domestic production activities as well as the utilization of research and development tax credits . liquidity and capital resources working capital increased from $ 13,061,866 at december 31 , 2013 to $ 13,688,101 at december 31 , 2014 , an increase of $ 626,235 ( 4.8 % ) . the current ratio increased from 11.5 to 1 at december 31 , 2013 to 15.0 to 1 at december 31 , 2014. the increases in working capital and the current ratio were mainly due to additional purchases of marketable securities , increases in cash , and
| as a result of discussions between the company , asi , and this customer , the company believes that in 2015 it will regain some of the business that it lost to the second source supplier . however , for the near future the company anticipates that sales to this customer will be down compared with previous years , and the company is working closely with asi to expand its customer base to make up for some of this lost business . the other significant reason for the decline in sales to asi during 2014 was the purchase by asi of unusually large quantities of product at the end of 2013 and first quarter of 2014 to fill orders placed by its customers in china . as a result , asi did not purchase similar quantities of product for those customers in the second and third quarters of 2014. asi has informed the company , however , that sales to those customers in china are expected to remain strong , and that these fluctuations in purchases are more an issue of the timing of orders rather than any loss of business . in the fourth quarter of 2014 and the first quarter of 2015 the company received substantial new orders from asi intended for those customers in china . 15 in addition to the lower sales to asi , sales to the company 's other marketing partners in europe were down due to the continuing economic problems in europe . although there has also been additional competition in the marketplace for the company 's products , the company 's marketing partners in europe have indicated that they have not yet experienced any significant loss of customers due to competitive products . total sales of all of the company 's lubrajel products for both personal care and medical uses decreased by $ 2,547,184 ( 18.1 % ) in 2014 compared with 2013. the unit volume of all lubrajel products sold , both for personal care and medical uses , decreased by approximately 17.9 % in 2014 compared with 2013. revenue from the company 's personal care products was also negatively impacted in 2014 due
| 14,605 |
for the year ended december 31 , 2019 , we generated revenue of $ 189.5 million and had net income of $ 11.0 million , compared to revenue of $ 143.8 million and net income of $ 6.6 million for the year ended december 31 , 2018 , and revenue of $ 109.3 million and net income of $ 5.9 million for the year ended december 31 , 2017. our primary sources of capital to date have been from operating income and private placements of our capital stock , as well as our initial public offering , which closed on august 2 , 2016. in august 2017 , we filed a shelf registration statement on form s-3 with the sec . under the shelf registration statement , we may offer and sell from time to time up to $ 200 million of common stock , preferred stock , debt securities , warrants , rights or units . the shelf registration statement also registered for resale from time to time up to 5,703,534 shares of our common stock held by the selling stockholders named therein . in september 2017 , certain of the selling stockholders completed a secondary offering of 3,795,000 shares of our common stock at a public offering price of $ 33.00 per share . we did not receive any proceeds from the sale of the shares by the selling stockholders . we operate in one segment for financial reporting purposes . 68 components of our results of operations revenue we derive our revenue from the sale of our flexitouch , entre and actitouch systems and the airwear wrap to patients in the united states . revenue growth has been driven by increased clinician , patient and payer awareness of lymphedema and the clinical efficacy of our flexitouch system , and the launch of our entre system in 2013. we have expanded our direct sales force , which helps us drive and support our revenue growth and intend to continue this expansion . however , any reversal in these recent trends could have a negative impact on our future revenue . our revenue has fluctuated , and we expect our revenue to continue to fluctuate , from quarter to quarter due to a variety of factors . for instance , our fourth quarter is consistently our strongest quarter of the year . see item 7 . “ management 's discussion and analysis of financial condition and results of operations – seasonality ” for a further discussion of factors contributing to our seasonality . further , our revenue is impacted by fluctuations in the mix of products being sold and rented during each period and changes in the mix of our payers and contract pricing . we sell or rent our products either directly to patients or to the veterans administration on behalf of patients , who are referred to us by physicians , therapists or nurses . we bill payers , such as private insurers , medicare , or medicaid , on behalf of our patients and bill patients directly for their cost-sharing amounts , including any portion of an unsatisfied deductible and any copayments or co-insurance . we bill the veterans administration directly for the purchase or lease of our product on behalf of the patient . approximately 17 % of our revenue in 2019 and 20 % of our revenue in 2018 came from the veterans administration . approximately 11 % of our revenue in 2019 and 9 % of our revenue in 2018 came from medicare patients . changes to the level of medicare coverage for our products , including the 2015 lcd modification to the criteria for medicare coverage , could reduce the number of medicare patients who have access to our products . our products currently are not subject to the competitive bidding process for supplying covered items to medicare recipients . we expect our revenue to continue to increase in the future as a result of increased awareness of our solutions , expansion of our direct sales force , enhanced marketing and customer support efforts , continued focus on developing clinical and economic outcomes data , efforts related to expanded third-party reimbursement and longer term , potential introduction of our solutions outside the united states . we also anticipate pricing pressure from private insurers , which will result in continued downward pressure on our revenue growth rate . cost of revenue and gross margin cost of revenue consists primarily of component costs , direct labor , overhead costs , product warranties , provisions for slow-moving and obsolete inventory , delivery costs for items sold or rented , and amortization related to the intangible assets related to our products . a significant portion of our cost of revenue consists of manufacturing overhead costs . these overhead costs include the cost of quality assurance , material procurement , inventory control , facilities , equipment and operations supervision and management . cost of revenue also includes depreciation expense for product tooling and equipment as well as shipping costs . we expect overhead costs as a percentage of revenue to decrease as a result of expected increases in production volume and yields . we expect cost of revenue to increase in absolute dollars primarily if , and to the extent , our revenue grows . we provide a warranty on our device controllers ranging from one to two years for commercially insured patients and five years for medicare patients , as required by centers for medicare and medicaid services . we also provide replacement garments to our patients for up to five years after purchase . we establish a reserve for warranty claims based on historical warranty replacement costs incurred . provisions for warranty obligations , which are included in cost of revenue , are recorded at the time of shipment . we calculate gross margin as gross profit divided by revenue . our gross margin has been and will continue to be affected by a variety of factors , including product and payer mix , production volumes , manufacturing costs and cost-reduction strategies . story_separator_special_tag in 2018 , our gross margin was also impacted by a $ 0.7 69 million inventory write-off related to the impairment of our actitouch assets . in addition , the up-front payment we made under our license agreement with sun scientific inc. is being amortized as a cost of revenue . we expect our gross margin to decrease slightly over the near term as we experience pricing pressure from third-party payers . we continue to work to reduce product manufacturing cost through enhanced product design efforts as well as supply chain initiatives in an effort to offset anticipated price erosion . our gross margin will likely fluctuate from quarter to quarter . sales and marketing expenses our sales and marketing expenses support our direct-to-patient and -provider model . these expenses consist primarily of personnel-related expenses , including salaries , bonuses , commissions and benefits for employees . they also include expenses for patient home training , social media and advertising , informational kits , public relations and other promotional and marketing activities , field sales travel and entertainment expenses , trade shows and conferences , stock-based compensation , as well as customer service . we expect sales and marketing expenses to continue to increase in absolute dollars as we expand our commercial infrastructure to drive and support our planned revenue growth . to the extent our revenue grows , we expect sales and marketing expenses to decrease as a percentage of revenue over time . research and development expenses research and development , or r & d , expenses consist primarily of personnel-related expenses , third-party product development costs , laboratory supplies , consulting fees and related costs , clinical research expenses , expenses related to clinical and regulatory affairs , patent amortization costs , stock-based compensation and patent legal fees , including defense costs , and testing costs for new product launches . clinical research expenses include clinical trial management and monitoring , payment to clinical investigators , consulting fees , data management , stock-based compensation , travel expenses and the cost of manufacturing products for clinical trials . we have made substantial investments in r & d since our inception . our r & d efforts have focused primarily on activities designed to enhance our technologies and to support development and commercialization of new and existing products . we expect r & d expenses to increase for the foreseeable future as we continue to develop , enhance and commercialize new products and expand clinical trial efforts . we expect r & d expenses as a percentage of our revenue to vary over time depending on the level and timing of initiating new product development efforts , as well as our clinical trial activities . reimbursement , general and administrative expenses reimbursement , general and administrative expenses consist primarily of compensation , including salaries , bonuses and benefits for employees in our patient services and advocacy , billing and collections , case management , payer relations and governmental affairs and reimbursement operations departments , as well as finance , human resources and administration , information technology , business development and general management functions , and facilities costs . reimbursement expenses also include consulting , travel to payer case manager seminars , professional development and training , and certification expenses . general and administrative expenses also include professional services such as legal , consulting and accounting services , stock-based compensation , travel expenses and insurance costs . our reimbursement , general and administrative expenses were impacted by a net $ 1.1 million charge in 2019 related to the lease termination for our former headquarters and a $ 1.8 million intangible asset impairment charge in 2018 related to our actitouch assets . other income ( expense ) , net other income ( expense ) , net consists primarily of interest income related to investment income earned on our invested capital portfolio . income tax expense ( benefit ) our income tax expense ( benefit ) consists primarily of permanent differences related to share-based compensation activity , as well as deferred income taxes resulting from temporary differences between the reporting of amounts for financial statement purposes and income tax purposes . 70 critical accounting policies and significant estimates our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states , or gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities , and related disclosure of contingent assets and liabilities , revenue and expenses at the date of the financial statements . generally , we base our estimates on historical experience and on various other assumptions in accordance with gaap that we believe to be reasonable under the circumstances . actual results may differ from these estimates and such differences could be material to our financial position and results of operations . while our significant accounting policies are more fully described in note 3 to our consolidated financial statements included elsewhere in this report , we believe the following discussion addresses our most critical accounting policies , which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult , subjective and complex judgments . revenue recognition we derive revenue from the sales and rentals of our products , which consist of our proprietary line of flexitouch , entre and actitouch systems as well as the airwear wrap . we recognize revenue when control of the product has been transferred to our customer , in the amount of the expected consideration to be received for the product . in general , revenue from the sale or rental of a product is recognized upon shipment , unless circumstances dictate that control has not yet passed to the customer .
| gross margin was 71 % for both of the years ended december 31 , 2019 and 2018 , respectively . sales and marketing expenses sales and marketing expenses increased $ 18.5 million , or 31 % , to $ 78.9 million during the year ended december 31 , 2019 , compared to $ 60.4 million during the year ended december 31 , 2018. the increase was primarily attributable to our continued investment in our field sales team , patient training and marketing initiatives to increase clinician awareness , resulting in an increase of $ 13.1 million in personnel-related compensation expenses , including $ 1.1 million of incremental stock-based compensation expense , as well as a $ 5.4 million increase in associated expenses . research and development expenses r & d expenses decreased $ 0.1 million , or 2 % , to $ 5.2 million during the year ended december 31 , 2019 , compared to $ 5.3 million during the year ended december 31 , 2018. the decrease in r & d expenses was primarily attributable to a $ 0.1 million decrease of post launch related product support costs of our flexitouch plus launched in 2018. reimbursement , general and administrative expenses reimbursement , general and administrative expenses increased $ 6.0 million , or 18 % , to $ 39.6 million during the year ended december 31 , 2019 , compared to $ 33.6 million during the year ended december 31 , 2018. the increase in reimbursement , general and administrative expenses for the year ended december 31 , 2019 , was primarily attributable to a $ 2.8 million increase in personnel-related expenses , resulting from increased headcount in our reimbursement operations , payer relations , patient services and corporate functions , a $ 0.5 million increase in stock-based compensation expense , an increase of $ 1.2 million in professional fees , legal , accounting , audit and tax expenses and software fees and a $ 2.0 million increase in other operating expenses , including facilities , depreciation and service charges . facilities expenses
| 14,606 |
the business cloud services business also generates revenues by licensing certain technology to third parties . these licensing revenues are recognized when earned in accordance with the terms of the underlying agreement . generally , revenue is recognized as the third party uses the licensed technology over the period . digital media the company 's digital media revenues primarily consist of revenue generated from the sale of advertising campaigns that are targeted to our proprietary websites . revenue for these advertising campaigns is recognized as earned either when an ad is placed for viewing by a visitor to the appropriate web page or when the customer `` clicks through '' on the ad , depending upon the terms with the individual advertiser . revenue for digital media business-to-business operations consists of lead-generation campaigns for it vendors and is recognized as earned when the company delivers the qualified leads to the customer . j2 global also generates digital media revenues through the license of certain assets to clients , for the clients ' use in their own promotional materials or otherwise . such assets may include logos , editorial reviews , or other copyrighted material . revenue under such license agreements is recognized when the assets are delivered to the client . the digital media business also generates other types of revenue , including business listing fees , subscriptions to online publications , and from other sources . such other revenues are recognized as earned . investments . we account for our investments in debt and equity securities in accordance with fasb asc topic no . 320 , investments - debt and equity securities ( “ asc 320 ” ) . asc 320 requires that certain debt and equity securities be classified into one of three categories : trading , available-for-sale or held-to-maturity securities . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts and time deposits . we determine the appropriate classification of our investments at the time of acquisition and reevaluate such determination at each balance sheet date . held-to-maturity securities are those investments that we have the ability and intent to hold until maturity . held-to-maturity securities are recorded at amortized cost . available-for-sale securities are recorded at fair value , with unrealized gains or losses recorded as a separate component of accumulated other comprehensive income ( loss ) in stockholders ' equity until realized . trading securities are carried at fair value , with unrealized gains and losses included in interest and other income on our consolidated statement of income . all securities are accounted for on a specific identification basis . we assess whether an other-than-temporary impairment loss on an investment has occurred due to declines in fair value or other market conditions ( see note 4 of the notes to consolidated financial statements included elsewhere in this annual report on form 10-k ) . share-based compensation expense . we comply with the provisions of fasb asc topic no . 718 , compensation - stock compensation ( “ asc 718 ” ) . accordingly , we measure share-based compensation expense at the grant date , based on the fair value of the award , and recognize the expense over the employee 's requisite service period using the straight-line method . the measurement of share-based compensation expense is based on several criteria including , but not limited to , the valuation model used and associated input factors , such as expected term of the award , stock price volatility , risk free interest rate , dividend rate and award cancellation rate . these inputs are subjective and are determined using management 's judgment . if differences arise between the assumptions used in determining share-based compensation expense and the actual factors , which become known over time , we may change the input factors used in determining future share-based compensation expense . any such changes could materially impact our results of operations in the period in which the changes are made and in periods thereafter . we elected to adopt the alternative transition method for calculating the tax effects of share-based compensation and continue to use the simplified method in developing the expected term used for our valuation of share-based compensation in accordance with asc 718. long-lived and intangible assets . we account for long-lived assets in accordance with the provisions of fasb asc topic no . 360 , property , plant , and equipment ( “ asc 360 ” ) , which addresses financial accounting and reporting for the impairment or disposal of long-lived assets . we assess the impairment of identifiable intangibles and long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors we consider important which could individually or in combination trigger an impairment review include the following : - 32 - . significant underperformance relative to expected historical or projected future operating results ; . significant changes in the manner of our use of the acquired assets or the strategy for our overall business ; . significant negative industry or economic trends ; . significant decline in our stock price for a sustained period ; and . our market capitalization relative to net book value . if we determined that the carrying value of intangibles and long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment , we would record an impairment equal to the excess of the carrying amount of the asset over its estimated fair value . we have assessed whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets may not be recoverable and noted no indicators of potential impairment for the years ended december 31 , 2012 , 2011 and 2010 , respectively . goodwill and purchased intangible assets . we evaluate our goodwill and intangible assets for impairment pursuant to fasb asc topic no . story_separator_special_tag 350 , intangibles - goodwill and other ( “ asc 350 ” ) , which provides that goodwill and other intangible assets with indefinite lives are not amortized but tested for impairment annually or more frequently if circumstances indicate potential impairment . in connection with the annual impairment test for goodwill , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount . if we determine that it was more likely than not that the fair value of the reporting unit is less than its carrying amount , then we perform the impairment test upon goodwill . in connection with the annual impairment test for intangible assets , we have the option to perform a qualitative assessment in determining whether it is more likely than not that the fair value of is less than its carrying amount , then we perform the impairment test upon intangible assets . the impairment test is comprised of two steps : ( 1 ) a reporting unit 's fair value is compared to its carrying value ; if the fair value is less than its carrying value , impairment is indicated ; and ( 2 ) if impairment is indicated in the first step , it is measured by comparing the implied fair value of goodwill and intangible assets to their carrying value at the reporting unit level . we completed the required impairment review at the end of 2012 , 2011 and 2010 and noted no impairment . consequently , no impairment charges were recorded . income taxes . we account for income taxes in accordance with fasb asc topic no . 740 , income taxes ( “ asc 740 ” ) , which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities . asc 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the net deferred tax assets will not be realized . our valuation allowance is reviewed quarterly based upon the facts and circumstances known at the time . in assessing this valuation allowance , we review historical and future expected operating results and other factors to determine whether it is more likely than not that deferred tax assets are realizable . income tax contingencies . we calculate current and deferred tax provisions based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the following year . adjustments based on filed returns are recorded when identified in the subsequent year . asc 740 provides guidance on the minimum threshold that an uncertain income tax position is required to meet before it can be recognized in the financial statements and applies to all tax positions taken by a company . asc 740 contains a two-step approach to recognizing and measuring uncertain income tax positions . the first step is to evaluate the income tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit , including resolution of related appeals or litigation processes , if any . the second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon settlement . if it is not more likely than not that the benefit will be sustained on its technical merits , no benefit will be recorded . uncertain income tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold . we recognize accrued interest and penalties related to uncertain income tax positions in income tax expense on our consolidated statement of income . on a quarterly basis , we evaluate uncertain income tax positions and establish or release reserves as appropriate under gaap . as a multinational corporation , we are subject to taxation in many jurisdictions , and the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions . our - 33 - estimate of the potential outcome of any uncertain tax issue is subject to management 's assessment of relevant risks , facts and circumstances existing at that time . therefore , the actual liability for u.s. or foreign taxes may be materially different from our estimates , which could result in the need to record additional tax liabilities or potentially to reverse previously recorded tax liabilities . in addition , we may be subject to examination of our tax returns by the u.s. internal revenue service and other domestic and foreign tax authorities . we are currently under audit by the california ftb for tax years 2005 through 2007. the ftb has also issued information document requests regarding the 2008 tax year , although no formal notice of audit for 2008 has been provided . we are also under income tax audits by the irs for tax years 2009 and 2010 and by the canada revenue agency ( “ cra ” ) for tax years 2008 through 2010. it is possible that one or more of these audits may conclude in the next 12 months and that the unrecognized tax benefits we have recorded in relation to these tax years may change compared to the liabilities recorded for the periods . however , it is not possible to estimate the amount , if any , of such change . we establish reserves for these tax contingencies when we believe that certain tax positions might be challenged despite our belief that our tax positions are fully supportable . we adjust these reserves when changing events and circumstances arise . non-income tax contingencies .
| segment operating expenses of $ 109.3 million in 2012 increased $ 4.0 million from 2011 primarily due to ( a ) additional research , development and engineering costs as a result of increased personnel costs associated with businesses acquired in and subsequent to 2011 , ( b ) additional expenses for professional services and ( c ) an increase in sales and marketing costs primarily due to additional advertising and personnel costs associated with businesses acquired in and subsequent to 2011. as a result of these factors , segment operating earnings of $ 187.4 million in 2012 increased $ 23.0 million , or 14.0 % , from 2011. digital media as our digital media segment was established as a result of the acquisition of ziff davis , inc. on november 9 , 2012 , the following segment results are presented with no period prior to 2012 ( in thousands ) : replace_table_token_17_th - 39 - liquidity and capital resources cash and cash equivalents and investments at december 31 , 2012 , we had cash and investments of $ 343.6 million compared to $ 220.9 million at december 31 , 2011 . the increase resulted primarily from the proceeds from our issuance of $ 250 million of debt in july 2012 and cash provided by operations , partially offset by share repurchases , dividends and business acquisitions . at december 31 , 2012 , cash and investments consisted of cash and cash equivalents of $ 218.7 million , short-term investments of $ 105.1 million and long-term investments of $ 19.8 million . our investments are comprised primarily of readily marketable corporate and governmental debt securities , money-market accounts , equity securities and time deposits . for financial statement presentation , we classify our investments primarily as available-for-sale ; thus , they are reported as short- and long-term based upon their maturity dates . short-term investments mature within one year of the date of the financial statements and long-term investments mature one year or more from the date
| 14,607 |
they are not measurements of our performance under gaap and should not be considered as alternatives to net income ( loss ) or any other performance measures derived in accordance with gaap . ( 2 ) free cash flow is a non-gaap measure that is defined as cash flows provided by operating activities less capital expenditures . free cash flow is used by management as a supplemental measure of our liquidity . we believe that free cash flow is a useful financial metric to assess our ability to pursue business opportunities and investments . free cash flow is not a measure of our liquidity under gaap and should not be considered as an alternative to cash flows provided by operating activities . 32 see additional information regarding the reconciliation of these measures in “ non-gaap reconciliations ” in item 6 of part ii , “ selected financial data. ” fiscal years ended december 29 , 2018 and december 30 , 2017 highlights total case volume decreased 1.2 % and independent restaurant case volume increased 3.8 % in 2018 . net sales of $ 24,175 million were slightly higher as compared to 2017 . operating income increased $ 70 million , or 11.9 % , to $ 658 million in 2018 . as a percentage of net sales , operating income increased to 2.7 % in 2018 , as compared to 2.4 % in 2017 . net income was $ 407 million in 2018 , as compared to $ 444 million in 2017 . adjusted ebitda increased $ 45 million , or 4.3 % , to $ 1,103 million in 2018 . as a percentage of net sales , adjusted ebitda increased to 4.6 % in 2018 , as compared to 4.4 % in 2017 . net sales total case volume decreased 1.2 % in 2018 . the decrease reflected select planned chain customer exits , which were partially offset by growth with independent restaurants . organic case volume decreased 1.6 % in 2018 , reflecting similar customer trends . net sales of $ 24,175 million in 2018 were slightly higher as compared to the prior year . a 1.3 % , or $ 320 million , increase in the overall net sales rate per case , was partially offset by a 1.2 % , or $ 292 million , decrease in case volume . acquisitions completed in 2017 increased net sales by approximately $ 137 million , or 0.4 % , in 2018 . sales of private brands represented approximately 35 % and 34 % of total net sales in 2018 and 2017 , respectively . the overall net sales rate per case increased 1.3 % compared to 2017 , which increase was mostly comprised of inflation . we experienced year over year inflation in the beef and grocery categories , which benefited net sales , as a significant portion of our business is based on markups over cost . gross profit gross profit increased $ 88 million , or 2.1 % , to $ 4,306 million in 2018 . as a percentage of net sales , gross profit increased 0.3 % in 2018 , from 17.5 % in 2017 to 17.8 % in 2018 , primarily due to the favorable rate impact from margin expansion initiatives and year over year lifo adjustments . our lifo method of inventory costing resulted in de minimis expense in 2018 compared to expense of $ 14 million in 2017 , which was driven by lower product inflation in certain categories in 2018 compared to 2017 . operating expenses operating expenses , comprised of distribution , selling and administrative costs and restructuring charges ( benefit ) , increased $ 18 million , or 0.5 % , to $ 3,648 million in 2018 . operating expenses as a percentage of net sales were 15.1 % in 2018 , up from 15.0 % in 2017 . the increase includes $ 32 million of 2018 acquisition related costs , $ 17 million of additional depreciation expense related to recent property and equipment additions and $ 14 million of higher diesel fuel costs , which were partially offset by a reduction in amortization expense of $ 55 million , driven primarily by the completed amortization of the customer relationship intangible asset initially recognized in connection with the acquisition of the company by the former sponsors in 2007. operating income operating income increased $ 70 million , or 11.9 % , to $ 658 million in 2018 . operating income as a percentage of net sales was 2.7 % in 2018 , up from 2.4 % in 2017 . the change was due to the relevant factors discussed above . 33 other ( income ) expense-net other ( income ) expense-net includes components of net periodic ( credits ) benefit costs , exclusive of the service cost component associated with our defined benefit and other postretirement plans . we recognized other income of $ 13 million in 2018 , primarily due to the improved funded status of our defined benefit and other postretirement retirement plans as of december 30 , 2017. the $ 14 million of expense incurred in 2017 was primarily due to settlement charges resulting from a voluntary lump sum offer to former participants in our defined benefit pension plan . interest expense—net interest expense—net increased $ 5 million in 2018 , primarily due to the general increase in benchmark interest rates in 2018 compared to 2017 , and partially offset by lower debt levels in 2018 . income taxes on december 22 , 2017 , the u.s. federal government enacted the tax act . the tax act made broad and complex changes to the u.s. tax code , including , but not limited to , ( 1 ) a reduction of the u.s. federal corporate tax rate ; and ( 2 ) bonus depreciation that permits full expensing of qualified property . story_separator_special_tag the tax act reduced the corporate tax rate to 21 % , which was effective january 1 , 2018. our effective tax rate for 2018 of 18 % varied from the 21 % federal statutory rate , primarily as a result of state income taxes and the recognition of a tax benefit of $ 21 million . this tax benefit primarily related to ( 1 ) the reduction of an unrecognized tax benefit due to the receipt of an affirmative written consent from the irs to change a method of accounting , ( 2 ) a tax benefit of $ 6 million , primarily related to excess tax benefits associated with share-based compensation and ( 3 ) a tax benefit of $ 8 million resulting from the adjustments to finalize provisional amounts recorded as of december 30 , 2017 related to the reduction of the federal corporate tax rate . the effective tax rate for 2017 of ( 10 ) % varied from the 35 % federal statutory rate , primarily from a tax benefit of $ 173 million related to the aforementioned reduction in the federal corporate tax rate , and a benefit of $ 26 million related to excess tax benefits associated with share-based compensation , which were partially offset by state income taxes . see note 21 , income taxes , in our consolidated financial statements for a reconciliation of our effective tax rates to the statutory rate . net income our net income was $ 407 million in 2018 , compared to $ 444 million in 2017 . the decrease in net income was due to the relevant factors discussed above . fiscal years ended december 30 , 2017 and december 31 , 2016 story_separator_special_tag was due to the relevant factors discussed above . 35 operating income operating income increased $ 169 million , or 40.3 % , to $ 588 million in 2017 . operating income as a percent of net sales was 2.4 % in 2017 , up from 1.8 % in 2016 . the change was due to the relevant factors discussed above . other ( income ) expense-net other ( income ) expense-net includes components of net periodic ( credits ) benefit costs , exclusive of the service cost component associated with our defined benefit and other postretirement plans . we incurred $ 14 million and $ 5 million of net expense in 2017 and 2016 , respectively , primarily due to non-cash settlement charges resulting from lump sum payments to former participants in our defined benefit pension plan . interest expense—net interest expense—net decreased $ 59 million , primarily due to the reduction of substantial debt with the proceeds from our 2016 ipo and the defeasance and refinancing of certain other debt during 2016. for additional information , see note 12 , debt , in our consolidated financial statements . loss on extinguishment of debt as discussed in note 12 , debt , in our consolidated financial statements , we incurred a $ 54 million loss on extinguishment of debt in 2016 related to the june 2016 debt redemption and refinancing and the cmbs fixed facility defeasance . income taxes on december 22 , 2017 , the u.s. federal government enacted the tax act . the tax act made broad and complex changes to the u.s. federal income tax code , including , but not limited to , ( 1 ) a reduction of the u.s. federal corporate income tax rate and ( 2 ) the full expensing of qualified property . the tax act reduced the u.s. federal corporate income tax rate to 21 % , effective january 1 , 2018. consequently , we have reduced our deferred tax liabilities by $ 173 million and recognized a deferred income tax benefit of $ 173 million for fiscal year 2017. we released the previously recorded valuation allowance against our federal net deferred tax assets and certain of our state net deferred tax assets in 2016 , as we determined it was more likely than not the deferred tax assets would be realized . we maintained a valuation allowance on certain state net operating loss and tax credit carryforwards expected to expire unutilized as a result of insufficient forecasted taxable income in the carryforward period or limited utilization . the decision to release the valuation allowance was made after management considered all available evidence , both positive and negative , including , but not limited to , historical operating results , cumulative income in recent years , forecasted earnings , and a reduction of uncertainty regarding forecasted earnings , as a result of developments in certain customer and strategic initiatives during 2016. our effective tax rate for 2017 of ( 10.0 ) % varied from the 35 % federal statutory rate , primarily as a result of a tax benefit of $ 173 million related to the aforementioned reduction in the u.s. federal corporate income tax rate , and a tax benefit of $ 26 million related to excess tax benefits associated with share-based compensation , which were partially offset by state income taxes . our effective tax rate for 2016 of ( 60 ) % varied from the 35 % federal statutory rate primarily as a result of a change in the valuation allowance . during 2016 , the valuation allowance decreased $ 128 million , primarily as a result of the year-to-date pre-tax income and the partial release of the valuation allowance . see note 21 , income taxes , in our consolidated financial statements for a reconciliation of our effective tax rates to the statutory rate . net income our net income was $ 444 million in 2017 , compared to $ 210 million in 2016 . the improvement in net income was due to the relevant factors discussed above . 36 liquidity and capital resources our ongoing operations and strategic objectives require working capital and continuing capital investment . our primary sources of liquidity include cash provided by operations , as well as access to capital from bank borrowings and other types of debt and financing arrangements .
| we experienced year over year inflation in the grocery , poultry , seafood , pork , and fresh produce product categories , partially offset by deflation in beef . gross profit gross profit increased $ 165 million , or 4.1 % , to $ 4,218 million in 2017 due to higher volume and margin expansion initiatives . as a percentage of net sales , gross profit decreased 0.2 % from 17.7 % in 2016 to 17.5 % in 2017 . gross profit from acquisitions was offset by lower organic margins , including higher inbound freight costs , and the adverse impact of year over year lifo adjustments . our lifo method of inventory costing resulted in $ 14 million of expense in 2017 compared to a benefit of $ 18 million in 2016 , which was driven by product inflation in 2017 compared to deflation in 2016 . distribution , selling and administrative costs distribution , selling and administrative costs increased $ 50 million , or 1.4 % , to $ 3,631 million in 2017 . the increase includes $ 90 million from salaries and wages , which was primarily driven by wage inflation and volume , and $ 11 million due to the absence of a net insurance benefit in the prior year related to a facility tornado loss . the additional volume contributed to $ 11 million of additional repairs and maintenance inclusive of our vehicle fleet and additional insurance costs on the fleet portfolio . in 2017 , we also experienced $ 7 million of higher bad debt provisions , $ 5 million of additional it costs , and approximately $ 11 million of other net costs that were not individually significant . these increases were partially offset by the absence of $ 36 million of costs incurred under a consulting and management agreement with the former sponsors in 2016 , including a $ 31 million contract termination fee incurred concurrently with our initial public offering ( “ ipo ” ) , and $ 46 million of lower depreciation and amortization in 2017 primarily
| 14,608 |
; financed the development of inpatient rehabilitation facilities in south ogden , utah and post falls , idaho for a total of $ 33.5 million , which will be leased to ernest under the 2012 master lease ; and provided a $ 20 million mortgage financing to alecto healthcare services for the 204-bed olympia medical center . with these new investments , many of our diversification metrics have improveds including : individual property diversification on an individual property basis , we had no investment of any single property greater than 3.9 % of our total assets as of december 31 , 2013 , down from 4.6 % as of december 31 , 2012. geographic diversification investments located in california represented 18.7 % of our total assets at december 31 , 2013 , down from 24.0 % in the prior year . investments located in texas represented 22.7 % of our total assets at december 31 , 2013 , down from 23.6 % in the prior year . in addition , we further expanded our portfolio into europe with the rhm portfolio acquisition ( as fully described in note 3 in item 8 of this annual report on form 10-k ) sold the real estate of an inpatient rehabilitation facility , warm springs rehabilitation hospital of san antonio , for $ 14 million , resulting in a gain on sale of $ 5.6 million ; sold two long-term acute care hospitals in texas and arizona , chg cornerstone hospital of houston , l.p. and cornerstone hospital of southeast arizona , for total cash proceeds of $ 18.5 million , resulting in a $ 2.1 million gain on the sale . issued $ 150 million of unsecured notes ( as a tack on to the 2012 unsecured senior notes ) , completed a 200 million euro-denominated ( approximately $ 275 million ) long-term fixed rate debt transaction at an annual coupon of 5.75 % , and raised $ 313 million in equity to fund our acquisition activity above . story_separator_special_tag jersey . the total investment for this transaction was $ 75.0 million , comprising $ 50.0 million for the acquisition of the real estate , a secured working capital loan of $ 15.1 million , and the purchase of a $ 5.0 million convertible note which provides us with the option to acquire up to 25 % of the hospital operator which we converted $ 1.6 million into a 9.9 % equity interest in the 2012 first quarter . the lease with the tenant has an initial term of 15 years . substantially modified our credit profile by refinancing most of our secured debt with unsecured debt by issuing $ 450 million of senior unsecured notes with a fixed rate of 6.875 % due in 2021. in connection with these notes , we amended our existing credit agreement to go unsecured on our revolving credit facility , extend the maturity to october 2015 and lowered our interest rate spread . sold our morgantown and sherman oaks facilities for $ 41 million , resulting in gains of $ 5.4 million . with the financing activities and property sales noted above , we funded our 2011 acquisition activity as well as paid off certain loans ( including the remaining portion of our 2006 exchangeable notes ) and extended our debt maturities . critical accounting policies in order to prepare financial statements in conformity with accounting principles generally accepted in the united states , we must make estimates about certain types of transactions and account balances . we believe that our estimates of the amount and timing of our revenues , credit losses , fair values ( either as part of a purchase price allocation , impairment analysis or in valuing certain of our ernest investments ) , periodic depreciation of our real estate assets , and stock compensation expense , along with our assessment as to whether an entity that we 43 index to financial statements do business with should be consolidated with our results , have significant effects on our financial statements . each of these items involves estimates that require us to make subjective judgments . we rely on our experience , collect historical and current market data , and develop relevant assumptions to arrive at what we believe to be reasonable estimates . under different conditions or assumptions , materially different amounts could be reported related to the critical accounting policies described below . in addition , application of these critical accounting policies involves the exercise of judgment on the use of assumptions as to future uncertainties and , as a result , actual results could materially differ from these estimates . our accounting estimates include the following : revenue recognition : we receive income from operating leases based on the fixed , minimum required rents ( base rents ) per the lease agreements . rent revenue from base rents is recorded on the straight-line method over the terms of the related lease agreements for new leases and the remaining terms of existing leases for acquired properties . the straight-line method records the periodic average amount of base rent earned over the term of a lease , taking into account contractual rent increases over the lease term . the straight-line method typically has the effect of recording more rent revenue from a lease than a tenant is required to pay early in the term of the lease . during the later parts of a lease term , this effect reverses with less rent revenue recorded than a tenant is required to pay . rent revenue as recorded on the straight-line method in the consolidated statements of income is presented as two amounts : billed rent revenue and straight-line revenue . billed rent revenue is the amount of base rent actually billed to the customer each period as required by the lease . straight-line rent revenue is the difference between rent revenue earned based on the straight-line method and the amount recorded as billed rent revenue . story_separator_special_tag we record the difference between base rent revenues earned and amounts due per the respective lease agreements , as applicable , as an increase or decrease to straight-line rent receivable . certain leases provide for additional rents contingent upon a percentage of the tenant 's revenues in excess of specified base amount/threshold ( percentage rents ) . percentage rents are recognized in the period in which revenue thresholds are met . rental payments received prior to their recognition as income are classified as deferred revenue . we also receive additional rent ( contingent rent ) under some leases based on increases in the consumer price index or where the consumer price index exceeds the annual minimum percentage increase in the lease . contingent rents are recorded as billed rent revenue in the period earned . we use direct finance lease accounting ( dfl ) to record rent on certain leases deemed to be financing leases rather than operating leases . for leases accounted for as dfls , future minimum lease payments are recorded as a receivable . the difference between the future minimum lease payments and the estimated residual values less the cost of the properties is recorded as unearned income . unearned income is deferred and amortized to income over the lease terms to provide a constant yield when collectability of the lease payments is reasonably assured . investments in dfls are presented net of unamortized and unearned income . in instances where we have a profits or equity interest in our tenant 's operations , we record income equal to our percentage interest of the tenant 's profits , as defined in the lease or tenant 's operating agreements , once annual thresholds , if any , are met . we begin recording base rent income from our development projects when the lessee takes physical possession of the facility , which may be different from the stated start date of the lease . also , during construction of our development projects , we are generally entitled to accrue rent based on the cost paid during the construction period ( construction period rent ) . we accrue construction period rent as a receivable and deferred revenue during the construction period . when the lessee takes physical possession of the facility , we begin recognizing the accrued construction period rent on the straight-line method over the remaining term of the lease . we receive interest income from our tenants/borrowers on mortgage loans , working capital loans , and other long-term loans . interest income from these loans is recognized as earned based upon the principal outstanding and terms of the loans . 44 index to financial statements commitment fees received from development and leasing services for lessees are initially recorded as deferred revenue and recognized as income over the initial term of a lease to produce a constant effective yield on the lease ( interest method ) . commitment and origination fees from lending services are also recorded as deferred revenue and recognized as income over the life of the loan using the interest method . investments in real estate : we record investments in real estate at cost , and we capitalize improvements and replacements when they extend the useful life or improve the efficiency of the asset . while our tenants are generally responsible for all operating costs at a facility , to the extent that we incur costs of repairs and maintenance , we expense those costs as incurred . we compute depreciation using the straight-line method over the weighted-average useful life of approximately 38 years for buildings and improvements . when circumstances indicate a possible impairment of the value of our real estate investments , we review the recoverability of the facility 's carrying value . the review of the recoverability is generally based on our estimate of the future undiscounted cash flows , excluding interest charges , from the facility 's use and eventual disposition . our forecast of these cash flows considers factors such as expected future operating income , market and other applicable trends , and residual value , as well as the effects of leasing demand , competition and other factors . if impairment exists due to the inability to recover the carrying value of a facility on an undiscounted basis , an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the facility . we do not believe that the value of any of our facilities was impaired at december 31 , 2013 ; however , given the highly specialized aspects of our properties no assurance can be given that future impairment charges will not be taken . acquired real estate purchase price allocation : we allocate the purchase price of acquired properties to net tangible and identified intangible assets acquired based on their fair values . in making estimates of fair values for purposes of allocating purchase prices of acquired real estate , we utilize a number of sources , including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data . we also consider information obtained about each property as a result of our pre-acquisition due diligence , marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired . we record above-market and below-market in-place lease values , if any , for the facilities we own which are based on the present value of the difference between ( i ) the contractual amounts to be paid pursuant to the in-place leases and ( ii ) management 's estimate of fair market lease rates for the corresponding in-place leases , measured over a period equal to the remaining non-cancelable term of the lease . we amortize any resulting capitalized above-market lease values as a reduction of rental income over lease term . we amortize any resulting capitalized below-market lease values as an increase to rental income over the lease term .
| acquired the real estate of a 40-bed long-term acute care hospital in hammond , louisiana for $ 10.5 million and leased the facility to the operator under a 15-year lease . as part of this transaction , we made a secured working capital loan of $ 2.5 million as well as a revolving loan of up to $ 2.0 million . in addition , we have made a $ 2.0 million ridea investment for a 25 % equity ownership in the operator of this facility . entered into an agreement to develop and lease an acute care facility in altoona , wisconsin for $ 33.5 million , which will be leased to national surgical hospitals . the facility is expected to be completed in the third quarter of 2014. agreed to fund the construction of an inpatient rehabilitation hospital in spartanburg , south carolina that will be operated by ernest . this facility opened in the third quarter of 2013. entered into an agreement with ernest to develop and lease a 40-bed rehabilitation hospital in lafayette , indiana , which opened in the 2013 first quarter . amended the current lease on our victoria , texas facility with post acute medical to extend the current lease term to 2028 , and we agreed to develop and lease a 26-bed facility next to the existing facility . the new facility was completed in the fourth quarter of 2013. committed to fund $ 100 million to first choice er , llc in development financing for up to 25 freestanding emergency room facilities . signed our lead tenant for the twelve oaks property representing approximately 55 % of the building . operations commenced for this tenant in january 2013 ; restructured our investments with prime whereby all of our leases are now under one master lease . in addition to the security that a master lease provides , we improved the annual rental escalation provisions on our prime properties . sold the real estate of two long-term acute care facilities , thornton and new bedford , to vibra for total cash proceeds of $ 42
| 14,609 |
given the current macro environment , particularly the current shift away from commercial real estate occupancy , accelerated by the pandemic , we are seeing challenges in our effort to sublet our real estate facilities . as a result , we believe it could take longer and be more costly to terminate and sublet our leases , therefore taking longer to realize the expected savings . we expect to realize $ 10.0 million to $ 12.0 million of savings in fiscal 2021 as a result of the plan . 20 all of the employee termination costs and the facility exit costs associated with our restructuring initiatives that we incurred in fiscal 2020 are recorded in selling , general , and administrative expenses in our consolidated statements of operations for the year ended may 30 , 2020 . during the first quarter of fiscal 2021 , we started the strategic business review in europe , and currently expect to substantially complete the review and restructuring in europe in fiscal 2021 . covid-19 impact and outlook since the start of calendar 2020 , the covid-19 virus has spread to many of the countries in which we and our customers conduct business . governments throughout the world have implemented , and may continue to implement , stay-at-home orders , proclamations and directives aimed at minimizing the spread of the covid-19 virus . the impact of the pandemic and the resulting restrictions have caused disruptions in the u.s. and global economy and may continue to disrupt financial markets and global economic activities . we have taken precautions and steps to prevent or reduce infection among our employees , including limiting business travel and mandating working from home in many of the countries in which we operate . while our overall productivity remained high through the end of fiscal 2020 , these measures may disrupt our normal business operations and negatively impact our productivity and our ability to efficiently serve our clients . as events relating to covid-19 continue to develop and evolve globally , there is significant uncertainty as to the full likely effects of the pandemic , which may , among other things , reduce demand for or delay client decisions to procure our services or result in cancellation of existing projects . while the exact impact from the pandemic is not quantifiable , our results of operations and cash flows wer e adversely impacted in the latter half of fiscal 2020. during the last 12 non-holiday weeks in the fourth quarter of fiscal 2020 , which started with the week ended march 7 , 2020 , our average weekly revenue declined 9.1 % compared to the first eight non-holiday weeks of the 2020 calendar year . our number of consultants also decreased from 2,965 as of may 25 , 2019 to 2,495 as of may 30 , 2020. due to the disruption of business operations in the u.s. and globally , we have also seen some softening in our pipeline globally . although we do not expect the pandemic to have a permanent impact on our business operations , we can not estimate the length or the magnitude of the pandemic and how this might affect our customers ' demand for our services and our ability to continue to operate efficiently . we believe the pandemic could continue to have an adverse impact on our results of operations and financial position in fiscal 2021. we are uncertain whether future effects of the pandemic will be similar to what we have experienced in fiscal 2020. we continue to monitor relevant business metrics , such as daily and weekly revenue run rate , pipeline activities , rate of consultant attrition and days sales outstanding , and have implemented the appropriate modifications to our normal operations . until we have further visibility into the full impact of the pandemic on the global economy , we will remain focused on the health of our balance sheet and liquidity . we will make prudent decisions to reinvest in the business to drive key growth initiatives in core markets and the expansion of our digital capabilities . we believe the restructuring initiatives that we took in the fourth quarter of fiscal 2020 have better prepared us to operate with agility and resilience in this challenging economic environment . our primary source of liquidity historically has been cash provided by our operations and our $ 120.0 million secured revolving credit facility ( “ facility ” ) which expires on october 17 , 2021. as of may 30 , 2020 , we had cash and cash equivalents of $ 95.6 million , and additional availability under our facility of $ 30.7 million . during the year ended may 30 , 2020 , we also continued to generate positive cash flow from operations and we believe the collection and quality of our customer receivables remain strong . given our balance sheet and liquidity position , we believe we have the financial flexibility and resources needed to operate in the current uncertain economic environment . however , if global economic conditions worsen as a result of the pandemic , it could materially impact our liquidity position and capital needs , although we believe our variable expense operating model serves to mitigate both operational and liquidity risk . see “ — liquidity and capital resources ” below . on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( “ cares act ” ) was enacted in the u.s. in response to the pandemic . the cares act includes , among other things , direct financial assistance to americans in the form of cash payments to individuals , aid to small businesses in the form of loans , and other tax incentives in an effort to stabilize the u.s. economy and keep americans employed . we have not filed , and currently do not intend to file , for funding provided by the cares act . story_separator_special_tag in the u.s. , we have deferred $ 2.9 million in payroll tax payments through the end of fiscal 2020. we do not believe the income tax provisions such as changes to the net operating loss rules included in the cares act will have a material impact on us . we have not received , and do not expect to receive , significant government-provided relief or stimulus funding in other parts of the world . critical accounting policies the following 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 gaap in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . 21 we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities . actual results may differ from these estimates under different assumptions or conditions . the following represents a summary of our critical accounting policies , defined as those policies we believe : ( a ) are the most important to the portrayal of our financial condition and results of operations and ( b ) involve inherently uncertain issues that require management 's most subjective or complex judgments . allowance for doubtful accounts — we maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered . we estimate this allowance based upon our knowledge of the financial condition of our clients ( which may not include knowledge of all significant events ) , review of historical receivable and reserve trends and other pertinent information . while such losses have historically been within our expectations and the provisions established , we can not guarantee we will continue to experience the same credit loss rates we have in the past . a significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required . these additional allowances could materially affect our future financial results . income taxes — in order to prepare our consolidated financial statements , we are required to make estimates of income taxes , if applicable , in each jurisdiction in which we operate . the process incorporates an assessment of any current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes . these differences result in deferred tax assets and liabilities that are included in our consolidated balance sheets . the recovery of deferred tax assets from future taxable income must be assessed and , to the extent recovery is not likely , we will establish a valuation allowance . an increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect our future financial result . if the ultimate tax liability differs from the amount of tax expense we have reflected in the consolidated statements of operations , an adjustment of tax expense may need to be recorded and this adjustment may materially affect our future financial results and financial condition . we also evaluate our uncertain tax positions and only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement . we record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return . any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs . revenue recognition — revenues are recognized when control of the promised service is transferred to our clients , in an amount that reflects the consideration expected in exchange for the services . revenue is recorded net of sales or other transaction taxes collected from clients and remitted to taxing authorities . revenues from contracts are recognized over time , based on hours worked by our professionals . the performance of the agreed- upon service over time is the single performance obligation for revenues . certain clients may receive discounts ( for example , volume discounts or rebates ) to the amounts billed . these discounts or rebates are considered variable consideration . management evaluates the facts and circumstances of each contract and client relationship to estimate the variable consideration assessing the most likely amount to recognize and considering management 's expectation of the volume of services to be provided over the applicable period . rebates are the largest component of variable consideration and are estimated using the most likely amount method prescribed by accounting standards codification ( “ asc ” ) topic 606 , revenue from contracts with customers , contracts terms and estimates of revenue . revenues are recognized net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent periods . stock-based compensation — under our 2014 performance incentive plan , officers , employees , and outside directors have received or may receive grants of restricted stock , stock units , options to purchase common stock or other stock or stock-based awards .
| on an annual basis , we have generated positive cash flows from operations since inception , and we continued to do so for the year ended may 30 , 2020 . our ability to generate positive cash flow from operations in the future will be , at least in part , dependent on continued stable global economic conditions and our ability to remain resilient during economic downturns , such as the one we are currently in caused by the covid-19 pandemic . as of may 30 , 2020 , we had $ 95.6 million of cash and cash equivalents including $ 31.7 million held in international operations . we entered into the facility in october 2016 , which is available for working capital and general corporate purposes , including potential acquisitions and stock repurchases . the facility allows us to choose the interest rate applicable to advances . borrowings under the facility bear interest at a rate per annum of either , at our option , ( i ) libor plus a margin of 1.25 % or 1.50 % or ( ii ) an alternate base rate , plus margin of 0.25 % or 0.50 % with the applicable margin depending on our consolidated leverage ratio . the alternate base rate is the highest of ( i ) bank of america 's prime rate , ( ii ) the federal funds rate plus 0.50 % and ( iii ) the eurodollar rate plus 1.0 % . we pay an unused commitment fee on the average daily unused portion of the facility at a rate of 0.15 % to 0.25 % depending upon on our consolidated leverage ratio . the facility expires on october 17 , 2021. the facility contains both affirmative and negative covenants . we were in compliance with all financial covenants under the facility as of may 30 , 2020 and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of the facility . as of may 30 , 2020 , 29 our borrowings on the facility were $ 88.0 million , and we had
| 14,610 |
we are responding to this opportunity by increasing our sales and marketing efforts including increasing our number of sales representatives and expanding our network to locations that we believe can be economically integrated and represent significant concentrations of internet traffic . one of our keys to developing a profitable business will be to carefully match the cost of extending our network to reach new customers with the revenue expected to be generated by those customers . in addition , we may add customers to our network through strategic acquisitions . we believe some of the most important trends in our industry are the continued long-term growth in internet traffic and a decline in internet access prices on a per megabit basis . the effective price per megabit for our corporate customers is declining as the bandwidth utilization and connection size of our corporate customer connections increases . as internet traffic continues to grow and prices per unit of traffic continue to decline , we believe we can continue to load our network and gain market share from less efficient network operators . however , continued erosion in internet access prices will likely have a negative impact on the rate at which we can increase our revenues and our profitability . our revenue may also be negatively affected if we are unable to grow our internet traffic or if the rate of growth of internet traffic does not offset an expected decline in pricing . we do not know if internet traffic will increase or decrease , or the rate at which it will increase or decrease . changes in internet traffic will be a function of the number of internet users , the amount of time users spend on the internet , the applications for which the internet is used , the bandwidth intensity of these applications and the pricing of internet services , and other factors . the growth in internet traffic has a more significant impact on our net-centric customers who represent the vast majority of the traffic on our network and who tend to consume the majority of their allocated bandwidth on their connections . net-centric customers tend to purchase their service on a price per megabit basis . our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis . over the past several years , our revenue from corporate customers has grown faster than our revenue from our net-centric customers . we are a facilities-based provider of internet access and communications services . facilities-based providers require significant physical assets , or network facilities , to provide their services . typically when a facilities-based network services provider begins providing its services in a new jurisdiction losses are incurred for several years until economies of scale have been achieved . our foreign operations are in europe , canada , mexico , asia , latin american and australia . europe accounts for roughly 75 % of our foreign operations . our european operations have incurred losses and will 29 continue to do so until our european customer base and revenues have grown enough to achieve sufficient economies of scale . due to our strategic acquisitions of network assets and equipment , we believe we are well positioned to grow our revenue base . we continue to purchase and deploy network equipment to parts of our network to maximize the utilization of our assets and to expand and increase the capacity of our network . our future capital expenditures will be based primarily on the expansion of our network and the addition of on-net buildings . we plan to continue to expand our network and to increase the number of on-net buildings we serve including multi-tenant office buildings , carrier neutral data centers and cogent controlled data centers . many factors can affect our ability to add buildings to our network . these factors include the willingness of building owners to grant us access rights , the availability of optical fiber networks to serve those buildings , the cost to connect buildings to our network and equipment availability . story_separator_special_tag when we provide off-net services we also assume the cost of the associated tail circuits . selling , general , and administrative expenses ( `` sg & a '' ) . our sg & a expenses , including non-cash equity-based compensation expense , increased 4.6 % from 2017 to 2018. non cash equity-based compensation expense is included in sg & a expenses consistent with the classification of the employee 's salary and other compensation and was $ 16.8 million for 2018 and $ 12.7 million for 2017. sg & a expenses increased primarily from an increase in salaries and related costs required to support our expansion and increases in our sales efforts and an increase in our headcount partly offset by a $ 1.1 million decrease in our legal fees primarily associated with u.s. net neutrality and interconnection regulatory matters and by the $ 1.3 million reduction in commission expense from the impact of the new revenue accounting standard which requires us to capitalize certain commissions paid to our sales agents and sales employees . our sales force headcount increased by 7.8 % from 574 at december 31 , 2017 to 619 at december 31 , 2018 and our total headcount increased by 4.8 % from 929 at december 31 , 2017 to 974 at december 31 , 2018. depreciation and amortization expenses . our depreciation and amortization expenses increased 7.0 % from 2017 to 2018. the increase is primarily due to the depreciation expense associated with the increase related to newly deployed fixed assets more than offsetting the decline in depreciation expense from fully depreciated fixed assets . gains on equipment transactions . story_separator_special_tag we exchanged certain used network equipment and cash consideration for new network equipment resulting in gains of $ 1.0 million for 2018 and $ 3.9 million for 2017. the gains are based upon the excess of the estimated fair value of the new network equipment over the carrying amount of the returned used network equipment and the cash paid . the reduction in gains from 2017 to 2018 was due to purchasing more equipment under the exchange program in 2017 than we purchased in 2018. interest expense . interest expense results from interest incurred on our $ 445.0 million of senior secured notes , interest incurred on our $ 189.2 million of senior unsecured notes , interest on our installment payment agreement and interest on our capital lease obligations . our interest expense increased by 5.3 % for 2018 from 2017 primarily due to the issuance of $ 70.0 million of senior secured notes in august 2018 and an increase in our capital lease obligations . income tax expense . our income tax expense was $ 12.7 million for 2018 and $ 25.2 million for 2017. the decrease in our income tax expense was primarily related to an increase in deferred income tax expense for 2017 primarily due to the impact of the tax cuts and jobs act ( the `` act '' ) . on december 22 , 2017 , the president of the united states signed into law the act . the act amended the internal revenue code and reduced the corporate tax rate from a maximum rate of 35 % to a flat 21 % rate . the rate reduction was effective on january 1 , 2018 and may reduce our future income taxes payable once we become a cash taxpayer in the united states . as a result of the reduction in the corporate income tax rate and other provisions under the act , we were required to revalue our net deferred tax asset at december 31 , 2017 resulting in a reduction in our net deferred tax asset of 32 $ 9.0 million and we also recorded a transition tax of $ 2.3 million related to our foreign operations for a total income tax expense of approximately $ 11.3 million , which was recorded as additional noncash income tax expense in 2017. buildings on-net . as of december 31 , 2018 and 2017 we had a total of 2,676 and 2,506 on-net buildings connected to our network , respectively . year ended december 31 , 2017 compared to the year ended december 31 , 2016 our management reviews and analyzes several key financial measures in order to manage our business and assess the quality of and variability of our service revenue , operating results and cash flows . the following summary tables present a comparison of our results of operations with respect to certain key financial measures . the comparisons illustrated in the tables are discussed in greater detail below . replace_table_token_6_th ( 1 ) includes non-cash equity-based compensation expense of $ 604 and $ 573 for 2017 and 2016 , respectively . ( 2 ) includes non-cash equity-based compensation expense of $ 12,686 and $ 10,162 for 2017 and 2016 , respectively . replace_table_token_7_th service revenue . our service revenue increased 8.6 % from 2016 to 2017. exchange rates positively impacted our increase in service revenue by approximately $ 1.9 million . all foreign currency comparisons herein reflect results for 2017 translated at the average foreign currency exchange rates for 2016. for 2017 and 2016 , on-net , off-net and non-core revenues represented 71.4 % , 28.4 % and 0.2 % and 72.4 % , 27.4 % and 0.2 % of our service revenue , respectively . revenue recognition standards include guidance relating to any tax assessed by a governmental authority that is directly imposed on a revenue- 33 producing transaction between a seller and a customer and may include , but is not limited to , gross receipts taxes , universal service fund fees and certain state regulatory fees . we record these taxes billed to our customers on a gross basis ( as service revenue and network operations expense ) in our consolidated statements of operations . the impact of these taxes including the universal service fund resulted in an increase of our revenues for 2017 of approximately $ 1.8 million . revenue from our corporate and net-centric customers represented 62.3 % and 37.7 % of our service revenue , respectively , for 2017 , and represented 60.4 % and 39.6 % of our service revenue , respectively , for 2016. revenue from corporate customers increased 11.8 % from $ 270.1 million for 2016 to $ 302.1 million for 2017 due to an increase in our number of corporate customers . revenue from our net-centric customers increased by 3.6 % from $ 176.8 million for 2016 to $ 183.1 million for 2017 primarily due to an increase in our number of net-centric customers , partially offset by a decline in our average price per megabit . our on-net revenue increased 7.1 % from 2016 to 2017. we increased the number of our on-net customer connections by 16.0 % from december 31 , 2016 to december 31 , 2017. on-net customer connections increased at a greater rate than on-net revenues primarily due to the 7.8 % decline in our on-net arpu , primarily from a decline in arpu for our net centric customers . arpu is determined by dividing revenue for the period by the average customer connections for that period . our average price per megabit for our installed base of customers is determined by dividing the aggregate monthly recurring fixed charges for those customers by the aggregate committed data rate for the same customers . the decline in on-net arpu is partly attributed to volume and term based pricing discounts .
| the impact of these taxes including the universal service fund resulted in an increase to our revenues from 2017 to 2018 of approximately $ 1.6 million . our net-centric customers tend to purchase their service on a price per megabit basis . our corporate customers tend to utilize a small portion of their allocated bandwidth on their connections and tend to purchase their service on a per connection basis . revenues from our corporate and net-centric customers represented 64.9 % and 35.1 % of total service revenue , respectively , for 2018 and represented 62.3 % and 37.7 % of total service revenue , respectively , for 2017. revenues from corporate customers increased 11.8 % to $ 337.8 million for 2018 from $ 302.1 million for 2017 primarily due to an increase in our number of our corporate customers . revenues from our net-centric customers decreased by 0.4 % to $ 182.3 million for 2018 from $ 183.1 million for 2017 primarily due to an increase in our number of net-centric customers being offset by a decline in our average price per megabit . our revenue from our net-centric customers has declined as a percentage of our total revenue and grew at a slower rate than our corporate customer revenue because net-centric customers purchase our services based upon a price per megabit basis and our average price per megabit declined by 25.9 % from 2017 to 2018. additionally , the net-centric market experiences a greater level of pricing pressure than the corporate market and net-centric customers who renew their service with us expect their renewed service to be at a lower price than their current price . we expect that our average price per megabit will continue to decline at similar rates which would result in our corporate revenues continuing to represent a greater portion of our total revenues and our net-centric revenues continuing to grow at a lower rate than our corporate revenues . additionally , the impact of foreign exchange rates has a
| 14,611 |
provision for income taxes our effective income tax rate from continuing operations decreased to 33.0 percent in 2014 , from 34.6 percent in 2013 , driven primarily by the net tax effect of our global sourcing operations and the favorable resolution of various income tax matters . the resolution of various income tax matters reduced tax expense by $ 35 million and $ 16 million in 2014 and 2013 , respectively . a tax rate reconciliation is provided in note 21 to our consolidated financial statements . our effective income tax rate from continuing operations increased to 34.6 percent in 2013 , from 34.4 percent in 2012 , driven by a lower year-over-year benefit from the favorable resolution of various income tax matters . the resolution of various income tax matters reduced tax expense by $ 16 million and $ 58 million in 2013 and 2012 , respectively . 20 reconciliation of non-gaap financial measures to gaap measures to provide additional transparency , we have disclosed non-gaap adjusted diluted earnings per share from continuing operations ( adjusted eps ) . this metric excludes the impact of the 2013 sale of our u.s. consumer credit card receivables portfolio , losses on early retirement of debt , net expenses related to the 2013 data breach and other matters presented below . we believe this information is useful in providing period-to-period comparisons of the results of our continuing operations . this measure is not in accordance with , or an alternative to , generally accepted accounting principles in the united states . the most comparable gaap measure is diluted earnings per share from continuing operations . adjusted eps from continuing operations should not be considered in isolation or as a substitution for analysis of our results as reported under gaap . other companies may calculate non-gaap adjusted eps from continuing operations differently than we do , limiting the usefulness of the measure for comparisons with other companies . prior year amounts have been revised to present adjusted eps on a continuing operations basis . replace_table_token_14_th note : the sum of the non-gaap adjustments may not equal the total adjustment amounts due to rounding . ( a ) refer to note 17 of the financial statements . ( b ) refer to note 7 of the financial statements . ( c ) 2014 includes impairments of $ 16 million related to undeveloped land in the u.s. and $ 13 million of expense related to converting co-branded card program to mastercard . 2013 includes a $ 23 million workforce-reduction charge primarily related to severance and benefits costs , a $ 22 million charge related to part-time team member health benefit changes , and $ 19 million in impairment charges related to certain parcels of undeveloped land . analysis of financial condition liquidity and capital resources our period-end cash and cash equivalents balance was $ 2,210 million , compared with $ 670 million in 2013 . short-term investments of $ 1,520 million and $ 3 million were included in cash and cash equivalents at the end of 2014 and 2013 , respectively . our investment policy is designed to preserve principal and liquidity of our short-term investments . this policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less . we also place dollar limits on our investments in individual funds or instruments . cash flows our 2014 operations were funded by both internally and externally generated funds . operating cash flow provided by continuing operations was $ 5,131 million in 2014 compared with $ 7,519 million in 2013. net cash flow provided by continuing operations for 2013 includes $ 5.7 billion of cash received in connection with the sale of our u.s. consumer credit card receivables , of which $ 2.7 billion is included in operating cash flow provided by continuing operations and $ 3.0 billion is included in investing cash flow provided by continuing operations . in june 2014 , we issued $ 1 billion of unsecured debt that matures in june 2019 and $ 1 billion of unsecured debt that matures in july 2024. combined with our prior year-end cash position , these cash flows allowed us to repurchase $ 725 million of debt at a market value of $ 1 billion , pay current debt maturities , invest in the business and pay dividends . year-end inventory levels increased from $ 8,278 million in 2013 to $ 8,790 million in 2014 . accounts payable increased by $ 424 million , or 5.8 percent over the same period . 21 share repurchases in january 2012 , we began repurchasing shares under a $ 5 billion program authorized by our board of directors . since the second quarter of 2013 , we have not repurchased any shares on the open market . however , as described in note 23 of the financial statements , we reacquired 0.8 million shares during 2014 upon the noncash settlement of prepaid forward contracts related to nonqualified deferred compensation plans . during the first half of 2013 , we repurchased 21.9 million shares of our common stock for a total investment of $ 1,474 million ( $ 67.41 per share ) . dividends we paid dividends totaling $ 1,205 million in 2014 and $ 1,006 million in 2013 , an increase of 19.8 percent . we declared dividends totaling $ 1,271 million ( $ 1.99 per share ) in 2014 , a per share increase of 20.6 percent over 2013 . we declared dividends totaling $ 1,051 million ( $ 1.65 per share ) in 2013 , a per share increase of 19.6 percent over 2012 . we have paid dividends every quarter since our 1967 initial public offering , and it is our intent to continue to do so in the future . short-term and long-term financing our financing strategy is to ensure liquidity and access to capital markets , to manage our net exposure to floating interest rate volatility and to maintain a balanced spectrum of debt maturities . story_separator_special_tag within these parameters , we seek to minimize our borrowing costs . our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity . our continued access to these markets depends on multiple factors , including the condition of debt capital markets , our operating performance and maintaining strong debt ratings . as of january 31 , 2015 , our credit ratings were as follows : credit ratings moody 's standard and poor 's fitch long-term debt a2 a a- commercial paper p-1 a-1 f2 if our credit ratings were lowered , our ability to access the debt markets , our cost of funds and other terms for new debt issuances could be adversely impacted . each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit ratings will remain the same as described above . standard and poor 's lowered our long-term debt rating from a+ to a during 2014 , but maintained our a-1 commercial paper rating . as a measure of our financial condition , we monitor our ratio of earnings from continuing operations to fixed charges , which represents the ratio of pretax earnings from continuing operations before fixed charges to fixed charges . fixed charges include interest expense and the interest portion of rent expense . our ratio of earnings to fixed charges was 6.02 x in 2014 , 6.48x in 2013 and 7.10x in 2012. see exhibit ( 12 ) for a description of how the gain on sale of our u.s. credit card receivable portfolio and loss on early retirement of debt affected the 2014 , 2013 and 2012 calculations . in 2014 and 2013 , we funded our peak sales season working capital needs through internally generated funds and the issuance of commercial paper . replace_table_token_15_th we have additional liquidity through a committed $ 2.25 billion revolving credit facility that expires in october 2018. no balances were outstanding at any time during 2014 or 2013 under this facility . most of our long-term debt obligations contain covenants related to secured debt levels . in addition to a secured debt level covenant , our credit facility also contains a debt leverage covenant . we are , and expect to remain , in compliance with these covenants . additionally , at january 31 , 2015 , no notes or debentures contained provisions requiring 22 acceleration of payment upon a debt rating downgrade , except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both ( i ) a change in control and ( ii ) our long-term debt ratings are either reduced and the resulting rating is non-investment grade , or our long-term debt ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade . we believe our sources of liquidity will continue to be adequate to maintain operations , finance anticipated expansion and strategic initiatives , fund obligations incurred as a result of our exit from canada , fund obligations incurred as a result of the data breach and any related future technology enhancements , pay dividends and execute purchases under our share repurchase program for the foreseeable future . we believe that our exit from canada will increase our after-tax cash flows beginning in 2015. we continue to anticipate ample access to commercial paper and long-term financing . capital expenditures replace_table_token_16_th capital expenditures decreased in 2014 from the prior year due to fewer remodels and new stores , partially offset by technology investments to support of our omnichannel efforts and security enhancements . capital expenditures decreased in 2013 from the prior year due to fewer remodels and new stores . we expect approximately $ 2.1 billion of capital expenditures in 2015 , reflecting our focus on becoming a leading omnichannel retailer through investments in technology and supply chain , elevating signature categories and opening new stores , including urban formats . capital expenditures related to our discontinued canadian operations were $ 228 million , $ 1,567 million and $ 932 million for 2014 , 2013 and 2012 , respectively . 23 commitments and contingencies replace_table_token_17_th ( a ) represents principal payments only , and excludes any fair market value adjustments recorded in long-term debt under derivative and hedge accounting rules . see note 18 of the financial statements for further information . ( b ) these payments also include $ 59 million and $ 67 million of legally binding minimum lease payments for stores that are expected to open in 2015 or later for capital and operating leases , respectively . capital lease obligations include interest . see note 20 of the financial statements for further information . ( c ) deferred compensation obligations include commitments related to our nonqualified deferred compensation plans . the timing of deferred compensation payouts is estimated based on payments currently made to former employees and retirees , forecasted investment returns , and the projected timing of future retirements . ( d ) real estate liabilities include costs incurred but not paid related to the construction or remodeling of real estate and facilities . ( e ) estimated tax contingencies of $ 195 million , including interest and penalties , are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement . see note 21 of the financial statements for further information . ( f ) estimated loss contingencies , including those related to the canada exit and the data breach , are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement . see note 6 and note 17 of the financial statements for further information .
| as a result of this decision , on january 15 , 2015 , target canada co. and certain other wholly owned subsidiaries of target ( collectively canada subsidiaries ) , filed for protection ( the filing ) under the companies ' creditors arrangement act ( ccaa ) with the ontario superior court of justice in toronto ( the court ) . the canada subsidiaries comprise substantially all of our canadian operations and our canadian segment . the canada subsidiaries have commenced an orderly liquidation process and stores in canada will remain open during the liquidation . to assist with the exit plan , the court approved the appointment of a monitor and certain other financial advisors . as a result of the filing , we no longer have a controlling interest in the canada subsidiaries . for this reason , we deconsolidated the canada subsidiaries effective january 15 , 2015 , resulting in a pretax impairment loss on deconsolidation and other charges , collectively totaling $ 5.1 billion . the pretax loss on deconsolidation includes the derecognition of the carrying amounts of the canada subsidiaries ' assets , liabilities and accumulated other comprehensive loss and the recording of our remaining interests at fair value . subsequent to deconsolidation , we will use the cost method to account for our equity investment in the canada subsidiaries , which has been reflected as zero in our consolidated statement of financial position at january 31 , 2015 based on the estimated fair value of the canada subsidiaries ' net assets . loans to and accounts receivable from the canada subsidiaries are recorded at an estimated fair value of $ 326 million . our ultimate cash recovery on these claims is subject to the final liquidation value of the canada subsidiaries and could vary materially from our estimates . our canada exit represents a strategic shift in our business . for this reason , our canadian segment results for all periods prior to the january 15 , 2015
| 14,612 |
at december 31 , 2016 , the company had no long-term capital lease or purchase obligations . replace_table_token_3_th ( 1 ) the amounts shown include interest at the current rates at december 31 , 2016 and the unused fee interest assuming the credit facility remains at $ 51.0 million through its maturity . ( 2 ) see note 4 to the consolidated financial statements . ( 3 ) the company assumed tenant improvement obligations totaling approximately $ 0.3 million relating to two tenants in its 2015 acquisitions whose leases expire in 2018 and 2020. since the timing of when the company will be required to fund its obligations is not known at december 31 , 2016 , the company has not included those amounts in its contractual obligations table . off-balance sheet arrangements we have no off-balance sheet arrangements that are reasonably like to have a material effect on the company 's consolidated financial condition , results of operations or liquidity . inflation we believe inflation will have a minimal impact on the operating performance of our properties . many of our lease agreements contain provisions designed to mitigate the adverse impact of inflation . these provisions include clauses that enable us to receive payment of increased rent pursuant to escalation clauses which generally increase rental rates during the terms of the leases . these escalation clauses often provide for fixed rent increases or indexed escalations ( based upon cpi or other measures ) . however , some of these contractual rent increases may be less than the actual rate of inflation . generally , our lease agreements require the tenant to pay property operating expenses , including maintenance costs , real estate taxes and insurance . this requirement reduces our exposure to increases in these costs and property operating expenses resulting from inflation . seasonality we do not expect our business to be subject to material seasonal fluctuations . new accounting pronouncements see note 1 to the company 's consolidated financial statements accompanying this report for information on new accounting standards not yet adopted . 47 story_separator_special_tag capital markets for financing acquisitions and other operating activities as needed , including the following : leverage ratios and financial covenants included in our credit facility ; dividend payout percentage ; and interest rates , underlying treasury rates , debt market spreads and equity markets . the company uses these indicators and others to compare its operations to its peers and to help identify areas in which the company may need to focus its attention . sources and uses of cash the company derives most of its revenues from its real estate property and mortgage notes portfolio , collecting rental income , operating expense reimbursements and mortgage interest based on contractual arrangements with its tenants and borrowers . these sources of revenue represent our primary source of liquidity to fund our dividends , general and administrative expenses , property operating expenses , interest expense on our credit facility and other 49 expenses incurred related to managing our existing portfolio and investing in additional properties . to the extent additional resources are needed , the company will fund its investment activity generally through equity or debt issuances either in the public or private markets or through proceeds from our credit facility . the company expects to meet its liquidity needs through cash on hand , cash flows from operations and cash flows from sources discussed above . the company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements . the company can not , however , be certain that these sources of funds will be available at a time and upon terms acceptable to the company in sufficient amounts to meet its liquidity needs . operating activities cash flows provided by operating activities for the years ended december 31 , 2016 and 2015 and for the period from march 28 , 2014 ( inception ) through december 31 , 2014 were approximately $ 14.9 million , $ 3.0 million , and $ 0 , respectively . cash flows provided by operating activities for the years ended december 31 , 2016 and 2015 were generally provided by contractual rents and mortgage interest , net of property operating expenses not reimbursed by the tenants and general and administrative expenses . there were no operating activities in 2014. investing activities cash flows used in investing activities for the years ended december 31 , 2016 and 2015 and for the period from march 28 , 2014 ( inception ) through december 31 , 2014 were approximately $ 117.1 million , $ 140.6 million , and $ 0 , respectively . during 2016 , the company invested in 17 real estate properties for cash consideration of approximately $ 103.2 million , excluding closing costs , and funded 1 mortgage note for approximately $ 12.4 million . during 2015 , the company invested in 40 real estate properties for cash consideration of approximately $ 129.0 million and funded 1 mortgage note for approximately $ 10.9 million . there were no investing activities in 2014. financing activities cash flows provided by financing activities for the years ended december 31 , 2016 and 2015 and for the period from march 28 , 2014 ( inception ) through december 31 , 2014 were approximately $ 101.7 million , $ 139.7 million , and $ 2,000 , respectively . during 2016 and 2015 , the company paid dividends totaling $ 17.8 million and $ 3.9 million , respectively . during 2016 , the company completed a follow-on equity offering , and during 2015 , the company completed its initial public equity offering and concurrent private placements resulting in net proceeds , net of underwriters ' discount and offering costs , of approximately $ 86.1 million and $ 127.5 million , respectively , and borrowed under its revolving credit facility approximately $ 34.0 million and $ 17.0 million , respectively . the net proceeds from these equity offerings and borrowings under its revolving credit facility were used to acquire the company 's real estate and mortgage note portfolio . story_separator_special_tag during the first quarter of 2014 , the company issued 200,000 shares of common stock to its officers in connection with the formation of the company for net proceeds of $ 2,000. on may 27 , 2015 , the company completed its initial public offering of 7,187,500 shares of its common stock at a public offering price of $ 19.00 per share , which includes 937,500 shares of common stock issued in connection with the exercise in full of the underwriters ' option to purchase additional shares . the company received net proceeds of approximately $ 125.2 million from the offering . in addition , 123,683 shares of common stock were issued in concurrent private placements to certain directors and officers of the company . the company received approximately $ 2.3 million in net proceeds from the concurrent private placements . in april 2016 , we completed a follow-on offering of 5,175,000 shares of common stock , including 675,000 shares of common stock issued in connection with the exercise in full of the underwriters ' option to purchase additional shares , and received net proceeds of approximately $ 86.1 million from the follow-on offering . on august 10 , 2016 , we entered into an amended and restated credit facility ( as amended , the `` credit facility '' ) . the credit facility is by and among community healthcare op , lp , the company , the lenders from time to time party thereto , and suntrust bank , as administrative agent , matures on august 9 , 2019 and includes two options to extend the maturity date of the facility , subject to the satisfaction of certain conditions . the credit facility increased 50 the maximum borrowing capacity from $ 75.0 million to $ 150.0 million , lowered our interest rates by 25 basis points and adjusted or replaced certain financial covenants . amounts outstanding under the credit facility bear annual interest at a floating rate that is based , at the company 's option , on either : ( i ) libor plus 2.25 % to 2.75 % or ( ii ) a base rate plus 1.25 % to 1.75 % , in each case , depending upon the company 's leverage ratio . in addition , the company is obligated to pay an annual fee equal to 0.25 % of the amount of the unused portion of the credit facility if amounts borrowed are greater than 33.3 % of the borrowing capacity under the credit facility and 0.35 % of the unused portion of the credit facility if amounts borrowed are less than or equal to 33.3 % of the borrowing capacity under the credit facility . the credit facility also includes an accordion feature that provides the company with additional capacity , subject to the satisfaction of customary terms and conditions , including obtaining additional commitments from lenders , of up to $ 125 million , for a total facility size of up to $ 275.0 million . the company incurred $ 0.6 million in fees and other costs to amend and extend its credit facility which will be amortized to expense over the life of the credit facility . the company 's material subsidiaries are guarantors of the obligations under the credit facility . at december 31 , 2016 , the company had $ 51.0 million outstanding under the credit facility with a weighted average interest rate of approximately 2.99 % , a remaining borrowing capacity of $ 99.0 million , and our debt to total book capitalization ratio was approximately 20.8 % . the company 's ability to borrow under the credit facility is subject to its ongoing compliance with a number of customary affirmative and negative covenants , including limitations with respect to liens , indebtedness , distributions , mergers , consolidations , investments , restricted payments and asset sales , as well as financial maintenance covenants . also , the company 's present financing policy prohibits incurring debt ( secured or unsecured ) in excess of 40 % of its total book capitalization . the company was in compliance with its financial covenants under its credit facility at december 31 , 2016 . universal shelf s-3 registration statement on september 13 , 2016 , the company filed a registration statement on form s-3 that will allow us to offer debt or equity securities ( or a combination thereof ) of up to $ 750.0 million , from time to time . the s-3 registration statement was declared effective as of september 26 , 2016. subsequent acquisitions from january 1 , 2017 through february 23 , 2017 , the company acquired two real estate properties totaling approximately 48,800 square feet for a purchase price of approximately $ 7.9 million , including cash consideration of approximately $ 7.8 million . upon acquisition , the properties were approximately 94 % leased with lease expirations through 2022 . these acquisitions were funded with proceeds from the credit facility . acquisition pipeline the company has nine properties under definitive purchase agreements for an aggregate expected purchase price of approximately $ 25.7 million as of february 23 , 2017 . the company 's expected return on these investments range from approximately 9.0 % to 9.6 % . the company also has a property , adjacent to its corporate office , under a definitive purchase agreement for an expected purchase price of approximately $ 0.9 million . the company will initially lease the property to the current tenant but intends to use the property for future expansion of its corporate office . the company is currently performing due diligence procedures customary for these types of transactions and can not provide any assurance as to the timing or when or whether these transactions will actually close . the company anticipates funding these additional investments with cash from operations , through proceeds from its credit facility , or from net proceeds from debt or equity offerings .
| 48 property operating expenses property operating expenses for the year ended december 31 , 2016 compared to the same period in 2015 increased approximately $ 2.7 million due to the acquisition during 2016 of 17 real estate properties , resulting in approximately $ 1.2 million in property operating expenses in 2016 , as well as the increase in property operating expenses from 2015 to 2016 resulting from the acquisition of 40 real estate properties from our initial public offering in late may 2015 through december 31 , 2015 , resulting in approximately $ 2.8 million in increased property operating expenses . also , we recorded contingent consideration related to three of our acquisitions . adjustments to the fair value of the contingent consideration during 2016 resulted in a reduction to property operating expense of approximately $ 1.3 million . general and administrative expenses general and administrative expenses for the year ended december 31 , 2016 compared to the same period in 2015 increased approximately $ 0.8 million . compensation-related expenses and occupancy costs related to our employees and corporate office increased approximately $ 1.4 million due mainly to the partial year reflected in the results for 2015 since our initial public offering , as well as the addition of employees during 2016. transaction costs , related to acquisitions in 2016 and 2015 and our public offering in 2015 , decreased by approximately $ 0.8 million in 2016 compared to 2015. depreciation and amortization expense depreciation and amortization expense for the year ended december 31 , 2016 compared to the same period in 2015 increased approximately $ 8.0 million . the 17 real estate acquisitions during 2016 resulted in approximately $ 2.8 million in depreciation and amortization in 2016 ; the 40 real estate acquisitions during 2015 resulted in an increase of approximately $ 5.1 million from 2015 to 2016 due mainly to the partial year reflected in the results for 2015 since our initial public offering ; and capital improvements resulted in an increase of approximately $ 0.1 million . interest expense interest expense for the year ended december 31 , 2016 compared to the same period in 2015 increased approximately $ 0.8
| 14,613 |
ihm management monitors average advertising rates and cost per minute ( “ cpm ” ) , which are principally based on the length of the spot and how many people in a targeted audience listen to our stations , as measured by an independent ratings service . in addition , our advertising rates are influenced by the time of day the advertisement airs , with morning and evening drive-time hours typically priced the highest . our price and yield information systems enable our station managers and sales teams to adjust commercial inventory and pricing based on local market demand , as well as to manage and monitor different commercial durations in order to provide more effective advertising for our customers at what we believe are optimal prices given market conditions . yield is measured by management in a variety of ways , including revenue earned divided by minutes of advertising sold . management looks at our ihm operations ' overall revenue as well as the revenue from each type of advertising , including local advertising , which is sold predominately in a station 's local market , and national advertising , which is sold across multiple markets . local advertising is sold by each radio station 's sales staff while national advertising is sold by our national sales team . local advertising , which is our largest source of advertising revenue , and national advertising revenues are tracked separately because these revenue streams have different sales teams and respond differently to changes in the economic environment . we periodically review and refine our selling structures in all regions and markets in an effort to maximize the value of our offering to advertisers and , therefore , our revenue . management also looks at ihm revenue by region and market size . typically , larger markets can reach larger audiences with wider demographics than smaller markets . additionally , management reviews our share of ihm advertising revenues in markets where such information is available , as well as our share of target demographics listening in an average quarter hour . this metric gauges how well our formats are attracting and retaining listeners . management also monitors revenue generated through our programmatic ad-buying platform , soundpoint , and our data analytics advertising product , smartaudio , to measure the success of our enhanced marketing optimization tools . we have made significant investments so we can provide the same ad-buying experience that once was only available from digital-only companies and enable our clients to better understand how our assets can successfully reach their target audiences . a portion of our ihm segment 's expenses vary in connection with changes in revenue . these variable expenses primarily relate to costs in our sales department , such as commissions , and bad debt . our content costs , including music royalty and license fees for music delivered via broadcast or digital streaming , vary with the volume and mix of songs played on our stations and the listening hours on our digital platforms . our programming and general and administrative departments incur most of our fixed costs , such as utilities and office salaries . we incur discretionary costs in our advertising , marketing and promotions , which we primarily use in an effort to maintain and or increase our audience share . lastly , we have incentive systems in each of our departments which provide for bonus payments based on specific performance metrics , including ratings , revenue and overall profitability . outdoor advertising our outdoor advertising revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide , consisting primarily of billboards , street furniture and transit displays . part of our long-term strategy for our outdoor advertising businesses is to pursue the technology of digital displays , including flat screens , lcds and leds , as additions to traditional methods of displaying our clients ' advertisements . we are currently installing these technologies in certain markets , both domestically and internationally . management typically monitors our outdoor advertising business by reviewing the average rates , average revenue per display , occupancy and inventory levels of each of our display types by market . we own the majority of our advertising displays , which typically are located on sites that we either lease or own or for which we have acquired permanent easements . our advertising contracts with clients typically outline the number of displays reserved , the duration of the advertising campaign and the unit price per display . 42 the significant expenses associated with our operations include direct production , maintenance and installation expenses as well as site lease expenses for land under our displays including revenue-sharing or minimum guaranteed amounts payable under our billboard , street furniture and transit display contracts . our direct production , maintenance and installation expenses include costs for printing , transporting and changing the advertising copy on our displays , the related labor costs , the vinyl costs , electricity costs and the costs for cleaning and maintaining our displays . vinyl costs vary according to the complexity of the advertising copy and the quantity of displays . our site lease expenses include lease payments for use of the land under our displays , as well as any revenue-sharing arrangements or minimum guaranteed amounts payable that we may have with the landlords . the terms of our site leases and revenue-sharing or minimum guaranteed contracts generally range from one to 20 years . americas outdoor advertising our advertising rates are based on a number of different factors including location , competition , type and size of display , illumination , market and gross ratings points . gross ratings points are the total number of impressions delivered by a display or group of displays , expressed as a percentage of a market 's population . the number of impressions delivered by a display is measured by the number of people passing the site during a defined period of time . story_separator_special_tag for all of our billboards in the united states , we use independent , third-party auditing companies to verify the number of impressions delivered by a display . client contract terms typically range from four weeks to one year for the majority of our display inventory in the united states . generally , we own the street furniture structures and are responsible for their construction and maintenance . contracts for the right to place our street furniture and transit displays and sell advertising space on them are awarded by municipal and transit authorities in competitive bidding processes governed by local law or are negotiated with private transit operators . generally , these contracts have terms ranging from 10 to 20 years . international outdoor advertising similar to our americas outdoor business , advertising rates generally are based on the gross ratings points of a display or group of displays . the number of impressions delivered by a display , in some countries , is weighted to account for such factors as illumination , proximity to other displays and the speed and viewing angle of approaching traffic . in addition , because our international outdoor advertising operations are conducted in foreign markets , including europe , asia and latin america , management reviews the operating results from our foreign operations on a constant dollar basis . a constant dollar basis allows for comparison of operations independent of foreign exchange movements . our international display inventory is typically sold to clients through network packages , with clients contracting for a day part , one or more days or one or more weeks ( depending on the nature of the inventory ) , with terms of up to one year available as well . internationally , contracts with municipal and transit authorities for the right to place our street furniture and transit displays typically provide for terms ranging up to 15 years . the major difference between our international outdoor and americas outdoor street furniture businesses is in the nature of the municipal contracts . in our international outdoor business , these contracts typically require us to provide the municipality with a broader range of metropolitan amenities in exchange for which we are authorized to sell advertising space on certain sections of the structures we erect in the public domain . a different regulatory environment for billboards and competitive bidding for street furniture and transit display contracts , which constitute a larger portion of our business internationally , may result in higher site lease costs in our international outdoor business . macroeconomic indicators our advertising revenue for all of our segments is highly correlated to changes in gross domestic product ( “ gdp ” ) as advertising spending has historically trended in line with gdp , both domestically and internationally . internationally , our results are impacted by fluctuations in foreign currency exchange rates as well as the economic conditions in the foreign markets in which we have operations . executive summary the key developments in our business for the year ended december 31 , 2018 are summarized below : consolidated revenue increased $ 157.3 million during 2018 compared to 2017 . excluding the $ 30.5 million impact from movements in foreign exchange rates , consolidated revenue increased $ 126.8 million during 2018 compared to 2017 . as a result of our filing of the chapter 11 cases , we incurred $ 356.1 million of reorganization items during the year ended december 31 , 2018 and reclassified to `` liabilities subject to compromise '' on the consolidated balance sheet $ 16.5 billion of prepetition claims that are not fully secured and that , as of december 31 , 2018 , had at least a possibility of not being repaid at the full amount claim . 43 the chapter 11 cases have resulted in disruption to certain of our business processes , and we believe the chapter 11 cases have had an adverse impact on our results of operations , particularly in our ihm business . on june 14 , 2018 , we refinanced our receivables-based credit facility with a new $ 450.0 million debtors-in-possession credit facility ( the `` dip facility '' ) , which matures on the earlier of the emergence date from the chapter 11 cases or june 14 , 2019. the dip facility also includes a feature to convert into an exit facility at emergence , upon meeting certain conditions . the dip facility accrues interest at libor plus 2.25 % . at close , iheartcommunications drew $ 125.0 million on the dip facility . on august 16 , 2018 and september 17 , 2018 , iheartcommunications repaid $ 100.0 million and $ 25.0 million , respectively , of the amount drawn under the dip facility . as of december 31 , 2018 , we had no borrowings under the dip facility . as a result of our filing of the chapter 11 cases , we ceased accruing interest expense on long-term debt reclassified as liabilities subject to compromise at march 14 , 2018 , ( the `` petition date '' ) , resulting in a decrease in cash paid for interest of $ 1.4 billion during the year ended december 31 , 2018 , compared to the same period of 2017. revenues and expenses “ excluding the impact of foreign exchange movements ” in this management 's discussion and analysis of financial condition and results of operations is presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period to period comparisons of business performance and provides useful information to investors . revenues and expenses “ excluding the impact of foreign exchange movements ” are calculated by converting the current period 's revenues and expenses in local currency to u.s. dollars using average foreign exchange rates for the prior period .
| 47 consolidated results of operations the comparison of our historical results of operations for the year ended december 31 , 2017 to the year ended december 31 , 2016 is as follows : replace_table_token_11_th consolidated revenue consolidated revenue decreased $ 82.6 million during the year ended december 31 , 2017 compared to 2016. excluding the $ 8.6 million impact from movements in foreign exchange rates , consolidated revenue decreased $ 91.2 million during the year ended december 31 , 2017 compared to 2016. revenue growth from our ihm business was offset by lower revenue generated by our americas and international outdoor businesses as a result of the sales of our businesses in canada in 2017 and australia and turkey in 2016 , which generated $ 13.7 million and $ 149.4 million in revenue in the years ended december 31 , 2017 and 2016 , respectively . consolidated direct operating expenses consolidated direct operating expenses increased $ 73.7 million during the year ended december 31 , 2017 compared to 2016. excluding the $ 4.0 million impact from movements in foreign exchange rates , consolidated direct operating expenses increased $ 69.7 million during the year ended december 31 , 2017 compared to 2016. higher direct operating expenses in our ihm business , including a $ 33.8 million prior year benefit resulting from the renegotiation of certain contracts , and higher direct operating expenses in our outdoor businesses , driven primarily by higher site lease expenses , were partially offset by the impact of the sale of our outdoor businesses in australia and turkey in 2016 and canada in 2017. consolidated sg & a expenses consolidated sg & a expenses increased $ 116.1 million during the year ended december 31 , 2017 compared to 2016. excluding the $ 2.8 million impact from movements in foreign exchange rates , consolidated sg & a expenses increased $ 113.3 million during the year ended december 31 , 2017 compared to 2016. higher sg & a expenses in our ihm business , primarily driven by higher trade and barter expenses , were partially offset by a decrease in sg & a expenses resulting primarily from the sales of our outdoor businesses in australia and turkey in 2016 and canada in 2017. corporate expenses corporate expenses decreased $ 29.2 million during the year ended december 31 , 2017 compared to 2016. excluding the $ 1.4 million impact from movements in foreign exchange rates , corporate expenses decreased $ 27.8 million during the year ended december 31 , 2017 compared to 2016. in 2017 , we incurred professional fees
| 14,614 |
on january 1 , 2011 , gcp capital took over the management of the merchant banking funds . as a result of our separation from the merchant banking business , effective in 2011 we no longer generate management fee revenue or incur expenses from the management of the merchant banking funds . 28 in 2011 , we began the liquidation of both a substantial portion of our previously sponsored investments in the merchant banking funds and our investment in iridium . we sold substantially all of our interest in two merchant banking funds ( greenhill capital partners ii ( gcp ii ) and greenhill sav partners ( gsavp ) ) for $ 49.4 million , which represented the book value . in october 2011 , we initiated a plan to sell our entire interest in iridium systematically over a period of two or more years and during the fourth quarter of 2011 we generated proceeds of $ 5.8 million from the iridium share sales . it is our intention to realize value from our remaining investments over time . the proceeds of the investment sales were used principally to repurchase our common stock . see item 2. management 's discussion and analysis of financial condition and results of operations liquidity and capital resources . as of december 31 , 2011 , our remaining principal investments consisted primarily of our investment in iridium , which had a value of $ 68.9 million , and our remaining investments in previously sponsored and other merchant banking funds of $ 41.6 million . the value of our merchant banking investments includes the estimated fair value of two specified portfolio companies of gcp ii of $ 10.5 million that the purchasers of our interests in gcp ii have the right , exercisable in december 2012 , to require us to repurchase ( put options ) at an aggregate price of $ 14.3 million . we will continue to record realized and unrealized gains and losses in the fair value of our retained investments in the merchant banking funds and iridium ( nasdaq : irdm ) on a quarterly basis until such investments are fully liquidated . for our investments in the merchant banking funds , the size and timing of changes in the fair value are dependent on a number of different factors , including the performance of the particular portfolio companies , general economic conditions in the debt and equity markets and other factors which affect the industries in which the funds are invested . adverse changes in general economic conditions , commodity prices and credit and public equity markets could negatively impact the amount of investment revenue realized by the firm . see item 2. management discussion and analysis of financial condition and results of operations merchant banking and other investment revenues . at december 31 , 2011 we employed 316 people . we strive to maintain a work environment that fosters professionalism , excellence , diversity and cooperation among our employees worldwide . we were deeply saddened by the tragic loss of two of our partners , jeffrey buckalew and rakesh chawla , along with jeff 's wife corinne and children jackson and meriwether , in a plane accident in december 2011. both jeff and rakesh were great men and great partners and they will be sorely missed by our firm . as a close-knit organization with a strong culture of excellence and teamwork , each of our employees will do whatever is necessary to fill the gap left by those lost . business environment economic and global financial market conditions can materially affect our financial performance . see risk factors. revenues and net income in any period may not be indicative of full-year results or the results of any other period and may vary significantly from year to year and quarter to quarter . advisory revenues were $ 302.8 million in the year ended december 31 , 2011 compared to $ 252.2 million in the year ended december 31 , 2010 , which represents an increase of 20 % . at the same time , worldwide completed m & a volume increased by 22 % , from $ 1.929 billion in 2010 to $ 2.353 billion in 2011 ( 1 ) . while completed m & a transaction activity increased in 2011 as compared to 2010 , the level of activity is still far below the peak levels reached in 2007. following significant declines in transaction volume in 2008 and 2009 , there has been a modest improvement in 2010 and 2011. continued volatility in market conditions and concerns about european debt may continue to hamper further improvement in conditions . because we earn a majority of our advisory revenue from fees that are dependent on the successful completion of a merger , acquisition , restructuring or similar transaction or the closing of a fund , our advisory business has been negatively impacted by a volatile and uncertain environment for evaluating assets , securities and companies , which has created a more difficult environment for m & a and fundraising activity . ( 1 ) source : global m & a completed transaction volume for the year ended december 31 , 2011 as compared to the year ended december 31 , 2010. source : thompson financial as of january 12 , 2012 . 29 since 2008 we have substantially expanded our geographic reach , our industry sector expertise and the total number of employees focused on our advisory business . for the second consecutive year we have realized the benefits of that expansion with an increase in our advisory revenues . our advisory revenues increased 20 % in 2011 and 17 % in 2010. we had 30 % more $ 1 million revenue clients in 2011 than in 2010 , and in 2010 we had 33 % more $ 1 million revenue clients than the year before . geographically , our revenues were dispersed relatively well throughout our global locations . story_separator_special_tag we generated approximately half of our 2011 revenue in north america and the remainder principally in australia and europe , where we realized greater revenue generation than in the prior year despite what are still very difficult market conditions there . by industry , most of our sectors contributed well in 2011 , particularly healthcare , consumer goods and retail , and financial services . further , we generated 9 % of our advisory revenue from our relatively new capital advisory business , which primarily provides capital raising advice for private equity and real estate funds . we believe that our simple business model as an independent , unconflicted adviser will continue to create opportunities for us to attract new clients and increase our market share . with the addition of new offices as well as employees focused on new industry sectors our expenses have also increased . with an increase in our headcount from 234 as of january 1 , 2009 to 316 as of december 31 , 2011 our compensation costs and other non-compensation costs , such as occupancy , travel and information services have increased . this expansion , combined with a modest upturn in revenue over the past few years , increased our cost ratios . in 2011 , our ratio of compensation and benefits expense to revenue was 53 % ( 2 ) ( 55 % on a u.s. gaap basis ) and while down from 57 % in 2010 , and below our closest competitive peers , it was still above our historic policy goal of maintaining a ratio not to exceed 50 % . our pre-tax margin in 2011 was 26 % ( 2 ) ( 23 % on a u.s. gaap basis ) compared to our historical range of 44 % to 21 % during the years 2007 to 2010. while we will continue to recruit senior bankers on an opportunistic basis , our priority in the near term will be to realize the benefits of our expansion as transaction activity rebounds and to seek to return towards our historic cost ratios . our historically strong profit margin and operating cash flow has allowed us to maintain an attractive dividend policy while also allowing us to repurchase shares of our common stock . our annual dividend payout has been $ 1.80 per common share since 2008. in 2011 we repurchased 1,068,719 shares of our common stock in open market repurchases and , in addition , repurchased from employees 283,774 restricted stock units at the time of vesting to settle tax liabilities . in aggregate in 2011 , we repurchased 1,352,493 shares of our common stock and common stock equivalents at an average price of $ 48.64 for a total purchase cost of $ 65.8 million . our board has authorized up to $ 100 million of additional share repurchases in 2012. we generally experience significant variations in revenues during each quarterly period . these variations can generally be attributed to the fact that our revenues are usually earned in large amounts throughout the year upon the successful completion of a transaction or restructuring or closing of a fund , the timing of which is uncertain and is not subject to our control . moreover , the value of our principal investments may vary significantly from period to period and depends on a number of factors beyond our control , including most notably credit and public equity markets and general economic conditions . as a result , our quarterly results vary and our results in one period may not be indicative of our results in any future period . ( 2 ) throughout the discussion of operating results for 2011 , the information provided excludes the compensation charge of $ 7.0 million and related tax effect for the accelerated vesting of restricted stock awards for the two employees who passed away in december 2011. management believes that the results , excluding this accelerated compensation charge , provide the most meaningful basis for comparison among present , historical and future periods . a reconciliation of the results , which exclude the accelerated compensation charge in 2011 , to the u.s. gaap results for year ended december 31 , 2011 is presented within the discussion of operating expenses below . see item 2. management 's discussion and analysis of financial condition and results of operations operating expenses . 30 story_separator_special_tag the sale of capital power income l.p. to atlantic power corp. ; the sale of the forzani group ltd. to canadian tire corporation , limited ; and the acquisition of coal and allied industries limited by rio tinto limited and mitsubishi corporation by way of scheme of arrangement . we earned advisory revenues from 160 different clients in 2011 , up 14 % compared to 140 in 2010. we earned $ 1 million or more from 74 clients in 2011 , up 30 % compared to 57 in 2010 , and 26 % of those were new to the firm in 2011 compared to 44 % in 2010. the ten largest fee-paying clients contributed 35 % and 36 % to our total revenues in 2011 and 2010 , respectively , and only one of our ten largest fee-paying clients in 2011 had in any prior year been among our ten largest fee-paying clients . in 2011 , we did not have any client engagements that accounted for 10 % or more of our total revenue . from a global perspective in 2011 , compared to 2010 , our advisory revenues increased in australia , north america and europe and declined in japan . 2010 versus 2009. advisory revenues were $ 252.2 million for the year ended december 31 , 2010 compared to $ 216.0 million for the year ended december 31 , 2009 , which represents an increase of 17 % .
| while fees payable upon the successful conclusion of a transaction or closing of a fund generally represent the largest portion of our advisory fees , we also earn on-going retainer and strategic advisory fees , and fees payable upon the commencement of an engagement or upon the achievement of certain milestones , such as the announcement of a transaction or the rendering of a fairness opinion and , in our capital advisory business , upon our client 's acceptance of capital commitments before the final closing of the fund . we do not allocate our advisory revenue by type of advice rendered ( m & a , financing advisory and restructuring , capital advisory , or other ) because of the complexity of the assignments for which we earn revenue . for example , a restructuring assignment can involve , and in some cases end successfully in , a sale of all or part of the financially distressed client . likewise , an acquisition assignment can relate to a financially distressed target involved in or considering a restructuring . finally , an m & a assignment can develop from a relationship that we had on a prior restructuring assignment , and vice versa . 2011 versus 2010. advisory revenues were $ 302.8 million for the year ended december 31 , 2011 compared to $ 252.2 million for the year ended december 31 , 2010 , which represents an increase of 20 % . the increase in our 2011 advisory fees , as compared to 2010 , resulted from a greater number of fee-paying clients , an increase in the number of completed assignments , an increase in the volume of strategic advisory assignments with related retainer fees , and greater revenues from our capital advisory group . prominent advisory assignments completed in 2011 include : the sale of the publicly held interest in alcon , inc. to novartis ag ; the acquisition of tower australia group limited by dai-ichi life insurance co. ; the acquisition by virgin money of northern rock plc . ; the capital raise by related real estate recovery fund , l.p. ; the acquisition by vf corporation of the timberland company ; the acquisition by a.o . smith corporation of lochinvar corporation ; the acquisition by axa private equity of limited partnership
| 14,615 |
the fair market value of options granted under the company 's stock option plans was estimated on the date of grant using the black-scholes option-pricing model using assumptions for inputs such as interest rates , expected dividends , volatility measures and specific employee exercise behavior patterns based on statistical data . some of the inputs used are not market-observable and have to be estimated or derived from available data . use of different estimates would produce different option values , which in turn would result in higher or lower compensation expense recognized . to value options , several recognized valuation models exist . none of these models can be singled out as being the best or most correct one . the model applied by the company is able to handle most of the specific features included in the options granted , which is the reason for its use . if a different model were used , the option values could differ despite using the same inputs . accordingly , using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options . fair value could be either higher or lower than the number provided by the model applied and the inputs used . further information on the company 's equity compensation plans , including inputs used to determine the fair value of options , is disclosed in notes 1 and 5 to the consolidated financial statements . income taxes the company accounts for income taxes using the asset and liability method . under this method , deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carry forwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse . deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year . the company 's wholly-owned foreign subsidiaries are comprised of neogen europe , lab m holdings , quat-chem , neogen do brasil , neogen bio-scientific technology co ( shanghai ) , neogen food and animal security ( india ) , neogen canada , acumedia do brasil , deoxi biotecnologia ltda , and rogama industria e comercio , ltda ; neogen owns 90 % of neogen latinoamerica . based on historical experience , as well as the company 's future plans , earnings from these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs . furthermore , the company 's domestic operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings . on an annual basis , the company evaluates the current business environment and whether any new events or other external changes might require a re-evaluation of the decision to indefinitely re-invest foreign earnings . at may 31 , 2017 , unremitted earnings of the foreign subsidiaries were $ 35,281,000 . 22 story_separator_special_tag the company 's acumedia line of dehydrated culture media sold into traditional domestic markets ; the first half of fiscal 2016 had strong sales resulting from a research project , which did not recur . rodenticides , insecticides & disinfectants sales into the company 's food safety segment increased 223 % , almost entirely due to the acquisitions of rogama ( brazil ) , which reports through neogen do brasil , and quat-chem ( u.k. ) , which reports through neogen europe ; each was purchased in december 2016. excluding these acquisitions , growth in this category was 3 % , primarily from rodenticide and disinfectant sales into mexico and central america by the company 's mexican subsidiary . genomics revenues into food safety increased 47 % , primarily due to strong demand of genomics testing in europe and expanded capabilities at the company 's operation in ayr , scotland to better serve the growing european market ; the deoxi acquisition in april 2016 also contributed to the growth . 24 revenues for the company 's animal safety segment were $ 190.3 million in fiscal 2017 , an increase of 9 % compared to prior year revenues of $ 174.9 million . the revenue growth resulted from the acquisitions of virbac ( december 2015 ) and preserve ( may 2016 ) . in the first quarter of fiscal 2017 , the company lost the ability to sell its popular canine thyroid replacement product after the fda approved a new drug application for a competitor , which gave the competitor exclusive marketing rights to the product . the company will be unable to sell this product , which had sales of $ 6.2 million in fiscal 2016 , in the u.s. until similar regulatory approval is granted ; this approval is currently expected to occur in fiscal 2019. additionally , in january 2017 , the company 's agreement to distribute certain cleaners and disinfectants was canceled , resulting in the loss of $ 1.3 million of sales in the 4 th quarter of fiscal 2017. excluding these products , this segment had overall organic growth of 5 % for the year . currency translations had minimal effect on revenues in this segment . life sciences sales increased 24 % in fiscal 2017 , compared to the prior year . this growth was primarily due to increased volume to u.s. commercial labs to meet new requirements for drug testing of commercial truck drivers in brazil . veterinary instruments & disposables revenues decreased 1 % , due to lower sales of disposable syringes , which had increased sales in the prior year due to a competitor 's backorder situation , and marking products . partially offsetting this were gains in the sales of the company 's proprietary detectable needles and durable speed needles , with both gains due to strong demand from customers . animal care & other sales decreased 19 % due to the loss of the ability to sell the company 's popular thyroid replacement product , mentioned above . story_separator_special_tag partially offsetting this was an increase in revenues for vitamin injectable products due to increased market share and price increases . rodenticides , insecticides & disinfectants revenues increased 31 % for the current fiscal year , due to the acquisitions of virbac ( december 2015 ) and preserve ( may 2016 ) ; organic sales in this category were flat . the preserve acquisition added $ 15.5 million of revenue in fiscal 2017 , primarily to the domestic swine , poultry , dairy and food processing markets . rodenticide sales increased 1 % with strong sales in the custom solutions , retail and distribution markets offset by lower sales in the northwest u.s. after the prior year rodent outbreak subsided . cleaners and disinfectant sales were 8 % lower on an organic basis , due to the early termination of a distribution agreement for certain cleaners and disinfectants in the second half of the fiscal year ; it is expected that there will be some offset of these lost revenues in fiscal 2018 by substitution of similar products from the planned transition to the preserve product line . genomics services revenues reported within the animal safety segment increased 13 % in fiscal 2017 , compared to fiscal 2016. the increase was due primarily to increased market share in the beef and dairy markets from new product offerings and focused sales efforts in these markets ; also contributing to the increase was expanded business with a large customer in the poultry market . year ended may 31 , 2016 compared to year ended may 31 , 2015 the company 's food safety segment revenues were $ 146.4 million in fiscal 2016 , an 11 % increase compared to the prior year . the increase , predominantly volume related , from organic sales was 6 % , with revenues from the biolumix ( october 2014 ) , lab m ( august 2015 ) and deoxi ( april 2016 ) acquisitions contributing the remainder of the growth . sales of natural toxins , allergens & drug residues increased 4 % in fiscal 2016 compared to fiscal 2015. natural toxin sales were flat with a 10 % increase in aflatoxin sales offset by a 3 % decrease in don sales , due to outbreaks in the prior year which were not repeated in fiscal 2016. allergen sales increased 20 % , as increased consumer awareness continued to grow demand for these products , while sales of drug residue test kits decreased 5 % , caused by currency conversions , as the majority of these sales are invoiced in euros . bacterial & general sanitation revenues increased 15 % in fiscal 2016 , aided by $ 1.9 million in sales from the october 2014 biolumix acquisition . excluding biolumix sales , the organic increase in these products was 9 % over the prior year . the accupoint sanitation monitoring product line recorded an increase of 18 % due to the continued successful introduction of an improved , next generation product line . sales of the soleris and biolumix product lines , which detect spoilage organisms , increased 23 % for the year ( 5 % organic growth ) , with revenue increases in both equipment and disposable vials . pathogen sales increased 4 % in fiscal 2016 as compared to the prior year , primarily due to an increase in sales of listeria test kits to the commercial lab market . dehydrated culture media & other sales increased 27 % in fiscal 2016. this category includes $ 4.8 million of lab m revenues , a business which was acquired in august 2015 ; excluding the impact of these revenues , the organic increase was 10 % . sales of acumedia products into the food safety market increased 10 % while sales into traditional domestic media markets increased 16 % . rodenticides , insecticides & disinfectants revenues decreased 8 % in u.s. dollars , due to the strength of the dollar , poor economic conditions in a number of international markets and order timing from large distributors . genomics service revenues in the company 's international operations increased 4 % . the company 's animal safety segment revenues were $ 174.9 million in fiscal 2016 , a 15 % increase , predominantly volume related , over fiscal 2015. life sciences sales decreased 10 % in fiscal 2016 after a strong 16 % increase in 2015. sales of forensic kits to commercial labs declined as new testing requirements in brazil for commercial drivers , originally anticipated to go into effect in late fiscal 2015 , were delayed until the 4 th quarter of fiscal 2016. veterinary instruments & disposables increased 1 % , as market share gains in disposable syringes , up 25 % , and animal marking products , up 14 % , were almost entirely offset by an 8 % decrease in detectable needles , due to large orders in the prior year which did not recur , and an 11 % decline in hoof and leg products , due to lower sales of these products to customers in the retail market . 25 animal care & other product sales rose 32 % in fiscal 2016 , with the increase primarily the result of a new distribution agreement with a large manufacturer and supplier of dairy equipment , and strong sales of the company 's line of thyroid replacement therapy for companion animals . also contributing to growth in the animal care product category were increased sales of wound care products , as a key active ingredient which had been on backorder for much of fiscal 2015 , became available in fiscal 2016 , and veterinary antibiotics , due to a competitor exiting the business . during the fourth quarter of fiscal 2016 , the company was notified that a competitor had been granted approval on a new drug application for a competitive thyroid replacement product , effectively giving them exclusive rights to sell the product .
| revenues at neogen latinoamerica declined by 7 % ( 6 % increase in local currency ) due to adverse currency translations and the termination of a distribution agreement for certain of its cleaners and disinfectants in the 4th quarter of fiscal 2017. neogen china revenues rose 24 % ( 32 % increase in local currency ) and neogen india sales increased 67 % ( 70 % increase in local currency ) , each off of small bases . service revenue was $ 55.1 million in fiscal 2017 , an increase of $ 7.4 million , or 15 % , compared to fiscal 2016. the increase was primarily due to higher genomics revenues due to continued market penetration in u.s. beef and dairy cattle markets , strong demand in europe and additional genomics capacity resulting from laboratory facilities constructed at our scotland-based operation , and incremental ongoing business with a large customer in the poultry industry . revenues were also enhanced , to a lesser extent , by the april 2016 acquisition of deoxi laboratories , an agricultural genomics lab in brazil . gross margin was 47.6 % in both fiscal years 2017 and 2016. in the current year , acquisitions of businesses with gross margins which are lower than the company 's historical average , and the adverse margin impact resulting from currency translation , were entirely offset by favorable product mix shifts on existing products and higher genomics margins , resulting in gross margins that were flat compared to the prior year . sales and marketing expenses were $ 62.4 million , an increase of $ 4.8 million , or 8 % , compared to the prior fiscal year . increases in this category were primarily the result of increased personnel related costs such as salaries , commissions and travel ; shipping and royalty expenses also rose due to the increased volume . general and administrative expenses were $ 34.2 million , an increase of $ 5.0 million , or 17 % . incremental ongoing operating expenses from the most recent four acquisitions , which continued to operate from their
| 14,616 |
recent developments as previously announced , on june 23 , 2016 , we entered into a definitive asset purchase agreement to acquire two business units , connect and piper , from icontrol networks , inc. , or icontrol . connect develops and sells a custom , on-premise software platform that powers solutions for interactive security and automation for adt pulse® and several service providers . piper develops , produces and and sells a wi-fi-enabled video and home automation hub , and currently operates both a retail do-it-yourself product business and a channel oriented business . on march 8 , 2017 , we completed the transaction , which we refer to as the acquisition . for additional information regarding other factors related to the acquisition , please see “ risk factors - risks related to our recent acquisition of the connect and piper businesses from icontrol networks , inc. ” on september 12 , 2016 , we and icontrol each received a request for additional information and documentary materials , or a second request , from the u.s. federal trade commission , or the ftc , in connection with the ftc 's review of the acquisition . on september 22 , 2016 , we and icontrol entered into a timing agreement with the ftc and agreed not to consummate the acquisition before the 45th calendar day following the date of certifying substantial compliance with the second request , unless we received prior notice that the ftc had concluded its review or the waiting period under the hart-scott-rodino antitrust improvements act of 1976 , as amended , or the hsr act , had expired . during the waiting period , on november 2 , 2016 , in response to questions raised by the ftc , we and icontrol represented to the ftc that the terms of the acquisition agreement would be modified to ensure we did not exercise any control over the ongoing operations of the icontrol business until such time as the waiting period under the hart-scott-rodino act had expired or was terminated . the waiting period expired at 12:01 a.m. on february 22 , 2017. the expiration of the hsr act waiting period allowed the parties to proceed to close the acquisition . although the ftc concluded its review of the acquisition , it has not concluded its review of pre-closing activities . we have supplied and intend to continue to supply to the ftc additional documents and information as requested . for additional information regarding this matter , please see “ risk factors - failure to comply with laws and regulations could harm our business . '' effective as of august 19 , 2016 , or the effective date , our subsidiary , alarm.com incorporated , or alarm.com , and adt llc , or adt , amended their existing master services agreement , or the amended msa . the amended msa provides that following the closing of the acquisition , in exchange for certain incentives and service obligations provided to adt , alarm.com will serve as the exclusive provider of services for adt 's professionally installed residential interactive security , automation and video service offerings for a period of up to five ( 5 ) years following the effective date , subject to alarm.com achieving certain performance conditions and with certain exclusions . the amended msa also includes certain installation , maintenance , support , indemnity and development requirements and can be terminated if such requirements are not satisfied , including without notice if certain events occur . the foregoing description of the material terms of the amended msa does not purport to be complete and is subject to , and is qualified in its entirety by , reference to the full terms of the amended msa . key metrics we use the following key business metrics to help us monitor the performance of our business and to identify trends affecting our business ( dollars in thousands ) : replace_table_token_9_th saas and license revenue we believe that saas and license revenue is an indicator of the productivity of our existing service provider partner s and their ability to activate and maintain subscribers using our intelligently connected property solutions , our ability to add new service provider partners reselling our solutions , the demand for our intelligently connected property solutions , and the pace at which the market for these solutions is growing . 42 adjusted ebitda adjusted ebitda represents our net income before interest expense , other income / ( expense ) , net , amortization and depreciation expense , stock-based compensation expense , acquisition-related expense and legal costs incurred in connection with non-ordinary course litigation , particularly costs involved in ongoing intellectual property litigation . we do not consider these items to be indicative of our core operating performance . the non-cash items include amortization and depreciation expense and stock-based compensation expense . we do not adjust for ordinary course legal expenses resulting from maintaining and enforcing our intellectual property portfolio and license agreements . adjusted ebitda is a key measure that our management uses to understand and evaluate our core operating performance and trends to generate future operating plans , to make strategic decisions regarding the allocation of capital , and to make investments in initiatives that are focused on cultivating new markets for our solutions . in particular , the exclusion of certain expenses in calculating adjusted ebitda facilitates comparisons of our operating performance on a period-to-period basis and , in the case of exclusion of acquisition-related adjustments and certain historical legal expenses , excludes items that we do not consider to be indicative of our core operating performance . adjusted ebitda is not a measure calculated in accordance with gaap . please see non-gaap measures in this section for a discussion of the limitations of adjusted ebitda and a reconciliation of adjusted ebitda to net income , the most comparable gaap measurement , for 2016 , 2015 and 2014 . story_separator_special_tag saas and license revenue renewal rate we measure our saas and license revenue renewal rate on a trailing 12-month basis by dividing ( a ) the total saas and license revenue recognized during the trailing 12-month period from our subscribers on our saas platform who were subscribers on the first day of the period , by ( b ) total saas and license revenue we would have recognized during the period from those same subscribers assuming no terminations , or service level upgrades or downgrades . the saas and license revenue renewal rate represents both residential and commercial properties . our saas and license revenue renewal rate is expressed as an annualized percentage . our service provider partner s , who resell our services to our subscribers , have indicated that they typically have three to five year service contracts with our subscribers . our saas and license revenue renewal rate is calculated across our entire subscriber base , including subscribers whose contract with their service provider reached the end of its contractual term during the measurement period , as well as subscribers whose contract with their service provider has not reached the end of its contractual term during the measurement period , and is not intended to estimate the rate at which our subscribers renew their contracts with our service provider partner s. we believe that our saas and license revenue renewal rate allows us to measure our ability to retain and grow our saas and license revenue and serves as an indicator of the lifetime value of our subscriber base . components of operating results our fiscal year ends on december 31 st . the key elements of our operating results include : revenue we generate revenue primarily through the sale of our saas solutions over our cloud-based intelligently connected property platform through our service provider partner channel . we also generate revenue from the sale of hardware products that enable our solutions . saas and license revenue we generate the majority of our saas and license revenue primarily from monthly recurring fees charged to our service provider partner s sold on a per subscriber basis for access to our cloud-based intelligently connected property platform and related solutions . our fees per subscriber vary based upon the service plan and features utilized . we enter into contracts with our service provider partner s that establish our pricing as well as other business terms and conditions . these contracts typically have an initial term of one year , with subsequent annual renewal terms . our service provider partner s typically enter into contracts with their end-user customers , which we refer to as our subscribers , for their engagement with our solutions . our service provider partner s have indicated that those contracts generally range from three to five years in length . we offer multiple service level packages for our solutions , including integrated solutions and a range of a la carte add-ons for additional features . the price paid by our service provider partner s each month for the delivery of our solutions is based on the combination of packages and add-ons enabled for each subscriber . we use tiered pricing plans under which our service provider partner s may receive prospective pricing discounts driven by volume . we recognize our saas and license revenue on a monthly basis as we deliver our solutions to our subscribers . we define our subscribers as the number of residential or commercial properties to which we are delivering at least one of our solutions . a subscriber who subscribes to one of our service level packages as well as one or more of our a la carte add-ons is counted as one subscriber . the number of subscribers represents our number of subscribers , rounded to the nearest thousand , on the last day of the applicable year . our number of subscribers does not include the customers of our service provider partner s to whom we license our intellectual property as they do not utilize our saas platform . 43 we also generate saas and license revenue from the fees paid to us when we license our intellectual property to service provider partner s on a per customer basis for use of our patents . in november 2013 , we entered into a license agreement with vivint inc. , or vivint , who represented at least 10 % but not more than 15 % of our revenue in 2014 , pursuant to which we granted vivint a license to use the intellectual property associated with our intelligently connected property solutions . vivint began generating customers and paying us license revenue in the second quarter of 2014. pursuant to this arrangement , vivint has transitioned from selling our saas solutions directly to its customers to selling its own home automation product to its new customers , and we receive less revenue from vivint from license fees as compared to revenue received from its subscribers that continue to utilize our saas platform . additionally , in some markets , our energyhub subsidiary sells its demand response software with an annual service fee , with pricing based on the number of subscribers or amount of aggregate electricity demand made available for a utility 's or market 's control . hardware and other revenue we generate hardware and other revenue primarily from the sale of cellular radio modules that provide access to our cloud-based platform , video cameras and from the sale of other devices , including image sensors and other peripherals . we sell hardware to our service provider partner s as well as distributors . the purchase of hardware occurs in a transaction that is separate and typically in advance of the purchase of our platform services . we recognize hardware and other revenue when the hardware is delivered to our service provider partner s or distributors , net of a reserve for estimated returns .
| our other segment contributed $ 2.9 million , or 2 % , of the increase in saas and license revenue and $ 6.2 million , or 9 % , of the increase in hardware and other revenue from 2015 to 2016. the increases in saas and license revenue for our other segment were from our remote access management solution and our energy management and demand response solution . the increases in hardware revenue for our other segment were primarily from our remote access management solution . 2015 compared to 2014 the $ 41.6 million increase in total revenue from 2014 to 2015 was the result of a $ 29.4 million , or 26 % , increase in saas and license revenue and a $ 12.2 million , or 22 % , increase in hardware and other revenue . the increase in saas and license revenue from 2014 to 2015 was primarily due to growth in our subscriber base , including the revenue impact from subscribers we added in 2014 , as well as the increase of our subscriber base during 2015. to a lesser extent , saas and license revenue increased from 2014 to 2015 due to an increase in fees paid to us for licenses to use our intellectual property . hardware and other revenue from 2014 to 2015 increased $ 4.5 million from a 45 % increase in the volume of video cameras sold , $ 1.1 million from a 36 % increase in the volume of image sensors sold , $ 1.1 million from a 7 % increase in volume of cellular radio modules sold and $ 1.4 million from an increase in the volume of peripherals sold , including our thermostat . our other segment contributed to $ 0.9 million of the increase in saas and license revenue and $ 3.9 million of the increase in hardware and other revenue from 2014 to 2015. cost of revenue replace_table_token_14_th ( 1 ) excludes amortization and depreciation . 2016 compared to 2015 the $ 22.0 million increase in cost of revenue from 2015 to 2016 was the result of a $
| 14,617 |
outlook we anticipate revenue growth over the next 12 months and a related positive impact on gross margin and earnings as a result of increased sales of our sofia assays and molecular products . in addition , we expect a continued increase in our investment in research and development activities as we invest in our molecular platforms , as well as a continued build of our sales organization to meet the placement strategy of our sofia products as well as new molecular assays . we will continue our focus on prudently managing our business and delivering solid financial results , while at the same time striving to continue to introduce new products to the market and maintaining our emphasis on research and development investments for longer term growth . finally , we will continue to evaluate opportunities to acquire new product lines and technologies , as well as , company acquisitions . story_separator_special_tag style= '' margin-top:6px ; margin-bottom:0px ; text-indent:8 % '' > the following table compares total revenues for the years ended december 31 , 2011 and 2010 ( in thousands , except percentages ) : replace_table_token_7_th 29 for the year ended december 31 , 2011 , total revenue increased 40 % to $ 158.6 million from $ 113.3 million for the year ended december 31 , 2010. the increase in total revenues was primarily due to a more normalized cold and flu season in 2011 and the related increase in sales of our influenza products , as compared to the lack of an influenza season in 2010. additionally , the increase was due to the first quarter of 2011 including a full quarter of revenues from the dhi acquisition compared to the first quarter of 2010 that does not include $ 5.7 million of dhi pre-acquisition revenues and increased revenues from our strep a products . the revenue from our royalty , license fees and grant revenue category for all periods primarily relate to royalty payments earned on our patented technologies utilized by third parties and revenue from grants for research and commercialization activities . cost of sales cost of sales increased 19.5 % to $ 62.9 million , or 40 % of total revenues , for the year ended december 31 , 2011 compared to $ 52.6 million , or 46 % of total revenues , for the year ended december 31 , 2010. the absolute dollar increase in cost of sales is primarily related to the variable nature of direct costs ( material and labor ) associated with the 40 % increase in total revenues , the $ 0.7 million in 2011 related to the alere amendment as discussed in note 6 in the notes to consolidated financial statements included in this annual report , and $ 0.6 million in 2011 related to a disposal of inventory associated with a discontinued product . partially offsetting this increase are acquisition related synergies including certain decreased material costs and freight rates associated with leveraging our combined volume , and reduced overhead costs and scrap at dhi . the decrease in cost of sales as a percentage of total revenue was primarily due to a more favorable product mix , as well as the improved cost structure noted above . also , 2010 cost of sales includes $ 1.1 million of costs for the amortization of an inventory fair value adjustment associated with our acquisition of dhi . operating expenses the following table compares operating expenses for the years ended december 31 , 2011 and 2010 ( in thousands , except percentages ) : replace_table_token_8_th research and development expense research and development expense increased from $ 23.7 million to $ 26.3 million for the year ended december 31 , 2011 primarily related to it including a full year of expense from the dhi acquisition of $ 1.5 million . in 2011 , we had increased expenses associated with the development of potential new technologies and products , as well as impairment charges of $ 1.1 million and $ 0.5 million related to a discontinued product and discontinued research and development project , respectively . the overall increase was partially offset by a reversal of a liability related to a technology license . sales and marketing expense sales and marketing expense increased from $ 24.0 million to $ 25.8 million primarily related to additional investments in our sales organization and increased commissions associated with higher sales in 2011 of $ 1.0 million . also , 2011 includes a full year of expense from the dhi acquisition of $ 0.5 million . other key components of this expense relate to continued investment in assessing future product extensions and enhancements and market research . 30 general and administrative expense general and administrative expense increased from $ 19.3 million to $ 22.8 million primarily related to an employee incentive compensation accrual in 2011 of $ 2.1 million as compared to no bonus accrual in 2010. in addition , 2011 includes an increase in stock-based compensation related to restricted stock awards . also , 2011 includes a full year of expense from the dhi acquisition of $ 0.7 million . amortization of intangible assets from acquired businesses and technology amortization of intangible assets from acquired businesses consists of purchased technology , customer relationships and patents and trademarks acquired in connection with the acquisition of dhi . amortization of intangible assets from licensed technology consists primarily of expense associated with purchased technology . the amortization of intangible assets increased $ 0.4 million to $ 7.1 million in 2011 as a result of a full year of amortization from the dhi acquisition , partially offset by a license that became fully amortized in 2010. business acquisition and integration costs , and restructuring charges we incurred $ 2.3 million in expenses during the fiscal year ended december 31 , 2010 primarily related to professional fees for the dhi acquisition and integration activities . other income ( expense ) interest income is comprised of interest earned on our cash and cash equivalents . story_separator_special_tag interest expense primarily relates to interest paid on borrowings under the senior credit facility and interest paid on our lease obligation associated with our san diego facility . income taxes the effective tax rate for the years ended december 31 , 2011 and 2010 were 33.5 % and 35.3 % , respectively . we recognized income tax expense of $ 3.9 million for the year ended december 31 , 2011 compared to an income tax benefit of $ 6.1 million for the year ended december 31 , 2010. for december 31 , 2011 , income tax expense includes a reduction primarily related to the use of research and development credits , partially offset by the loss of manufacturing credits due to the utilization of net operating loss carryforwards . for the year ended december 31 , 2010 , the income tax benefit includes a charge related to the re-valuation of our deferred tax assets due to a change in california state tax law regarding income apportionment . additionally , the effective tax rate in 2010 was impacted by certain acquisition related non-deductible transaction costs and reversing a portion of a tax benefit recognized in 2009 relating to our production deduction . liquidity and capital resources as of december 31 , 2012 and 2011 , our principal sources of liquidity consisted of the following ( in thousands ) : replace_table_token_9_th during the year ended december 31 , 2012 , we received cash , pursuant to a grant agreement , which was restricted as to use until expenditures contemplated in the grant are made . as of december 31 , 2012 , we recorded this restricted cash as a component of prepaid expenses and other current assets as we anticipate making expenditures under the grant in 2013. the amount available to us under our senior credit facility can fluctuate from time to time due to , among other factors , our funded debt to adjusted ebitda ratio . 31 cash provided by operating activities was $ 19.6 million during the year ended december 31 , 2012. we had net income of $ 5.0 million , including non-cash charges of $ 29.9 million of depreciation and amortization of intangible assets and property and equipment , and stock-based compensation . the most significant change in operating assets and liabilities was an increase in accounts receivable of $ 17.9 million related to the early start to the 2012/2013 cold and flu season in the fourth quarter of 2012. cash provided by operating activities was $ 47.5 million during the year ended december 31 , 2011. we had net income of $ 7.6 million , including non-cash charges of $ 25.3 million of depreciation and amortization of intangible assets and property and equipment , and stock-based compensation . the most significant changes in operating assets and liabilities in 2011 included a decrease in inventories and income tax receivable of $ 3.4 million and $ 8.2 million , respectively . the decrease in inventory is related to the seasonal nature of our influenza business , while the decrease in income tax receivable is due to a tax refund received in 2011. cash used for our operating activities was $ 10.2 million during the year ended december 31 , 2010. we had a net loss of $ 11.3 million , including non-cash charges of $ 12.3 million of depreciation and amortization of intangible assets and property and equipment . other changes in operating assets and liabilities included a decrease in income taxes payable of $ 6.2 million primarily as a result of tax payments made during the year ended december 31 , 2010 as a result of higher taxable earnings in 2009. accrued royalties decreased by $ 3.5 million reflecting the lower revenue base on which we pay royalties . the decrease in other current and non-current liabilities of $ 4.6 million reflects lower customer incentives related to the decrease in revenues that are eligible for volume discounts for the year ended december 31 , 2010 compared to the year ended december 31 , 2009. our investing activities used $ 28.6 million during the year ended december 31 , 2012 primarily related to the acquisition of intangibles associated with our exercise of a buyout clause under the alere amendment . during the year ended december 31 , 2012 , we exercised the buy-out right under the alere amendment , which allowed us to buy-out any remaining future royalty obligation for a fixed cash payment in the amount of $ 15.7 million less $ 1.0 million of specified third quarter 2011 royalties . in addition , we used $ 12.2 million of cash for investing activities associated with the acquisition of production and scientific equipment , and building improvements during the year ended december 31 , 2012. our investing activities used $ 21.1 million during the year ended december 31 , 2011 primarily related to $ 14.0 million for the acquisition of licensed technology associated with the alere amendment as discussed in note 6 in the notes to consolidated financial statements included in this annual report . in addition , we acquired production and scientific equipment and building improvements during the year ended december 31 , 2011 of $ 4.9 million . also in 2011 , we capitalized $ 1.3 million of software development costs as part of the acquisition of intangible assets . our investing activities used $ 134.6 million during the year ended december 31 , 2010 primarily related to the purchase of dhi . in addition , we used approximately $ 6.5 million for the acquisition of production and scientific equipment and building improvements . we had investments in property , plant and equipment of $ 0.4 million which had not been paid as of december 31 , 2010. these uses of cash were partially offset by proceeds of $ 4.0 million as a result of the sale of our marketable securities during the year ended december 31 , 2010. we are currently planning approximately $ 18.3 million in capital expenditures over the next 12 months .
| replace_table_token_6_th research and development expense research and development expense for the year ended december 31 , 2012 increased from $ 26.3 million to $ 27.7 million primarily due to increased activities related to the development of molecular and other potential new technologies . these costs were partially offset by a research and development reimbursement of $ 3.0 million associated with a third-party collaboration agreement as more fully described in note 1 in the notes to the consolidated financial statements included in this annual report . research and development expenses include direct external costs such as fees paid to consultants , and internal direct and indirect costs such as compensation and other expenses for research and development personnel , supplies and materials , clinical trials and studies , facility costs and depreciation . due to the risks inherent in the product development process and given the early-stage of development of certain projects , we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization and , we have not historically tracked research and development costs by individual project . however , we expect our research and development costs to be substantial as we move other product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development . 28 sales and marketing expense sales and marketing expense for the year ended december 31 , 2012 increased from $ 25.8 million to $ 30.3 million primarily due to additional investments of $ 4.7 million in our sales organization including an increase in personnel , travel , training costs , and incentives related to new products . other key components of this expense relate to continued investment in assessing future product extensions and enhancements and market research . general and administrative expense general and administrative expense for the year ended december 31 , 2012 decreased from $ 22.8 million to $
| 14,618 |
in march 2018 , we sold the remaining portion of our common stock investment in aquaventure resulting in net cash proceeds of $ 0.2 million , which resulted in a nominal realized gain . in june 2017 , one of our portfolio companies , mathey investments , inc. ( mathey ) merged with and into another one of our portfolio companies , sbs industries , llc ( sbs ) . as a result of this transaction , we received success fee income of $ 0.3 million from mathey . our debt investments in mathey , which totaled $ 8.6 million at principal and cost , were assumed by sbs and combined with our existing debt investment in sbs , which totaled $ 11.4 million at principal and cost , into a new secured first lien term loan totaling $ 20.0 million . our common equity investment in mathey , with a cost basis of $ 0.8 million , was converted into a preferred equity investment in sbs with the same cost basis . in connection with the merger , we also extended a secured first lien revolving line of credit to sbs with a total facility amount of $ 1.5 million , which was undrawn at the time of the transaction . in august 2017 , we invested $ 28.3 million in pioneer square brands , inc. ( pioneer ) through a combination of secured first lien debt and preferred equity . pioneer , headquartered in seattle , washington , is a designer , manufacturer , and marketer of premium mobile technology bags and cases serving a diverse customer base , primarily in the education and corporate sectors . in november 2017 , one of our portfolio companies , gi plastek , inc. ( gi plastek ) merged with another one of our portfolio companies , precision southeast , inc. ( precision ) , into a new company , psi molded plastics , inc. ( psi molded ) . as a result of this transaction , our debt investments in gi plastek and precision , which totaled $ 15.0 million and $ 9.6 million , respectively , at principal and cost , were assumed by psi molded and combined into a new secured second lien term loan totaling $ 24.6 million . our preferred equity investment in gi plastek , with a cost basis of $ 5.2 million and our preferred and common equity investments in precision , with a combined cost basis of $ 3.8 million , were converted into a preferred equity investment in psi molded with the same cost basis . in november 2017 , we invested $ 31.1 million in imageworks through a combination of secured first lien debt and preferred equity . imageworks , headquartered in winston-salem , north carolina , is a market leading point-of-purchase display provider specializing in the design , engineering and production of custom semi-permanent and permanent displays across a variety of brands and consumer product end markets . 45 in december 2017 , we invested $ 6.9 million in an existing portfolio company , brunswick , through a secured first lien debt investment . in january 2018 , we refinanced our existing loans to brunswick into a new secured first lien debt investment with a principal and cost basis of $ 17.7 million . in january 2018 , we invested $ 8.5 million in an existing portfolio company , schylling , inc. , through a secured first lien debt investment and also provided a $ 6.0 million secured first lien bridge loan . in january 2018 , we provided an $ 11.0 million secured first lien bridge loan to an existing portfolio company , nth degree , which was repaid at par in march 2018. the following significant investment activity occurred subsequent to march 31 , 2018. also refer to note 15 subsequent events in the accompanying notes to consolidated financial statements included elsewhere in this annual report . in april 2018 , we invested $ 29.2 million in bassett creek restoration , inc. ( d/b/a j.r. johnson , llc ) ( bassett creek ) through a combination of secured first lien debt and preferred equity . bassett creek , headquartered in portland , oregon , is a leading provider of commercial restoration and renovation services to the oregon and southwest washington region . recent developments at-the-market program in february 2018 , we entered into equity distribution agreements ( commonly referred to as at-the-market ( atm ) programs ) with cantor fitzgerald & co. ( cantor ) , ladenburg thalmann & co. , inc. , and wedbush securities , inc. ( each a sales agent ) , under which we have the ability to issue and sell shares of our common stock , from time to time , through the sales agents , up to an aggregate offering price of $ 35.0 million . during the year ended march 31 , 2018 , we sold 127,412 shares of our common stock under the atm program with cantor at a weighted-average gross price of $ 10.45 per share and raised approximately $ 1.3 million of gross proceeds . the weighted-average net price per share , after deducting commissions and offering costs borne by us , was $ 10.24 and resulted in total net proceeds of approximately $ 1.3 million . these sales were below our then current estimated nav per share during the sales period , with such discounts ranging from $ 0.01 per share to $ 0.07 per share , when comparing the sales price per share , after deducting commissions , to the then current estimated nav per share ; however , the net dilutive effect ( after commissions and offering costs borne by us ) of these sales was $ 0.00 per common share . as of march 31 , 2018 , we had a remaining capacity to sell up to $ 33.7 million of common stock under the atm program . story_separator_special_tag subsequent to march 31 , 2018 and through may 8 , 2018 , we sold an additional 168,824 shares of our common stock under our atm program with cantor at a weighted-average gross price of $ 11.09 per share and raised approximately $ 1.9 million of gross proceeds . the weighted-average net price per share , after deducting commissions and offering costs borne by us , was $ 10.87 and resulted in total net proceeds of approximately $ 1.8 million . certain of these sales were below our then current estimated nav per share during the sales period , with a discount of $ 0.002 per share , when comparing the sales price per share , after deducting commissions , to the then current estimated nav per share ; however , the net dilutive effect ( after commissions and offering costs borne by us ) of these sales was $ 0.00 per common share . in aggregate , these sales were above our then current estimated nav per share . small business credit availability act on april 10 , 2018 , our board of directors , including a required majority ( as such term is defined in section 57 ( o ) of the 1940 act ) thereof , approved the modified asset coverage requirements set forth in section 61 ( a ) ( 2 ) of the 1940 act , as amended by the sbcaa . as a result , the company 's asset coverage requirements for senior securities will be changed from 200 % to 150 % , effective one year after the date of the board of directors ' approval ; or april 10 , 2019. notwithstanding the modified asset coverage requirement under the 1940 act described above , we are separately subject to a minimum asset coverage requirement of 200 % with respect to certain provisions of our credit facility and our three series of mandatorily redeemable preferred stock . registration statement on june 16 , 2015 , we filed a registration statement on form n-2 ( file no . 333-204996 ) with the sec and subsequently filed a pre-effective amendment no . 1 to the registration statement on july 28 , 2015 , which the sec declared effective on july 29 , 2015. on june 8 , 2016 , we filed post-effective amendment no . 1 to the registration statement , which the sec declared effective on july 28 , 2016. on july 28 , 2017 , we filed post-effective amendment no . 5 to the registration statement , which the sec declared effective on july 31 , 2017. the registration statement permits us to issue , through one or more transactions , up to an aggregate of $ 300.0 million in 46 securities , consisting of common stock , preferred stock , subscription rights , debt securities and warrants to purchase common stock , preferred stock or debt securities , including through concurrent , separate offerings of such securities . as of march 31 , 2018 , we had the ability to issue up to $ 220.0 million in securities under the registration statement . common stock offering in may 2017 , we completed a public offering of 2.1 million shares of our common stock at a public offering price of $ 9.38 per share , which was below our then current nav of $ 9.95 per share . gross proceeds totaled $ 19.7 million and net proceeds , after deducting underwriting discounts and commissions and offering costs borne by us , were $ 18.7 million , which were used to repay borrowings under the credit facility and other general corporate purposes . in june 2017 , the underwriters partially exercised their over-allotment option and purchased an additional 155,265 shares at the public offering price of $ 9.38 per share and on the same terms and conditions solely to cover over-allotments , which resulted in gross proceeds of $ 1.5 million and net proceeds , after deducting underwriting discounts and commissions and offering costs borne by us , of $ 1.4 million . distributions and dividends in april 2018 , our board of directors declared the following monthly and supplemental distributions to common stockholders and monthly dividends to holders of our series b term preferred stock , series c term preferred stock , and series d term preferred stock : replace_table_token_9_th ( a ) represents a supplemental distribution to common stockholders . 47 story_separator_special_tag september 2016. amortization of deferred financing costs and discounts decreased 21.7 % for the year ended march 31 , 2018 as compared to the prior year , primarily as a result of the write-off of previously deferred costs in the prior year related to the credit facility 's amendment in november 2016. realized and unrealized gain ( loss ) net realized gain on investments during the year ended march 31 , 2018 , we recorded a net realized gain on investments of $ 1.3 million , primarily related to a $ 1.0 million realized gain from the exit of mitchell , compared to net realized gains on investments of $ 15.6 million during the prior year period , primarily related to an $ 18.9 million realized gain from the exit of acme cryogenics , inc. ( acme ) , a $ 5.9 million realized gain from the exit of behrens manufacturing , llc ( behrens ) , and a $ 1.3 million realized gain related to an additional earn-out from funko , llc , which was exited during the fiscal year ended march 31 , 2016 , partially offset by a $ 10.2 million realized loss from the restructure of d.p.m.s. , inc. ( danco ) . net realized loss on other there were no realized gains or losses on other during the year ended march 31 , 2018. during the year ended march 31 , 2017 , we recorded a net realized loss on other of $ 0.3 million , of which $ 0.2 million related to the redemption of our series aterm preferred stock in september 2016 and $ 0.1 million related to the expiration of our interest rate cap agreement in april 2016 .
| 48 at march 31 , 2018 , and march 31 , 2017 , certain of our loans to two portfolio companies , alloy die casting co. ( adc ) and tread corporation ( tread ) , were on non-accrual status , with an aggregate debt cost basis of $ 15.6 million as of both periods . other income for the year ended march 31 , 2018 increased 66.8 % from the prior year . during the year ended march 31 , 2018 , other income primarily consisted of $ 4.2 million of dividend income and $ 5.3 million of success fee income . during the year ended march 31 , 2017 , other income primarily consisted of $ 3.3 million of dividend income and $ 2.4 million of success fee income . the following table lists the investment income for our five largest portfolio company investments , at fair value , during the respective fiscal years : replace_table_token_11_th ( a ) new investment during the applicable year . expenses total expenses , net of any non-contractual , unconditional , and irrevocable credits from the adviser , increased 23.6 % for the year ended march 31 , 2018 , as compared to the prior year , primarily due to an increase in the incentive fee , the base management fee , and interest and dividend expense , partially offset by a decrease in amortization of deferred financing fees and discounts . the income-based incentive fee increased for the year ended march 31 , 2018 , as compared to the prior year , as pre-incentive fee net investment income increased , partially offset by an increase in net assets , which drives the hurdle rate . additionally , in accordance with gaap , we recorded a capital gains-based incentive fee of $ 4.4 million during the year ended march 31 , 2018 , which is not contractually due under the terms of the advisory agreement . there was no capital gains-based incentive fee recorded or paid during the prior year . the base management fee increased for the year ended march 31 , 2018 , as compared to the prior year , as average total assets increased over the period .
| 14,619 |
non-cancerous ) tissue that has become oxygen-deprived provides opportunities for new therapeutic approaches to conditions ranging from stroke and emergency medicine to cardiovascular and neurodegenerative diseases . in the treatment of cancerous tissue , we believe tsc 's therapeutic potential to lessen the tumors treatment resistance to radiation and chemo-therapy is not limited to one specific tumor type , thereby making it potentially useful to improve standard-of-care treatments in many life-threatening cancers . given tsc 's safety profile and animal data , we could , with appropriate funding , move directly into phase 2 studies for tsc in other cancers . the successful completion of trials for tsc or any other potential product candidate in these or any other indication is dependent upon our ability to further raise necessary capital . we believe that tsc has potential applications in stroke and emergency medicine . in stroke , a phase 2 trial in cooperation with the university of california los angeles ( ucla ) and the university of virginia ( uva ) to test tsc in the treatment of acute ischemic or hemorrhagic stroke is currently enrolling patients . stroke is the 5th leading cause of death in the u.s. and the no . 1 cause of adult disability . our stroke trial , which features in-ambulance dosing of tsc , is named the “ prehospital acute stroke therapy - tsc ” ( phast - tsc ) study , and is expected to enroll 160 patients , with 80 in the treatment arm and 80 in the control arm . we believe in-ambulance dosing of tsc will significantly cut the time in which the stroke-related oxygen deprivation to brain cells goes untreated , potentially leading to a better outcome for stroke victims treated in this manner . subject to receipt of adequate funding to complete the phast – tsc trial , we expect to complete enrollment during the second half of 2021. our oncology program targets tsc against treatment-resistant brain cancer . a phase 2 clinical program , completed in the second quarter of 2015 , evaluated 59 patients with newly diagnosed glioblastoma multiforme ( “ gbm ” ) , a particularly deadly form of primary brain cancer . gbm affects approximately 12,000 patients annually in the united states and approximately 35,000 patients annually worldwide . this open label , historically controlled study demonstrated a favorable safety and efficacy profile for tsc when combined with gbm 's standard of care , including a 37 % improvement in overall survival over the control group at two years . a particularly strong efficacy signal was seen in the inoperable patients , where survival of tsc-treated patients at two years was increased by almost four-fold over the controls . in december 2017 , the company initiated the investigation of tsc against cancerous tumors ( intact ) phase 3 trial in the newly diagnosed inoperable gbm patient population . the trial is designed to enroll 236 patients in total , with 118 in the treatment arm and 118 in the control arm . 66 the trial began with an fda-mandated open label 8 patient safety run-in for which enrollment has completed and is now closed . with the fda 's permission , a total of 19 patients were enrolled to ensure that at least 8 complete data sets meeting the fda 's specified 4-month exposure period would be available for review . the intact trial data safety monitoring board ( dsmb ) met in the third quarter of 2019 and , based on their analysis , recommended that the study be continued . the dsmb concluded that no adverse safety signal had been observed , and unanimously recommended continuing the study as planned using the highest tested dose of tsc - 1.5 mg/kg - during the adjuvant treatment chemotherapy period with temozolomide . the company believes that a preliminary efficacy signal was also received . a total of 10 patients were enrolled into the higher dose cohorts and 9 in the lower dose cohorts . in the higher dose patients , where the best results were expected , 3 discontinued treatment before meeting the fda exposure period criteria . of the 7 patients who met the criteria , 5 remain alive as of march 12 , 2020. commencement of enrollment in the randomization portion of the intact phase 3 trial is contingent upon our entering into a strategic partnership providing the necessary resources to undertake the full trial . in addition to the tsc programs , we are exploring alternatives regarding how best to capitalize upon our product candidate res-529 , which may include possible out-licensing and other options . res-529 is a novel pi3k/akt/mtor pathway inhibitor which has completed two phase 1 clinical trials for age-related macular degeneration and was in preclinical development in oncology , specifically gbm . res-529 has shown activity in both in vitro and in vivo glioblastoma animal models and has been demonstrated to be orally bioavailable and capable of crossing the blood brain barrier . critical accounting policies certain of our critical accounting estimates require the application of significant judgment by management in selecting the appropriate assumptions in determining the estimate . by their nature , these judgments are subject to an inherent degree of uncertainty . we develop these judgments based on our historical experience , terms of existing contracts , our observance of trends in the industry and information available from other outside sources , as appropriate . actual results may differ from these judgments under different assumptions or conditions . different , reasonable estimates could have been used for the current period . additionally , changes in accounting estimates are reasonably likely to occur from period to period . both of these factors could have a material impact on the presentation of our financial condition , changes in financial condition or results of operations . story_separator_special_tag we believe the following accounting estimate is the most critical to aid in fully understanding and evaluating our financial statements as they require our most subjective or complex judgments : intangible assets our sole intangible asset as of december 31 , 2019 consists of an in-process research and development ( “ ipr & d ” ) intangible asset acquired in 2016. the fair value of the ipr & d asset was determined as of the acquisition date using the cost approach , which establishes a value based on the cost of reproducing or replacing the asset , often referred to as current replacement cost . the cost approach was chosen as we were not able to estimate an income stream attributable to the ipr & d asset given the fact that the related products have only completed limited preclinical and clinical trials and the timeline to commercial viability , if the fda approval process is successful , is somewhat uncertain and would take a number of years , and the costs would be significant . as the development efforts for our remaining res-529 ipr & d asset continues , based on the facts and circumstances at the time of a future valuation for the purposes of assessing impairment , it is possible that the value for res-529 could be substantially reduced or eliminated , which could result in a maximum pretax charge to operations equal to the current carrying value of our intangible asset of $ 8.6 million as of december 31 , 2019. we tested the ipr & d intangible asset for impairment on october 1 , which is our annual impairment testing date . we consider certain triggering events when evaluating whether an interim ipr & d impairment analysis is warranted . there was no impairment to our ipr & d asset during the years ended december 31 , 2019 and 2018 . 67 story_separator_special_tag serif ; font-size:10pt ; margin:0pt ; text-align : justify ; text-indent:36pt ; '' > net cash used in operating activities of $ 9.9 million during the year ended december 31 , 2019 was primarily attributable to our net loss of $ 11.8 million and a $ 0.3 million change in deferred income taxes . this amount was offset by our net change in operating assets and liabilities of $ 1.0 million , and non-cash charges comprised of $ 0.5 million of stock-based compensation expense and depreciation expense of $ 0.1 million . 70 net cash used in operating activities of $ 10.8 million during the year ended december 31 , 2018 was primarily attributable to our net loss of $ 18.4 million , a $ 0.4 million change in deferred income taxes , and our net change in operating assets and liabilities of $ 0.3 million . this amount was offset by the recognition of a $ 6.9 million non-cash impairment charge to goodwill and $ 1.4 million in other non-cash charges , which were made up of stock-based compensation , common stock issued for advisory services and depreciation . financing activities net cash provided by financing activities was $ 16.0 million during the during the year ended december 31 , 2019 , which was attributable to the $ 12.3 million in proceeds received upon the sale of our common stock , pre-funded warrants and warrants and the $ 3.9 million in proceeds received from the exercise of common stock warrants , offset by approximately $ 0.2 million in payments for offering costs . net cash provided by financing activities was $ 9.9 million during the during the year ended december 31 , 2018 , which was attributable to the $ 10.8 million in proceeds received upon the sale of our common stock offset by approximately $ 0.4 million in payments for offering costs . during the year ended december 31 , 2018 , we also repaid the outstanding principal balance of our series b convertible notes in the amount of approximately $ 0.6 million . capital requirements we expect to continue to incur substantial expenses and generate significant operating losses as we continue to pursue our business strategy of developing our lead product candidate , tsc , for use in the treatment of gbm , stroke and other hypoxia related indications . our operations have consumed substantial amounts of cash since inception . we expect to continue to spend substantial amounts of cash to advance the clinical development of our product candidates . at the current time , the bulk of our cash resources for clinical development is dedicated to the phase 2 trial for tsc in acute stroke . while we believe we have adequate cash resources to continue operations into january of 2021 , we will need to raise additional funds in order to complete these trials . we do not expect to commence any clinical trials beyond these trials unless we are able to raise additional capital , enter into strategic collaborations , or make alternative financing arrangements for any such trials . to date , we have funded our ongoing business operations and short-term liquidity needs , primarily through the sale and issuance of preferred stock , common stock and convertible debt . we expect to continue this practice for the foreseeable future , however , we may enter into strategic partnerships or transactions in order to fund our ongoing capital requirements . as of december 31 , 2019 , we did not have credit facilities under which we could borrow funds or any other sources of committed capital . we will seek to raise additional funds through various sources , such as equity and debt financings , or through strategic collaborations or licensing agreements . we can give no assurances that we will be able to secure additional sources of funds to support our operations , or if such funds are available to us , that such additional financing will be sufficient to meet our needs or be on terms acceptable to us . this risk may
| research and development expense research and development costs include , but are not limited to , third-party contract research arrangements , employee-related expenses , including salaries , benefits , stock-based compensation and travel expense reimbursement . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as we advance our product candidates , we expect the amount of research and development costs will continue to increase for the foreseeable future . research and development costs are charged to expense as incurred . 68 general and administrative expense general and administrative expense consists principally of salaries and related costs for executive and other personnel , including stock-based compensation and travel expenses . other general and administrative expenses include professional fees that were incurred in connection with operating as a public company , facility-related costs , communication expenses and professional fees for legal , patent prosecution and maintenance , and consulting and accounting services . goodwill impairment expense goodwill impairment expense relates to a non-cash impairment charge recognized as a write-down of the company 's goodwill due to the company 's carrying value of equity exceeding its fair value throughout the second half of 2018. interest ( income ) expense , net interest ( income ) expense , net consisted principally of the interest expense recorded in connection with our previously outstanding convertible debt instruments offset by the interest earned from our cash and cash equivalents . income tax ( expense ) benefit since inception , the company has incurred net losses , and until 2018 , had not recorded any u.s. federal or state income tax benefits for the losses . in 2018 , as a result of the change in net operating loss carryforward period associated with the tax cuts and jobs act ( `` the 2017 tax act '' ) , the company recognized an income tax benefit to reflect the adjustment allowed by
| 14,620 |
impact of covid-19 on march 11 , 2020 , the world health organization announced that covid-19 , a respiratory illness , caused by a novel coronavirus , is a pandemic . covid-19 has spread to many of the countries in which we , our customers , our suppliers and our other business partners conduct business . governments in affected regions have implemented , and may continue to implement , safety precautions which include quarantines , travel restrictions , business closures , cancellations of public gatherings and other measures as they deem necessary . many organizations and individuals , including the company and its employees are taking additional steps to avoid or reduce infection , including limiting travel and staying home from work . these measures are disrupting normal business operations both in and outside of affected areas and have had significant negative impacts on businesses and financial markets worldwide . we anticipate that our financial results could be adversely impacted due to : temporary closure or decrease in foot traffic to our major customers ' retail stores and shift of focus to essential goods distribution ; disruption to our supply chain caused by delayed delivery of components from our third-party manufacturers and other suppliers located in regions affected by covid-19 ; deferment of customer spending due to economic uncertainty ; decreased productivity due to travel bans , work-from-home policies or shelter in place orders ; and a slow-down in the global economy or a credit crisis . the onset of the covid-19 pandemic started to affect our product shipments in the second quarter of 2020 due to our major customers ' retail stores facing temporary closures and decreases in foot traffic , certain of our customers shifting focus to essential goods distribution , and other uncertainties caused by the pandemic . the decline in product shipments continued throughout the fourth quarter of 2020. as of december 31 , 2020 , americas retail channel inventory 55 declined compared to december 31 , 2019 due to lower inventory holding by our retail channel customers during the pandemic . this has contributed to a 6.8 % decline in net revenue in the americas , compared to the prior year . in addition , international freight capacity has dropped , causing air and ocean freight rates to materially increase . furthermore , transit times have also increased . for the year ended december 31 , 2020 , we saw a 56 % increase in freight-in expense compared to the prior year , as a result of the higher sea and airfreight rates . while this is expected to be temporary , the current circumstances are dynamic and the future impacts of covid-19 on our business operations , including their duration and impact on overall customer demand , can not be reasonably estimated at this time . our priorities and actions during the covid-19 pandemic are focused on protecting the health and safety of all those we serve , our employees , our customers , our suppliers and our communities , including implementing early and continuous updates to our health and safety policies and processes . we have successfully migrated all but a limited number of our global workforce to work remotely while local and state governments have imposed shelter-in-place orders in the united states and around the world . we are focused on providing our team with the resources that they need to meet the needs of our customers and deliver new innovations to the markets we serve , despite challenges introduced by the covid-19 pandemic . we continue to work with our suppliers to address any supply chain disruptions , which might include larger component backlogs , travel restrictions and logistics changes that can impact our operations . for example , increased demand for electronics as a result of the covid-19 pandemic , effects of the u.s. trade war with china , increased demand for chips in the automotive industry and certain other factors have led to a global shortage of semiconductors . due to such shortage , starting in the fourth quarter of 2020 we started to experience component shortages , including longer lead times for components , and supply constraints , which we expect to continue into 2021. such shortages and constraints are affecting our ability to meet scheduled product deliveries and worldwide demand for our products in the first quarter of 2021 and potentially beyond . as a result , we could experience material charges from potential adjustments of the carrying value of our inventories and trade receivables , impairment charges on our long-lived assets , intangible assets and goodwill , and changes in the effectiveness of the company 's hedging instruments , among others . we also anticipate that covid-19 could continue to reduce our revenues and increase product and service costs and operating expenses for fiscal year 2021. we are focused on navigating these recent challenges presented by covid-19 through preserving our liquidity and managing our cash flow through taking preemptive action to enhance our ability to meet our short-term liquidity needs . these actions include , but are not limited to , proactively managing working capital by closely monitoring customers ' credit and collections , renegotiating payment terms with third-party manufacturers and key suppliers , closely monitoring inventory levels and purchases against forecasted demand , reducing or eliminating non-essential spending , and deferment of hiring . we continue to monitor this rapidly developing situation and may , as necessary , reduce expenditures further , borrow under our revolving credit facility , or pursue other sources of capital that may include other forms of external financing in order to maintain our cash position and preserve financial flexibility in response to the uncertainty in the united states and global markets resulting from the covid-19 pandemic . comparability of historical results through july 1 , 2018 , the operating results of arlo had historically been disclosed as a reportable segment within the consolidated financial statements of netgear , enabling the identification of directly attributable transactional information , functional departments , and headcount . story_separator_special_tag revenue and cost of revenue , with the exception of channel sales incentives , were derived from transactional information specific to arlo products and services . directly attributable operating expenses were derived from activities relating to arlo functional departments and headcount . arlo employees also historically participated in netgear 's stock-based incentive plans , in the form of restricted stock units ( “ rsus ” ) , stock options , and purchase rights issued pursuant to netgear 's employee stock purchase plan . stock-based compensation expense has been either directly reported by or allocated to arlo based on the awards and terms previously granted to netgear 's employees . the consolidated statements of operations of the company as presented for the year ended 2018 reflect the directly attributable transactional information specific to arlo and certain additional allocated costs through july 1 , 2018. the allocated costs for corporate functions included , but were not limited to , allocations of general corporate expenses 56 from netgear including expenses related to corporate services , such as executive management , information technology , legal , finance and accounting , human resources , tax , treasury , research and development , sales and marketing , shared facilities and other shared services . these costs were allocated based on revenue , headcount , or other measures the company has determined as reasonable . following july 1 , 2018 , the consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries . the amount of these allocations from netgear reflected within operating expenses in the consolidated statements of operations was $ 30.6 million from january 1 , 2018 to the date of the completion of the ipo , which included $ 9.4 million for research and development , $ 10.0 million for sales and marketing , and $ 11.2 million for general and administrative expense . the management of arlo believes the assumptions underlying the consolidated financial statements , including the assumptions regarding the allocated expenses , reasonably reflect the utilization of services provided , or the benefit received by arlo during the periods presented . nevertheless , the consolidated financial statements may not be indicative of arlo 's future performance and do not necessarily reflect arlo 's results of operations , financial position , and cash flows had arlo been a standalone company during the period presented . components of our operating results revenue our gross revenue consists primarily of sales of devices , prepaid and paid subscription service revenue and nre service revenue from verisure . we generally recognize revenue from product sales at the time the product is shipped and transfer of control from us to the customer occurs . our first generation camera products under our old business model come with a prepaid service that provides users with rolling seven-day cloud video storage , the ability to connect up to five cameras and 90 days of customer support . our second generation camera , doorbell and floodlight products under our new business model come with a prepaid service that includes a one-year free trial period of arlo smart bundled with our arlo ultra products launched in early 2019 , and a three-month free trial period of arlo smart bundled with our products launched after september 2019. upon device shipment , we attribute a portion of the sales price to the prepaid service , deferring this revenue at the outset and subsequently recognizing it ratably over the estimated useful life of the device or free trial period , as applicable . our paid subscription services relate to sales of subscription plans to our registered accounts . our services also include certain development services provided to verisure under a nre arrangement as part of the disposal of our commercial operations in europe in the fourth quarter of 2019. refer to note 4 , disposal of business , in the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for a complete discussion of the nre arrangement . our revenue consists of gross revenue , less end-user customer rebates and other channel sales incentives deemed to be a reduction of revenue per the authoritative guidance for revenue recognition , allowances for estimated sales returns , price protection , and net changes in deferred revenue . a significant portion of our marketing expenditure is with customers and is deemed to be a reduction of revenue under authoritative guidance for revenue recognition . under the supply agreement , verisure became the exclusive distributor of our products in europe for all channels , and will non-exclusively distribute our products through its direct channels globally . we expect that our revenue and profitability in europe will improve over the lifetime of the supply agreement . refer to note 4 , disposal of business , in the notes to consolidated financial statements in item 8 of part ii of this annual report on form 10-k for a complete discussion of the supply agreement . cost of revenue cost of revenue consists of both product costs and costs of service . product costs primarily consist of : the cost of finished products from our third-party manufacturers ; overhead costs , including purchasing , product planning , inventory control , warehousing and distribution logistics , third-party software licensing fees , inbound freight , it and facilities overhead , warranty costs associated with returned goods , write-downs for excess and obsolete inventory , royalties to third 57 parties ; and amortization expense of certain acquired intangibles . cost of service consists of costs attributable to the provision and maintenance of our cloud-based platform , including personnel , storage , security and computing , as well as nre service costs incurred under the verisure nre arrangement .
| we launched arlo ultra , with 4k video resolution capability , in the first fiscal quarter of 2019 , arlo pro 3 , with 2k video resolution capability , in the third fiscal quarter of 2019 and arlo video doorbell with 180 degree viewing angle , in the fourth quarter of 2019. service revenue increased by $ 9.0 million , or 23.7 % , for the year ended december 31 , 2019 compared to the prior year , as our paid subscribers increased compared to the prior year . cost of revenue the following table presents cost of revenue for the periods indicated : replace_table_token_7_th cost of products revenue decreased for the year ended december 31 , 2020 , primarily due to the decrease in product revenue and overhead costs , partially offset by higher excess and obsolete inventory provision compared to the prior year . the increase in excess and obsolete inventory provision reflects lower expected future demand for certain older product lines for the fiscal year 2020 as we transition to newer technologies . the increase in cost of services revenue is in line with the service revenue growth and due to our continued investment in our cloud service offerings to improve our customer experience and to enhance our security profile , as well as verisure nre service costs , offset by cost optimizations implemented during the year . cost of products revenue decreased for the year ended december 31 , 2019 , due primarily to a decline in product revenue compared to the prior year . cost of services revenue increased for the year ended december 31 , 2019 , in line with the service revenue growth and due to our continued investment in our cloud service offerings to improve our customer experience and to enhance our security profile , offset by cost optimizations implemented during the year . 61 gross margin the following table presents gross margin for the periods indicated : replace_table_token_8_th gross margin increased for the year ended december 31 , 2020 compared to the prior year , due to a combination of both product and service margin increases . the product margin increase is primarily due to decreased provisions for price protection and marketing
| 14,621 |
we are providing up to 14 days of paid time off for any employee who has contracted covid-19 or is required to be quarantined by a public health authority . in addition , we have made a change to our business in canada . each account sold in canada has historically required a significant cash investment by our company . effective june 2020 , vivint canada , inc. no longer sells new equipment or accounts through its door-to-door sales channel . we will continue to sell in canada through online marketing and our inside sales channels . we will continue to operate in canada , with dedicated support and services . in may 2020 , several of the states in which we operate began to resume business operations on a phased basis . accordingly , at that time we resumed door-to-door sales activities in markets where possible . due to ongoing state restrictions and phased re-openings , we were forced to delay deployment of our summer direct-to-home sales representatives by up to six weeks in some markets . this was a driver of the decrease in the number of new subscribers generated through our direct-to-home sales channel in 2020 , compared to 2019. despite the recent overall reduction in new covid-19 cases , the united states continues to struggle with rolling outbreaks of the covid-19 virus , and the full impact of the pandemic on our business and results of operations will depend on the ultimate duration of the pandemic as well as the severity of any resurgence in covid-19 cases in the future . while we did not experience a significant adverse financial impact from the covid-19 pandemic in 2020 , our business could be adversely impacted in the future if the covid-19 pandemic continues for an extended period of time and or if government stimulus programs are discontinued or reduced further . financial update . we have implemented business continuity plans intended to continue to ensure the health , safety , and well-being of our customers , employees and communities , and to protect the financial and operational strength of the company . we have reduced discretionary spending , temporarily suspended certain employee benefit programs for a portion of 2020 and received pricing concessions from certain of our key vendors , some of which are short-term in nature , in each case to preserve cash and improve our cost structure . this reduced spending may not be sustainable over time without negatively impacting our results of operations . although the covid-19 pandemic did not have a material impact on our fiscal year 2020 results of operations , as discussed above with respect to the operational challenges posed by the pandemic the broader implications of covid-19 on our future results of operations and overall financial performance remain uncertain . depending on the breadth and duration of 50 the ongoing outbreak , which we are not currently able to predict , the adverse impact could be material . our future business could be adversely affected by covid-19 , including our ability to maintain compliance with our debt covenants , due to the following : our ability to generate new subscribers , particularly in our direct-to-home sales channel . increases in customer attrition and deferment or forgiveness of our customers ' monthly service fees , due to the increased unemployment rates and reduced wages . these could increase our allowance for bad debt , provision for credit losses , and losses on our derivative liability associated with the consumer financing program . the impact of the pandemic and actions taken in response thereto on global and regional economies and economic activity , including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending . ability to obtain the equipment necessary to generate new subscriber accounts or service our existing subscriber base , due to potential supply chain disruption . for example , although it has not yet had a significant impact on our business , some technology companies are facing shortages of certain components used in our products , which if prolonged could impact our ability to obtain the equipment needed to support our operations . such shortages could also require us to utilize expedited shipping methods to maintain adequate supply , which would result in increased transportation costs for this equipment . limitations on our ability to enter our customer 's homes to perform installs or equipment repairs . our ability to access capital , or to access such capital at reasonable economic terms . inefficiencies and potential incremental costs resulting from the requirement for many of our employees to work from home . these factors could become indicators of asset impairments in the future , depending on the significance and duration of the disruption . while short-term , temporary disruptions may not indicate an impairment ; the effects of a prolonged outbreak may cause asset impairments . we continue to monitor the situation and guidance from international and domestic authorities , including federal , state and local public health authorities , and may be required or elect to take additional actions based on their recommendations . key factors affecting operating results our future operating results and cash flows are dependent upon a number of opportunities , challenges and other factors , including our ability to grow our subscriber base in a cost-effective manner , expand our product and service offerings to generate increased revenue per user , provide high quality products and subscriber service to maximize subscriber lifetime value and improve the leverage of our business model . key factors affecting our operating results include the following : subscriber lifetime and associated cash flows our subscribers are the foundation of our recurring revenue-based model . our operating results are significantly affected by the level of our net acquisition costs per new subscriber and the value of products and services purchased by those new subscribers . story_separator_special_tag a reduction in net subscriber acquisition costs per new subscriber or an increase in the total value of products or services purchased by a new subscriber increases the life-time value of that subscriber , which in turn , improves our operating results and cash flows over time . the net upfront cost of adding subscribers is a key factor impacting our ability to scale and our operating cash flows . vivint flex pay , which became our primary equipment financing model in early 2017 , has made it significantly more affordable to accelerate the growth in new subscribers . prior to vivint flex pay , we recovered the cost of equipment installed in subscribers ' homes over time through their monthly service billings . we offer to a limited number of customers who are not eligible for the cfp , or do not choose to pay-in-full at the time of origination , but who qualify under our underwriting criteria , the option to enter into a ric directly with us , which we fund through our balance sheet . under vivint flex pay , we 've experienced the following financing mix for new subscribers : 51 replace_table_token_3_th this shift in financing from rics to the cfp has significantly reduced our net subscriber acquisition cost per new subscriber , as well as the cash required to acquire new subscribers . our net subscriber acquisition cost per new subscriber has decreased from $ 1,189 for the year ended december 31 , 2018 to $ 139 for the year ended december 31 , 2020 , a reduction of approximately 88 % . going forward , we expect the percentage of subscriber contracts financed through rics to remain relatively flat to 2020. we will also continue to explore ways of growing our subscriber base in a cost-effective manner through our existing sales and marketing channels , through the growth of our financing programs , as well as through strategic partnerships and new channels , as these opportunities arise . existing subscribers are also able to use vivint flex pay to upgrade their systems or to add new products , which we believe further increases subscriber lifetime value . this positively impacts our operating performance , and we anticipate that adding additional financing options to the cfp will generate additional opportunities for revenue growth and a subsequent increase in subscriber lifetime value . we seek to increase our average monthly revenue per user , or amru , by continually innovating and offering new smart home solutions that further leverage the investments made to date in our existing platform and sales channels . since 2010 , we have successfully expanded our smart home platform , which has allowed us to generate higher amru and in turn realize higher smart home device revenue from new subscribers for these additional offerings . for example , the introduction of our proprietary vivint smart hub , vivint skycontrol panel , vivint glance display , vivint doorbell camera pro , vivint indoor camera , vivint outdoor camera pro , vivint smart thermostat , vivint smart sensor and vivint motion sensor has expanded our smart home platform . due to the high rate of adoption of additional smart home devices and tech-enabled services , our amru has increased from $ 56.14 in 2013 to $ 64.76 for the year ended december 31 , 2020 , an increase of 15 % . we believe that continuing to grow our amru will improve our operating results and operating cash flows over time . our ability to improve our operating results and cash flows , however , is subject to a number of risks and uncertainties as described in greater detail elsewhere in this filing and there can be no assurance that we will achieve such improvements . to the extent that we do not scale our business efficiently , we will continue to incur losses and require a significant amount of cash to fund our operations , which in turn could have a material adverse effect on our business , cash flows , operating results and financial condition . our ability to retain our subscribers also has a significant impact on our financial results , including revenues , operating income , and operating cash flows . because we operate a business built on recurring revenues , subscriber lifetime is a key determinant of our operating success . our average subscriber lifetime is approximately 92 months ( or approximately 8 years ) as of december 31 , 2020. if our expected long-term annualized attrition rate increased by 1 % to 14 % , average subscriber lifetime would decrease to approximately 86 months . conversely , if our expected attrition decreased by 1 % to 12 % , our average subscriber lifetime would increase to approximately 100 months . our ability to service our existing customer base in a cost-effective manner , while minimizing customer attrition , also has a significant impact on our financial results and operating cash flows . critical to managing the cost of servicing our subscribers is limiting the number of calls into our customer care call centers , and in turn , limiting the number of calls requiring the deployment of a smart home pro to the customer 's home to resolve the issue . we believe that our proprietary end-to-end solution allows us to proactively manage the costs to service our customers by directly controlling the design , interoperability and quality of our products . it also provides us the ability to identify and resolve potential product issues through remote software or firmware updates , typically before the customer is even aware of an issue . through continued focus in these areas , our net service cost per subscriber has decreased from $ 16.27 for the year ended december 31 , 2018 to $ 10.50 for the year ended december 31 , 2020 , a decrease of 35 % , while effectively managing subscriber attrition .
| wireless internet business in july 2019 ( see note 11 in the accompanying consolidated financial statements for further information on the wireless spin-off ) ; and $ 0.7 million negative affect from currency translation when computed on a constant foreign currency basis . costs and expenses the following table provides the significant components of our costs and expenses for the years ended december 31 , 2020 and 2019 : replace_table_token_9_th not meaningful ( “ nm ” ) operating expenses for the year ended december 31 , 2020 decreased $ 16.7 million , or 5 % , as compared to the year ended december 31 , 2019. this decrease included a $ 20.1 million increase in stock-based compensation primarily associated with grants of equity awards in 2020 and vesting of rollover equity awards . excluding stock-based compensation , operating expenses decreased by $ 36.8 million , or 10 % , primarily due to decreases of : $ 29.6 million in personnel and related support costs , due primarily to lower staffing levels and related travel as a result of covid-19 ; $ 10.1 million in equipment costs from lower excess and obsolete inventory , along with lower equipment pricing and usage ; $ 5.5 million in costs associated with our former wireless internet business which was spun out in july 2019 ; and $ 2.8 million in costs associated with our retail channel and other sales pilots . 62 these were partially offset by increases of : $ 6.3 million increase in third-party contracted servicing ; $ 2.4 million in subcontractor monitoring costs ; and $ 0.8 million in facility and housing costs . selling expenses , excluding capitalized contract costs , increased $ 109.2 million , or 56 % , for the year ended december 31 , 2020 as compared to the year ended december 31 , 2019. this increase included a $ 101.4 million increase in stock-based compensation primarily associated with grants of equity awards in 2020 and vesting of rollover equity awards . excluding stock-based compensation , selling expenses
| 14,622 |
the primary reason for the change in product mix is lower sales to the company for the u.s. retail market . at march 31 , 2010 , the hong kong joint venture 's gross margin increased to 28.1 % from 26.5 % at march 31 , 2009. the primary reason for this increase was higher gross margins on sales to the company for the u.s. retail market . selling , general and administrative expenses of the hong kong joint venture for fiscal 2011 were $ 3,447,358 , compared to $ 4,275,709 for fiscal 2010 and $ 5,298,831 for fiscal 2009. as a percentage of sales , these expenses were 14.2 % , 14.8 % and 14.7 % for fiscal years 2011 , 2010 and 2009 , respectively . the decrease in dollars of selling , general and administrative expenses for the year ended march 31 , 2011 was primarily due to the reversal of value-added tax previously accrued in the amount of $ 428,380. the decrease in dollars of selling , general and administrative expenses for the year ended march 31 , 2010 was principally due to increases in foreign currency exchange losses , insurance , management bonus , rent expense and sales commissions . investment income and interest income , net of interest expense was $ 380,887 for fiscal year 2011 , compared to $ 208,667 and $ 167,283 in fiscal years 2010 and 2009 , respectively . the increase in interest income net of interest expense for 2011 was due to an increase in investments . the increase from 2009 to 2010 is due to variations in the amount of investments in bonds during those fiscal periods . cash needs of the hong kong joint venture are currently met by funds generated from operations . during fiscal year 2011 , working capital decreased by $ 1,465,480 from $ 11,756,026 on march 31 , 2010 to $ 10,290,546 on march 31 , 2011. contractual obligations and commitments the following table presents , as of march 31 , 2011 , our significant fixed and determinable contractual obligations to third parties by payment date . further discussion of the nature of each obligation is included in note f to the consolidated financial statements . payment due by period total year 1 years 2-3 operating lease obligations $ 507,723 $ 183,676 $ 324,047 - 16 - critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations are based upon our consolidated financial statement included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements . these temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided , as necessary . the company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties related to income tax matters are recorded as income tax expenses , see note g , income taxes . revenue recognition : revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer , the amount due from the customer is fixed and collectability of the related receivable is reasonably assured . we establish allowances to cover anticipated doubtful accounts and sales returns based upon historical experience . the company nets the factored accounts receivable with the corresponding advance from the factor , with the net amount reflected in the consolidated balance sheet . the company sells trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of market or cost . cost is determined on the first in/first story_separator_special_tag the primary reason for the change in product mix is lower sales to the company for the u.s. retail market . at march 31 , 2010 , the hong kong joint venture 's gross margin increased to 28.1 % from 26.5 % at march 31 , 2009. the primary reason for this increase was higher gross margins on sales to the company for the u.s. retail market . selling , general and administrative expenses of the hong kong joint venture for fiscal 2011 were $ 3,447,358 , compared to $ 4,275,709 for fiscal 2010 and $ 5,298,831 for fiscal 2009. as a percentage of sales , these expenses were 14.2 % , 14.8 % and 14.7 % for fiscal years 2011 , 2010 and 2009 , respectively . the decrease in dollars of selling , general and administrative expenses for the year ended march 31 , 2011 was primarily due to the reversal of value-added tax previously accrued in the amount of $ 428,380. the decrease in dollars of selling , general and administrative expenses for the year ended march 31 , 2010 was principally due to increases in foreign currency exchange losses , insurance , management bonus , rent expense and sales commissions . investment income and interest income , net of interest expense was $ 380,887 for fiscal year 2011 , compared to $ 208,667 and $ 167,283 in fiscal years 2010 and 2009 , respectively . the increase in interest income net of interest expense for 2011 was due to an increase in investments . the increase from 2009 to 2010 is due to variations in the amount of investments in bonds during those fiscal periods . cash needs of the hong kong joint venture are currently met by funds generated from operations . during fiscal year 2011 , working capital decreased by $ 1,465,480 from $ 11,756,026 on march 31 , 2010 to $ 10,290,546 on march 31 , 2011. contractual obligations and commitments the following table presents , as of march 31 , 2011 , our significant fixed and determinable contractual obligations to third parties by payment date . further discussion of the nature of each obligation is included in note f to the consolidated financial statements . payment due by period total year 1 years 2-3 operating lease obligations $ 507,723 $ 183,676 $ 324,047 - 16 - critical accounting policies management 's discussion and analysis of our consolidated financial statements and results of operations are based upon our consolidated financial statement included as part of this document . the preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosures of contingent assets and liabilities . on an ongoing basis , we evaluate these estimates , including those related to bad debts , inventories , income taxes , impairment of long-lived assets , and contingencies and litigation . we base these estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe that the following critical accounting policies affect management 's more significant judgments and estimates used in the preparation of its consolidated financial statements . for a detailed discussion on the application of these and other accounting policies , see note a to the consolidated financial statements included in this annual report . certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty and actual results could differ from these estimates . these judgments are based on our historical experience , terms of existing contracts , current economic trends in the industry , information provided by our customers , and information available from outside sources , as appropriate . our critical accounting policies include : income taxes : the company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements . these temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled . the deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided , as necessary . the company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position , if that position is more likely than not to be sustained upon an examination , based on the technical merits of the position . interest and penalties related to income tax matters are recorded as income tax expenses , see note g , income taxes . revenue recognition : revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer , the amount due from the customer is fixed and collectability of the related receivable is reasonably assured . we establish allowances to cover anticipated doubtful accounts and sales returns based upon historical experience . the company nets the factored accounts receivable with the corresponding advance from the factor , with the net amount reflected in the consolidated balance sheet . the company sells trade receivables on a pre-approved non-recourse basis to the factor under the factoring agreement on an ongoing basis . inventories : inventories are valued at the lower of market or cost . cost is determined on the first in/first
| while we have received independent testing approvals for a number of the new gen products , some of the approvals , being slower than anticipated , have delayed sales . once all the necessary approvals and inventory from our hong kong joint venture are on hand , we anticipate increased sales from these products . - 12 - discontinued canadian operations in october 2006 , we formed 2113824 ontario , inc. , an ontario corporation , as a wholly-owned subsidiary of the company for the purpose of acquiring a two-thirds interest in two canadian corporations , international conduits , ltd. ( icon ) and intube , inc. ( intube ) . as discussed in detail in our past annual reports , we were not successful in increasing icon 's sales in the face of competition and a downturn in the housing market , and in 2008 the assets of icon were placed under the direction of a court appointed receiver and were liquidated . our consolidated financial statements and the related note disclosures reflect the operations of icon as discontinued operations for all periods presented . in the accompanying consolidated financial statements , the results of icon for all fiscal years included have been restated and are presented as the results of discontinued operations , and certain other prior year amounts have been reclassified in order to conform to the current year 's presentation comparison of results of operations for the years ended march 31 , 2011 , 2010 and 2009 sales . in fiscal year 2011 , our net sales decreased by $ 13,189,514 ( 49.9 % ) , from $ 26,439,118 in fiscal 2010 to $ 13,249,604 in fiscal 2011. the company 's sales to retail and wholesale customers in the fiscal year ended march 31 , 2011 decreased to $ 7,326,197 from $ 20,036,342 at march 31 , 2010 , a decrease of $ 12,710,145 , and is principally attributed to decreased sales to the home depot . sales to the electrical distribution trade through our usi electric subsidiary decreased to $ 5,923,407 ( from $ 6,402,776 in 2010 ) , a decrease of
| 14,623 |
this increase was driven by the improved operating performance of our vistaprint brand as well as the results of our other brands acquired in fiscal 2014 and 2015. these improvements were partially offset by continued investments in product quality and software development in our core business , as well as investments in markets in which we seek to develop a long-term presence such as india , japan and brazil . we believe investments such as these , as well as our other key initiatives , will collectively enable us to scale and strengthen our competitive position and enhance long-term shareholder value . in addition , we recognized $ 14.9 million of expense during the year ended june 30 , 2015 for changes in the contingent consideration liabilities associated with our acquisitions of printdeal and pixartprinting , $ 11.5 million of additional acquisition related amortization expense , as well as $ 9.0 31 million of incremental interest expense primarily due to our increased borrowing levels under our credit facility and the issuance of our senior unsecured notes in march 2015. we also recognized significant gains from currency movements in fiscal 2015 , as compared to losses in fiscal 2014 , principally as a result of changes in the fair value of our derivative instruments for which we have not elected hedge accounting and currency gains on non-functional currency activity , principally from intercompany transactional and financing relationships . during fiscal 2014 we recognized a $ 12.7 million loss on the sale of our investment in namex limited that did not occur in fiscal 2015. critical accounting policies and estimates our financial statements are prepared in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) . to apply these principles , we must make estimates and judgments that affect our reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . in some instances , we reasonably could have used different accounting estimates and , in other instances , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from our estimates . we base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time under the circumstances , and we evaluate these estimates and judgments on an ongoing basis . we refer to accounting estimates and judgments of this type as critical accounting policies and estimates , which we discuss further below . this section should be read in conjunction with note 2 , `` summary of significant accounting policies , '' of our audited consolidated financial statements included elsewhere in this report . revenue recognition . we generate revenue primarily from the sale and shipping of customized manufactured products , as well as providing digital services , website design and hosting , email marketing services , and order referral fees . we recognize revenue arising from sales of products and services , net of discounts and applicable indirect taxes , when it is realized or realizable and earned . we consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement , a product has been shipped or service rendered with no significant post-delivery obligation on our part , the net sales price is fixed or determinable and collection is reasonably assured . for arrangements with multiple deliverables , we allocate revenue to each deliverable based on the relative selling price for each deliverable . we determine the relative selling price using a hierarchy of ( 1 ) company specific objective and reliable evidence , then ( 2 ) third-party evidence , then ( 3 ) best estimate of selling price . shipping , handling and processing charges billed to customers are included in revenue at the time of shipment or rendering of service . revenues from sales of prepaid orders on our websites are deferred until shipment of fulfilled orders or until the prepaid service has been rendered . for promotions through discount voucher websites , we recognize revenue on a gross basis , as we are the primary obligor , when redeemed items are shipped . as the vouchers do not expire , any unredeemed vouchers are recorded as deferred revenue . we recognize revenue on the portion of unredeemed vouchers when the likelihood of redemption becomes remote ( referred to as `` breakage '' ) and we determine there is no legal obligation to remit the value of the unredeemed coupons to government agencies . we estimate the breakage rate based upon the pattern of historical redemptions . prior to the fourth quarter of fiscal 2015 , we did not have sufficient historical redemption data to reasonably estimate breakage and , therefore , did not recognize any breakage revenue . during the fourth quarter of fiscal 2015 , we concluded that we have now accumulated sufficient historical data from a large pool of homogeneous transactions to allow us to reasonably and objectively determine a pattern of historical redemptions in accordance with our accounting policy . accordingly , we recognized $ 4.0 million of breakage revenue during the quarter as a result of this change in estimate . we will apply this approach prospectively for future unredeemed voucher activity . a reserve for estimated sales returns and allowances is recorded as a reduction of revenue , based on historical experience or specific identification of an event necessitating a reserve . this reserve is dependent upon customer return practices and will vary during the year due to volume or specific reserve requirements . sales returns have not historically been significant to our net revenue and have been within our estimates . share-based compensation . we measure share-based compensation costs at fair value , including estimated forfeitures , and recognize the expense over the period that the recipient is required to provide service in exchange for the award , which generally is the vesting period . story_separator_special_tag we use the black-scholes option pricing model to measure the fair value of most of our share options and use a lattice model to measure the fair value of share options with a market condition , as well as the subsidiary share option liability award granted in conjunction with the pixartprinting acquisition . the black-scholes model requires significant estimates related to the award 's expected 32 life and future share price volatility of the underlying equity security . the lattice model considers market condition attributes in its valuation assessment where relevant and simulates various sources of uncertainty in order to determine an average value based on the range of resultant outcomes . the lattice model requires estimation of inputs such as future share price volatility , future operating performance , and a forfeiture rate assessment . the fair value of restricted share units and restricted share awards is determined based on the number of shares granted and the quoted price of our ordinary shares on the date of the grant . in determining the amount of expense to be recorded , we also estimate forfeiture rates for all awards based on historical experience to reflect the probability that employees will complete the required service period . employee retention patterns could vary in the future and result in a change to our estimated forfeiture rate which would directly impact share-based compensation expense . as a measure of sensitivity , a 100 basis point change in our forfeiture rate estimate would have resulted in an immaterial impact on our consolidated statement of operations for all periods . for awards with a performance condition vesting feature , when achievement of the performance condition is deemed probable , we recognize compensation cost on a graded-vesting basis over the awards ' expected vesting periods . management continually monitors the probability of vesting that is impacted by the achievement of certain business targets and milestones . independent factors such as market acceptance , technological feasibility or economic market volatility could impact the achievement of such awards and contribute to variability in management 's estimate and the recognition of the underlying share-based compensation expense . as the recognition of the compensation expense is reliant upon management 's estimate of the likelihood of achievement of the award , if the probability increases during any given period , the compensation cost associated with that award would be accelerated in order to match the estimated outcome . these changes in estimate could result in expense volatility . income taxes . as part of the process of preparing our consolidated financial statements , we estimate our income taxes in each of the jurisdictions in which we operate . this process involves estimating our current tax expense , including assessing the risks associated with tax positions , together with assessing temporary and permanent differences resulting from differing treatment of items for tax and financial reporting purposes . we recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in effect when we expect temporary differences to reverse . we assess the ability to realize our deferred tax assets based upon the weight of available evidence both positive and negative . to the extent we believe that it is more likely than not that some portion or all of the deferred tax assets will not be realized , we establish a valuation allowance . our estimates can vary due to the profitability mix of jurisdictions , foreign exchange movements , changes in tax law , regulations or accounting principles , as well as certain discrete items . in the event that actual results differ from our estimates or we adjust our estimates in the future , we may need to increase or decrease income tax expense , which could have a material impact on our financial position and results of operations . we establish reserves for tax-related uncertainties based on estimates of whether , and the extent to which , additional taxes will be due . these reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws . we adjust these reserves in light of changing facts and circumstances , such as the closing of a tax audit , new tax legislation , or the change of an estimate based on new information . to the extent that the final outcome of these matters is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made . interest and , if applicable , penalties related to unrecognized tax benefits are recorded in the provision for income taxes . software and website development costs . we capitalize eligible salaries and payroll-related costs of employees who devote time to the development of our websites and internal-use computer software . capitalization begins when the preliminary project stage is complete , management with the relevant authority authorizes and commits to the funding of the software project , and it is probable that the project will be completed and the software will be used to perform the function intended . these costs are amortized on a straight-line basis over the estimated useful life of the software , which is three years . our judgment is required in determining whether a project provides new or additional functionality , the point at which various projects enter the stages at which costs may be capitalized , assessing the ongoing value and impairment of the capitalized costs , and determining the estimated useful lives over which the costs are amortized . historically we have not had any significant impairments of our capitalized software and website development costs . business combinations . we recognize the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition . the fair value of identifiable intangible assets is 33 based on detailed cash flow valuations that use information and assumptions provided by management .
| we have provided these non-gaap financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented . management uses these non-gaap financial measures , in addition to gaap financial measures , to evaluate our operating results . these non-gaap financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with gaap . vistaprint business unit reported revenue for the year ended june 30 , 2015 increased 4 % to $ 1,194.4 million as compared to the year ended june 30 , 2014 as the vistaprint business unit experienced growth from the higher expectations market segment , increased average order value and improved activity from our repeat customer base . during the year we delivered improved revenue growth trends in the u.s. , u.k. , french and german markets where we made major pricing and channel marketing changes in fiscal 2014. our reported revenue growth was negatively affected by currency impacts of 5 % during the year ended june 30 , 2015 resulting in constant-currency revenue growth of 9 % . our constant-currency revenue growth for the vistaprint business unit more than doubled from fiscal 2014 to fiscal 2015 . in addition we have seen year over year improvement in our customer net promoter score ( which polls our customers on their willingness to recommend us to friends and colleagues based on a score of 0 to 10 ) . we are starting to see net reductions in fiscal 2015 of the major headwinds caused by our transformation efforts of our customer value proposition in our largest business , the vistaprint brand . this multi-year transformation began in 2011 and is intended over time to improve customer loyalty and long-term returns through improvements to pricing consistency and transparency , site experience , customer communications , product selection , product quality , merchandising , marketing messaging and customer service . although some of these efforts continue to create revenue headwinds in certain markets we have started to realize benefits from these
| 14,624 |
as we are unable to estimate the licensees ' sales in any given quarter to determine the royalties due to us , we recognize royalty revenues based on royalties reported by licensees during the quarter and when all revenue recognition criteria are met . we recognize fixed license fee revenue for licenses to our intellectual property when earned under the terms of the agreements , which is generally recognized when all deliverables including services are completed or recognized on a straight-line basis over the expected term of the license . certain royalties are based upon customer shipments or revenues and could be subject to change and may result in out of period adjustments . development contracts and other revenue development contracts and other revenue is comprised of professional services ( consulting services and or development contracts ) . professional services revenues are recognized under the proportional performance accounting method based on physical completion of the work to be performed or completed performance method . a provision for losses on contracts is made , if necessary , in the period in which the loss becomes probable and can be reasonably estimated . revisions in estimates are reflected in the period in which the conditions become known . to date , such losses have not been significant . multiple element arrangements we enter into multiple element arrangements in which customers purchase a time-based license which include a combination of software and or intellectual property licenses , professional services and in limited cases , post contract customer support . for arrangements that are software based and include software and professional services , the services are generally not essential to the functionality of the software , and customers may purchase consulting services to facilitate the adoption of our technology , but they may also decide to use their own resources or appoint other professional service organizations to perform these services . for these arrangements , including those with post contract customer support , revenue is recognized either over the period of the ongoing obligation which is generally consistent with the contractual term , or when all deliverables including services have been completed . product sales we recognize revenue from the sale of products and the license of associated software if any , and expense all related costs of products sold , once delivery has occurred and customer acceptance , if required , has been achieved . we have determined that the license of software for the medical simulation products is incidental to the product as a whole . we typically grant our customers a warranty which guarantees that our products will substantially conform to our current specifications for generally twelve months from the delivery date pursuant to the terms of the arrangement . historically , warranty-related costs have not been significant . cost of revenues cost of revenues includes both cost of product sales and cost of development contract revenues . cost of product sales consists primarily of contract manufacturing and other overhead costs . cost of development contract revenue includes primarily labor related costs relating to these contracts . stock-based compensation stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period , which is the vesting period . 35 valuation and amortization method we use the black-scholes model , single-option approach to determine the fair value of stock options , stock awards , and espp shares . all share-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards , which are generally the vesting periods . stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures . we estimate future forfeitures at the date of grant and revise the estimates if necessary , in subsequent periods if actual forfeitures differ from these estimates . the determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include actual and projected employee stock option exercise behaviors that impact the expected term , our expected stock price volatility over the term of the awards , risk-free interest rate , and expected dividends . if factors change and we employ different assumptions for estimating stock-based compensation expense in future periods , or if we decide to use a different valuation model , the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results . the black-scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable , characteristics not present in our option grants and espp shares . existing valuation models , including the black-scholes model , may not provide reliable measures of the fair values of our stock-based compensation . consequently , there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise , expiration , early termination , or forfeiture of those stock-based payments in the future . certain stock-based payments , such as employee stock options , may expire and be worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements . alternatively , value may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements . there currently is no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models , nor is there a means to compare and adjust the estimates to actual values . see note 10 to the consolidated financial statements for further information regarding stock-based compensation . story_separator_special_tag 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 . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not . our judgments , assumptions , and estimates relative to the current provision for income tax 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 tax authorities . we have established reserves for income taxes to address potential exposures involving tax positions that could be challenged by tax authorities . although we believe our judgments , assumptions , and estimates are reasonable , changes in tax laws or our interpretation of tax laws and any future tax audits 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 inaccurate our current assumptions , judgments , and estimates of recoverable net deferred tax assets . 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 . 36 short-term investments our short-term investments consist primarily of u.s. treasury bills and government agency securities purchased with an original or remaining maturity of greater than 90 days on the date of purchase . we classify all debt securities with readily determinable market values as available-for-sale . even though the stated maturity dates of these debt securities may be one year or more beyond the balance sheet date , we have classified all debt securities as short-term investments as they are available for current operations and reasonably expected to be realized in cash or sold within one year . these investments are carried at fair market value , and using the specific identification method , any unrealized gains and losses considered to be temporary in nature are reported as a separate component of other comprehensive income ( loss ) within stockholders ' equity . for debt securities in an unrealized loss position , we are required to assess whether ( i ) we have the intent to sell the debt security or ( ii ) it is more likely than not that we will be required to sell the debt security before its anticipated recovery . if either of these conditions is met , an other-than-temporary impairment on the security must be recognized in earnings equal to the entire difference between its fair value and amortized cost basis . for debt securities in an unrealized loss position which are deemed to be other-than-temporary where neither of the criteria in the paragraph above are present , the difference between the security 's then-current amortized cost basis and fair value is separated into ( i ) the amount of the impairment related to the credit loss ( i.e . the credit loss component ) and ( ii ) the amount of the impairment related to all other factors ( i.e. , the non-credit loss component ) . the credit loss component is recognized in earnings . the non-credit loss component is recognized in accumulated other comprehensive loss . the credit loss component is the excess of the amortized cost of the security over the best estimate of the present value of the cash flows expected to be collected from the debt security . the non-credit component is the residual amount of the other-than-temporary impairment . when calculating the present value of expected cash flows to determine the credit loss component of the other-than-temporary impairment , we estimate the amount and timing of projected cash flows on a security-by-security basis . these calculations reflect our expectations of the performance of the underlying collateral and of the issuer to meet payment obligations as applicable . the expected cash flows are discounted using the effective interest rate of the security prior to any impairment . the amortized cost basis of a debt security is adjusted for credit losses recorded to earnings . the difference between the cash flows expected to be collected and the new cost basis is accreted to investment income over the remaining expected life of the security . further information about short-term investments may be found in note 2 to the consolidated financial statements . patents and intangible assets we have acquired patents and other intangible assets . in addition , we capitalize the external legal , filing , and continuation or annuity fees associated with patents and trademarks . we assess the recoverability of our intangible assets , and we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets that affect our consolidated financial statements . if these estimates or related assumptions change in the future , we may be required to record impairment charges for these assets . we amortize our intangible assets related to patents and trademarks , once they are issued , over their estimated useful lives , generally 10 years . future changes in the estimated useful life could affect the amount of future period amortization expense that we will incur . during the year ended december 31 , 2011 , we capitalized costs associated with patents and trademarks of $ 3.3 million .
| furthermore , we entered into a new business agreement under which , we were to receive twelve quarterly installments of $ 1.875 million for a total of $ 22.5 million beginning on march 31 , 2007 and ending on december 31 , 2009. to date , we received all twelve of these installments . cash provided by ( used in ) operating activities net cash provided by operating activities during 2011 was $ 2.4 million , an improvement of $ 4.2 million from the $ 1.8 million used in operating activities during 2010. cash provided by operating activities during 2011 was primarily the result of an increase of $ 3.3 million due to a change in prepaid expenses and other current assets primarily reflecting a tax refund received . cash provided by operating activities during 2011 was also affected by noncash charges and credits of $ 6.0 million , including $ 3.6 million of noncash stock-based compensation , $ 1.4 million in amortization and impairment or abandonment of intangibles , and $ 1.1 million in depreciation and amortization . these increases were partially offset by our net loss of $ 1.6 million , a decrease of $ 3.6 million due to a change in deferred revenue and customer advances , a decrease of $ 713,000 due to a change in accrued compensation and other current liabilities , a decrease of $ 567,000 due to a change in accounts receivable , a decrease of $ 266,000 due to a change in other long-term liabilities , and a decrease of $ 116,000 due to a changes in other assets and other items . deferred revenue and customer advances decreased mainly due to the recognition of previously deferred revenue . accrued compensation and other current liabilities changed due to a reduction in accrued compensation and the timing of payments . accounts and other receivables increased primarily due an increase in other receivables primarily from a landlord lessor and others . net cash used in operating activities during 2010 was $ 1.8 million , an improvement of $ 16.5 million from the $ 18.3 million used in operating activities during 2009. cash used in operating
| 14,625 |
the growth of software license updates and product support revenues is primarily influenced by three factors : ( 1 ) the percentage of our support contract customer base that renews its support contracts , ( 2 ) the amount of new support contracts sold in connection with the sale of new software licenses , and ( 3 ) the amount of support contracts assumed from companies we have acquired . software license updates and product support revenues , which represented 42 % , 49 % and 50 % of our total revenues in fiscal 2011 , 2010 and 2009 , respectively , is our highest margin business unit . the proportion of our software license updates and product support revenues relative to our total revenues in fiscal 2011 and 2010 was affected by our entry into the hardware systems business as a result of our acquisition of sun . support margins during fiscal 2011 were 86 % and accounted for 70 % of our total margins . our software license update and product support margins have been affected by fair value adjustments relating to support obligations assumed in business combinations ( described further below ) and by amortization of intangible assets . however , over the longer term , we believe that software license updates and product support revenues and margins will grow for the following reasons : substantially all of our customers , including customers from acquired companies , renew their support contracts when eligible for renewal ; substantially all of our customers purchase software license updates and product support contracts when they buy new software licenses , resulting in a further increase in our support contract base . even if new software license revenues growth was flat , software license updates and product support revenues would continue to grow in comparison to the corresponding prior year periods assuming renewal and cancellation rates and foreign currency rates remained relatively constant since substantially all new software license transactions result in the sale of software license updates and product support contracts , which add to our support contract base ; and our acquisitions have increased our support contract base , as well as the portfolio of products available to be licensed and supported . we recorded adjustments to reduce support obligations assumed in business combinations to their estimated fair values at the acquisition dates . as a result , as required by business combination accounting rules , we did not recognize software license updates and product support revenues related to support contracts that would have been otherwise recorded by the acquired businesses as independent entities in the amount of $ 80 million , $ 86 million and $ 243 million in fiscal 2011 , 2010 and 2009 , respectively . to the extent underlying support contracts 37 are renewed with us following an acquisition , we will recognize the revenues for the full value of the support contracts over the support periods , the majority of which are one year . hardware systems business as a result of our acquisition of sun in january 2010 , we entered into a new hardware systems business . our hardware systems business consists of two operating segments : ( 1 ) hardware systems products and ( 2 ) hardware systems support . our hardware business represented 19 % and 9 % of our total revenues in fiscal 2011 and 2010 , respectively , and we expect that it will continue to add a significant amount of revenues and expenses to our results of operations in comparison to our historical operating results . we expect our hardware business to have lower operating margins as a percentage of revenues than our software business due to the incremental costs we incur to produce and distribute these products and to provide support services , including direct materials and labor costs . we expect to make investments in research and development to improve existing hardware products and services or develop new hardware products and services . to produce our hardware products , we rely on both our internal manufacturing operations as well as third party manufacturing partners . our internal manufacturing operations consist primarily of final assembly , test and quality control of enterprise and data center servers and storage systems . for all other manufacturing , we rely on third party manufacturing partners . we distribute most of our hardware products either from our facilities or partner facilities . we are continuing to focus on reducing costs by simplifying our manufacturing processes through increased standardization of components across product types , through a reduction of the number of assembly and distribution centers that we rely on and a build-to-order manufacturing process in which products are built only after customers have placed firm orders . in addition , we are focusing on identifying hardware systems support processes that are intended to proactively identify and solve quality issues and to increase the amount of new hardware systems support contracts sold in connection with the sales of new hardware products . hardware systems products : our hardware systems products consist primarily of computer server and storage product offerings and hardware-related software , including our oracle solaris operating system . our hardware systems component products are designed to be open , or to work in customer environments that may include other oracle or non-oracle hardware or software components . we have also engineered our hardware systems products to create performance and operational cost advantages for customers when our hardware and software products are combined as engineered systems , as with oracle exadata and oracle exalogic elastic cloud . we offer a wide range of server systems using our sparc microprocessor . our sparc servers are differentiated by their reliability , security , scalability and customer environments that they target ( general purpose or specialized systems ) . our midsize and large servers are designed to offer greater performance and lower total cost of ownership than mainframe systems for business critical applications and for customers having more computationally intensive needs . story_separator_special_tag our sparc servers run the oracle solaris operating system and are designed for the most demanding mission critical enterprise environments at any scale . we also offer a wide range of x86 servers . these x86 servers are primarily based on microprocessor platforms from intel corporation and are also compatible with oracle solaris , oracle linux , microsoft windows and other operating systems . our storage products are designed to securely manage , protect , archive and restore customers ' mission critical data assets and consist of tape , disk , hardware-related software including file systems software , back-up and archive software and storage management software , and networking for mainframe and open systems environments . the majority of our hardware systems products are sold through indirect channels , including independent distributors and value added resellers . we have enhanced direct sales coverage for our hardware systems products and intend that our direct sales force will sell proportionately more of our hardware systems products in the future than they do currently . our hardware systems products revenues , cost of hardware systems products and operating margins that we report are affected by the strength of general economic and business conditions , governmental budgetary constraints , the competitive position of our hardware systems products , and our acquisitions and foreign currency 38 fluctuations . in addition , our operating margins for our hardware systems products segment have been and will be affected by the amortization of intangible assets associated with our acquisition of sun and by business combination accounting rules that required us to record acquired inventories from sun at fair value , which resulted in an unfavorable impact to our expenses and operating margins as we sold these inventories to customers during fiscal 2010. we have limited experience in predicting our quarterly hardware systems products revenues . the timing of customer orders and delays in our ability to timely manufacture or deliver a few large transactions could substantially affect the amount of hardware systems products revenues , expenses and operating margins that we report . hardware systems support : customers that purchase our hardware systems products may also elect to purchase our hardware systems support offerings . our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our server and storage products , such as oracle solaris , and can include product repairs , maintenance services , and technical support services . typically , our hardware systems support contract arrangements are invoiced to the customer at the beginning of the support period and are one year in duration . the growth of our hardware systems support revenues is influenced by a number of factors , including the volume of purchases of hardware products , the mix of hardware products purchased , and the percentage of our hardware systems support contract customer base that renews its support contracts . all of these factors are heavily influenced by our customers ' decisions to either maintain or upgrade their existing hardware systems ' infrastructure to newly developed technologies that are available . our hardware systems support margins have been and will be affected by fair value adjustments relating to hardware systems support obligations assumed through , and by the amortization of intangible assets resulting from , our acquisition of sun . as required by business combination accounting rules , we recorded adjustments to reduce our hardware systems support revenues for contracts assumed from our acquisition of sun to their estimated fair values as of the acquisition date by an aggregate of $ 148 million and $ 128 million for fiscal 2011 and 2010 , respectively . these amounts would have been recorded as hardware systems support revenues by sun as a standalone entity . to the extent underlying hardware systems support contracts are renewed with us following an acquisition , we will recognize the revenues for the full values of the hardware systems support contracts over the support periods . services business our services business consists of consulting , cloud services and education . as a result of our acquisition of sun , we expanded and enhanced our customer base and services offerings , which we believe will increase our revenues and expenses in comparison to recent periods . our services business , which represented 13 % , 14 % and 19 % of our total revenues in fiscal 2011 , 2010 and 2009 , respectively , has significantly lower margins than our software business and what we have recently achieved from our hardware business . the proportion of our services revenues relative to our total revenues in fiscal 2011 and 2010 was affected by our entry into the hardware systems business as a result of our acquisition of sun . consulting : our consulting line of business primarily provides services to customers in business and it strategy alignment , enterprise architecture planning and design , initial product implementation and integration , and ongoing product enhancements and upgrades . the amount of consulting revenues recognized tends to lag the amount of our software and hardware systems products revenues by several quarters since consulting services , if purchased , are typically segmentable from the products with which they relate and are performed after the customer 's purchase of the products . our consulting revenues are dependent upon general economic conditions and the level of our product revenues , in particular the new software license sales of our application products . to the extent we are able to grow our products revenues , in particular our software application product revenues , we would also generally expect to be able to eventually grow our consulting revenues . cloud services : our cloud services segment , which was formerly named on demand , includes certain of our oracle cloud services offerings and technology , and advanced customer services . as a result of our acquisition of sun , we increased the volume and breadth of our cloud services offerings .
| we believe that if our acquired companies had operated independently and sales forces had not been integrated , the relative mix of products sold would have been different ; and although substantially all of our customers , including customers from acquired companies , renew their software license updates and product support contracts when the contracts are eligible for renewal and we strive to renew hardware systems support contracts , the amounts shown as software license updates and product support deferred revenues and hardware systems support deferred revenues in our supplemental disclosure related to certain charges ( presented below ) are not necessarily indicative of revenue improvements we will achieve upon contract renewal to the extent customers do not renew . constant currency presentation our international operations have provided and will continue to provide a significant portion of our total revenues and expenses . as a result , total revenues and expenses will continue to be affected by changes in the u.s. dollar against major international currencies . in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations , we compare the percent change in the results from one period to another period in this annual report using constant currency disclosure . to present this information , current and comparative prior period results for entities reporting in currencies other than u.s. dollars are converted into u.s. dollars at constant exchange rates ( i.e . the rates in effect on may 31 , 2010 , which was the last day of our prior fiscal year ) rather than the actual exchange rates in effect during the respective periods . for example , if an entity reporting in euros had revenues of 1.0 million euros from products sold on may 31 , 2011 and may 31 , 2010 , our financial statements would reflect reported revenues of $ 1.41 million in fiscal 2011 ( using 1.41 as the month-end average exchange rate for the period ) and $
| 14,626 |
for the years ended december 31 , 2016 and 2015 , we incurred expenses of $ 25.8 million and $ 42.7 million , respectively , related to our property management agreement with cbre , for property management fees , typically calculated as a portion of the properties revenues , and salary and benefits reimbursements for property personnel , such as property managers , engineers and maintenance staff . as of december 31 , 2016 and 2015 , we had amounts payable pursuant to these services of $ 2.7 million and $ 3.5 million , respectively . property operations occupancy data for 2016 and 2015 are as follows ( square feet in thousands ) : replace_table_token_7_th ( 1 ) excludes properties sold in the period . ( 2 ) based on properties owned continuously from january 1 , 2015 through december 31 , 2016 , and excludes properties sold during the period . ( 3 ) percent leased includes ( i ) space being fitted out for occupancy pursuant to existing leases and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . the weighted average lease term based on square feet for leases entered into during the year ended december 31 , 2016 was 8.7 years . commitments made for leasing expenditures and concessions , such as tenant improvements and leasing commissions , for leases entered into during the year ended december 31 , 2016 totaled $ 143.0 million , or $ 33.31 per square foot on average ( approximately $ 3.88 per square foot per year of the lease term ) . 29 as of december 31 , 2016 , approximately 6.0 % of our leased square feet and 6.3 % of our annualized rental revenue , determined as set forth below , are included in leases scheduled to expire through december 31 , 2017. renewed and new leases and rental rates at which available space may be rented in the future will depend on prevailing market conditions at the times these leases are negotiated . we believe that the in-place cash rents for leases expiring in 2017 are slightly below market . lease expirations by year , as of december 31 , 2016 , are as follows ( square feet and dollars in thousands ) : replace_table_token_8_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2016 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2016 , plus estimated recurring expense reimbursements ; includes triple net lease rents and excludes lease value amortization , straight line rent adjustments , abated ( `` free '' ) rent periods and parking revenue . we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . 30 a principal source of funds for our operations is rents from tenants at our properties . rents are generally received from our tenants monthly in advance , except from our government tenants , who usually pay rents monthly in arrears . as of december 31 , 2016 , tenants representing 1.5 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_9_th ( 1 ) square footage is pursuant to existing leases as of december 31 , 2016 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2016 , plus estimated recurring expense reimbursements ; includes triple net lease rents and excludes lease value amortization , straight line rent adjustments , abated ( `` free '' ) rent periods and parking revenue . we calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported , adding abated rent , and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues . annualized rental revenue is a forward-looking non-gaap measure . annualized rental revenue can not be reconciled to a comparable gaap measure without unreasonable efforts , primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported , whereas historical gaap measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates . ( 3 ) groupon , inc. statistics include 207,536 square feet that are sublet from bankers life and casualty company . ( 4 ) exelon corporation is a tenant at 111 market place , which was sold on january 31 , 2017. financing activities on february 16 , 2016 , we redeemed at par $ 139.1 million of our 6.25 % senior unsecured notes due 2016 and recognized a loss on early extinguishment of debt of $ 0.1 million from the write-off of an unamortized discount and unamortized deferred financing fees for the year ended december 31 , 2016 . story_separator_special_tag on march 4 , 2016 , we purchased an interest rate cap with a libor strike price of 2.50 % . the interest rate cap , effective april 1 , 2016 , has a notional amount of $ 400.0 million and a maturity date of march 1 , 2019. on may 15 , 2016 , we redeemed all of our 11,000,000 outstanding series e preferred shares at a price of $ 25.00 per share , for a total of $ 275.0 million , plus any accrued and unpaid dividends . the redemption payment occurred on may 16 , 2016 ( the first business day following the redemption date ) . we recorded $ 9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to common shareholders for the year ended december 31 , 2016 . 31 on november 10 , 2016 , we repaid at par $ 167.8 million of mortgage debt at 1735 market street and recognized a loss on early extinguishment of debt of $ 2.4 million for the year ended december 31 , 2016 from the write-off of unamortized deferred financing fees and breakage costs . we also recognized $ 0.2 million of expense included in interest and other income related to an interest rate swap as a result of the early repayment of debt for the year ended december 31 , 2016. on november 10 , 2016 , we converted to what is commonly referred to as an umbrella partnership real estate investment trust , or upreit , structure . in connection with this conversion , the company contributed substantially all of its assets to the operating trust , and the operating trust assumed substantially all of the company 's liabilities pursuant to a contribution and assignment agreement between the company and the operating trust . the company now conducts and intends to continue to conduct substantially all of its activities through the operating trust . in connection with our conversion to an upreit structure , the operating trust entered into an amended and restated credit agreement , replacing the company 's prior credit agreement . under the amended and restated credit agreement , the operating trust has assumed all obligations of the company as borrower and the company is released from such obligations . the amended and restated credit agreement was amended and restated primarily to facilitate changes necessary to complete convert to an upreit structure . the economic terms of the amended and restated credit agreement are substantially the same as the terms of the company 's prior credit agreement , providing for ( i ) a $ 750.0 million unsecured revolving credit facility , ( ii ) a $ 200.0 million 5-year term loan facility and ( iii ) a $ 200.0 million 7-year term loan facility . on december 15 , 2016 , we redeemed at par $ 250.0 million of our 6.25 % senior unsecured notes due 2017 and recognized a loss on early extinguishment of debt of $ 0.1 million from the write-off of an unamortized discount and unamortized deferred financing fees . for more information regarding our financing sources and activities , please see the section captioned “ liquidity and capital resources—our investment and financing liquidity and resources ” below . 32 story_separator_special_tag senior unsecured notes in february 2016 , the repayment of the $ 167.8 million mortgage debt at 1735 market street in november 2016 , the prepayment of $ 250.0 million of our 6.25 % senior unsecured notes in december 2016 , and a decrease in amortization of deferred financing fees , partially offset by a decrease in amortization of net mortgage debt premiums and an increase in interest expense related to our term loans as a result of an increase in interest rates . ( loss ) gain on early extinguishment of debt . we had a loss on early extinguishment of debt of $ 2.7 million during the year ended december 31 , 2016 compared to a gain on early extinguishment of debt of $ 6.7 million during the year ended december 31 , 2015 . the loss on early extinguishment in the 2016 period reflects the write-off of an unamortized discount and unamortized deferred financing fees related to our redemption of $ 139.1 million of our 6.25 % senior unsecured notes due 2016 and $ 250.0 34 million of our 6.25 % senior unsecured notes due 2017 and the write-off of unamortized deferred financing fees and breakage costs incurred related to our repayment of the mortgage debt at 1735 market street . the gain on early extinguishment of debt in the 2015 period reflects a $ 17.3 million gain related to the 225 water street foreclosure and a $ 0.6 million gain related to the repayment of mortgage debt at 111 monument circle , partially offset by a $ 6.2 million loss related to the defeasance of the mortgage loan secured by 1320 main street , a $ 3.9 million loss related to the defeasance of the mortgage loan secured by 111 east wacker drive , one of the buildings included in the illinois center disposition , a $ 0.6 million loss related to the prepayment of mortgage debt at 2501 20th place south , a $ 0.1 million loss related to the redemption of $ 138.8 million of our 5.75 % senior unsecured notes due 2015 and a $ 0.4 million loss related to the termination of our prior credit agreement . foreign currency exchange loss . the foreign currency exchange loss for the years ended december 31 , 2016 and 2015 relates to the translation of proceeds from the sale of the australian portfolio that were held in an australian bank account . gain on sale of properties , net .
| we refer to the 33 properties ( 64 buildings ) we owned continuously from january 1 , 2015 to december 31 , 2016 , as comparable properties . we refer to the sold properties as other properties . our consolidated statements of operations for the years ended december 31 , 2016 and 2015 , include the operating results of 33 properties for the entire periods , as we owned these properties as of january 1 , 2015. rental income . rental income decreased $ 161.3 million , or 28.3 % , in the 2016 period , compared to the 2015 period , primarily due to the properties sold in 2016 and 2015 , partially offset by an increase of 3.4 % in rental income at the comparable properties . the increase in rental income at the comparable properties is due to an increase in straight line rent adjustments related to new leasing activity where the tenants have not yet started paying rent , partially offset by several large tenant lease expirations and lease contractions . the increase in rental income at the comparable properties is also due to charges against revenue of $ 2.7 million recognized during the year ended december 31 , 2015 related to a one-time parking tax matter and a tenant lease termination at 600 west chicago avenue in the 2015 period . 33 rental income includes increases for straight line rent adjustments totaling $ 14.1 million in the 2016 period and $ 5.3 million in the 2015 period , and net reductions for amortization of acquired real estate leases and assumed real estate lease obligations totaling $ 6.5 million in the 2016 period and $ 7.5 million in the 2015 period . rental income also includes the recognition of lease termination fees totaling $ 23.4 million in the 2016 period and $ 8.2 million in the 2015 period . tenant reimbursements and other income . tenant reimbursements and other income decreased $ 52.9 million
| 14,627 |
this management 's discussion and analysis of financial condition and results of operations discuss our consolidated financial statements , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements , as well as the reported revenues and expenses for the reporting periods . on an ongoing basis , we evaluate such estimates and judgments . we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ ( perhaps significantly ) from these estimates under different assumptions or conditions . while all the accounting policies impact the consolidated financial statements , certain policies may be viewed to be critical . our management believes that the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial statements , include revenue recognition , inventories , liability related to certain warrants , and accounting for production lines and its related useful life and impairment . revenue recognition we derive revenues from the sale of our device-specific disposables test strip cartridges , lancets and our dario blood glucose monitoring system through distributors or directly to end users . the dario smart diabetes management application is offered for a free download and we do not have a recurring hosting commitment with our end users relating specifically to the application . revenues from product sales are recognized in accordance with accounting standards codification ( “ asc ” ) 605-10 , “ revenue recognition ” , when delivery has occurred , persuasive evidence of an agreement exists , the vendor 's fee is fixed or determinable , no further obligation exists and collectability is probable . we generally do not grant a right of return . we assess whether the fee is fixed or determinable based on the nature of the fee charged for the products delivered , the existing contractual arrangements and the distributor 's consistency of payments . when evaluating collectability , we consider whether we have sufficient history to reliably estimate the distributor 's payment patterns . when a sales arrangement contains multiple elements , such as services and products , we allocate revenue to each element based on a selling price hierarchy as required according to asc 605-25 , “ multiple-element arrangements ” . the selling price for a deliverable is based on its vendor specific objective evidence ( “ vsoe ” ) , if available , third party evidence ( “ tpe ” ) if vsoe is not available or estimated selling price ( “ esp ” ) if neither vsoe nor tpe is available . the best estimate of selling price is established considering several internal factors including , but not limited to , historical sales , pricing practices and geographies in which the company offers its products . revenues from services are recognized when persuasive evidence of an arrangement exists , delivery of the product has occurred , or the services have been rendered , the fee is fixed or determinable and collectability is probable . 54 inventories inventory write-down is measured as the difference between the cost of the inventory and net realized value based upon assumptions about future demand , and is charged to the cost of sales . at the point of the loss recognition , a new , lower-cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . if there were to be a sudden and significant decrease in demand for our products or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to increase our inventory write-downs and our gross margin could be adversely affected . inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility , to help ensure competitive lead times with the risk of inventory obsolescence . during the year ended december 31 , 2018 , total inventory write-off expenses amounted to $ 41. production lines capitalization of costs . we capitalize direct incremental costs of third party manufacturers related to the equipment in our production lines . we cease construction cost capitalization relating to our production lines once they are ready for its intended use and held available for occupancy . all renovations and betterments that extend the economic useful lives of assets and or improve the performance of the production lines are capitalized . useful lives of assets . we are required to make subjective assessments as to the useful lives of our production lines for purposes of determining the amount of depreciation to record on an annual basis with respect to our construction of the production lines . these assessments have a direct impact on our net income ( loss ) . production lines are usually depreciated on a straight-line basis over a period of up to five years , except any renovations and betterments which are depreciated over the remaining life of the production lines . impairment of production lines . we are required to review our production lines for impairment in accordance with asc 360 , “ property , plant and equipment , ” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets . story_separator_special_tag 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 . 55 story_separator_special_tag operating losses generated subsequent to the tcja can only be used to offset 80 % of taxable income with an indefinite carryforward period for unused carryforwards ( i.e. , they should not expire ) . during 2018 , we generated an additional $ 1,965 of net operating loss carryforwards which are not subject to the annual limitation described above . our israeli subsidiary has accumulated net operating losses for israeli income tax purposes as of december 31 , 2018 in the amount of approximately $ 47,233,000. the net operating losses may be carried forward and offset against taxable income in the future for an indefinite period . in accordance with u.s. gaap , it is required that a deferred tax asset be reduced by a valuation allowance if , based on the weight of available evidence it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized . as a result , we recorded a valuation allowance with respect to our deferred tax asset . under sections 382 and 383 of the internal revenue code , if an ownership change occurs with respect to a “ loss corporation ” ( as defined in the internal revenue code ) , there are annual limitations on the amount of the net operating loss and other deductions which are available to us . the factors described above resulted in net loss attributable to common stockholders of $ 18,296,000 and $ 15,998,000 for the year ended december 31 , 2018 and 2017 , respectively . non-gaap financial measures to supplement our unaudited condensed consolidated financial statements presented in accordance with u.s. gaap within this annual report on form 10-k , management provides certain non-gaap financial measures ( “ ngfm ” ) of the company 's financial results , including such amounts captioned : “ net loss before interest , taxes , depreciation , and amortization ” or “ ebitda ” , and “ non-gaap adjusted loss ” , as presented herein below . importantly , we note the ngfm measures captioned “ ebitda ” and “ non-gaap adjusted loss ” are not recognized terms under u.s. gaap , and as such , they are not a substitute for , considered superior to , considered separately from , nor as an alternative to , u.s. gaap and /or the most directly comparable u.s. gaap financial measures . such ngfm are presented with the intent of providing greater transparency of information used by us in our financial performance analysis and operational decision-making . additionally , we believe these ngfm provide meaningful information to assist investors , shareholders , and other readers of our unaudited condensed consolidated financial statements , in making comparisons to our historical financial results , and analyzing the underlying financial results of our operations . the ngfm are provided to enhance readers ' overall understanding of our current financial results and to provide further information to enhance the comparability of results between the current year period and the prior year period . we believe the ngfm provide useful information by isolating certain expenses , gains , and losses , which are not necessarily indicative of our operating financial results and business outlook . in this regard , the presentation of the ngfm herein below , is to help the reader of our unaudited condensed consolidated financial statements to understand the effects of the non-cash impact on our ( u.s. gaap ) unaudited condensed consolidated statement of operations of the revaluation of the warrants and the expense related to stock-based compensation , each as discussed herein above . 57 a reconciliation to the most directly comparable u.s. gaap measure to ngfm , as discussed above , is as follows : replace_table_token_10_th 58 liquidity and capital resources as of december 31 , 2018 , we had approximately $ 10,997,000 in cash and cash equivalents compared to $ 3,718,000 at december 31 , 2017. we have experienced cumulative losses of $ 89,254,000 from inception ( august 11 , 2011 ) through december 31 , 2018 , and have a stockholders ' equity of $ 8,925,000 at december 31 , 2018. in addition , we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future . there are no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and commercialization of our product . these conditions raise substantial doubt about our ability to continue as a “ going concern. ” since inception , we have financed our operations primarily through private placements and public offerings of our common stock and warrants to purchase shares of our common stock , receiving aggregate net proceeds totaling $ 71,179,000 as of december 31 , 2018. on march 3 , 2016 , we conducted a public offering , pursuant to which we issued 1,333,333 shares of common stock and warrants exercisable for an aggregate of 1,333,333 shares of common stock for an aggregate net consideration of $ 5,038,000. concurrently with our public offering , on march 3 , 2016 , we conducted a concurrent private placement pursuant to which we issued 555,555 units , with each unit consisting of one share of common stock and one warrant to purchase 1.2 shares of common stock , such that an aggregate of 555,555 shares of common stock and a warrant to exercisable for an aggregate of 666,666 shares of common stock was issued and sold for an aggregate net consideration of approximately $ 2,500,000. on january 9 , 2017 , we
| research and development expenses consist mainly of payroll expenses to employees involved in research and development activities , expenses related to our dario smart diabetes management solution , expenses related to the development of our darioengage platform , labor contractors and engineering expenses , depreciation and maintenance fees related to equipment and software tools used in research and development , clinical trials performed in the united states to satisfy the fda product approval requirements and facilities expenses associated with and allocated to research and development activities . sales and marketing our sales and marketing expenses increased by $ 2,602,000 to $ 10,309,000 for the year ended december 31 , 2018 compared to $ 7,707,000 for the year ended december 31 , 2017. this increase was mainly due to the increase in salaries and , expenses on digital marketing campaigns primarily in the u.s. and australia . sales and marketing expenses consist mainly of payroll expenses , trade show expenses , customer support expenses and on-line marketing campaigns . general and administrative expenses our general and administrative expenses increased by $ 742,000 to $ 5,468,000 for the year ended december 31 , 2018 compared to $ 4,726,000 for the year ended december 31 , 2017. the increase was mainly due to an increase in salaries , share based compensation expenses and consulting expenses . our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management , employees , directors and consultants , legal fees , patent registration , expenses related to investor relations , as well as our office rent and related expenses . finance income ( expenses ) , net our finance expenses , net , decreased by $ 1,209,000 to $ 115,000 for the year ended december 31 , 2018 compared to $ 1,324,000 financing expenses for the year ended december 31 , 2017. finance expenses includes mainly the results of revaluation of warrants issued to investors , which were recorded as a liability and were presented at their fair value for each reporting period until liability expiration . 56 net loss net loss for the year ended december 31 , 2018 was $ 17,803,000. net loss for the year ended december 31 , 2017 was $ 15,743,000. the increase from 2017 was mainly due to the increase in our operating expenses . net operating
| 14,628 |
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 , and general 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 mortgage , home equity , home equity lines of credit and consumer loans . these pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans , adjusted for qualitative factors . these qualitative risk factors include : lending policies and procedures , including underwriting standards and collection , charge-off , and recovery practices ; national , regional , and local economic and business conditions as well as the condition of various market segments , including the value of underlying collateral for collateral dependent loans ; nature and volume of the portfolio and terms of loans ; volume and severity of past due , classified and nonaccrual loans as well as and other loan modifications ; existence and effect of any concentrations of credit and changes in the level of such concentrations ; and effect of external factors , such as competition and legal and regulatory requirements . although we believe that we use the best information available to establish the allowance for loan losses , future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation . in addition , the fdic and the pennsylvania department of banking , as an integral part of their examination process , periodically review our allowance for loan losses . these agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination . a large loss could deplete the allowance and require increased provisions to replenish the allowance , which would adversely affect earnings . see note 1 of the notes to the audited consolidated financial statements of the company included in this annual report . 38 deferred tax assets . we make estimates and judgments to cal culate some of our tax liabilities and determine the recoverability of some of our deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenue and expenses . we also estimate a reserve for defer red tax assets if , based on the available evidence , it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods . these estimates and judgments are inherently subjective . historically , our e stimates and judgments to calculate our deferred tax accounts have not required significant revision . at june 30 , 2017 and 2016 , no valuation allowance related to deferred tax assets were recorded . in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies , these assumptions require us to make judgments about future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences . valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized . in evaluating the need for a valuation allowance , we must estimate our taxable income in future years and the impact of tax planning strategies . if we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is no valuation allowance , an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made . conversely , if we were to make a determination that it is more likely than not that the deferred tax assets for which we had established a valuation allowance would be realized , the related valuation allowance would be reduced and a benefit to earnings would be recorded . see note 1 of the notes to the audited consolidated financial statements of the company included in this annual report . investment securities . securities are evaluated on a quarterly basis , and more frequently when market conditions warrant such an evaluation , to determine whether declines in their value are other-than-temporary . to determine whether a loss in value is other-than-temporary , management utilizes criteria such as reasons underlying the decline , the magnitude and duration of the decline and whether or not management intends to sell or expects that it is more likely than not it will be required to sell the security prior to an anticipated recovery of fair value . story_separator_special_tag the term “ other-than-temporary ” is not intended to indicate that the decline is permanent , but indicates that the prospects for a near-term recovery of value is not necessarily favorable , or that there is lack of evidence to support a realizable value equal to or greater than the carrying value of the investment . once a decline in value for a debt security is determined to be other-than-temporary , the other-than-temporary impairment is separated into ( a ) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security ( the credit losses ) and ( b ) the amount of the total other-than-temporary impairment related to other factors . the amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings . the amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income ( loss ) . 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 analyses 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 to real estate owned and expense or sale of real estate owned , or net gain ( loss ) on sale of assets acquired through foreclosure , respectively . 39 fair value measurements . fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability ( an exit price ) in the principal or most advantageous marke t for the asset or liability in an orderly transaction between market participants on the measurement date . the fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value . a more detailed description of the fair values measured at each level of the fair value hierarchy and our methodology can be found in note 1 3 of the audited consolidated financial statements of the company included in this annual report . d e r i v a ti v e instruments and h ed g i ng a c ti v i t i es . we u s e d e ri v a ti v e i n s tr u m en t s as p a r t of our o v e r a l l s t r a t e g y t o m ana g e our e x po s u r e t o m a r k et r is k s p ri m a r i l y a ss oc i a t ed w it h f l u c t u a ti o n s i n i n t e r e s t r a t e s . a s a m a tt er of p o l i c y , we do not u s e de ri v a t i v es f or speculative pu r p o s e s . a l l of our de ri v a t i v e i n s t r u m en t s t ha t a r e m ea s u r e d at f a i r v a l ue on a r e c u r ri ng ba s i s and a r e i n c l uded i n t he consolidated st a t e m en t s o f f i na n c i a l cond i t i on as mortgage banking derivatives and other liabilities . t h e fai r v al u e o f our d er i v ati v e i n str u m e n ts , o t h e r t h a n interest rate lock commitments ( “ ir l c ” ) i s d e t e r m i ned by u t i li z i ng quo t ed p r i c es f r o m d ea l er s i n s u c h s ec u riti e s o r t h i r d - p ar t y m od el s u ti li z i n g observable m a r k e t i n pu t s . the fair value of the company 's irlc instruments are based upon the underlying mortgage loan adjusted for the probability of such commitments being exercised and estimated costs to complete and originate the loan . the ch a n g es i n t he f a i r v a l ue of d e r i v a t i v e i n s t r u m en t s a r e i n c l ud ed i n non-interest income i n t he consolidated s t a t e m en t s of income .
| our results of operations depend primarily on our net interest income which is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities . our results of operations also are affected by our provision for loan losses , non-interest income and non-interest expense . non-interest income currently consists primarily of gains recognized from the sale of residential mortgage loans in the secondary market , fees and service charges on deposit accounts , gain from hedging instruments and sales of securities . non-interest expense currently consists primarily of expenses related to salaries and employee benefits , occupancy , data processing related operations , professional fees , real estate owned and other expenses . our results of operations also may be affected significantly by general and local economic and competitive conditions , changes in market interest rates , governmental policies and actions of regulatory authorities . business strategy we intend to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our individual and business customers . we believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace and our long-standing history of providing superior , relationship-based customer service . our core business strategies are to : continue to originate and sell certain residential real estate loans . residential mortgage lending has historically been a significant part of our business , and we recognize that originating one- to four-family residential real estate loans is essential to our status as a community-oriented bank . during the year ended june 30 , 2017 , we originated $ 168.0 million in one- to four-family residential real estate loans held for sale , selling $ 179.3 million in one- to four-family residential real estate loans held for sale for gains on sale of $ 5.5 million . similarly , during the year ended june 30 , 2016 , we originated $ 161.7 million in one- to four-family residential real estate loans held for sale ,
| 14,629 |
we began shutting in high cost , negative margin wells in march 2020 to reduce operating costs and enhance cash flow which curtailed average net production volumes by approximately 3 mboe/d in 2020. we began returning wells to production in december 2020. as part of our operational efficiency measures , we evaluated our diverse portfolio and our various production mechanisms with a focus on wells with higher operating costs . our teams utilized our extensive automation controls , monitored weekly well margins , and made temporary adjustments to our producing wells to ensure our operations aligned with the price environment . as a result of these actions , as well as further cost rationalization and streamlining efforts coupled with lower activity levels , our average operating expense run rate in the second half of 2020 was approximately $ 50 million per month compared to the first quarter of 2020 average of $ 65 million per month . we have also implemented various measures to protect the health of our workforce and to support the prevention of covid-19 at our plants , rigs , fields and administrative offices . these initiatives were implemented in accordance with the orders , regulations and guidance of federal , state and local authorities to mitigate the risks of the disease and included restricting non-essential travel and temporarily closing our administrative offices during periods of higher incidence of community spread from mid-march until mid-june 2020 and resuming again in mid-november 2020 by implementing remote work for our management team and substantially all of our office personnel , with limited return to the office in accordance with applicable protocols and restrictions on occupancy for those employees for whom remote work was not feasible . in addition , in april 2020 , we implemented reduced work hours for nearly all of our office employees and reduced salaries for our management team , in each case on a temporary basis that ended in may 2020. in august 2020 , we implemented organizational and operational efficiencies that resulted in a reduction of our headcount to approximately 1,100 employees . these actions were made in an effort to preserve liquidity after the deterioration of commodity prices following the outbreak of covid-19 . our operational employees and contractors , and certain support personnel , have been classified as an essential critical infrastructure workforce by government authorities . accordingly , these essential personnel have been authorized to continue to work in their plant , rig , field and office locations under our covid-19 health and safety plan , which includes , among other things , protocols for employee training , health self-assessment screening by workers and visitors entering our locations , reporting of illness , notification of workers and contact tracing associated with positive covid-19 cases , self-quarantine or isolation , hygiene , wearing facial coverings , applying social distancing to minimize close contact between workers , cleaning or disinfecting workspaces and protection of emergency response personnel . we have not experienced any operational slowdowns due to covid-19 among our workforce . 48 production and prices prices for oil and gas products in 2020 have been strongly influenced by the covid-19 pandemic and by the actions of foreign producers . the covid-19 pandemic caused an unprecedented demand collapse due to global shelter-in-place orders , travel restrictions and general economic uncertainty , which negatively impacted crude oil prices . in response , members of the opec and russia agreed to carry out record oil production cuts in april 2020 to be followed by gradual incremental increases in multiple steps . in addition , u.s. oil and gas companies reduced their oil production by approximately 3 mmbbl/d in 2020 from peak production levels addressing the oversupplied market situation at the time of crisis . due to these developing market dynamics , which include a successful opec+ agreement , a disciplined return of production in the u.s. and a broader , gradual return of demand , oil prices rebounded above $ 50 per barrel by the end of 2020. brent oil price traded around $ 60 per barrel in february 2021. reduced demand initially caused shortages in available storage facilities globally and required many oil and gas producers to shut-in wells or curtail production . in april 2020 , oil prices declined precipitously , temporarily reaching negative values for spot west texas intermediate ( wti ) crude . from may 2020 through august 2020 , oil prices began to recover as inventory levels stabilized and an easing of shelter-in-place restrictions created partial demand recovery . prices declined again slightly in september 2020 as demand for oil dropped due to an increase in covid-19 cases around the world . oil demand and underlying commodity prices remain fragile as potential resurgence in new covid-19 cases could force government authorities to re-impose mobility restrictions further impacting oil demand . the current futures forward curve for brent crude indicates that prices may maintain current levels in the near term . we continue to closely monitor the impact of covid-19 , which negatively impacted our business and results of operations beginning in the first quarter of 2020. the extent to which our 2021 operating results are impacted by the pandemic will depend largely on future developments , which are highly uncertain and can not be accurately predicted , including the delivery of vaccinations , a resurgence of the pandemic or mutation of the virus and actions taken to contain it or actions taken by government authorities or other producers in response to commodity price movements , among other things . see part i , item 1a – risk factors , for further discussion regarding the impact of the pandemic and declines in commodity prices . 49 the following table sets forth our average net production volumes of oil , ngls and natural gas per day for the years ended december 31 , 2020 , 2019 and 2018 : replace_table_token_12_th note : mbbl/d refers to thousands of barrels per day ; mmcf/d refers to millions of cubic feet per day ; mboe/d refers to thousands of barrels of oil equivalent per day . story_separator_special_tag ( a ) we temporarily shut-in production of 3 mboe/d in 2020 , which negatively impacted our production compared to 2019. additionally , our divestiture of a 50 % working interest in certain zones within our lost hills field resulted in a decrease of approximately 2 mboe/d beginning in the second quarter of 2019. our psc-type contract positively impacted our oil production in 2020 by approximately 3 mboe/d compared to 2019. psc-type contracts had no impact on our oil production in 2019 compared to 2018 . ( b ) natural gas volumes have been converted to boe based on the equivalence of energy content of six thousand cubic feet of natural gas to one barrel of oil . barrels of oil equivalence does not necessarily result in price equivalence . 50 our operating results and those of the oil and natural gas industry as a whole are heavily influenced by commodity prices . oil and natural gas prices and differentials may fluctuate significantly as a result of numerous market-related variables . these and other factors make it impossible to predict realized prices reliably . the following tables set forth average benchmark prices , average realized prices and price realizations as a percentage of average benchmark prices for our products for the periods indicated below : replace_table_token_13_th ( a ) realization is calculated as a percentage of brent . ( b ) realization is calculated as a percentage of wti . 51 replace_table_token_14_th ( a ) realization is calculated as a percentage of brent . ( b ) realization is calculated as a percentage of wti . joint ventures we have a number of joint ventures that have allowed us to accelerate the development of our assets , which provided us with operational and financial flexibility as well as near-term production benefits . development joint ventures alpine jv in july 2019 , we entered into a development joint venture with alpine energy capital , llc ( alpine ) to fund the drilling of certain wells within the elk hills field ( alpine jv ) . alpine committed to invest an initial $ 320 million in the elk hills field of which $ 226 million has been invested to date . our consolidated financial statements reflect only our working interest share in the productive wells . on march 27 , 2020 , alpine elected to suspend its funding obligations pursuant to a contractual right that was triggered when the average nymex 12-month forward strip price for brent crude oil fell below $ 45 per barrel over a 30-trading day period . the suspension may be lifted by mutual consent . funding for the initial development phase had not re-started . in connection with the alpine jv , we issued a warrant to purchase up to 1.25 million shares of our predecessor common stock at an exercise price of $ 40 per share . on the effective date , this warrant was cancelled , pursuant to the plan . 52 royale jv in october 2018 , we entered into a three-year development joint venture for a 30-well program with royale energy , inc. ( royale ) where royale committed approximately $ 23 million for natural gas development in sacramento valley , of which $ 8 million has been funded to date . we committed to investing approximately $ 13 million , of which $ 4 million has been funded to date . in june 2020 , we entered into an amendment with royale which postponed the start dates of the second- and third-year drilling programs by one year . our consolidated results reflect our 40 % working interest share of production from these wells . mira jv in april 2017 , we entered into a development joint venture with macquarie infrastructure and real assets inc. ( mira ) to develop certain of our oil and natural gas properties in the san joaquin basin in exchange for a 90 % working interest in the related properties ( mira jv ) . mira funded 100 % of the drilling and completion costs of agreed-upon wells in the drilling program . our 10 % working interest increases to 75 % if mira receives cash distributions equal to a predetermined threshold return . the initial phase of the agreed-upon capital program was funded through december 31 , 2020. our consolidated results reflect only our working interest share in the productive wells . bsp jv in february 2017 , we entered into a development joint venture with benefit street partners ( bsp ) where bsp cumulatively contributed $ 200 million over a period of approximately two years in exchange for preferred interests in the bsp jv . bsp is entitled to preferential distributions and , if bsp receives cash distributions equal to a predetermined threshold , the preferred interest is automatically redeemed in full with no additional payment . at current prices , we believe bsp 's preferred interest could be redeemed within the next twelve months . the funds contributed by bsp were used to develop certain of our oil and natural gas properties . the bsp jv holds net profits interests in existing and future cash flow from certain of our properties and the proceeds from the net profits interests are used by the bsp jv to ( 1 ) pay quarterly minimum distributions to bsp , ( 2 ) make additional distributions to bsp until the predetermined threshold is achieved , and ( 3 ) pay for development costs within the project area , upon mutual agreement between members . our consolidated results reflect the full operations of the bsp jv , with bsp 's share of net income reported in net income attributable to noncontrolling interests on our consolidated statements of operations . midstream jv ares jv in february 2018 , our wholly-owned subsidiary california resources elk hills , llc ( creh ) entered into a joint venture with ecr , a portfolio company of ares , with respect to the elk hills power plant ( a 550-megawatt natural gas fired power plant ) and a 200 mmcf/day cryogenic gas processing plant .
| the effect of settled hedges is not included in the table above . proceeds from settled hedges were $ 107 million for the combined year ended december 31 , 2020. for the year ended december 31 , 2019 , proceeds from settled hedges were $ 111 million . net derivative ( loss ) gain from commodity contracts – net derivative loss from commodity contracts was $ 50 million for the combined year ended december 31 , 2020 compared to $ 59 million for same period of 2019 , representing an overall change of $ 9 million as reflected in the following table . the non-cash changes in the fair value of our outstanding derivatives resulted from the positions held as well as the relationship between contract prices and the associated forward curves at the end of each year . replace_table_token_19_th trading revenue – trading revenues were a combined $ 162 million for the year ended december 31 , 2020 , a decrease of $ 124 million , or 43 % from $ 286 million during the year ended december 31 , 2019. the decrease was due to lower volumes and prices related to our natural gas trading activities . the decline in volumes and prices were impacted by a decrease in energy demand resulting from the pandemic and milder temperatures in 2020. operating costs – operating costs for the combined year ended december 31 , 2020 was $ 625 million , which was a decrease of $ 270 million or 30 % from $ 895 million for the same period in 2019. the decrease was primarily attributable to efficiencies and streamlining of our operations and reduced operating costs from shut-in wells as well as lower activity levels such as downhole maintenance . operating costs also declined as a result of our workforce reductions and reduced work schedules during april and may 2020 . 58 general and administrative expenses – our general and administrative expenses ( g & a ) were $ 252 million for the combined year
| 14,630 |
because we believe that direct-to-hospital sales engender closer customer relationships , and allow for higher selling prices and gross margins , we periodically enter into transactions with our distributors to transition their sales of our medical devices to our direct sales organization : in march 2013 , we began shipping directly to canadian hospitals from our sales office in mississauga , canada . in october 2013 , we terminated our existing distribution agreements in norway and australia in order to sell directly to hospitals in each country beginning january 2014. the agreements required us to pay approximately $ 0.4 million in exchange for the purchase of their customer list for our products and minimal inventory . in 2014 , we entered into definitive agreements with eight former xenotis distributors in europe in order to terminate their distribution of our omniflow ii biosynthetic vascular grafts and we began selling direct to hospitals in those geographies . the agreements required us to pay approximately $ 1.3 million in exchange for the purchase of customer lists and inventory . in 2015 , we entered into definitive agreements with seven uresil , llc distributors in europe in order to terminate their distribution of our newly acquired tru-incise valvulotome and we began selling direct-to-hospital in those geographies . the termination fee was approximately $ 0.2 million 39 in august 2015 , we entered into a definitive agreement with grex medical oy ( grex ) , our distributor in finland , in order to terminate their distribution of our products and we began selling direct-to-hospital in finland as of january 1 , 2016. the termination fee was approximately $ 0.2 million . we anticipate that the expansion of our direct sales organization in china will result in increased sales and marketing expenses during 2016. as of december 31 , 2015 we had four employees in china . our strategy for growing our business includes the acquisition of complementary product lines and companies and occasionally the discontinuance or divestiture of products or activities that are no longer complementary : in july 2013 , we acquired substantially all of the assets of clinical instruments international , inc. ( clinical instruments ) , a manufacturer of latex and polyurethane shunts and catheters , for $ 1.1 million . in august 2013 , we acquired substantially all of the assets of inavein , llc ( inavein ) , a manufacturer of a varicose veins removal system . the purchase price consisted of $ 2.5 million plus potential contingent consideration of up to $ 1.4 million . in october 2014 , we paid $ 0.2 million related to a sales milestone . in august 2014 , we acquired all of the capital stock of xenotis pty ltd ( xenotis ) for $ 6.7 million plus the assumption of $ 1.1 million of debt . xenotis is the parent company of bio nova international , the manufacturer and marketer of the omniflow ii biosynthetic vascular graft for lower extremity bypass and av access . in september 2014 , we acquired substantially all of the assets related to the angioscope product line from applied medical resource corporation ( applied medical ) for $ 0.4 million . in september 2014 , we terminated our non-occlusive modeling catheter product line . in may 2015 , we acquired the production and distribution rights of uresil llc 's tru-incise valvulotome for sales ouside of the united states for $ 1.4 million . in july 2015 , we entered into an asset sales agreement with merit medical ireland limited to sell our inventory , intellectual property and customer lists associated with the unballoon , our non-occlusive modeling catheter product line for $ 0.4 million . in december 2015 , we terminated our invisigrip vein stripper product line , and wrote down $ 0.1 million of related inventory in the third quarter of 2015. in addition to relying upon acquisitions to grow our business , we also rely on our product development efforts to bring differentiated technology and next-generation products to market . these efforts have led to the following recent product developments : in april 2013 , we launched the multitasc device . in may 2013 , we launched the 1.5mm expandable lemaitre valvulotome . in june 2013 , we launched the albosure vascular patch . in june 2014 , we launched the 1.5mm hydro lemaitre valvulotome . in december 2014 , we launched the lemills valvulotome . in december 2015 , we launched the long anastoclip ac . 40 in addition to our sales growth strategies , we have also executed several operational initiatives designed to consolidate and streamline manufacturing within our burlington , massachusetts facilities . we expect that these plant consolidations will result in improved control over our production capacity as well as reduced costs over the long-term . our most recent manufacturing transitions included : in january 2014 , we initiated a project to transfer the manufacturing of the newly acquired clinical instruments devices to our facility in burlington . we closed the clinical instruments facility in march 2014 and completed the manufacturing transfer during the second quarter of 2014. in march 2015 , we initiated the transfer of the manufacturing of our newly acquired angioscope product line to our facility in burlington . we had been purchasing the devices from applied medical since the september 2014 acquisition and completed the transition of manufacturing to our burlington facility in december 2015. in may 2015 , we initiated plans to establish a production line for our newly acquired tru-incise valvulotome product line at our facility in burlington . we have been purchasing the devices from uresil , llc since the acquisition . we expect the establishment of the production line and transition of manufacturing to be completed in the first quarter of 2016. our execution of these business opportunities may affect the comparability of our financial results from period to period and may cause substantial fluctuations from period to period , as we incur related restructuring and other non-recurring charges , as well as longer term impacts to revenues and operating expenditures . story_separator_special_tag for example , in 2014 , we incurred $ 0.5 million of restructuring charges related to reductions in force and our clinical instruments facility closure and relocation to burlington , massachusetts , and in 2015 we recognized a gain of $ 0.4 million related to the sale of the unballoon , our non-occlusive modeling catheter line . fluctuations in the rate of exchange between the u.s. dollar and foreign currencies , primarily the euro , affect our financial results . for the year ended december 31 , 2015 , approximately 42 % of our sales occurred outside the united states . we expect that foreign currencies will continue to represent a similarly significant percentage of our sales in the future . selling , marketing , and administrative costs related to these sales are largely denominated in the same local currency , thereby partially mitigating our transaction risk exposure . however , most of our foreign sales are denominated in local currency , and if there is an increase in the rate at which a foreign currency is exchanged for u.s. dollars , it will require more of the foreign currency to equal a specified amount of u.s. dollars than before the rate increase . in such cases we will receive less in u.s. dollars than we did before the rate increase went into effect . we estimate that the strong u.s. dollar decreased our 2015 revenues by approximately $ 5.6 million , reduced 2015 gross margin by 1.7 percentage points , and reduced 2015 operating income by approximately $ 2.8 million as compared to the exchange rates for the year ended december 31 , 2014. net sales and expense components the following is a description of the primary components of our net sales and expenses : net sales . we derive our net sales from the sale of our products , less discounts and returns . net sales include the shipping and handling fees paid for by our customers . most of our sales are generated by our direct sales force and are shipped and billed to hospitals or clinics throughout the world . in countries where we do not have a direct sales force , sales are primarily generated by shipments to distributors who , in turn , sell to hospitals and clinics . in certain cases our products are held on consignment at a hospital or clinic prior to purchase ; in those instances we recognize revenue at the time the product is used in surgery rather than at shipment . cost of sales . we manufacture nearly all of the products that we sell . our cost of sales consists primarily of manufacturing personnel , raw materials and components , depreciation of property and equipment , and other allocated manufacturing overhead , as well as freight expense we pay to ship products to customers . 41 sales and marketing . our sales and marketing expense consists primarily of salaries , commissions , stock based compensation , travel and entertainment , attendance at medical society meetings , training programs , advertising and product promotions , direct mail , and other marketing costs . general and administrative . general and administrative expense consists primarily of executive , finance and human resource expense , stock based compensation , legal and accounting fees , information technology expense , intangible amortization expense , and insurance expense . research and development . research and development expense includes costs associated with the design , development , testing , enhancement , and regulatory approval of our products , principally salaries , laboratory testing , and supply costs . it also includes costs associated with design and execution of clinical studies , regulatory submissions and costs to register , maintain , and defend our intellectual property , and royalty payments associated with licensed and acquired intellectual property . restructuring . restructuring expense includes costs directly associated with distribution agreement termination expenses , severance and retention costs for terminated employees , factory relocation costs , and other expenses associated with restructuring our operations . other income ( expense ) . other income ( expense ) primarily includes interest income and expense , foreign currency gains ( losses ) , and other miscellaneous gains ( losses ) . income tax expense . we are subject to federal and state income taxes for earnings generated in the united states , which include operating losses in certain foreign jurisdictions for certain years depending on tax elections made , and foreign taxes on earnings of our wholly-owned foreign subsidiaries . our consolidated tax expense is affected by the mix of our taxable income ( loss ) in the united states and foreign subsidiaries , permanent items , discrete items , unrecognized tax benefits , and amortization of goodwill for u.s tax reporting purposes . story_separator_special_tag roman '' > impairment charges . in 2014 we recognized impairment charges of $ 0.2 million related to trademarks , technology , and manufacturing equipment upon the termination of the unballoon , our non-occlusive modeling catheter product line . other income ( expense ) . foreign exchange losses for 2015 were $ 0.1 million as compared to $ 16,000 for 2014. income tax expense . we recorded a provision for taxes of $ 3.7 million on pre-tax income of $ 11.4 million in 2015 as compared to $ 2.4 million on pre-tax income of $ 6.3 million in 2014. the 2015 provision was comprised of federal tax provision in the united states of $ 3.2 million , a state tax benefit of $ 0.1 million and a foreign tax provision of $ 0.6 million . the 2014 provision was comprised of federal tax in the united states of $ 1.9 million , state taxes of $ 0.2 million and foreign taxes of $ 0.3 million . our effective tax rate differed from the u.s. statutory tax rate in 2015 principally due to manufacturing deductions , subpart-f income , state taxes , research and development tax credits , effect of foreign taxes , other permanent differences , and other .
| these increases were partially offset by decreased sales of occlusion catheters of $ 0.5 million and cholangiogram catheters of $ 0.4 million . international net sales increased by $ 2.8 million to $ 30.4 million in 2015. this increase was primarily driven by higher sales of biologic vascular grafts of $ 2.8 million , biologic vascular patches of $ 0.9 million , valvulotomes of $ 0.6 million and powered phlebectomy systems of $ 0.5 million . these increases were offset by decreased sales of vessel closure systems of $ 0.7 million , radiopaque tape of $ 0.3 million and catheters of $ 0.3 million . recently , we have experienced stronger sales growth in europe as well as other non-traditional markets such as china and saudi arabia as compared to the united states . sales to these geographies generally feature lower average selling prices . as a result , if revenue continues to grow outside of the united states , it could negatively impact our gross margin . replace_table_token_8_th gross profit . gross profit increased by $ 5.7 million to $ 54.2 million in 2015 from $ 48.4 million in 2014 , and our gross margin increased by 1.0 % to 69.1 % in 2015. the gross margin increase in 2015 was largely driven by average selling price increases , particularly with respect to the introduction of our 1.5mm hydro valvulotome , as well as increased manufacturing efficiencies , particularly with respect to the xenosure and albograft product lines . these improvements were partially offset by unfavorable changes in foreign currency exchange rates , as well as increased sales to lower margin geographies such as china and saudi arabia . the gross profit increase was also a result of higher sales . replace_table_token_9_th * not a meaningful percentage . sales and marketing . sales and marketing expenses increased to $ 22.8 million in 2015 from $ 22.1 million in 2014. as a percentage of net sales , sales and marketing expenses were 29 % in 2015 , down 2 % from the prior year . selling expenses
| 14,631 |
48 story_separator_special_tag connection with the termination of the prior credit agreement , $ 1.2 million of remaining unamortized deferred financing costs were expensed and included in write-off of deferred financing costs in the consolidated statements of operations . see note 13. long-term debt in the notes to consolidated financial statements . gain on sale of oil and gas properties , net during the year ended december 31 , 2019 , we sold certain non-operated oil and gas properties located in the midland basin , recording gains totaling $ 3.2 million . during the year ended december 31 , 2018 , we sold certain non-core oil and gas properties including our non-operated eagle ford assets located in south texas , recording gains totaling $ 1.9 million . see note 3. acquisitions and divestitures in the notes to consolidated financial statements . ( loss ) gain on derivative contracts , net for the year ended december 31 , 2019 , we recorded a net loss on derivative contracts of $ 44.0 million , consisting of unrealized mark-to-market losses of $ 59.8 million , partially offset by net realized gains on settlements of $ 15.9 million . for the year ended december 31 , 2018 , we recorded a net gain on derivative contracts of $ 60.9 million , consisting of unrealized mark-to-market gains of $ 76.0 million , partially offset by net realized losses on settlements of $ 15.1 million . litigation settlement on august 18 , 2017 , litigation captioned trinity royalty partners , lp v. bold energy iii llc , et al . was filed with the 142nd judicial district of the district court in midland county , texas , asserting breach of contract and indemnity claims for alleged damages from loss of property relating to two oil and natural gas wells in which bold was the operator . trinity royalty partners , lp ( “ trinity ” ) claimed that bold was required to indemnify trinity under the terms of an assignment and a participation and joint development agreement between bold and trinity . damages were claimed to include costs incurred in attempting to repair and restore an oil and natural gas well and for the loss of future reserves attributable to both wells . on november 16 , 2018 trinity and bold entered into a confidential settlement agreement and mutual release whereby trinity and bold agreed to settle the lawsuit and release all claims and counterclaims asserted by the parties . as a result , a $ 4.7 million expense has been recorded to litigation settlement in the consolidated statements of operations for the year ended december 31 , 2018. income tax expense during the year ended december 31 , 2019 , we recorded total income tax expense of $ 1.7 million which included ( 1 ) deferred income tax expense for lynden us of $ 0.1 million as a result of its share of the distributable income from eeh , ( 2 ) deferred income tax expense for earthstone of $ 0.4 million as a result of its share of the distributable income from eeh , which was used to reduce the valuation allowance recorded against its deferred tax asset as future realization of the net deferred tax asset can not be assured and ( 3 ) deferred income tax expense of $ 1.6 million related to the texas margin tax . lynden corp incurred no material income or loss , or related income tax expense or benefit , for the year ended december 31 , 2019 . 51 during the year ended december 31 , 2018 , we recorded a total income tax expense of $ 2.5 million which included ( 1 ) deferred income tax expense for lynden us of $ 1.9 million as a result of its share of the distributable income from eeh , offset by a $ 0.5 million discrete income tax benefit related to refundable amt tax credits resulting from the tcja , ( 2 ) deferred income tax expense for earthstone of $ 7.4 million as a result of its share of the distributable income from eeh , which was used to reduce the valuation allowance recorded against its deferred tax asset as future realization of the net deferred tax asset can not be assured and ( 3 ) deferred income tax expense of $ 1.1 million related to the texas margin tax . lynden corp incurred no material income or loss , or related income tax expense or benefit , for the year ended december 31 , 2018 . liquidity and capital resources we have significant undeveloped acreage and future drilling locations . drilling horizontal wells , generally consisting of 7,500 to 12,000-foot lateral lengths , in the midland basin is capital intensive . at december 31 , 2019 , we had approximately $ 13.8 million in cash and approximately $ 155.0 million in unused borrowing capacity under the credit agreement ( discussed below ) for a total of approximately $ 168.8 million in funds available for operational and capital funding . subsequent to december 31 , 2019 , oil prices have declined sharply in response to drastic price cutting and increased production by saudi arabia coupled with reduced demand caused by the global coronavirus outbreak . prior to the sharp decline in oil prices , we anticipated 2020 capital expenditures of $ 160-170 million which assumed a one-rig , 19-well operated program in the midland basin and estimated expenditures for our non-operated midland basin properties . we are currently evaluating our 2020 capital plans as low oil prices for extended periods of time may negatively impact our stock price and cash flows and may result in non-cash impairment charges to the carrying values of our oil and gas properties . despite the significant decline in oil prices , we believe we are well positioned to manage the current low-price environment due to our low leverage and strong hedge position . additionally , we have no long-term service contracts nor significant drilling obligations which would allow us to curtail our capital program should we so choose . story_separator_special_tag based on our production profile , cost structure and the hedge positions we have in place , we expect to generate free cash flow to reduce debt in the second half of 2020 should we significantly curtail our capital program . as a result , we believe we will have sufficient liquidity with cash flows from operations and borrowings under the credit agreement to meet our cash requirements for the next 12 months . working capital working capital , defined herein as total current assets less total current liabilities as set forth in our consolidated balance sheets , was a deficit of $ 39.9 million as of december 31 , 2019 compared to a deficit of $ 18.3 million as of december 31 , 2018 as presented below : 52 replace_table_token_14_th ( 1 ) primarily the result of increased december production in 2019 as compared to the same period in 2018 . ( 2 ) primarily the result of a net decrease in fair value of our derivative contracts expected to settle over the next 12 months due to increased oil price futures . ( 3 ) at december 31 , 2019 , we had received advances of $ 2.5 million related to our eagle ford drilling and completion activities and $ 9.0 million related to our midland drilling and completion activities . we expect that changes in receivables and payables related to our pace of development , production volumes , changes in our hedging activities , realized commodity prices and differentials to nymex prices for our oil and natural gas production will continue to be the largest variables affecting our working capital . we expect to finance future development activities with cash flows from operating activities , borrowings under the credit agreement and , various means of corporate and project financing . in addition , as indicated above , we may continue to partially finance our drilling activities through the sale of participating rights to financial institutions or industry participants , and we could structure such arrangements on a promoted basis , whereby we may earn working interests in reserves and production greater than our proportionate share of capital costs . in july 2019 , we entered into a wellbore development agreement ( “ wda ” ) with a non-affiliated industry partner . this wda will reduce our working interest in certain wells in reagan county . the industry partner is obligated to pay a promoted ( proportionately higher ) share of the capital expenditures on an initial eight wells , with an option to participate , on the same basis , in up to 11 additional wells , to earn 35 % of the working interest in these wells . capital expenditures 53 our accrual basis capital expenditures for the years ended december 31 , 2019 and 2018 were as follows : replace_table_token_15_th credit agreement on november 21 , 2019 , we entered into a new credit agreement with respect to our senior secured revolving credit facility . the credit agreement has a maturity date of november 21 , 2024 with a maximum credit amount of $ 1.5 billion and an initial borrowing base of $ 325 million . as of december 31 , 2019 , we had $ 170.0 million of borrowings outstanding , bearing annual interest of 3.860 % , resulting in a remaining $ 155.0 million of borrowing base availability under the credit agreement . hedging activities the following table sets forth our outstanding derivative contracts at december 31 , 2019 . when aggregating multiple contracts , the weighted average contract price is disclosed . replace_table_token_16_th ( 1 ) the basis differential price is between wti houston and the wti nymex . ( 2 ) the basis differential price is between wti midland argus crude and the wti nymex . ( 3 ) the basis differential price is between w. texas ( waha ) and the henry hub nymex . obligations and commitments we had the following contractual obligations and commitments as of december 31 , 2019 : replace_table_token_17_th ( 1 ) 2020 amount represents interest payable under the credit agreement as of december 31 , 2019 . ( 2 ) we have a non-cancelable fixed cost agreement of $ 1.6 million per year through may 2021 to reserve pipeline capacity of 10,000 mmbtu per day for gathering and processing related to certain eagle ford assets in south texas . as the operator of the properties dedicated to this contract , the gross amount of obligation is provided ; however , our net share is approximately 31 % . environmental regulations our operations are subject to risks normally associated with the exploration for and the production of oil and natural gas , including blowouts , fires , and environmental risks such as oil spills or natural gas leaks that could expose us to liabilities associated with these risks . 54 in our acquisition of existing or previously drilled well bores , we may not be aware of prior environmental safeguards , if any , that were taken at the time such wells were drilled or during such time the wells were operated . we maintain comprehensive insurance coverage that we believe is adequate to mitigate the risk of any adverse financial effects associated with these risks . however , should it be determined that a liability exists with respect to any environmental cleanup or restoration , the liability to cure such a violation could still accrue to us . no claim has been made , nor are we aware of any liability which we may have , as it relates to any environmental cleanup , restoration , or the violation of any rules or regulations relating thereto . critical accounting policies and estimates our discussion of financial condition and results of operations is based upon the information reported in our consolidated financial statements .
| this has resulted in negative gas prices at times , whereby the seller is actually paying the purchaser to take the gas . the total volume of natural gas produced and sold increased 1,150 mmcf or 32 % primarily due to new wells brought online , partially offset by the impact of 2018 gas well divestitures . natural gas liquids revenues for the year ended december 31 , 2019 , natural gas liquids revenues decreased by $ 1.8 million or 10 % relative to the comparable period in 2018 . of the decrease , approximately $ 7.3 million was attributable to lower realized prices , partially offset by an increase of $ 5.5 million attributable to increased sales volumes . approximately 94 % of our natural gas liquids sales volumes for the period was from the midland basin . since the fourth quarter of 2018 , the price for fractionated natural gas liquids has decreased , and after also taking into account the cost to transport our natural gas liquids , has resulted in significant decreases in prices received . the volume of natural gas liquids produced and sold increased by 367 mbbls or 56 % , primarily due to new wells brought online , partially offset by the impact of divestitures in the latter half of 2018. lease operating expense ( “ loe ” ) loe includes all costs incurred to operate wells and related facilities for both operated and non-operated properties . in addition to direct operating costs such as labor , repairs and maintenance , re-engineering and workovers , equipment rentals , materials and supplies , fuel and chemicals , loe includes product marketing and transportation fees , insurance and overhead charges provided for in operating agreements . loe increased by $ 9.9 million or 53 % for the year ended december 31 , 2019 relative to the comparable period in 2018 , primarily due to additional producing wells brought online , which drove a 35 % increase in production volume , in addition to
| 14,632 |
we believe cloud computing , in its various forms , represents a major new long term trend in the way that applications are delivered , data is stored and information is retrieved . we believe as a result of our simpana data and information management platform , that we are in a unique position to enhance and extend the value of our simpana software suite by developing innovative , industry leading ways to manage data and information in the cloud . for example , in february 2010 we announced the release of an integrated cloud storage connector for our simpana software , which will enable customers to move on-premises backup and archive data into , and out of , private and public cloud storage . in addition to extending the simpana platform into the cloud , we are continuing to pursue an aggressive product development program in both data and information management solutions . our data management solutions include not only traditional backup and recovery , but also new innovations in de-duplication , data movement , virtualization , snap-based backups and enterprise reporting . our information management innovations are primarily in the areas of archiving , ediscovery , records management , governance and compliance . we remain focused on both the data and information management trends in the marketplace and , in fact , a material portion of our existing research and development expenses are utilized toward the development of such new technologies discussed above . while we are confident in our ability to meet these changing industry demands with simpana 8 and potential future releases , the development , release and timing of any features or functionality remain at our sole discretion and our solutions to cloud computing or other technologies may not be widely adopted . given the nature of the industry in which we operate , our software applications are subject to obsolescence . as noted above , we continually develop and introduce updates to our existing software applications in order to keep pace with evolving industry technologies such as cloud computing . in addition , we must address evolving industry standards , changing customer requirements and competitive software applications that may render our existing software applications obsolete . for each of our software applications , we provide full support for the current generally available release and one prior release . when we declare a product release obsolete , a customer notice is delivered twelve months prior to the effective date of obsolescence announcing continuation of full product support for the first six months . we provide an additional six months of extended assistance support in which we only provide existing workarounds or fixes that do not require additional development activity . we do not have existing plans to make any of our software products permanently obsolete . 32 sources of revenues we derive the majority of our total revenues from sales of licenses of our software applications . we do not customize our software for a specific end-user customer . we sell our software applications to end-user customers both directly through our sales force and indirectly through our global network of value-added reseller partners , systems integrators , corporate resellers and original equipment manufacturers . our software revenue was 50 % of our total revenues for fiscal 2010 , 52 % for fiscal 2009 and 55 % for fiscal 2008. in recent fiscal years , we have generated approximately 62 % of our software revenue from our existing customer base and approximately 38 % of our software revenue from new customers . in addition , our total software revenue in any particular period is , to a certain extent , dependent upon our ability to generate revenues from large customer software deals , which we refer to as enterprise software transactions . we expect the number of enterprise software transactions ( transactions greater than $ 0.1 million ) and resulting software revenue to increase throughout fiscal 2011 , although the size and timing of any particular software transaction is more difficult to forecast . such software transactions represented approximately 47 % of our total software revenue in fiscal 2010 , approximately 40 % of our software revenue in fiscal 2009 and approximately 35 % of our software revenue in fiscal 2008. software revenue generated through indirect distribution channels was approximately 85 % of total software revenue in fiscal 2010 , 81 % in fiscal 2009 and 80 % in fiscal 2008. software revenue generated through direct distribution channels was approximately 15 % of total software revenue in fiscal 2010 , 19 % in fiscal 2009 and 20 % in fiscal 2008. the shift in software revenue growth generated through our indirect distribution channels compared to our direct sales force in fiscal 2010 compared to fiscal 2009 is primarily the result of more enterprise software transactions in our u.s. operations that were transacted through indirect distribution channels . deals initiated by our direct sales force are sometimes transacted through indirect channels based on end-user customer requirements , which are not always in our control and can cause this overall percentage split to vary from quarter to quarter . as such , there may be fluctuations in the dollars and percentage of software revenue generated through our direct distribution channels from time to time . we believe that the growth of our software revenue , derived from both our indirect channel partners and direct sales force , are key attributes to our long-term growth strategy . we will continue to invest in both our channel relationships and direct sales force in the future , but we continue to expect more revenue to be generated through indirect distribution channels over the long term . the failure of our indirect distribution channels or our direct sales force to effectively sell our software applications could have a material adverse effect on our revenues and results of operations . we have a worldwide reseller and an original equipment agreement with dell . story_separator_special_tag our reseller agreement with dell provides them the right to market , resell and distribute certain of our products to their customers . our original equipment manufacturer agreement with dell is discussed more fully below . sales through our agreements with dell accounted for 24 % of our total revenues for fiscal 2010 , 23 % of our total revenues for fiscal 2009 and 24 % of our total revenues in fiscal 2008. we have original equipment manufacturer agreements with dell and hitachi data systems for them to market , sell and support our software applications and services on a stand-alone basis and or incorporate our software applications into their own hardware products . dell and hitachi data systems have no obligation to recommend or offer our software applications exclusively or at all , and they have no minimum sales requirements and can terminate our relationship at any time . in addition , during fiscal 2008 we signed an original equipment manufacturer agreement with bull sas ( bull ) pursuant to which they have agreed to market , sell , and support our software applications and services . a material portion of our software revenue is generated through these arrangements , and we expect this contribution to grow in the future . sales through our original equipment manufacturer agreements accounted for 10 % of our total revenues for fiscal 2010 and 12 % of our total revenues for both fiscal 2009 and fiscal 2008. we also have a distribution agreement with arrow enterprise computing solutions , inc. ( arrow ) , a subsidiary of arrow electronics , inc. , covering our north american commercial markets and our u.s. federal government market . pursuant to the distribution agreement , arrow 's primary role is to enable a more efficient and effective distribution channel for our products and services by managing our reseller partners and leveraging their own industry experience . many of our north american resellers have been transitioned to arrow . we generated approximately 24 % of our total revenues through arrow in fiscal 2010 , approximately 21 % of our total revenues in fiscal 2009 and approximately 13 % of our total revenues in fiscal 2008. if arrow were to discontinue or reduce the sales of our products or if our agreement with arrow was terminated , and if we were unable to take back the management of our reseller channel or find another north american distributor to replace arrow , then it could have a material adverse effect on our future revenues . 33 our services revenue is made up of fees from the delivery of customer support and other professional services , which are typically sold in connection with the sale of our software applications . customer support agreements provide technical support and unspecified software updates on a when-and-if-available basis for an annual fee based on licenses purchased and the level of service subscribed . other professional services include consulting , assessment and design services , implementation and post-deployment services and training , all of which to date have predominantly been sold in connection with the sale of software applications . our services revenue was 50 % of our total revenues for fiscal 2010 , 48 % for fiscal 2009 and 45 % for fiscal 2008. the gross margin of our services revenue was 76.1 % for fiscal 2010 , 75.0 % for fiscal 2009 and 72.5 % for fiscal 2008. the increase in the gross margin of our services revenue in fiscal 2010 compared to fiscal 2009 was primarily due to a higher percentage of our services revenue being derived from customer support agreements as a result of sales to new customers and renewal agreements with our installed customer base . overall , our services revenue has lower gross margins than our software revenue . the gross margin of our software revenue was 97.8 % for fiscal 2010 , 98.0 % for fiscal 2009 and 97.8 % for fiscal 2008. an increase in the percentage of total revenues represented by services revenue may adversely affect our overall gross margins . description of costs and expenses our cost of revenues is as follows : cost of software revenue , consists primarily of third-party royalties and other costs such as media , manuals , translation and distribution costs ; and cost of services revenue , consists primarily of salary and employee benefit costs in providing customer support and other professional services . our operating expenses are as follows : sales and marketing , consists primarily of salaries , commissions , employee benefits , stock-based compensation and other direct and indirect business expenses , including travel and related expenses , sales promotion expenses , public relations expenses and costs for marketing materials and other marketing events ( such as trade shows and advertising ) ; research and development , which is primarily the expense of developing new software applications and modifying existing software applications , consists principally of salaries , stock-based compensation and benefits for research and development personnel and related expenses ; contract labor expense and consulting fees as well as other expenses associated with the design , certification and testing of our software applications ; and legal costs associated with the patent registration of such software applications ; general and administrative , consists primarily of salaries , stock-based compensation and benefits for our executive , accounting , human resources , legal , information systems and other administrative personnel . also included in this category are other general corporate expenses , such as outside legal and accounting services , compliance costs and insurance ; and depreciation and amortization , consists of depreciation expense primarily for computer equipment we use for information services and in our development and test labs . we anticipate that each of the above categories of operating expenses will increase in dollar amounts , but will decline as a percentage of total revenues in the long-term .
| the average dollar amount of such transactions was approximately $ 0.2 million in both fiscal 2010 and fiscal 2009. the overall increase in enterprise software transactions was partially offset by a 2 % decrease in software transactions less than $ 0.1 million as a result of lower software revenue transactions of this type from our foreign locations . 38 software revenue through our indirect distribution channel ( resellers and original equipment manufacturers ) increased $ 15.5 million in fiscal 2010 compared to fiscal 2009 , while software revenue derived from our direct sales force decreased $ 2.7 million in fiscal 2010 compared to fiscal 2009. the increase in software revenue generated through our indirect distribution channel is primarily due to more enterprise software transactions in our u.s. operations that were transacted through indirect distribution channels as more fully discussed above in the sources of revenue section . overall , we believe growth in our software revenue that is derived from both our indirect channel partners and direct sales force are key attributes to our long-term growth strategy . we will continue to invest in both our channel relationships and direct sales force in the future , but we continue to expect more revenue to be generated through indirect distribution channels over the long term . services revenue . services revenue increased $ 23.7 million , or 21 % , from $ 112.8 million in fiscal 2009 to $ 136.5 million in fiscal 2010. services revenue represented 50 % of our total revenues in fiscal 2010 compared to 48 % in fiscal 2009. the increase in services revenue is primarily due to a $ 21.4 million increase in revenue from customer support agreements as a result of software sales to new customers and renewal agreements with our installed software base . cost of revenues total cost of revenues increased $ 5.0 million , or 16 % , from $ 30.6 million in fiscal 2009 to $ 35.6 million in fiscal 2010. total cost of revenues represented 13 % of our total revenues in both fiscal 2010 and 2009. cost of software revenue . cost of software revenue increased approximately $ 0.5 million , or 22 % , from $ 2.5 million in fiscal 2009 to $ 3.0 million in fiscal 2010. cost of software
| 14,633 |
our customers and the industry view our mms market as a singular business and demand an integrated and scalable suite of information technology-based enterprise-wide solutions . services comprising our mms offerings have similar client service approaches , delivery costs and operational risks and are led by a project manager and a cross-functional service delivery team comprised of employees across all subsidiaries . during fiscal 2012 , our codm decided that our mms business constitutes a single business activity and that our financial results should be evaluated on that basis . our codm determined that a functional management approach with centralized roles and responsibilities would best to enable the company to be able to efficiently scale and deliver its mms solution to its customers . our codm assembled an executive advisory group with specific business functional responsibility to move further towards an integrated and scalable operation and drive our mms business as an integrated offering . in fiscal 2013 , our codm discontinued our historical segmented reporting as a management tool . the company presents a single segment for purposes of financial reporting and prepared its consolidated financial statements upon that basis . 28 business combinations the application of purchase accounting to a business acquisition requires that the company identify the individual assets acquired and liabilities assumed and estimate the fair value of each . the company estimates the fair value of purchase consideration in each business combination using an acceptable valuation methodology which may include an income , market and or cost approach . the company assigns a provisional value on the date of purchase and engages qualified third party valuation professionals to estimate the fair value of significant assets acquired and liabilities assumed . purchase consideration is often paid to the seller in the form of cash , seller financed promissory notes and or shares of common stock that may or may not contain a contingency often tied to future financial performance targets . the company generally assesses the estimated fair value of contingent obligations using a probability weighted income approach ( discounted cash flow ) valuation technique which requires the use of observable and unobservable inputs . fluctuations in the fair value of contingent obligations are impacted by two unobservable inputs , management 's estimate of the probability of the acquired company meeting the operating performance target and the estimated discount rate ( a rate that approximates the company 's weighted average cost of capital ) . significant increases ( decreases ) in either of those inputs in isolation would result in a significantly higher ( lower ) fair value measurement . fair value is assessed for contingent obligations on a quarterly basis until such contingencies have been resolved and any changes in fair value are recorded as a gain or loss on change in fair value of contingent obligations within general and administrative expense . goodwill and intangible assets often represent a significant portion of the assets acquired in a business combination . the company recognizes the fair value of an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights , or when it can be separated or divided from the acquired entity and sold , transferred , licensed , rented or exchanged , either individually or in combination with a related contract , asset or liability . the company generally assesses the estimated fair values of acquired intangibles using an income and market approach , except for internally developed software which is valued using a cost approach . the fair values of the intangible assets purchased were determined using a combination of valuation techniques . fluctuations in the fair value of intangibles are impacted by two unobservable inputs , management 's five year forecast and the estimated discount rate ( a rate that approximates the company 's weighted average cost of capital ) . significant increases ( decreases ) in either of those inputs in isolation would result in a significantly higher ( lower ) fair value measurement . the company had finite lived intangible assets with a carrying value of approximately $ 3.6 million as of december 31 , 2013. the fair value of intangibles acquired in connection with business combinations continued to generate positive returns above its carrying value . accordingly , the company has concluded the fair value of its intangibles is not impaired at december 31 , 2013. the company could be exposed to increased risk of recoverability to the extent future revenue estimates may not support the recovery of purchased intangible assets . revenue recognition telecommunications expense management and device management services are delivered on a monthly basis based on a standard fixed pricing scale and sensitive to significant changes in per user or device counts which form the basis for monthly charges . revenue is recognized upon the completion of the delivery of monthly managed services based on user or device counts or other metrics . managed services are not interdependent and there are no undelivered elements in these arrangements . telecommunications carrier invoice management and payment services require the company to purchase bands of minutes , text messaging and data services from large carriers and optimizes these services for its mobile customers . the company recognizes revenues and related costs on a gross basis for these arrangements as we have discretion in choosing providers , rate plans , and devices in providing the services to our customers . we establish pricing for our customer contracts . for arrangements in which we do not have such credit risk we recognize revenues and related costs on a net basis . 29 telecommunications audit and optimization services are professional services conducted over a specified period of time . these professional services are billed based on time incurred and actual costs or on a contingency basis . the company recognizes revenues for professional services performed based on actual hours worked and actual costs incurred . the company recognizes contingent based service arrangements when our savings results are verified by the carrier and accepted by the customer . story_separator_special_tag contingent fees earned are calculated based on projected or proven savings multiplied by an agreed upon recovery rate . cost associated with contingent fee arrangements are recognized as incurred . telecommunication mobile device and accessory resale services may require the company to facilitate as an agent on our customers ' account or transact on our own account to deliver third party vendor products and or services to meet our customers ' specific functional requirements . for those transactions in which we procure and deliver products and services for our own account the company recognizes revenues and related costs on a gross basis for these arrangements as we have discretion in choosing providers , rate plans , and devices in providing the services to our customers . for those transactions in which we procure and deliver products and services for our customers ' on their own account we do not recognize revenues and related costs on a gross basis for these arrangements . we recognize revenues earned for arranging the transaction and any related costs . identity management and identity service s are delivered as an on-demand managed service through the cloud to an individual or organization or sold in bulk to an organization capable of self-issuing credentials . credentialing services are not bundled and do not include other obligations to deliver . revenue is recognized from the sales of credentials to an individual or organization upon issuance or in the case of bulk sales or consoles upon issue or availability to the customer for issuance . there is no obligation to provide post contract services in relation to certificates issued and consoles delivered . certificates issued have a fixed life and can not be modified or reissued . network and consulting services are professional services provided on a project basis determined by our customers ' specific requirements . these technical professional services are billed based on time incurred and actual costs . the company recognizes revenues for professional services performed based on actual hours worked and actual costs incurred . goodwill goodwill represents the excess of acquisition cost of an acquired company over the fair value of assets acquired and liabilities assumed . in accordance with gaap , goodwill is not amortized but is tested for impairment at the reporting unit level annually at december 31 and between annual tests if events or circumstances arise , such as adverse changes in the business climate , that would more likely than not reduce the fair value of the reporting unit below its carrying value . a reporting unit is defined as either an operating segment or a business one level below an operating segment for which discrete financial information is available that management regularly reviews . the company has a single reporting unit for the purpose of impairment testing . the goodwill impairment test utilizes a two-step approach . the first step identifies whether there is potential impairment by comparing the fair value of a reporting unit to its carrying amount , including goodwill . if the fair value of a reporting unit is less than its carrying amount , the second step of the impairment test is required to measure the amount of any impairment loss . the company has the option to bypass the qualitative assessment for any reporting period and proceed to performing the first step of the two-step goodwill impairment test and then subsequently resume performing a qualitative assessment in any subsequent period . the company bypassed using a qualitative assessment for 2013 . 30 goodwill impairment testing involves management judgment , requiring an assessment of whether the carrying value of the reporting unit can be supported by its fair value using widely accepted valuation techniques , such as the market approach ( earnings multiples or transaction multiples for the industry in which the reporting unit operates ) or the income approach discounted cash flow methods ) . the fair values of the reporting units were determined using a combination of valuation techniques consistent with the market approach and the income approach . when preparing discounted cash flow models under the income approach , the company estimates future cash flows using the reporting unit 's internal five year forecast and a terminal value calculated using a growth rate that management believes is appropriate in light of current and expected future economic conditions . the company then applies a discount rate to discount these future cash flows to arrive at a net present value amount , which represents the estimated fair value of the reporting unit . the discount rate applied approximates the expected cost of equity financing , determined using a capital asset pricing model . the model generates an appropriate discount rate using internal and external inputs to value future cash flows based on the time value of money and the price for bearing the uncertainty inherent in an investment . the company has approximately $ 16.6 million of goodwill as of december 31 , 2013. the fair value of the company 's reporting unit is above its carrying value ; accordingly , the company has concluded its goodwill is not impaired at december 31 , 2013. the company could be exposed to increased risk of goodwill impairment if future operating results or macroeconomic conditions differ significantly from management 's current assumptions . allowance for doubtful accounts the company has not historically maintained an allowance for doubtful accounts for its federal government customers . allowances for doubtful accounts relate to commercial accounts receivable and unbilled accounts receivable represent management 's best estimate of the losses inherent in the company 's outstanding trade accounts receivable . the company determines its allowance by considering a number of factors , including the length of time accounts receivable are past due , the company 's previous loss history , the customer 's current ability to pay its obligation to the company , and the condition of the general economy and the industry as a whole .
| 32 operating expenses sales and marketing expense for the year ended december 31 , 2013 was approximately $ 3.1 million ( or 7 % of revenues ) , as compared to approximately $ 2.7 million ( or 5 % of revenues ) in the same period last year . the increase predominantly reflects the hiring of a chief sales and marketing officer and additional marketing and lead generation sales professionals ( approximately $ 0.1 million ) , expanded sales reach and direct marketing programs ( approximately $ 0.4 million ) , partially offset by a decrease in commission expense ( approximately $ 0.1 million ) . the increase in sales and marketing spend was conducted in accordance with our overall strategy to reinvest in our sales resource infrastructure , thereby expanding our growth opportunities , both domestically and abroad . general and administrative expenses for the year ended december 31 , 2013 were approximately $ 9.9 million ( or 21 % of revenues ) , as compared to approximately $ 9.8 million ( or 18 % of revenues ) in the same period last year . general and administrative expenses for the year ended december 31 , 2013 included a non-cash gain of approximately $ 1.25 million that reflects a reduction in the fair value of a contingent obligation as remeasured at the reporting date . the company revised its full year 2013 forecasted adjusted gross profit ( `` agp '' ) to reflect lower projected revenue growth from slower implementation of recently sold services . the company believes these factors make it remote that the 2013 agp target of $ 6,752,000 in 2013 would be achieved and reduced the fair value of its recorded contingent obligation to zero . the increase reflects both increased salary and fringe costs associated with expanded overhead support positions and carrying cost of staff retained to service the delayed dhs bpa contract award ( approximately $ 400,000 ) , higher outside accounting and legal fees related to contract negotiations ( approximately $ 168,000 ) , higher commercial insurance rates and prior year premium adjustments ( approximately $ 50,000 ) , partially offset by a
| 14,634 |
in aggregate , this omnichannel strategy provides us with a diverse set of customers and wholesale partners , along with an opportunity to develop a direct relationship with our customers at lairdsuperfood.com . we believe that , along with a trusted brand name , extensive proprietary distribution is a critical long-term and sustainable barrier to entry in the food industry . our online business is two pronged and consists of lairdsuperfood.com and amazon.com . for the years ended december 31 , 2020 and 2019 , the online business made up 56 % and 59 % of our net sales , respectively . lairdsuperfood.com is a platform that provides an authentic brand experience for our customers that drives engagement and provides feedback for future product development , while generating highly attractive margins . we view our growing proprietary database of customers ordering directly from our website as a strategic asset , as it enhances our ability to develop a long-term relationship with these customers . content on our website allows laird superfood to educate consumers on the benefits of our products and ingredients , while providing a positive customer experience . we believe this experience leads to higher retention rates among repeat users and subscribers , as evidenced by repeat users and subscribers accounting for almost two-thirds of lairdsuperfood.com sales for the year ended december 31 , 2020. our wholesale business addresses the $ 759 billion grocery industry , specifically the $ 174 billion natural , organic and functional foods and beverages sub-segment , which has been increasing its proportion of the grocery industry , as well as many non-grocery retail channels . for the years ended december 31 , 2020 and 2019 , wholesale made up 42 % and 40 % of our net sales , respectively . laird superfood products are sold through a diverse set of retail channels , including conventional , natural and specialty grocery , club , outdoor and drug stores . we currently estimate our products are in over 7,100 retail door locations across the united states and we believe the long-term potential store base exceeds 20,000 retail locations in the united states . the diversity of 46 our retail channel represents a strong competitive advantage for laird superfood and provides us with a larger total addressable market than would be considered normal for a food brand that is singularly focused on the grocery market . recent developments initial public offering on september 23 , 2020 , the company completed its initial public offering ( ipo ) , in which the company issued and sold 3,047,500 shares of its common stock at a public offering price of $ 22 per share , including 397,500 shares of common stock upon the exercise of the underwriter 's option to purchase additional shares . after underwriting discounts and commissions and other offering costs , net proceeds from the ipo were approximately $ 61,966,237. offering costs of approximately $ 1,268,765 were recognized as a reduction of additional-paid-in capital . upon the closing of the ipo , all outstanding shares of the company 's preferred stock converted into shares of common stock , consisting of ( i ) 162,340 outstanding shares of series a-1 convertible preferred stock converting into 324,680 aggregate shares of common stock , ( ii ) 152,253 outstanding shares of series a-2 convertible preferred stock converting into 304,506 aggregate shares of common stock , and ( iii ) 383,142 outstanding shares of series b-1 convertible preferred stock converting into 766,284 aggregate shares of common stock . concurrent private placement danone manifesto ventures , pbc ( dmv ) purchased $ 2,000,020 of our common stock in a private placement immediately subsequent to the consummation of the ipo , at a price per share of $ 22. capital contribution on december 3 , 2020 , the company entered into an agreement with dmv for an additional capital contribution as a participant in the dmv covid-19 relief fund . the agreement provisions the company with cash consideration of $ 298,103 for the purpose of supporting three relief projects : ( 1 ) continual sanitation rotation , ( 2 ) spend on increased labor , material and maintenance costs in the face of adversity , and ( 3 ) new/existing hospitals relief initiative . the company has reported the balance as restricted cash on the balance sheet as of december 31 , 2020. two-for-one stock split our board of directors and stockholders approved a two-for-one split of our common stock , which was effected on august 19 , 2020. the split divided each outstanding share of our common stock into two shares of common stock and correspondingly adjusted the conversion prices of our convertible preferred stock . no fractional shares were issued in connection with the split . all references to common stock , options to purchase common stock , restricted stock , share data , per share data and related information have been retroactively adjusted , where applicable , in this annual report to reflect the split of our common stock , and the corresponding adjustment of the conversion prices of our preferred stock , as if it had occurred at the beginning of the earliest period presented . 47 key factors affecting our performance we believe that our future performance will depend on many factors , including the following : ability to grow our customer base in both online and traditional wholesale distribution channels we are currently growing our customer base through both paid and organic online channels , as well as by expanding our presence in a variety of physical retail distribution channels . online customer acquisitions typically occur at our direct website lairdsuperfood.com and amazon.com . our online customer acquisition program includes paid and unpaid social media , search , display and traditional media . story_separator_special_tag our products are also sold through a growing number of physical retail channels . wholesale customers include grocery chains , natural food outlets , club stores , and drug stores , and food service customers include coffee shops , gyms , restaurants , hospitality venues and corporate dining services , among others . customer acquisition in physical retail channels depends on , among other things , paid promotions through retailers , display and traditional media . ability to acquire and retain customers at a reasonable cost we believe an ability to consistently acquire and retain customers at a reasonable cost relative to projected life-time value will be a key factor affecting future performance . to accomplish this goal , we intend to balance advertising spend between online and offline channels , as well as balancing more targeted and measurable direct response marketing spend with advertising focused on increasing our long-term brand recognition , where success attribution is less directly measurable on a near-term basis . ability to drive repeat usage of our products we accrue substantial economic value from repeat users of our products who consistently re-order our products . the pace of our growth rate will be affected by the repeat usage dynamics of existing and newly acquired customers . ability to expand our product line our goal is to substantially expand our product line over time to increase our growth opportunity and reduce product-specific risks through diversification into multiple products each designed around daily use . our pace of growth will be partially affected by the cadence and magnitude of new product launches over time . ability to expand gross margins our overall profitability will be impacted by our ability to expand gross margins through effective sourcing of raw materials , controlling labor and shipping costs , as well as spreading other production-related costs over greater manufacturing volumes . ability to expand operating margins our ability to expand operating margins will be impacted by our ability to cover fixed general and administrative costs and variable sales and marketing costs with higher revenues and gross profit dollars . ability to manage our global supply chain and expand production in-line with demand our ability to grow and meet future demand will be affected by our ability to properly plan for and source inventory from a variety of suppliers located inside and outside the united states . 48 ability to optimize key components of working capital our ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by our ability to effectively manage all the key working capital components that could influence our cash conversion cycle . components of results of operations sales , net we sell our products indirectly to consumers through a broad set of physical wholesale channels . we also derive revenue from the sale of our products directly to consumers through our direct website , as well as third-party online channels . cost of goods sold our cost of goods sold consists primarily of raw material costs , labor costs directly related to producing our products , including wages and benefits , shipping costs , lease expenses and other factory overhead costs related to various aspects of production , warehousing and shipping . operating expenses our operating expenses consist of general and administrative , research and product development , and sales and marketing expenses . we expect to incur additional expenses as a result of operating as a public company , including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange , costs related to compliance and reporting obligations pursuant to the rules and regulations of the sec and higher expenses for insurance , investor relations and professional services . we expect our general and administrative expenses will increase as our business grows . interest expense interest expense for the year ended december 31 , 2019 consisted primarily of interest related to our additional rent owed to our landlord for landlord improvements . there was no interest expense incurred for the year ended december 31 , 2020. benefit from income taxes due to our history of operating losses and expectation of future operating losses , we do not expect any significant income tax expenses and benefits for the foreseeable future . 49 story_separator_special_tag current buildings while we intend to lease and have purchased five adjoining lots providing opportunity for expansion of our campus if needed . our future capital requirements will depend on many factors , including our growth rate , the timing and extent of spending to support research and development efforts , the continued expansion of sales and marketing activities , the enhancement of our product platforms , the introduction of new products and acquisition activity . we expect to continue to incur operating losses for the foreseeable future and may require additional capital resources to continue to grow our business . we believe that current cash and cash equivalents will be sufficient to fund our operations and capital requirements for at least the next 12 months following the date of this report . we have based this estimate on assumptions that may prove to be wrong , and we could use our available capital resources sooner than we currently expect . in addition , if additional financing is required from outside sources , we may not be able to raise such financing on terms acceptable to us or at all . comparison of the years ended december 31 , 2020 and december 31 , 2019 cash flows the following table shows a summary of our cash flows for the periods presented : replace_table_token_11_th 52 cash flows used in operating activities cash used in operating activities was $ 15 million for fy2020 as compared to $ 9 million in fy2019 .
| gross profit replace_table_token_7_th gross profit increased by $ 2 million in fy2020 to $ 7 million from $ 5 million in fy2019 , primarily due to sales growth in fy2020 , partially offset by a decrease in gross margins . gross margin decreased to 26.2 % in fy2020 compared to 38.8 % in fy2019 , due to elevated labor costs , increased co-packing costs primarily associated with our liquid creamer product line , elevated air shipping costs for additional raw materials in response to an unanticipated increase in demand associated with covid-19 , disposal costs related to the initial production and distribution of our liquid creamer product line and elevated outbound shipping costs combined with the launch of a free shipping initiative for direct online purchases made on lairdsuperfood.com . operating expenses replace_table_token_8_th general and administrative expense increased by $ 4 million in fy2020 to $ 9 million from $ 5 million in fy2019 , primarily due to ipo related expenses for accelerated stock option vesting , discretionary bonuses , professional fees , as well as an asset impairment recorded during the second quarter . research and product development expense increased by $ 184 thousand to $ 508 thousand in fy2020 from $ 324 thousand in fy2019 , primarily due to increased product development efforts and payroll expenses . sales and marketing expense increased by $ 2 million in fy2020 to $ 10 million from $ 8 million in fy2019 , primarily due to increased advertising and payroll , as well as a stock option modification expense . other income replace_table_token_9_th other income is composed of interest income , gain on sale of available-for-sale securities , dividend income , and grant income . interest income , primarily related to interest income on investment securities available-for-sale , decreased to $ 65 thousand in fy2020 compared to $ 229 thousand in fy2019 due to lower interest rate on invested balances . gain on the sale of available-for-sale securities was $ 14 thousand in fy2020 compared to $ 8 thousand in fy2019 . there was no grant income in fy2020 compared to $ 50 thousand in
| 14,635 |
operating as a small business in a large , international spirits marketplace occupied by massive conglomerates , we seek to utilize our small size to our advantage . as the success of our rrw launch and sandstrom partners collaboration demonstrate , our team can leverage its smaller size to launch new brands more quickly than larger conglomerates because we are able to dedicate more of our attention and resources to developing innovative products . we believe that the dominance of canadian whiskeys in the light-whiskey segment is vulnerable to a light whiskey that is 100 % american , and we are exploiting that vulnerability with rrw , a product that went from idea , to celebrity collaboration , to design and formulation , to market roll-out in less than nine months . we are innovative in targeting emerging trends with our products ; for example , we recently developed our coffee rum with cold brew coffee and low sugar , as well as our gluten-free potato vodka . we seek to be both a leader in creating spirits that offer better value than comparable spirits ( for example , our value-priced portland potato vodka ) , and an innovator in creating imaginative spirits that offer a unique taste experience , like our coffee rum , oregon oak-aged whiskeys , marionberry whiskey , and most recently our portland mule drink ( our first ready-to-drink ( rtd ) cocktail in a single serving can ) . 23 as a nasdaq-traded company , we have access to public capital markets to support our growth initiatives , including strategic acquisitions . in may 2017 , we used our shares to acquire 90 % of big bottom distillery ( “ bbd ” ) , known for its award-winning , super-premium gins and whiskeys , including the ninety one gin , navy strength gin , oregon gin , delta rye and american single malt whiskey . bbd 's super-premium spirits give us a presence at the “ high end ” of the market . in december of 2018 , we acquired the remaining 10 % of bbd . in addition , through motherlode craft distillery ( “ motherlode ” ) , our wholly-owned subsidiary acquired in march 2017 , and craft canning llc ( “ craft canning ” ) , acquired on january 11 , 2019 , we also provide contract bottling , canning , and packaging services for existing and emerging beer , wine and spirits producers . we intend to use our canning equipment , at motherlode and craft canning , to profit from the rapid growth in canned beverages ( beer , wine , spirit-based rtd 's and cannabidiol ( “ cbd ” ) . we believe our significant capacity expansion ( and regional reputation ) due to the more recent acquisition of craft canning , is a competitive advantage . recent developments introduction of new redneck riviera whiskey “ granny rich reserve ” . on february 5 , 2019 , we announced the introduction of its newest product under the redneck riviera trademark - redneck riviera whiskey “ granny rich reserve ” . representing the first line extension with the redneck riviera brand , granny rich reserve is a premium priced blend of traditional corn whiskey , aged three years or more , blended with american single malt aged at least four years . rndc expands distribution of redneck riviera whiskey . on january 31 , 2019 , we announced republic national distributing company ( “ rndc ” ) would distribute eastside 's redneck riviera whiskey ( “ rrw ” ) in ohio , marking the 39 th state to carry the product . introduction of new portland mule ready-to-drink ( rtd ) cocktail . on january 29 , 2019 , we announced its landmark entry into the fast growing ready-to-drink ( rtd ) market with the introduction of the portland mule ready-to-drink cocktail . portland mule will come in a 250ml , or 8.4 oz can , designed by the award-winning design team at sandstrom partners , and will have a 10.5 % alcohol by volume . acquisition of craft canning & bottling – creates significant increase in canning operations . on january 14 , 2019 , we announced the acquisition of portland-based craft canning + bottling ( “ craft ” or “ cc+b ” ) a leading provider of mobile canning and bottling services in oregon , washington and colorado . craft canning + bottling will combine operations with eastside 's mother lode co-packing subsidiary , positioning the combined business unit to be a preeminent local provider to the fast-growing wine and ready-to-drink ( rtd ) cocktail segments . available information our executive offices are located at 1001 se water ave , suite 390 , portland , oregon 97214. our telephone number is ( 971 ) 888-4264 and our internet address is www.eastsidedistilling.com . the information on , or that may be , accessed from our website is not part of this annual report . 24 story_separator_special_tag have historically not been generated from operations but rather from short-term credit in the form of extended payment terms from suppliers , long-term debt and equity financings . for the years ended december 31 , 2018 and 2017 , we incurred net losses of approximately $ 9 million and $ 5.3 million respectively and has an accumulated deficit of approximately $ 27.1 million as of december 31 , 2018. we have been dependent on raising capital from debt and equity financings to meet our needs for cash flow used in operating activities . for the year ended december 31 , 2018 , we raised approximately $ 23.3 million from cash flow from financing activities to meet cash flows used in operating activities . story_separator_special_tag we have a $ 3,000,000 credit facility under a credit and security agreement secured by all of our bulk whiskey , bourbon and rye inventory held in third-party storage facilities ( “ specified inventory ” ) , this secured credit facility allows us to borrow 80 % of the value of the specified inventory we are able to purchase with this line . we must maintain a current market value of specified inventory of at least 120 % of the loan balance . at december 31 , 2018 , we had less than $ 100,000 available under the secured credit facility . at december 31 , 2018 , we had approximately $ 10.6 million of cash on hand with a positive working capital of $ 21.1 million . while the company has successfully raised equity and debt funding in the recent past , management is also heavily focused on meeting the ongoing operating cash needs by generating improved operating cash flow , primarily through rapidly increased sales , improved profit margins and controlling expenses . we believe the recent addition of craft canning ( in january 2019 ) will further help achieve this key objective . the company 's cash flow related information for the years 2018 and 2017 are as follows : replace_table_token_4_th operating activities in 2018 , the net loss plus non-cash adjustments resulted in cash used of approximately $ 6.4 million compared to using $ 3.6 million in 2017. total operating cash used was $ 13.9 million compared to $ 7.0 million in 2017. the increase in cash usage can be primarily attributed to a $ 7.0 million inventory build , a $ 0.7 million accounts receivable build and a $ 0.2 million increase in accrued liabilities partially offset by a $ 0.7 million increase in accounts payable . in 2017 , the inventory build was $ 3.0 million , prepaid expenses increased $ 0.6 million and accrued liabilities decreased $ 0.6 million which was partially offset by a $ 0.8 million increase in accounts payable . investing activities cash used in investing activities consists primarily of purchases of property and equipment . we incurred capital expenditures of $ 1.3 million and $ 657,477 in 2018 and 2017 respectively . the increase in cash usage can largely be attributed to further buildout and equipment additions to our primary production facility in milwaukie , oregon . financing activities during 2018 , operating losses and working capital needs were primarily funded by $ 8.7 million in proceeds from the sale of common stock , $ 3.6 million in proceeds from the issuance of notes , $ 2.9 million net proceeds from the secured credit facility and warrant exercises of $ 8 million , partially offset by principal payments on notes of $ 0.5 million . 27 common stock financings in november 2018 , we completed an underwritten public offering of 1,235,000 shares of our common stock at a public offering price of $ 6.50 per share . the gross proceeds to us from this offering were $ 8.03 million , before deducting underwriting discounts and commissions and other estimated offering expenses . on december 19 , 2018 , the underwriters exercised their option to purchase an additional 185,250 shares to cover over-allotments , which resulted in additional gross proceeds to us of $ 1,184,625 before deducting offering expenses . public and private warrant exercises during 2018 , we issued 1,345,978 shares of common stock at $ 5.40 per share in connection with the exercise of warrants for cash proceeds of $ 7,268,281 , and 500,000 shares of common stock at $ 5.40 per share in connection with the exercise of warrants in exchange for a reduction in outstanding note principal of $ 2,700,000. these warrants were part of our publicly-traded warrants . in addition , we issued 120,000 shares of common stock at $ 5.40 per share in connection with the exercise of underwriter warrants . the warrants were a part of a unit consisting of one share of common stock and one common stock warrant exercisable at $ 5.40 per share for additional gross proceeds of $ 648,000. as of year-end , there were no remaining publicly-traded warrants outstanding . during 2018 , we issued 110,334 shares of common stock at an average price of $ 5.32 per share in connection with the exercise of certain private warrants outstanding for cash proceeds of $ 587,004. promissory notes during 2018 , we completed a private offering of promissory notes and accompanying warrants in which we raised $ 5,000,000 in gross proceeds . the promissory notes bear interest at 8 % per annum , payable monthly on the last day of the month . the entire amount of principal and any accrued and unpaid interest is due and payable on may 1 , 2021. for every $ 100,000 in principal , we issued to the investor 10,000 common stock purchase warrants , for a total of 500,000 warrants . the warrants , which are identical to the warrants that were issued our public offering that was consummated in august 2017 , are exercisable through august 10 , 2022 , unless earlier redeemed , at an exercise price of $ 5.40 , subject to adjustment for stock splits , reverse splits and other similar recapitalization events . as discussed above , during the third quarter of 2018 , all of these warrants were exercised in exchange for a reduction of $ 2,700,000 in the principal note amount . 28 critical accounting policies the discussion and analysis of the company 's financial condition and results of operations is based upon its consolidated financial statements , which have been prepared in accordance with united states . generally accepted accounting principles .
| we believe we further enhanced our platform through formula development with our internal blending and distilling team , marketing and branding with sandstrom partners , and additions to our production capabilities to enable us to accelerate our new product development activities . we believe we have built a strong foundation and are well positioned to continue our expansion efforts and drive further successes for shareholders . while we have become the third largest spirits company in oregon , there remains substantial opportunities and we expect oregon , our largest market , to continue to grow at a strong pace . in addition , as we continue to work closely with major distributors and focus on our new redneck riviera product , we expect both our national and international sales efforts to increase at a rapid pace and become a larger percentage of our overall business . we also expect our new canning abilities to further add to our growth in 2019. year ended december 31 , 2018 compared to the year ended december 31 , 2017 our sales for the year ended december 31 , 2018 increased to $ 7,204,302 , or approximately 90 % , from $ 3,791,382 for the year ended december 31 , 2017. replace_table_token_2_th increases in wholesale sales and co-packing primarily contributed to our overall 2018 sales increase . wholesale sales benefited from the rapid launch of the new redneck riviera whiskey product as well as continued strong sales traction within the pacific northwest . our private label business experienced increased activity from our new canning capabilities , and also benefited from our periodic bulk spirit sales during the year . lastly , our retail operations experienced a decline due to a reduction in event activities and relocation of a store . 25 excise taxes , customer programs and incentives for the year ended december 31 , 2018 decreased to $ 1,080,792 , or approximately 8 % , from $ 1,180,386 for the comparable 2017 period . the decrease is attributable to the lower federal excise tax rate implemented during the year , which was offset by higher customer programs and incentives due to our increased distribution . during
| 14,636 |
when a railcar sales contract contains multiple performance obligations , we allocate the transaction price to the performance obligations based on the relative stand-alone selling price of the performance obligation determined at the inception of the contract based on an observable market price , expected cost plus margin or market price of similar items . the variable purchase patterns of our customers and the timing of completion , delivery and customer acceptance of railcars may cause our revenues and income from operations to vary substantially each quarter , which will result in significant fluctuations in our quarterly results . cost of sales our cost of sales includes the cost of raw materials such as aluminum and steel , as well as the cost of finished railcar components , such as castings , wheels , truck components and couplers , and other specialty components . our cost of sales also includes labor , utilities , freight , manufacturing depreciation and other operating costs . as we diversified , although we strove to reduce manufacturing costs at our manufacturing facilities , our cost of sales has been negatively impacted by production inefficiencies and idle capacity as we entered into new railcar markets and invested in diversifying our product portfolio . a portion of the contracts covering our backlog at december 31 , 2019 are fixed-rate contracts . therefore , if material costs were to increase , we will likely not be able to pass on these increased costs to our customers . we manage material price increases by locking in prices where possible . operating loss operating loss represents revenues less cost of sales , gain on sale of railcars available for lease , gain on sale of facility , selling , general and administrative expenses , and restructuring and impairment charges . story_separator_special_tag $ 5.95 compared to diluted net loss per share of $ 3.26 for the year ended december 31 , 2018. liquidity and capital resources our primary sources of liquidity are our cash and cash equivalent balances on hand . on april 12 , 2019 , our credit agreement with bank of america n.a . was terminated and replaced by a new credit and security agreement ( the bmo credit agreement ) with bmo harris bank n.a . ( bmo ) . as of december 31 , 2019 , we had no borrowings under the bmo credit facility and $ 4.0 million in outstanding letters of credit under the bmo credit facility . as of december 31 , 2018 , we had no borrowings under our prior revolving credit facility and $ 4.8 million in outstanding letters of credit under such facility . on april 16 , 2019 , freightcar america leasing 1 , llc , an indirect wholly-owned subsidiary of the company , entered into a credit agreement ( the m & t credit agreement ) with m & t bank n.a . as of december 31 , 2019 , freightcar america leasing 1 , llc had $ 10.2 million in outstanding debt under the m & t credit agreement , which was collateralized by leased railcars with a carrying value of $ 16.5 million . see note 12 , revolving credit facilities to our consolidated financial statements included in this report . our restricted certificates of deposit and restricted cash equivalents balance was $ 4.2 million and $ 5.0 million as of december 31 , 2019 and 2018 , respectively , and consisted of certificates of deposit used to collateralize standby letters of credit with respect to performance guarantees and to support our workers ' compensation insurance claims . the standby letters of credit outstanding as of december 31 , 2019 are scheduled to expire at various dates through january 17 , 2021. we adopted asu 2016-02 , the new lease accounting standard , effective january 1 , 2019 and also entered into an amendment of the lease of our shoals , alabama facility to extend the term . on october 1 , 2019 , we exercised the termination provisions of the lease for our roanoke manufacturing facility by notifying the lessor of our intent to terminate our lease as of march 31 , 2020. see note 3 , leases to our consolidated financial statements included in this report for additional information and discussion . based on our current level of operations and known changes in planned volume based on our backlog , we believe that our cash balances and operating cash flows together with amounts available under our revolving credit facilities , will be sufficient to meet our expected liquidity needs . our long-term liquidity is contingent upon future operating performance and our ability to continue to meet financial covenants under our revolving credit facilities and any other indebtedness . we may also require additional capital in the future to fund working capital as demand for railcars increases , payments for contractual obligations , organic growth opportunities , including new plant and equipment and development of railcars , joint ventures , international expansion and acquisitions , and these capital requirements could be substantial . based upon our operating performance and capital requirements , we may , from time to time , be required to raise additional funds through additional offerings of our common stock and through long-term borrowings . there can be no assurance that long-term debt , if needed , will be available on terms attractive to us , or at all . furthermore , any additional equity financing may be dilutive to stockholders and debt financing , if available , may involve restrictive covenants . our failure to raise capital if and when needed could have a material adverse effect on our results of operations and financial condition . we historically provided pension and retiree welfare benefits to certain salaried and hourly employees upon their retirement . story_separator_special_tag on october 15 , 2019 , we notified retirees and affected active employees that we would terminate medical benefits offered to retirees and their dependents effective january 1 , 2020. see note 14 , employee benefit plans to our consolidated financial statements included in this report for additional information . benefits under our pension plan are now frozen and will not be impacted by increases due to future service and compensation 13 increases . the most significant assumptions used in determining our net periodic benefit costs are the discount rate used on our pension obligations and expected return on pension plan assets . as of december 31 , 2019 , our benefit obligation under our defined benefit pension plan was $ 53.3 million , which exceeded the fair value of plan assets by $ 6.5 million . we made no contributions to our defined benefit pension plan during 2019 and are not required to make any contributions to our defined benefit pension plan in 2020. funding levels will be affected by future contributions , investment returns on plan assets , growth in plan liabilities and interest rates . cash flows the following table summarizes our net cash provided by or used in operating activities , investing activities and financing activities for the years ended december 31 , 2019 and 2018 : replace_table_token_2_th operating activities . our net cash used in operating activities reflects net income or loss adjusted for non-cash charges and changes in operating assets and liabilities . cash flows from operating activities are affected by several factors , including fluctuations in business volume , contract terms for billings and collections , the timing of collections on our contract receivables , processing of bi-weekly payroll and associated taxes , and payments to our suppliers . as some of our customers accept delivery of new railcars in train-set quantities , variations in our sales lead to significant fluctuations in our operating profits and cash from operating activities . we do not usually experience business credit issues , although a payment may be delayed pending completion of closing documentation . our net cash used in operating activities for the year ended december 31 , 2019 was $ 19.0 million compared to $ 31.6 million for the year ended december 31 , 2018. our net cash used in operating activities for the year ended december 31 , 2019 reflects changes in working capital , including decreases in inventory and accounts receivable due to the timing of deliveries of railcars and the related cash receipts . our net cash used in operating activities for the year ended december 31 , 2019 includes non-cash goodwill impairment charges of $ 21.5 million and loss from the sale of railcars available for lease of $ 7.3 million . our net cash used in operating activities for the year ended december 31 , 2018 reflects our net loss of $ 40.6 million , increases in accounts receivable of $ 10.6 million , increases in inventories of $ 16.3 million to meet current production needs which were partially offset by increases in accounts and contractual payables of $ 10.7 million , non-cash depreciation and amortization of $ 12.1 million and the net $ 10.0 million decrease in deferred tax assets as a result of our valuation allowance . investing activities . net cash provided by investing activities for the year ended december 31 , 2019 was $ 31.0 million and represented the $ 18.0 million maturity of u.s. treasury securities and certificates of deposit ( net of purchases ) , $ 17.3 million proceeds from sale of railcars available for lease and the $ 1.3 million maturity of restricted certificates of deposit ( net of purchases ) which were partially offset by capital expenditures of $ 5.6 million . net cash used in investing activities for the year ended december 31 , 2018 was $ 10.9 million and primarily represented the $ 37.3 million cost of railcars available for lease which was partially offset by the $ 25.4 million maturity of u.s. treasury securities and certificates of deposit ( net of purchases ) and the $ 0.8 million maturity of restricted certificates of deposit ( net of purchases ) . financing activities . net cash provided by financing activities was $ 9.2 million for the year ended december 31 , 2019 , compared to net cash used in financing activities of $ 0.1 million for the year ended december 31 , 2018. net cash provided by financing activities for the year ended december 31 , 2019 primarily represented $ 10.2 million of proceeds from our line of credit borrowings ( collateralized by leased railcars ) which were partially offset by $ 0.9 million of deferred financing costs related to our new credit facilities . 14 capital expenditures our capital expenditures were $ 5.6 million for the year ended december 31 , 2019 compared to $ 2.2 million for the year ended december 31 , 2018. during the year ended december 31 , 2018 , we also acquired $ 17.2 million of equipment as part of the net settlement of our acquisition of navistar 's business at our shoals facility . we anticipate capital expenditures during 2020 to be in the range of $ 10 million to $ 12 million . our total obligations under our mexico joint venture agreement is up to $ 25 million over several years through a combination of assets and cash . critical accounting policies we prepare our consolidated financial statements in accordance with accounting principles generally accepted in the united states . the preparation of our financial statements requires us 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 sales and expenses during the reporting period . significant estimates include long-lived assets , goodwill , pension and postretirement benefit assumptions , the valuation reserve on net deferred tax assets , warranty accrual and contingencies and litigation . actual results could differ from those estimates .
| manufacturing segment selling , general and administrative expenses for the year ended december 31 , 2019 were $ 7.0 million compared to $ 8.0 million for the year ended december 31 , 2018 primarily due to lower allocated costs of $ 0.3 million , decreases in salaries and wages of $ 0.1 million , decreases in employee severance of $ 0.1 million and decreases in third-party sales commissions of $ 0.2 million . corporate and other selling , general and administrative expenses were $ 31.3 million for the year ended december 31 , 2019 compared to $ 21.0 million for the year ended december 31 , 2018. the increase in corporate and other selling , general and administrative expenses for the year ended december 31 , 2019 was primarily due to $ 7.5 million recorded as part of a settlement agreement reached with one of our customers to settle all claims related to a prior year 's commercial dispute . corporate and other selling , general and administrative expenses for the year ended december 31 , 2019 also reflected increases in incentive compensation of $ 2.1 million , research and development costs of $ 0.9 million and legal fees of $ 0.7 million , partially offset by a $ 2.0 million decrease in stock-based compensation compared to the year ended december 31 , 2018. loss on sale of railcars available for lease loss on sale of railcars available for lease for the year ended december 31 , 2019 was $ 7.3 million and represented the loss on sale of leased railcars with a net book value of $ 24.5 million . we did not sell any railcars available for lease during the year ended december 31 , 2018. gain on termination of postretirement benefit plan on october 15 , 2019 , the company notified retirees and affected active employees that it would terminate medical benefits offered to retirees of the company and their dependents effective
| 14,637 |
the decrease in cash used for investing activities in fiscal 2016 compared to fiscal 2015 and fiscal 2014 was primarily due to a reduction in our capital expenditures . in fiscal 2016 , 2015 , and 2014 , our capital expenditures were $ 297.9 million , $ 367.0 million , and $ 646.7 million , respectively . our capital expenditures include costs to build , expand , and improve distribution centers , open new stores and improve existing stores , and for various other expenditures related to our information technology systems , buying , and corporate offices . the decrease in capital expenditures in fiscal 2016 compared to fiscal 2015 was primarily due to the completion in 2015 of the rollout of new point of sale equipment in our stores and construction of a distribution center . the decrease in capital expenditures in fiscal 2015 compared to fiscal 2014 was primarily due to the purchase in september 2014 of our new york buying office and the construction of two distribution centers . we opened 93 , 90 , and 95 new stores in fiscal 2016 , 2015 , and 2014 , respectively . 24 our capital expenditures over the last three years are set forth in the table below : replace_table_token_9_th we are forecasting approximately $ 400 million in capital expenditures for fiscal year 2017 to fund costs for fixtures and leasehold improvements to open new ross and dd 's discounts stores , the upgrade or relocation of existing stores , investments in information technology systems , and for various other expenditures related to our stores , distribution centers , buying and corporate offices . we expect to fund capital expenditures with available cash and cash flows from operations . we had no purchases of investments in fiscal 2016 and 2014 and $ 0.7 million of purchases of investments in fiscal 2015 . we had proceeds from investments of $ 1.7 million , $ 1.1 million , and $ 12.0 million in fiscal 2016 , 2015 , and 2014 , respectively . financing activities net cash used in financing activities was $ 916.1 million , $ 898.7 million , and $ 460.4 million in fiscal 2016 , 2015 , and 2014 , respectively . during fiscal 2016 , 2015 , and 2014 , our liquidity and capital requirements were provided by available cash and cash flows from operations and in fiscal 2014 , the issuance of our unsecured 3.375 % senior notes due september 2024 ( `` 2024 notes '' ) . in september 2014 , we issued $ 250 million of unsecured 2024 notes and used most of the net proceeds of approximately $ 246 million to purchase our new york buying office building for $ 222 million and the remaining $ 24 million for other general corporate purposes . we repurchased 11.6 million , 13.7 million , and 14.8 million shares of common stock for aggregate purchase prices of approximately $ 700 million , $ 700 million , and $ 550 million in fiscal 2016 , 2015 , and 2014 , respectively . we also acquired 0.7 million , 1.3 million , and 1.1 million shares in fiscal 2016 , 2015 , and 2014 , respectively , of treasury stock from our employee stock equity compensation programs , for aggregate purchase prices of approximately $ 43.3 million , $ 68.9 million , and $ 39.0 million during fiscal 2016 , 2015 , and 2014 , respectively . in february 2017 , our board of directors approved a new , two-year $ 1.75 billion stock repurchase program through fiscal 2018. on february 28 , 2017 , our board of directors declared a quarterly cash dividend of $ 0.1600 per common share , payable on march 31 , 2017 . our board of directors declared cash dividends of $ 0.1350 per common share in march , may , august , and november 2016 , cash dividends of $ 0.1175 per common share in february , may , august , and november 2015 , and cash dividends of $ 0.1000 per common share in february , may , august , and november 2014 . during fiscal 2016 , 2015 , and 2014 , we paid dividends of $ 214.6 million , $ 192.3 million , and $ 168.5 million , respectively . short-term trade credit represents a significant source of financing for merchandise inventory . trade credit arises from customary payment terms and trade practices with our vendors . we regularly review the adequacy of credit available to us from all sources and expect to be able to maintain adequate trade credit , bank lines , and other credit sources to meet our capital and liquidity requirements , including lease payment obligations , in 2017 . in april 2016 , we entered into a new $ 600 million unsecured revolving credit facility . this credit facility , which replaced our previous $ 600 million unsecured revolving credit facility , expires in april 2021 and contains a $ 300 million sublimit for issuance of standby letters of credit ( subject to increase in proportion to any increase in the size of the credit facility ) . the facility also contains an option allowing us to increase the size of our revolving credit facility by up to an additional $ 200 million , with the agreement of the lenders . interest on any borrowings under this facility is based on libor plus 25 an applicable margin ( currently 100 basis points ) and is payable quarterly and upon maturity . the revolving credit facility may be extended , at our option , for up to two additional one year periods , subject to customary conditions . as of january 28 , 2017 , we had no borrowings or standby letters of credit outstanding on this facility and our $ 600 million credit facility remains in place and available . the revolving credit facility is subject to a financial leverage ratio covenant . as of january 28 , 2017 , we were in compliance with this covenant . story_separator_special_tag we estimate that existing cash balances , cash flows from operations , bank credit lines , and trade credit are adequate to meet our operating cash needs and to fund our planned capital investments , common stock repurchases , and quarterly dividend payments for at least the next twelve months . contractual obligations the table below presents our significant contractual obligations as of january 28 , 2017 : replace_table_token_10_th 1 we have a $ 97.5 million liability for unrecognized tax benefits that is included in other long-term liabilities on our consolidated balance sheets . this liability is excluded from the schedule above as the timing of payments can not be reasonably estimated . ²our new york buying office building is subject to a 99-year ground lease . senior notes . as of january 28 , 2017 , we had outstanding unsecured 3.375 % senior notes due september 2024 with an aggregate principal amount of $ 250 million . interest on the 2024 notes is payable semi-annually . as of january 28 , 2017 , we also had outstanding two series of unsecured senior notes in the aggregate principal amount of $ 150 million , held by various institutional investors . the series a notes totaling $ 85 million are due in december 2018 and bear interest at a rate of 6.38 % . the series b notes totaling $ 65 million are due in december 2021 and bear interest at a rate of 6.53 % . borrowings under these senior notes are subject to certain financial covenants , including interest coverage and other financial ratios . as of january 28 , 2017 , we were in compliance with those covenants . the 2024 notes , series a , and series b senior notes are all subject to prepayment penalties for early payment of principal . off-balance sheet arrangements operating leases . we currently lease all but three of our store locations , three warehouse facilities , and a buying office . in addition , we have a ground lease related to our new york buying office . except for certain leasehold improvements and equipment , these leased locations do not represent long-term capital investments . two of the warehouses are in carlisle , pennsylvania with leases expiring in 2018 and 2019 . the third warehouse is in fort mill , south carolina , with a lease expiring in 2019. the leases for the two carlisle , pennsylvania warehouses contain renewal provisions . we currently lease approximately 87,000 square feet of office space for our los angeles buying office . the lease term for this facility expires in 2017 and contains renewal provisions . 26 purchase obligations . as of january 28 , 2017 we had purchase obligations of approximately $ 2,146 million . these purchase obligations primarily consist of merchandise inventory purchase orders , commitments related to construction projects , store fixtures and supplies , and information technology service , transportation , and maintenance contracts . standby letters of credit and collateral trust . we use standby letters of credit outside of our revolving credit facility in addition to a funded trust to collateralize our insurance obligations . as of january 28 , 2017 and january 30 , 2016 , we had $ 11.6 million and $ 15.3 million , respectively , in standby letters of credit outstanding and $ 56.6 million and $ 56.4 million , respectively , in a collateral trust . the standby letters of credit are collateralized by restricted cash and the collateral trust consists of restricted cash , cash equivalents , and investments . trade letters of credit . we had $ 26.5 million and $ 32.0 million in trade letters of credit outstanding at january 28 , 2017 and january 30 , 2016 , respectively . effects of inflation or deflation . we do not consider the effects of inflation or deflation to be material to our financial position and results of operations . other critical accounting policies the preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts . these estimates and assumptions are evaluated on an ongoing basis and are based on historical experience and on various other factors that management believes to be reasonable . we believe the following critical accounting policies describe the more significant judgments and estimates used in the preparation of our consolidated financial statements and are not intended to be a comprehensive list of all of our accounting policies . in many cases , the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles ( “ gaap ” ) , with no need for management 's judgment in their application . there are also areas in which management 's judgment in selecting one alternative accounting principle over another would not produce a materially different result . see our audited consolidated financial statements and notes thereto under item 8 in this annual report on form 10-k , which contain accounting policies and other disclosures required by gaap . merchandise inventory . our merchandise inventory is stated at the lower of cost ( determined using a weighted average basis ) or net realizable value . we purchase inventory that can either be shipped to stores or processed as packaway merchandise with the intent that it will be warehoused and released to stores at a later date . the timing of the release of packaway inventory to our stores is principally driven by the product mix and seasonality of the merchandise , and its relation to the company 's store merchandise assortment plans . as such , the aging of packaway varies by merchandise category and seasonality of purchase , but typically packaway remains in storage less than six months . packaway inventory accounted for approximately 49 % , 47 % , and 45 % of total inventories as of january 28 , 2017 , january 30 , 2016 , and january 31 , 2015 , respectively . merchandise inventory includes acquisition , processing , and storage costs related to packaway inventory .
| although our strategies and store expansion program contributed to sales gains in fiscal 2016 , 2015 , and 2014 , we can not be sure that they will result in a continuation of sales growth or in an increase in net earnings . cost of goods sold . cost of goods sold in fiscal 2016 increased $ 596.8 million compared to the prior year mainly due to increased sales from the opening of 87 net new stores during the year and a 4 % increase in sales from comparable stores . cost of goods sold as a percentage of sales for fiscal 2016 decreased approximately 55 basis points from the prior year primarily due to a 35 basis point increase in merchandise gross margin , a 10 basis point decrease in buying expenses , and lower distribution and occupancy costs by five basis points each . cost of goods sold in fiscal 2015 increased $ 638.9 million compared to the prior year mainly due to increased sales from the opening of 84 net new stores during the year and a 4 % increase in sales from comparable stores . cost of goods sold as a percentage of sales for fiscal 2015 decreased approximately five basis points from the prior year primarily due to a 45 basis point increase in merchandise gross margin and five basis points of occupancy leverage . this improvement was partially offset by a 35 basis point increase in distribution expenses related to infrastructure investments and higher freight costs of 10 basis points . 22 we can not be sure that the gross profit margins realized in fiscal 2016 , 2015 , and 2014 will continue in future years . selling , general and administrative expenses . for fiscal 2016 , selling , general and administrative expenses ( “ sg & a ” ) increased $ 151.7 million compared to the prior year , mainly due to increased store operating costs reflecting the opening of 87 net new stores during the year . sg & a as a percentage of sales for fiscal 2016 increased by approximately 15
| 14,638 |
for that channel , domestically- produced , customizable upholstery is extremely viable and preferred by the end consumers who shop at retailers in that channel . executive summary- fiscal 20 20 results of operations consolidated net sales for fiscal 2020 decreased by 10.6 % or $ 72.7 million as compared to fiscal 2019 , from $ 683.5 million to $ 610.8 million due primarily to $ 47.2 million or 12.2 % sales decreases in the home meridian segment , and to a lesser extent in the hooker branded segment and domestic upholstery of $ 16.7 million and $ 10.9 million decreases respectively , partially offset by $ 2.1 million net sales increase in all other . sales volume loss in all three segments as well as one week less of sales compared to fiscal 2019 led to the net sales decreases . the shorter fiscal year accounted for approximately 18 % of the 10 % net sales decline . consolidated net income for fiscal 2020 decreased by $ 22.8 million or 57.2 % as compared to the prior year , due to lower earnings on sales decline . as discussed in greater detail under “ results of operations ” below , the following are the primary factors that affected our consolidated fiscal 2020 operations : ■ gross profit . consolidated gross profit decreased in absolute terms and as a percentage of net sales due primarily to decreased gross profit in the home meridian segment and to a lesser extent in the hooker branded segment as the result of lower net sales and higher product costs in both segments as well as increased customer chargebacks and inventory storage and handling costs in our home meridian segment . domestic upholstery segment gross profit decreased in absolute terms but increased as a percentage of net sales . consolidated gross profit decrease was partially offset by increased gross profit in all other and the absence of $ 500,000 casualty loss related to the damage caused by torrential rains at one of our warehouse facilities recorded in the fiscal 2019 . ■ selling and administrative expenses . consolidated selling and administrative ( s & a ) expenses decreased in absolute terms due to decreased selling expenses and compensation costs resulting from lower net sales and profitability in all three segments , partially offset by increased salaries and wages in the home meridian segment incurred during the sourcing transition in asia and increased selling expenses in all other on higher net sales . s & a expenses increased as a percentage of net sales due to lower sales . 21 ■ intangible asset amortization expense . consolidated intangible amortization expense on the home meridian and shenandoah acquisition-related intangible assets was unchanged compared to fiscal 2019 . ■ operating income . in fiscal 2020 , consolidated operating income decreased by $ 30.0 million as compared to fiscal 2019 , from $ 52.7 million to $ 22.7 million , or from 7.7 % to 3.7 % as a percentage of net sales due to the factors discussed above and in greater detail in the analysis below . review fiscal 2020 marked a difficult year in our 95-year history . sales were soft going into fiscal 2020 ( which began on february 4 , 2019 ) due to a stock-market downturn in late 2018 and a 35-day us government shutdown which lasted until january 2019. these soft sales were exacerbated by the fact that many of our customers were already in an over-inventoried position in an effort to get ahead of the threatened increase in tariffs on january 1 , 2019. tariffs on finished goods and component parts imported from china created a chain reaction of higher product costs , higher selling prices to our customers , inventory disruptions and the increased costs and management resources needed to shift production to factories in non-tariff countries . also in late 2018 , we encountered an unexpected quality issue with the home meridian segment 's largest customer which had an adverse impact on sales and earnings for much of fiscal 2020. hooker branded segment net sales decreased by $ 16.7 million or 9.4 % in fiscal 2020 , due to a net sales decrease in the hooker casegoods division while partially offset by a moderate net sales increase in the hooker upholstery division . we increased prices by about 10 % on products imported from china to help offset the 25 % tariff which was enacted in may 2019 as well as higher freight costs . however , reduced incoming orders and lower sales volume driven by lower consumer demand and softness in home furnishings sales at retail diminished the effect of pricing adjustment and led to a 11 % net sales decrease in the hooker casegoods division . in an effort to grow sales and support our traditional business as well as our competence in advantaged distribution channels , we continued to bring new introductions and expanded some of our best-selling collections . given the soft sales in the hooker branded segment , we were relatively pleased to maintain hooker casegoods profitability close to the same level as compared to prior year . hooker upholstery division had a low single-digit net sales increase due to broader and well-received product offerings which led to a 9 % increase of incoming orders , as well as favorable product mix with more higher-priced sofas and sectionals sold . home meridian segment net sales decreased by $ 47.2 million or 12.2 % in fiscal 2020. the sales decline with one single major customer represented nearly 80 % of the home meridian segment 's sales decrease , along with about $ 4 million in unexpected chargebacks from the same customer . sales declines with traditional furniture chains represented the remaining sales decrease . profitability was impacted by the sales decline as well as a write-down of excess inventory , related to the quality issue , to market value ( a $ 1 million charge ) and higher demurrage and warehousing costs to store surplus inventory . story_separator_special_tag the segment was more impacted by the imposition of tariffs , with an approximately $ 7 million negative impact to its gross margin . the majority of home meridian 's sales are shipped from our asian manufacturing partners directly to our retailers rather than stocked in our us warehouses . this fact prevented us from building inventory levels before the 25 % tariff became effective . additionally , due to their size and the price points at which they operate , many of the home meridian segment 's customers are more sensitive to price and we were not able to recover enough of the excess tariffs by raising prices . on a more positive note , home meridian 's hospitality and e-commerce sales continued to grow . samuel lawrence hospitality 's ( “ slh ” ) net sales increased over 40 % in fiscal 2020. however , excess tariffs and higher freight costs adversely impacted its profitability in this year . samuel lawrence furniture ( “ slf ” ) implemented a mixing warehouse program in vietnam and offered more options for sourcing products . its incoming orders increased 9.7 % in the fourth quarter of fiscal 2020 and finished the year with backlog 25 % higher than prior year end . prime resources international ( “ pri ” ) had a difficult year with the majority of home meridian 's operating loss coming from this division . consequently , new division leadership is in the process of rebuilding pri 's business . its incoming orders picked up by $ 3 million in january and it finished the year with backlog 5.5 % higher than prior year end . additionally , home meridian has also launched a new division , hmidea , which offers better-quality , ready-to-assemble furniture to mass marketers and e-commerce customers . about $ 500,000 in start-up costs were incurred for hmidea during the year . these costs were partially offset by a $ 520,000 gain on the settlement of our pension plan in the third quarter of fiscal 2020 , recorded in other income . domestic upholstery segment net sales decreased by $ 10.9 million or 10.2 % due to sales decline in all three domestic upholstery manufacturing divisions driven by decreased unit volume . bradington-young and sam moore experienced reduced incoming orders throughout fiscal 2020 , while shenandoah 's incoming orders picked up in the fourth quarter and finished the year with backlog nearly 40 % higher than prior year end . our domestic manufacturing divisions benefitted from lower material costs , lower employee benefits expense , and cost reductions implemented by management . however , favorable material costs have leveled out and we do not expect additional decreases in the near future . these positives were partially offset by higher direct labor costs and operating inefficiencies due to lower production volume . despite decreased net sales , domestic upholstery segment reported a solid operating income margin of 6.9 % for fiscal 2020 , compared to 7.1 % in the prior year . 22 all other reported $ 2.1 million or 20.7 % net sales increase due to strong sales in the h contract division . h contract incoming orders increased approximately 15 % in fiscal 2020 and finished the year with backlog 28 % higher than the prior year end . growing business in the senior living facilities and contract markets , broader product offerings and favorable product mix with heavier weighting of imported casegoods significantly improved h contract net sales and profitability . despite the imposition of 25 % tariffs on goods imported from china and soft retail demand that continued through the year , we were pleased that our hooker branded segment , domestic upholstery segment and all other all reported solid operating income to mitigate the $ 7.2 million operating loss in the home meridian segment . although our overall results were down significantly , some business units showed improvement , or flat performance , which helped mitigate particularly poor performance in other business units . our cash and cash equivalents increased approximately $ 25 million to $ 36 million as of february 2 , 2020 principally due to the collection of accounts receivable and reduced inventory levels for lower than expected sales . despite disappointing operating results in fiscal 2020 , we generated $ 41.4 million in cash from operating activities and $ 1.4 million from proceeds received on a note receivable from the sale of a former distribution facility . in addition , in the third quarter of fiscal 2020 , our board of directors approved the increase of our quarterly dividend to $ 0.16 per share , an increase of 6.7 % or $ 0.01 per share , for a total of $ 0.61 per share or about $ 7.2 million paid in fiscal 2020 , an increase of 7.0 % or $ 0.04 per share , compared to the prior year . we also paid $ 6.4 million in term loan principal and interest and $ 5.1 million for capital expenditures to expand our manufacturing facilities . our total assets and liabilities as of february 2 , 2020 each increased approximately $ 40 million due to the adoption of topic 842 , leases on the first day of the current fiscal year . with an aggregate $ 25.7 million available under our existing revolver to fund working capital , strategic inventory management and cautious capital expenditures , we are confident in our current financial condition . we believe we have financial resources to weather the expected short-term impacts of covid-19 ; however , we have limited insight into the extent to which our business may be impacted by covid-19 , and there are many unknowns including how long and how severely we 'll be impacted . an extended and severe impact may materially and adversely affect our sales , earnings and liquidity . story_separator_special_tag earnings , as well as better spending control , partially offset by higher salaries and wages , and higher benefits expenses due to medical claims .
| ■ home meridian segment net sales decreased $ 47.2 million or 12.2 % driven by sales volume loss with one major customer and with traditional furniture chains , as well as higher than expected chargebacks from the same major customer , partially offset by continued net sales growth in the samuel lawrence hospitality business and the absence of a large quality-related return in the fourth quarter of fiscal 2019. asp decreased due to customer mix in the traditional channels . ■ domestic upholstery net sales decreased $ 10.9 million or 10.2 % due to unit volume loss in all three domestic upholstery manufacturing divisions as the result of continued low incoming orders through fiscal 2020. asp increased in all three divisions , especially with increased sales of higher-priced bradington-young and shenandoah products , however , it was not sufficient to mitigate the volume loss . ■ all other net sales increased $ 2.1 million or 20.7 % due to a double-digit net sales increase at h contract . 24 because we report on a fiscal year that ends on the sunday closest to january 31 st of each year , the 2019 fiscal year was one week longer than the comparable 2020 fiscal year . the following table presents average net sales per shipping day in thousands for the 2020 and 2019 fiscal years : replace_table_token_6_th gross profit replace_table_token_7_th consolidated gross profit decreased in absolute terms by $ 33.0 million and decreased as a percentage of net sales from 21.5 % to 18.7 % as compared to fiscal 2019 . ■ hooker branded segment gross profit decreased both in absolute terms and as a percentage of net sales due to lower net sales and increased product costs , which were attributable to excess tariffs and higher freight costs , partially offset by price increases which helped mitigate the tariff impact as well as the absence of a $ 500,000 casualty loss we recognized in fiscal 2019 . ■ home meridian segment gross profit decreased both in absolute terms and as a percentage of net sales due primarily to net sales decline and
| 14,639 |
the price of crude oil has experienced significant volatility over the last five years , with the price per barrel of west texas intermediate ( “ wti ” ) crude rising from a low of $ 27 in february 2016 to a high of $ 76 in october 2018 , then , in 2020 , most recently dropping below $ 20 per barrel due in part to reduced global demand stemming from the recent global covid-19 outbreak . a prolonged period of low market prices for oil and natural gas , or further declines in the market prices for oil and natural gas , due to the covid-19 outbreak , governmental responses thereto , decreased demand in connection therewith , or other factors will likely adversely affect camber 's business , financial condition and liquidity and its ability to meet obligations , targets or financial commitments and could ultimately lead to restructuring or filing for bankruptcy . reserves camber 's estimated total net reserves as of march 31 , 2020 were 98,805 bbls of crude oil and ngl combined and 207,823 mcf of natural gas which translates to an equivalent of 133,442 boe . there were no probable reserves as of march 31 , 2020. these reserves are based on the oil and gas benchmark prices to estimate year-end petroleum reserves and values using u.s. securities and exchange commission guidelines from the modernization of oil and gas reporting and on the quantities of oil , natural gas and ngls , which , by analysis of geoscience and engineering data , can be estimated with reasonable certainty to be economically producible from a given date forward from known reservoirs under existing economic conditions , operating methods and government regulations prior to the time at which contracts providing the rights to operate expire , unless evidence indicates that renewal is reasonably certain , regardless of whether deterministic or probabilistic methods are used for the estimation . reserves and economic evaluation of all of our properties are prepared on a well-by-well basis . the accuracy of the reserve estimates is a function of the quality and quantity of available data ; interpretation of that data ; accuracy of various mandated economic assumptions ; and judgement of the independent reserve engineer . 56 using the average monthly crude oil price of $ 55.80 per bbl and natural gas price of $ 2.30 per mcf for the twelve months ended march 31 , 2020 , our estimated discounted future net cash flow ( “ pv-10 ” ) before tax expenses for our total proved reserves was approximately $ 0.964 million . total reserve value at march 31 , 2020 represents a decrease of approximately $ 1.11 million or 54 % from a year earlier using the same sec pricing and reserves methodology . the decrease is primarily due to the september 2018 closing and natural declines in the production of our oil and gas properties . oil , natural gas and ngl prices are market driven and have been historically volatile , and we expect that future prices will continue to fluctuate due to supply and demand factors , seasonality , and geopolitical and economic factors , and such volatility can have a significant impact on our estimates of proved reserves and the related pv-10 value . the reserves as of march 31 , 2020 were determined in accordance with standard industry practices and sec regulations by the licensed independent petroleum engineering firm of graves & co. consulting llc . oil , natural gas and ngl reserve estimates require significant judgments in the evaluation of all available geological , geophysical , engineering and economic data . the data for a given field may change substantially over time as a result of numerous factors including , but not limited to , additional development activity , production history , projected future production , economic assumptions relating to commodity prices , operating expenses , severance and other taxes , capital expenditures and remediation costs and these estimates are inherently uncertain . if estimates of proved reserves decline , our depreciation , depletion and amortization ( “ dd & a ” ) rate will increase , resulting in a decrease in net income . a decline in estimates of proved reserves could also cause us to perform an impairment analysis to determine if the carrying amount of oil and natural gas properties exceeds fair value and could result in an impairment charge , which would reduce earnings . although these hydrocarbon quantities have been determined in accordance with industry standards , they are prepared using the subjective judgments of the independent engineers , and may actually be more or less . oil and gas revenue during the year ended march 31 , 2020 , our net crude oil sales volumes decreased to 5,399 bbls from 8,846 bbls , a 39 % decrease over the previous fiscal year . the production decrease is primarily related to the sale of a significant amount of our assets which closed in september 2018 , as described above under “ item 1. business - general - mid-continent acquisition and divestiture ” . major expenditures the table below sets out the major components of our operating and corporate expenditures for the years ended march 31 , 2020 and 2019 : replace_table_token_4_th ( a ) other capitalized costs include title related expenses and tangible and intangible drilling costs . 57 market conditions and commodity prices our financial results depend on many factors , particularly the price of natural gas and related natural gas liquids , and crude oil and our ability to market our production on economically attractive terms . commodity prices are affected by many factors outside of our control , including changes in market supply and demand , which are impacted by weather conditions , inventory storage levels , basis differentials and other factors . story_separator_special_tag as a result , we can not accurately predict future commodity prices and , therefore , we can not determine with any degree of certainty what effect increases or decreases in these prices will have on our production volumes or revenues . in addition to production volumes and commodity prices , finding and developing sufficient amounts of natural gas and crude oil reserves at economical costs are critical to our long-term success . we expect prices to remain volatile for the remainder of the year . for information about the impact of realized commodity prices on our natural gas and crude oil and condensate revenues , refer to “ results of operations ” below . story_separator_special_tag statements included herein unless it can close the viking merger , which is the company 's current plan , which merger is anticipated to close in the third calendar quarter of 2020 , and which required closing date is currently september 30 , 2020 , but can be extended until up to december 31 , 2020 , pursuant to certain conditions in the merger agreement . pursuant to the december 31 , 2019 redemption agreement , we entered into a new unsecured promissory note in the amount of $ 1,539,719 with lineal , evidencing the repayment of the prior july 2019 lineal note , together with additional amounts loaned by camber to lineal through december 31 , 2019 ; and loaned lineal an additional $ 800,000 , which was evidenced by an unsecured promissory note in the amount of $ 800,000 , entered into by lineal in favor of the company on december 31 , 2019. the december 2019 lineal note and lineal note no . 2 , accrue interest , payable quarterly in arrears , beginning on march 31 , 2020 and continuing until december 31 , 2021 , when all interest and principal is due , at 8 % and 10 % per annum ( 18 % upon the occurrence of an event of default ) , respectively . the december 2019 lineal note and lineal note no . 2 are unsecured . such loans are described in greater detail above under “ item 1. business - general - lineal acquisition and divestiture ” . on february 3 , 2020 , the company and discover entered into a stock purchase agreement pursuant to which discover purchased 525 shares of series c preferred stock ( described in greater detail below under “ item 5. market for registrant 's common equity , related stockholder matters and issuer purchases of equity securities – description of capital stock- preferred stock series c redeemable convertible preferred stock ” ) for $ 5 million , at a 5 % original issue discount to the $ 10,000 face value of such preferred stock . on february 3 , 2020 , we advanced the $ 5.0 million raised from the sale of series c preferred stock to discover to viking , and viking provided us , among other things , a $ 5 million , 10.5 % secured promissory note . on june 25 , 2020 , we advanced an additional $ 4.2 million to viking in consideration for , among other things , an additional 10.5 % secured promissory note in the principal amount of $ 4.2 million . the secured notes accrue interest at the rate of 10.5 % per annum , payable quarterly and are due and payable on february 3 , 2022. the notes include standard events of default , including certain defaults relating to the trading status of viking 's common stock and change of control transactions involving viking . the secured notes can be prepaid at any time with prior notice as provided therein , and together with a pre-payment penalty equal to 10.5 % of the original amount of the secured notes . the secured notes are secured by a security interest , para passu with the other investors in viking 's secured note offering ( subject to certain pre-requisites ) in viking 's 70 % ownership of elysium and 100 % of ichor energy holdings , llc . additionally , pursuant to a separate security and pledge agreement , viking provided the company a security interest in the membership , common stock and or ownership interests of all of viking 's existing and future , directly owned or majority owned subsidiaries , to secure the repayment of the secured notes . as additional consideration for providing the secured notes , viking assigned us 30 % of elysium , which is fully or partially assignable back to viking upon termination of the merger , under certain circumstances as discussed in greater detail above under “ item 1. business - general – viking plan of merger ” . on june 22 , 2020 , the company and discover entered into a stock purchase agreement pursuant to which discover purchased 630 shares of series c preferred stock for $ 6 million ( of which $ 4.2 million of such funds were subsequently loaned to viking as discussed above ) . 61 plan of operations as described in greater detail above under “ item 1. business – general - viking plan of merger ” , on february 3 , 2020 , the company entered into a merger agreement with viking , which contemplates viking merging with and into a newly-formed wholly-owned subsidiary of the company , with viking surviving the merger as a wholly-owned subsidiary of the company .
| lease operating expenses can be divided into the following categories : costs to operate and maintain camber 's crude oil and natural gas wells , the cost of workovers and lease and well administrative expenses . operating and maintenance expenses include , among other things , pumping services , salt-water disposal , equipment repair and maintenance , compression expense , lease upkeep and fuel and power . workovers are operations to restore or maintain production from existing wells . each of these categories of costs individually fluctuates from time to time as camber attempts to maintain and increase production while maintaining efficient , safe and environmentally responsible operations . the costs of services charged to camber by vendors , fluctuate over time . 59 in total , the overall lease operating expenses decreased $ 2.4 million or 83 % for the current period , compared to the prior year 's period due primarily to the sale of a significant amount of our assets which closed in september 2018 , as described above under “ part i – item 1. business - general - mid-continent acquisition and divestiture ” . severance and property taxes . severance and property taxes decreased by $ 0.1 million or 89 % for the current period , compared to the prior year 's period due primarily to the sale of a significant amount of our assets which closed in september 2018 , as described above under “ item 1. business - general - mid-continent acquisition and divestiture ” . depreciation , depletion , amortization and accretion ( “ dd & a ” ) . dd & a related to proved oil and gas properties is calculated using the unit-of-production method . under full cost accounting , the amortization base is comprised of the total capitalized costs and total future investment costs associated with all proved reserves . dd & a decreased for the current year as compared to the prior year period by $ 0.5 million or 96 % primarily related to the decrease in total depreciable assets due to the sale of a significant amount of our assets which closed in september 2018 , as described above
| 14,640 |
we earn trailing commission revenues ( a commission that is paid over time , such as 12 ( b ) -1 fees ) on mutual funds and variable annuities held by clients of our advisors . trailing commissions are recurring in nature and are earned based on the current market value of investment holdings in trail-eligible assets . advisory revenues . advisory revenues represent fees charged on our corporate ria platform to clients of our advisors based on the value of advisory assets . advisory fees are typically billed to clients quarterly , in advance , and are recognized as revenue ratably during the quarter . the value of the assets in the advisory account on the billing date determines the amount billed , and accordingly , the revenues earned in the following three month period . the majority of our accounts are billed using values as of the last business day of each calendar quarter . generally , the advisory revenues collected on our corporate ria platform range from 0.5 % to 3.0 % of the underlying assets . 38 in addition , we support independent rias who conduct their advisory business through separate entities by establishing their own ria ( `` independent rias '' ) pursuant to the investment advisers act of 1940 , rather than using our corporate ria . the assets held under these investment advisory accounts custodied with lpl financial llc ( “ lpl financial ” ) are included in our advisory and brokerage assets , net new advisory assets and advisory assets under custody metrics . the advisory revenue generated by an independent ria is earned by the independent ria , and accordingly is not included in our advisory revenue . however , there are administrative fees charged to independent rias including custody and clearing fees , based on the value of assets within these advisory accounts . the administrative fees collected on our independent ria platform vary , and can reach a maximum of 0.6 % of the underlying assets . furthermore , we support certain financial advisors at broker-dealers affiliated with insurance companies through our customized advisory platforms and charge fees to these advisors based on the value of assets within these advisory accounts . asset-based revenues . asset-based revenues are comprised of fees from cash sweep programs , our sponsorship programs with financial product manufacturers , and omnibus processing and networking services . pursuant to contractual arrangements , uninvested cash balances in our advisors ' client accounts are swept into either insured deposit accounts at various banks or third-party money market funds , for which we receive fees , including administrative and record-keeping fees based on account type and the invested balances . in addition , we receive fees from certain financial product manufacturers in connection with sponsorship programs that support our marketing and sales-force education and training efforts . our omnibus and networking revenues represent fees paid to us in exchange for administrative and record-keeping services that we provide to clients of our advisors . omnibus revenues , paid to us by mutual fund manufacturers , are generally correlated to assets served while networking revenues , paid to us by mutual fund and annuity product manufacturers , are correlated to the number of positions we administer . transaction and other revenues . revenues earned from transactions and other services provided primarily consist of transaction fees and ticket charges , subscription fees , individual retirement account ( `` ira '' ) custodian fees , contract and license fees , conference fees and other client account fees . we charge fees to our advisors and their clients for executing certain transactions in brokerage and fee-based advisory accounts . we earn subscription fees for various services provided to our advisors and on ira custodial services that we provide for their client accounts . we charge monthly administrative fees to our advisors and fees to advisors who subscribe to our reporting services . we charge fees to financial product manufacturers for participating in our training and marketing conferences . in addition , we host certain advisor conferences that serve as training , sales and marketing events , for which we charge an attendance fee . other revenue . other revenue includes marketing re-allowance fees from certain financial product manufacturers , primarily those who offer alternative investments , mark-to-market gains or losses on assets held by us for the advisors ' non-qualified deferred compensation plan and our model portfolios , revenues from our retirement partner program , as well as interest income from client margin accounts and cash equivalents , net of operating interest expense and other items . our operating expenses production expenses . production expenses are comprised of the following : base payout amounts that are earned by and paid out to advisors based on commission and advisory revenues earned on each client 's account ( collectively , commission and advisory revenues earned are referred to as gross dealer concessions , or `` gdc '' ) ; production bonuses earned by advisors based on the levels of commission and advisory revenues they produce ; the recognition of share-based compensation expense from stock options and warrants granted to advisors and financial institutions based on the fair value of the awards at each interim reporting period ; a mark-to-market gain or loss on amounts designated by advisors as deferred commissions in a non-qualified deferred compensation plan at each interim reporting period ; and brokerage , clearing and exchange fees . our production payout ratio is calculated as production expenses excluding brokerage , clearing and exchange fees , divided by gdc . we characterize production payout , which includes all production expenses except brokerage , clearing and exchange fees , as either gdc sensitive or non-gdc sensitive . base payout amounts and production bonuses earned by and paid to advisors are gdc sensitive because they are variable and highly correlated 39 to the level of our commission and advisory revenues in a particular reporting period . story_separator_special_tag non-gdc sensitive payout includes share-based compensation expense from stock options and warrants granted to advisors and financial institutions based on the fair value of the awards at each interim reporting period , and mark-to-market gains or losses on amounts designated by advisors as deferred commissions in a non-qualified deferred compensation plan . non-gdc sensitive payout is correlated to market movement in addition to the value of our stock . we believe that production payout , viewed in addition to , and not in lieu of , our production expenses , provides useful information to investors regarding our payouts to advisors . the following table is presented as an illustration of how the aforementioned production expenses impact our production payout ratio for the year ended december 31 , 2012 : base payout rate 84.16 % production based bonuses 2.68 % gdc sensitive payout 86.84 % non-gdc sensitive payout 0.22 % total payout ratio 87.06 % see `` results of operations '' for comparative 2011 and 2010 periods ' analyses of production payout ratio . compensation and benefits expense . compensation and benefits expense includes salaries and wages and related employee benefits and taxes for our employees ( including share-based compensation ) , as well as compensation for temporary employees and consultants . general and administrative expenses . general and administrative expenses include promotional fees , occupancy and equipment , communications and data processing , regulatory fees , travel and entertainment , professional services and other expenses . we host certain advisor conferences that serve as training , sales and marketing events . depreciation and amortization expense . depreciation and amortization expense represents the benefits received for using long-lived assets . those assets represent significant intangible assets established through our acquisitions , as well as fixed assets which include internally developed software , hardware , leasehold improvements and other equipment . restructuring charges . restructuring charges represent expenses incurred as a result of our 2011 consolidation of uvest financial services group , inc. ( `` uvest '' ) and our 2009 consolidation of mutual service corporation , associated financial group , inc. , associated securities corp. , associated planners investment advisory , inc. and waterstone financial group , inc. ( collectively referred to herein as the “ affiliated entities ” ) . 40 how we evaluate our business we focus on several business and key financial metrics in evaluating the success of our business relationships and our resulting financial position and operating performance . our key metrics as of and for the years ended december 31 , 2012 , 2011 and 2010 are as follows : replace_table_token_10_th ( 1 ) advisors are defined as those independent financial advisors and financial advisors at financial institutions who are licensed to do business with the company 's broker-dealer subsidiary . during 2012 , an institutional client 's parent company consolidated its operations onto the broker-dealer platform of an affiliate within its organization , which resulted in a loss of 181 advisors . excluding the attrition of the institutional client 's advisors , we added 686 net new advisors during the twelve months ended december 31 , 2012 . we consolidated the operations of uvest with lpl financial which resulted , as expected , in the attrition of 146 advisors during the year ended december 31 , 2011. excluding attrition from the integration of the uvest platform , we added 549 net new advisors during the twelve months ended december 31 , 2011 . ( 2 ) advisory and brokerage assets are comprised of assets that are custodied , networked and non-networked and reflect market movement in addition to new assets , inclusive of new business development and net of attrition . such totals do not include the market value of certain other client assets as of december 31 , 2012 , comprised of $ 46.4 billion held in retirement plans supported by advisors licensed with lpl financial , $ 12.0 billion of trust assets supported by concord capital partners ( `` concord '' ) , and $ 59.1 billion of assets supported by fortigent holdings company , inc. data regarding certain of these assets was not available at december 31 , 2011 . in addition , reported retirement plan assets represent assets that are custodied with 26 third-party providers of retirement plan administrative services who provide reporting feeds . we estimate the total assets in retirement plans served to be between $ 70.0 billion and $ 85.0 billion . if we receive reporting feeds in the future from providers for whom we do not currently receive feeds , we intend to include and identify such additional assets in this metric . during the fourth quarter of 2012 , we began receiving a reporting feed from one such provider , which accounted for $ 4.1 billion of the $ 4.8 billion increase to $ 46.4 billion from the $ 41.6 billion of assets reported at september 30 , 2012 . ( 3 ) in reporting our financial and operating results for the year ended december 31 , 2012 , we have renamed this business metric as advisory assets under custody ( formerly known as advisory assets under 41 management ) . advisory assets under custody are comprised of advisory assets under management in our corporate ria platform , and independent ria assets in advisory accounts custodied by us . see `` results of operations '' for a tabular presentation of advisory assets under custody . ( 4 ) advisory assets under custody , insured cash account balances and money market account balances are components of advisory and brokerage assets . ( 5 ) represents net new advisory assets consisting of funds from new accounts and additional funds deposited into existing advisory accounts that are custodied in our fee-based advisory platforms .
| the increase in alternative investments is reflective of investor preferences for diversification and opportunities to earn return outside of the traditional equity and fixed income markets . income producing alternative strategies continue to grow in popularity as the needs of investors shift toward diversification . insurance commission revenues increased on improved universal life and whole life sales , which was partially offset by a decrease in term life sales . the continued low interest rate environment , which has reduced investor demand for fixed annuities and fixed income securities , is reflected in the decline in commission revenues for these two products . commission revenues increased by $ 133.6 million , or 8.2 % , for 2011 compared to 2010 . in 2011 , the product mix reflects the volatility of the financial markets in the latter half of the year as retail investors sought protection from downside risk while maintaining their upside potential with investment products such as variable annuities with minimum guarantee options . mutual fund commission revenues were bolstered by increasing levels of trail-based commissions due to strong growth of the underlying assets . the increase in alternative investments is reflective of more product availability and investor preferences for diversification . insurance commissions declined as term life insurance experienced reduced sales . 51 advisory revenues the following table summarizes the activity within our advisory assets under custody for the periods ended december 31 , 2012 , 2011 and 2010 ( in billions ) : replace_table_token_17_th net new advisory assets for the years ended december 31 , 2012 , 2011 and 2010 have a limited impact on advisory fee revenue for those respective periods . rather , net new advisory assets are a primary driver of future advisory fee revenue . net new advisory assets were $ 10.9 billion for the year ended december 31 , 2012 as a result of strong new business development coupled with the continued shift by our existing advisors toward more advisory business . advisory fee revenue
| 14,641 |
to date , we have not received approval for the sale of any product candidates in any market and , therefore , have not generated any revenues from our product candidates . financial overview story_separator_special_tag line-height : 12pt ; font-style : normal ; font-variant : normal ; font-weight : normal ; text-transform : none ; padding-top : 3pt ; padding-right : 0pt ; padding-left : 4px ; padding-bottom : 3pt ; margin-top : 0pt ; margin-right : 0pt ; margin-left : 0pt ; margin-bottom : 0pt '' > year ended december 31 , ( $ in thousands ) 2011 2010 change research and development $ 57,083 $ 12,910 $ 44,173 342 % research and development expenses for the year ended december 31 , 2011 increased by $ 44.2 million from the year ended december 31 , 2010. the increase was primarily due to a one-time $ 17.5 million non-cash expense related to our channel partnership arrangement with intrexon , including our associated license of intrexon technology , along with increased clinical costs of $ 14.4 million , of which $ 10.5 million related to the phase 3 palifosfamide study , $ 3.4 million related to dna based therapeutics projects and $ 0.5 million related to other clinical trials , increased preclinical costs of $ 2.8 million , increased manufacturing activity of $ 3.9 million to replenish drug supplies and further develop palifosfamide , increased salary and employee- related costs of $ 5.3 million resulting from additional headcount and other costs of $ 0.3 million . exclusive of the one-time $ 17.5 million non-cash expense related to our channel partnership arrangement with intrexon , we expect our research and development expenses to increase , as compared to prior periods , as we continue our pivotal phase 3 palifosfamide and other studies for palifosfamide , dna therapeutics , indibulin and darinaparsin . general and administrative expenses . general and administrative expenses during the years ended december 31 , 2011 and 2010 were as follows : year ended december 31 , ( $ in thousands ) 2011 2010 change general and administrative $ 14,984 $ 11,636 $ 3,348 29 % general and administrative expenses for the year ended december 31 , 2011 increased by $ 3.3 million from the year ended december 31 , 2010. the increase was primarily due to increased consulting fees of $ 2.1 million and increased salary and employee-related costs of $ 1.6 million , offset by certain cost reductions of ( $ 0.4 ) million . the increased general and administrative activity was related to increased support for clinical studies . we expect our general and administrative expenses to increase moderately to support increased activity in clinical studies . other income ( expense ) . other income ( expense ) during the years ended december 31 , 2011 and 2010 were as follows : replace_table_token_5_th 38 the increase in other income ( expense ) from the year ended december 31 , 2011 compared to the year ended december 31 , 2010 was due primarily to the change in the fair value of liability-classified warrants , which yielded a gain of $ 7,583 thousand in 2011 as compared to a loss of $ 8,889 in 2010. the change in liability-classified warrants is attributable to the decrease in our stock price , decrease in remaining term and a decrease in volatility . additional changes are attributable to increased state tax refunds and decreased interest rates on invested funds . results of operations for the fiscal year ended december 31 , 2010 versus december 31 , 2009 revenues . we had no revenues for the years ended december 31 , 2010 and 2009. research and development expenses . research and development expenses during the years ended december 31 , 2010 and 2009 were as follows : year ended december 31 , ( $ in thousands ) 2010 2009 change research and development $ 12,910 $ 4,556 $ 8,354 183 % research and development expenses increased by $ 8.4 million from the year ended december 31 , 2009 to the year ended december 31 , 2010. the increase is primarily attributable to increased clinical trial costs of $ 5.9 million , with $ 4.9 million related to the pivotal phase 3 palifosfamide trial and $ 1.0 million related to other trials , increased manufacturing costs of $ 1.8 million to produce drugs for the pivotal phase 3 palifosfamide trial along with other trials , increased employee costs of $ 0.5 million from additional headcount and $ 0.2 million other . we expect our research and development expenses to continue to increase as our pivotal phase 3 palifosfamide trial and other studies for palifosfamide , darinaparsin and indibulin continue to enroll patients . general and administrative expenses . general and administrative expenses during the years ended december 31 , 2010 and 2009 were as follows : year ended december 31 , ( $ in thousands ) 2010 2009 change general and administrative $ 11,636 $ 7,567 $ 4,069 54 % general and administrative expenses increase by $ 4.1 million from the year ended december 31 , 2009 to the year ended december 31 , 2010. the increase is primarily attributable to $ 0.8 million in employee costs , $ 1.3 million in stock based compensation , $ 0.6 million in consulting costs , $ 0.8 million in legal expense , $ 0.5 million in licenses and $ 0.1 million other . we expect our general and administrative expenses to increase moderately due to increased activity to support the new clinical studies . other income ( expense ) . other income ( expense ) during the years ended december 31 , 2010 and 2009 were as follows : replace_table_token_6_th the increase in other income from the year ended december 31 , 2009 to the year ended december 31 , 2010 was primarily due to the change in the fair value of liability-classified warrants , yielded a loss of $ 8,889 thousand in 2010 as compared to a gain of $ 4,461 thousand in 2009 . story_separator_special_tag ( see note 9 to the financial statements , warrants , for a discussion on the reclassification of certain warrants from stockholders equity to liabilities on january 1 , 2009 ) . additionally , we received approximately $ 733 thousand under the qualifying therapeutic discovery project grant . 39 liquidity and capital resources as of december 31 , 2011 , we had approximately $ 104.7 million in cash and cash equivalents , compared to $ 60.4 million in cash and cash equivalents as of december 31 , 2010. taking into account our receipt of approximately $ 49.1 million in net proceeds from our january 2012 public offering of common stock , and given our current plans for development of our product candidates , we anticipate that our cash resources will be sufficient to fund our operations into the second half of 2013. however , changes may occur that would consume our existing capital prior to that time , including the scope and progress of our research and development efforts and changes in governmental regulation . actual costs may ultimately vary from our current expectations , which could materially impact our use of capital and our forecast of the period of time through which our financial resources will be adequate to support our operations . we commenced the picasso 3 pivotal trial for iv palifosfamide early in the third quarter of 2010. we have estimated the sufficiency of our cash resources based in part on this trial design and our current timing expectations for enrollment in the study , which may change based on the progression of enrollment . we also assumed responsibility for the advancement of two product candidates in the clinic under our exclusive channel partnership with intrexon in the first quarter of 2011 , and we expect that the costs associated with these and additional product candidates will increase the level of our overall research and development expenses significantly going forward . although all human clinical trials are expensive and difficult to design and implement , we believe that due to complexity , costs associated with clinical trials for synthetic biology products are greater than the corresponding costs associated with clinical trials for small molecule candidates . in addition to increased research and development costs , we have added , and will continue to add , headcount to support our exclusive channel partnership endeavors and opened an office in germantown , maryland , which will add to our general and administrative expenses going forward . although our forecasts for expenses and the sufficiency of our capital resources takes into account our plans to develop the intrexon products , we assumed development responsibility for these products on january 6 , 2011 and the actual costs associated therewith may be significantly in excess of forecasted amounts . in addition to these factors , our actual cash requirements may vary materially from our current expectations for a number of other factors that may include , but are not limited to , changes in the focus and direction of our development programs , competitive and technical advances , costs associated with the development of our product candidates , our ability to secure partnering arrangements , and costs of filing , prosecuting , defending and enforcing our intellectual property rights . if we exhaust our capital reserves more quickly than anticipated , regardless of the reason , and we are unable to obtain additional financing on terms acceptable to us or at all , we will be unable to proceed with development of some or all of our product candidates on expected timelines and will be forced to prioritize among them . we expect that we will need additional financing to support our long-term plans for clinical trials and new product development . we expect to finance our cash needs through the sale of equity securities , strategic collaborations and or debt financings , or through other sources that may be dilutive to existing stockholders . there can be no assurance that we will be able to obtain funding from any of these sources or , if obtained , what the terms of such funding ( s ) may be , or that any amount that we are able to obtain will be adequate to support our working capital requirements until we achieve profitable operations . we have no current committed sources of additional capital . recently , capital markets have experienced a period of instability that may severely hinder our ability to raise capital within the time periods needed or on terms we consider acceptable , if at all . if we are unable to raise additional funds when needed , we may not be able to continue development and regulatory approval of our products , or we could be required to delay , scale back or eliminate some or all our research and development programs . 40 recent financing transactions january 2012 public offering on january 20 , 2012 , we entered into an underwriting agreement with j. p. morgan securities llc , as representative of the several underwriters named therein , relating to the issuance and sale of 9,650,000 shares of our common stock . the price to the public in the offering was $ 5.20 per share , and the underwriters agreed to purchase the shares from us pursuant to the underwriting agreement at a purchase price of $ 4.888 per share . under the terms of the underwriting agreement , we also granted the underwriters an option , exercisable for 30 days , to purchase up to an additional 1,447,500 shares of common stock at a purchase price of $ 4.888 per share . the offering was made pursuant to our effective registration statement on form s-3 ( registration statement no . 333-177793 ) previously filed with the sec , and a prospectus supplement thereunder .
| we may conduct multiple clinical trials for each product . as we obtain results from trials , we may elect to discontinue or delay clinical trials for certain products in order to focus our resources on more promising products or indications . completion of clinical trials may take several years or more , and the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product . it is not unusual for pre-clinical and clinical development of each of these types of products to require the expenditure of substantial resources . we estimate that clinical trials of the type generally needed to secure new drug approval are typically completed over the following timelines : clinical phase estimated completion period phase i 1 2 years phase ii 2 3 years phase iii 2 4 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during clinical development , including , among others , the following : the number of clinical sites included in the trials ; the length of time required to enroll suitable patents ; the number of patients that ultimately participate in the trials ; the duration of patient follow-up to ensure the absence of long-term product-related adverse events ; and the efficacy and safety profile of the product . as a result of the uncertainties discussed above , we are unable to determine the duration and completion costs of our programs or when and to what extent we will receive cash inflows from the commercialization and sale of a product . our inability to complete our programs in a timely manner or our failure to enter into appropriate collaborative agreements could significantly increase our capital requirements and could inversely impact our liquidity . these uncertainties could force us to seek additional , external sources of financing from time-to-time in order to continue with our product development
| 14,642 |
20 the following table sets forth selected financial ratios : replace_table_token_1_th ( 1 ) net interest margin is computed by dividing net interest income for the period by average interest earning assets . ( 2 ) efficiency ratio is computed by dividing noninterest expense by the sum of net interest income and noninterest income . ( 3 ) student loans are guaranteed by the department of education for approximately 98 % of principal and interest and are evaluated separately for alll . such ratios are not measurements under accounting principles generally accepted in the united states ( “ gaap ” ) and are not intended to be a substitute for our balance sheet or income statement prepared in accordance with gaap . income statement analysis story_separator_special_tag interest-earning assets and interest-bearing liabilities . the following table analyzes changes in net interest income attributable to changes in the volume of interest-sensitive assets and liabilities compared to changes in interest rates . nonaccrual loans are included in average loans outstanding . the changes in interest due to both rate and volume have been allocated to changes due to volume and changes due to rate in proportion to the relationship of the absolute dollar amounts of the changes in each ( dollars in thousands ) . replace_table_token_5_th note : the combined effect on interest due to changes in both volume and rate , which can not be separately identified , has been allocated proportionately to the change due to volume and the change due to rate . provision for ( recovery of ) loan losses the amount of the loan loss provision ( recovery ) is determined by an evaluation of the level of loans outstanding , the level of non-performing loans , historical loan loss experience , delinquency trends , underlying collateral values , the amount of actual losses charged to the reserve in a given period and assessment of present and anticipated economic conditions . the level of the allowance reflects changes in the size of the portfolio or in any of its components as well as management 's continuing evaluation of industry concentrations , specific credit risks , loan loss experience , current loan portfolio quality , present economic , political and regulatory conditions . portions of the allowance may be allocated for specific credits ; however , the entire allowance is available for any credit that , in management 's judgment , should be charged off . while management utilizes its best judgment and information available , the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the company 's control , including the performance of the company 's loan portfolio , the economy , changes in interest rates and the view of the regulatory authorities toward loan classifications . 25 the provision for ( recovery of ) loan losses by loan category is presented following ( in thousands ) : replace_table_token_6_th overall the recovery of loan losses recorded for the year ended december 31 , 2015 was due primarily to credit quality improvements and an enhanced model for evaluating inherent losses in the bank 's loan portfolio . improvements in credit quality are provided in the following schedule : replace_table_token_7_th during the fourth quarter of 2015 , we adopted a software solution for the analysis of the allowance for loan losses . while our methodology of evaluating the adequacy of the allowance for loan losses generally did not change , the software is more robust in that it : · allows us to take a more measureable approach to our evaluation of qualitative factors such as economic conditions that may affect loss experience ; and · is widely used by community banks which provides peer data that can be used as a benchmark for comparison to our analysis . in addition to the adoption of the software solution for our analysis , we reviewed the last twenty years of historical loss data for peer banks in virginia to assist us in our evaluation of environmental factors and other conditions that could affect the loan portfolio and the overall adequacy of the allowance for loan losses . the allowance for loan losses at each of the periods presented includes an amount that could not be identified to individual types of loans referred to as the unallocated portion of the allowance . we recognize the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used , and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is too high . we concluded that the unallocated portion of the allowance was acceptable given the continued higher level of classified assets and was within a reasonable range around the estimate of losses . at december 31 , 2015 the allowance for loan losses included an unallocated portion of approximately $ 59,000. discussion of the recovery of loan losses related to specific loan types are provided following : · the recovery of loan losses totaling $ 1,119,000 and $ 3,944,000 for the construction and land development loan portfolio during the years 2014 and 2013 , respectively , was attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio . in both years the general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 7.81 % at december 31 , 2012 to 4.82 % at december 31 , 2013 and to a net recovery of 0.27 % at december 31 , 2014. also contributing to the declines in the general component were declines of approximately $ 1,643,000 and $ 12,945,000 in the outstanding loan balance of this portfolio at december 31 , 2014 and 2013 , respectively . 26 · the recovery of loan losses totaling $ 866,000 for the commercial real estate portfolio in 2015 was also attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio . story_separator_special_tag the general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 0.96 % in 2014 to 0.57 % in 2015. in addition , net charge-offs on this portfolio decreased from $ 1,220,000 in 2014 to $ 90,000 in 2015. also contributing to the declines in the general component were declines of approximately $ 6,179,000 and $ 7,021,000 in the outstanding loan balance of this portfolio at december 31 , 2015 and 2014 , respectively . · the recovery of loan losses totaling $ 1,143,000 for the consumer real estate portfolio in 2015 was also attributable to changes in our assessment of the general component of the allowance for loan losses as it related to this portfolio . the general component allocated to this portfolio declined primarily as a result of declines in the historical loss experience from 1.36 % in 2014 to 0.24 % in 2015. in addition , net charge-offs on this portfolio decreased from $ 562,000 in 2014 to a recovery of $ 215,000 in 2015. noninterest income noninterest income includes service charges and fees on deposit accounts , fee income related to loan origination , gains and losses on sale of mortgage loans and securities held for sale , and rental income primarily on our previous headquarters building . over the last three years the most significant noninterest income item has been gain on loan sales generated by the mortgage company , representing 60 % in 2015 , 56 % in 2014 , and 63 % in 2013 of total noninterest income . noninterest income amounted to $ 10,058,000 in 2015 , $ 7,889,000 in 2014 , and $ 12,255,000 in 2013. noninterest income increased by $ 2,169,000 in 2015 and is primarily attributable to an increase in the gain on sale of loans of $ 1,627,000 , an increase in the gain on sale of investments of $ 216,000 and an increase in rental income of $ 140,000. in 2014 noninterest income decreased by $ 4,366,000 and is primarily attributable to a decrease in the gain on sale of loans of $ 3,295,000 , decrease in gain on sale of investments of $ 427,000 and a decrease in the gain on sale of assets of $ 595,000 , offset by an increase in service charges and fees on deposit accounts of $ 184,000. the changes in the gains on sale of loans were due to changes in the mortgage lending market . our mortgage subsidiary originated mortgage loans totaling $ 262 million in 2013 , $ 160 million in 2014 and $ 207 million in 2015. the mortgage loan market declined overall in 2014 even though interest rates were at historic lows and had a negative impact on our mortgage loan production in that year . while the mortgage loan market improved in 2015 , it was not as robust as in 2013. the decrease in gain on sale of assets was a result of a branch sale completed in the first quarter of 2013 , and the decrease in gain on sale of investments resulted from the sale of investments at a loss during 2014 as we positioned our securities portfolio for rising interest rates . noninterest expense noninterest expense includes all expenses of the company with the exception of interest expense on deposits and borrowings , provision for loan losses and income taxes . some of the primary components of noninterest expense are salaries and benefits , occupancy and equipment costs and expenses related to foreclosed real estate . over the last three years , the most significant noninterest expense item has been salaries and benefits including commissions , representing 52 % , 54 % and 46 % of noninterest expense in 2015 , 2014 and 2013 , respectively . noninterest expense decreased from $ 30,278,000 in 2013 to $ 21,844,000 in 2014 while increasing to $ 24,049,000 in 2015 . 27 the increase in noninterest expense of $ 2,205,000 in 2015 resulted primarily from the write down of assets held for sale of $ 2,649,000 , increased salaries and benefits of $ 161,000 , and increased commissions of $ 390,000 , offset by declines in expense related to foreclosed assets of $ 1,091,000 and other noninterest expense of $ 267,000. the write down of assets held for sale of $ 2,649,000 primarily relates to our previous headquarters building . we evaluate the net realizable value of this asset each quarter normally based on appraised value less selling costs . however , this write down results in a carrying value below appraised value net of selling costs because we believe that it is more representative of its net realizable value in the current commercial real estate market . the decline in expenses related to foreclosed real estate was aided by gains of $ 862,000 offset by write downs of $ 690,000 on the sale of these properties . the decrease in noninterest expense of $ 8,434,000 in 2014 resulted primarily from decreases in expenses related to foreclosed real estate of $ 5,838,000 , salaries and benefits of $ 2,058,000 , and occupancy expense of $ 374,000. income taxes certain items of income and expense are reported in different periods for financial reporting and tax return purposes . the tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit . deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate . we did not recognize any income tax in 2015 , 2014 and 2013 based on our valuation allowance . the net deferred tax asset is included in other assets on the balance sheet . accounting standards codification topic 740 , income taxes , requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “ more likely than not ” standard .
| 21 replace_table_token_2_th pretax income as adjusted increased by $ 925,000 from 2014 to 2015 and decreased by $ 3,514,000 from 2013 to 2014. the reasons for these changes are presented in the following table ( in thousands ) : replace_table_token_3_th the net income available to shareholders for the year ended december 31 , 2015 was positively impacted by the forgiveness of principal and dividends on preferred stock amounting to $ 6,619,000 associated with the rights offering and concurrent standby offering completed in march 2015. net interest income net interest income , which represents the difference between interest earned on interest-earning assets and interest incurred on interest-bearing liabilities , is the company 's primary source of earnings . net interest income can be affected by changes in market interest rates as well as the level and composition of assets , liabilities and shareholders ' equity . net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities . the net yield on interest-earning assets ( “ net interest margin ” ) is calculated by dividing tax equivalent net interest income by average interest-earning assets . generally , the net interest margin will exceed the net interest spread because a portion of interest-earning assets are funded by various noninterest-bearing sources , principally noninterest-bearing deposits and shareholders ' equity . 22 net interest income decreased to $ 12,637,000 in 2015 from $ 13,018,000 in 2014 and $ 15,189,000 in 2013. the decline in net interest income of $ 381,000 in 2015 was a result of declines in both interest income and interest expense . interest income declined by $ 1,074,000 in 2015 primarily due to a decline of 0.24 % ( 24 basis points ) in the yield on average earning assets . while yields on all interest earning assets declined with the exception of federal funds sold , the primary driver was a decline in the yield on loans which declined by 0.61 % ( 61 basis points ) due to a competitive lending environment . interest expense declined by $ 693,000 primarily as a result of a decline in average interest bearing liabilities of $ 34,310,000 , with average interest bearing deposits declining by $ 27,436,000 and average federal home loan bank of atlanta ( “ fhlb ” ) advances declining by $ 6,441,000. the decline in net interest income of $ 2,171,000 in 2014 was also a result of declines in interest income and interest expense . interest income declined by $ 3,036,000 in 2014 primarily as a result of a
| 14,643 |
in the middle of november 2009 , we acquired certifica , inc. , a leader in web measurement in latin america , as part of our global expansion . certifica maintains offices and sales resources in six latin american countries , which we hope will provide a platform to enhance our business in that region . our total revenues have grown to $ 127.7 million during the fiscal year ending december 31 , 2009 from $ 66.3 million during the fiscal year ended december 31 , 2006. by comparison , our total expenses from operations have grown to $ 118.2 million from $ 60.7 million over the same period . the growth in our revenues was primarily the result of : increased sales to existing customers , as a result of our efforts to deepen our relationships with these clients by increasing their awareness of , and confidence in , the value of our digital marketing intelligence platform ; growth in our customer base through the addition of new customers ; the sales of new products to existing and new customers ; growth in sales outside of the u.s. as a result of entering into new international markets as of december 31 , 2009 , we had 1,273 customers , compared to 706 as of december 31 , 2006. we sell most of our products through our direct sales force . as a result of the recent global financial crisis in the credit markets , softness in the housing markets , difficulties in the financial services sector and continuing economic uncertainties , the direction and relative strength of the u.s. and global economies have become increasingly uncertain . during 2008 and 2009 , we experienced a limited number of our current and potential customers ceasing , delaying or reducing renewals of existing subscriptions and purchases of new or additional services and products presumably due to the current economic downturn . further , certain of our existing customers have exited the market due to industry consolidation and bankruptcy in connection with these challenging economic conditions . despite this economic downturn , we continued to add net new customers during each quarter of 2009 , and our existing customers renewed their subscriptions at a rate of over 90 % based on dollars renewed in the year ended december 31 , 2009. however , if these adverse economic conditions continue or further deteriorate , our operating results could be adversely affected . 46 our revenues we derive our revenues primarily from the fees that we charge for subscription-based products and customized projects . we define subscription-based revenues as revenues that we generate from products that we deliver to a customer on a recurring basis . we define project revenues as revenues that we generate from customized projects that are performed for a specific customer on a non-recurring basis . we market our subscription-based products , customized projects and survey services within the comscore media metrix product family , comscore marketing solutions and through our mobile solutions . a significant characteristic of our business model is our large percentage of subscription-based contracts . subscription-based revenues accounted for 86 % of total revenues in 2009 , 83 % of total revenues in 2008 and 79 % of total revenues in 2007. many of our customers who initially purchased a customized project have subsequently purchased one of our subscription-based products . similarly , many of our subscription-based customers have subsequently purchased additional customized projects . historically , we have generated most of our revenues from the sale and delivery of our products to companies and organizations located within the united states . we intend to expand our international revenues by selling our products and deploying our direct sales force model in additional international markets in the future . for the year ended december 31 , 2009 , our international revenues were $ 19.7 million , an increase of $ 3.2 million , or 19 % , compared to 2008. international revenues comprised approximately15 % , 14 % and 12 % of our total revenues for the fiscal years ended december 31 , 2009 , 2008 and 2007 , respectively . we anticipate that revenues from our u.s. customers will continue to constitute the substantial majority of our revenues , but we expect that revenues from customers outside of the u.s. will increase as a percentage of total revenues as we build greater international recognition of our brand and expand our sales operations globally . subscription revenues we generate a significant proportion of our subscription-based revenues from our media metrix product family . products within the media metrix family include media metrix 360 , media metrix 2.0 , plan metrix , world metrix , video metrix and ad metrix . these product offerings provide subscribers with intelligence on digital media usage , audience characteristics , audience demographics and online and offline purchasing behavior . customers who subscribe to our media metrix products are provided with login ids to our web site , have access to our database and can generate reports at anytime . we also generate subscription-based revenues from certain reports and analyses provided through comscore marketing solutions , if that work is procured by customers for at least a nine month period and the customer enters into an agreement to continue or extend the work . through our marketing solutions products , we deliver digital marketing intelligence relating to specific industries , such as automotive , consumer packaged goods , entertainment , financial services , media , pharmaceutical , retail , technology , telecommunications and travel . this marketing intelligence leverages our global consumer panel and extensive database to deliver information unique to a particular customer 's needs on a recurring schedule , as well as on a continual-access basis . our marketing solutions customer agreements typically include a fixed fee with an initial term of at least one year . we also provide these products on a non-subscription basis as described under project revenues below . in addition , we generate subscription-based revenues from survey products that we sell to our customers . story_separator_special_tag in conducting our surveys , we generally use our global internet user panel . after questionnaires are distributed to the panel members and completed , we compile their responses and then deliver our findings to the customer , who also has ongoing access to the survey response data as they are compiled and updated over time . these data include responses and information collected from the actual survey questionnaire and can also include behavioral information that we passively collect from our panelists . if a customer contractually commits to having a survey conducted on a recurring basis , we classify the revenues generated from such survey products as subscription-based revenues . our contracts for survey services typically include a fixed fee with terms that range from two months to one year . 47 project revenues we generate project revenues by providing customized information reports to our customers on a nonrecurring basis through comscore marketing solutions . for example , a customer in the media industry might request a custom report that profiles the behavior of the customer 's active online users and contrasts their market share and loyalty with similar metrics for a competitor 's online user base . if this customer continues to request the report beyond an initial project term of at least nine months and enters into an agreement to purchase the report on a recurring basis , we begin to classify these future revenues as subscription-based . 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 u.s. the preparation of these financial statements requires us to make estimates , assumptions and judgments that affect the amounts reported in our financial statements and the accompanying notes . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . actual results may differ from these estimates . while our significant accounting policies are described in more detail in the notes to our consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , we believe the following accounting policies to be the most critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition we recognize revenues when the following fundamental criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or the services have been rendered , ( iii ) the fee is fixed or determinable , and ( iv ) collection of the resulting receivable is reasonably assured . we generate revenues by providing access to our online database or delivering information obtained from our database , usually in the form of periodic reports . revenues are typically recognized on a straight-line basis over the period in which access to data or reports are provided , which generally ranges from three to 24 months . we also generate revenues through survey services under contracts ranging in term from two months to one year . our survey services consist of survey and questionnaire design with subsequent data collection , analysis and reporting . we recognize revenues on a straight-line basis over the estimated data collection period once the survey or questionnaire design has been delivered . any change in the estimated data collection period results in an adjustment to revenues recognized in future periods . certain of our arrangements contain multiple elements , consisting of the various services we offer . multiple element arrangements typically consist of a subscription to our online database combined with customized services . we have determined that there is not objective and reliable evidence of fair value for any of our services and , therefore , account for all elements in multiple elements arrangements as a single unit of accounting . access to data under the subscription element is generally provided shortly after the execution of the contract . however , the initial delivery of customized services generally occurs subsequent to contract execution . we recognize the entire arrangement fee over the performance period of the last deliverable . as a result , the total arrangement fee is recognized on a straight-line basis over the period beginning with the commencement of the last customized service delivered . generally , our contracts are non-refundable and non-cancelable . in the event a portion of a contract is refundable , revenue recognition is delayed until the refund provisions lapse . a limited number of customers have the right to cancel their contracts by providing us with written notice of cancellation . in the event that a customer cancels its contract , it is not entitled to a refund for prior services , and it will be charged for costs incurred plus services performed up to the cancellation date . 48 fair value measurements we adopted new guidance which establishes fair value measurements and disclosures on january 1 , 2008 , with respect to our financial assets and liabilities , and on january 1 , 2009 , with respect to our nonfinancial assets and liabilities that are recognized and disclosed at fair value on a nonrecurring basis . fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . as such , fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability . we prioritize the inputs used in measuring fair value using the following hierarchy : level 1 observable inputs such as quoted prices in active markets ; level 2 inputs other than the quoted prices in active markets that are observable either directly or indirectly ; level 3 unobservable inputs of which there is little or no market data , which require us to develop our own assumptions .
| total revenues increased by approximately $ 30.2 million during the year ended december 31 , 2008 as compared to the year ended december 31 , 2007. this increase was primarily due to sales to existing customers based in the u.s. totaling $ 85.3 million during 2008 , which was a $ 18.3 million increase compared to 2007. in addition , revenues during the year ended december 31 , 2008 from new u.s. customers were $ 15.6 million , an increase of approximately $ 5.6 million from 2007. revenues from customers outside of the u.s. totaled approximately $ 16.5 million , or approximately 14 % of total revenues , during the year ended december 31 , 2008 , which was an increase of $ 6.4 million from 2007. this increase was due primarily to our ongoing expansion efforts in europe and continued growth in canada . revenues in 2008 also include the impact of the m : metrics acquisition , which was completed at the end of may 2008. during the year ended december 31 , 2008 , our total customer base grew by a net increase of 271 customers from 895 at december 31 , 2007 to 1,166 customers at december 31 , 2008. there was continued revenue growth in both our subscription revenues , which increased by approximately $ 28.6 million from $ 68.8 million during 2007 to $ 97.4 million during 2008 , and , to a lesser extent , our project-based revenues , which increased by $ 1.6 million , from $ 18.4 million during 2007 to $ 20.0 million during 2008. we generally invoice customers on an annual , quarterly or monthly basis , or at the completion of certain milestones , in advance of revenues being recognized . amounts that have been invoiced are recorded in accounts receivable and any unearned revenues are recorded in deferred revenues until the invoice has been collected and the revenue recognized . operating expenses our operating expenses consist of
| 14,644 |
fixed costs a significant portion of our costs are fixed , and therefore we are limited in our ability to reduce these costs in the short term . our most significant costs are employee-related costs and raw materials , which together accounted for approximately 50 % of our total operating costs in 2014. changes in employee-related costs and the price and availability of newsprint can materially affect our operating results . for a discussion of these and other factors that could affect our business , results of operations and financial condition , see “ forward-looking statements ” and “ item 1a — risk factors. ” our strategy our business is operating during a period of transformation for our industry and amidst uneven economic conditions . we anticipate that the challenges we currently face will continue , and we believe that the following elements are key to our efforts to address them . strengthening and extending the new york times brand through our digital offerings our priority is to better position our organization for innovation and growth , while maintaining a robust news-gathering operation capable of continuing to provide the high-quality news and information that sets our company apart . as we continue to face a challenging advertising environment , we are focused on building consumer revenues . our paid digital subscription model has created a meaningful revenue stream that has partially offset declines in our advertising and print circulation businesses . the continued growth in our digital subscriber base in 2014 underscores the willingness of our readers and users to pay for the high-quality journalism we provide across multiple platforms . we aim to continue building our digital subscriber base by increasing engagement and subscription opportunities . in 2014 , we introduced several new digital products , including nyt now , times premier and nyt cooking . the new york times company – p. 23 we believe we have a very powerful and trusted brand that , because of the quality of our journalism , attracts educated , affluent and influential audiences . we are continuing to focus on leveraging our brand and developing and innovating our digital advertising offerings . in early 2014 , we introduced paid posts , our native advertising product , which has contributed to digital advertising growth . we will also continue to build on the strength of the new york times brand to expand our presence into new products , markets and endeavors , such as expanding our conferences business and developing our e-commerce business . as we continue to look for ways to optimize and monetize our products and services , we remain committed to creating quality content and a quality user experience , regardless of the distribution model of news and information . managing our expenses over the past few years , we have focused on realigning our cost base to ensure that we are operating our businesses efficiently , while maintaining our commitment to investing in high-quality content and achieving our long-term strategy . during the fourth quarter of 2014 , we announced workforce reductions that we expect will allow us to strengthen our operating efficiencies while continuing to safeguard the quality of our journalism and invest in our digital products and strategic initiatives . see note 7 of our consolidated financial statements for additional information regarding these workforce reductions . we will endeavor to be diligent in reducing expenses and managing legacy costs going forward , but will also remain prepared to invest where appropriate . strengthening our liquidity we have continued to strengthen our liquidity position and we remain focused on further de-leveraging and de-risking our balance sheet . as of december 28 , 2014 , we had cash , cash equivalents and marketable securities of approximately $ 981 million and total debt and capital lease obligations of approximately $ 650 million . accordingly , our cash , cash equivalents and marketable securities exceeded total debt and capital lease obligations by approximately $ 331 million . we believe our cash balance and cash provided by operations , in combination with other sources of cash , will be sufficient to meet our financing needs over the next 12 months . in september 2013 , we announced the initiation of a quarterly dividend in which both classes of our common stock participate equally . we believe this quarterly dividend allows us to return capital to our stockholders while also maintaining the financial flexibility necessary to continue to invest in our transformation and growth initiatives . given current conditions and continued volatility in advertising revenues , we believe it is in the best interests of the company to maintain a conservative balance sheet and a prudent view of our cash flow going forward . managing our retirement-related costs we remain focused on managing the underfunded status of our pension plans and adjusting the size of our pension obligations relative to the size of our company . our qualified pension plans were underfunded ( meaning the present value of future obligations exceeded the fair value of plan assets ) as of december 28 , 2014 , by approximately $ 264 million , compared with approximately $ 80 million as of december 29 , 2013. the increase was driven by a decline in interest rates and new mortality tables adopted by the society of actuaries during the fourth quarter of 2014 , partially offset by solid returns on pension assets . the net impact to our qualified pension plans resulting from the new mortality assumptions was an increase of $ 104 million . we made contributions of approximately $ 15 million to certain qualified pension plans in 2014 , compared with approximately $ 74 million in 2013. we expect contributions in 2015 to total approximately $ 9.0 million to satisfy minimum funding requirements . we have taken steps over the last few years as part of our ongoing strategy to address our pension obligations , including freezing accruals under the qualified defined benefit pension plans that cover both our non-union employees and those covered by collective bargaining agreements . story_separator_special_tag we have also offered an immediate pension benefit offer in the form of lump-sum payments to certain former employees and we will continue to look for ways to reduce the size of our pension obligations . while we have made significant progress in our liability-driven investment strategy to reduce the funding volatility of our qualified pension plans , the size of our pension plan obligations relative to the size of our current operations will continue to have a significant impact on our reported financial results . we expect to continue to experience volatility in our retirement-related costs , including pension , multiemployer pension and retiree medical costs . in 2014 , our retirement-related costs increased by approximately $ 16 million to $ 37 million ( excluding a $ 9.5 million pension settlement charge in 2014 ) , due principally to a lower assumed return on pension plan assets resulting from a shift in asset mix to bonds from equity , higher retiree medical costs and higher pension interest costs . for 2015 , p. 24 – the new york times company we expect retiree medical costs to be lower due to plan amendments that will reduce the company 's portion of premiums paid . since the first quarter of 2014 , we have provided supplemental non-gaap information on adjusted diluted earnings per share , adjusted operating costs and adjusted operating profit , in each case adjusted to exclude non-operating retirement costs . we believe that this supplemental information helps clarify how the employee benefit costs of our principal plans affect our financial position and how they may affect future operating performance , allowing for a better long-term view of the business . see “ results of operations — non-gaap financial measures ” for more information . the new york times company – p. 25 results of operations overview fiscal years 2014 and 2013 each comprise 52 weeks and fiscal year 2012 comprises 53 weeks . the effect of the 53rd week ( “ additional week ” ) on revenues and operating costs is discussed below . the following table presents our consolidated financial results : replace_table_token_4_th * represents an increase or decrease in excess of 100 % . p. 26 – the new york times company revenues circulation , advertising and other revenues were as follows : replace_table_token_5_th circulation revenues circulation revenues are based on the number of copies of the printed newspaper ( through home-delivery subscriptions and single-copy and bulk sales ) and digital subscriptions sold and the rates charged to the respective customers . total circulation revenues consist of revenues from our print and digital products , including our digital-only subscription packages , e-readers and replica editions . circulation revenues increased in 2014 compared with 2013 primarily due to growth in our digital subscription base and the increase in print home-delivery prices at the times , offset by a reduction in the number of print copies sold . revenues from our digital-only subscription packages , e-readers and replica editions were $ 169.3 million in 2014 compared with $ 149.1 million in 2013 , an increase of 13.5 % . circulation revenues increased in 2013 compared with 2012 primarily due to growth in our digital subscription base and the increase in print home-delivery prices at the times , offset by a reduction in the number of print copies sold and the effect of the additional week in 2012. revenues from our digital-only subscription packages , e-readers and replica editions were $ 149.1 million in 2013 compared with $ 111.7 million in 2012 , an increase of 33.5 % . advertising revenues in the fourth quarter of 2014 , the company reclassified the categories under which advertising revenues are disclosed , including prior period information . display advertising revenue is principally from advertisers promoting products , services or brands , such as financial institutions , movie studios , department stores , american and international fashion and technology in the times and inyt . classified advertising revenue includes line-ads sold in the major categories of real estate , help wanted , automotive and other . other advertising revenue primarily includes creative services fees associated with our branded content studio ; revenue from preprinted advertising , also known as free-standing inserts ; revenue generated from branded bags in which our newspapers are delivered ; and advertising revenues from our news services business . advertising revenues ( print and digital ) by category were as follows : replace_table_token_6_th the new york times company – p. 27 below is a percentage breakdown of 2014 , 2013 and 2012 advertising revenues ( print and digital ) : replace_table_token_7_th advertising revenues are primarily determined by the volume , rate and mix of advertisements . advertising spending , which drives a significant portion of revenues , is sensitive to economic conditions and affected by the continuing transformation of our industry . during 2014 , advertising revenues were affected by the ongoing secular shift from print to digital and continued to reflect changes in the spending patterns and marketing strategies of our advertisers as well as an increasingly complex and fragmented digital advertising marketplace . the market for standard web-based digital display advertising continues to experience challenges , due to an abundance of available advertising inventory and a shift toward automation , including digital advertising networks and exchanges , real-time bidding and other programmatic-buying channels that allow advertisers to buy audience at scale , which has led to downward pricing pressure . in 2014 , total advertising revenues decreased primarily due to lower print advertising revenues across most advertising categories . print advertising revenues , which represented 73 % of total advertising revenues , declined 4.7 % in 2014 compared with 2013 , mainly due to weakness in display advertising . this weakness resulted from reductions primarily in the technology , entertainment and corporate categories . the decline was partially offset by an increase in the financial services , advocacy and international fashion categories .
| operating costs in 2014 increased 5.2 % to $ 1.48 billion , compared with $ 1.41 billion in 2013. the increase was primarily due to investment spending related to the company 's strategic initiatives as well as severance expense associated with workforce reductions , partially offset by efficiencies in print distribution . operating costs before depreciation , amortization , severance and non-operating retirement costs discussed below ( or “ adjusted operating costs , ” a non-gaap measure ) increased 2.5 % to $ 1.33 billion in 2014 , compared with $ 1.30 billion in 2013. the new york times company – p. 21 non-operating retirement costs increased to $ 36.7 million in 2014 from $ 20.8 million in 2013 , driven by lower expected returns on pension assets , higher retiree medical costs and higher pension interest cost . outlook we remain in a challenging business environment , reflecting an increasingly competitive and fragmented landscape , and visibility remains limited . for the first quarter of 2015 , we expect circulation revenues to increase at a rate similar to that of the fourth quarter of 2014 , driven by the benefit from our digital subscription initiatives and from the most recent home-delivery price increase , partially offset by print weakness , particularly in newsstand volume . we expect the number of net new digital subscriber additions in the first quarter of 2015 to be in the mid-30,000s . we expect advertising trends to remain challenging and subject to significant month-to-month volatility . in the first quarter of 2015 , we expect advertising revenues to decrease in the mid-single digits compared with the first quarter of 2014 , in part due to more challenging year-over-year comparisons , particularly in print . we expect digital advertising revenue to increase in the low double digits in that period . we expect other revenues to grow in the mid-single digits in the first quarter of 2015 compared with the first quarter of 2014. we expect operating costs and adjusted operating costs to be roughly flat in the first quarter of 2015 compared with the first
| 14,645 |
burger king restaurants are quick service restaurants that feature flame-grilled hamburgers , chicken and other specialty sandwiches , french fries , soft drinks and other affordably-priced food items . burger king restaurants appeal to a broad spectrum of consumers , with multiple dayparts and product platforms appealing to different customer groups . during its 60 years of operating history , the burger king brand has developed a scalable and cost-efficient qsr hamburger restaurant model that offers guests fast and delicious food . tim hortons restaurants are quick service restaurants with a menu that includes premium blend coffee , tea , espresso-based hot and cold specialty drinks , fresh baked goods , including donuts , timbits , bagels , muffins , cookies and pastries , grilled paninis , classic sandwiches , wraps , soups and more . we generate revenue from four primary sources : ( i ) franchise revenues , consisting primarily of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid by franchisees ; ( ii ) property revenues from properties we lease or subleases to franchisees ; ( iii ) retail sales at company restaurants ; and ( iv ) distribution sales to tim hortons franchisees related to our supply chain operations , including manufacturing , procurement , warehousing and distribution . our business consisted of five segments at december 31 , 2014. our th business is managed in one segment ( th ) and our bk business is managed in four distinct geographic segments : ( 1 ) united states and canada ( bk u.s. and canada ) ; ( 2 ) europe , the middle east and africa ( bk emea ) ; ( 3 ) latin america and the caribbean ( bk lac ) ; and ( 4 ) asia pacific ( bk apac ) . 31 recent events and factors affecting comparability tim hortons acquisition the th statement of operations data for the period of december 12 , 2014 through december 28 , 2014 is summarized as follows : replace_table_token_8_th the selling , general and administrative expenses noted above include : $ 47.6 million of transaction costs associated with the transactions and $ 16.3 million of restructuring costs associated with severance benefits and other severance-related expenses which are further discussed below . the cost of sales noted above included $ 7.4 million of amortization of inventory step-up related to the revaluation of inventory from acquisition accounting , which is further described below . included within transaction costs are $ 24.5 million of share-based compensation expense associated with the accelerated vesting of th equity grants as a result of the transactions . additionally , the results above reflect $ 7.7 million of share-based compensation expense associated with the remeasurement of liability-classified stock options to fair value at december 28 , 2014. in addition to the consolidation of th results of operations for the period specified above , during 2014 we also recorded losses on derivatives , incremental interest expense related to new borrowings and a loss on early extinguishment of debt in connection with the transactions . see results of operations other operating expenses ( income ) , net , interest expense , net and loss on early extinguishment of debt . tim hortons transaction and restructuring costs in connection with the transactions , we incurred certain non-recurring financing , legal and advisory fees totaling $ 108.7 million , including the $ 47.6 million noted above under tim hortons acquisition , all of which was classified as general and administrative expenses . we also incurred non-recurring costs to realign our global structure to better accommodate the needs of the combined business and support successful global growth . in addition , after consummation of the transactions , we implemented a restructuring plan that resulted in work force reductions throughout our th business and as a result incurred incremental costs of approximately $ 16.3 million . the restructuring is part of our on-going cost reduction efforts with the goal of driving efficiencies and creating fiscal resources that will be reinvested into our th business . the non-recurring general and administrative expenses include financing , legal and advisory fees , severance benefits and other compensation costs , and training expenses . we expect to incur additional general and administrative expenses of approximately $ 8.5 million in 2015 associated with these initiatives . 32 amortization of inventory step-up in connection with the transactions , we acquired inventory that is recorded at fair value at the time of the acquisition . we recorded a charge equal to the difference between the fair value and historical carrying value as the underlying product is sold . based on management judgment , these non-cash charges are not indicative of underlying business trends or the company 's operational performance . the acquisition accounting adjustment to inventory resulted in an increase in cost of sales of approximately $ 7.4 million as those products were sold to customers during the period subsequent to the transactions . global portfolio realignment project during 2011 , we initiated a project to realign our global restaurant portfolio by selling our burger king company restaurants to franchisees , which we refer to as our refranchising initiative , and establishing strategic partnerships to accelerate development through joint ventures and master franchise and development agreements ( the global portfolio realignment project ) . as a result of the global portfolio realignment project , we incurred $ 26.2 million and $ 30.2 million of general and administrative expenses consisting of professional fees and severance in 2013 and in 2012 , respectively . we completed our global portfolio realignment project , including our refranchising initiative , in 2013. as such , we did not incur any expenses related to the global portfolio realignment project during 2014. we continue to own and operate 52 burger king restaurants in miami , florida , which we expect to use as a base for the testing of new products and systems . story_separator_special_tag as a result of the global portfolio realignment project , our bk restaurant revenues and bk restaurant expenses have significantly decreased while our bk franchise and property revenues and bk franchise and property expenses have increased . additionally , our bk selling expenses have decreased as a result of a decrease in advertising fund contributions for burger king company restaurants following the refranchisings . business combination agreement expenses on april 3 , 2012 , burger king worldwide holdings , inc. , a delaware corporation and the indirect parent company of burger king holdings , inc. , entered into a business combination agreement and plan of merger with justice holdings limited and its affiliates ( the business combination agreement ) . we did not incur any expenses during 2014 and 2013 related to the business combination agreement . we recorded $ 27.0 million of general and administrative expenses associated with the business combination agreement during 2012 , consisting of $ 5.9 million of one-time share-based compensation expense as a result of the increase in our equity value implied by the business combination agreement and $ 21.1 million of professional fees and other transaction costs . operating metrics and key financial measures we evaluate our restaurants and assess our business based on the following operating metrics and key financial measures : system-wide sales growth refers to the change in sales at all franchise restaurants and company restaurants in one period from the same period in the prior year . franchise sales represent sales at all franchise restaurants and are revenues to our franchisees . we do not record franchise sales as revenues ; however , our franchise revenues include royalties based on a percentage of franchise sales . comparable sales growth refers to the change in restaurant sales in one period from the same prior year period for restaurants that have been opened for thirteen months or longer . net restaurant growth ( nrg ) represents the opening of new restaurants during a stated period , net of closures . net refranchisings refer to sales of company restaurants to franchisees , net of acquisitions of franchise restaurants by us . adjusted ebitda , which represents earnings ( net income or loss ) before interest , taxes , depreciation and amortization , adjusted to exclude specifically identified items that management believes do not directly reflect our core operations . see non-gaap reconciliations . system-wide sales growth and comparable sales growth are measured on a constant currency basis , which means the results exclude the effect of foreign currency translation and are calculated by translating prior year results at current year exchange rates . we analyze certain key financial measures on a constant currency basis as this helps identify underlying business trends , without distortion from the effects of currency movements ( fx impact ) . 33 story_separator_special_tag fringe benefits and professional services , partially offset by unfavorable fx impact . during 2014 , the increase in share-based compensation and non-cash incentive compensation expense was mainly due to a $ 10.4 million charge recorded in 2014 related to stock option modifications , $ 7.7 million of share-based compensation related to the remeasurement of liability-classified tim hortons stock options to fair value and additional stock options granted during 2014. the increase in depreciation and amortization expenses is primarily due to corporate capital expenditures during 2014. we recorded tim hortons transaction and restructuring costs during 2014 primarily related to non-recurring financing , legal , and professional advisory fees associated with the transactions as well as non-recurring severance benefits and other compensation costs associated with implementing a restructuring plan . the non-recurrence of global portfolio realignment project costs is due to the completion of our global portfolio realignment project during 2013. during 2013 , the increase in share-based compensation and non-cash incentive compensation expense is mainly due to additional stock options granted during 2013 as well as a $ 4.0 million charge recorded in 2013 related to stock option modifications . the decrease in global portfolio realignment project costs is due to the decrease in the number of net refranchisings during 2013. the decrease in depreciation and amortization expense is due to the decrease in capital expenditures during 2013 and assets becoming fully depreciated during 2013. the non-recurrence of business combination agreement expenses is due to the completion of our business combination agreement during 2012 . ( income ) loss from equity method investments ( income ) loss from equity method investments reflects income from equity investments in partnerships and joint ventures and other minority investments over which we exercise significant influence . ( income ) loss from equity method investments from these investments is considered to be an integrated part of our business operations , and is therefore included in operating income . during 2014 , we recorded a $ 5.8 million noncash dilution gain included in ( income ) loss from equity method investments on the issuance of stock by carrols restaurant group , inc. ( carrols ) , one of our equity method investees . see note 8 to the accompanying consolidated financial statements for additional information about accounting for our dilution gain from unconsolidated affiliates . 36 during 2013 , the increase in ( income ) loss from equity method investments mainly pertains to losses recognized on our equity investments acquired during 2012 and reflects a full year of equity investments losses in 2013 compared to approximately three months during 2012. other operating expenses ( income ) , net our other operating expenses ( income ) , net were comprised of the following : replace_table_token_12_th net losses ( gains ) on disposal of assets , restaurant closures and refranchisings represent sales of company properties and other costs related to restaurant closures and refranchisings , and are recorded in other operating expenses ( income ) , net in the accompanying consolidated statements of operations . gains and losses recognized in the current period may reflect certain costs related to closures and refranchisings that occurred in previous periods .
| during 2014 , the decrease in sales was driven by a $ 148.1 million decrease in bk company restaurant sales due to the net refranchising of 360 bk company restaurants during 2013. these factors were partially offset by $ 79.4 million of th distribution sales and $ 13.4 million of th company restaurant sales as a result of the transactions in december 2014. during 2014 , the decrease in cost of sales was driven by a $ 131.0 million decrease in burger king company restaurant cost of sales primarily due to the net refranchising of 360 burger king company restaurants during 2013. these factors were partially offset by $ 74.7 million of tim hortons distribution cost of sales and $ 13.5 million of tim hortons company restaurant cost of sales as a result of the transactions in december 2014. during 2013 , the decrease in sales and cost of sales was driven by the net refranchising of bk company restaurants during 2013 and 2012. franchise and property franchise and property revenues consist primarily of royalties earned on franchise sales , rents from real estate leased or subleased to franchisees , franchise fees , including revenues derived from equipment packages at initiation of a restaurant and in connection with renewal or renovation , and other revenue . franchise and property expenses consist primarily of depreciation of property leased to franchisees , rental expense associated with properties subleased to franchisees , costs of equipment packages sold at initiation of a restaurant and in connection with renewal or renovation , amortization of franchise agreement and favorable lease intangible assets and bad debt expense ( recoveries ) . during 2014 , the increase in franchise and property revenues , excluding fx impact , was driven by an $ 71.6 million increase in bk franchise and property revenues due primarily to ( i ) an increase of $ 47.8 million in bk franchise royalties driven by worldwide net restaurants growth of 705 restaurants during 2014 , the net refranchising of 360 burger king company restaurants during 2013 and comparable sales growth in all of our segments , ( ii ) an increase of $ 21.7 million in bk franchise fees and other revenue driven primarily by an increase in renewal franchise fees , and ( iii ) an increase of $ 2.1 million in bk property revenue . additionally , franchise and
| 14,646 |
for the reasons listed above , revenue is recognized based on the extent of progress towards completion of the performance obligation . the selection of the method to measure progress towards completion requires judgment and is 29 based on the nature of the products or services to be provided . we generally use the cost to cost measure of progress for our contracts , as it best depicts the transfer of assets to the customer that occurs as we incur costs on our contracts . under the cost to cost measure of progress , the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation . revenue , including estimated fees or profits , is recorded proportionally as costs are incurred . costs to fulfill include labor , materials and subcontractors ' costs , other direct costs and an allocation of indirect costs . for a small portion of our business in which our services are delivered in the form of service maintenance agreements for existing systems to be repaired and maintained , as opposed to constructed , our performance obligation is to maintain the customer 's mechanical system for a specific period of time . similar to jobs , we recognize revenue over time ; however , for service maintenance agreements in which the full cost to provide services may not be known , we generally use an input method to recognize revenue , which is based on the amount of time we have provided our services out of the total time we have been contracted to perform those services . as discussed elsewhere in this annual report on form 10-k , our business has two service functions : ( i ) installation , which we account for under the percentage of completion method , and ( ii ) maintenance , repair and replacement , which we account for as the services are performed , or in the case of replacement , under the percentage of completion method . in addition , we identified other critical accounting policies related to our allowance for credit losses , accounting for leases , the recording of our self-insurance liabilities , valuation of deferred tax assets , accounting for acquisitions and the recoverability of goodwill and identifiable intangible assets . these accounting policies , as well as others , are described in note 2 to the consolidated financial statements included elsewhere in this annual report on form 10-k. percentage of completion method of accounting approximately 87.0 % of our revenue was earned on a project basis and recognized through the percentage of completion method of accounting during 2020. under this method , contract revenue recognizable at any time during the life of a contract is determined by multiplying expected total contract revenue by the percentage of contract costs incurred at any time to total estimated contract costs . more specifically , as part of the negotiation and bidding process to obtain installation contracts , we estimate our contract costs , which include all direct materials , labor and subcontract costs and indirect costs related to contract performance , such as indirect labor , supplies , tools , repairs and depreciation costs . these contract costs are included in our results of operations under the caption “ cost of services. ” then , as we perform under those contracts , we measure costs incurred , compare them to total estimated costs to complete the contract and recognize a corresponding proportion of contract revenue . labor costs are considered to be incurred as the work is performed . subcontractor labor is recognized as the work is performed . non-labor project costs consist of purchased equipment , prefabricated materials and other materials . purchased equipment on our projects is substantially produced to job specifications and is a value-added element to our work . the costs are considered to be incurred when title is transferred to us , which typically is upon delivery to the work site . prefabricated materials , such as ductwork and piping , are generally performed at our shops and recognized as contract costs when fabricated for the unique specifications of the job . other materials costs are generally recorded when delivered to the work site . this measurement and comparison process requires updates to the estimate of total costs to complete the contract , and these updates may include subjective assessments and judgments . we generally do not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project . on rare occasions , when significant pre-contract costs are incurred , they are capitalized and amortized on a percentage of completion basis over the life of the contract . we do not currently have any capitalized obtainment or fulfillment costs on our balance sheet and did not incur any impairment loss on such costs in the current year . project contracts typically provide for a schedule of billings or invoices to the customer based on our job-to-date percentage of completion of specific tasks inherent in the fulfillment of our performance obligation ( s ) . the schedules for such billings usually do not precisely match the schedule on which costs are incurred . as a result , contract revenue recognized in our statement of operations can and usually does differ from amounts that can be billed or invoiced to the customer at any point during the contract . amounts by which cumulative contract revenue recognized on a contract as of a given date exceed cumulative billings and unbilled receivables to the customer under the contract are reflected as a current asset in our balance sheet under the caption “ costs and estimated earnings in excess of billings. ” amounts by which cumulative billings to the customer under a contract as of a given date exceed cumulative contract revenue recognized on the contract are reflected as a current liability in our balance sheet under the caption “ billings in excess of costs and estimated earnings. story_separator_special_tag ” 30 the percentage of completion method of accounting is also affected by changes in job performance , job conditions , and final contract settlements . these factors may result in revisions to estimated costs and , therefore , revenue . such revisions are frequently based on further estimates and subjective assessments . the effects of these revisions are recognized in the period in which revisions are determined . when such revisions lead to a conclusion that a loss will be recognized on a contract , the full amount of the estimated ultimate loss is recognized in the period such conclusion is reached , regardless of the percentage of completion of the contract . revisions to project costs and conditions can give rise to change orders under which there is an agreement between the customer and us that the customer pays an additional or reduced contract price . revisions can also result in claims we might make against the customer to recover project variances that have not been satisfactorily addressed through change orders with the customer . except in certain circumstances , we do not recognize revenue or margin based on change orders or claims until they have been agreed upon with the customer . the amount of revenue associated with unapproved change orders and claims was immaterial for the year ended december 31 , 2020. variations from estimated project costs could have a significant impact on our operating results , depending on project size , and the recoverability of the variation via additional customer payments . accounting for allowance for credit losses effective january 1 , 2020 , we adopted the requirements of accounting standards update ( asu ) no . 2016-13 , “ financial instruments – credit losses ( topic 326 ) . ” for additional information on the new standard and the impact on our results of operations , refer to our summary of significant accounting policies in note 2 to the consolidated financial statements . we are required to estimate and record the expected credit losses over the contractual life of our financial assets measured at amortized cost , including billed and unbilled accounts receivable , other receivables and costs and estimated earnings in excess of billings . accounts receivable include amounts from work completed in which we have billed or have an unconditional right to bill our customers . our trade receivables are contractually due in less than a year . we estimate our credit losses using a loss-rate method for each of our identified portfolio segments . our portfolio segments are construction , service and other . while our construction and service financial assets are often with the same subset of customers and industries , our construction financial assets will generally have a lower loss-rate than service financial assets due to lien rights , which we are more likely to have on construction jobs . these lien rights result in lower credit loss expenses on average compared to receivables that do not have lien rights . financial assets classified as other include receivables that are not related to our core revenue producing activities , such as receivables related to our acquisition activity from former owners , our vendor rebate program or receivables for estimated losses in excess of our insurance deductible , which are accrued with a corresponding accrued insurance liability . loss rates for our portfolios are based on numerous factors , including our history of credit loss expense by portfolio , the financial strength of our customers and counterparties in each portfolio , the aging of our receivables , our expectation of likelihood of payment , macroeconomic trends in the u.s. and the current and forecasted non-residential construction market trends in the u.s. in addition to the loss-rate calculations discussed above , we also record allowance for credit losses for specific receivables that are deemed to have a higher risk profile than the rest of the respective pool of receivables , such as concerns about a specific customer going bankrupt and no longer being able to pay the receivables due to us . these estimates are evaluated and adjusted as needed when additional information is received . accounting for leases we lease certain facilities , vehicles and equipment under noncancelable operating leases . the most significant portion of these noncancelable operating leases are for the facilities occupied by our corporate office and our operating locations . leases with an initial term of 12 months or less are not recorded on the balance sheet . we account for lease components separately from the non-lease components . we have certain leases with variable payments based on an index as well as some short-term leases on equipment and facilities . lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term . as most of our leases do not provide an implicit rate , we generally use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments . 31 the lease terms generally range from three to ten years . some leases include one or more options to renew , which may be exercised to extend the lease term . we include the exercise of lease renewal options in the lease term when it is reasonably certain that we will exercise the option and such exercise is at our sole discretion . a majority of the company 's real property leases are with individuals or entities with whom we have no other business relationship . however , in certain instances the company enters into real property leases with current or former employees . if we decide to cancel or terminate a lease before the end of its term , we would typically owe the lessor the remaining lease payments under the term of the lease . our lease agreements do not contain any material residual value guarantees or material restrictive covenants .
| when competing for project business , we usually estimate the costs we will incur on a project , and then propose a bid to the customer that includes a contract price and other performance and payment terms . our bid price and terms are intended to cover our estimated costs on the project and provide a profit margin to us commensurate with the value of the installed system to the customer , the risk that project costs or duration will vary from estimate , the schedule on which we will be paid , the opportunities for other work that we might forego by committing capacity to this project , and other costs that we incur to support our operations but which are not specific to the project . typically , customers will seek pricing from competitors for a given project . while the criteria on which customers select a provider vary widely and include factors such as quality , technical expertise , on-time performance , post-project support and service , and company history and financial strength , we believe that price for value is the most influential factor for most customers in choosing a mechanical or electrical installation and service provider . after a customer accepts our bid , we generally enter into a contract with the customer that specifies what we will deliver on the project , what our related responsibilities are , and how much and when we will be paid . our overall price for the project is typically set at a fixed amount in the contract , although changes in project specifications or work conditions that result in unexpected additional work are usually subject to additional payment from the customer via what are commonly known as change orders . project contracts typically provide for periodic billings to the customer as we meet progress milestones or incur cost on the project . project contracts in our industry also frequently allow for a small portion of progress billings or contract price to be withheld by the customer until after we have completed the work . amounts withheld under
| 14,647 |
33 despite fewer new nuclear plants being constructed in recent years , nuclear power remains an important contributor to the global energy mix . we continue to support our significant installed base in the global nuclear fleet by providing aftermarket and life extension products and services . due to our extensive history , we believe we are well positioned to take advantage of this ongoing source of aftermarket and new construction opportunities . political efforts to limit the emissions of carbon dioxide may have some adverse effect on thermal power investment plans depending on the potential requirements imposed and the timing of compliance by country . however , many proposed methods of capturing and limiting carbon dioxide emissions offer business opportunities for our products and services . at the same time , we continue to take advantage of new investments in concentrated solar power generating capacity , where our pumps , valves , and seals are uniquely positioned for both molten salt applications as well as the traditional steam cycle . we believe the long-term fundamentals for the power generation industry remain solid based on projected increases in demand for electricity driven by global population growth , growth of urbanization in developing markets and the increased use of electricity driven transportation . we also believe that our long-standing reputation in the power generation industry , our portfolio of offerings for the various generating methods , our advancements in serving the renewable energy market and carbon capture methodologies , as well as our global service and support structure , position us well for the future opportunities in this important industry . water management the water management industry represented approximately 3 % and 4 % of our bookings in 2020 and 2019 , respectively . water management industry activity levels decreased in 2020 primarily due to the pandemic 's negative impact on government budgets across the globe . worldwide demand for fresh water , water treatment and re-use , desalination and flood control are expected to create requirements for new facilities or for upgrades of existing systems , many of which require products that we offer , particularly pumps . with improved management of the pandemic , we expect capital and aftermarket spending to rise in developed and emerging markets with governments and private industry providing funding for critical projects when their priorities shift away from pandemic-management . the proportion of people living in regions that find it difficult to meet water requirements is expected to double by 2025. we believe that the persistent demand for fresh water during all economic cycles supports continued investments , especially in north america and developing regions . general industries general industries represented , in the aggregate , approximately 26 % and 22 % of our bookings in 2020 and 2019 , respectively . general industries comprise a variety of different businesses , including mining and ore processing , pulp and paper , food and beverage and other smaller applications , none of which individually represented more than 5 % of total bookings in 2020 and 2019. general industries also include sales to distributors , whose end customers operate in the industries we primarily serve . sales to distributors in 2020 were negatively impacted by decreased upstream oil and gas activity in north america . the outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels . the long-term fundamentals of many of these industries remain sound , as many of the products produced by these industries are common staples of industrialized and urbanized economies . we believe that our specialty product offerings designed for these industries and our aftermarket service capabilities will provide continued business opportunities . outlook for 2021 as the headwinds experienced during the year continue to impact our business , we experienced approximately a 20 % decline in bookings as compared to the same period in 2019 , with less of an impact on revenue , which declined approximately 5 % as compared to the same period in 2019. we anticipate further pressure on revenue with a year over year decline of approximately 4 % to 7 % in 2021 as a result of lower bookings in 2020 , resulting in lower customer backlog as we enter 2021. despite these effects , however , we expect to maintain adequate liquidity over the next 12 months as we manage through the current market environment . we will continue to actively monitor the potential impacts of covid-19 and related events on the credit markets in order to maintain sufficient liquidity and access to capital throughout 2021. our future results of operations and other forward-looking statements contained in this annual report , including this md & a , involve a number of risks and uncertainties — in particular , the statements regarding our goals and strategies , new product introductions , plans to cultivate new businesses , future economic conditions , revenue , pricing , gross profit margin 34 and costs , capital spending , expected cost savings from our transformation and realignment programs , global economic and political risk , depreciation and amortization , research and development expenses , potential impairment of assets , tax rate and pending tax and legal proceedings . our future results of operations may also be affected by employee incentive compensation including our annual program and the amount , type and valuation of share-based awards granted , as well as the amount of awards forfeited due to employee turnover . in addition to the various important factors discussed above , a number of other factors could cause actual results to differ materially from our expectations . see the risks described in `` item 1a . risk factors '' as well as the section titled “ forward-looking information is subject to risk and uncertainty ” of this annual report . our bookings were $ 3,411.6 million during 2020. because a booking represents a contract that can be , in certain circumstances story_separator_special_tag 33 despite fewer new nuclear plants being constructed in recent years , nuclear power remains an important contributor to the global energy mix . we continue to support our significant installed base in the global nuclear fleet by providing aftermarket and life extension products and services . due to our extensive history , we believe we are well positioned to take advantage of this ongoing source of aftermarket and new construction opportunities . political efforts to limit the emissions of carbon dioxide may have some adverse effect on thermal power investment plans depending on the potential requirements imposed and the timing of compliance by country . however , many proposed methods of capturing and limiting carbon dioxide emissions offer business opportunities for our products and services . at the same time , we continue to take advantage of new investments in concentrated solar power generating capacity , where our pumps , valves , and seals are uniquely positioned for both molten salt applications as well as the traditional steam cycle . we believe the long-term fundamentals for the power generation industry remain solid based on projected increases in demand for electricity driven by global population growth , growth of urbanization in developing markets and the increased use of electricity driven transportation . we also believe that our long-standing reputation in the power generation industry , our portfolio of offerings for the various generating methods , our advancements in serving the renewable energy market and carbon capture methodologies , as well as our global service and support structure , position us well for the future opportunities in this important industry . water management the water management industry represented approximately 3 % and 4 % of our bookings in 2020 and 2019 , respectively . water management industry activity levels decreased in 2020 primarily due to the pandemic 's negative impact on government budgets across the globe . worldwide demand for fresh water , water treatment and re-use , desalination and flood control are expected to create requirements for new facilities or for upgrades of existing systems , many of which require products that we offer , particularly pumps . with improved management of the pandemic , we expect capital and aftermarket spending to rise in developed and emerging markets with governments and private industry providing funding for critical projects when their priorities shift away from pandemic-management . the proportion of people living in regions that find it difficult to meet water requirements is expected to double by 2025. we believe that the persistent demand for fresh water during all economic cycles supports continued investments , especially in north america and developing regions . general industries general industries represented , in the aggregate , approximately 26 % and 22 % of our bookings in 2020 and 2019 , respectively . general industries comprise a variety of different businesses , including mining and ore processing , pulp and paper , food and beverage and other smaller applications , none of which individually represented more than 5 % of total bookings in 2020 and 2019. general industries also include sales to distributors , whose end customers operate in the industries we primarily serve . sales to distributors in 2020 were negatively impacted by decreased upstream oil and gas activity in north america . the outlook for this group of industries is heavily dependent upon the condition of global economies and consumer confidence levels . the long-term fundamentals of many of these industries remain sound , as many of the products produced by these industries are common staples of industrialized and urbanized economies . we believe that our specialty product offerings designed for these industries and our aftermarket service capabilities will provide continued business opportunities . outlook for 2021 as the headwinds experienced during the year continue to impact our business , we experienced approximately a 20 % decline in bookings as compared to the same period in 2019 , with less of an impact on revenue , which declined approximately 5 % as compared to the same period in 2019. we anticipate further pressure on revenue with a year over year decline of approximately 4 % to 7 % in 2021 as a result of lower bookings in 2020 , resulting in lower customer backlog as we enter 2021. despite these effects , however , we expect to maintain adequate liquidity over the next 12 months as we manage through the current market environment . we will continue to actively monitor the potential impacts of covid-19 and related events on the credit markets in order to maintain sufficient liquidity and access to capital throughout 2021. our future results of operations and other forward-looking statements contained in this annual report , including this md & a , involve a number of risks and uncertainties — in particular , the statements regarding our goals and strategies , new product introductions , plans to cultivate new businesses , future economic conditions , revenue , pricing , gross profit margin 34 and costs , capital spending , expected cost savings from our transformation and realignment programs , global economic and political risk , depreciation and amortization , research and development expenses , potential impairment of assets , tax rate and pending tax and legal proceedings . our future results of operations may also be affected by employee incentive compensation including our annual program and the amount , type and valuation of share-based awards granted , as well as the amount of awards forfeited due to employee turnover . in addition to the various important factors discussed above , a number of other factors could cause actual results to differ materially from our expectations . see the risks described in `` item 1a . risk factors '' as well as the section titled “ forward-looking information is subject to risk and uncertainty ” of this annual report . our bookings were $ 3,411.6 million during 2020. because a booking represents a contract that can be , in certain circumstances
| of the $ 2.4 billion of bookings in 2020 , approximately 37 % were from oil and gas , 27 % from general industries , 20 % from chemical , 12 % from power generation and 4 % from water management . bookings in 2019 increased by $ 254.4 million , or 9.2 % , as compared with 2018. the increase included negative currency effects of approximately $ 79 million . bookings in 2018 included approximately $ 31 million related to the two fpd locations and associated product lines that were divested in the third quarter of 2018. the increase in customer bookings was primarily driven by the oil and gas , chemical and power generation industries , partially offset by decreased bookings in the general industries . increased customer bookings of $ 100.4 million into north america , $ 78.1 million into the middle east , $ 72.1 million into asia pacific , $ 18.6 million in latin america and $ 11.5 million into africa , were partially offset by decreased customer bookings of $ 49.9 million into europe . the increase was primarily driven by customer original equipment bookings . of the $ 3.0 billion of bookings in 2019 , approximately 44 % were from oil and gas , 22 % from general industries , 19 % from chemical , 10 % from power generation and 5 % from water management . sales in 2020 decreased $ 30.6 million , or 1.1 % , as compared with 2019. the decrease included negative currency effects of approximately $ 19 million . the decrease was driven b y aftermarket sales , resulting from decreased customer sales of $ 43.6 million into north america , $ 16.3 million into africa , $ 13.5 million into europe and $ 10.2 million into latin america , partially offset by increased sales of $ 39.4 million into asia pacific and $ 20.7 million into the middle east . sales in 2019 increased $ 83.0 million , or 3.2 % , as compared with 2018. the increase included negative currency effects of approximately $ 66 million . sales in 2018 included approximately $ 30 million related to the two fpd locations and associated product lines
| 14,648 |
because we are a service company , our continued success is dependent on our ability to continue to hire and retain talented , productive people , and to properly align our headcount and personnel expense with our business . our headcount increased by 966 employees during 2016 , which includes approximately 300 employees added as a result of the apc acquisition . compensation programs are performance-based and cash incentive is directly tied to productivity and performance . most network management compensation is dependent on the profitability of their particular office . we believe this makes our employees more service-oriented and focused on driving growth and maximizing office productivity . all of our managers and certain other employees who have significant responsibilities are eligible to receive equity awards because we believe these awards are an effective tool for creating long-term ownership and alignment between employees and our shareholders . our customers . in 2016 , we worked with more than 113,000 active customers . we work with a wide variety of companies , ranging in size from fortune 100 companies to small family businesses , in many different industries . our customer base is very diverse and unconcentrated . in 2016 , our top 100 customers represented approximately 30 percent of our total revenues and approximately 26 percent of our net revenues . our largest customer was approximately two percent of our total revenues . our contracted carriers . our contracted carrier base includes motor carriers , railroads ( primarily intermodal service providers ) , air freight , and ocean carriers . in 2016 , we worked with approximately 71,000 transportation providers worldwide , up from approximately 68,000 in 2015 . motor carriers that had fewer than 100 tractors transported approximately 81 percent of our truckload shipments in 2016 . in our transportation business , no single contracted carrier represents more than approximately 1.6 percent of our contracted carrier capacity . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2015 . in 2016 , our indefinite reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries , provided an approximate $ 5.1 million benefit to our provision for income taxes . if we repatriated all foreign earnings , the estimated effect on income taxes payable would be an increase of approximately $ 16.6 million as of december 31 , 2016 . additionally , the effective income tax rate for both periods is greater than the statutory federal income tax rate , primarily due to state income taxes , net of federal benefit . net income . net income increased 0.7 percent to $ 513.4 million in 2016 from $ 509.7 million in 2015 . basic net income per share increased 2.3 percent to $ 3.60 from $ 3.52 in 2015 . diluted net income per share increased 2.3 percent to $ 3.59 from $ 3.51 in 2015 . segment results of operations - 2016 compared to 2015 north american surface transportation . nast total revenues , including intersegment revenues , decreased 2.2 percent to $ 9.0 billion in 2016 compared to $ 9.2 billion in 2015 . this was primarily due to decreased pricing to our customers , partially offset by increased volumes . nast cost of purchased transportation and related services decreased 2.1 percent to $ 7.5 billion in 2016 from $ 7.7 billion in 2015 . this decrease was primarily due to lower transportation costs . total nast net revenues decreased 2.6 percent to $ 1.5 billion in 2016 from $ 1.6 billion in 2015 . the decrease was driven by a decline in truckload and intermodal net revenues , partially offset by an increase in ltl net revenues . nast truckload net revenues decreased 4.7 percent in 2016 to $ 1.1 billion from $ 1.2 billion in 2015 . nast truckload volumes increased approximately 5.5 percent in 2016 compared to 2015 . nast truckload net revenue margin decreased in 2016 compared to 2015 , due primarily to lower customer pricing . nast truckload net revenues accounted for approximately 92 percent of our total north america truckload net revenues in 2016 and approximately 92 percent in 2015. the majority of the remaining north american truckload net revenues is included in robinson fresh . excluding the estimated impacts of the change in fuel prices , our average north america truckload rate per mile charged to our customers decreased approximately 5.0 percent in 2016 compared to 2015. excluding the estimated impacts of the change in fuel prices , our average north america truckload transportation cost per mile decreased approximately 4.5 percent in 2016 compared to 2015. nast ltl net revenues increased 5.1 percent in 2016 to $ 366.1 million from $ 348.3 million in 2015 . nast ltl volumes increased approximately 7.5 percent in 2016 compared to 2015 and net revenue margin increased slightly . nast intermodal net revenues decreased 20.1 percent to $ 31.3 million in 2016 from $ 39.2 million in 2015 . this was primarily due to declines in net revenue margin and volumes . during 2016 , intermodal opportunities were negatively impacted by the alternative lower-cost truck market . nast operating expenses increased 0.4 percent in 2016 to $ 849.9 million from $ 846.6 million in 2015. this was primarily due to increases in selling , general , and administrative expenses , partially offset by a decrease in personnel expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability . the operating expenses of nast and all other segments include allocated corporate expenses . nast operating income decreased 6.1 percent to $ 674.4 million in 2016 from $ 718.3 million in 2015 . this was primarily due to a decline in total revenues and net revenues caused by lower customer pricing . 28 global forwarding . global forwarding total revenues , including intersegment revenues , decreased 3.3 percent to $ 1.6 billion in 2016 from $ 1.7 billion in 2015 . story_separator_special_tag this decrease was primarily related to lower customer pricing across ocean and air services , partially offset by increased volumes in all services . global forwarding costs of transportation and related services decreased 6.7 percent to $ 1.2 billion in 2016 from $ 1.3 billion in 2015 . global forwarding net revenues increased 8.8 percent to $ 397.5 million in 2016 from $ 365.5 million in 2015 . global forwarding net revenue margin increased due to transportation costs declining at a faster rate than customer pricing . ocean transportation net revenues increased 9.4 percent to $ 244.2 million in 2016 from $ 223.3 million in 2015 . this was primarily due to increases in volumes . air net revenues increased 3.9 percent to $ 76.1 million in 2016 from $ 73.3 million in 2015. this was primarily due to increases in volumes offset by pricing declines . customs net revenues increased 14.9 percent to $ 50.5 million in 2016 from $ 44.0 million in 2015. the increase was primarily due to increased transaction volumes . global forwarding operating expenses increased 9.4 percent in 2016 to $ 316.6 million from $ 289.4 million in 2015. this increase was primarily due to an increase in claims expense , and the acquisition of apc on september 30 , 2016. global forwarding operating income increased 6.4 percent in 2016 to $ 80.9 million from $ 76.1 million in 2015. this was primarily due to an increase in net revenues driven by higher volumes , partially offset by increased operating expenses . robinson fresh . robinson fresh total revenues , including intersegment revenues , decreased 0.8 percent to $ 2.46 billion in 2016 from $ 2.48 billion in 2015. robinson fresh costs of transportation and related services and purchased products sourced for resale decreased 0.9 percent in to $ 2.23 billion in 2016 from $ 2.25 billion in 2015. robinson fresh net revenues decreased 0.2 percent to $ 234.8 million in 2016 from $ 235.3 million in 2015. this decrease was due to declines in transportation net revenues , partially offset by an increase in sourcing net revenue . robinson fresh net revenues from sourcing services increased 1.4 percent to $ 122.7 million in 2016 from $ 121.0 million in 2015. this increase was primarily due to a case volume increase across a variety of commodities and services , partially offset by a decrease in net revenue per case . robinson fresh net revenues from transportation services decreased 2.0 percent to $ 112.1 million in 2016 from $ 114.4 million in 2015. robinson fresh transportation net revenue margin decreased in 2016 compared to 2015 , due primarily to lower customer pricing . robinson fresh operating expenses increased 3.3 percent to $ 159.0 million in 2016 from $ 154.0 million in 2015. this increase was primarily due to an increase in warehousing expenses . in 2016 , growth in robinson fresh headcount was offset by a decrease in variable compensation . robinson fresh operating income decreased 6.9 percent to $ 75.8 million in 2016 from $ 81.3 million in 2015. this was primarily due to a decrease in transportation services net revenues , and an increase in operating expenses . all other and corporate . all other and corporate includes our managed services segment , as well as other surface transportation outside of north america and other miscellaneous revenues and unallocated corporate expenses . managed services provides transportation management services , or managed tms . other surface transportation revenues are primarily earned by europe surface transportation . europe surface transportation provides services similar to nast across europe . managed services net revenues increased 32.7 percent to $ 64.7 million in 2016 from $ 48.7 million in 2015. this increase was primarily due to volume growth with new and existing customers . other surface transportation net revenues increased 3.9 percent to $ 56.1 million in 2016 from $ 54.0 million in 2015 , primarily the result of volume growth in europe surface transportation . 2015 compared to 2014 total revenues and direct costs . total transportation revenues increased 0.4 percent to $ 12.0 billion in 2015 from $ 11.9 billion in 2014 . the increase in total transportation revenues was driven by our acquisition of freightquote on january 1 , 2015 , and higher volumes in nearly all of our transportation modes . the increase was partially offset by decreased pricing to our customers primarily related to the declining cost of fuel . total purchased transportation and related services decreased 2.0 percent in 2015 to $ 9.8 billion from $ 10.0 billion in 2014 . this decrease was due to decreased transportation costs , primarily related to the declining cost of fuel , partially offset by the acquisition of freightquote and higher volumes in nearly all of our transportation modes . our sourcing revenue decreased 3.1 percent to $ 1.49 billion in 2015 from $ 1.53 billion in 2014 . purchased products sourced for resale decreased 3.7 percent in 2015 to $ 1.37 billion from $ 1.42 billion in 2014 . these decreases were primarily due to decreased revenue and cost per case , partially offset by increased case volumes . 29 net revenues . total transportation net revenues increased 13.5 percent to $ 2.1 billion in 2015 from $ 1.9 billion in 2014 . our transportation net revenue margin increased to 17.9 percent in 2015 from 15.9 percent in 2014 . this increase in net revenue margin was driven by a decrease in transportation costs , including fuel , and a change in the mix of business due to growth in shorter length of haul freight and the addition of freightquote . total sourcing net revenues increased 4.7 percent to $ 121.0 million in 2015 from $ 115.5 million in 2014 . this increase was primarily due to an increase in case volumes , partially offset by a decrease in net revenue per case . sourcing net revenue margin increased to 8.1 percent in 2015 from 7.5 percent in 2014 . operating expenses .
| total transportation net revenues increased 0.3 percent in 2016 to $ 2.2 billion from $ 2.1 billion in 2015 . our transportation net revenue margin increased to 18.4 percent in 2016 from 17.9 percent in 2015 . this increase in net revenue margin was driven by decreases in transportation costs and customer pricing , including fuel . total sourcing net revenues increased 1.4 percent to $ 122.7 million in 2016 from $ 121.0 million in 2015 . this increase was primarily due to a case volume increase across a variety of commodities and services , partially offset by a decrease in net revenue per case . sourcing net revenue margin increased to 8.5 percent in 2016 from 8.1 percent in 2015 . operating expenses . operating expenses consist of personnel and selling , general , and administrative expenses . operating expenses increased 2.1 percent to $ 1.44 billion in 2016 from $ 1.41 billion in 2015 . this was due to an increase of 1.3 percent in personnel expenses and an increase of 4.5 percent in other selling , general , and administrative expenses . as a percentage of net revenues , operating expenses increased to 63.2 percent in 2016 from 62.2 percent in 2015 . our personnel expenses are driven primarily by headcount and earnings growth . in 2016 , personnel expenses increased 1.3 percent to $ 1.06 billion from $ 1.05 billion in 2015 . personnel expenses as a percentage of net revenue increased in 2016 to 46.8 percent from 46.3 percent in 2015 . the increase in personnel expense was due primarily to an increase in average headcount growth of 6.0 percent in 2016 , due in part to the acquisition of apc . the headcount growth was partially offset by decreases in personnel expenses related to incentive plans that are designed to keep expenses variable with changes in net revenues and profitability . 27 other selling , general , and administrative expenses increased 4.5 percent to $ 375.1 million in
| 14,649 |
we source the majority of our products from third-party vendors . under direct selling regulations in mainland china , we are required to manufacture the products we distribute through independent direct sellers in mainland china . in 2018 we acquired three companies in the united states that are producing some of our products . cost of sales and gross profit , on a consolidated basis , may fluctuate as a result of changes in the ratio between self-manufactured products and products sourced from third-party vendors . in addition , because we purchase a significant amount of our goods in u.s. dollars and recognize revenue in local currencies , our gross margin is subject to exchange rate risks . because our gross margins vary from product to product and due to higher pricing in some markets , changes in product mix and geographic revenue mix can impact our gross margin on a consolidated basis . 38 selling expenses are our most significant expense and are classified as operating expenses . selling expenses include sales commissions paid to our sales force , special incentives , costs for incentive trips and other rewards , as well as salaries , service fees , benefits , bonuses and other labor and unemployment expenses we pay to our sales force in mainland china . selling expenses do not include amounts we pay to our sales force based on their personal purchases ; rather , such amounts are reflected as reductions to revenue . our global sales compensation plan , which we employ in all our markets except mainland china , is an important factor in our ability to attract and retain our sales leaders . under our global sales compensation plan , sales leaders can earn “ multi-level ” compensation , where they earn commissions for product sales to their consumer groups as well as the product sales made through the sales network they have developed and trained . we do not pay commissions on sales materials . fluctuations occur in the amount of commissions paid as our numbers of customers and sales leaders change from month to month , but the fluctuation in the overall payout as a percentage of revenue tends to be relatively small . selling expenses as a percentage of revenue typically increase in connection with a significant product offering , due to growth in the number of sales leaders qualifying for increased sales compensation and promotional incentives . from time to time , we make modifications and enhancements to our global sales compensation plan in an effort to help motivate our sales force and develop leadership characteristics , which can have an impact on selling expenses . for example , in the fourth quarter of 2017 , we began to implement significant enhancements to our global sales compensation plan , which we have now rolled out across all markets other than mainland china . one of the changes is a new bonus program for our sales force , which has an increasing effect on our selling expenses as a percentage of revenue . outside of mainland china , distributors also have the opportunity to make profits by purchasing products from us at a discount and selling them to consumers with a mark-up . we do not account for , nor pay , additional commissions on these mark-ups received by distributors . in many markets , we also allow individuals who are not part of our sales force , whom we refer to as “ preferred customers , ” to buy products directly from us at a discount . we pay commissions on preferred customer purchases to the referring member of our sales force . general and administrative expenses include : ● wages and benefits ; ● rents and utilities ; ● depreciation and amortization ; ● promotion and advertising ; ● professional fees ; ● travel ; ● research and development ; and ● other operating expenses . labor expenses are the most significant portion of our general and administrative expenses . promotion and advertising expenses include costs of sales force conventions held in various markets worldwide , which we generally expense in the period in which they are incurred . because our various sales force conventions are not held during each fiscal year , or in the same period each year , their impact on our general and administrative expenses may vary from year to year and from quarter to quarter . for example , we held our global convention in october 2019 and will have another global convention in the fall of 2021 , as we currently plan to hold a global convention every other year . in addition , we hold regional conventions and conventions in our major markets at different times during the year . these conventions have significant expenses associated with them . because we have not incurred expenses for these conventions during every fiscal year or in comparable interim periods , year-over-year comparisons have been impacted accordingly . provision for income taxes depends on the statutory tax rates in each of the jurisdictions in which we operate . for example , statutory tax rates in 2019 were approximately 17 % in hong kong , 20 % in taiwan , 25 % in south korea , 37 % in japan and 25 % in mainland china . we are subject to taxation in the united states at the statutory corporate federal tax rate of 21 % in 2019 , and we pay taxes in multiple states within the united states at various tax rates . our overall effective tax rate was 32.0 % for the year ended december 31 , 2019. critical accounting policies the following critical accounting policies and estimates should be read in conjunction with our audited consolidated financial statements and related notes thereto . management considers our critical accounting policies to be the recognition of revenue , accounting for income taxes and accounting for intangible assets . in each of these areas , management makes estimates based on historical results , current trends and future projections . 39 revenue . story_separator_special_tag revenue is measured as the amount of consideration we expect to receive in exchange for transferring products . all revenue is recognized when we satisfy our performance obligations under the contract . we recognize revenue by transferring the promised products to the customer , with revenue recognized at shipping point , the point in time the customer obtains control of the products . we recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer . in most markets , we offer a return policy that allows our sales force to return unopened and unused product for up to 12 months subject to a 10 % restocking fee . reported revenue is net of returns , which have historically been less than 5 % of annual revenue . the majority of the company 's contracts have a single performance obligation and are short term in nature . sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales . through our product subscription and loyalty programs , which vary from market to market , participants who commit to purchase on a monthly basis receive a discount . we account for this discount as a reduction in the transaction price . participants may cancel their commitment at any time , however some markets charge a one-time early cancellation fee . all purchases under these programs are subject to our standard product payment and return policies . income taxes . we account for income taxes in accordance with the income taxes topic of the financial accounting standards codification . this topic establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise 's activities during the current and preceding years . we take an asset and liability approach for financial accounting and reporting of income taxes . we pay income taxes in many foreign jurisdictions based on the profits realized in those jurisdictions , which can be significantly impacted by terms of intercompany transactions between nu skin affiliates around the world . deferred tax assets and liabilities are created in this process . as of december 31 , 2019 , we had net deferred tax assets of $ 20.0 million . we net these deferred tax assets and deferred tax liabilities by jurisdiction . valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be ultimately realized . these deferred tax assets assume sufficient future earnings will exist for their realization , and are calculated using anticipated tax rates . in certain jurisdictions , valuation allowances have been recorded against the deferred tax assets specifically related to use of foreign tax credits , research and development credits and net operating losses . when we determine that there is sufficient taxable income to utilize the foreign tax credits , the research and development credits , or the net operating losses , the valuation allowances will be released . in the event we were to determine that we would not be able to realize all or part of our deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to earnings in the period such determination was made . we evaluate our indefinite reinvestment assertions with respect to foreign earnings for each period . other than earnings we intend to reinvest indefinitely , we accrue for the u.s. federal and state income taxes applicable to the earnings . for all foreign earnings , we accrue the applicable foreign income taxes . we intend to utilize the offshore earnings to fund foreign investments , specifically capital expenditures . undistributed earnings that we have indefinitely reinvested aggregate to $ 60.0 million as of december 31 , 2019. if this amount were repatriated to the united states , the amount of incremental taxes would be approximately $ 6.0 million . the company files income tax returns in the u.s. federal jurisdiction , and in various state and foreign jurisdictions . the company is no longer subject to tax examinations from the irs for all years for which tax returns have been filed before 2015. with a few exceptions , we are no longer subject to state and local income tax examination by tax authorities for the years before 2016. in 2009 , we entered into a voluntary program with the irs called compliance assurance process ( “ cap ” ) . the objective of cap is to contemporaneously work with the irs to achieve federal tax compliance and resolve all or most of the issues prior to filing of the tax return . we have elected to participate in the cap program for 2020 and may elect to continue participating in cap for future tax years ; we may withdraw from the program at any time . in major foreign jurisdictions , we are generally not subject to income tax examinations for years before 2013. however , statutes in certain markets may be as long as ten years for transfer pricing related issues . we are currently under examination in certain foreign jurisdictions ; however , the outcomes of those reviews are not yet determinable . our unrecognized tax benefits are related to multiple foreign and domestic jurisdictions . there are potential changes in unrecognized tax benefits from the multiple jurisdictions in which we operate , as well as the expiration of various statutes of limitation and possible completion of tax examinations ; however , we do not anticipate that our total unrecognized tax benefits will significantly change over the next 12 months . at december 31 , 2019 , we had $ 13.5 million in unrecognized tax benefits of which $ 13.5 million , if recognized , would affect the effective tax rate .
| general and administrative expenses general and administrative expenses decreased to $ 616.0 million in 2019 , compared to $ 662.3 million in 2018. the $ 46.3 million decrease primarily relates to decreases in labor expense due to decreased employee headcount during 2019 , primarily as a result of our restructuring program in the fourth quarter of 2018 and higher employee incentive compensation for 2018 from achievement of performance goals . as a percentage of revenue , general and administrative increased 0.7 % to 25.4 % for 2019 , compared to 24.7 % for 2018 . 45 restructuring and impairment expenses in the fourth quarter of 2018 , we adopted a restructuring program . this program primarily impacted our information technology infrastructure and organization and other departments within our corporate and americas offices . as a result of the restructuring program , we recorded a non-cash charge of $ 48.6 million for impairment of information technology assets , including internally developed software for our social sharing and digital initiatives , and $ 22.1 million of cash charges , including $ 20.1 million for employee severance and $ 2.0 million for other related cash charges with our restructuring . we additionally recorded $ 7.2 million of non-cash inventory write-offs as restructuring charges , which were recorded in cost of sales and in connection with our business strategy . the restructuring charges were predominately recorded in our corporate and other category . as of december 31 , 2019 , the program has been completed and all payments have been made . other income ( expense ) , net other income ( expense ) , net for 2019 was $ 12.3 million of expense , compared to $ 21.2 million of expense in 2018. the decreases in expense primarily reflect foreign-currency fluctuations ; foreign-currency translation losses decreased $ 12.6 million for 2019. the foreign-currency translation losses primarily related to fluctuations of the argentine peso and the chinese rmb compared to the u.s. dollar for 2018. the decrease in expense for 2019 additionally reflects a non-cash charge of $ 7.2 million in the first quarter of 2018 related to the conversion of our then-outstanding convertible notes , offset by a non-cash gain of $ 13.6 million on our step acquisitions in the first quarter of 2018 , as the fair value of
| 14,650 |
our public and private cloud security solutions , including virtual appliances and hosted solutions , extend the core capabilities of the fortinet security fabric platform in and across cloud environments , delivering security that follows their applications and data . our secure sd-wan for multi-cloud solution automates deployment of an overlay network across different cloud networks and offers visibility , control and centralized management that integrates functionality across multiple cloud environments . our cloud security portfolio also includes securing applications , including email and web . fortinet cloud security offerings are available for deployment in major public and private cloud environments , including amazon web services , microsoft azure , google cloud , oracle cloud , alibaba cloud , ibm cloud and vmware cloud . we also offer managed ips and web application firewall ( “ waf ” ) rules delivered by fortiguard labs as an overlay service to native security offerings offered by amazon web services . 50 endpoint protection , internet of things ( “ iot ” ) and operational technology ( “ ot ” ) security —we protect end-customers from advanced threats that target their devices and the data that reside on them through our advanced endpoint solutions that provide core endpoint protection , advanced threat protection , incident monitoring , and response . additionally , the proliferation of iot and ot devices has generated new opportunities for us to grow our business . we offer network access control solutions that provide visibility , control and automated event responses in order to secure iot devices . ai-driven security operations —we develop and provide artificial intelligence ( “ ai ” ) driven security operations solutions , including fortiguard and other security subscription services , endpoint detection and response , and our security orchestration , automation and response ( “ soar ” ) capabilities and solutions , that can be applied across the entire fortinet security fabric platform . these solutions deliver intelligence and insights . in addition to our security solutions , our customers may purchase fortiguard and other security subscription services to receive threat intelligence updates and protection updates delivered by fortiguard labs , forticare technical support services and the support of tams , res and professional service consultants for implementations or training services . correction of prior period financial data as discussed further in note 2 of the notes to consolidated financial statements included in part ii , item 8 of this annual report on form 10-k , we identified an immaterial error related to the commencement of revenue recognition for certain forticare support service contracts , which resulted in an understatement of revenue during the years ended 2019 and 2018 , respectively . the correction of this error resulted in increases to service revenue , gross profit and operating income of $ 6.8 million and $ 3.4 million for the year ended 2019 and 2018 , respectively . net income increased by $ 5.2 million and $ 2.7 million for the year ended 2019 and 2018 , respectively . this resulted in an increase to diluted net income per share of $ 0.03 and $ 0.01 for the year ended 2019 and 2018 , respectively . we evaluated the effect of this correction on the previous results of operations and determined that it did not materially impact any trends previously disclosed . this correction did not impact net cash provided by operating activities , billings or free cash flows . story_separator_special_tag while the broader implications of the covid-19 pandemic on our employees and overall financial performance remain uncertain , we have seen certain impacts on our business and operations , results of operations , financial condition , cash flows , liquidity and capital and financial resources as of and during the year ended december 31 , 2020. conversely , some aspects of our business do not appear to have been significantly affected . during the year ended december 31 , 2020 , we have observed the following : in most countries , our employees ability to travel was reduced . in-person sales and marketing events or meetings that would normally have been held were canceled , postponed or converted into virtual events . as a result , expenses related to travel and marketing events decreased significantly . to the extent that it becomes safe for our employees to travel and for us to hold or attend marketing events , these expenses may increase in the future , although we can not predict if or when such expenses will increase or return to pre-pandemic levels . after performing additional credit review of our existing customers , including obtained credit reports and reviewing their latest available statements of financial position , we increased the allowance of credit losses for certain accounts receivable . the allowance for credit losses was $ 2.5 million as of december 31 , 2020. provisions , write-offs and recoveries were not material during the year ended december 31 , 2020. we have offered payment terms in excess of our contractual agreements to certain distributor customers , which has resulted in an increase to the average collection period of our trade receivables . as of december 31 , 2020 , 97 % of our outstanding trade accounts receivable was due to be collected during the first quarter of 2021 . 52 the countries and geographic regions in which we experienced the fastest billings growth in the fourth quarter of 2020 , as compared to the fourth quarter of 2019 , were countries and geographic regions in which the covid-19 pandemic is generally considered to have had a comparatively shorter or less severe impact on the local population and economy during the quarter . we have noted that , for some of our customers , sales cycles appear to have lengthened , though it is unclear whether this trend will persist . our average service contract duration increased by approximately two months in the fourth quarter of 2020 as compared to the fourth quarter of 2019. in order to mitigate supply chain risk and in anticipation of fourth-quarter demand , we have increased our on-hand stock of certain products . story_separator_special_tag the yield on investment-grade debt has decreased , and while the risk of credit losses on our investments and cash equivalents has not changed significantly , as the debt securities in our portfolio have matured , they have been replaced by securities with lower effective interest rates . this has contributed to a decrease in our interest income during the year ended december 31 , 2020 , compared to the same periods last year . in accordance with the cares act , we have deferred the deposit and payment of our employer 's share of social security taxes . this did not materially affect net cash provided by operating activities during the period . t hrough the filing of this annual report on form 10-k , t here have been no material changes to the trends described above . going forward , however , the situation is uncertain , rapidly changing and hard to predict , and the covid-19 pandemic may have a material negative impact on our future periods . if we experience significant changes in our billings growth rates , it will impact product revenue in the current quarter and fortiguard and forticare service revenues in subsequent quarters , as we sell annual and multi-year service contracts that are recognized ratably over the contractual service term . in addition , the broader implications of the pandemic on our business and operations and our financial results , including the extent to which the effects of the pandemic will impact future results and growth in the cybersecurity industry , remain uncertain . the duration and severity of the economic downturn from the pandemic may negatively impact our business and operations , results of operations , financial condition , cash flows , liquidity and capital and financial resources in a material way . as a result , the effects of the pandemic may not be fully reflected in our results of operations until future periods . for further discussion , see part i , item 1a of this annual report on form 10-k. business model we typically sell our security solutions to distributors that sell to networking security focused resellers and to service providers and managed security service providers ( “ mssps ” ) , who , in turn , sell to end-customers . at times , we also sell directly to large service providers and major systems integrators who may sell to our end-customers or use our products and services to provided hosted solutions to other enterprises . our end-customers are located in over 80 countries and include small , medium and large enterprises and government organizations across a wide range of industries , including telecommunications , government , financial services , retail , technology , education , manufacturing and healthcare . an end-customer deployment may involve as few as one or as many as thousands of appliances and other fortinet security fabric platform products , depending on the end-customer 's size and security requirements . we also offer our products through major cloud providers , and have recognized revenue on a usage basis from amazon web services , microsoft azure , google cloud , oracle cloud , alibaba cloud and ibm cloud . we have also recognized revenue from customers who deploy our products in a bring-your-own-license ( “ byol ” ) arrangement in private clouds or at cloud providers . in a byol arrangement , a customer purchases a software license from us through our channel partners and deploys the software in a cloud provider 's environment . similarly , customers may purchase such a license from us and deploy in third-party clouds or in their private cloud . 53 our customers purchase our hardware products and software licenses , as well as our fortiguard and other security subscription and forticare technical support services . we generally invoice at the time of our sale for the total price of the products and security and technical support services . standard payment terms are generally no more than 60 days , though , as noted in the covid-19 update above , we have recently offered extended payment terms to certain distributor customers . key metrics we monitor a number of key metrics , including the key financial metrics set forth below , in order to help us evaluate growth trends , establish budgets , measure the effectiveness of our sales and marketing efforts , and assess operational efficiencies . the following table summarizes revenue , deferred revenue , billings ( non-gaap ) , net cash provided by operating activities , and free cash flow ( non-gaap ) . we discuss revenue below under “ —components of operating results , ” and we discuss net cash provided by operating activities below under “ —liquidity and capital resources. ” deferred revenue , billings ( non-gaap ) , and free cash flow ( non-gaap ) are discussed immediately below the following table . replace_table_token_6_th deferred revenue . our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenue . the majority of our deferred revenue balance consists of the unrecognized portion of service revenue from fortiguard and other security subscription and forticare technical support service contracts , which is recognized as revenue ratably over the contractual service period . we monitor our deferred revenue balance , deferred revenue growth and the mix of short-term and long-term deferred revenue because deferred revenue represents a significant portion of free cash flow and of revenue to be recognized in future periods . deferred revenue was $ 2.61 billion as of december 31 , 2020 , an increase of $ 496.2 million , or 24 % , from december 31 , 2019 . billings ( non-gaap ) .
| in 2020 , the americas region , the europe , middle east and africa ( “ emea ” ) region and the asia pacific ( “ apac ” ) region contributed 42 % , 38 % and 20 % of our total revenue , respectively , and increased by 17 % , 21 % and 23 % compared to 2019 , respectively . product revenue grew 16 % in 2020. we experienced revenue growth across several of our hardware and software products , including sd-wan and teleworker and remote security solutions . service revenue growth of 22 % in 2020 was driven by the strength of our fortiguard and other security subscription revenue and fortigate technical support and other service revenue , which both grew 22 % in 2020. our billings were diversified on a geographic basis . in 2020 , approximately 50 % of our billings in the aggregate were from over 80 countries that individually contributed less than 3 % of our billings . during the fourth quarter of 2020 , we acquired panopta holdings llc ( “ panopta ” ) to provide a platform for monitoring the health and performance of network and it infrastructure . during the third quarter of 2020 , we acquired opaq networks , inc. ( “ opaq ” ) to further enhance the fortinet security fabric platform by providing enterprises with the zero trust network access sase cloud solution . the impact of these acquisitions were not material to our consolidated financial statements . in 2020 , we recognized gains of $ 40.2 million on an ip matter in connection with a mutual covenant-no-to-sue and release agreement with a competitor in the network security industry . excluding the gains on the ip matter , operating expenses as a percentage of revenue decreased by 1.3 percentage points compared to 2019. headcount increased by 16 % to 8,238 employees and contractors as of december 31 , 2020 , up from 7,082 as of december 31 , 2019. covid-19 update the united states and the global community we serve are facing unprecedented challenges posed by the covid-19 pandemic . in response to the pandemic , we have taken a number of actions to protect our employees , including
| 14,651 |
under the 1940 act , we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities , subject to certain restrictions , including an overall limitation on the amount of outstanding debt , or leverage , relative to equity of 2:1. because of the nature and size of our portfolio investments , we periodically borrow funds to make qualifying investments in order to maintain our qualification as a ric . during 2019 and 2018 , we borrowed such funds by accessing a margin account with a securities brokerage firm . we invest the proceeds of these margin loans in high-quality securities such as u.s. treasury securities until they are repaid . we refer to these high-quality investments as “ restricted assets ” because they are not generally available for investment in portfolio companies under the terms of borrowing . if , in the future , we can not borrow funds to make such qualifying investments at the end of any future quarter , we may not qualify as a ric and would become subject to corporate-level income tax on our net investment income and realized capital gains , if any . in addition , our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits . see “ federal income tax considerations . ” distributions . so long as we remain a bdc , we will continue to pay out net investment income and or realized capital gains , if any , on an annual basis as required under the 1940 act . 26 possible share repurchase . as a closed-end bdc , our shares of common stock are not redeemable at the option of stockholders , and our shares currently trade at a discount to their net asset value . our board has determined that it would be in the best interests of our stockholders to reduce or eliminate this market value discount . accordingly , we have been authorized to , and may from time to time , repurchase shares of our outstanding common stock ( including by means of tender offers or privately negotiated transactions ) in an effort to reduce or eliminate this market discount or to increase the net asset value of our shares . we are not required to undertake , and we have not previously undertaken , any such share repurchases , nor do we further anticipate taking any such action in 2020 . 2016 equity incentive plan on june 13 , 2016 , our shareholders approved the adoption of our 2016 equity incentive plan ( “ incentive plan ” ) . on january 10 , 2017 , the sec issued an order approving the incentive plan and certain awards intended to be made thereunder . the incentive plan is intended to promote the interests of the fund by encouraging officers , employees , and directors of the fund and its affiliates to acquire or increase their equity interest in the fund and to provide a means whereby they may develop a proprietary interest in the development and financial success of the fund , to encourage them to remain with and devote their best efforts to the business of the fund , thereby advancing the interests of the fund and its stockholders . the incentive plan is also intended to enhance the ability of the fund and its affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the fund . the incentive plan permits the award of restricted stock as well as common stock purchase options . the maximum number of shares of common stock that are subject to awards granted under the incentive plan is 2,434,728 shares . the term of the incentive plan will expire on june 13 , 2026. on march 17 , 2017 , we granted awards of restricted stock under the plan to certain of our directors and executive officers in the aggregate amount of 844,500 shares . the awards are each subject to a vesting requirement over a 3-year period unless the recipient thereof is terminated or removed from their position as a director or executive officer without “ cause ” , or as a result of constructive termination , as such terms are defined in the respective award agreements entered into by each of the recipients and the fund . we account for share-based compensation using the fair value method , as prescribed by asc 718 , compensation—stock compensation . accordingly , for restricted stock awards , we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service period , which is generally the vesting term . in connection with these awards , we recorded compensation expense of $ 0.3 million , $ 0.4 million and $ 1.1 million respectively , for the years ended december 31 , 2019 , 2018 , and 2017. critical accounting policies and estimates we follow the accounting and reporting guidance in fasb accounting standards codification topic 946 “ financial services – investment companies . ” our financial statements are based on the selection and application of significant accounting policies , which require management to make significant estimates and assumptions . we believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations . valuation of investments for most of our investments , market quotations are not available . story_separator_special_tag with respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value , our board has approved a multi-step valuation process each quarter , as described below : 1. each portfolio company or investment is reviewed by our investment professionals ; 2. with respect to investments with a fair value exceeding $ 2.5 million that have been held for more than one year , we engage independent valuation firms to assist our investment professionals . these independent valuation firms conduct independent valuations and make their own independent assessments ; 3. our management produces a report that summarized each of our portfolio investments and recommends a fair value of each such investment as of the date of the report ; 4. the audit committee of our board reviews and discusses the preliminary valuation of our portfolio investments as recommended by management in their report and any reports or recommendations of the independent valuation firms , and then approves and recommends the fair values of our investments so determined to our board for final approval ; and 5. the board discusses valuations and determines the fair value of each portfolio investment in good faith based on the input of our management , the respective independent valuation firm , as applicable , and the audit committee . 27 during the first twelve months after an investment is made , we rely on the original investment amount to determine the fair value unless significant developments have occurred during this twelve month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . investments are valued utilizing a yield analysis , enterprise value ( “ ev ” ) analysis , net asset value analysis , liquidation analysis , discounted cash flow analysis , or a combination of methods , as appropriate . the yield analysis uses loan spreads and other relevant information implied by market data involving identical or comparable assets or liabilities . under the ev analysis , the ev of a portfolio company is first determined and allocated over the portfolio company 's securities in order of their preference relative to one another ( i.e. , “ waterfall ” allocation ) . to determine the ev , we typically use a market multiples approach that considers relevant and applicable market trading data of guideline public companies , transaction metrics from precedent m & a transactions and or a discounted cash flow analysis . the net asset value analysis is used to derive a value of an underlying investment ( such as real estate property ) by dividing a relevant earnings stream by an appropriate capitalization rate . for this purpose , we consider capitalization rates for similar enterprises as may be obtained from guideline public companies and or relevant transactions . the liquidation analysis is intended to approximate the net recovery value of an investment based on , among other things , assumptions regarding liquidation proceeds based on a hypothetical liquidation of a portfolio company 's assets . the discounted cash flow analysis uses valuation techniques to convert future cash flows or earnings to a range of fair values from which a single estimate may be derived utilizing an appropriate discount rate . the measurement is based on the net present value indicated by current market expectations about those future amounts . in applying these methodologies , additional factors that we consider in fair value pricing our investments may include , as we deem relevant : security covenants , call protection provisions , and information rights ; the nature and realizable value of any collateral ; the portfolio company 's ability to make payments ; the principal markets in which the portfolio company does business ; publicly available financial ratios of peer companies ; the principal market ; and enterprise values , among other factors . also , any failure by a portfolio company to achieve its business plan or obtain and maintain its financing arrangements could result in increased volatility and result in a significant and rapid change in its value . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis assuming a hypothetical current sale of the security to determine if a debt security has been impaired . the yield analysis considers changes in interest rates and changes in leverage levels of the portfolio company as compared to the market interest rates and leverage levels . assuming the credit quality of the portfolio company remains stable , the fund will use the value determined by the yield analysis as the fair value for that security if less than the cost of the investment . we will record unrealized depreciation on investments when we determine that the fair value of a security is less than its cost basis , and will record unrealized appreciation when we determine that the fair value is greater than its cost basis . because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 37.0 million and $ 30.7 million as of december 31 , 2019 and 2018 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2019 and december 31 , 2018 , one of our portfolio investments , mvc capital , inc. , was publicly listed on the nyse with 563,894 common shares and 527,138 common shares , respectively .
| such change in unrealized appreciation resulted primarily from the following changes : ( i ) increase in the fair value of our shareholding in mvc of $ 0.8 million due to an increase in the share price of mvc and the receipt of dividend payments in the form of additional shares of mvc during the year ; ( ii ) increase in fair value of our shareholding in palletone , inc. of $ 6.0 million due to improved operating performance ; ( iii ) transfer of unrealized depreciation to realized loss of our holdings in emdc of $ 2.8 million in connection with the dissolution of emdc and the transfer of its assets to the fund ; and ( iv ) decrease in the fair value of our holdings in equus energy , llc of $ 1.0 million , principally due to decreases in gas prices and decreases in the short and long term forward pricing curve for oil . year ended december 31 , 2018 during 2018 , we recorded an increase of $ 3.6 million in net unrealized appreciation , from $ 13.5 million at december 31 , 2017 to $ 17.1 million at december 31 , 2018 , in our portfolio securities . such increase resulted primarily from the following changes : ( i ) decrease in the fair value of our shareholding in mvc of $ 1.2 million due to a decrease in the mvc share price during 2018 which was partially offset by the receipt of dividend payments in the form of additional shares of mvc ; ( ii ) increase in fair value of our shareholding in palletone , inc. ( “ palletone ” ) of $ 3.8 million due to an overall improvement in comparable industry sectors , as well as continued revenue increases and promising acquisition and growth prospects ; and ( iii ) increase in the fair value of our holdings in equus energy of $ 1.0 million , principally due to an increase in comparable transactions for mineral leases . 33 portfolio securities as of december 31 , 2019 , we had active investments in the following entities or portfolio companies : 5 th element tracking , llc 5 th element is a technology holding company based outside of
| 14,652 |
the recent economic downturn also significantly affected countries throughout asia , including japan . the worldwide 20 recession led to falling stock prices and asset values in asia and reduced economic growth prospects in asia . several property markets in asia have been affected by real estate developments that resulted in an oversupply of completed or partially completed space . property prices fell along with prices of other investments and asset values . these conditions resulted in a decline in our investment sales and investment activities in japan beginning in late 2008 and continuing through the second quarter of 2010. starting in third quarter of 2010 , credit markets began to rebound and banks began to liquidate loans and real estate owned ( `` reo '' ) which resulted in an increase in both our investment and services segments . interest rates remained low through 2010 and in many real estate properties prices began to stabilize towards the end of 2010. rental rates have begun to rebound and concessions have dissipated , particularly in the multifamily sector . a continuing rebound of our investments and services segments is expected , but contingent on , among other things , the u.s. and japanese economies resuming their growth and credit markets retaining stability and predictability over a sustained period . as a vertically integrated company , we have the in-house expertise and skill sets to navigate through these times by taking advantage of opportunities in real estate and the capital markets . international operations we have made investments in japan and may expand our operations and investments in japan . if we expand , the increased scope of our international operations may lead to more volatile financial results and difficulties in managing our businesses . this volatility and difficulty could be caused by , among other things , the following : currency fluctuations , restrictions and problems relating to the repatriation of profits ; difficulties and costs of staffing and managing international operations ; the burden of complying with multiple and potentially conflicting laws ; laws restricting foreign companies from conducting business and unexpected changes in regulatory requirements ; the impact of different business cycles and economic instability ; political instability and civil unrest ; greater difficulty in perfecting our security interests , collecting accounts receivable , foreclosing on security and protecting our interests as a creditor in bankruptcies in certain geographic regions ; potentially adverse tax consequences ; share ownership restrictions on foreign operations ; japanese property and income taxes , tax withholdings and tariffs ; and geographic , time zone , language and cultural differences between personnel in different areas of the world . our revenues from non-u.s. operations have been primarily denominated in the local currency where the associated revenues were earned . thus , we may experience significant fluctuations in revenues and earnings because of corresponding fluctuations in foreign currency exchange rates . to date , our foreign currency exposure has been limited to the japanese yen . due to the constantly changing currency exposures to which we will be subject and the volatility of currency exchange rates , there can be no assurance that we will not experience currency losses in the future , nor can we predict the effect of exchange rate fluctuations upon future operating results . our management may decide to use currency hedging instruments from time to time including foreign currency forward contracts , purchased currency options ( where applicable ) and foreign currency borrowings . the economic risks associated with these hedging instruments include unexpected fluctuations in inflation rates , which could impact cash flow relative to paying down debt , and unexpected changes in our underlying net asset position . there can be no assurance that any hedging will be effective . kennedy wilson 's 2010 highlights strengthened balance sheet our book equity increased by 74 % to $ 313 million at december 31 , 2010 from $ 179 million as of december 31 , 2009 . our investment account ( kennedy wilson 's equity in real estate and loan investments ) increased by 72 % to $ 364 million at december 31 , 2010 from $ 212 million as of december 31 , 2009 . the amount available for us to borrow under our line of credit facility increased to $ 75 million from $ 30 million in 2010. we decreased our debt to book equity to 0.4 x at december 31 , 2010 from 0.7 x at december 31 , 2009 , with a long term strategy of maintaining modest leverage . improved operating metrics we achieved a fy 2010 adjusted ebitda of $ 58 million : our best year in history versus an adjusted ebitda in 2009 of $ 37 million , an increase of 58 % . our investments segment adjusted ebitda for 2010 increased by 47 % to $ 56 million from $ 38 million for fy 2009. our services segment adjusted ebitda for fy 2010 increased by 164 % to $ 9 million from $ 4 million for fy 2009. capital raising success and robust acquisition program since and including our public listing in november 2009 , we have raised $ 221 million of equity for us and over $ 1 billion of equity partner capital ( including commitments ) for our acquisition program . in 2010 , we closed $ 2.025 billion of real estate and debt acquisitions through direct and joint venture investments 21 ( including approximately $ 1.3 billion of multifamily acquisitions and $ 650 million of debt purchases secured by real estate ) . these acquisitions were all in our target markets . significant multifamily platform our current multifamily platform , owned directly and through joint ventures including two deals that were in escrow as of december 31 , 2010 and have subsequently closed , consists of 11,971 units within 78 apartment communities . the units are located in california ( 50 % ) , the pacific northwest ( 30 % ) and japan ( 20 % ) . story_separator_special_tag as of december 31 , 2010 , our multifamily portfolio was 96 % occupied and on a trailing twelve month basis ( annualized for communities purchased mid-year ) produced a net operating income of $ 103 million . as of december 31 , 2010 , the debt associated with these properties was approximately $ 1.3 billion and our equity interest in the portfolio was approximately 32 % . in many cases , in addition to our ownership percentage , we have a promoted interest in the profits of these investments . management believes that our multifamily investments are in supply constrained markets which will experience significant rent growth over the next several years . we increased our investment in our japanese multifamily subsidiary to 41.5 % as of december 31 , 2010 from 35.0 % as of december 31 , 2009 ; our japanese portfolio is currently 96 % occupied and our subsidiary has a currency gain in excess of $ 50 million . accessed debt financing we took advantage of the historically low interest rate environment to reduce our cost of debt at the corporate and joint venture levels . we borrowed in excess of $ 750 million of joint venture debt through acquisition financing and strategic property refinancing . expansion of service business our management and leasing fees increased by 11 % to $ 21 million for fy 2010 from $ 19 million for fy 2009 driven primarily by increased asset management fees earned through our acquisition activities . our commissions increased by 140 % to $ 12 million for fy 2010 from $ 5 million for fy 2009 driven primarily by increased auction commissions and acquisition fees . our assets under management ( owned and third-party ) total approximately $ 7 billion as of december 31 , 2010 . we auctioned and conventionally sold over 40 projects in three countries and 18 states including california , washington , hawaii , oregon , texas , nevada , florida , georgia , and north carolina . we conducted commercial auctions , signaling the transition of the current real estate cycle . we added numerous new accounts to our property management business through organic growth and the acquisition of sachse real estate . our services business sourced several key acquisitions for the investment division through relationships with bank clients . critical accounting policies basis of presentation —the consolidated financial statements include the accounts of ourselves and our wholly-owned subsidiaries . all significant intercompany balances and transactions have been eliminated in consolidation . in addition , we evaluate our relationships with other entities to identify whether they are variable interest entities as defined by fasb accounting standards codification ( asc ) subtopic 810-10 and to assess whether we are the primary beneficiary of such entities . if the determination is made that we are the primary beneficiary , then that entity is consolidated in the consolidated financial statements . the ownership of the other interest holders of consolidated subsidiaries is reflected as noncontrolling interests . revenue recognition —revenue primarily consists of management fees , performance fees , commission revenue and sales of real estate . management fees are primarily comprised of property management fees , base asset management fees , and acquisition fees . property management fees are earned for managing the operations of real estate assets and are based on a fixed percentage of the revenues generated from the respective real estate assets . base asset management fees are earned from limited partners of funds we sponsor and are generally based on fixed percentage of committed capital or net asset value . these fees are recognized as revenue ratably over the period that the respective services are performed . acquisition fees are earned for identifying and closing investments on behalf of investors and are based on a fixed percentage of the acquisition price . acquisition fees are recognized upon the successful completion of an acquisition after all required services have been performed . performance fees or carried interest are allocated to the general partner or special limited partnership interest of our real estate funds based on the cumulative fund performance to date that are subject to preferred return to the limited partners . at the end of each reporting period , we calculate the performance fee that would be due to the general partner and special limited 22 partner interests for a fund , pursuant to the fund agreement , as if the fair value of the underlying investments were realized as of such date , irrespective of whether such amounts have been realized . as the fair value of underlying investments varies between reporting periods , it is necessary to make adjustments to amounts recorded as performance fee to reflect either ( a ) positive performance resulting in an increase in the performance fee allocated to the general partner or ( b ) negative performance that would cause the amount due to the us to be less than the amount previously recognized as revenue , resulting in a negative adjustment to performance fees allocated to the general partner . substantially all of the carried interest is recognized in equity in joint venture income and in certain instances the performance fees are recognized in management and leasing fees in our consolidated statement of operations and comprehensive income ( loss ) . commissions primarily consist of auction and real estate sales commissions and leasing commissions . in the case of auction and real estate sales commissions , this generally occurs when escrow closes . in accordance with the guidelines established for reporting revenue gross as a principal versus net as an agent in the asc subtopic 605-45 , we record commission revenues and expenses on a gross basis . of the criteria listed in the subtopic 605-45 , we are the primary obligor in the transaction , do not have inventory risk , perform all or part of the service , have credit risk , and have wide latitude in establishing the price of services rendered and discretion in selection of agents and determination of service specifications .
| however , ebitda and adjusted ebitda are not recognized measurements under gaap and when analyzing our operating performance , readers should use ebitda and adjusted ebitda in addition to , and not as an alternative for , net income as determined in accordance with gaap . because not all companies use identical calculations , our presentation of ebitda and adjusted ebitda may not be comparable to similarly titled measures of other companies . furthermore , ebitda and adjusted ebitda are not intended to be a measure of free cash flow for our management 's discretionary use , as it does not consider certain cash requirements such as tax and debt service payments . the amounts shown for ebitda and adjusted ebitda also differ from the amounts calculated under similarly titled definitions in our debt instruments , which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities , such as incurring additional debt and making certain restricted payments . 26 the following summarizes revenue , operating expenses , operating income ( loss ) and net income ( loss ) and calculates ebitda ( 1 ) and adjusted ebitda ( 2 ) by our services , investments , and corporate operating segments for the year ended december 31 , 2010 : replace_table_token_7_th 27 the following summarizes revenue , operating expenses , operating income ( loss ) and net income ( loss ) and calculates ebitda ( 1 ) and adjusted ebitda ( 2 ) by our services , investments , and corporate operating segments for the year ended december 31 , 2009 : replace_table_token_8_th 28 the following summarizes revenue , operating expenses , operating income ( loss ) and net income ( loss ) and calculates ebitda ( 1 ) and adjusted ebitda ( 2 ) by our services , investments , and corporate operating segments for the year ended december 31 , 2008 : replace_table_token_9_th — ( 1 ) ebitda represents earnings before interest expense , income taxes , and depreciation and amortization . our management believes ebitda is useful in evaluating our operating performance compared to that of other companies in our industry
| 14,653 |
on a consolidated basis , the management fees we earn for the services we provide to the cies and the related general and administrative expenses are eliminated and the changes in the fair value of assets and liabilities related to the cies , primarily syndicated loans and debt , are reflected in net investment income . we continue to include the fees from these entities in the management and financial advice fees line within our asset management segment . effective january 1 , 2016 , we adopted asu 2014-13 - consolidation : measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity and elected the measurement alternative . as a result , the carrying value of the cie debt is set equal to the fair value of the cie assets ; therefore the changes in the fair value of assets and liabilities related to cies is nil . the cie debt held by ameriprise financial is eliminated in consolidation . see note 3 and note 4 to our consolidated financial statements for additional information . 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 % . 43 the following tables reconcile our gaap measures to operating measures : replace_table_token_3_th replace_table_token_4_th ( 1 ) pretax operating adjustments . ( 2 ) 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_5_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 44 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 ; and net income ( loss ) from consolidated investment entities . 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 changes on unrealized gains or losses for certain investments ; integration and restructuring charges ; net income ( loss ) from consolidated investment entities ; 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 % . critical accounting estimates the accounting and reporting policies that we use affect our consolidated financial statements . certain of our accounting and reporting policies are critical to an understanding of our consolidated results of operations and financial condition and , in some cases , the application of these policies can be significantly affected by the estimates , judgments and assumptions made by management during the preparation of our consolidated financial statements . the accounting and reporting policies and estimates we have identified as fundamental to a full understanding of our consolidated results of operations and financial condition are described below . see note 2 to our consolidated financial statements for further information about our accounting policies . valuation of investments the most significant component of our investments is our available-for-sale securities , which we carry at fair value within our consolidated balance sheets . the fair value of our available-for-sale securities at december 31 , 2016 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 . egps vary based on persistency rates ( assumptions at which contractholders and policyholders are expected to surrender , make withdrawals from and make deposits to their contracts ) , mortality levels , client asset value growth rates ( based on equity and bond market performance ) , variable annuity benefit utilization and interest margins ( the spread between earned rates on invested assets and rates credited to contractholder and policyholder accounts ) . changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time . when assumptions are changed , the percentage of egps used to amortize dac might also change . a change in the required amortization percentage is applied retrospectively ; an increase in amortization percentage 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 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 6.6 % 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 45 of financial market performance as well as recent actual performance . the suggested near-term equity fund growth rate is reviewed quarterly to ensure consistency with management 's assessment of anticipated equity market performance . a decrease of 100 basis points in separate account fund growth rate assumptions is likely to result in an increase in dac amortization and an increase in benefits and claims expense for variable annuity and vul insurance contracts . the following table presents the estimated impact to current period pretax income : estimated impact to pretax income ( 1 ) dac amortization benefits and claims expense total ( in millions ) decrease in future near- and long-term fixed income fund growth returns by 100 basis points $ ( 21 ) $ ( 64 ) $ ( 85 ) decrease in future near-term equity fund growth returns by 100 basis points $ ( 21 ) $ ( 42 ) $ ( 63 ) decrease in future long-term equity fund growth returns by 100 basis points ( 16 ) ( 27 ) ( 43 ) decrease in future near- and long-term equity fund growth returns by 100 basis points $ ( 37 ) $ ( 69 ) $ ( 106 ) ( 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 .
| 55 the following table presents the results of operations of our advice & wealth management segment on an operating basis : replace_table_token_11_th our advice & wealth management segment pretax operating earnings , which exclude net realized investment gains or losses , increased $ 52 million , or 6 % , to $ 911 million for the year ended december 31 , 2016 compared to $ 859 million for the prior year reflecting growth in wrap account assets and higher earnings on brokerage cash and short-term investments , partially offset by lower transactional volume . pretax operating margin was 18.1 % for the year ended december 31 , 2016 compared to 17.1 % for the prior year . net revenues net revenues exclude net realized investment gains or losses . net revenues increased $ 23 million to $ 5.0 billion for the year ended december 31 , 2016 compared to the prior year due to higher management and financial advice fees and net investment income , partially offset by lower distribution fees . operating net revenue per branded advisor increased to $ 518,000 for the year ended december 31 , 2016 , up 1 % , from $ 514,000 for the prior year reflecting asset growth , offset by lower transactional volume . management and financial advice fees increased $ 78 million , or 3 % , to $ 2.7 billion for the year ended december 31 , 2016 compared to $ 2.6 billion for the prior year due to growth in wrap account assets . average advisory wrap account assets increased $ 8.8 billion , or 5 % , compared to the prior year primarily due to net inflows . distribution fees decreased $ 86 million , or 4 % , to $ 2.1 billion for the year ended december 31 , 2016 compared to $ 2.2 billion for the prior year primarily due to lower transactional volume , partially offset by higher brokerage cash spread due to an increase in short-term interest rates . net investment income increased $ 40 million , or 27 % , to $ 186
| 14,654 |
we believe that the presentation of these non-gaap financial measures , when considered together with our u.s. gaap financial measures and the reconciliations to the corresponding u.s. gaap financial measures , provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures . because non-gaap financial measures vary among companies , the non-gaap financial measures presented in this report may not be comparable to similarly titled measures used by other companies . our use of these non-gaap financial measures is not meant to be considered in isolation or as a substitute for any u.s. gaap financial measure . a limitation of these non-gaap financial measures is they exclude items detailed below that have an impact on our u.s. gaap reported results . the best way this limitation can be addressed is by evaluating our non-gaap financial measures in combination with our u.s. gaap reported results and carefully evaluating the following tables that reconcile u.s. gaap reported figures to the non-gaap financial measures in this form 10-k. 51 story_separator_special_tag border= '' 0 '' cellpadding= '' 0 '' cellspacing= '' 0 '' style= '' border-collapse : collapse ; font-family : arial ; font-size:8pt '' width= '' 100 % '' > ( 9 ) refer to note 2 , divestitures and acquisitions , and note 5 , goodwill and intangible assets , for more information on the impairment charges recorded in 2016 , 2015 and 2014 related to trademarks . ( 10 ) refer to note 8 , financial instruments , note 16 , segment reporting , and non-gaap financial measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives . ( 11 ) refer to note 2 , divestitures and acquisitions , for more information on spin-off costs incurred in 2014 following the 2012 kraft foods group divestiture . 55 adjusted eps : applying the definition of adjusted eps ( 1 ) , the adjustments made to diluted eps attributable to mondelēz international ( the most comparable u.s. gaap financial measure ) were to exclude spin-off costs , 2012-2014 restructuring program costs , 2014-2018 restructuring program costs ; venezuela historical operating results and deconsolidation and remeasurement losses ; the jde coffee business transactions gain , hedging gains and incremental costs ; net earnings from the agf divestiture ; after-tax gain on the costa rica confectionery business divestiture and after-tax loss on the agf divestiture ; divestiture-related costs incurred for the planned sale of a confectionery business in france ; gain on sale of intangible asset ; impairment charges related to intangible assets ; acquisition integration costs ; acquisition-related costs ; mark-to-market impacts from commodity and forecasted currency transaction derivative contracts ; a loss on debt extinguishment and related expenses ; losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans ; gain on the equity method investment exchange ; and our proportionate share of unusual or infrequent items recorded by our jde and keurig equity method investees . we also evaluate adjusted eps on a constant currency basis . we believe adjusted eps provides improved comparability of underlying operating results . replace_table_token_30_th 56 replace_table_token_31_th ( 1 ) the tax expense / { benefit ) of each of the pre-tax items excluded from our gaap results was computed based on the facts and tax assumptions associated with each item , and such impacts have also been excluded from adjusted eps . for the year ended december 31 , 2016 , taxes for the : 2014-2018 restructuring program costs were $ ( 288 ) million , intangible asset impairment charges were $ ( 37 ) million , gain on sale of intangible asset was $ 3 million , acquisition integration costs were zero , gain on equity method investment exchange was $ 2 million , divestiture-related costs were $ ( 15 ) million , loss on debt extinguishment and related costs were $ ( 163 ) million , loss related to interest rate swaps were $ ( 36 ) million and mark-to-market gains / ( losses ) from derivatives were $ ( 11 ) million . for the year ended december 31 , 2015 , taxes for the : 2014-2018 restructuring program costs were $ ( 262 ) million , income / costs associated with the jde coffee business transactions were $ 145 million , net earnings from venezuelan subsidiaries were $ 107 million , gain on the jde coffee business transactions were $ 183 million , intangible asset impairment charges were $ ( 13 ) million , net earnings from divestitures were $ 33 million , loss on debt extinguishment and related costs were $ ( 275 ) million , loss related to interest rate swaps were $ ( 13 ) million and mark-to-market gains / ( losses ) from derivatives were $ 15 million . for the year ended december 31 , 2014 , taxes for the : spin-off costs were $ ( 13 ) million , 2012-2014 restructuring program costs were $ ( 107 ) million , 2014-2018 restructuring program costs were $ ( 101 ) million , net earnings from venezuelan subsidiaries were $ 90 million , remeasurement of net monetary assets in venezuela was $ ( 16 ) million , income / costs associated with the jde coffee business transactions were $ 219 million , intangible asset impairment charges were $ ( 18 ) million , loss on debt extinguishment and related costs were $ ( 188 ) million and mark-to-market gains / ( losses ) from derivatives were $ ( 23 ) million . ( 2 ) refer to note 2 , divestitures and acquisitions , for more information on the jde coffee business transactions . net gains of $ 436 million in 2015 and $ 628 million in 2014 on the currency hedges related to the jde coffee business transactions were recorded in interest story_separator_special_tag we believe that the presentation of these non-gaap financial measures , when considered together with our u.s. gaap financial measures and the reconciliations to the corresponding u.s. gaap financial measures , provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures . because non-gaap financial measures vary among companies , the non-gaap financial measures presented in this report may not be comparable to similarly titled measures used by other companies . our use of these non-gaap financial measures is not meant to be considered in isolation or as a substitute for any u.s. gaap financial measure . a limitation of these non-gaap financial measures is they exclude items detailed below that have an impact on our u.s. gaap reported results . the best way this limitation can be addressed is by evaluating our non-gaap financial measures in combination with our u.s. gaap reported results and carefully evaluating the following tables that reconcile u.s. gaap reported figures to the non-gaap financial measures in this form 10-k. 51 story_separator_special_tag border= '' 0 '' cellpadding= '' 0 '' cellspacing= '' 0 '' style= '' border-collapse : collapse ; font-family : arial ; font-size:8pt '' width= '' 100 % '' > ( 9 ) refer to note 2 , divestitures and acquisitions , and note 5 , goodwill and intangible assets , for more information on the impairment charges recorded in 2016 , 2015 and 2014 related to trademarks . ( 10 ) refer to note 8 , financial instruments , note 16 , segment reporting , and non-gaap financial measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives . ( 11 ) refer to note 2 , divestitures and acquisitions , for more information on spin-off costs incurred in 2014 following the 2012 kraft foods group divestiture . 55 adjusted eps : applying the definition of adjusted eps ( 1 ) , the adjustments made to diluted eps attributable to mondelēz international ( the most comparable u.s. gaap financial measure ) were to exclude spin-off costs , 2012-2014 restructuring program costs , 2014-2018 restructuring program costs ; venezuela historical operating results and deconsolidation and remeasurement losses ; the jde coffee business transactions gain , hedging gains and incremental costs ; net earnings from the agf divestiture ; after-tax gain on the costa rica confectionery business divestiture and after-tax loss on the agf divestiture ; divestiture-related costs incurred for the planned sale of a confectionery business in france ; gain on sale of intangible asset ; impairment charges related to intangible assets ; acquisition integration costs ; acquisition-related costs ; mark-to-market impacts from commodity and forecasted currency transaction derivative contracts ; a loss on debt extinguishment and related expenses ; losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans ; gain on the equity method investment exchange ; and our proportionate share of unusual or infrequent items recorded by our jde and keurig equity method investees . we also evaluate adjusted eps on a constant currency basis . we believe adjusted eps provides improved comparability of underlying operating results . replace_table_token_30_th 56 replace_table_token_31_th ( 1 ) the tax expense / { benefit ) of each of the pre-tax items excluded from our gaap results was computed based on the facts and tax assumptions associated with each item , and such impacts have also been excluded from adjusted eps . for the year ended december 31 , 2016 , taxes for the : 2014-2018 restructuring program costs were $ ( 288 ) million , intangible asset impairment charges were $ ( 37 ) million , gain on sale of intangible asset was $ 3 million , acquisition integration costs were zero , gain on equity method investment exchange was $ 2 million , divestiture-related costs were $ ( 15 ) million , loss on debt extinguishment and related costs were $ ( 163 ) million , loss related to interest rate swaps were $ ( 36 ) million and mark-to-market gains / ( losses ) from derivatives were $ ( 11 ) million . for the year ended december 31 , 2015 , taxes for the : 2014-2018 restructuring program costs were $ ( 262 ) million , income / costs associated with the jde coffee business transactions were $ 145 million , net earnings from venezuelan subsidiaries were $ 107 million , gain on the jde coffee business transactions were $ 183 million , intangible asset impairment charges were $ ( 13 ) million , net earnings from divestitures were $ 33 million , loss on debt extinguishment and related costs were $ ( 275 ) million , loss related to interest rate swaps were $ ( 13 ) million and mark-to-market gains / ( losses ) from derivatives were $ 15 million . for the year ended december 31 , 2014 , taxes for the : spin-off costs were $ ( 13 ) million , 2012-2014 restructuring program costs were $ ( 107 ) million , 2014-2018 restructuring program costs were $ ( 101 ) million , net earnings from venezuelan subsidiaries were $ 90 million , remeasurement of net monetary assets in venezuela was $ ( 16 ) million , income / costs associated with the jde coffee business transactions were $ 219 million , intangible asset impairment charges were $ ( 18 ) million , loss on debt extinguishment and related costs were $ ( 188 ) million and mark-to-market gains / ( losses ) from derivatives were $ ( 23 ) million . ( 2 ) refer to note 2 , divestitures and acquisitions , for more information on the jde coffee business transactions . net gains of $ 436 million in 2015 and $ 628 million in 2014 on the currency hedges related to the jde coffee business transactions were recorded in interest
| 53 adjusted operating income : applying the definition of adjusted operating income , the adjustments made to operating income ( the most comparable u.s. gaap financial measure ) were to exclude spin-off costs , 2012-2014 restructuring program costs , 2014-2018 restructuring program costs , venezuela historical operating results and remeasurement and deconsolidation losses , the jde coffee business transactions gain and net incremental costs , operating income from our historical coffee business , equity method investment earnings reclassified to after-tax earnings in q3 2015 in connection with the coffee business transactions , operating results of the agf divestiture , pre-tax gains on the agf and costa rica confectionery business divestitures , divestiture-related costs incurred for the planned sale of a confectionery business in france , gain on sale of an intangible asset , impairment charges related to intangible assets , the integration program and other acquisition integration costs , acquisition-related costs and mark-to-market impacts from commodity and forecasted currency transaction derivative contracts . we also present adjusted operating income margin , which is subject to the same adjustments as adjusted operating income , and evaluate adjusted operating income on a constant currency basis . we believe these measures provide improved comparability of underlying operating results . replace_table_token_28_th 54 replace_table_token_29_th ( 1 ) refer to note 6 , restructuring programs , for more information on our 2014-2018 restructuring program and our 2012-2014 restructuring program . ( 2 ) includes the historical results of our venezuelan subsidiaries prior to the december 31 , 2015 deconsolidation . refer to note 1 , summary of significant accounting policies currency translation and highly inflationary accounting : venezuela , for more information on the deconsolidation and remeasurement loss in 2015 . ( 3 ) refer to note 2 , divestitures and acquisitions , for more information on the jde coffee business transactions . ( 4 ) includes our historical global coffee business prior to the july 2 , 2015 deconsolidation . we reclassified the results of our historical coffee business from adjusted operating income and included them with equity method investment earnings in adjusted eps to facilitate comparisons of past and future coffee operating results . refer to note 2 , divestitures and acquisitions , and non-gaap financial measures appearing later in this section for more information . ( 5 ) historically , we have recorded income from equity method investments within our operating
| 14,655 |
expense recoveries and other charges , net during fiscal 2010 , we recorded an other expense reduction of $ 6.8 million representing the discounted value of a receivable for reimbursement of development costs expensed in prior periods relating to a terminated plan to develop a casino in pittsburgh , pennsylvania . this receivable was recorded following our assessment of collectability . as a result of our annual impairment tests of goodwill and long-lived intangible assets under asc 350 , we recorded impairment charges of $ 18.3 million at our black hawk property in fiscal 2009. the results from operations for fiscal 2009 also include a $ 11.9 million write-off of construction in progress at our biloxi property following our decision not to continue a previously anticipated construction project , and a $ 6.0 million charge following our termination of an agreement for a potential development of a casino in portland , oregon . hurricane and other insurance recoveries , net our insurance recoveries for fiscal 2009 include $ 92.2 million relating to the final settlement of our hurricane katrina claim at our biloxi property and other insurance recoveries . gain ( loss ) on early extinguishment of debt during fiscal 2009 , we retired $ 142.7 million of our senior subordinated notes , through a tender offer , for a cash payment of $ 82.8 million utilizing the proceeds from our hurricane katrina settlement and repaid 31 $ 35.0 million of our variable rate term loans as required under our senior secured credit facility . after expenses related to the elimination of deferred financing costs and transactions costs , we recognized a net pretax gain of $ 57.7 million related to these transactions . discontinued operations discontinued operations include the results of our international operations including our former blue chip , grand bahamas and coventry casino operations . during fiscal 2010 , we completed the sale of our blue chip casino properties under a plan of administration and have no continuing involvement in its operation . during fiscal 2009 , we recorded a $ 1.4 million charge to reduce the blue chip assets held for sale to their estimated fair value . during fiscal 2011 we recognized a gain of $ 2.7 million , including tax benefits of $ 1.2 million , upon completion of the administration process . we also recognized in fiscal 2011 a tax benefit of $ 0.8 million in discontinued operations representing the resolution of previously unrecognized tax positions following the completion of certain federal tax reviews . on april 23 , 2009 , we completed the sale of our assets and terminated our lease of arena coventry convention center relating to our casino operations in coventry , england . our lease termination costs and other expenses , net of cash proceeds from our assets sales , resulted in a pretax charge of $ 12.0 million recorded in fiscal 2009 related to our discontinued coventry operations . the exit from our grand bahamas casino operations was substantially completed during november 2009. flooding due to flooding along the mississippi river , certain of our properties have been closed during fiscal 2011 and subsequent to our fiscal 2011 year-end . our davenport property closed on april 15 , 2011 , 10 days prior to our fiscal year end and did not reopen until may 1 , 2011. subsequent to year end our caruthersville and vicksburg properties were closed for 13 and 17 days respectively . our lula property closed on may 3 , 2011 and partially reopened on june 3 , 2011. our natchez property closed on may 7 , 2011 and will remain closed until the mississippi river recedes further . while we maintain insurance coverage subject to various deductibles , recognition of certain business interruption insurance proceeds are contingent upon filing and settlement of our insurance claims in future periods . story_separator_special_tag our gaming revenues derived from states with different gaming tax rates . gaming taxes for fiscal 2011 included $ 3.2 million from our vicksburg casino . rooms rooms expenses decreased by $ 1.1 million or 9.7 % in fiscal 2011 compared to fiscal 2010. this decrease in rooms expense is reflective of a 6.4 % reduction in our hotel revenues for fiscal 2011 , respectively , as compared to fiscal 2010. pari-mutuel , food , beverage and other pari-mutuel , food , beverage and other expenses were relatively flat for fiscal 2011 compared to fiscal 2010. excluding food beverage and other costs of $ 1.1 million incurred by our vicksburg casino , our food , beverage and other expenses would have decreased $ 0.9 million . marine and facilities marine and facilities expenses decreased $ 1.0 million , or 1.7 % for fiscal 2011 compared to fiscal 2010. excluding marine and facility costs of $ 1.4 million incurred by our acquired vicksburg casino , our marine and facility costs would have decreased $ 2.4 million . this decrease includes reductions in facility costs across most properties as we continue to focus on cost reductions efforts . marketing and administrative marketing and administrative expenses increased $ 0.3 million , or 0.1 % for fiscal 2011 compared to fiscal 2010. excluding marketing and administrative costs of $ 8.6 million incurred by our vicksburg casino , our marketing and administrative costs would have 35 decreased $ 8.3 million . these decreases reflect reductions in our operating cost to align such expenditures with changes in visitation and spend per visit by our customers . corporate and development during fiscal 2011 , our corporate and development expenses were $ 42.7 million compared to $ 46.8 million for fiscal 2010. the net decrease in corporate and development expense reflects decreases in insurance costs and incentive compensation . corporate and development expenses for fiscal 2011 include financing related costs of $ 4.0 million and development and acquisition costs of $ 4.0 million . in fiscal 2010 we incurred $ 1.8 million in costs related to an amendment of our senior credit facility . depreciation and amortization depreciation and amortization expense for fiscal 2011 compared to fiscal 2010 decreased $ 20.5 story_separator_special_tag million , primarily due to certain assets becoming fully depreciated offset by depreciation at vicksburg of $ 4.6 million . other income ( expense ) , income taxes and discontinued operations interest expense , interest income , derivative expense , income tax ( provision ) benefit and income from discontinued operations , net of income taxes for the fiscal years 2011 and 2010 are as follows : replace_table_token_8_th interest expense interest expense increased $ 16.5 million , or 21.9 % , in fiscal 2011 compared to fiscal 2010 primarily due increased interest rates on borrowings under our senior secured credit facility following our amendment of this facility during the fourth quarter of fiscal 2010 and higher outstanding borrowings following our acquisition of vicksburg casino during june 2010. fiscal 2011 interest expense includes a $ 3.2 million write-off of deferred financing costs as a result of the amendment of our senior secured credit facility during the fourth quarter and a $ 8.5 million decrease in interest associated with our interest rate swaps as certain of our swaps have matured . income tax ( provision ) benefit our income tax ( provision ) benefit from continuing operations and our effective income tax rate have been impacted by our state income taxes and our income for financial statement purposes as well as our percentage of permanent and other items in relation to our income or loss . during fiscal 2010 , our effective income tax rate was also impacted by our settlement of certain tax liabilities for $ 4.7 million less than our estimated accrual . 36 fiscal 2010 compared to fiscal 2009 revenues revenues for the fiscal years 2010 and 2009 are as follows : replace_table_token_9_th casino revenues casino revenues decreased $ 42.3 million , or 4.0 % , in fiscal 2010 compared to fiscal 2009. we experienced a decrease in casino revenues at most of our properties primarily as a result of the continued deterioration in discretionary consumer spending in conjunction with poor economic conditions , with our properties in lake charles and biloxi experiencing decreases of $ 9.5 million and $ 8.1 million , respectively . casino revenues at our quad cities properties declined $ 13.9 million due to competition from a new land-based facility and casino revenues at our pompano slot facility declined $ 3.6 million due to expansion of nearby competing native american casinos . rooms revenue rooms revenue decreased $ 3.4 million , or 7.3 % , in fiscal 2010 compared to fiscal 2009 primarily resulting from decreased occupancy and lower average room rates as a result of reduced consumer demand for rooms . pari-mutuel , food , beverage and other revenues pari-mutuel , food , beverage and other revenues decreased $ 3.6 million , or 2.6 % , in fiscal 2010 compared to fiscal 2009. this decrease was a result of a decrease of $ 3.7 million in pari-mutuel revenues at pompano as a result of a 33 day decrease in year over year live racing days offset by a net increase in food , beverage and other revenues . promotional allowances promotional allowances , which are made up of complimentary revenues , cash points and coupons , are rewards that we give our loyal customers to encourage them to continue to patronize our properties . these allowances decreased by $ 4.1 million in fiscal 2010 compared to fiscal 2009 due to changes in our promotions and corresponding reductions in our revenues . for fiscal 2010 and 2009 , promotional allowances as a percentage of casino revenues were 18.9 % and 18.5 % , respectively . 37 operating expenses operating expenses for the fiscal years 2010 and 2009 are as follows : replace_table_token_10_th casino casino operating expenses increased $ 2.2 million , or 1.5 % in fiscal 2010 compared to fiscal 2009. these expenses are primarily comprised of salaries , wages and benefits and other operating expenses of our casinos . this increase was primarily the result of increased cost of casino operations at our black hawk casinos following a july 2009 regulatory change expanding the hours of gaming operations . gaming taxes gaming taxes decreased by $ 7.7 million , or 2.8 % , in fiscal 2010 compared to fiscal 2009. this reduction in gaming taxes is primarily a result of a 4.0 % decrease in casino gaming revenue and changes in mix of gaming revenues among states with differing gaming tax rates . rooms rooms expenses decreased by $ 1.5 million or 11.9 % in fiscal 2010 compared to fiscal 2009. overall reductions in rooms expenses corresponds to our 7.3 % decline in rooms revenue . pari-mutuel , food , beverage and other pari-mutuel , food , beverage and other expenses decreased $ 6.7 million , or 13.0 % , in fiscal 2010 as compared to fiscal 2009. pari-mutuel operating costs at pompano decreased $ 4.2 million in fiscal 2010 compared to fiscal 2009. such costs consist primarily of compensation , benefits , purses , simulcast fees and other direct costs of track operations . the decreases in current year as compared to prior year are a result of reduction of 33 live racing days during the current fiscal year . the reduction in food and beverage expenses resulted primarily from labor and other cost reductions . food and beverage expenses consist primarily of the cost of goods sold , salaries , wages and benefits and other operating expenses of these departments . marine and facilities these expenses include salaries , wages and benefits of the marine and facilities departments , operating expenses of the marine crews , maintenance of public areas , housekeeping and general maintenance of the riverboats and pavilions . marine and facilities expenses decreased $ 2.9 million , or 4.4 % , in fiscal 2010 compared to fiscal 2009 and is the result of $ 1.5 million in utility cost reductions , $ 0.5 million in reduced payroll costs and $ 0.9 million in other cost reductions .
| 33 fiscal 2011 compared to fiscal 2010 revenues revenues for the fiscal years 2011 and 2010 are as follows : replace_table_token_6_th casino revenues casino revenues increased $ 23.2 million , or 2.3 % , in fiscal 2011 compared to fiscal 2010. for fiscal 2011 , casino revenues increased $ 8.9 million at our pompano property , and included $ 36.8 million from our vicksburg casino . these increases were offset by decreased casino revenues at our black hawk and quad cities properties of $ 15.2 million reflecting the impact of competition and a decrease at our lake charles , lula , natchez and biloxi properties of approximately $ 13.5 million primarily due to current economic conditions . our other properties combined for a net increase of $ 6.2 million in casino revenues . rooms revenue rooms revenue decreased $ 2.7 million , or 6.4 % , in fiscal 2011 compared to fiscal 2010. the majority of this decrease has occurred at our black hawk property where we have experienced declines in both room rates and occupancy following the opening of a competitor 's new hotel during october 2009 and at our biloxi property where market and economic conditions resulted in reduced overall hotel room rates . pari-mutuel , food , beverage and other revenues pari-mutuel , food , beverage and other revenues decreased $ 0.3 million , or 0.2 % , in fiscal 2011 compared to fiscal 2010. food , beverage and other revenues for fiscal 2011 included $ 2.3 million from our recently acquired vicksburg casino . promotional allowances promotional allowances increased $ 15.0 million , or 7.8 % , in fiscal 2011 compared to fiscal 2010. promotional allowances for fiscal 2011 included $ 11.1 million from our vicksburg casino . at our existing properties , changes in our promotional allowances reflect revisions to our marketing plans as a result of competitive factors , economic conditions and regulations . 34 operating expenses operating expenses for the fiscal years 2011 and 2010 are as follows : replace_table_token_7_th casino casino operating expenses increased $ 4.7 million , or 3.1 % for fiscal 2011 compared to fiscal 2010 .
| 14,656 |
in march 2018 , we plan to request a meeting with the fda to further clarify the deficiencies raised in the 2018 crl and to assess the best path forward for a potential approval of vitaros . based on fda guidelines , we expect this meeting to take place within 30 days of the fda receiving the request , or april 2018. vitaros vitaros ( alprostadil ) is a topically-applied cream formulation of alprostadil , which is designed to dilate blood vessels . this combined with nexact , our proprietary permeation enhancer , increases blood flow to the penis , causing an erection . in 2009 , warner chilcott company , inc. , now a subsidiary of allergan , acquired the commercial rights to vitaros in the united states . in september 2015 , we entered into a license agreement and amendment to the original agreement with warner chilcott company , inc. , granting us exclusive rights to develop and commercialize vitaros in the united states . pursuant to the ferring asset purchase agreement , ferring now owns the rights to vitaros outside of the united states . in 2008 , the fda issued a complete response letter ( the “ 2008 crl ” ) for the vitaros nda , identifying certain deficiencies in the application . a complete response letter ( “ crl ” ) is a communication from the fda that informs companies that an application can not be approved in its present form . based on our subsequent interactions with the fda and after completion of further drug-device engineering and other activities intended to address issues previously raised in the 2008 crl , which included human factor testing and new non-clinical studies , we resubmitted the vitaros nda in august 2017. the 2018 crl identified deficiencies related to chemistry , manufacturing and controls ( “ cmc ” ) and that the modest treatment effect did not outweigh certain safety concerns specific to the 2.5 % concentration of our permeation enhancer nexact ( ddaip.hcl ) contained in the current formulation . rayva 33 rayva is our product candidate for the treatment of raynaud 's phenomenon associated with scleroderma ( systemic sclerosis ) . it is a topically-applied cream formulation of alprostadil designed to dilate blood vessels , which is combined with our proprietary permeation enhancer nexact , and applied on-demand to the affected extremities . rayva received authorization in may 2014 from the fda to begin clinical studies . we reported results from our phase 2a clinical trial of rayva for the treatment of raynaud 's phenomenon secondary to scleroderma in september 2015. we are still assessing whether the safety concerns specific to the 2.5 % concentration of ddaip.hcl contained in the current formulation of vitaros that the fda raised in the 2018 crl will affect rayva 's future development path since the underlying nexact technology is utilized in both . we are seeking an ex-u.s. collaboration partner prior to initiating any future clinical studies . results of operations operating expense operating expense was as follows ( in thousands , except percentages ) : replace_table_token_2_th research and development expenses research and development ( “ r & d ” ) costs are expensed as they are incurred and include the cost of compensation and related expenses , as well as expenses for third parties who conduct r & d on our behalf . the $ 2.4 million decrease in r & d expense during the year ended december 31 , 2017 as compared to the prior year , resulted primarily from decreases in outside services related to the development of fispemifene and rayva as well as decreased personnel-related expenses , partially offset by the $ 1.5 million payment to allergan for the nda resubmission . general and administrative expenses general and administrative ( “ g & a ” ) costs include expenses for personnel , finance , legal , business development and investor relations . general and administrative expenses decreased by $ 0.6 million during the year ended december 31 , 2017 as compared to the prior year . these decreases were primarily due to lower professional services expenses , such as decreased accounting expenses , offset , in part , by an increase in legal expense as a result of litigation expenses . other income and expense other income and expense was as follows ( in thousands , except percentages ) : replace_table_token_3_th interest expense , net 34 in october 2014 , we entered into the loan and security agreement ( the “ credit facility ” ) with oxford finance llc ( “ oxford ” ) and silicon valley bank ( “ svb ” ) ( oxford and svb are referred to together as the “ lenders ” ) . on march 8 , 2017 , we repaid to the lenders all amounts due and owed under the credit facility . the payment included the outstanding balance of the term loans in full , a prepayment fee of approximately 2 % , a final payment equal to 6 % of the original principal amount of each term loan and per diem interest for a total payment of $ 6.6 million . change in fair value of warrant liability the common stock warrants issued in connection with our february 2015 and january 2016 financings are classified as liabilities in the accompanying consolidated balance sheets as they contain provisions that are considered outside of our control , such as requiring us to maintain active registration of the shares underlying such warrants . the fair value of these warrants is re-measured at each financial reporting period with any changes in fair value being recognized as a component of other income ( expense ) in the accompanying consolidated statements of operations . the change in fair value of warrant liability is primarily driven by the fluctuation in our stock price . story_separator_special_tag we have issued other warrants that have similar terms whereas under no circumstance or by any event outside of our control may the shares be settled in cash . as such , these warrants are equity-classified and do not affect our consolidated statement of operations . see note 7 for further details . loss on extinguishment of debt on march 8 , 2017 , pursuant to the ferring asset purchase agreement , we repaid to the lenders all amounts due and owed in full under the credit facility . the final payment included the outstanding balance of the term loans in full as well as ( i ) a prepayment fee contractually owed of approximately 2 % , or $ 0.1 million , ( ii ) a final payment equal to 6 % of the original principal amount of each term loan , or $ 0.6 million , and ( iii ) per diem interest of approximately $ 0.05 million , for a total payment of $ 6.6 million , which resulted in a loss on extinguishment of debt of $ 0.4 million . other financing expenses other financing expenses represent the portion of total financing expenses allocated to the warrants issued in our january 2016 and september 2016 financings . discontinued operations the operating results from our discontinued operations are as follows ( in thousands ) : replace_table_token_4_th on march 8 , 2017 , we entered into the ferring asset purchase agreement , pursuant to which we sold to ferring our assets and rights related to vitaros outside of the united states for approximately $ 12.7 million , which consisted of an upfront payment of $ 11.5 million , $ 0.7 million for the delivery of certain product-related inventory ( received in april 2017 ) , and an aggregate of $ 0.5 million related to transition services , the payments of which were received in july 2017 and september 2017. we used approximately $ 6.6 million of the proceeds from the sale to repay all outstanding amounts due and owed , including applicable termination fees , under the credit facility with the lenders . 35 as a result of the ferring asset purchase agreement , all product sales revenue , royalty revenue , license fee revenue and cost of goods sold have been reflected as discontinued operations in the consolidated statement of operations for both periods presented . cost of sandoz rights represents the payments owed by us to sandoz as a condition under the termination agreement between the two parties related to vitaros outside of the united states . in addition , operating expenses , such as the transaction costs directly related to the ferring asset purchase agreement , have been presented as discontinued operations . liquidity , capital resources and financial condition we have experienced net losses and negative cash flows from operations each year since our inception . although we recorded net income of approximately $ 0.3 million for the year ended december 31 , 2017 , we had an accumulated deficit of approximately $ 316.0 million as of december 31 , 2017 . our cash balance was approximately $ 6.3 million as of december 31 , 2017 . our history and other factors raise substantial doubt about our ability to continue as a going concern . we have principally been financed through the sale of our common stock and other equity securities , debt financings and up-front payments received from commercial partners for our products under development . on september 10 , 2017 , we entered into a securities purchase agreement with certain accredited investors for net proceeds of approximately $ 3.1 million , after deducting commissions and estimated offering expenses . pursuant to the agreement , we sold 2,136,614 shares of our common stock at a purchase price of $ 1.73 per share , and warrants to purchase up to 1,068,307 shares of common stock in a private placement . the warrants were exercisable upon closing , or on september 13 , 2017 , at an exercise price equal to $ 1.67 per share of common stock and are exercisable for two and one half years from that date . in addition , we issued warrants to purchase up to 106,831 shares of common stock to h.c. wainwright & co. , llc ( ” h.c . wainwright ” ) . these were exercisable upon closing at an exercise price of $ 2.16 per share , and also expire two and one half years from the closing date . on april 26 , 2017 , we completed an underwritten public offering ( the “ april 2017 financing ” ) for net proceeds of approximately $ 5.9 million , after deducting the underwriting discounts and commissions and our offering expenses . pursuant to the underwriting agreement with h.c. wainwright , we sold to h.c. wainwright an aggregate of 5,030,000 units . each unit consisted of one share of common stock and one warrant to purchase 0.75 of a share of common stock , sold at a public offering price of $ 1.40 per unit . at the time of the offering closing , we did not currently have a sufficient number of authorized common stock to cover shares of common stock issuable upon the exercise of the warrants . the sufficient number of authorized common stock became available on may 17 , 2017 when we received stockholder approval of the proposed amendment to our amended and restated articles of incorporation to increase the number of authorized shares of common stock ( the “ charter amendment ” ) and the charter amendment became effective . the warrants will expire five years from the date the warrants were exercisable , or may 17 , 2017 , and the exercise price of the warrants is $ 1.55 per share of common stock .
| financing activities from continuing operations cash provided by financing activities of $ 2.5 million during 2017 was primarily attributable to the $ 9.3 million in net proceeds that we received from the issuance of common stock and warrants in our april 2017 and september 2017 financings , offset by the repayment of our credit facility of $ 7.1 million as a closing condition of the ferring asset purchase agreement . cash provided by financing activities of $ 11.0 million during 2016 was primarily attributable to the $ 14.1 million in net proceeds that we received from the issuance of common stock and warrants in our january 2016 , july 2016 and september 2016 financings . this was offset by the repayment of $ 3.1 million on our credit facility . discontinued operations cash provided by discontinued operations of $ 12.3 million during 2017 was a result of the ferring asset purchase agreement in march 2017 , pursuant to which we sold to ferring our assets and rights related to vitaros outside of the united states for approximately $ 12.7 million , which consisted of an upfront payment of $ 11.5 million , approximately $ 0.7 million for the delivery of certain product-related inventory , and an aggregate of $ 0.5 million related to transition services . off-balance sheet arrangements as of december 31 , 2017 , we did not have any off-balance sheet arrangements as defined in item 303 ( a ) ( 4 ) ( ii ) of regulation s-k. recent accounting pronouncements see note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements and their effect , if any , on us . critical accounting estimates and policies the preparation of financial statements in accordance with united states generally accepted accounting principles ( “ gaap ” ) requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . management bases its estimates on historical experience , market and other conditions , and various other assumptions it believes to be reasonable . although these estimates are based on management 's best knowledge of
| 14,657 |
the average age of our aircraft in 2016 was 8.9 years which is relatively young compared to our competitors . however , as our fleet ages our maintenance costs will increase significantly , both on an absolute basis and as a percentage of our unit costs , as older aircraft require additional , more expensive repairs over time . we had an average of 11 additional total operating aircraft in 2016 compared to 2015 . 36 in 2016 , maintenance , materials and repairs increase d by $ 73 million , or 14.9 % compared to 2015 , primarily driven by increased flight hours on our engine flight-hour based maintenance repair agreements and by the number of airframe heavy maintenance repairs . other operating expenses other operating expenses consist of the following categories : outside services ( including expenses related to fueling , ground handling , skycap , security and janitorial services ) , insurance , personnel expenses , professional fees , on-board supplies , shop and office supplies , bad debts , communication costs and taxes other than payroll and fuel taxes . in 2016 , other operating expenses increase d by $ 117 million , or 15.7 % , compared to 2015 , primarily due to an increase in airport services and the non-recurrence of the $ 9 million gain in 2015 related to an insurance recovery for a damaged engine , a $ 6 million legal settlement and a $ 6 million gain on sale of an engine . income taxes our effective tax rate was 37.6 % in 2016 and 38.3 % in 2015 . our effective tax rate decreased primarily due to the adoption of accounting standards update , or asu , 2016-09 , improvements to employee share-based payment accounting . see note 1 to the consolidated financial statements for additional information . year 2015 compared to year 2014 overview we reported net income of $ 677 million , operating income of $ 1.2 billion and operating margin of 19.0 % for the year ended december 31 , 2015 . this compares to net income of $ 401 million , operating income of $ 515 million and operating margin of 8.9 % for the year ended december 31 , 2014 . diluted earnings per share were $ 1.98 for 2015 compared to $ 1.19 for the same period in 2014 . net income for the year ended december 31 , 2014 included the after tax gain on the sale of livetv of approximately $ 169 million or $ 0.49 per diluted share . during the first three months of 2014 , the new york and boston metropolitan areas experienced one of the most severe winters in 20 years , with new york and boston each experiencing over 57 inches of snow . these weather conditions led to the cancellation of approximately 4,100 flights . these cancellations resulted in a negative impact on our first quarter 2014 seat revenue as well as ancillary revenue such as change fees due to our policy of waiving these fees during severe weather events . during the first quarter of 2015 , a series of winter storms again impacted the new york and boston metropolitan areas , with boston 's logan airport experiencing record breaking snowfall totals . despite the adverse weather conditions , our operational performance improved over the same period in 2014 , resulting in approximately 37 % fewer flight cancellations . we estimate that winter storms reduced our operating income by approximately $ 10 million in the first quarter of 2015 and $ 35 million in the first quarter of 2014. operating revenues replace_table_token_12_th 37 passenger revenue accounted for over 91.8 % of our total operating revenues for the year ended december 31 , 2015 . as well as seat revenue , passenger revenue includes revenue from our ancillary product offerings such as evenmore space . revenue generated from international routes , including puerto rico , accounted for 30 % of our passenger revenues in 2015 . revenue is recognized either when transportation is provided or after the ticket or passenger credit expires . we measure capacity in terms of available seat miles , which represents 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 revenue passenger miles . we attempt to increase passenger revenue primarily by increasing our yield per flight which produces higher revenue per available seat mile . our objective is to optimize our fare mix to increase our overall average fare while continuing to provide our customers with competitive fares . in 2015 , the increase in passenger revenue was mainly attributable to a 9.4 % increase in revenue passengers and a 0.8 % increase in average fare . our largest ancillary product remains the evenmore space seats , generating approximately $ 228 million in revenue , an increase of over 14 % compared to 2014 . in 2015 , other revenue increase d by $ 49 million compared to 2014 . the increase in other revenue was primarily due to an increase in bag fees partly attributable to our new fare options pricing structure . also contributing to the increase was revenues mainly from getaways , which was evolved during 2016 to jetblue ® vacations sales and the marketing component of trueblue ® point sales , which was offset by the $ 30 million of revenue prior to the sale of livetv in june 2014. operating expenses replace_table_token_13_th aircraft fuel and related taxes aircraft fuel and related taxes represented 26 % of our total operating expenses in 2015 compared to 36 % in 2014 . the average fuel price decrease d 35.6 % in 2015 to $ 1.93 per gallon . this was partially offset by an increase in our fuel consumption of approximately 61 million gallons . story_separator_special_tag additional fuel consumption was mainly due to our increase in capacity and lower flight cancellations during the first quarter of 2015 compared to flight cancellations during the first quarter of 2014 as a result of the harsh winter weather . based on our expected fuel volume for 2016 , a 10 % per gallon increase in the cost of aircraft fuel would increase our annual fuel expense by approximately $ 120 million . in 2015 , we recorded fuel hedge losses of $ 126 million compared to $ 30 million in fuel hedge losses in 2014 which was recorded in aircraft fuel and related taxes . fuel derivatives not qualifying as cash flow hedges resulted in a gain of $ 2 million in 2014 which were recorded in interest income and other . accounting ineffectiveness on fuel derivatives classified as cash flow hedges resulted in losses of less than $ 1 million in both 2015 and 2014 and were recorded in interest income and other . we are unable to predict what the amount of ineffectiveness will be related to these instruments , or the potential loss of hedge accounting which is determined on a derivative-by-derivative basis , due to the volatility in the forward markets for these commodities . 38 salaries , wages and benefits salaries , wages and benefits represent approximately 30 % of our total operating expenses in 2015 compared to 24 % in 2014 . the increase in salaries , wages and benefits was primarily driven by profit sharing and an increase in our headcount . our profit sharing is calculated as 15 % of adjusted pre-tax income , reduced by retirement plus contributions and special items . profit sharing increase d by $ 126 million in 2015 compared to 2014 , primarily driven by increased revenues and lower aircraft fuel and related taxes . during 2015 , the average number of full-time equivalent employees increase d by 9 % and the average tenure of our crewmembers increased to 6.3 years . retirement plus contributions , which equate to 5 % of all of our eligible crewmembers wages , increase d by $ 5 million and our 3 % retirement contribution for a certain portion of our faa-licensed crewmembers , which we refer to as retirement advantage , increase d by approximately $ 1 million . we agreed to provide our pilots with a 20 % pay increase in their base rate over three years starting in 2014. in january 2014 , the faa 's rule amending the faa 's flight , duty , and rest regulations became effective . among other things , the rule requires a ten hour minimum rest period prior to a pilot 's flight duty period ; mandates a pilot must have an opportunity for eight hours of uninterrupted sleep within the rest period ; and imposes new pilot “ flight time ” and “ duty time ” limitations based upon report times , the number of scheduled flight segments , and other operational factors . we have hired additional pilots to address the requirements of the rule . landing fees and other rents landing fees and other rents include landing fees , which are at a premium in the heavily trafficked northeast corridor of the u.s. where approximately 80 % of our operations center . other rents primarily consist of rent for airports in our 93 bluecities . landing fees and other rents increase d $ 21 million , or 6.7 % , in 2015 primarily due to increased departures . depreciation and amortization depreciation and amortization primarily include depreciation for our owned and capital leased aircraft , engines , and in-flight entertainment systems . depreciation and amortization increase d $ 25 million , or 7.7 % , primarily due to an average of 149 owned and capital leased aircraft in 2015 compared to 137 in 2014 . additionally , depreciation expense increased in 2015 due to the completion of our international arrivals facility , t5i , and additional gates at t5 , which was completed in november 2014. maintenance , materials and repairs maintenance , materials and repairs are generally expensed when incurred unless covered by a long-term flight hour services contract . the average age of our aircraft in 2015 was 8.3 years which is relatively young compared to our competitors . however , as our fleet ages , our maintenance costs will increase significantly , both on an absolute basis and as a percentage of our unit costs , as older aircraft require additional , more expensive repairs over time . we had an average of 11.7 additional total operating aircraft in 2015 compared to 2014 . in 2015 , maintenance , materials and repairs increase d by $ 72 million , or 17.3 % compared to 2014 , primarily driven by increased flight hours on our engine flight-hour based maintenance repair agreements and by the number of airframe heavy maintenance repairs . other operating expenses other operating expenses consist of the following categories : outside services ( including expenses related to fueling , ground handling , skycap , security and janitorial services ) , insurance , personnel expenses , cost of goods sold to other airlines by livetvwhen livetv was a subsidiary of jetblue , professional fees , on-board supplies , shop and office supplies , bad debts , communication costs and taxes other than payroll and fuel taxes . in 2015 , other operating expenses increase d by $ 67 million , or 9.8 % , compared to 2014 , primarily due to an increase in airport services and passenger on-board supplies resulting from increased passengers flown , partially offset by the non-recurrence of operating costs associated with livetv during the first six months of 2014 , a $ 9 million gain in 2015 related to an insurance recovery for a damaged engine , a $ 6 million legal settlement and a $ 6 million gain on sale of an engine .
| we reduced our overall debt and capital lease obligations by $ 443 million which included the final maturity of our 2004 eetc of $ 185 million . as a result , 15 aircraft became unencumbered . we have increased the number of unencumbered aircraft in 2016 bringing total unencumbered aircraft to 97 and spare engines to 32 as of december 31 , 2016 . in 2016 , the holders of our 6.75 % convertible debentures due 2039 ( series b ) converted their securities into approximately 17.6 million shares of our common stock . during 2016 , we acquired approximately 5.8 million shares of our common stock for approximately $ 120 million under our share repurchase program . aircraft during 2016 , we took delivery of 12 airbus a321 aircraft , 10 purchases and 2 leases . in november 2014 , we amended our purchase agreement with airbus deferring 13 airbus a321 aircraft deliveries and eight airbus a320 aircraft deliveries from 2016-2020 to 2020-2023. of these deferrals , ten airbus a321 aircraft deliveries were converted to a321neo and five airbus a320neo aircraft deliveries were converted to airbus a321neo aircraft . we additionally converted three airbus a320 aircraft deliveries in 2016 to airbus a321 aircraft . in july 2016 , we further amended our purchase agreement with airbus by adding 30 incremental airbus a321 aircraft deliveries between 2017 and 2023 ; 15 of these aircraft will be a321ceo to be delivered between 2017 and 2019 and the remaining 15 will be a321neos to be delivered between 2020 and 2023 . 33 airport infrastructure investments in november 2015 , we unveiled phase i of our $ 50 million terminal c upgrade at boston logan international airport . this upgrade included new kiosks and ticket counters . twenty-five kiosks and thirty check-in counters are in use in the north pod of the terminal . phase ii of the upgrade , funded by the massachusetts port authority , or massport , was completed on the south pod in 2016 which mirrors the check-in experience of the north pod . updated
| 14,658 |
the facility capacity can also be doubled by adding additional plant growth equipment in a space already available for that purpose . we have integrated into our ibio cdmo operations the rights ibio has obtained to certain patented and unpatented technologies developed for it by novici , in addition to novel manufacturing methods and processes developed by ibio cdmo . these technologies , methods , and processes are applied by ibio cdmo to a variety of tasks performed for clients , collaborators , and for ibio itself , including product and process development , analytical , and manufacturing services . ibio cdmo is promoting commercial collaborations with third parties on the basis of these technology advantages and plans to work with customers to achieve laboratory scale technical milestones that can form the basis of longer-term manufacturing business arrangements . in addition to the generation of revenue from services through ibio cdmo , a second goal of our new business model is through partnering and out-licensing of our new technologies , to create opportunities for ibio to share in the successful development and commercialization of selected product candidates by our collaborators and licensees as well as advance our own product candidates . we expect to accomplish this objective through both investments we make to acquire or develop our own proprietary product candidates and also by participating with select customers and collaborators in the value created through the development , with our technologies , and manufacture of their product candidates . ibio itself is a client of ibio cdmo for further ind advancement of its proprietary products beginning with ibio-cfb03 for the treatment of a range of fibrotic diseases . ibio will work with ibio cdmo on the production of ibio-cfb03 for clinical trials and , with clinical success , for commercial launch . the third element of our new business model is the use of ibio technologies to create and operate manufacturing facilities at substantially lower capital and operating costs . due to the lower capital and operating cost requirements for biopharmaceutical ( both vaccines and therapeutics ) production via ibio technologies versus legacy methods , certain corporations and governments that have not already established manufacturing capacity for biologic products are client prospects for both development and for commercial technology transfer services to enable autonomous manufacturing in the market being served . in some cases , we have additional opportunities to increase the value of these uses of our technologies by offering custom facility design services . story_separator_special_tag million , and we used approximately $ 13.5 million of cash for operating activities for fiscal 2018. as of june 30 , 2018 , cash on hand is approximately $ 15.9 million , which is expected to support the company 's operations through at least september 30 , 2019 . 35 we plan to fund our future business operations using cash on hand , through proceeds realized in connection with the commercialization of our technologies and proprietary products , license and collaboration arrangements and the operation of our subsidiary , ibio cdmo , and through proceeds from the sale of additional equity or other securities . we can not be certain that such funding will be available on favorable terms or available at all . to the extent that the company raises additional funds by issuing equity securities , its stockholders may experience significant dilution . if we are unable to raise funds when required or on favorable terms , this assumption may no longer be operative , and we may have to : a ) significantly delay , scale back , or discontinue the product application and or commercialization of our proprietary technologies ; b ) seek collaborators for our technology and product candidates on terms that are less favorable than might otherwise be available ; c ) relinquish or otherwise dispose of rights to technologies , product candidates , or products that we would otherwise seek to develop or commercialize ; or d ) possibly cease operations . recent equity raises were as follows : on june 26 , 2018 , we closed a public offering raising gross proceeds of $ 16,000,000 before deducting $ 854,250 of underwriting discounts , commissions and other offering expenses payable by the company . the securities offered by the company consisted of the following : i ) 4,350,000 shares of its common stock at $ 0.90 per share ; ii ) 6,300 shares of series a convertible preferred stock with a stated value of $ 1,000 per preferred share , and convertible into an aggregate of 7,000,000 shares of common stock at $ 0.90 per share ; and , iii ) 5,785 shares of series b convertible preferred stock , with a stated value of $ 1,000 per preferred share , and convertible into an aggregate of 6,427,778 shares of common stock at $ 0.90 per share . the company granted the underwriters a 45-day option to purchase up to an additional 2,666,666 shares of common stock to cover over-allotments , if any . on july 12 , 2018 , 1,500,000 shares of common stock were sold to the company 's underwriter in connection with the underwriter partially exercising its over-allotment option at the public offering price of $ 0.90 per share . the company received gross proceeds of $ 1,350,000 before deducting $ 94,500 of underwriting discounts , commissions and other offering expenses payable by the company . on november 30 , 2017 , we closed a public offering of 2,250,000 shares of its common stock at a public offering price of $ 2.00 per share raising gross proceeds of $ 4,500,000 before deducting $ 311,000 of underwriting discounts , commissions and other offering expenses payable by the company . the shares of common stock were issued pursuant to an underwriting agreement entered into between the company and aegis . story_separator_special_tag on july 24 , 2017 , we entered into the lincoln park purchase agreement pursuant to which lincoln park has agreed to purchase from us up to an aggregate of $ 16,000,000 of our common stock ( subject to certain limitations ) from time to time over the 36-month term of the agreement . as a result , on july 24 , 2017 , 120,000 shares of our common stock were issued to lincoln park as consideration for lincoln park 's commitment to purchase shares of our common stock under the agreement , and 250,000 shares of common stock were sold to lincoln park in an initial purchase for an aggregate gross purchase price of $ 1,000,000. the extent to which we utilize the purchase agreement with lincoln park as a source of funding will depend on a number of factors , including the prevailing market price of our common stock , the volume of trading in our common stock and the extent to which we are able to secure funds from other sources . the number of shares that we may sell to lincoln park under the purchase agreement on any given day and during the term of the agreement is limited . additionally , we and lincoln park may not effect any sales of shares of our common stock under the purchase agreement during the continuance of an event of default under the purchase agreement . even if we are able to access the full $ 16.0 million under the purchase agreement , we may still need additional capital to fully implement our business , operating and development plans . during march 2018 , we sold 60,000 shares of common stock to lincoln park pursuant to the lincoln park purchase agreement for an aggregate gross purchase price of $ 121,290. despite any further proceeds we may receive pursuant to the lincoln park purchase agreement , we may still need additional capital to fully implement our business , operating and development plans for periods beyond september 30 , 2019. notices of delisting or failure to satisfy a continued listing rule or standard on june 6 , 2018 , we received a letter from nyse american stating that the company is not in compliance with the continued listing standards as set forth in section 1003 ( a ) ( iii ) of the nyse american company guide ( the “ company guide ” ) , which applies if a listed company has stockholders ' equity of less than $ 6,000,000 and has sustained losses from continuing operations and or net losses in its five most recent fiscal years . the exchange indicated that a review of the company shows that it is below compliance with section 1003 ( a ) ( iii ) since it reported stockholders ' equity of $ 4.2 million as of march 31 , 2018 and net losses in its five most recent fiscal years . in order to maintain our listing , we submitted a plan for compliance addressing how we intend to regain compliance with section 1003 ( a ) ( iii ) of the company guide by december 6 , 2019. on august 16 , 2018 , the company received notice from nyse american that nyse regulation had accepted the company 's july 16 , 2018 plan and granted the plan period through december 6 , 2019 , subject to periodic review by the exchange , including quarterly monitoring , for compliance with the initiatives outlined in the plan . if the company is not in compliance with the continued listing standards by december 6 , 2019 , or if the company does not make progress consistent with the plan during the plan period , nyse regulation staff may initiate delisting proceedings as appropriate . 36 as of june 30 , 2018 , the company 's stockholders ' equity balance is $ 16.2 million . on january 4 , 2018 , we received a letter from nyse american stating that ibio , inc. 's securities have been selling for a low price per share for a substantial period of time and , pursuant to section 1003 ( f ) ( v ) of the company guide , the company 's continued listing is predicated on it effecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time , which nyse american had determined to be no later than july 5 , 2018. on april 23 , 2018 , we held a special meeting of stockholders at which the stockholders approved a proposal to effect an amendment to the company 's certificate of incorporation , as amended , to implement a reverse stock split at a ratio to be determined by the company 's board of directors in a range not less than one-for-two ( 1:2 ) and not greater than one-for-ten ( 1:10 ) . on may 23 , 2018 , the company 's board of directors approved the implementation of a reverse stock split at a ratio of one-for-ten ( 1 : 10 ) shares of the company 's common stock . as a result of the reverse stock split , every ten ( 10 ) shares of the company 's common stock either issued and outstanding or held by the company in its treasury immediately prior to the effective time was , automatically and without any action on the part of the respective holders thereof , combined and converted into one ( 1 ) share of the company 's common stock . the reverse split also applied to common stock issuable upon the exercise of the company 's outstanding stock options . the reverse stock split did not affect the par value of the company 's common stock or the shares of common stock the company is authorized to issue under its certificate of incorporation , as amended . no fractional shares were issued in connection with the reverse stock split .
| in fiscal 2018 , other income ( expense ) included interest expense of $ 1,915,000 incurred under the capital lease and interest and royalty income of $ 34,000. other income ( expense ) in fiscal 2017 included interest expense of $ 1,929,000 incurred under the capital lease and interest and royalty income of $ 64,000. net loss attributable to noncontrolling interest this represents the share of the loss in ibio cdmo for the eastern affiliate in fiscal 2018. the noncontrolling interest held by the eastern affiliate represented 0.01 % in fiscal 2018 and 30 % from july through february and 0.01 % from march through june 2017. on february 23 , 2017 , the company entered into an exchange agreement with the eastern affiliate pursuant to which the company acquired substantially all of the interest in ibio cdmo held by the eastern affiliate and issued one share of a newly created ibio cmo preferred tracking stock , in exchange for 29,990,000 units of limited liability company interests of ibio cdmo held by the eastern affiliate at an original issue price of $ 13 million . after giving effect to the transactions contemplated in the exchange agreement , the company owns 99.99 % and the eastern affiliate owns 0.01 % of ibio cdmo . liquidity and capital resources as of june 30 , 2018 , we had cash of $ 15.9 million as compared to $ 8.1 million as of june 30 , 2017. net cash used in operating activities operating activities used $ 13.5 million in cash in fiscal 2018. the decrease in cash was primarily attributable to funding our net loss for the year . net cash used in investing activities in fiscal 2018 , net cash used in investing activities was $ 1,079,000. cash used in investing activities was attributable to additions to intangible assets of $ 145,000 and the acquisition of fixed assets primarily for ibio cdmo of $ 934,000. net cash provided by financing activities net cash provided by financing activities was $ 22.4 million . in fiscal 2018 , we sold shares of our common stock as follows : ( i ) on july 24 , 2017 ,
| 14,659 |
over the last three years , the demand and competition for fiber has also been impacted by renewable energy producers in germany , particularly by wood pellet producers . higher fiber costs could affect producer profit margins if they are unable to pass along price increases to pulp customers or purchasers of surplus energy . generally weak lumber markets in 2011 and most of 2012 resulted in reduced sawmill activity and log harvesting in the regional fiber baskets for our mills . in 2013 , the lumber markets improved globally which had the effect of increasing supply of chips and increased demand for saw logs and higher quality pulp logs , which put upward pressure on log pricing . additionally , higher energy prices and a focus on green or renewable energy , while benefiting our surplus power sales , led to an overall increase in demand for wood residuals in germany from other renewable energy producers such as pellet producers . this increased demand and competition for fiber has put upward pressure on fiber prices . a recovery in u.s. housing starts which commenced in the latter part of 2012 and continued in 2013 resulted in increased sawmill activity . this increased the supply of woodchips for the celgar mill and reduced its need for pulp logs , which are generally a higher cost for the mill than woodchips . production costs also depend on the total volume of production . high operating rates and production efficiencies permit us to lower our average cost by spreading fixed costs over more units . higher operating rates also permit us to increase our generation and sales of surplus renewable energy and chemicals . our production levels are also dependent on , among other things , the number of days of scheduled and unscheduled downtime at our mills . in 2014 , we have no scheduled downtime in the first quarter . for the balance of 2014 , we have scheduled maintenance downtime of ten days , or approximately 14,000 admts , for our celgar mill in the second quarter and 12 days , or approximately 12,000 admts , for our rosenthal mill in the third quarter . our stendal mill is not scheduled to have major maintenance downtime in 2014. instead , in the second and fourth quarters of 2014 , our stendal mill will have two two-day shutdowns , or approximately 3,600 admts for each shutdown . unexpected production downtime , which has not materially affected us during any of the periods described in this discussion , can be particularly disruptive in our industry . our product mix is also important because premium grades of nbsk pulp generally achieve higher prices and profit margins . our financial performance for any reporting period is impacted by changes in the u.s. dollar to euro and canadian dollar exchange rates and in interest rates . changes in currency rates affect our operating results because most of our operating costs at our german mills , including our debt obligations under the stendal facilities , are incurred in euros . most of our operating costs at the celgar mill , including the mill 's working capital facility , are in canadian dollars . these costs do not fluctuate with the u.s. dollar to euro or canadian dollar exchange rates . thus , a weakening of the u.s. dollar against the euro and the canadian dollar tends to increase our operating and interest costs and decrease our operating margin and income from operations . conversely , an increase in the u.s. dollar versus the euro and the canadian dollar decreases our operating and interest costs and increases our operating margins and income from operations . on average , in 2012 , the u.s. dollar increased by approximately 8 % and by approximately 1 % , respectively , versus the euro and the canadian dollar compared to 2011. on average , in 2013 , the u.s. dollar declined by approximately 3 % and increased by approximately 3 % , respectively , versus the euro and the canadian dollar compared to 2012. if sustained in 2014 , the appreciation of the u.s. dollar versus the canadian dollar during the latter part of 2013 should positively benefit our celgar mill 's operating margins . 52 we also periodically enter into interest rate , foreign currency , pulp price and energy price derivative contracts to partially protect against the effect of such changes . gains or losses on such derivatives are included in our earnings , either as they are settled or as they are marked to market for each reporting period . stendal , as required under the stendal loan facility , entered into variable-to-fixed rate interest swaps , referred to as the stendal interest rate swap contract , in august 2002 to fix the interest rate on such indebtedness for the full term of the stendal loan facility . changes in long-term interest rates result in our recording unrealized non-cash gains or losses on the stendal interest rate swap contract when it is marked to market on a quarterly basis . such non-realized gains or losses can materially impact our operating results for any reporting period . see quantitative and qualitative disclosures about market risk . we do not believe that inflation has had a material impact on revenues or income during 2013. significant actions in 2013 , we took the following significant actions : in july 2013 , we commenced reducing the celgar mill 's workforce by approximately 85 employees over the following 12-months to reduce its fixed costs . story_separator_special_tag we incurred pre-tax charges of approximately $ 5.0 million in 2013 and expect to incur an additional $ 0.6 million of such expenses in 2014. we currently estimate that our celgar mill will realize approximately $ 8.0 million to $ 10.0 million in annual pre-tax costs savings once such restructuring has been completed and currently expect to realize approximately 80 % of such savings in 2014 ; in july 2013 , we completed our registered public offering of $ 50.0 million aggregate principal amount of additional senior notes at an issue price of 104.5 % ; in september 2013 , our stendal mill amended the stendal facilities to provide it greater financial flexibility by , among other things , waiving compliance with certain financial ratios in 2013 , amending such ratios to make them less restrictive and reducing the amount required to cure failures to satisfy such ratios ; in december 2013 , we completed project blue mill at our stendal mill to increase the mill 's production of pulp and green energy and further enhance our stable stream of income from energy and chemical sales ; and we continued to improve mill operations and efficiencies , which allowed us to achieve record annual pulp production and energy generation at our german mills . current market environment demand from china was stable throughout the year and supply was slightly under-balanced , which resulted in higher prices in 2013. at year end , the nbsk pulp market was slightly under-balanced with world producer inventories at about 27 days ' supply . in addition , we expect to see continued growth in nbsk demand in emerging markets , particularly in china , driven by increasing strong demand from tissue producers . as a result of the foregoing and the closure of a norwegian mill , we currently expect that nbsk pulp prices will continue their moderate upward trend over the first half of 2014. during the course of 2014 , the global supply of hardwood kraft pulp is projected to increase by approximately 2.1 million admts , primarily from south america . this increase in hardwood production is largely targeted at the growing demand for pulp by tissue makers , particularly in china . if such additional hardwood pulp supply is not absorbed by such demand growth , as a result of generally lower prices for hardwood pulp , this supply increase could put downward pressure on nbsk pulp prices . however , we believe customers ' ability to further substitute nbsk pulp for lower priced hardwood pulp is limited by the strength characteristic provided by nbsk pulp that large modern paper machines need to run lower basis weight paper products efficiently . as pulp prices are highly cyclical , there can be no assurance that prices will not decline in the future . 53 summary financial highlights replace_table_token_14_th ( 1 ) attributable to common shareholders . selected production , sales and other data selected production , sales and exchange rate data for the periods indicated : replace_table_token_15_th ( 1 ) source : risi pricing report . ( 2 ) average realized pulp price for the periods indicated reflect customer discounts and pulp price movements between the order and shipment date . ( 3 ) average federal reserve bank of new york noon spot rate over the reporting period . year ended december 31 , 2013 compared to year ended december 31 , 2012 in 2013 , pulp revenues increased by approximately 2 % to $ 996.2 million from $ 979.8 million in 2012 , primarily due to higher average pulp sales realizations , partially offset by lower sales volume . in 2013 , demand from china was stable throughout the year and supply was slightly under-balanced , which resulted in higher prices in 2013. in 2013 , surplus energy and chemicals sales marginally decreased to $ 92.2 million from $ 93.0 million in 2012 , primarily as a result of lower sales volumes . list prices for nbsk pulp in europe averaged approximately $ 864 per admt in 2013 , compared to $ 813 per admt in 2012. at the end of 2013 , list prices were $ 905 per admt in europe and $ 990 and $ 750 per admt in north america and china , respectively . average pulp sales realizations increased by approximately 4 % to $ 683 per admt in 2013 from $ 657 per admt in 2012 , primarily due to higher pulp prices . at the end of 2013 , reported global inventories for softwood kraft were approximately 27 days ' supply , while at the end of 2012 inventories for softwood kraft were approximately 29 days ' supply . pulp sales volume decreased by approximately 2 % to 1,440,147 admts in 2013 from 1,473,519 admts in 2012 , primarily as a result of lower production levels at our celgar mill . 54 pulp production decreased to 1,444,475 admts in 2013 from 1,468,275 admts in 2012 , primarily due to lower production at our celgar mill . in 2013 and 2012 , we took a total of 33 and 40 days ' scheduled maintenance downtime , respectively , at our mills and expect to take approximately 26 days in 2014. during the second quarter of 2013 , our celgar mill took its annual scheduled major maintenance shutdown . as a result of a combination of a lightning strike at the mill and equipment and execution issues , the shutdown which was planned for 11 days took 15 days instead . further , the start-up of the mill was slower than budgeted . the shutdown and slower start-up resulted in a loss of approximately 30,300 admts of nbsk pulp production ( of which approximately 14,300 admts was unplanned ) and a consequential loss of energy production .
| pulp sales volume of the restricted group decreased to 818,570 admts in 2013 from 826,921 admts in 2012. pulp production for the restricted group decreased to 809,659 admts in 2013 from 827,977 admts in 2012. in 2013 and 2012 , our celgar and rosenthal mills had an aggregate of 21 days ( approximately 25,400 admts ) and 30 days ( approximately 32,800 admts ) of scheduled maintenance downtime , respectively , and expect to take approximately 22 days in 2014. we had 15 days of maintenance downtime at our celgar mill in the first half of 2013 , which , together with a slower startup , resulted in a loss of approximately 30,300 admts of nbsk pulp production . see results of operations selected production , sales and other data year ended december 31 , 2013 compared to year ended december 31 , 2012 for further information regarding the celgar mill shutdown . costs and expenses for the restricted group in 2013 increased to $ 579.4 million from $ 572.0 million in 2012 , primarily due to higher fiber costs at our rosenthal mill and the impact of a weaker u.s. dollar relative to the euro on our german mill expenses , partially offset by lower sales volume . the restricted group 's costs and expenses in 2013 included approximately $ 14.3 million for regularly scheduled maintenance costs , compared to $ 9.6 million in 2012. several competing producers and members of the peer group that we benchmark the restricted group 's performance against report their financial results in accordance with international financial reporting standards which permit a significant portion of such maintenance costs to be capitalized instead of expensed . such costs are not charged to ebitda by the peer group companies but instead are expensed as depreciation . overall , average per unit fiber costs of the restricted group increased by approximately 3 % in 2013 compared to 2012 , primarily due to 16 % higher per unit fiber costs in germany caused by strong demand from the european pellet and board producers and sawmills , only partially offset by a 12 % decrease in per unit fiber costs for the celgar mill . in 2013 , operating depreciation and amortization for the restricted group increased to $ 43.5 million from $ 40.1 million in the same period last year . selling , general and administrative expenses marginally increased to $ 31.9 million from $ 31.7 million in 2012. in 2013 , the restricted group
| 14,660 |
the effectiveness of our or any system of disclosure controls and procedures , however well designed and operated , can provide only reasonable assurance that the objectives of the system will be met and is subject to certain limitations story_separator_special_tag current business activities general livengood gold project developments during the year ended december 31 , 2018 and to the date of this annual report on form 10-k , the company progressed on a number of opportunities with the potential for optimization and reducing the costs of building and operating a mine at the project . outside consultants were retained to conduct additional metallurgical tests and engineering , including confirmation of the flow sheet and optimizing the operating costs . using the improved mineralization and alteration models now available for the livengood gold deposit arising from the work completed in 2017 , 4,000 kg of metallurgical composites were selected and shipped to sgs vancouver . approximately 2,000 kg of these samples were processed during 2018 to evaluate optimum grind size and to determine whether different recovery parameters should be applied to different areas of the orebody . the engineering firm of bba inc. ( bba ) was retained to continue to guide the metallurgical program . work was also completed to advance the environmental baseline efforts needed to support future permitting . director changes on march 16 , 2018 , mr. victor flores notified the board of his decision to resign as director effective on march 21 , 2018. mr. flores was nominated for election as director by paulson & co. , inc. ( “ paulson ” ) pursuant to that certain investor rights agreement , dated december 28 , 2016 , between the company and paulson . effective on march 22 , 2018 , the company appointed mr. damola adamolekun as director , filling the vacancy created by the resignation of mr. flores . the board appointed mr. stuart harshaw to the board effective april 1 , 2018 , to fill the vacancy that resulted from general hamilton 's november 6 , 2017 resignation . at the 2018 annual general meeting of shareholders in vancouver , b.c . on may 30 , 2018 , the shareholders fixed the size of the board at nine with the addition of the company 's chief executive officer , mr. karl hanneman . financing on march 13 , 2018 , the company completed a non-brokered private placement pursuant to which it issued 24,000,000 common shares at $ 0.50 per share for gross proceeds of $ 12.0 million . the company intends to use the funds for continuation of optimization studies in the attempt to further improve and de-risk the project , for required environmental baseline studies , and for general working capital purposes . other developments on march 12 , 2018 , the board approved recommendations by management to further reduce corporate overhead costs , including a reduction in ceo salary by 50 % ( reflecting an approximate 50 % reduction in the amount of time the ceo will spend working on the project ) , a reduction in board cash compensation and expense , and staff reductions as appropriate as critical work is completed . depending upon the level of technical work or permitting efforts underway in future years , these cost savings are expected to bring total project g & a costs into the range of $ 2.5 million per year . 2019 outlook 38 on november 1 , 2018 , the board approved a 2019 budget of $ 3.7 million . the work program incorporated in this budget will build upon the metallurgical studies undertaken in 2018 to continue to define and refine the project flowsheet . approximately 2,000 kg of samples will be processed in 2019 to evaluate optimum grind size and to determine whether different recovery parameters should be applied to different areas of the orebody . the engineering firm of bba inc. ( “ bba ” ) will be retained to continue to guide the metallurgical program . work is also planned to advance the environmental baseline efforts needed to support future permitting . the company remains open to a strategic alliance to help support the future development of the project while considering all other appropriate financing options . the size of the gold resource , the favorable location , and the proven team are some of the reasons the company would potentially attract a strategic partner with a long term development horizon who understands the project is highly leveraged to gold prices . results of operations story_separator_special_tag million and a positive foreign currency translation impact of approximately $ 0.5 million . the company intends to use the remaining funds for continuation of optimization studies in the attempt to further improve and de-risk the project , for required environmental baseline studies , and for general working capital purposes . as at march 14 , 2019 , management believes that the company has sufficient financial resources to maintain its operations for the next twelve months . the company had no cash flows from investing activities during the year ended december 31 , 2017. financing activities during the year ended december 31 , 2018 included completion of a non-brokered private placement pursuant to which the company issued 24,000,000 common shares at $ 0.50 per share for gross proceeds of $ 12.0 million . share issuance costs included $ 111,379 related to the march 2018 private placement . story_separator_special_tag following the resignation of director mark hamilton on november 6 , 2017 , the company recognized an obligation to issue 129,687 common shares , with a value of $ 63,593. on march 27 , 2018 , the company issued the common shares in full satisfaction of the obligation . as a result of the exercise of stock options , $ 181,026 in proceeds was received during the year in connection with the issuance of 468,000 common shares . as at december 31 , 2018 , the company had working capital of $ 9,884,979 compared to working capital of $ 1,993,358 at december 31 , 2017. the company expects that it will operate at a loss for the foreseeable future , but believes the current cash and cash equivalents will be sufficient for it to complete its anticipated 2019 work plan at the livengood gold project and satisfy its currently anticipated general and administrative costs through the 2020 fiscal year . the company will require significant additional financing to continue its operations ( including general and administrative expenses ) in connection with advancing activities at the livengood gold project and the development of any mine that may be determined to be built at the livengood gold project , and there is no assurance that the company will be able to obtain the additional financing required on acceptable terms , if at all . in addition , any significant delays in the issuance of required permits for the ongoing work at the livengood gold project , or unexpected results in connection with the ongoing work , could result in the company being required to raise additional funds to advance permitting efforts . the company 's review of its financing options includes pursuing a future strategic alliance to assist in further development , permitting and future construction costs , although there can be no assurance that any such strategic alliance will , in fact , be realized . despite the company 's success to date in raising significant equity financing to fund its operations , there is significant uncertainty that the company will be able to secure any additional financing in the current or future equity markets . see “ risk factors – we will require additional financing to fund exploration and , if warranted , development and production . failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern. ” the quantity of funds to be raised and the terms of any proposed equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise . specific plans related to the use of proceeds will be devised once financing has been completed and management knows what funds will be available for these purposes . due to this uncertainty , if the company is unable to secure additional financing , it may be required to reduce all discretionary activities at the project to preserve its working capital to fund anticipated non-discretionary expenditures beyond the 2019 fiscal year . other than cash held by its subsidiaries for their immediate operating needs in the united states , all of the company 's cash reserves are on deposit with a major canadian chartered bank . the company does not believe that the credit , liquidity or market risks with respect thereto have increased as a result of the current market conditions . contractual obligations and commitments the following table discloses , as of december 31 , 2018 , the company 's contractual obligations , including anticipated mineral property payments and work commitments . under the terms of the company 's mineral property purchase agreements , mineral leases and the terms of the unpatented mineral claims held by it , the company is required to make certain scheduled acquisition payments , incur certain levels of expenditures , make lease or advance royalty payments , make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain and preserve the company 's interests in the related mineral properties . if the company is unable or unwilling to make any such payments or incur any such expenditures , it is likely that the company would lose or forfeit its rights to acquire or hold the related mineral properties . the following table assumes that the company retains the rights to all of its current mineral properties , but does not exercise any lease purchase or royalty buyout options : 41 replace_table_token_5_th 1. does not include required work expenditures , as it is assumed that the required expenditure level is significantly below the work which will actually be carried out by the company . does not include potential royalties that may be payable ( other than annual minimum royalty payments ) . off-balance sheet arrangements the company does not have any off balance sheet arrangements . critical accounting policies mineral properties and exploration and evaluation expenditures the company 's mineral project is currently in the exploration and evaluation phase . mineral property acquisition costs are capitalized when incurred . mineral property exploration costs are expensed as incurred . at such time that the company determines that a mineral property can be economically developed , subsequent mineral property expenses will be capitalized during the development of such property . the company assesses interests in exploration properties for impairment when facts and circumstances suggest that the carrying amount of an asset may exceed its recoverable amount . impairment analysis includes assessment of the following circumstances : a significant decrease in the market price of a long-lived asset or asset group ; a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived
| the cost is expected to be recognized over a weighted-average remaining period of approximately 0.08 years . share based payment charges were allocated as follows : replace_table_token_4_th 39 excluding share-based payment charges of $ 183,429 and $ 58,192 , respectively , wages and benefits decreased to $ 1,706,182 for the year ended december 31 , 2018 from $ 1,877,788 for the year ended december 31 , 2017. the reduction of $ 171,606 is primarily due to staff reductions partially offset by severance for four staff reductions . consulting fees , excluding share-based payment charges of $ 414,422 and $ 384,516 , respectively , were $ 138,870 for the year ended december 31 , 2018 compared to $ 275,846 for the year ended december 31 , 2017. the decrease of $ 136,976 is primarily due to decreased media support services and the company 's continued efforts to maintain or reduce spending . insurance costs were $ 169,036 for the year ended december 31 , 2018 compared to $ 281,948 for the year ended december 31 , 2017. the decrease of $ 112,912 resulted after the company completed a review of coverage requirements . professional fees were $ 227,082 for the year ended december 31 , 2018 compared to $ 263,863 for the year ended december 31 , 2017. the decrease of $ 36,781 is due primarily to decreased legal fees related to property matters . excluding share-based payments , all other operating expense categories reflected only moderate changes period over period . other items amounted to an income of $ 676,186 during the year ended december 31 , 2018 compared to other expense of $ 314,593 in the year ended december 31 , 2017. the company had a foreign exchange gain of $ 522,248 during the year ended december 31 , 2018 compared to a loss of $ 364,188 during the year ended december 31 , 2017 as a result of the impact of exchange rates on certain of
| 14,661 |
the overall $ 8,832,232 increase in operating expenses was primarily attributable to the following increases ( decreases ) in operating expenses of : ● general and administrative expenses – $ 1,472,427 ● salaries and wages – $ 4,897,782 ● professional and legal fees – ( $ 147,144 ) ● depreciation and amortization – $ 2,609,167 the $ 1,472,427 increase in general and administrative expenses is a result of increases in rent expense , advertising and travel expenses resulting from an expansion in our operations . the $ 4,897,782 increase in salaries and wages resulted from a significant increase in headcount , including biotrackthc and engeni personnel . the $ 147,144 decrease in professional and legal fees primarily resulted from an increase in costs associated with obtaining capital resources during the year ended december 31 , 2017. the $ 2,609,167 increase in depreciation and amortization was due to the amortization of intangible assets acquired in the biotrackthc and engeni acquisitions . other income ( expense ) , net other income ( expense ) , net consisted of a gain on the change in fair value of obligation to issue warrants , gain on the change in the fair value of convertible notes , gain on the change in fair value of convertible notes – related party , loss on the change in fair value of contingent consideration , loss on impairment of goodwill , gain on reduction of obligation pursuant to acquisition , and interest income . other income ( expense ) , net during the year ended december 31 , 2018 and 2017 was $ 1,983,741 and ( $ 6,882,705 ) , respectively . the $ 8,866,446 increase in other income ( expense ) , net was primarily attributable to a gain on the change in fair value of convertible notes of $ 450,216 , gain on change in fair value of obligation to issue warrants of $ 1,625,398 , and no loss on induced conversion of convertible note or loss on extinguishment of debt for the year ended december 31 , 2018. net loss for the foregoing reasons , we had a net loss of $ 8,181,580 for the year ended december 31 , 2018 , or $ 0.15 net loss per common share – basic and diluted , compared to net loss of $ 10,665,987 for the year ended december 31 , 2017 , or $ 0.37 net loss per common share – basic and diluted . 19 convertible preferred stock beneficial conversion feature accreted as a deemed dividend the convertible preferred stock beneficial conversion feature accreted as a deemed dividend resulted from the effective conversion price of the series b preferred shares at issuance being less than the fair value of the common stock into which the preferred shares are convertible . the result was a non-cash charge in the amount of $ 22,202,194 for the year ended december 31 , 2018 compared to $ 22,210,520 for the year ended december 31 , 2017. net loss attributable to common shareholders for the foregoing reasons , we had a net loss attributable to common shareholders of $ 30,365,783 for the year ended december 31 , 2018 , or $ 0.56 net loss per share attributable to common shareholders - basic and diluted , compared to net loss attributable to common shareholders of $ 32,876,507 for the year ended december 31 , 2017 , or $ 1.15 net loss per share attributable to common shareholders – basic and diluted . liquidity , capital resources and cash flows going concern management believes that we will continue to incur losses for the immediate future . therefore , we may either need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities , if ever . these conditions raise substantial doubt about our ability to continue as a going concern . our consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern . for the year ended december 31 , 2018 , we have generated revenue and are trying to achieve positive cash flows from operations . as of december 31 , 2018 , we had a cash balance of $ 285,761 , accounts receivable , net of $ 1,184,923 and $ 4,065,005 in current liabilities . at the current cash consumption rate , we may need to consider additional funding sources toward the end of fiscal 2019. we are taking proactive measures to reduce operating expenses , drive growth in revenue and expeditiously resolve any remaining legal matters . the successful outcome of future activities can not be determined at this time and there is no assurance that , if achieved , we will have sufficient funds to execute our intended business plan or generate positive operating results . the consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern . 20 capital resources the following table summarizes total current assets , liabilities and working capital deficit for the periods indicated : replace_table_token_5_th as of december 31 , 2018 and 2017 , we had a cash balance of $ 285,761 and $ 868,554 , respectively . story_separator_special_tag times , serif ; margin : 0pt 0 '' > in accordance with the guidance for business combinations , the company determines whether a transaction or other event is a business combination , which requires that the assets acquired and liabilities assumed constitute a business . each business combination is then accounted for by applying the acquisition method . if the assets acquired are not a business , the company accounts for the transaction or other event as an asset acquisition . under both methods , the company recognizes the identifiable assets acquired , the liabilities assumed , and any noncontrolling interest in the acquired entity . story_separator_special_tag in addition , for transactions that are business combinations , the company evaluates the existence of goodwill or a gain from a bargain purchase . the company capitalizes acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations . revenue recognition under fasb topic 606 , revenue from contacts with customers ( “ asc 606 ” ) , the company recognizes revenue when the customer obtains control of promised goods or services , in an amount that reflects the consideration which is expected to be received in exchange for those goods or services . the company recognizes revenue following the five-step model prescribed under asc 606 : ( i ) identify contract ( s ) with a customer ; ( ii ) identify the performance obligation ( s ) in the contract ; ( iii ) determine the transaction price ; ( iv ) allocate the transaction price to the performance obligation ( s ) in the contract ; and ( v ) recognize revenues when ( or as ) the company satisfies a performance obligation . the security services revenue is generated from performing armed and unarmed guarding which is contracted for on an hourly basis . revenues associated with these contracted services are recognized under time-based arrangements as services are provided . additionally , the company provides transportation security services , which are generally contracted for on a per-run basis and sometimes additional fees and surcharges are also billed to the client depending on the length of the run . revenues associated with these services are recognized as the transportation service is provided . the company also generates revenue from developing and licensing seed to sale cannabis compliance software to both private-sector and public-sector ( government agencies ) businesses that are involved in cannabis related operations . the company also generates revenue from on-going training , support and software customization services . occasionally , the company will enter into systems installation arrangements . installation jobs are estimated based on the cost of equipment to be installed , the number of hours expected to be incurred to complete the job and other ancillary costs . revenue associated with these services are recognized over the arrangement period . lastly , the company generates advertising revenues from consumer advertising on its cannabase platform . revenue is recognized over the contract period associated with each specific advertising campaign . income taxes the company accounts for income taxes under the asset and liability method , which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements . under this method , deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse . valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized . the company has incurred net operating loss for financial-reporting and tax-reporting purposes . accordingly , for federal and state income tax purposes , the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the years ended december 31 , 2018 and 2017. distinguishing liabilities from equity the company relies on the guidance provided by asc topic 480 , distinguishing liabilities from equity , to classify certain redeemable and or convertible instruments . the company first determines whether a financial instrument should be classified as a liability . the company will determine the liability classification if the financial instrument is mandatorily redeemable , or if the financial instrument , other than outstanding shares , embodies a conditional obligation that the company must or may settle by issuing a variable number of its equity shares . once the company determines that a financial instrument should not be classified as a liability , the company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet ( “ temporary equity ” ) . the company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the company ( i.e . at the option of the holder ) . otherwise , the company accounts for the financial instrument as permanent equity . 23 initial measurement the company records its financial instruments classified as liability , temporary equity or permanent equity at issuance at the fair value , or cash received . subsequent measurement - financial instruments classified as liabilities the company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date . the changes in fair value of its financial instruments classified as liabilities are recorded as other expense/income . share-based compensation the company accounts for stock-based compensation to employees in conformity with the provisions of asc topic 718 , stock based compensation . stock-based compensation to employees consist of stock options grants and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant . the company accounts for equity instruments issued to non-employees in accordance with the provisions of asc topic 505 , subtopic 50 , equity-based payments to non-employees based upon the fair-value of the underlying instrument . the equity instruments , are valued using the black-scholes valuation model . the measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period which services are received . the company calculates the fair value of option grants utilizing the black-scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock . the amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest .
| costs & earnings in excess of billings , billings in excess of costs and deferred rent of $ 466,317 . 21 net cash provided by ( used in ) investing activities . net cash provided by investing activities for the year ended december 31 , 2018 was $ 240,018 , which consisted of capital expenditures of $ 155,559 , cash acquired pursuant to the biotrackthc and engeni acquisitions of $ 454,306 , and cash payments pursuant to the revolutionary asset acquisition $ 58,729. net cash used in investing activities for the year ended december 31 , 2017 was $ 1,708,663 , which consisted of capital expenditures of $ 30,478 , cash payments pursuant to the security grade business combination of $ 1,631,313 and cash payments pursuant to the revolutionary asset acquisition of $ 46,872. net cash provided by financing activities . net cash provided by financing activities for the year ended december 31 , 2018 was $ 3,206,279 , which resulted from proceeds from the issuance of notes payable of $ 39,723 , proceeds of $ 250,000 from the issuance of promissory notes , proceeds from the issuance of common stock of $ 3,555,223 , payments pursuant to convertible notes payable – related party of $ 150,000 , payments pursuant to notes payable of $ 27,836 , payments pursuant to contingent consideration of $ 131,331 , advances from related parties of $ 79,500 , and payments pursuant to a promissory note of $ 250,000. net cash provided by financing activities for the year ended december 31 , 2017 was $ 4,209,451 , which resulted from proceeds from the issuance of convertible notes payable of $ 229,167 , proceeds of $ 255,000 from the issuance of promissory notes and advances from shareholders of $ 83,250 , proceeds from the issuance of common stock of $ 100,000 , proceeds from the issuance of series b convertible preferred stock of $ 3,577,500 , payments pursuant to advances from related parties of $ 32,000 and
| 14,662 |
income taxes generally , the company 's combined effective tax rate is high relative to reported net income as a result of certain amortization expense , foreign taxes , and corporate overhead not being deductible and income being attributable to certain states in which it operates . the company operates in four states which have relatively high tax rates : california , new york , illinois , and florida . current income taxes increased in 2019 despite lower pretax income primarily due to an increase in foreign taxes in the united kingdom related to our london office that are not deductible from u.s. federal taxes . the company recognized a $ 0.3 million valuation allowance on deferred tax assets related to stock options held by the company 's former chief executive officer , which were forfeited in connection with the effectiveness of his resignation on january 26 , 2020 , offset by a $ 0.3 million deferred tax benefit related to goodwill impairment . as of december 31 , 2019 , the company had federal income tax loss carryforwards of $ 0.5 million . 13 net income the company had a net loss of $ 4.8 million for the year ended december 31 , 2019 , compared to net income of $ 0.9 million for the year ended december 31 , 2018 , primarily due to the decrease in operating income and the increase in income tax expense . liquidity and capital resources the company 's cash balance increased to $ 7.0 million at december 31 , 2019 from $ 6.7 million at december 31 , 2018. the cash balance increased primarily as a result of $ 1.5 million net cash provided by operating activities and $ 0.1 million foreign currency effect on cash flow , partially offset by $ 0.4 million cash used in investing activities , and $ 1.0 million cash used in financing activities . after accounting for the impact on net loss of the non-cash goodwill impairment charge , cash provided by operating activities of $ 1.5 million was primarily the result of decreases in accounts receivable and right of use assets , partially offset by decreases in amounts due to models and accounts payable and accrued liabilities . the $ 0.4 million cash used in investing activities was attributable to purchases of property and equipment , including software , office furniture , and computer equipment . the $ 1.0 million of cash used in financing activities was attributable to purchase of treasury stock , principal payments on the company 's term loan , and payments on finance leases . the company 's primary liquidity needs are for working capital associated with performing services under its client contracts and servicing its term loan . generally , the company incurs significant operating expenses with payment terms shorter than its average collections on billings . based on 2020 budgeted and year-to-date cash flow information , management believes that the company has sufficient liquidity to meet its projected operational expenses and capital expenditure requirements for the next twelve months . amegy bank credit agreement the company has a credit agreement with amegy bank which provides a $ 4.0 million revolving line of credit and previously provided up to a $ 3.0 million term loan which could be drawn through october 24 , 2016. amounts outstanding under the term loan reduce the availability under the revolving line of credit . the revolving line of credit is also subject to a borrowing base derived from 80 % of eligible accounts receivable ( as defined ) and the company 's minimum net worth covenant of $ 22.0 million . the revolving line of credit bears interest at prime plus 0.50 % payable monthly . as of december 31 , 2019 , the company had a $ 0.2 million irrevocable standby letter of credit outstanding under the revolving line of credit and had additional borrowing capacity of $ 1.4 million . the revolving line of credit presently expires october 24 , 2022. on august 16 , 2016 , the company drew $ 2.7 million of the term loan and used the proceeds to fund the purchase of shares of its common stock in a private transaction . the term loan bears interest at 4.5 % per annum and is payable in monthly payments of interest only until november , 2016 , followed by 47 equal monthly payments of principal and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on october 24 , 2020. on july 16 , 2018 , the company amended its credit agreement with amegy bank to provide for an additional term loan of up to $ 1.0 million that could be drawn by the company through july 12 , 2019 , for the purpose of repurchases of its common stock . the additional term loan is evidenced by a promissory note bearing interest at 5.15 % per annum and was payable in monthly installments of interest only through july 12 , 2019. thereafter , the note is payable in monthly installments sufficient to fully amortize the outstanding principal balance in 60 months with the balance of principal and accrued interest due on july 12 , 2023. the amendment also revised the calculation of the fixed charge coverage ratio for the three quarters following the maturity date of the previous term loan . amounts outstanding under the additional term loan further reduce the availability under the company 's revolving line of credit with amegy bank . on august 1 , 2018 , the company drew $ 0.7 million of the additional term loan and used the proceeds to fund the purchase of 100,000 shares of its common stock in a private transaction . story_separator_special_tag on december 12 , 2018 , the company drew $ 0.3 million of the additional term loan and used the proceeds to partially fund a purchase of 50,000 shares of its common stock in a private transaction . as of december 31 , 2019 , a total of $ 2.0 million was outstanding on the two term loans . off-balance sheet arrangements as of december 31 , 2019 , the company had outstanding a $ 0.2 million irrevocable standby letter of credit under the company 's revolving credit facility with amegy bank . the letter of credit serves as security under the lease relating to the company 's office space in new york city that expires february 2021. effect of inflation inflation has not been a material factor affecting the company 's business . general operating expenses , such as salaries , employee benefits , insurance and occupancy costs , are subject to normal inflationary pressures . 14 critical accounting policies and estimates the consolidated financial statements of the company are prepared in accordance with generally accepted accounting practices in the united states of america ( “ u.s . gaap ” ) . the preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , costs , and expenses and related disclosures . we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances . in many instances , we could have reasonably used different accounting estimates , and in other instances , changes in the accounting estimates are reasonably likely to occur from period to period . accordingly , actual results could differ significantly from the estimates made by our management . to the extent that there are material differences between these estimates and actual results , our future financial statement presentation , financial condition , results of operations and cash flows may be affected . the following items require significant estimation or judgement . for additional information about our accounting policies , refer to “ note 2 , summary of significant accounting policies ” in the audited financial statements included herewith . revenue recognition on january 1 , 2018 , the company adopted the requirements of accounting standards update ( “ asu ” ) no . 2014-09 , revenue from contracts with customers ( topic 606 ) ( “ asc 606 ” ) . asc 606 establishes a principle for recognizing revenue upon the transfer of promised goods or services to customers , in an amount that reflects the expected consideration received in exchange for those goods or services . our revenues are derived primarily from fashion model and artist bookings , and representation of social media influencers and actors for commercials , film , and television . our performance obligations are primarily satisfied at a point in time when the talent has completed the contractual requirements . a contract 's transaction price is allocated to each distinct performance obligation and recognized as revenue when , or as , the performance obligation is satisfied . the performance obligations for most of the company 's core modeling bookings are satisfied on the day of the event , and the “ day rate ” total fee is agreed in advance when the customer books the model for a particular date . for contracts with multiple performance obligations , we allocate the contract 's transaction price to each performance obligation based on the estimated relative standalone selling price . model costs model costs include amounts owed to talent , including taxes required to be withheld and remitted directly to taxing authorities , commissions owed to other agencies , and related costs such as those paid for photography . costs are accrued in the period in which the event takes place consistent with when the revenue is recognized . the company typically enters into contractual agreements with models under which the company is obligated to pay talent upon collection of fees from the customer . stock based compensation stock-based compensation expense is estimated at the grant date based on the award 's fair value as calculated by the black-scholes option pricing model and is recognized on a straight line basis as an expense over the requisite service period , which is generally the vesting period . the determination of the fair value of stock-based awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include the estimated volatility over the expected term of the awards , actual and projected employee stock option exercise behaviors , risk-free interest rates , estimated forfeitures and expected dividends . income taxes we are subject to income taxes in the united states , the united kingdom , and numerous local jurisdictions . deferred tax assets are recognized for unused tax losses , unused tax credits , and deductible temporary differences to the extent that it is probable that future taxable profits will be available , against which they can be used . unused tax loss carry-forwards are reviewed at each reporting date and have not been recorded when we believe we will not generate future taxable income to utilize the loss carry-forwards . 15 in determining the amount of current and deferred income tax , we take into account whether additional taxes , interest , or penalties may be due . although we believe that we have adequately reserved for our income taxes , we can provide no assurance that the final tax outcome will not be materially different . to the extent that the final tax outcome is different than the amounts recorded , such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results . accounts receivable and allowance
| wilhelmina 's primary sources of revenue include : ( i ) revenues from principal relationships where the gross amount billed to the client is recorded as revenue when earned and collectability is reasonably assured ; and ( ii ) separate service charges , paid by clients in addition to the booking fees , which are calculated as a percentage of the models ' booking fees and are recorded as revenues when earned and collectability is reasonably assured . see “ critical accounting policies - revenue recognition. ” wilhelmina provides professional services . therefore , salary and service costs represent the largest part of the company 's operating expenses . salary and service costs are comprised of payroll and related costs and travel , meals and entertainment ( “ t & e ” ) to deliver the company 's services and to enable new business development activities . 11 analysis of consolidated statements of operations for the years ended december 31 , 2019 and 2018 replace_table_token_4_th service revenues the company 's service revenues fluctuate in response to its clients ' willingness to spend on advertising and the company 's ability to have the desired talent available . the 3.0 % decrease in total service revenues for the year ended december 31 , 2019 when compared to the year ended december 31 , 2018 was primarily due to decreases in core model bookings and in bookings in the wilhelmina studio division , partially offset by an increase in bookings in the aperture division . license fees and other income license fees and other income include management and administrative services from an unconsolidated affiliate and franchise revenues from independently owned model agencies that use the wilhelmina trademark and various services provided by the company . license fees decreased 13.3 % for the year ended december 31 , 2019 , when compared to the year ended december 31 , 2018 , primarily due to the timing of payments received from existing affiliates . gross profit margin gross profit margins decreased by 40 basis points for the year ended december 31 , 2019 , when compared to the year ended december 31 , 2018 , primarily due
| 14,663 |
the net portfolio yield decreased to 11.09 % for the fiscal year ended march 31 , 2018 from 12.69 % for the fiscal year ended march 31,2017. the net portfolio yield decreased due to a decrease in the gross portfolio yield and an increase in the provision for credit losses as a percentage of finance receivables , as described under analysis of credit losses . 24 marketing , salaries and employee benefits , depreciation , and administrative expenses marketing , salaries and employee benefits , depreciation , and administrative expenses decreased approximately $ 2.3 million to $ 33.2 million for the fiscal year ended march 31 , 2018 compared to $ 35.5 million for the fiscal year ended march 31 , 2017. the decrease was primarily due to the company having consolidated five branch locations during the fiscal year ended march 31 , 2018. marketing , salaries and employee benefits , depreciation , and administrative expenses as a percentage of average finance receivables , net of unearned interest , decreased to 10.11 % for the fiscal year ended march 31 , 2018 from 10.23 % for the fiscal year ended march 31 , 2017. interest expense interest expense increased to $ 10.1 million for the fiscal year ended march 31 , 2018 as compared to $ 9.2 million for the fiscal year ended march 31 , 2017. while the average outstanding debt during the year ended march 31 , 2018 decreased to $ 190.0 million from $ 211.0 million during the year ended march 31 , 2017 , this decrease was partially offset by an increase in interest rates under the company 's line of credit . the following table summarizes the company 's average cost of borrowed funds for the fiscal years ended march 31 : replace_table_token_10_th libor rates have increased ( 1.88 % as of march 31 , 2018 compared to .98 % as of march 31 , 2017 ) which caused a decrease in expense related to our interest rate swap agreements . in addition , the company entered into a temporary agreement on december 30 , 2016 that increased the effective interest rate by 50 basis points through june 30 , 2017. on november 8 , 2017 the company executed amendment 7 to this existing line of credit which extended the maturity date to march 31 , 2018 and increased the pricing of the line of credit an additional 50 basis points to 400. on march 30 , 2018 the company executed amendment 8 to this line of credit which extended the maturity date to march 30 , 2019. for further discussions regarding interest rates see note 5 line of credit . analysis of credit losses as of march 31 , 2018 , the company had approximately 1,375 active static pools . the average pool upon inception consisted of 37 contracts with aggregate finance receivables , net of unearned interest , of approximately $ 422,000. the following table sets forth a reconciliation of the changes in the allowance for credit losses on contracts for the fiscal years ended march 31 : replace_table_token_11_th the following table sets forth a reconciliation of the changes in the allowance for credit losses on direct loans for the fiscal years ended march 31 : replace_table_token_12_th 25 the provision for credit losses increased to $ 37.5 million for the fiscal year ended march 31 , 2018 from $ 37.2 million for the fiscal year ended march 31 , 2017 largely due to net charge-offs increasing to 10.65 % for the fiscal year ended march 31 , 2018 from 9.37 % for the fiscal year ended march 31 , 2017. the company 's losses as a percentage of liquidation ( see note 5 in the portfolio summary table in the introduction above for the definition of write-off to liquidation ) increased to 13.92 % for the fiscal year ended march 31 , 2018 as compared to 11.81 % for the fiscal year ended march 31 , 2017. this increase was the result of several factors , including , but not limited to , loosened underwriting guidelines , insufficient execution of our servicing model , the acquisition of contracts that contained some degree of fraudulent information that at the time of contract acquisition was not identified , and an increase in the number of contracts and direct loans under which customers decided to discontinue payments to us after they were approved by other lenders for new vehicle financing . in addition , aggressive competition had influenced the company to purchase lower credit quality contracts . the company also experienced a decrease in auction prices relative to loan balances from fiscal year 2018 to fiscal year 2017. decreased auction proceeds from repossessed vehicles increased the amount of write-offs which , in turn , increased the write-off to liquidation percentage . during the fiscal years ended march 31 , 2018 and 2017 , auction proceeds from the sale of repossessed vehicles averaged approximately 35 % and 37 % , respectively , of the related principal balance . recoveries as a percentage of charge-offs were approximately 5.09 % and 6.40 % for the fiscal years ended march 31 , 2018 and 2017 , respectively . the company attributes a large portion of this decrease simply to the increase in charge-offs ; historically , there is a six to twelve-month cooling off period prior to receiving any benefits from post charge-off collection activity . during fiscal 2017 we were in a cycle in which credit was more easily available to our typical customer , which led many of our customers to be less disciplined about their credit record , including the payment schedule on their contracts and direct loans . periodically , the company will aggregate charge-off accounts it deems uncollectible and sell them to a third-party . story_separator_special_tag the delinquency percentage for contracts more than thirty days past due , excluding chapter 13 bankruptcy accounts , as of march 31 , 2018 was 8.07 % , a decrease from 10.05 % as of march 31 , 2017. the delinquency percentage for direct loans more than thirty days past due , excluding chapter 13 bankruptcy accounts , as of march 31 , 2018 was 4.88 % , an increase from 3.89 % as of march 31 , 2017. the decrease in delinquency percentage for contracts was driven by the company 's renewed focus on operations and servicing . the company considers the following factors to assist in determining the appropriate loss reserve levels : competition ; the number of bankruptcy filings ; the results of internal branch audits ; consumer sentiment ; consumer spending ; economic growth ( i.e. , changes in gdp ) ; the condition of the housing sector ; and other leading economic indicators . the company continues to evaluate reserve levels on a pool-by-pool basis during each reporting period . the longer-term outlook for portfolio performance will depend on overall economic conditions , the rational or irrational behavior of the company 's competitors , and the company 's ability to monitor , manage and implement its underwriting and collections philosophy in additional geographic areas as it strives to expand its operations . in accordance with our policies and procedures , certain borrowers qualify for , and the company offers , one-month principal payment deferrals on contracts and direct loans . for the fiscal years ended march 31 , 2018 and march 31 , 2017 the company granted deferrals to approximately 38.38 % and 34.77 % , respectively , of total contracts and direct loans . the increase in the number of deferrals for the fiscal year ended 2018 is a result of portfolio weakness which was exacerbated by the effect of the company 's unsuccessful attempt at centralizing collections in the prior year . the company is reasonably certain that its delinquency rates would be higher without the increase in deferrals . the number of deferrals is influenced by portfolio performance , including but not limited to , inflation , credit quality of loans purchased , competition at the time of contract acquisition , and general economic conditions . income taxes the provision for income taxes increased to approximately $ 4.3 million in fiscal 2018 from approximately $ 3.3 million in fiscal 2017. the company 's effective tax rate increased to 134.71 % in fiscal 2018 from 38.11 % in fiscal 2017 due to an additional expense taken by the company caused by the write-off of certain deferred tax assets . these changes are a result of the u.s. tax cuts and jobs act ( the tax act ) , which ) was enacted on december 22 , 2017. for further discussion regarding income taxes see note 8 income taxes . 26 fiscal 2017 compared to fiscal 2016 interest and fee income on finance receivables interest income on finance receivables , predominantly finance charge income , decreased slightly to $ 90.5 million in fiscal 2017 as compared to $ 90.7 million in fiscal 2016. the average finance receivables , net of unearned interest , totaled $ 347.4 million for the fiscal year ended march 31 , 2017 , an increase of 4 % from $ 334.8 million for the fiscal year ended march 31 , 2016. while our purchasing volume has slowed , mainly as a result of a highly competitive market place , our finance receivables continued growing in our more recently entered markets , including our three newer states ( see item 1. businesscontract procurement ) . increases in our average term and average loan amount have contributed to the increase in finance receivables . the gross portfolio yield decreased to 26.04 % for the fiscal year ended march 31 , 2017 as compared to 27.10 % for the fiscal year ended march 31,2016. the gross portfolio yield decreased primarily due to the decrease in the average dealer discount and in the average weighted apr , intensified by the increase in average finance receivables , net of unearned interest , particularly as a result of an increase in past-due accounts . the net portfolio yield decreased to 12.69 % for the fiscal year ended march 31 , 2017 from 16.56 % for the fiscal year ended march 31,2016. the net portfolio yield decreased due to a decrease in the gross portfolio yield and an increase in the provision for credit losses , as described under analysis of credit losses . marketing , salaries and employee benefits , depreciation , and administrative expenses marketing , salaries and employee benefits , depreciation , and administrative expenses remained relatively flat at $ 35.5 million for the fiscal year ended march 31 , 2017 compared to $ 35.3 million for the fiscal year ended march 31 , 2016. the company opened one new branch location during the fiscal year ended march 31 , 2017 , and consolidated three branch locations into branches previously established within their market . marketing , salaries , employee benefits , depreciation , and administrative expenses as a percentage of average finance receivables , net of unearned interest , decreased to 10.23 % for the fiscal year ended march 31 , 2017 from 10.54 % for the fiscal year ended march 31 , 2016. interest expense interest expense increased to $ 9.2 million for the fiscal year ended march 31 , 2017 as compared to $ 9.0 million for the fiscal year ended march 31 , 2016. the average outstanding debt as of march 31 , 2017 and march 31 , 2016 was $ 211.0 million and $ 208.2 million , respectively . the following table summarizes the company 's average cost of borrowed funds for the fiscal years ended march 31 : replace_table_token_13_th libor rates have increased ( .98 % as of march 31 , 2017 compared to .44 % as of march 31 , 2016 ) which caused a decrease in expense related to our interest rate swap agreements .
| the decrease from $ 8.7 million to $ 3.2 million was a result of decreased revenues due to a reduction in volume and the gross portfolio yield along with increased interest expense due to cost of debt and increased provision for credit losses . the company 's consolidated net ( loss ) income for the fiscal years ended march 31 , 2018 , 2017 , and 2016 was $ ( 1.1 ) million , $ 5.4 million and $ 12.4 million , respectively . the company 's operating results have generally deteriorated as a result of several factors , including , but not limited to , loosened underwriting guidelines , more aggressive pricing on originations , the acquisition of contracts that contained some degree of fraudulent information that at the time of contract acquisition was not identified , and an increase in the number of contracts and direct loans under which customers decided to discontinue payments to us after they were approved by other lenders for new vehicle financing . in addition , aggressive competition had previously influenced the company to purchase lower credit quality contracts . historically , the company was able to expand its automobile finance business in the non-prime credit market by offering to purchase contracts on terms that were competitive with those of other companies . however , it became increasingly difficult for the company to match or exceed pricing of its competitors , which resulted in declining contract acquisition rates during the 2016 , 2017 and 2018 fiscal years . the company expects this trend of declining acquisition rates to continue in the foreseeable future ; however , the driver behind this trend is now expected to be the company 's intentional focus on pricing discipline . 22 in addition to affecting the volume of contracts acquired in recent years , the level of competition exerted pressure on the company 's yields associated with contract acquisitions . while management expects that the company 's renewed focus on pricing discipline will continue to put downward pressure on the volume of contracts purchased to the extent that competitors continue to reduce their contract acquisition yields as part of their operating strategy , it
| 14,664 |
future regulations , or enforcement of the terms of programs already in place , may require financial institutions to raise additional capital .. there can be no assurance as to the actual impact of the eesa , the tarp , the recovery act , the dodd-frank act or any governmental program on the financial markets . the weak economic conditions are expected to continue into 2013. financial institutions likely will continue to experience heightened credit losses and higher levels of non-performing assets , charge-offs and foreclosures . in light of these conditions , financial institutions also face heightened levels of scrutiny from federal and state regulators . these factors negatively influenced , and likely will continue to negatively influence , earning asset yields at a time when the market for deposits is intensely competitive . as a result , financial institutions experienced , and are expected to continue to experience , pressure on credit costs , loan yields , deposit and other borrowing costs , liquidity , and capital . critical accounting policies we have adopted various accounting policies that govern the application of accounting principles generally accepted in the united states of america and with general practices within the banking industry in the preparation of our financial statements . our significant accounting policies are described in note 1 to our consolidated financial statements as of december 31 , 2012. certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities . we consider these accounting policies to be critical accounting policies . the judgment and assumptions we use are based on historical experience and other factors , which we believe to be reasonable under the circumstances . because of the nature of the judgment and assumptions we make , actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations . management has reviewed and approved these critical accounting policies and has discussed these policies with the company 's audit committee . allowance for loan losses the allowance for loan loss is management 's estimate of credit losses inherent in the loan portfolio . the allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings . loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed . subsequent recoveries , if any , are credited to the allowance . the allowance for loan losses is evaluated on a regular basis by management and is based upon management 's periodic review of the collectability of the loans in light of historical experience ( most recent eight quarters ) , the nature and volume of the loan portfolio , adverse situations that may affect the borrower 's ability to repay , estimated value of any underlying collateral and prevailing economic conditions . this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available . we have an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in our portfolio . while we attribute portions of the allowance to specific portfolio segments , the entire allowance is available to absorb credit losses inherent in the total loan portfolio . our process involves procedures to appropriately consider the unique risk characteristics of our commercial and consumer loan portfolio segments . for each portfolio segment , impairment is measured collectively for groups of smaller loans with similar characteristics and individually for larger impaired loans . our allowance levels are influenced by loan volumes , loan grade migration or delinquency status , historic loss experience and other economic conditions . the allowance consists of general and specific components . commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews . we apply historic grade-specific loss factors to each funded loan . in the development of our statistically derived loan grade loss factors , we observe historical losses over a relevant period for each loan grade . these loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends . for consumer loans , we determine the allowance on a collective basis utilizing historical losses to represent our best estimate of inherent loss . we pool loans , generally by product types with similar risk characteristics . 36 included in the general component of the allowance for loan losses for both portfolio segments is a margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating general losses in the portfolio . uncertainties and subjective issues such as changes in the lending policies and procedures , changes in the local/national economy , changes in volume or type of credits , changes in volume/severity or problem loans , quality of loan review and board of director oversight , concentrations of credit , and peer group comparisons are factors considered . the specific component relates to loans that are classified as impaired . for loans that are classified as impaired , an allowance is established when the value of the impaired loan is lower than the carrying value of that loan . 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 . story_separator_special_tag impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan 's effective interest rate , the loan 's obtainable market price , or the fair value of the collateral if the loan is collateral dependent . for loans that are classified as impaired , an allowance is established when the value of the impaired loan is lower than the carrying value of that loan . the specific component also includes an amount for the estimated impairment on commercial and consumer loans modified in a troubled debt restructuring ( “ tdr ” ) , whether on accrual or nonaccrual status . in conjunction with the changes in the current economic environment and as required by our formal agreement with the occ , which was terminated by the occ effective december 19 , 2012 , we have revised and updated our allowance for loan losses policy . specifically , since december 31 , 2010 , we have modified our allowance methodology related to the commercial and consumer loan portfolios to use historical loss rates in determining the appropriate level of allowance needed . in addition , we have allocated the unallocated component of the allowance that existed at december 31 , 2010 into the commercial and consumer portfolio segments . while management uses available information to recognize losses on loans , future additions to the allowance may be necessary based on changes in local economic conditions . in addition , regulatory agencies , as an integral part of their examination process , periodically review our allowance for loan losses . such agencies may require us to recognize additions to the allowances based on their judgments about information available to them at the time of their examination . fair valuation of financial instruments we use fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures . additionally , we may be required to record other assets at fair value on a nonrecurring basis . these nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets . further , we include in the notes to the consolidated financial statements information about the extent to which fair value is used to measure assets and liabilities , the valuation methodologies used , and the related impact to income . additionally , for financial instruments not recorded at fair value , we disclose the estimate of their fair value . fair value is defined as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date . accounting standards establish a three-level hierarchy for disclosure of assets and liabilities recorded at fair value . the classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation methodology used for measurement are observable or unobservable . observable inputs reflect market-derived or market-based information obtained from independent sources , while unobservable inputs reflect our estimates about market data . the three levels of inputs that are used to classify fair value measurements are as follows : · level 1 valuation is based upon quoted prices for identical instruments traded in active markets . level 1 instruments generally include securities traded on active exchange markets , such as the new york stock exchange , as well as securities that are traded by dealers or brokers in active over-the-counter markets . instruments we classify as level 1 are instruments that have been priced directly from dealer trading desks and represent actual prices at which such securities have traded within active markets . · level 2 valuation is based upon quoted prices for similar instruments in active markets , quoted prices for identical or similar instruments in markets that are not active , and model-based valuation techniques , such as matrix pricing , for which all significant assumptions are observable in the market . instruments we classify as 37 level 2 include securities that are valued based on pricing models that use relevant observable information generated by transactions that have occurred in the market place that involve similar securities . · level 3 valuation is generated from model-based techniques that use significant assumptions not observable in the market . these unobservable assumptions reflect the company 's estimates of assumptions market participants would use in pricing the asset or liability . valuation techniques include use of option pricing models , discounted cash flow models , and similar techniques . we attempt to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements . when available , we use quoted market prices to measure fair value . specifically , we use independent pricing services to obtain fair values based on quoted prices . quoted prices are subject to our internal price verification procedures . if market prices are not available , fair value measurement is based upon models that use primarily market-based or independently-sourced market parameters . most of our financial instruments use either of the foregoing methodologies , collectively level 1 and level 2 measurements , to determine fair value adjustments recorded to our financial statements . however , in certain cases , when market observable inputs for model-based valuation techniques may not be readily available , we are required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument . the degree of management judgment involved in determining the fair value of an instrument is dependent upon the availability of quoted market prices or observable market parameters . for instruments that trade actively and have quoted market prices or observable market parameters , there is minimal subjectivity involved in measuring fair value . when observable market prices and parameters are not fully available , management 's judgment is necessary to estimate fair value .
| interest expense was $ 8.7 million , $ 11.9 million , and $ 15.3 million for the years ended december 31 , 2012 , 2011 , and 2010 , respectively . interest expense on deposits for the years ended december 31 , 2012 , 2011 and 2010 represented 48.0 % , 59.0 % , and 61.5 % , respectively , of total interest expense , while interest expense on borrowings represented 52.0 % , 41.0 % , and 38.5 % , respectively , of total interest expense . we have included a number of tables to assist in our description of various measures of our financial performance . for example , the “ average balances , income and expenses , yields and rates ” table shows the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during 2012 , 2011 , and 2010. similarly , the “ rate/volume analysis ” table demonstrates the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown . we also track the sensitivity of our various categories of assets and liabilities to changes in interest rates , and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning and interest-bearing accounts . the following table sets forth information related to our average balance sheet , average yields on assets , and average costs of liabilities at december 31 , 2012 , 2011 and 2010. we derived these yields or costs by dividing income or expense by the average balance of the corresponding assets or liabilities . we derived average balances from the daily balances throughout the periods indicated . during the same periods , we had no securities purchased with agreements to resell . all investments were owned at an original maturity of over one year . nonaccrual loans are included in earning assets in the following tables . loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status . the net of capitalized loan costs and fees are amortized into interest
| 14,665 |
these benefits can contribute to higher lease rates , lower operating costs due to the energy efficiency of our value-added glass , a more comfortable environment for building occupants , and protection for buildings and occupants from hurricanes and blasts . we look at several market indicators , such as office space vacancy rates , architectural billing statistics , employment , and other economic indicators , to gain insight into the commercial construction market . one of our primary indicators is u.s. non-residential construction market activity as documented by mcgraw-hill construction ( mcgraw-hill ) , a leading independent provider of construction industry analysis , forecasts and trends . we utilize the information for the building types that we typically supply ( office towers , hotels , retail centers , education facilities and dormitories , health care facilities , government buildings and high-end multi-family buildings ) and adjust this information ( which is based on construction starts ) to align with our fiscal year and the lag that is required to account for when our products and services typically are initiated in a construction project approximately eight months after project start . from the mcgraw-hill data , our u.s. markets had an annual compounded growth rate of negative 14 percent over our past three fiscal years , consistent with our segment 's domestic compounded annual growth rate over that same period . our overall strategy in this segment is to defend and grow market share over a cycle by extending our presence while remaining focused on distinctive solutions for enclosing commercial buildings . we draw upon our leading brands , energy-efficient products and reputation for high quality and service in pursuit of our strategy . each of our existing businesses has the ability to grow through geographic or product line expansion , and we regularly evaluate acquisition opportunities in adjacent segments . finally , we aspire to lead our markets in the development of practical , energy-efficient products for green buildings and the ability to deliver them in a sustainable manner . our architectural businesses have introduced products and services designed to meet the growing demand for green building materials . these products have included new energy-efficient glass coatings , thermally enhanced aluminum framing systems and systems with a high percentage of recycled content . while our lag-adjusted markets are projected to continue to contract slightly into fiscal 2013 , we are pursuing the same basic strategy with some adjustment for market conditions . in fiscal 2011 we raised the pricing of our u.s. architectural glass products to better reflect the value our products deliver to the marketplace , and expect to see the full benefits of the price increases in fiscal 2013. in addition , we have been and continue to take measures to keep our cost structure in line with revenue , including continuing to focus on productivity while maintaining and upgrading our capacity to gain market share when our markets recover . we acquired glassec , a leading architectural glass fabricator in brazil , in november 2010 , establishing an architectural glass footprint in a developing and fast-growing market where we can provide technical and operational excellence . we have been successful in winning and profitably executing installation work in new metropolitan markets to offset declines in core markets . we are focusing on renovation of window and curtainwall systems where all sectors are increasing their interest in upgrading their facades . we have tightened our capital spending criteria , although we continue to have cash available , and will be spending during fiscal 2013 for strategic investments for both international and domestic initiatives to drive growth and improve productivity . we expect to emerge from the current downturn poised to win market share from competitors who were not as well positioned or do not have funds available to weather the current down cycle . lso segment . our basic strategy in this segment is to convert the custom picture framing market from clear uncoated glass to value-added glass that protects art from uv damage while minimizing reflection from the glass so that viewers see the art rather than the glass . we estimate that over 50 percent of the retail picture framing market has converted to value-added glass , and although we are finding it more difficult to convert , the ultimate potential is significantly higher . we offer a variety of products with varying levels of reflection control and promote the benefits to consumers with point-of-purchase displays and other promotional materials . we also work to educate the fragmented custom picture framing market regarding the opportunity to improve the profitability of their framing business by selling value-added glass . over the past two years , we have been extending our strategy to the fine art market , which includes museums and private collections . we also made capital investments to support the conversion to value-added picture framing products as well as to grow the fine art market . as part of that extension , we developed value-added acrylic products in addition to glass . acrylic is a preferred material in the fine art markets because the art can be much larger and weight is an important consideration . in fiscal 2010 , we expanded our strategies to include other markets that can be served with anti-reflective acrylic products . 18 in fiscal 2011 , we established an initiative to begin selling our products in europe , and in fiscal 2012 , we began executing against this initiative . historically , we have had very little presence in europe . we believe our products and distribution networks will enable us to grow at a faster pace in europe than in the united states . story_separator_special_tag levels and high vacancy rates for commercial buildings . volume and pricing decreased across all of our architectural businesses , with our architectural glass business significantly impacted by lower pricing . glassecviracon contributed $ 3.7 million of sales to our architectural segment in fiscal 2011 for the period subsequent to acquisition . story_separator_special_tag for fiscal 2011 , the segment incurred an operating loss of $ 37.7 million , with an operating margin of negative 7.4 percent compared to operating income of $ 31.6 million in fiscal 2010 , with an operating margin of 5.0 percent . the decrease in operating margin was due to lower pricing in our architectural glass business , lower project margins , the impact of low 20 capacity utilization from lower volume , expenses related to architectural glass quality issues and costs to implement architectural glass productivity improvements . during fiscal 2011 , we incurred costs to resolve architectural glass product quality issues from a vendor-supplied material , as well as other quality issues , which negatively impacted gross profit by approximately $ 3.4 million , or 0.7 percentage points . glassecviracon 's contribution to the operating loss was minimal . large-scale optical technologies ( lso ) replace_table_token_9_th fiscal 2012 compared to fiscal 2011. lso revenues increased $ 3.1 million , or 4.1 percent , in fiscal 2012 to $ 78.5 million from $ 75.4 million in fiscal 2011 with an increase in sales to independent framers . the extra week in fiscal 2012 had an impact of 2 percent on current year sales . lso segment operating income as a percent of sales decreased to 25.0 percent in fiscal 2012 from 27.2 percent in fiscal 2011 and operating income was down $ 0.9 million . although we maintained a strong mix of value-added picture framing product sales in fiscal 2012 , margins were negatively impacted by spending on sales , marketing and new market development initiatives , including international expansion . fiscal 2011 compared to fiscal 2010. lso revenues increased $ 4.7 million , or 6.7 percent , in fiscal 2011 to $ 75.4 million from $ 70.7 million in fiscal 2010 on volume growth of 5.0 percent . lso segment operating income as a percent of sales improved to 27.2 percent in fiscal 2011 from 23.9 percent in fiscal 2010 with a $ 3.7 million increase in operating income . throughout fiscal 2011 , we continued to see new and ongoing value-added product customers convert to our best picture framing products . operating income benefited from increased volume , a stronger mix of value-added products and improved productivity . fiscal 2010 results included the write-off of certain production equipment which negatively impacted fiscal 2010 margins by 1.2 percentage points . consolidated backlog at march 3 , 2012 , our consolidated backlog was $ 243.9 million , up 2 percent over the $ 238.4 million reported at february 26 , 2011. the backlog of the architectural segment represented more than 99 percent of consolidated backlog . we expect 76 percent of our total march 3 , 2012 backlog to be recognized in fiscal 2013 revenue , compared to 84 percent of the february 26 , 2011 backlog that was expected to be produced and shipped in fiscal 2012. we view backlog as an important statistic in evaluating the level of sales activity and short-term sales trends in our business . however , as backlog is only one indicator , and is not an effective indicator of our ultimate profitability , we do not believe that backlog should be used as the sole indicator of future earnings of the company . acquisitions on november 19 , 2010 , we acquired 100 percent of the stock of glassec vidros de segurança ltda. , a privately held business , for $ 20.6 million , net of cash acquired of $ 1.1 million . glassec is a leading architectural glass fabricator in brazil . the business operates under the name glassecviracon as part of the company 's architectural glass business . glassecviracon 's fiscal year ends december 31 and is reported in the consolidated financial statements within our architectural segment on a two-month lag . the purchase is part of our strategy to increase our architectural glass penetration in international markets . goodwill recorded as part of the purchase price allocation was $ 3.3 million and is not tax deductible . identifiable intangible assets acquired as part of the acquisition were $ 7.3 million and include customer relationships , trademarks , patents and non-compete agreements with a weighted average useful life of 18 years . discontinued operations in several transactions in fiscal years 1998 through 2000 , we completed the sale of our large-scale domestic curtainwall business , the sale of our detention/security business and the exit from international curtainwall operations . the remaining estimated cash expenditures related to these discontinued operations are recorded as liabilities of discontinued operations and cover warranty issues relating to domestic and international construction projects that we expect to be resolved over the next five years . in the fourth quarter of fiscal 2011 , settlement of an outstanding legal claim related to a foreign discontinued operation resulted in a $ 1.6 million increase in reserves and a pre-tax loss from discontinued operations , which was finalized and paid in march 2011. in the second quarter of fiscal 2011 , the favorable resolution of an outstanding tax exposure related to a foreign operation discontinued in 1998 resulted in the release of $ 4.9 million of uncertain tax positions and non-cash income from discontinued operations . the settlements of these two items represent the last significant remaining items with respect to our international curtainwall business . during fiscal 2010 , a favorable resolution of an outstanding lease claim and a reduction in reserves related to the expiration of warranty periods resulted in pre-tax income from discontinued operations of $ 0.8 million . 21 liquidity and capital resources replace_table_token_10_th operating activities .
| approximately half of the increase in spending relates to the impact of the addition of the glassecviracon business . transition costs related to our retiring ceo and hiring our new ceo , increased commissions as a result of increased sales , and increased promotional costs in our lso segment also contributed to the increase in spending . 19 in the current year , income tax expense on pre-tax income was more than offset by tax benefits from credits and deductions on a low base of earnings and the impact of statute of limitation expirations for prior fiscal years . fiscal 2011 compared to fiscal 2010 consolidated gross profit was down 9.0 percentage points due to lower pricing , primarily in our architectural glass business , as well as lower project margins and the impact of low capacity utilization from lower volume in our architectural segment . during fiscal 2011 , we incurred unusually high costs to resolve architectural glass product quality issues from a vendor-supplied material , as well as other quality issues , which negatively impacted gross profit by approximately $ 3.4 million , or 0.6 percentage points . our lso segment had favorable results for fiscal 2011 compared to fiscal 2010 due to the ongoing strong mix of value-added picture framing product and positive operating performance , partially offsetting the items above . sg & a expenses increased as a percent of sales to 17.9 percent in fiscal 2011 from 16.8 percent in fiscal 2010 , while spending decreased by $ 12.6 million . the decrease in spending relates to reduced accruals for incentive and long-term executive compensation expenses ; lower spending on discretionary items as we focused on cost management ; and reduced salaries and employee-related expenses as a result of headcount reductions . the increase as a percent of sales was largely due to our inability to leverage expenses over a lower level of sales dollars . fiscal 2011 earnings from discontinued operations of $ 3.8 million reflect favorable resolution of an
| 14,666 |
moreover , management intends to continue to implement “ best practices ” and other established process improvements in its operations going forward . there can be no assurance that the company will be successful in refining , enhancing and developing its operating strategies and systems going forward , that the costs associated with refining , enhancing and developing such strategies and systems will not increase significantly in future periods or that the company 's existing software and technology will not become obsolete as a result of ongoing technological developments in the marketplace . travel industry trends our current revenue is primarily derived from customers accessing our travel websites : nexttrip.com , maupintour and cruise shoppes . according to phocuswright , 2007 is the first year in which more than half of all travel in the u.s. was purchased online . the remainder of travel in the u.s. was booked through traditional offline channels . suppliers , including airlines , hotels and car rental companies , have continued to focus their efforts on direct sale of their products through their own websites , further promoting the migration of customers to online booking . in the current environment , suppliers ' websites are believed to be taking market share domestically from both online travel companies ( “ otcs ” ) and traditional offline travel companies . in the u.s. , the booking of air travel has become increasingly driven by price . as a result , we believe that otcs will continue to focus on differentiating themselves from supplier websites by offering customers the ability to selectively combine travel products such as air , car , hotel and destination services into one- stop shopping vacation packages . despite the increase in online marketing costs , the continued growth of search and meta-search sites as well as web 2.0 features creates new opportunities for travel websites to add value to the customer experience and generate advertising revenue . web 2.0 is a term used to describe content features such as social networks , blogs , user reviews , videos and podcasts such as our nexttrip.com , nettripradio.com , maupitour.com , and cruiseshoppes.com websites . we believe that the ability of web 2.0 websites will add value for customers , suppliers and third-party partners while simultaneously creating new revenue streams . sufficiency of cash flows because current cash balances and projected cash generation from operations are not sufficient to meet the company 's cash needs for working capital and capital expenditures , management intends to seek additional equity or obtain additional credit facilities . the sale of additional equity could result in additional dilution to the company 's shareholders . a portion of the company 's cash may be used to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies . from time to time , in the ordinary course of business , the company evaluates potential acquisitions of such businesses , products or technologies . 24 story_separator_special_tag additional working capital . we currently have limited financial resources and based on our current operating plan , we will need to raise additional capital in order to continue as a going concern . we currently do not have adequate cash to meet our short or long-term objectives . in the event additional capital is raised , it may have a dilutive effect on our existing stockholders . since our inception in june 2002 , we have been focused on the travel industry solely through the internet . we have recently changed our business model from a company that generates nearly all revenues from its travel divisions to a media company focusing on travel and real estate by utilizing multiple media platforms including the internet , radio and television . as a company that has recently changed our business model and emerged from the development phase with a limited operating history , we are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry . we can not assure you that the business will continue as a going concern or ever achieve profitability . due to the absence of an operating history under the new business model and the emerging nature of the markets in which we compete , we anticipate operating losses until such time as we can successfully implement our business strategy , which includes all associated revenue streams . since our inception , we have financed our operations through numerous debt and equity issuances . the company will need to raise substantial additional capital to support the on-going operation and increased market penetration of our video on demand real estate and travel business and r & rtv including the development of national sales representation for national and global advertising and sponsorships , increases in operating costs resulting from additional staff and office space until such time as we generate revenues sufficient to support the business . we believe that in the aggregate , we will need approximately $ 1 million to $ 5 million to support and expand the network reach , repay debt obligations , provide capital expenditures for additional equipment and satisfy payment obligations under carriage/distribution agreements , office space and systems required to manage the business , and cover other operating costs until our planned revenue streams from media advertising , sponsorships , e-commerce , travel and real estate are fully-implemented and begin to offset our operating costs . there can be no assurances that the company will be successful in raising the required capital to complete this portion of its business plan . to date , we have funded our operations with the proceeds from the private equity financings . the company issued these shares without registration under the securities act of 1933 , as amended , afforded the company under section 4 ( 2 ) promulgated thereunder due to the fact that the issuance did not involve a public offering of securities . story_separator_special_tag the shares were sold solely to “ accredited investors ” as that term is defined in the securities act of 1933 , as amended , and pursuant to the exemptions from the registration requirements of the securities act under section 4 ( 2 ) and regulation d thereunder . currently , revenues provide less than 10 % of the company 's cash requirements . the remaining cash need is derived from raising additional capital . the current monthly cash burn rate is approximately $ 300,000. we expect the monthly cash burn rate will gradually increase to approximately $ 1.0 million , with the expectation of profitability by the fourth quarter of fiscal 2013. our multi-platform media revenue model is new and evolving , and we can not be certain that it will be successful . the potential profitability of this business model is unproven and there can be no assurance that we can achieve profitable operations . our ability to generate revenues depends , among other things , on our ability to operate our television network and create enough viewership to provide advertisers , sponsors , travelers and home buyers value . accordingly , we can not assure you that our business model will be successful or that we can sustain revenue growth , or achieve or sustain profitability . significant accounting policies use of estimates the company 's significant estimates include allowance for doubtful accounts and accrued expenses . 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 revenues and expenses during the reporting period . while the company believes that such estimates are fair when considered in conjunction with the consolidated financial statements taken as a whole , the actual amounts of such estimates , when known , will vary from these estimates . if actual results significantly differ from the company 's estimates , the company 's financial condition and results of operations could be materially impacted . 26 accounts receivable the company extends credit to its customers in the normal course of business . further , the company regularly reviews outstanding receivables , and provides for estimated losses through an allowance for doubtful accounts . in evaluating the level of established loss reserves , the company makes judgments regarding its customers ' ability to make required payments , economic events and other factors . as the financial condition of these parties change , circumstances develop or additional information becomes available , adjustments to the allowance for doubtful accounts may be required . the company also performs ongoing credit evaluations of customers ' financial condition . the company maintains reserves for potential credit losses , and such losses traditionally have been within its expectations . impairment of long-lived assets in accordance with accounting standards codification 360-10 , “ property , plant and equipment ” , the company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable . the company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset . the amount of impairment is measured as the difference between the asset 's estimated fair value and its book value . as of february 28 , 2013 , the company had no long-lived assets . website development costs the company accounts for website development costs in accordance with accounting standards codification 350-50 “ website development costs ” . accordingly , all costs incurred in the planning stage are expensed as incurred , costs incurred in the website application and infrastructure development stage that meet specific criteria are capitalized and costs incurred in the day to day operation of the website are expensed as incurred . management placed the website into service during the fiscal year ended february 28 , 2010 , subject to straight-line amortization over a three year period . goodwill and other intangible assets in accordance with asc 350-30-65 “ goodwill and other intangible assets , the company assesses the impairment of identifiable intangible whenever events or changes in circumstances indicate that the carrying value may not be recoverable . factors the company considers to be important which could trigger an impairment review include the following : 1. significant underperformance to expect historical or project future operating results ; 2. significant changes in the manner or use of the acquired assets or the strategy for the overall business ; and 3. significant negative industry or economic trends . the company incurs an impairment charge when the company determines if the carrying value of an intangible may not be recoverable based upon the existence of one or more of the above indicator of impairment and the carrying value of the asset can not be recovered from projected undiscounted cash flow . the company measures any impairment based on a project discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent to the current business model . significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows . the company evaluated the remaining useful life of the intangibles and recorded a loss on impairment of intangible assets during the years ended february 28 , 2013 and february 29 , 2012 of $ -0- and $ 1,856,054 , respectively . intellectual properties that have finite useful lives are amortized over their useful lives . the amortization expense for the years ended february 28 , 2013 and february 29 , 2012 was $ 604,008 and $ 1,222,861 , respectively . convertible debt instruments the company records debt net of debt discount for beneficial conversion features and warrants , on a relative fair value basis . beneficial conversion features are recorded pursuant to the beneficial conversion and debt topics of the fasb accounting standards codification . the amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital .
| our operating expenses include salaries and benefits , selling and promotion , general and administrative : finance fees incurred in raising capital , amortization of intangibles , legal and accounting fees , consulting fees and miscellaneous operating expenses . our total operating expenses decreased 9 % to $ 5,315,808 for the fiscal year ended february 28 , 2013 from $ 5,861,585 for the fiscal year ended february 29 , 2012 , a decrease of $ 545,777.the decrease was primarily due to a decrease in finance fees of $ 5,818 , amortization of intangibles of $ 1,154,759 and legal and accounting of $ 81,531 ; offset by an increase in salaries and benefits of $ 100,116 , consulting fees of $ 49,144 and miscellaneous operating expenses of $ 547,071. other expense . interest expense decreased 75 % to $ 1,774,792 for the fiscal year ended february 28 , 2013 , compared to $ 7,060,814 for the fiscal year ended february 29 , 2012 , a decrease of $ 5,286,022 primarily due to the increase in the amount of debt converted into common and preferred shares and significant reductions in the issuance of convertible promissory notes over the prior fiscal year . loss on settlement of debt conversions increased 20 % to 309,201 for the fiscal year ended february 28 , 2013 , compared to $ 258,443 for the fiscal year ended february 29 , 2012 , an increase of $ 50,758 primarily due to the increase in the settlement of convertible promissory notes and shareholder loans converted into common and preferred shares . gain in the change in fair value of derivative decreased 6 % to $ 2,081,029 for the fiscal year ended february 28 , 2013 , compared to $ 2,223,649 for the fiscal year ended february 29 , 2012 , a decrease of $ 142,620 primarily due to the increase in the conversion of convertible promissory notes with embedded variable conversion features . a loss on impairment of intangible assets decreased 100 % to $ -0- for the fiscal year ended february 28 , 2013 compared to $ 1,856,054 for the fiscal year ended february 29 , 2012 ,
| 14,667 |
because we are the primary obligor , and take general and physical inventory risks and credit risk under this transaction model , we recognize as revenue the sale price paid by the buyer upon completion of a transaction . other revenue accounted for approximately 14.4 % , 15.3 % , and 15.4 % of our total revenue for the fiscal years ended september 30 , 2014 , 2015 and 2016 , respectively , and approximately 7.7 % , 7.6 % , and 5.0 % of our gmv for the fiscal years ended september 30 , 2014 , 2015 and 2016 , respectively . we collect a buyer premium on substantially all of our transactions under all of our transaction models . buyer premiums are calculated as a percentage of the sale price of the merchandise sold and are paid to us by the buyer . buyer premiums are in addition to the price of the merchandise . under our profit-sharing model , we typically share the proceeds of any buyer premiums with our sellers . industry trends . we believe there are several industry trends impacting the growth of our business including : ( 1 ) the increase in the adoption of the internet by businesses to conduct e-commerce both in the united states and abroad ; ( 2 ) in the near term the decrease in the volume , innovation , and price of consumer electronic products , resulting in lower supply from our retail clients and lower per unit prices and margins in our retail goods marketplace , although 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 ; ( 3 ) the increase in the volume of returned merchandise handled by both online and offline retailers ; ( 4 ) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets ; ( 5 ) 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 ; and ( 6 ) 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 . our seller agreements our dod agreements . we have two contracts with the dod pursuant to which we acquire , manage and sell excess property : surplus contract . the surplus contract ( third awarded to us since 2001 ) is a competitive-bid contract under which we acquire , manage and sell usable dod surplus personal property turned into the dla . surplus property generally consists of items determined by the dod to be no longer needed , and not claimed for reuse by any federal agency , such as computers , electronics , office supplies , scientific and medical equipment , aircraft parts , clothing and textiles . the surplus contract requires us to purchase all usable surplus property offered by the dod at 4.35 % of the dod 's original acquisition value ( oav ) . the current , or third , surplus contract became effective december 2014 , covers only non-rolling stock and has a base term of two years with four one-year options to extend . the prior , or second , surplus contract required us to purchase all rolling and non-rolling usable surplus property offered by the dod at 1.8 % of the dod 's oav ; the wind-down period under the second surplus contract will remain in effect until january 2017 to allow for the continued processing of usable recycling control point ( rcp ) non-rolling stock surplus property . the surplus contract accounted for 26.8 % , 24.7 % and 31.0 % of our revenue and 14.3 % , 12.3 % and 12.7 % of our gmv for the fiscal years ended september 30 , 2014 , 2015 and 2016 , respectively . 45 the dod has broad discretion to determine what property will be made available for sale to us under the surplus contract and may retrieve or restrict property previously sold to us for national security , public safety , or other reasons or if the property is otherwise needed to support the mission of the dod . scrap contract . in june 2005 the company was awarded the original scrap contract which was structured as a profit-sharing arrangement with 75.2 % of the profits distributed to the dla , and 1.8 % to a third party . the contract was amended in june 2015 to adjust the dla profit sharing percentage to 65.0 % , eliminating the distribution to the third party . the scrap contract is a competitive-bid contract under which we acquire , manage and sell substantially all scrap property of the dod turned into the dla . scrap property generally consists of items determined by the dod to have no value beyond their base material content value , such as metals , alloys , and building materials . under the first scrap contract , we acquired scrap property at a per pound price and disbursed to the dla a percentage of the profits , currently 65 % of the amount realized from the sale of the inventory , after deduction for allowable expenses . we refer to these disbursement payments to the dod as profit-sharing distributions . we recognized as revenue the gross proceeds from these sales . the dod reimbursed us for certain direct expenses deemed to be payable by the dod rather than by us . story_separator_special_tag during fiscal 2015 , if the company 's customer base met certain small business criteria as defined in the contract , we received an additional incentive payment which was withheld from payments to the dla . the prior scrap contract expired on september 30 , 2016. on april 8 , 2016 , the dla awarded the second scrap contract to the company . under the second scrap contract , the company acquires scrap property from the dla and pay the dla a revenue-sharing payment equal to 64.5 % of the gross resale proceeds . the company bears 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 fiscal year 2017 , with two 12-month extension options exercisable by the dla . the scrap contract accounted for 14.4 % , 15.3 % and 10.2 % of our revenue and 7.7 % , 7.6 % and 5.0 % of our gmv for the fiscal years ended september 30 , 2014 , 2015 and 2016 , respectively . our commercial agreements we have various contracts with wal-mart stores , inc. , under which we purchase certain consumer products from wal-mart that have been removed from the sales stream of its retail operations . all of these agreements have customary commercial terms , which generally expire within a year and allow both parties to terminate for convenience with reasonable notice . we also had a long-term contract with wal-mart that was terminated effective december 8 , 2014. as part of a final settlement of claims wal-mart paid us $ 7.5 million in february 2015. on september 30 , 2015 , we sold certain assets related to the jacobs trading company to a buyer , tanager acquisitions , llc . in connection with the disposition , the buyer assumed certain liabilities related to the jacobs trading company . the buyer issued to us a promissory note in the amount of $ 12.3 million . the divestiture of the jacobs trading company resulted in an $ 8.0 million loss . the sale generated a tax loss that resulted in a $ 30.9 million cash benefit from prior year income taxes . in fiscal year 2016 , we received $ 30.1 million of tax refunds related to this cash benefit , plus an additional $ 5.0 million for an overpayment of taxes paid in fiscal year 2015. during fiscal year 2016 , we had over 600 corporate clients who each sold in excess of $ 10,000 of surplus and salvage assets in our marketplaces . our agreements with these clients are generally terminable at will by either party . 46 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 through our marketplaces during a given period . 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 customer support , value-added services , product development , sales and marketing , and operations . the gmv of goods sold in our marketplace during fiscal year 2016 totaled $ 642.1 million . 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 fiscal year ended september 30 , 2016 , we completed approximately 574,000 transactions . 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 , represents 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 excludes 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 , 2016 , we had approximately 2,986,000 registered buyers . 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 .
| the amount of gmv decreased 19.6 % , or $ 156.9 million to $ 642.1 million , for the year ended september 30 , 2016 from $ 799.0 million for the year ended september 30 , 2015 , due to ( 1 ) a 31.6 % gmv decrease , or $ 139.4 million , in our commercial marketplaces due to the sale of the jacobs trading company , the wind down of the nesa business , reduced product flows within our retail vertical , and continued weakness in the energy sector ; and ( 2 ) a 28.4 % gmv decrease , or $ 45.2 million , in our dod contracts due to lower commodity prices and a shift in property mix to lower valued property provided under the scrap and surplus contracts . these gmv decreases were partially offset by a 13.9 % gmv increase , or $ 27.7 million , in our state and local government ( govdeals ) marketplace due to an increase in the number of new sellers and additional sales volume from existing clients . cost of goods sold . cost of goods sold ( excluding amortization ) decreased $ 22.9 million , or 13.8 % , to $ 143.1 million for the year ended september 30 , 2016 from $ 166.0 million for the year ended september 30 , 2015. this decrease is primarily attributed to the sale of the jacobs trading company , as well as the wind down of the nesa refurbishment business in canada . this decrease was partially offset by the increase in the price we pay for inventory under the current surplus contract as well as a greater mix of deals in our commercial marketplaces in which we act as principal and incur greater transaction costs . in line with these changes , and the decrease in revenue , cost of goods sold increased as a percentage of revenue to 45.2 % , from 41.8 % . profit-sharing distributions . profit-sharing distributions decreased $ 16.9 million , or 60.1 % , to $ 11.2 million for the year ended september 30 , 2016 from $ 28.1 million for the year ended september 30 , 2015. as a percentage of revenue , profit-sharing distributions decreased to 3.5 % from 7.1 % . this is due to lower commodity prices and decreases in property flow from the dod in our scrap business . technology and operations expenses . technology and operations expenses decreased $ 6.3 million , or 6.4 % , to $ 93.4 million for the year ended september 30 , 2016 from $ 99.7 million for the year ended september 30 , 2015 , due to the sale of the jacobs trading company , the wind down of the nesa business , and reduction in staff .
| 14,668 |
third , many schools have responded to the budget strains by reducing their support infrastructure . school districts historically have operated central warehouses and professional purchasing departments in a central business office . in order to retain teaching staff , many school districts have shut down the warehouses and reduced their purchasing departments and janitorial staffs . this change provides opportunities to sell services to schools , such as project management for new or renovated schools , delivery to individual school sites rather than truckload deliveries to central warehouses , and installation of furniture in classrooms . moreover , this change offers opportunities for virco to promote its complete product assortment which allows one-stop shopping as opposed to sourcing furniture needs from a variety of suppliers . fourth , many suppliers have shut down or dramatically curtailed their domestic manufacturing capabilities , making it difficult for competitors to provide custom colors or finishes during a tight seasonal summer delivery window when they are reliant upon a supply chain extending to china . unlike its primary competitors , virco has maintained and invested in automation at its domestic manufacturing facilities , recently adding flat metal forming processes to its manufacturing capabilities and bringing production into its factories of items formerly sourced from other suppliers . virco 's domestic factories are a strategic resource for providing its customers with timely delivery of a broad selection of colors , finishes , laminates , and product styles . during 2013 the company anticipates continued uncertainty and volatility in commodity costs , particularly with respect to certain raw materials , transportation , and energy . the company does not anticipate that this volatility will be as dramatic as experienced in 2011 , but it has no assurances that commodity prices will remain stable . the company may benefit from industry disruption in 2013. in 2012 , a smaller domestic manufacturing competitor liquidated , and in the beginning of 2013 a significant reseller of school furniture entered chapter 11 reorganization . while such events are illustrative of the challenging conditions in the company 's industry , the company is hopeful that this disruption presents an opportunity for virco to expand its customer base . critical accounting policies and estimates this discussion and analysis of virco 's financial condition and results of operations is based upon the company 's financial statements which have been prepared in accordance with u.s. generally accepted accounting principles . the preparation of these financial statements requires virco management to make estimates and judgments that affect the company 's reported assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , 25 management evaluates such estimates , including those related to revenue recognition , allowance for doubtful accounts , valuation of inventory and related obsolescence reserves , self-insured retention for products and general liability insurance , self-insured retention for workers ' compensation insurance , provision for warranty , liabilities under defined benefit and other compensation programs , and estimates related to deferred tax assets and liabilities . management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . this forms the basis of 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 . factors that could cause or contribute to these differences include the factors discussed above under item 1 , business , and elsewhere in this annual report on form 10-k. virco 's critical accounting policies are as follows : revenue recognition : the company recognizes revenue in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 605 , “ revenue recognition. ” revenue is recognized when title passes under its various shipping terms , when installation services are complete , and when collectability is reasonably assured . the company reports sales net of sales returns and allowances and sales taxes imposed by various government authorities , where applicable . in most instances , the company sells furniture on bids and contracts , which may include multiple elements . for sales that include freight to the customer , many sales are delivered on the same day shipped , with an average delivery being in route for 1 to 2 days . installation , which involves carrying the furniture to the classroom and setting the desks and chairs in place , typically occurs the day the furniture is delivered . in accordance with asc 605-25 ( “ asc 605-25 ” ) , “ revenue recognition - multiple-element arrangements , ” revenue arrangements with multiple deliverables are generally accounted for by the company on a combined unit of accounting as our customers control our ability to deliver and install the furniture , and as a result the furniture delivery and installation are generally provided at the same time . we recognize the consideration for the combined unit of accounting once the final item has been delivered and installed . allowances for doubtful accounts : considerable judgment is required when assessing the ultimate realization of receivables , including assessing the probability of collection , current economic trends , historical bad debts and the current creditworthiness of each customer . the company maintains allowances for doubtful accounts that may result from the inability of our customers to make required payments . over the past five years , the company 's allowance for doubtful accounts has ranged from approximately 0.7 % to 3.0 % of accounts receivable at year-end . the allowance is evaluated using historic experience combined with a detailed review of past-due accounts . the company does not typically obtain collateral to secure credit risk . the primary reason that virco 's allowance for doubtful accounts represents such a small percentage of accounts receivable is that a large portion of the accounts receivable is attributable to low-credit-risk governmental entities , giving virco 's receivables a historically high degree of collectability . story_separator_special_tag although many states are experiencing budgetary difficulties , it is not anticipated that virco 's credit risk will be significantly impacted by these events . over the next year , no significant change is expected in the company 's sales to government entities as a percentage of total revenues . inventory valuation : inventory is valued at the lower of cost or market ( determined on a first-in , first-out basis ) and includes material , labor , and factory overhead . the company maintains allowances for estimated slow moving and obsolete inventory to reflect the difference between the cost of inventory and the estimated market value . allowances for slow moving and obsolete inventory are determined through a physical inspection of the product in connection with a physical inventory , a review of slow-moving product , and consideration of active marketing programs . the market for education furniture is traditionally driven by value , not style , and the company has not typically incurred significant obsolescence expenses . if market conditions are less favorable than those anticipated by management , additional allowances may be required . due to reductions in sales volume in the past years , the company 's manufacturing facilities are operating at reduced levels of capacity . the company records the cost of excess capacity as a period expense , not as a component of capitalized inventory valuation . self-insured retention : for 2010 , 2011 , and 2012 the company was self-insured for product liability losses ranging up to $ 250,000 per occurrence , for workers ' compensation losses up to $ 250,000 per occurrence , and for auto liability up to $ 50,000 per occurrence . the company obtains annual actuarial valuations for the self-insured retentions . product liability , workers ' compensation , and auto reserves for known and unknown incurred but not reported ( “ ibnr ” ) losses are recorded at the net present value of the estimated losses using a risk-free discount rate ranging from 0.5 % -5.5 % for 2012 , 2011 , and 2010. given the relatively short term over which the ibnr losses are discounted , the sensitivity to the discount rate is not significant . estimated workers ' compensation losses are funded during the insurance year and subject to retroactive loss adjustments . the company 's exposure to self-insured retentions varies depending upon the market conditions in the insurance industry and the availability of cost-effective insurance coverage . self-insured retentions for 2013 will be comparable to the retention levels for 2012. warranty reserve : the company provides a warranty against all substantial defects in material and workmanship . the company 's warranty is not a guarantee of service life , which depends upon events outside the company 's control and may be 26 different from the warranty period . the standard warranty offered on products sold through january 31 , 2005 , is five years . effective february 1 , 2005 , the standard warranty was increased to 10 years on products sold after february 1 , 2005. the company 's warranties generally provide that customers can return a defective product during the specified warranty period following purchase in exchange for a replacement product or that the company can repair the product at no charge to the customer . the company determines whether replacement or repair is appropriate in each circumstance . the company uses historic data to estimate appropriate levels of warranty reserves . because product mix , production methods , and raw material sources change over time , historic data may not always provide precise estimates for future warranty expense . defined benefit obligations : the company has three defined benefit plans , the virco employees retirement plan ( the “ employee plan ” ) , the virco important performers plan ( the “ vip plan ” ) and the non-employee directors retirement plan ( the “ directors plan ” ) , which provide retirement benefits to employees and outside directors . virco discounted the pension obligations for the various plans using the following rates : replace_table_token_5_th because the company froze new benefit accruals for all three plans effective december 31 , 2003 , the assumed rate of increase in compensation has no effect on the accounting for the plans . the company estimated a 6.5 % return on plan assets for the employee plan for all three years . the vip plan and directors plan are unfunded and have no plan assets . these rate assumptions can vary due to changes in interest rates , the employment market , and expected returns in the stock market . in prior years , the discount rate and the anticipated rate of return on plan assets have decreased by several percentage points , causing pension expense and pension obligations to increase . in 2008 , the company incurred significant losses on investments held in trust to fund the employee plan . these investment losses will cause future pension costs to increase , and will require future cash contributions to adequately fund the employee plan . in the third quarter of 2011 the company offered an early retirement program to employees who voluntarily terminated their employment with the company . the incentive offered was a cash incentive and did not include additional retirement benefits , but was heavily directed toward employees with significant years of service . approximately 150 employees accepted this offer . due to the volume of lump sum payments processed during the third and fourth quarters of 2011 , the company incurred a pension settlement cost for the employee plan . in the fourth quarter of 2012 , as a result of cumulative retirement benefits paid during the year , the company incurred and additional pension settlement cost . although the company does not anticipate any change in these rates in the coming year , any moderate change should not have a significant effect on the company 's financial position , results of operations or cash flows . the company obtains annual actuarial valuations for all three plans .
| in 2012 and 2011 , approximately 50 % of the company 's total sales were delivered in june , july , and august with an even higher portion of educational sales delivered in that period . shipments during july and august can be as great as six times the level of shipments in the winter months . virco 's substantial warehouse space allows the company to build and ship adequate inventories to service this narrow delivery window for the education market . the market and operating environment for school furniture , fixtures , and equipment has been challenging during the last decade and is likely to continue to be so for at least the near future . schools suffered significant budgetary pressures from 2001 to 2005 following the “ dot com ” bust , and more recently in 2008 through 2012 as a result of the recession and severe budget deficits incurred by state and local governments . in addition , the furniture industry in general , including the market for school furniture , has been significantly impacted by low cost competition from china . in 2004 , 2005 , and 2008 commodity prices for some of the company 's primary raw materials , particularly steel and plastic , were extremely volatile . during 2011 , the company incurred a cost increase of approximately 30 % in the cost of steel during the second quarter , and nearly a 30 % increase in the cost of certain plastics over the second and third quarters . due to recent volatility in the commodities ' markets , similar volatility for the company 's raw materials is likely to continue for the near term . because a majority of the company 's sales are generated under annual contracts in which the company has limited ability to raise the price of its products during the term of the contract , if the costs of the company 's raw materials increase suddenly or unexpectedly , the company can not be certain that it will be able to implement corresponding increases in its sales prices in order to
| 14,669 |
333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 10.3 investment management trust agreement by and among the company and american stock transfer & trust company ( incorporated by reference to exhibit 10.3 to the company 's registration statement on amendment no . 5 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 10.4 letter agreement regarding administrative support by and among the company and chum capital group limited ( incorporated by reference to exhibit 10.5 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 6 , 2011 ) 10.5 registration rights agreement by and among the company and the initial shareholders ( incorporated by reference to exhibit 10.5 to the company 's registration statement on amendment no.4 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 20 , 2011 ) 10.6 securities purchase agreement ( incorporated by reference to exhibit 10.6 to the company 's registration statement on amendment no.1 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.7 sponsor warrant purchase agreement ( incorporated by reference to exhibit 10.7 to the company 's registration statement on amendment no.1 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.8 indemnity agreement ( incorporated by reference to exhibit 10.9 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.9 securities escrow agreement among the company , american stock transfer & trust company and the initial shareholders ( incorporated by reference to exhibit 10.9 to the company 's registration statement on amendment no.5 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 14 code of ethics ( incorporated by reference to exhibit 14.1 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 31.1 certification of the chief executive officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 31.2 certification of the chief financial officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 32.1 certification of the chief executive officer and chief financial officer required by rule 13a-14 ( b ) or rule 15d-14 ( b ) and 18 u.s.c.1350 20 signature pursuant to the requirements of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized . dated : march 30 , 2012 china growth equity investment ltd. by : jin shi jin shi chief executive officer and director power of attorney the undersigned directors and officers of china growth equity investment ltd. hereby constitute and appoint xuesong song and jin shi , with the power to act without the other and with full power of substitution and resubstitution , our true and lawful attorney-in-fact and agent with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same , with all exhibits and other documents relating thereto and hereby ratify and confirm all that such attorney-in-fact , or such attorney-in-fact 's substitute , may lawfully do or cause to be done by virtue hereof . pursuant to the requirements of the securities and exchange act of 1934 , this registration statement has been signed by the following persons in the capacities and on the dates indicated . pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons in the capacities and on the dates indicated below . xuesong song chairman of the board and chief financial officer march 30 , 2012 xuesong song jin shi chief executive officer and director march 30 , 2012 jin shi xuechu he vice chairman of the board march 30 , 2012 xuechu he dongying sun director march 30 , 2012 dongying sun michael w. zhang director march 30 , 2012 michael w. zhang teng zhou director march 30 , 2012 teng zhou 21 item 8. financial statements and supplementary data index to financial statements page financial statements f-1 report of independent registered public accounting firm f-2 balance sheets f-3 statements of operations f-4 statement of shareholders ' equity f-5 statements of cash flows notes to financial statements f-6 f- 1 report of independent registered public accounting firm to the board of directors and shareholders china growth equity investment , ltd. beijing , prc we have audited the accompanying balance sheets of china growth equity investment , ltd. ( a development stage company ) as of december 31 , 2011 and 2010 , and the related statements of operations , shareholders ' equity , and cash flows for the year ended december 31 , 2011 and the periods from january 18 , 2010 ( inception ) to december 31 , 2010 and 2011. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether story_separator_special_tag references to the “ company , ” “ us ” or “ we ” refer to china growth equity investment ltd. the following discussion and analysis of the company 's story_separator_special_tag 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 10.3 investment management trust agreement by and among the company and american stock transfer & trust company ( incorporated by reference to exhibit 10.3 to the company 's registration statement on amendment no . 5 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 10.4 letter agreement regarding administrative support by and among the company and chum capital group limited ( incorporated by reference to exhibit 10.5 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 6 , 2011 ) 10.5 registration rights agreement by and among the company and the initial shareholders ( incorporated by reference to exhibit 10.5 to the company 's registration statement on amendment no.4 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 20 , 2011 ) 10.6 securities purchase agreement ( incorporated by reference to exhibit 10.6 to the company 's registration statement on amendment no.1 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.7 sponsor warrant purchase agreement ( incorporated by reference to exhibit 10.7 to the company 's registration statement on amendment no.1 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.8 indemnity agreement ( incorporated by reference to exhibit 10.9 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 10.9 securities escrow agreement among the company , american stock transfer & trust company and the initial shareholders ( incorporated by reference to exhibit 10.9 to the company 's registration statement on amendment no.5 to form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on may 25 , 2011 ) 14 code of ethics ( incorporated by reference to exhibit 14.1 to the company 's registration statement on form s-1 ( file no . 333-173323 , filed with the securities and exchange commission on april 18 , 2011 ) 31.1 certification of the chief executive officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 31.2 certification of the chief financial officer required by rule 13a-14 ( a ) or rule 15d-14 ( a ) 32.1 certification of the chief executive officer and chief financial officer required by rule 13a-14 ( b ) or rule 15d-14 ( b ) and 18 u.s.c.1350 20 signature pursuant to the requirements of the securities and exchange act of 1934 , the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized . dated : march 30 , 2012 china growth equity investment ltd. by : jin shi jin shi chief executive officer and director power of attorney the undersigned directors and officers of china growth equity investment ltd. hereby constitute and appoint xuesong song and jin shi , with the power to act without the other and with full power of substitution and resubstitution , our true and lawful attorney-in-fact and agent with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same , with all exhibits and other documents relating thereto and hereby ratify and confirm all that such attorney-in-fact , or such attorney-in-fact 's substitute , may lawfully do or cause to be done by virtue hereof . pursuant to the requirements of the securities and exchange act of 1934 , this registration statement has been signed by the following persons in the capacities and on the dates indicated . pursuant to the requirements of the securities and exchange act of 1934 , this report has been signed below by the following persons in the capacities and on the dates indicated below . xuesong song chairman of the board and chief financial officer march 30 , 2012 xuesong song jin shi chief executive officer and director march 30 , 2012 jin shi xuechu he vice chairman of the board march 30 , 2012 xuechu he dongying sun director march 30 , 2012 dongying sun michael w. zhang director march 30 , 2012 michael w. zhang teng zhou director march 30 , 2012 teng zhou 21 item 8. financial statements and supplementary data index to financial statements page financial statements f-1 report of independent registered public accounting firm f-2 balance sheets f-3 statements of operations f-4 statement of shareholders ' equity f-5 statements of cash flows notes to financial statements f-6 f- 1 report of independent registered public accounting firm to the board of directors and shareholders china growth equity investment , ltd. beijing , prc we have audited the accompanying balance sheets of china growth equity investment , ltd. ( a development stage company ) as of december 31 , 2011 and 2010 , and the related statements of operations , shareholders ' equity , and cash flows for the year ended december 31 , 2011 and the periods from january 18 , 2010 ( inception ) to december 31 , 2010 and 2011. these financial statements are the responsibility of the company 's management . our responsibility is to express an opinion on these financial statements based on our audits . we conducted our audits in accordance with the standards of the public company accounting oversight board ( united states ) . those standards require that we plan and perform the audit to obtain reasonable assurance about whether story_separator_special_tag references to the “ company , ” “ us ” or “ we ” refer to china growth equity investment ltd. the following discussion and analysis of the company 's
| until the consummation of the offering the company 's only source of liquidity was the initial purchase of founder shares by the sponsor and an unsecured promissory note with an officer of the company . on june 2 , 2011 , we consummated the company 's offering of 5,000,000 units at a price of $ 10.00 per unit . simultaneously with the consummation of the company 's offering , we consummated the private sale of 3,966,667 insider warrants for $ 2,975,000 in proceeds . we received net proceeds from the company 's offering and the sale of the insider warrants of approximately $ 51,151,641 , net of the non-deferred portion of the underwriting commissions of $ 1,250,000 and offering costs and other expenses of approximately $ 573,359. we will depend on sufficient interest being earned on the proceeds held in the trust account to provide us with additional working capital we may need to identify one or more target businesses , conduct due diligence and complete our initial business combination , as well as to pay any franchise and income taxes that we may owe . as described elsewhere in this report , the amounts in the trust account may be invested only in u.s. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under rule 2a-7 under the investment company act . the current low interest rate environment may make it more difficult for such investments to generate sufficient funds , together with the amounts available outside the trust account , to locate , conduct due diligence , structure , negotiate and close our initial business combination . if we are required to seek additional capital , we would need to borrow funds from our sponsor or management team to operate or may be forced to liquidate . neither our sponsor nor our management team is under any obligation to advance funds to us in such circumstances . any such loans would be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination . if we are unable
| 14,670 |
up to $ 23.5 million of the preclinical development of our lead antibiotic candidate , edp-788 , is funded under a september 2011 contract with the national institute of allergy and infectious diseases , a division of the national institutes of health , an agency of the united states department of health and human services , or niaid , and there is potential for further niaid funding of early clinical development . in august 2013 niaid agreed to provide additional funding of $ 9.2 million under our contract , increasing total funding from niaid to approximately $ 23.5 million . since commencing our operations in 1995 , we have devoted substantially all of our resources to the discovery and development of novel compounds for the treatment of infectious diseases . we have historically funded our operations primarily through the sale of convertible preferred stock and payments received under our collaborations and a government contract . on march 26 , 2013 , we completed our ipo of 4,600,000 shares of our common stock at an offering price of $ 14.00 per share , which included the exercise in full by the underwriters of their option to purchase up to 600,000 additional shares of our common stock . we received net proceeds of approximately $ 59.9 million , after deducting underwriting discounts and commissions . as of september 30 , 2013 , we had $ 112.2 million in cash and investments . we are eligible to receive over the next several years an aggregate of $ 430 million based on potential future pre-commercialization milestones under our abbvie and novartis collaborations , assuming successful clinical trial results for the respective collaboration programs and our collaborators ' continued development of our product candidates through successful regulatory and reimbursement approvals in the united states and other major markets . in addition , we are eligible to receive tiered royalties ranging on a blended basis from the low double digits up to the high teens on worldwide net sales of any products containing protease inhibitors or ns5a inhibitors developed pursuant to the collaborations , as well as up to $ 160 million of commercialization sales milestones under our novartis collaboration . our revenue from our collaboration agreements has resulted in our reporting net income in fiscal 2013 , 2012 and 2011. however , we had an accumulated deficit of $ 107.5 million as of september 30 , 2013 and we have 65 generated no royalties or other revenue from product sales . we expect that our revenue in the near term will continue to be substantially dependent on our collaborations with abbvie and novartis and their continued advancement of the related development programs . given the schedule of potential milestone payments and the uncertain nature and timing of clinical development , we can not predict when or whether we will receive further milestone payments under these collaborations or whether we will continue to report either revenue or net income in future years . financial operations overview revenue since our inception , our revenue has been derived from two primary sources : collaboration agreements with pharmaceutical companies and one government research and development contract . we have not generated any revenue from product sales . we have entered into three significant collaboration agreements . in november 2006 , we entered into a collaboration agreement with abbvie and in february 2012 we entered into a collaboration agreement with novartis . in september 2011 , we entered into a contract with niaid , which will fund us for the preclinical development of our lead product candidate in our new class of bicyclolide antibiotics . the following table is a summary of revenue recognized from our collaboration agreements and our government contract for the years ended september 30 , 2013 , 2012 and 2011 : replace_table_token_5_th abbvie agreement under the terms of the abbvie agreement , as amended , we received an upfront license payment of $ 44.7 million and a commitment for research funding through december 15 , 2010 , and we granted abbvie an option to enter into a six-month evaluation period . we received a total of $ 8.1 million of research funding and expense reimbursement from abbvie through june 15 , 2011 , the conclusion of the evaluation period . in december 2010 , we received a $ 40.0 million milestone payment from abbvie related to abbvie 's successful completion of a phase 2a clinical study of an abt-450-containing regimen . we recognized revenue from these payments , as well as from a $ 1.6 million premium above fair value paid for series g-1 redeemable convertible preferred stock that abbvie purchased concurrently with the execution of the original agreement , over the period from the date of the original agreement through the end of the evaluation period using the proportional performance model . under this revenue recognition model , the revenue we recognized was limited to the amount of nonrefundable payments received or receivable to date . related to these payments by abbvie , we recognized revenue of $ 41.9 million during the year ended september 30 , 2011. since all of our research obligations under the agreement were concluded by june 30 , 2011 , any future milestone payments received will be recognized as revenue when each milestone is achieved by abbvie . during the year ended september 30 , 2013 , we earned and recognized as revenue a $ 15.0 million milestone payment based on abbvie 's initiation of dosing in a phase 3 clinical trial that included abt-450 . under the terms of the abbvie agreement , we are eligible to receive future milestone payments totaling up to $ 195 million related to the successful development of the first hcv treatment regimen 66 by abbvie incorporating one of our collaboration 's protease inhibitors . we are also eligible to receive additional milestone payments totaling up to $ 80.0 million upon abbvie 's achievement of similar commercial regulatory approval milestones for each additional collaboration product containing a protease inhibitor . story_separator_special_tag we are also eligible to receive royalties on abbvie 's net sales , if any , allocable to any one of our collaboration 's protease inhibitors . novartis agreement under the terms of the novartis agreement , we received an upfront payment of $ 34.4 million and a commitment to fund research at an agreed amount for one year . we recognized the upfront license payment upon receipt as we determined that the license to which the payment related and the research services were separable elements under the agreement that could be accounted for as each was delivered or provided . during the year ended september 30 , 2012 , revenue recognized under this agreement was $ 35.6 million , which consisted of the upfront license payment and research funding earned during that period . our agreement with novartis initially provided that we would receive up to $ 1.8 million in research funding during the first year of the agreement , which ended in february 2013 , and was amended to extend the funding period for an additional six months through august 2013 at the same reimbursement rate . additionally , our collaboration with novartis provides for future milestone payments totaling of up to $ 406 million if certain goals related to drug development and net product sales are achieved by novartis . in january 2013 , we received an $ 11.0 million milestone payment based on novartis ' november 2012 initiation of dosing in a phase 1 clinical trial that included edp-239 . during the year ended september 30 , 2013 , we recognized $ 12.7 million of revenue under the novartis agreement , of which $ 11.0 million was attributed to license fees and $ 1.7 million was attributed to the performance of research services . an additional milestone payment of $ 15.0 million will be due upon novartis ' initiation of a subsequent phase 2 trial using a combination treatment regimen containing an ns5a inhibitor . we are also eligible to receive royalties on novartis ' net sales , if any , allocable to our collaboration 's ns5a inhibitors . niaid contract under the terms of the niaid contract , niaid will pay us research and development funding of up to $ 14.3 million over an initial period of 30 months . the award also contains six option periods , which in aggregate could extend the contract at the option of niaid up to an additional 30 months and provide us additional funding of up to $ 28.4 million . in august 2013 niaid agreed to provide additional funding of $ 9.2 million under our contract , which will bring total funding from niaid to approximately $ 23.5 million . we recognize revenue under this contract as the research and development services are performed . we recognized revenue of $ 4.4 million and $ 6.1 million under this agreement during the years ended september 30 , 2013 and 2012 , respectively . as our internal product candidates are currently in preclinical development , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years . we expect that our revenue for the next several years will be derived primarily from payments under our current collaboration agreements with abbvie and novartis , payments under our niaid contract , and any additional collaborations or government contracts that we may enter into in the future . we can not provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all . 67 operating expenses the following table summarizes our operating expenses for the years ended september 30 , 2013 , 2012 and 2011 : replace_table_token_6_th research and development expenses research and development expenses consist of costs incurred to conduct basic research , such as the discovery and development of novel small molecules as therapeutics . we expense all costs of research and development as incurred . these expenses consist primarily of : personnel costs , including salaries , related benefits and stock-based compensation for employees engaged in scientific research and development functions ; third-party contract costs relating to research , formulation , manufacturing , preclinical study and clinical trial activities ; third-party license fees ; laboratory consumables ; and allocated facility-related costs . project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development . remaining research and development expenses are reflected in research and drug discovery , which represents early-stage drug discovery programs . at any given time , we typically have several active early stage research and drug discovery projects . our internal resources , employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects . as such , we do not maintain information regarding costs incurred for our early-stage research and drug discovery programs on a project-specific basis . we expect that our research and development expenses will increase in the future as we advance our two independent hcv programs and our antibiotic program for mrsa into clinical development . our research and drug discovery programs are at an early stage ; therefore , the successful development of our product candidates is highly uncertain and may not result in approved products . completion dates and completion costs can vary significantly for each product candidate and are difficult to predict . given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process , we are unable to determine the duration and completion costs of the current or future clinical trials of our product candidates or if , or to what extent , we will generate revenue from the commercialization and sale of any of our product candidates .
| government contract revenue was $ 6.1 million in the year ended september 30 , 2012 for the edp-788 program related to the contract with niaid . we did not have any government contract revenue in fiscal 2011. in fiscal 2011 , upon abbvie 's successful completion of a phase 2a clinical study , we received a milestone payment of $ 40.0 million which we recognized as revenue during the year based on our completion of our deliverables under the abbvie agreement . we also recorded $ 1.9 million of revenue related to research funding received from abbvie during the year ended september 30 , 2011 . 74 research and development expenses . replace_table_token_9_th research and development expenses were $ 16.8 million in the year ended september 30 , 2013 , as compared to $ 15.1 million for the same period in 2012. the increase year over year was due primarily to an increase of $ 3.9 million in preclinical expenses for our early stage drug discovery programs . this increase was partially offset by a decrease of $ 1.3 million in expenses for our ns5a inhibitor program and a decrease of $ 0.9 million in our expenses for our antibiotic program . in fiscal 2013 we incurred higher research expenses in our early stage drug discovery programs due to an increase in both the number of preclinical studies and the related costs . our research costs related to our ns5a inhibitor program decreased as a result of our signing a collaboration agreement with novartis in february 2012 , at which time novartis became responsible for further clinical trial costs . prior to entering into the collaboration agreement with novartis , we had been incurring costs for preclinical and clinical development of edp-239 . we continued to incur research expense for ns5a research to identify additional compounds through august 2013 , for which we had been receiving funding from novartis through august 2013. we incurred preclinical expense for the development of edp-788 as a result of the contract
| 14,671 |
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 . recent developments restructuring amended and restated biologistex operating agreement : on january 22 , 2018 , the company and stllc amended their arrangement with respect to their savsu joint venture . as described in more detail below , in exchange for the company 's agreement to terminate that certain services agreement , dated december 31 , 2016 ( the “ services agreement ” ) , between the company and stllc relating to the provision of services by the company to savsu in exchange initially for cash payments and thereafter for a portion of savsu 's future revenues , stllc agreed to ( i ) revise a provision of that certain contribution agreement , dated december 31 , 2016 ( the “ contribution agreement ” ) , between the company and stllc eliminating the requirement that the company transfer a portion of its equity of savsu to stllc on december 31 , 2018 and ( ii ) amend a provision of that certain amended and restated operating agreement of biologistex , dated december 31 , 2016 ( the “ operating agreement ” ) , reflecting the percentage of profits and losses that each of the company and stllc will share in of savsu . on january 22 , 2018 , in consideration of the company 's agreement to terminate the services agreement , the company and stllc entered into amendment no . 1 to contribution agreement ( the “ contribution agreement amendment ” ) and amendment to the amended and restated operating agreement of biologistex ccm , llc ( the “ operating agreement amendment ” ) . pursuant to the contribution agreement amendment , the parties agreed to amend a provision in the contribution agreement that required the company to transfer to stllc a portion of its equity stake in savsu which would have reduced the company 's ownership in savsu from 40 % to 25 % on december 31 , 2018. as a result of the contribution agreement amendment , the company will now maintain a 35 % ownership stake in savsu , subject to ordinary dilution . pursuant to the operating agreement amendment , the parties agreed to amend the profit sharing provision of the operating agreement . as a result of the operating agreement amendment , the company will receive 35 % of the profits and losses of savsu , subject to ordinary dilution , moving forward . prior to the operating agreement amendment , the company would have been entitled to receive 40 % of the profits and losses of savsu for the fiscal year ended december 31 , 2018 and would have been entitled to receive 25 % of the profits and losses beginning january 1 , 2019 and continuing thereafter . 16 exchange of debt into series a preferred stock on june 30 , 2017 , the company and wavi agreed to exchange the company 's previously issued promissory note ( the “ note ” ) in the name of wavi in the amount of $ 4,250,000 including principal and accrued interest thereon through june 1 , 2017 for 4,250 shares of the company 's newly designated series a preferred stock ( the “ series a preferred stock , ” and the exchange transaction , the “ exchange ” ) . the exchange was exempt from registration pursuant to section 3 ( a ) ( 9 ) of the securities act of 1933 , as amended . as a result of the exchange , the note has been deemed immediately canceled and the company no longer has any obligations under the note . there is no additional consideration payable in connection with the exchange . 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 2017 in 2017 , we reported financial results that were consistent with the continued execution of our long-term plans . story_separator_special_tag 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 275 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 . our strategies to achieve this objective include : utilize existing biopreservation media sales , distribution and manufacturing infrastructure . we have developed a direct sales and distribution network for our products which we utilize to expand sales to existing customers and to gain additional customers . we believe that our products have been incorporated into over 275 applications for new cell and tissue-based regenerative medicine products and therapies . a significant number involve car-t cells and other types of t cells and mesenchymal stem cells targeting blood cancers , solid tumors and other leading causes of death and disability . in 2017 , key customer announcements included : · executed supply agreement with iovance biotherapeutics . iovance biotherapeutics , inc. is a clinical-stage biotechnology company focused on the development of cancer immunotherapy products for the treatment of various cancers . iovance 's lead product candidate is an adoptive cell therapy using tumor-infiltrating lymphocyte ( til ) technology being investigated for the treatment of patients with metastatic melanoma , recurrent and or metastatic squamous cell carcinoma of the head and neck and recurrent , metastatic or persistent cervical cancer . · executed additional long-term supply agreement with leading t cell therapy customer . · our customer kite pharma , inc. , a wholly-owned subsidiary of gilead sciences , has received us fda approval for yescarta , the first car t-cell therapy for treatment of adult patients with relapsed or refractory large b-cell lymphoma after two or more lines of systemic therapy . as announced in a july 2016 press release , biolife executed a long-term agreement to supply its proprietary cryostor cell freeze media to kite pharma . each manufactured dose of yescarta is frozen in cryostor to maintain car t-cell viability and enable worldwide distribution . · cellular biomedicine group , a leading clinical-stage biopharmaceutical firm engaged in the development of immunotherapies for cancer and stem cell therapies for degenerative diseases ( “ cbmg ” ) , has validated biolife 's proprietary cryostor freeze media for use in cbmg 's planned us phase i clinical trial of allojoin , an off the shelf allogeneic stem cell therapy for knee osteoarthritis . · executed a long-term supply agreement with celyad , a leader in the discovery and development of car-t cell therapies . biolife 's cryostor clinical grade cell freeze media is incorporated into celyad 's manufacturing process for its natural killer receptor based t-cell ( nkr-t ) platform . 17 · entered into a supply agreement with adaptimmune therapeutics plc . adaptimmune , a leader in t-cell therapy to treat cancer , has multiple trials ongoing in both solid tumors and hematologic cancer types , and in cancers where survival rates for patients can be very limited . adaptimmune 's spear t-cells have shown evidence of tumor reduction in patients as well as a promising risk/benefit profile . biolife 's cryostor clinical grade cell freeze media is incorporated into adaptimmune 's manufacturing process for its spear t-cells . financial performance summary for 2017 · we grew our revenue 34 % over 2016. this increase was driven by a 54 % increase in revenue from the regenerative medicine market . we also drove more sales through our distributors , with an increase of 30 % in revenue from distributors in 2017 compared to 2016 . · gross margin in 2017 was 61 % , compared to 58 % in 2016. the margin was higher due to a higher average selling price per liter sold and an increase in higher margin product mix , partially offset by an increase of direct overhead and raw materials . · our 2017 consolidated operating expenses were $ 7.8 million compared to $ 9.6 million in 2016. the decrease in expense is primarily the result of the deconsolidation of biologistex at december 31 , 2016 . · our 2017 consolidated net loss and net loss attributable to biolife was $ 2.5 million . this is compared to a consolidated net loss of $ 8.0 million in 2016 , of which $ 6.9 million was attributable to biolife . the decrease in the loss is primarily the result of an increase in revenue and margin as well as a decrease in operating expenses related to the restructuring and subsequent deconsolidation of the biologistex joint venture ; partially offset by an increase in stock compensation expense and $ 1.0 million loss from our equity-method investment in savsu . · our cash and cash equivalents balance was $ 6.7 million at december 31 , 2017 compared to $ 1.4 million in cash and cash equivalents with an outstanding note payable of $ 3.0 million at december 31 , 2016. we generated $ 0.6 million of cash from operations in 2017 compared to cash used in operations of $ 4.3 million in 2016. the increase in cash from operations was a result of increased cash receipts from higher sales and decreased spending on biologistex ; partially offset by increases in employee expenses .
| revenue from customers located in foreign countries represented 16 % and 17 % of total revenue during the years ended december 31 , 2017 and 2016 , respectively . all sales to foreign customers are denominated in united states dollars . 18 operating expenses our operating expenses for the years ended december 31 , 2017 and 2016 were as follows ( in thousands ) : replace_table_token_3_th research and development . research 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 except for the costs associated with the development of customized internal-use software systems , which were capitalized in 2016. research and development expenses for 2017 decreased compared to 2016 due primarily to the biologistex restructuring ( $ 902,969 ) , as well as lower product development costs , partially offset by an increase in share-based compensation expense . in 2016 , we capitalized $ 0.7 million in costs associated with the development of our biologistex web application . 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 decrease in sales and marketing expenses in 2017 compared to 2016 was primarily due to the biologistex restructuring ( $ 1,294,544 ) , partially offset by an increase in share-based compensation expense , tradeshow related expenses and travel costs . 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 decrease in general and administrative expenses in 2017 compared to 2016 was primarily due to the biologistex restructuring ( $ 214,301 ) , lower investor relations fees , and lower legal fees , partially offset by an increase in share-based compensation expense . other income ( expenses ) interest income . we earn interest on our money market account . interest expense . in
| 14,672 |
any increase in those risks due to changing economic conditions ; and risks related to loans secured by real estate , including the risk that the value and marketability of collateral could decline . all written or oral forward-looking statements made by us or attributable to us are expressly qualified by this cautionary notice . we disclaim any obligation to update any factors or to announce publicly the result of revisions to any of the forward-looking statements included herein to reflect future events or developments . impact of dodd-frank act on july 21 , 2010 , the dodd-frank act was signed into law . the dodd-frank act represents a significant overhaul of many aspects of the regulation of the financial services industry , although some of its provisions apply to companies that are significantly larger than us . the dodd-frank act directs applicable regulatory authorities to promulgate regulations implementing its provisions , and its effect on us and the financial services industry as a whole will be clarified as those regulations are issued . major elements of the dodd-frank act include : a permanent increase in deposit insurance coverage to $ 250,000 per account , unlimited deposit insurance on noninterest bearing transaction accounts beginning december 31 , 2010 through december 31 , 2012 , and an increase in the minimum deposit insurance fund reserve requirement from 1.15 % to 1.35 % , with assessments to be based on assets as opposed to deposits ; new disclosure and other requirements relating to executive compensation and corporate governance ; new prohibitions and restrictions on the ability of a banking entity and nonbank financial company to engage in proprietary trading and have certain interests in , or relationships with , a hedge fund or private equity fund ; amendments to the truth in lending act aimed at improving consumer protections with respect to mortgage originations , including originator compensation , minimum repayment standards , and prepayment considerations ; the establishment of the financial stability oversight council , which will be responsible for identifying and monitoring systemic risks posed by financial firms , activities , and practices ; the development of regulations to limit debit card interchange fees ; the future elimination of newly issued trust preferred securities as a permitted element of tier 1 capital ; 34 the creation of a special regime to allow for the orderly liquidation of systemically important financial companies , including the establishment of an orderly liquidation fund ; the development of regulations to address derivatives markets , including clearing and exchange trading requirements and a framework for regulating derivatives-market participants ; enhanced supervision of credit rating agencies through the office of credit ratings within the sec ; increased regulation of asset-backed securities , including a requirement that issuers of asset-backed securities retain at least 5 % of the risk of the asset-backed securities ; and the establishment of a bureau of consumer financial protection with centralized authority , including examination and enforcement authority , for consumer protection in the banking industry . regulatory agencies are still in the process of issuing regulations , rules and reporting requirements as mandated by the dodd-frank act . as a result , we are continuing to evaluate the potential impact of the dodd-frank act on our business , financial condition and results of operations and expect that some provisions may have adverse effects on us , such as the cost of complying with the numerous new regulations and reporting requirements mandated by the dodd-frank act . critical accounting estimates our accounting and reporting estimates conform with u.s. generally accepted accounting principles ( “ gaap ” ) and general practices within the financial services industry . the preparation of financial statements in conformity with gaap requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes . actual results could differ from those estimates . we consider our critical accounting policies to include the following : allowance for losses on loans . the allowance for losses on loans represents our best estimate of probable losses inherent in the existing loan portfolio . the allowance for losses on loans is increased by the provision for losses on loans charged to expense and reduced by loans charged-off , net of recoveries . the provision for losses on loans is determined based on our assessment of several factors : reviews and evaluations of specific loans , changes in the nature and volume of the loan portfolio , current economic conditions and the related impact on specific borrowers and industry groups , historical loan loss experience , the level of classified and nonperforming loans and the results of regulatory examinations . the loan loss allowance is based on the most current review of the loan portfolio and is validated by multiple processes . the servicing officer has the primary responsibility for updating significant changes in a customer 's financial position . each officer prepares status updates on any credit deemed to be experiencing repayment difficulties which , in the officer 's opinion , would place the collection of principal or interest in doubt . our internal loan review department is responsible for an ongoing review of our loan portfolio with specific goals set for the loans to be reviewed on an annual basis . at each review , a subjective analysis methodology is used to grade the respective loan . categories of grading vary in severity from loans that do not appear to have a significant probability of loss at the time of review to loans that indicate a probability that the entire balance of the loan will be uncollectible . if full collection of the loan balance appears unlikely at the time of review , estimates of future expected cash flows or appraisals of the collateral securing the debt are used to allocate the necessary allowances . the internal loan review department maintains a list of all loans or loan relationships that are graded as having more than the normal degree of risk associated with them . story_separator_special_tag in addition , a list of specifically reserved loans or loan relationships of $ 50,000 or more is updated on a quarterly basis in order to properly allocate the necessary allowance and keep management informed on the status of attempts to correct the deficiencies noted with respect to the loan . loans are considered impaired if , based on current information and events , it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement . the measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate stipulated in the loan agreement , except that all collateral-dependent loans are measured for impairment based on fair value of the collateral . in measuring the fair value of the collateral , in addition to relying on third party appraisals , we use assumptions such as discount rates , and methodologies , such as comparison to the recent selling price of similar assets , consistent with those that would be utilized by unrelated third parties performing a valuation . changes in the financial condition of individual borrowers , economic conditions , historical loss experience and the conditions of the various markets in which collateral may be sold all may affect the required level of the allowance for losses on loans and the associated provision for loan losses . 35 as of december 31 , 2013 , our review of the loan portfolio indicated that a loan loss allowance of $ 18.9 million was appropriate to cover probable losses in the portfolio . refer to “ loan loss experience and allowance for loan losses ” and “ note 5 – loans and allowance for probable loan losses ” to our consolidated financial statements included in this report for a detailed description of our estimation process and methodology related to the allowance for loan losses . estimation of fair value . the estimation of fair value is significant to a number of our assets and liabilities . in addition , gaap requires disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements . fair values for securities are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates and the shape of yield curves . fair values for most investment and mbs are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or estimates from independent pricing services . where there are price variances outside certain ranges from different pricing services for specific securities , those pricing variances are reviewed with other market data to determine which of the price estimates is appropriate for that period . for securities carried at fair value through income , the change in fair value from the prior period is recorded on our income statement as fair value gain ( loss ) – securities . at september 30 , 2008 and continuing until the date of sale , the valuation inputs for our available for sale ( “ afs ” ) trust preferred securities ( “ trups ” ) became unobservable as a result of the significant market dislocation and illiquidity in the marketplace . we continued to rely on nonbinding prices compiled by third party vendors , which we verified to be an appropriate measure of fair value . however , the significant illiquidity in this market results in a fair value not clearly based on observable market data but rather a range of fair value data points from the market place . accordingly , we had determined that the trups security valuation was based on level 3 inputs . impairment of investment securities and mortgage-backed securities . investment securities and mbs classified as afs are carried at fair value and the impact of changes in fair value are recorded on our consolidated balance sheet as an unrealized gain or loss in “ accumulated other comprehensive income ( loss ) , ” a separate component of shareholders ' equity . securities classified as afs or held to maturity ( “ htm ” ) are subject to our review to identify when a decline in value is other-than-temporary . factors considered in determining whether a decline in value is other-than-temporary include : whether the decline is substantial ; the duration of the decline ; the reasons for the decline in value ; whether the decline is related to a credit event , a change in interest rate or a change in the market discount rate ; and the financial condition and near-term prospects of the issuer . additionally , we do not currently intend to sell the security and it is not more likely than not that we will be required to sell the security before the anticipated recovery of its amortized cost basis . when it is determined that a decline in value is other-than-temporary , the carrying value of the security is reduced to its estimated fair value , with a corresponding charge to earnings for the credit portion and to other comprehensive income for the noncredit portion . for certain assets we consider expected cash flows of the investment in determining if impairment exists . defined benefit pension plan . the plan obligations and related assets of our defined benefit pension plan ( the “ plan ” ) are presented in “ note 11 – employee benefits ” to our consolidated financial statements included in this report . entry into the plan by new employees was frozen effective december 31 , 2005. plan assets , which consist primarily of marketable equity and debt instruments , are valued using observable market quotations . plan obligations and the annual pension expense are determined by independent actuaries and through the use of a number of assumptions that are reviewed by management .
| financial condition our total assets increase d $ 208.3 million , or 6.4 % , to $ 3.45 billion at december 31 , 2013 from $ 3.24 billion at december 31 , 2012 . this increase was attributable to increase s in our loans and in our investment and mbs . our securities portfolio increase d by $ 174.2 million , or 10.4 % , to $ 1.84 billion compared to $ 1.67 billion at december 31 , 2012 . at december 31 , 2013 , loans were $ 1.35 billion compared to $ 1.26 billion at december 31 , 2012 . the increase in our securities was comprised of approximately $ 111 million of investment securities , all municipal securities , and approximately $ 64 million of mbs . the increase in loans was funded by cashflow from the increase in fhlb advances . our nonperforming assets at december 31 , 2013 decrease d to $ 13.6 million , and represented 0.39 % of total assets , compared to $ 14.7 million , or 0.45 % of total assets at december 31 , 2012 . nonaccruing loans decrease d $ 2.2 million to $ 8.1 million and the ratio of nonaccruing loans to total loans decrease d to 0.60 % at december 31 , 2013 compared to 0.82 % at december 31 , 2012 . other real estate owned ( “ oreo ” ) increase d to $ 726,000 at december 31 , 2013 from $ 686,000 at december 31 , 2012 . accruing loans past due more than 90 days at december 31 , 2013 decrease d to $ 3,000 compared to $ 15,000 at december 31 , 2012 . repossessed assets increase d to $ 901,000 at december 31 , 2013 from $ 704,000 at december 31 , 2012 . restructured performing loans at december 31 , 2013 increase d to $ 3.9 million compared to $ 3.0 million at december 31 , 2012 .
| 14,673 |
accordingly , an impairment charge of $ 7.4 million , net of tax , was recorded , which decreased both total assets and equity by $ 7.4 million at december 31 , 2003. in addition , we identified the following revisions in classification during the preparation of the restated consolidated financial statements : ( 1 ) cost of sales for related party revenue transactions is presented separately from cost of sales for non-related party revenue transactions for all years presented ; ( 2 ) certain other long-term assets increased and intangible assets decreased by $ 1.7 million at december 31 , 2003 ; ( 3 ) changes in restricted cash had been incorrectly categorized as a part of operating cash flows instead of investing cash flows in accordance with statement of financial accounting standards no . 95 , statement of cash flows , ( sfas 95 ) . accordingly , we have reflected this change in categorization in the consolidated statement of cash flows for each of the three years in the period ended december 31 , 2003. the change for 2003 and 2002 is an increase in cash flows from operating activities and a decrease in cash flows from investing activities of $ 3.2 million and $ 21.3 million , respectively , and there was no change for 2001 ; and ( 4 ) a related party which is 31 % owned by an individual related to a member of our board of directors and associated transactions have been identified . see note 22 to the consolidated financial statements . executive summary we design , manufacture and sell telecommunications equipment and products and provide services associated with their installation , operation and maintenance . our products are deployed and installed primarily by telecommunications wireless and wireline service providers . we provide an extensive range of products for transportation of voice , data and video traffic for service providers around the world . our business is conducted globally in china , japan , india , the central and latin american region , north america , the european , middle eastern and african region , and southeastern and northern asia . our objective is to be a leading global provider of internet protocol ( ip ) networking products and services . we differentiate ourselves with products designed , developed and commercialized to reduce network 28 complexity , integrate high performance capabilities and that allow a simple transition to next generation networks . this results in deployments , maintenance and upgrades that are both economical and efficient , and that we believe allow operators to earn a high return on their investment . our technologies and products fall into three major categories : · wireless infrastructure : technologies and products that enable end users , or subscribers , to send and receive voice and data communication in either a fixed or mobile environment using wireless devices ; · broadband infrastructure : technologies and products that enable end users to access high-speed , cost effective fixed data , voice and media communication ; and · handsets and customer premise equipment : consumer devices that allow customers to access wireless and broadband networks . our products within each of these categories include multiple hardware and software subsystems that can be offered in various combinations to suit individual subscriber needs . our system technologies and products are based on widely adopted global communications standards and are designed to allow service providers to quickly and cost-efficiently integrate our systems into their existing networks and deploy our systems in new broadband , ip and wireless network rollouts . our system technologies are also designed to allow timely and cost-efficient transition to future next-generation network technologies , enabling our service provider customers to protect their initial infrastructure investments . in 2004 , we had approximately $ 2.7 billion of revenue , a 38 % increase over 2003 , with cost of sales of $ 2.1 billion , which increased by 57 % compared to 2003. the growth in revenue was driven by our globalization efforts in gaining sales revenue outside of china as well as $ 277.4 million of incremental revenue from our acquisition of acc in november 2004. we believe china remains one of the fastest growing telecommunications markets in the world . china continued its growth in fixed-line , mobile telephone and internet subscribership , with approximately 647.2 million subscribers in 2004 , a 6 % increase from 2003 , according to a report published in january 2005 by china 's mii . we believe this subscriber growth continued to support the demand for our pas services and handsets . we use subscriber growth statistics to gauge future inventory purchasing requirements , as well as to forecast our anticipated revenue growth . historically , substantially all of our sales have been to service providers in china . we derived 79 % of our sales for the year ended december 31 , 2004 from china in comparison to 86 % in 2003. in 2004 , we earned 13 % of our sales from north america . north america replaced japan as our second largest market in 2004 as a result of our global expansion efforts and the acc acquisition . we continued expanding our sales efforts to include other communications markets , such as markets in the central and latin american region , the european , middle eastern and african region , the north american region , and the southeast and north asia region . we intend to penetrate these markets through direct sales offices located in key market regions , by licensing our technology to local manufacturers where import taxation is favorable , by developing local sales agency and distributor relationships within specific market regions , and by establishing sales relationships with original equipment manufacturers . our sales division has continued to establish regional offices and local direct sales representative offices to provide support for our expanding global sales operations . story_separator_special_tag 29 the following table summarizes our net sales by geographic region : replace_table_token_5_th the number of competitors for communications access and switching systems and handsets in china grew in 2004 in line with china 's growing telecommunications market . this growth led to competitive pricing pressure , causing our average selling prices to decrease by 10 % to 20 % in 2004 relative to 2003 levels . we continued to develop products with more advanced features and to enhance the features of our existing products in 2004 , which we believe will enable us to offer our customers a more advanced product at a higher average selling price in future periods . in addition , we intend to continue to work to reduce the cost of manufacturing our products by streamlining our design and engineering functions . in an effort to penetrate new markets around the world , support our growing business and expand our product offerings , we continued to invest resources in our selling , administrative and research and development groups in 2004. these costs are expected to increase in the near future as we proceed with our expansion into other markets . operating costs as a percentage of revenue were 20 % in 2004 compared to 18 % in 2003. in 2004 , we had negative net cash flow from operating activities , mainly due to increases in accounts receivable and inventory balances . our accounts receivable and inventory balances increased at december 31 , 2004 , as compared to 2003 , and can be attributed to our global expansion efforts including the sales generated by our personal communications division ( pcd ) , our new division formed in connection with the acc acquisition . key acquisitions and other transactions since our incorporation , we have focused our resources on developing products for the global communications market . in particular , we have made several key strategic acquisitions to acquire additional resources to further this development in recent years . these acquisitions were accounted for as purchases , and the results of operations of the acquired companies have been included in our consolidated financial statements from the closing dates of the acquisitions . our acquisitions often result in a one-time charge to operating expenses related to products under development that have not yet reached technological feasibility , or in-process research and development ( ipr & d ) . a project is classified as ipr & d if there are significant risks associated with completing the development of the acquired technology including both technological and commercial risks . when assessing ipr & d projects , we consider the key project characteristics as well as its future prospects , the rate at which technology changes in the telecommunications equipment industry , product life cycles and the product 's development stage . in connection with acquisitions , we often issue stock-based incentives that vest according to terms established in the acquisition agreement . historically , our stock-based incentives have vested based upon the achievement of product development milestones , the meeting of revenue targets or the duration of employment . 30 giga telecom , inc. on october 29 , 2004 , utstarcom cdma technologies korea limited , a limited liability company organized under the laws of korea and our wholly owned subsidiary ( utstarcom korea ) , entered into an asset purchase agreement with giga telecom , inc. ( giga ) , a korean corporation that develops and manufactures wireless handsets . pursuant to the asset purchase agreement and related ancillary agreements , utstarcom korea will pay $ 18.6 million for certain assets relating to the research and development of cdma wireless products , of which ( i ) $ 13.0 million will be paid in cash at the closing , ( ii ) $ 1.6 million pursuant to a separate arrangement in respect of certain services rendered by giga relating to the design of wireless handsets for utstarcom korea , is to be applied against the purchase price , and ( iii ) $ 4.0 million is to be paid in three separate installments tied to certain product design and production milestones . we completed the acquisition on january 4 , 2005 , and at the closing , $ 13.0 million in cash was paid and an additional $ 2.0 million was paid into an escrow account that will be held by us for a period of six months . audiovox communications corporation on november 1 , 2004 , we completed our acquisition of acc , the wireless handset division of audiovox corporation , and acquired select assets and liabilities , including inventories , prepaids , payables , accrued expenses and the right to hire approximately 250 employees for $ 165.1 million in cash . we acquired acc 's sales , service and support infrastructure , its cdma handset brand , access to supply-chain channels , product marketing expertise and key relationships with cdma operators in north and south america . in consummating this acquisition , we obtain access to acc 's distribution channel into the cdma handset market particularly in north america . we believe this distribution channel strengthens our position in the handset market by providing additional volume to benefit economies of scale in manufacturing , sourcing and development . we also plan to improve gross margins on the sale of acc 's cdma handsets by supplying products we manufacture to acc . based in part on an independent valuation , the allocation of the purchase price to intangible assets is comprised of customer/dealer relationships of $ 24.4 million , supplier relationships of $ 5.3 million , non-compete agreement of $ 10.8 million , backlog of $ 3.2 million , trade name of $ 4.0 million , and goodwill of $ 74.1 million . no amount was allocated to ipr & d . telos technology , inc. on may 19 , 2004 , we completed our acquisition of substantially all of the assets and certain liabilities of telos technology , inc. and its subsidiaries ( telos ) .
| business activity in china and many other countries in asia decline considerably during the first quarter of each year in observance of the lunar new year . as a result , sales during the first quarter of our fiscal year have typically been lower than sales during the fourth quarter of the preceding year , and we expect this trend to continue . 35 cost of sales consists primarily of materials costs , fees to agents , costs associated with manufacturing , assembly and testing of products , costs associated with installation and customer training and overhead and warranty costs . cost of sales also includes import taxes and tariffs on components and assemblies . some components and materials used in our products are purchased from a single supplier or a limited group of suppliers and , in some cases , are subject to our obtaining chinese import permits and approvals . we also rely on third party manufacturers to manufacture and assemble most of our handsets . our gross profit has been affected by product mix , average selling prices and material costs . our gross profit , as a percentage of net sales , varies among our product families . we expect that our overall gross profit , as a percentage of net sales , will fluctuate from period to period as a result of shifts in product mix , anticipated decreases in average selling prices and our ability to reduce cost of sales . selling , general and administrative expenses include compensation and benefits , professional fees , sales commissions , provision for doubtful accounts receivable and travel and entertainment costs . a large percentage of our costs are fixed and are difficult to quickly reduce in periods of reduced sales . we intend to pursue aggressive selling and marketing campaigns and to expand our direct sales organization , and , as a result , our sales and marketing expenses will increase in future periods . we also expect that in support of our continued growth , general and
| 14,674 |
the company can not reasonably estimate at this time when the covid-19 pandemic will end , or when or how quickly the current travel restrictions and capacity restrictions will be modified or cease to be necessary . as a result , it is difficult to predict the continuing and future impact on the company 's business and the willingness of customers to spend on entertainment in venues such as ours . the company had no long-term debt and a $ 6.0 million credit line as of december 31 , 2020. the company anticipates that its existing cash balance , any cash generated from operations and availability under its credit line will provide the company with the necessary liquidity and financial flexibility to manage through this challenging operating environment . we have taken significant actions to mitigate the effects of the covid-19 pandemic on our operations , including initiating workforce reductions and furloughs , suspending the company 's quarterly cash dividend , postponing non-essential capital expenditures , reducing operating costs , and substantially reducing discretionary spending . we expect these countermeasures to partially mitigate the impact of covid-19 . as the impact of the covid-19 pandemic on the economy and our operations evolves , we will continue to assess the impact on the company and respond accordingly . 25 operations review year ended december 31 , 2020 compared to year ended december 31 , 2019 ebitda represents earnings before interest income , income tax expense , depreciation , and amortization . ebitda is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the united states of america ( `` gaap '' ) , and should not be considered an alternative to , or more meaningful than , net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity . we present ebitda as a supplemental disclosure for our racetrack operations because it is a widely used measure of performance of and basis for valuation of companies in the gaming industry . other companies that provide ebitda information may calculate ebitda differently than we do . we also compute adjusted ebitda , which reflects additional adjustments to net income to eliminate unusual or non-recurring items , as well as items relating to our real estate development operations . for the year ended december 31 , 2020 , adjusted ebitda excluded the loss on disposal of assets , gain on transfer of land , and depreciation and amortization related to equity investments . for the year ended december 31 , 2019 , adjusted ebitda excluded the loss on disposal of assets , gain on insurance recoveries , and gain on sale of assets . the following table sets forth a reconciliation of net income , a gaap financial measure , to ebitda and adjusted ebitda ( defined above ) , which is also a non-gaap measure , for the years ended : story_separator_special_tag property and equipment ; and ● income tax expense . our significant accounting policies are more fully described in note 2 to the notes to consolidated financial statements included in item 8. financial statements and supplementary data of this annual report on form 10-k. revenue recognition - racing revenue is generated by pari-mutuel wagering on live and simulcast racing content . additionally , we also generate revenue through sponsorships , admissions , concessions , and publications . our racing revenue and income are influenced by our racing calendar . therefore , revenue and operating results for any interim quarter are not generally indicative of the revenue and operating results for the year and may not be comparable with results for the corresponding period of the previous year . we recognize pari-mutuel revenue upon occurrence of the live race that is presented for wagering after that live race is made official by the respective state 's racing regulatory body . we recognize other operating revenue such as sponsorships , admissions , concessions , and publication revenue once delivery of the product or service has occurred . card casino revenue is a percentage of the wagers received from the players as compensation for providing the card casino facility and services , referred to as “ collection revenue. ” property and equipment - we have significant capital invested in our property and equipment , which represents approximately 49 % of our total assets at december 31 , 2020 . we use our judgment in various ways including : determining whether an expenditure is considered a maintenance expense or a capital asset ; determining the estimated useful lives of assets ; and determining if or when an asset has been impaired or has been disposed . management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected undiscounted future net cash flows . if the sum of the related expected future net cash flows is less than the carrying value , we will determine whether an impairment loss should be recognized . an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset . as of december 31 , 2020 , we have determined that no impairment of these assets exists . income taxes - we use estimates and judgments for financial reporting to determine our current tax liability and deferred taxes . in accordance with the liability method of accounting for income taxes , we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . adjustments to deferred taxes are determined based upon changes in differences between the book basis and tax basis of our assets and liabilities and measured by enacted tax rates we estimate will be applicable when these differences are expected to reverse . story_separator_special_tag changes in current tax laws , enacted tax rates or the estimated level of taxable income or non-deductible expense could change the valuation of deferred tax assets and liabilities and affect the overall effective tax rate and tax provision . minimum wage legislation in 2014 , minnesota legislation enacted into law an increase in the minimum wage that must be paid to most company employees . beginning january 1 , 2018 , the minimum wage was set to increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5 % per year . the minimum wage for 2021 is $ 10.08 per hour . prior to august 1 , 2014 , the company employed a large number of individuals who received an hourly wage equal to or slightly above $ 7.25 per hour . as a result , this legislation had an adverse financial impact on the company in 2014 through 2020 , and will continue to have an adverse impact on the company . we have implemented measures to partially mitigate the impact of this increase by raising our prices and reducing our employee count . these measures could themselves have an adverse effect because higher prices and diminished service levels may discourage customers from visiting the racetrack . 29 cooperative marketing agreement on june 4 , 2012 , the company entered into the cma with the smsc . the primary purpose of the cma is to increase purses paid during live horse racing at canterbury park 's racetrack in order to strengthen minnesota 's thoroughbred and quarter horse industry . under the cma , this is achieved through “ purse enhancement payments to horsemen ” paid directly to the mhbpa . these payments have no direct impact on the company 's consolidated financial statements or operations . because the company conducted a more limited 2020 live race meet due to the covid-19 pandemic , the company and smsc entered into the fifth amendment agreement ( “ fifth amendment ” ) to the cma effective june 8 , 2020. under the fifth amendment , the smsc agreed to provide up to $ 5,620,000 for the annual purse enhancement for the year 2020. the annual purse enhancement that the smsc is obligated to pay under the cma for 2021 and 2022 was not changed and remains at $ 7,380,000 per year . under the terms of the cma , as amended , the smsc made payments of $ 5.6 million and $ 7.4 million during 2020 and 2019 , respectively , primarily for purse enhancements for the respective live race meets . under the cma , as amended , smsc also agreed to make “ marketing payments ” to the company relating to joint marketing efforts for the mutual benefit of the company and smsc , including signage , joint promotions , player benefits , and events . under the fifth amendment , the smsc was not required to pay the company a 2020 annual marketing payment , but the company used previously paid but unspent funds for these purposes . as noted above and affirmed in the fifth amendment , smsc is obligated to make the following purse enhancement and marketing payments for 2021 through 2022 : purse enhancement payments to marketing payments to canterbury year horsemen ( 1 ) park 2021 $ 7,380,000 $ 1,620,000 2022 7,380,000 1,620,000 1 - includes $ 100,000 each year payable to various horsemen associations the amounts received from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the company 's consolidated statements of operations . for the year ended december 31 , 2020 , the company recorded $ 900,000 in other revenue and incurred $ 740,000 in advertising and marketing expense and $ 160,000 in depreciation related to the smsc marketing payment . for the year ended december 31 , 2019 , the company recorded $ 1,114,000 in other revenue and incurred $ 888,000 in advertising and marketing expense and $ 226,000 in depreciation related to the smsc marketing payment . the excess of amounts received over revenue is reflected as deferred revenue on the company 's consolidated balance sheets . the company has agreed for the term of the cma that it would not promote or lobby the minnesota legislature for expanded gambling authority and would support the smsc 's lobbying efforts against expanding gambling authority . contingencies in accordance with an earn out promissory note given to the prior owner of the racetrack as part of the consideration paid by the company to acquire the racetrack in 1994 , if ( i ) off-track betting becomes legally permissible in the state of minnesota and ( ii ) the company begins to conduct off-track betting with respect to or in connection with its operations , the company would be required to pay to the imr fund , l.p. the greater of ( a ) $ 700,000 per operating year , as defined , or ( b ) 20 % of the net pretax profit , as defined for each of five operating years . at this time , management believes that the likelihood that these two conditions will be met and that the company would be required to pay these amounts is remote . if these two conditions are met , the five minimum payments would be discounted back to their present value and the sum of those discounted payments would be capitalized as part of the purchase price in accordance with generally accepted accounting principles . the purchase price would be further increased if payments become due under the “ 20 % of net pretax profit ” calculation . the first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the company . remaining payments would be made within 90 days of the end of each of the next four operating years .
| card casino revenues replace_table_token_3_th the primary source of card casino revenue is a percentage of the wagers received from the players as compensation for providing the card casino facility and services , referred to as “ collection revenue. ” other revenue presented above includes fees collected for the administration of tournaments and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds . card casino revenue represented 60.0 % and 58.1 % of the company 's net revenues for the years ended december 31 , 2020 and 2019 , respectively . total card casino revenue decreased $ 14,520,000 , or 42.2 % , in 2020 compared to 2019 . poker revenue decreased $ 3,754,000 , or 50.0 % , and table games collection revenue decreased $ 8,899,000 , or 38.3 % , in 2020 compared to 2019 . these decreases are due to the covid-19 pandemic described above . when the company reopened its table games operations on june 15 , 2020 and poker operations on july 9 , 2020 , this included reduced seating at tables and capacity limitations to follow minnesota state guidelines . 27 food and beverage revenues food and beverage revenue decreased $ 6,522,000 , or 73.3 % , to $ 2,373,000 for the year ended december 31 , 2020 compared to 2019 . the decrease is due to the covid-19 pandemic described above , including the fact that these operations were closed from march 16 , 2020 until june 10 , 2020 and from november 21 , 2020 through december 31 , 2020. other revenues other revenue decreased $ 3,190,000 , or 52.4 % , to $ 2,902,000 in 2020 compared to 2019 . the decrease is due to the covid-19 pandemic described above , including the fact that these operations were closed from march 16 , 2020 until june 10 , 2020 and from november 21 , 2020 through december 31 , 2020. operating expenses total operating expenses decreased $ 20,709,000 , or 37.3 % , to $ 34,882,000 in 2020 , from $ 55,591,000 in 2019 . total operating expenses as a percentage of net revenues increased to 105.3 % in 2020 from 93.9 % in 2019 . total purse
| 14,675 |
our overall annual organic growth rate was 7 % as of december 31 , 2017 . the organic growth rate represents the ratio of annual net flows to the beginning assets under management . recent business developments in january 2018 , the company received three awards for leadership and investment performance from the asia asset management “ 2018 best of the best performance awards , ” including best real assets house and performance awards - global reits ( 3 years ) and global reits ( 10 years ) . these awards recognized the company 's leadership in real estate and other real assets investments . in addition , cohen & steers mlp & energy opportunity fund ended 2017 as the top performing fund in its category and gained a four-star rating from morningstar . please refer to the company 's website for additional disclosure on the morningstar rating . our european business development efforts are beginning to translate into asset flows as evidenced by net inflows into our european real estate sicav , primarily from a large european financial intermediary that included this fund in their discretionary models during the fourth quarter and increased request for proposal activity in the region . in addition , in february 2018 , we were awarded our first institutional account mandate in germany . institutional interest in our preferred securities strategy , global listed infrastructure strategy and global real estate strategy remains strong with institutional accounts in each strategy experiencing net inflows for the year of approximately $ 558 million , $ 448 million and $ 175 million , respectively . in november , our largest japanese distribution partner reduced the distribution rate on the second u.s. reit fund that we subadvise in japan by 25 % . this distribution rate cut followed the 30 % reduction in the distribution rate on the other u.s. reit fund that we subadvise for this partner announced in july 2017. in january 2018 , we were awarded our first mlp focused institutional account mandate which was funded by the client in february 2018 . 16 assets under management the following table sets forth information about net flows , market appreciation ( depreciation ) and distributions of assets under management by investment vehicle for the periods presented ( in millions ) : replace_table_token_4_th _ ( 1 ) december 31 , 2015 amounts have been reclassified to show distributions separately and dividend reinvestments as inflows . 17 the following table sets forth information about net flows , market appreciation ( depreciation ) and distributions of assets under management by institutional account type for the periods presented ( in millions ) : replace_table_token_5_th _ ( 1 ) december 31 , 2015 amounts have been reclassified to show distributions separately and dividend reinvestments as inflows . 18 the following table sets forth information about net flows , market appreciation ( depreciation ) and distributions of assets under management by investment strategy for the periods presented ( in millions ) : replace_table_token_6_th _ ( 1 ) december 31 , 2015 amounts have been reclassified to show distributions separately and dividend reinvestments as inflows . 19 replace_table_token_7_th _ ( 1 ) december 31 , 2015 amounts have been reclassified to show distributions separately and dividend reinvestments as inflows . 20 investment performance as of december 31 , 2017 _ ( 1 ) past performance is no guarantee of future results . outperformance is determined by annualized investment performance of all accounts in each investment strategy measured gross of fees and net of withholding taxes in comparison to the performance of each account 's reference benchmark measured net of withholding taxes , where applicable . this is not investment advice and may not be construed as sales or marketing material for any financial product or service sponsored or provided by cohen & steers . ( 2 ) © 2018 morningstar , inc. all rights reserved . the information contained herein : ( 1 ) is proprietary to morningstar and or its content providers ; ( 2 ) may not be copied or distributed ; and ( 3 ) is not warranted to be accurate , complete , or timely . neither morningstar nor its content providers are responsible for any damages or losses arising from any use of this information . morningstar calculates its ratings based on a risk-adjusted return measure that accounts for variation in a fund 's monthly performance ( including the effects of sales charges , loads , and redemption fees ) , placing more emphasis on downward variations and rewarding consistent performance . the top 10 % of funds in each category receive five stars , the next 22.5 % receive four stars , the next 35 % receive three stars , the next 22.5 % receive two stars and the bottom 10 % receive one star . past performance is no guarantee of future results . based on independent rating by morningstar , inc. of investment performance of each cohen & steers-sponsored open-end u.s.-registered mutual fund for all share classes for the overall period as of december 31 , 2017. overall morningstar rating is a weighted average based on the 3-year , 5-year and 10-year morningstar rating . each share class is counted as a fraction of one fund within this scale and rated separately , which may cause slight variations in the distribution percentages . this is not investment advice and may not be construed as sales or marketing material for any financial product or service sponsored or provided by cohen & steers . overview assets under management were $ 62.1 billion at december 31 , 2017 , an increase of 9 % from $ 57.2 billion at december 31 , 2016 and an increase of 18 % from $ 52.6 billion at december 31 , 2015 . the increase in assets under management during 2017 was due to net inflows of $ 3.9 billion and market appreciation of $ 5.8 billion , partially offset by distributions of $ 4.7 billion . story_separator_special_tag net inflows in 2017 included $ 2.5 billion into preferred securities , $ 496 million into global listed infrastructure and $ 462 million into u.s. real estate . market appreciation in 2017 included $ 1.9 billion from u.s. real estate , $ 1.5 billion from global/international real estate , $ 1.1 billion from preferred securities and $ 935 million from global listed infrastructure . distributions in 2017 included $ 3.7 billion from u.s. real estate and $ 540 million from preferred securities . the increase in assets under management during 2016 was due to net inflows of $ 6.7 billion and market appreciation of $ 3.1 billion , partially offset by distributions of $ 5.2 billion . net inflows in 2016 included $ 3.7 billion into u.s. real estate and $ 2.3 billion into preferred securities . market appreciation in 2016 included $ 1.7 billion from u.s. real estate , $ 428 million 21 from global listed infrastructure and $ 365 million from preferred securities . distributions in 2016 included $ 4.2 billion from u.s. real estate . average assets under management were $ 60.3 billion for the year ended december 31 , 2017 , an increase of 7 % from $ 56.4 billion for the year ended december 31 , 2016 and an increase of 14 % from $ 52.7 billion for the year ended december 31 , 2015 . institutional accounts assets under management in institutional accounts , which represented 47 % of total assets under management , were $ 29.4 billion at december 31 , 2017 , compared with $ 28.7 billion at december 31 , 2016 and $ 26.1 billion at december 31 , 2015 . the increase in institutional assets under management during 2017 was due to market appreciation of $ 2.9 billion and net inflows of $ 696 million , partially offset by distributions of $ 3.0 billion . net inflows in 2017 included $ 558 million into preferred securities and $ 448 million into global listed infrastructure , partially offset by net outflows of $ 379 million from u.s. real estate . market appreciation in 2017 included $ 1.2 billion from global/international real estate , $ 863 million from u.s. real estate and $ 467 million from global listed infrastructure . distributions in 2017 included $ 2.8 billion from u.s. real estate . the increase in institutional assets under management during 2016 was due to net inflows of $ 4.0 billion and market appreciation of $ 1.6 billion , partially offset by distributions of $ 3.0 billion . net inflows in 2016 included $ 2.4 billion into u.s. real estate , $ 775 million into real assets multi-strategy ( included in “ other ” in the table above ) and $ 428 million into preferred securities . market appreciation in 2016 included $ 924 million from u.s. real estate , $ 306 million from global/international real estate and $ 167 million from global listed infrastructure . distributions in 2016 included $ 3.0 billion from u.s. real estate . average assets under management for institutional accounts were $ 29.3 billion for the year ended december 31 , 2017 , an increase of 4 % from $ 28.1 billion for the year ended december 31 , 2016 and an increase of 13 % from $ 25.9 billion for the year ended december 31 , 2015 . assets under management in japan subadvised accounts , which represented 39 % of institutional assets under management , were $ 11.5 billion at december 31 , 2017 , compared with $ 13.7 billion at december 31 , 2016 and $ 13.1 billion at december 31 , 2015 . the decrease in japan subadvised assets under management during 2017 was due to net outflows of $ 134 million and distributions of $ 3.0 billion , partially offset by market appreciation of $ 911 million . net outflows in 2017 included $ 63 million from global/international real estate and $ 27 million from preferred securities . market appreciation in 2017 included $ 594 million from u.s. real estate and $ 254 million from global/international real estate . distributions in 2017 included $ 2.8 billion from u.s. real estate . the increase in japan subadvised assets under management during 2016 was due to net inflows of $ 2.8 billion and market appreciation of $ 818 million , partially offset by distributions of $ 3.0 billion , all of which were primarily from u.s. real estate . average assets under management for japan subadvised accounts were $ 12.8 billion for the year ended december 31 , 2017 , a decrease of 6 % from $ 13.6 billion for the year ended december 31 , 2016 , and a decrease of 1 % from $ 13.0 billion for the year ended december 31 , 2015 . assets under management in institutional subadvised accounts excluding japan , which represented 22 % of institutional assets under management , were $ 6.6 billion at december 31 , 2017 , compared with $ 5.9 billion at december 31 , 2016 and $ 5.4 billion at december 31 , 2015 . the increase in institutional subadvised accounts excluding japan assets under management during 2017 was due to market appreciation of $ 829 million , partially offset by net outflows of $ 124 million . net outflows in 2017 included $ 227 million from large cap value ( which is included in “ other ” in the table above ) , partially offset by net inflows of $ 178 million from global/international real estate . market appreciation in 2017 included $ 434 million from global/international real estate and $ 221 million from global listed infrastructure . the increase in institutional subadvised accounts excluding japan assets under management during 2016 was due to net inflows of $ 111 million and market appreciation of $ 353 million . net inflows in 2016 included $ 201 million from global/international real estate , and $ 106 million from global listed infrastructure , partially offset by net outflows of $ 140 million from u.s. real estate .
| a majority of our revenue , approximately 92 % and 91 % for the years ended december 31 , 2017 and 2016 , respectively , was derived from investment advisory and administration fees for providing asset management services to institutional accounts as well as open-end funds and closed-end funds sponsored by the company . expenses total operating expenses increased 4 % to $ 223.4 million for the year ended december 31 , 2017 from $ 214.4 million for the year ended december 31 , 2016 , primarily due to an increase of $ 8.5 million in employee compensation and benefits . employee compensation and benefits increased 7 % to $ 124.1 million for the year ended december 31 , 2017 from $ 115.6 million for the year ended december 31 , 2016 . this increase was primarily due to higher incentive compensation of approximately $ 4.7 million and salaries of approximately $ 3.2 million . 24 operating margin operating margin for the year ended december 31 , 2017 was 40.9 % , compared with 38.7 % for the year ended december 31 , 2016 . non-operating income non-operating income for the year ended december 31 , 2017 was $ 5.7 million , compared with $ 7.9 million for the year ended december 31 , 2016 . the change was primarily due to lower net realized and unrealized gains on our seed investments of approximately $ 3.0 million and net losses associated with forward currency contracts used to hedge certain non-u.s. dollar investment advisory fees receivable of $ 973,000 , partially offset by an increase in interest and dividend income from our seed investments and corporate cash of approximately $ 2.2 million . non-operating income for the year ended december 31 , 2017 included net income attributable to redeemable noncontrolling interest of $ 547,000 , compared with net loss attributable to redeemable noncontrolling interest of $ 126,000 for the year ended december 31 , 2016 . income taxes on december 22 , 2017 , the
| 14,676 |
to meet the needs of high quality , commercial borrowers and depositors , we offer commercial real estate ( “ cre ” ) lending , including nationwide single tenant lease financing , commercial and industrial ( “ c & i ” ) lending , including asset based lending , and business banking/treasury management services . our commercial banking activities are highly dependent on establishing and maintaining strong relationships with our business customers . to support our positive momentum and enable continued growth , the company completed a public offering of common stock during the 2013 fourth quarter , which provided $ 29.1 million of new capital . financial condition comparison of december 31 , 2014 to december 31 , 2013 total assets were $ 970.5 million at december 31 , 2014 , compared to $ 802.3 million at december 31 , 2013 , representing an increase of $ 168.2 million , or 21.0 % . in 2014 , the company continued to experience strong growth in its commercial and residential real estate loan portfolios . loans receivable increased $ 231.3 million , or 46.1 % , in 2014 , compared to december 31 , 2013 . cre loans , which include owner occupied cre loans , increased $ 131.4 million , or 92.3 % , from the prior year end . single tenant lease financing , a component of cre , experienced the largest growth in the commercial loan portfolio as balances increased $ 108.4 million , or 128.8 % , from december 31 , 2013 . there was also solid growth in the c & i loan portfolio during 2014 as balances increased $ 22.1 million , or 40.0 % , from december 31 , 2013 . residential real estate loans , which increased $ 88.0 million , or 46.1 % , from december 31 , 2013 , further contributed to the increase in loan balances . the increase in residential real estate loans was primarily due to the company deploying excess balance sheet capacity to acquire $ 104.9 million of high quality , adjustable rate residential mortgage assets during the year to complement its organic loan growth . total nonperforming loans at december 31 , 2014 declined $ 1.6 million , or 84.0 % , from december 31 , 2013 , reflecting the resolution of a nonaccrual cre credit that experienced significant charge-offs in prior periods . the allowance for loan losses was 0.79 % of total loans at december 31 , 2014 , versus 1.09 % at december 31 , 2013 . the ratio of nonperforming loans to total loans declined to 0.04 % at december 31 , 2014 , compared to 0.37 % at december 31 , 2013 , and the allowance for loan losses to total nonperforming loans increased to 1,959.5 % at december 31 , 2014 , versus 293.0 % at december 31 , 2013 . securities available for sale decreased from $ 181.4 million at december 31 , 2013 to $ 137.5 million at december 31 , 2014 , a decline of $ 43.9 million , or 24.2 % . the decrease was primarily due to the company restructuring its securities portfolio in 2014 , which included the liquidation of the entire portfolio of odd lot and long duration municipal securities , which had a fair value of $ 46.3 million at december 31 , 2013 . total deposits increased $ 85.5 million , or 12.7 % , to $ 758.6 million at december 31 , 2014 , compared with $ 673.1 million at december 31 , 2013 . a significant portion of the growth related to certificates of deposit , which increased $ 68.5 million , or 23.4 % , from december 31 , 2013 . 33 advances from the federal home loan bank ( “ fhlb ” ) increased $ 75.1 million , or 236.2 % , from $ 31.8 million at december 31 , 2013 to $ 106.9 million at december 31 , 2014 as management elected to increase the utilization of fhlb advances in 2014 to reduce the company 's overall funding costs . tangible common equity increased $ 5.9 million , or 6.82 % , from $ 86.2 million at december 31 , 2013 to $ 92.1 million at december 31 , 2014 . the increase was due to net income of $ 4.3 million , other comprehensive income of $ 2.2 million , and stock compensation expense of $ 0.5 million , less dividends declared of $ 1.1 million . story_separator_special_tag style= '' line-height:120 % ; text-align : justify ; font-size:10pt ; '' > noninterest expense to average assets decreased from 2.99 % for the year ended december 31 , 2013 to 2.60 % for the 2014 period as asset growth outpaced noninterest expense growth . 34 return on average assets for the year ended december 31 , 2014 was 0.50 % , versus 0.67 % for the prior year , driven primarily by the 27.4 % increase in average assets and , to a lesser extent , the decrease in net income . return on average shareholders ' equity for the year ended december 31 , 2014 was 4.61 % , compared to 7.10 % for the prior year , which reflects the decrease in net income and the additional $ 29.1 million of new capital issued in late 2013. average balance sheets and net interest income analysis for the periods presented , the following table provides the total dollar amount of interest income from average interest-earning assets and the resulting yields , and the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net interest margin . the table does not reflect any effect of income taxes . balances are based on the average of daily balances . story_separator_special_tag nonaccrual loans are included in average loan balances . average balance sheets replace_table_token_21_th 35 rate/volume analysis the following table illustrates the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income for the periods indicated . the change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each . replace_table_token_22_th liquidity and capital resources total shareholders ' equity increased $ 5.9 million during 2014 . the increase was attributable to net income of $ 4.3 million , other comprehensive income of $ 2.2 million , and stock compensation expense of $ 0.5 million , reduced by dividends declared of $ 1.1 million . the company 's primary source of funds is dividends from the bank , the declaration of which is subject to regulatory limits . the company 's primary use of cash is to pay regular quarterly dividends . total dividends declared in 2014 were $ 0.24 per share . the company expects to continue to pay cash dividends on a quarterly basis ; however , the declaration and amount of any future cash dividends will be subject to the sole discretion of our board of directors and will depend upon many factors , including our financial condition , earnings , capital requirements of our operating subsidiaries , legal requirements , regulatory constraints and other factors deemed relevant by our board of directors . at december 31 , 2014 , the company , on an unconsolidated basis , had $ 10.1 million in cash generally available for its cash needs . at december 31 , 2014 , we had $ 165.8 million in cash and investment securities available for sale and $ 34.7 million in loans held-for-sale that were generally available for our cash needs . at december 31 , 2014 , we had the ability to borrow an additional $ 160.1 million in fhlb advances and correspondent bank fed funds line of credit draws based upon the amount of collateral pledged to secure such borrowings . at december 31 , 2014 , approved outstanding loan commitments , including unused lines of credit , amounted to $ 110.4 million . certificates of deposit and brokered deposits scheduled to mature in one year or less at december 31 , 2014 , totaled $ 223.1 million ; however , due to our competitive rates , we believe that a majority of maturing certificates of deposit will remain with the bank . at december 31 , 2014 , the company and the bank exceeded all applicable regulatory capital minimum requirements , and the bank was considered “ well-capitalized ” under applicable regulations . we believe our capital resources are sufficient to meet our current and expected needs , including any cash dividends we may pay ; however , if we continue to experience significant growth , we may require additional capital resources . 36 investing activities investment securities portfolio in managing our investment securities portfolio , we focus on providing an adequate level of liquidity and establishing an interest rate-sensitive position , while earning an adequate level of investment income without taking undue risk . investment securities that are acquired and held principally for the purpose of selling them in the near term with the objective of generating economic profits on short-term differences in market characteristics are classified as securities held for trading . securities that we intend to hold until maturity are classified as held-to-maturity securities , and all other investment securities are classified as available for sale . currently , all of our investment securities are classified as available for sale . the carrying values of available for sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income ( loss ) . our management periodically evaluates each security available for sale in an unrealized loss position to determine if the impairment is temporary or other than temporary . as of december 31 , 2014 , the unrealized losses in our investment securities portfolio were due solely to interest rate changes . we have the ability and intent to hold all investment securities with identified impairments resulting from interest rate changes to the earlier of the forecasted recovery or the maturity of the underlying investment security . as of december 31 , 2014 , we did not have any investment securities of a single issuer , which were not governmental or government-sponsored , that exceeded 10 % of shareholders ' equity . the following table summarizes the book value and approximate fair value of our investment securities as of the dates indicated . replace_table_token_23_th on december 10 , 2013 , five federal agencies ( the federal reserve , federal deposit insurance corporation , office of the comptroller of the currency , commodity futures trading commission , and the securities and exchange commission ) published the final volcker rule pursuant to the dodd-frank act . the volcker rule restricts certain activities by covered bank holding companies , including private equity investing , proprietary trading , and restrictions on certain types of investments . on january 14 , 2014 , the same five federal agencies revised the volcker rule 's application to permit banking entities to retain interests in certain cdos backed primarily by trust preferred securities from the investment prohibitions of section 619 of the volcker rule . under the interim final rule , the agencies permit the retention of an interest in or sponsorship of covered funds by banking entities if certain criteria are met . in addition , the agencies released a non-exclusive list of issuers that meet the criteria of the interim final rule .
| although the company 's average other borrowings increased $ 14.0 million , or 44.3 % , from the prior year period , the cost of those borrowing decreased 109 basis points , thus having minimal impact on 2014 interest expense in comparison to the prior year . net interest income for the year ended december 31 , 2014 was $ 22.3 million , compared to $ 17.5 million for the prior year , an increase of $ 4.8 million , or 27.7 % . net interest margin decreased 2 basis points to 2.65 % for the 2014 period , compared to 2.67 % for the prior year period . noninterest income was $ 7.2 million for the year ended december 31 , 2014 , compared with $ 9.5 million for the year ended december 31 , 2013 , a decrease of $ 2.3 million , or 24.6 % . most of the decrease was attributable to income from mortgage banking activities , which decreased $ 3.1 million , or 35.4 % , from $ 8.7 million in the prior year period to $ 5.6 million in 2014 . the decrease in mortgage banking income was primarily due to a decrease in the volume of loans sold , which was partially offset by an increase in the gain on sale margin . the volume of mortgage loans sold declined $ 374.6 million , or 47.8 % , from $ 784.1 million during the year ended december 31 , 2013 to $ 409.5 million during the 2014 period . the decline in income from mortgage banking activities was partially offset by a $ 0.6 million increase in gains recorded on the sales of investment securities during 2014 . noninterest expenses increased $ 2.2 million , or 10.6 % , to $ 22.7 million for the year ended december 31 , 2014 , compared to $ 20.5 million for the prior year period . the most significant increase was in salaries and employee benefits which increased $ 2.1 million , or 20.5 % , from the prior year period , primarily due to increased headcount . the income tax
| 14,677 |
in the near term , barring unforeseen events and excluding the impact from changes in foreign exchange rates , as a result of continued improvement in operating performance by many of our agencies and new business activities , we expect our 2015 revenue to increase modestly in excess of the weighted average nominal gdp growth in our major markets . we expect to continue to identify acquisition opportunities intended to build upon the core capabilities of our strategic business platforms , expand our operations in the emerging markets and enhance our capabilities to leverage new technologies that are being used by marketers today . given our size and breadth , we manage our business by monitoring several financial indicators . the key indicators that we focus on are revenue and operating expenses . we analyze revenue growth by reviewing the components and mix of the growth , including growth by principal regional market , growth by marketing discipline , impact from foreign currency fluctuations , growth from acquisitions and growth from our largest clients . in recent years , our revenue has been divided almost evenly between our domestic and international operations . in 2014 , our revenue increased 5.0 % compared to 2013 . changes in foreign exchange rates reduced revenue by 0.8 % , acquisitions , net of dispositions increased revenue 0.1 % and organic growth increased revenue 5.7 % . across our principal regional markets , revenue increased 6.5 % in north america , 7.2 % in the middle east and africa , 4.1 % in europe and 0.9 % in asia and latin america . the increase in revenue in europe was the result of growth in the u.k. , spain and germany , partially 9 offset by reductions in several countries in the euro zone , and the strengthening of the british pound against the u.s. dollar . revenue in asia pacific increased 1.4 % compared to 2013 , but the rate of growth was negatively impacted by the weakening of most currencies in that region against the u.s. dollar . the weakening of the currencies in latin america against the u.s. dollar offset revenue growth in that region and revenue decreased 1.1 % . the increase in revenue in 2014 compared to 2013 in our four fundamental disciplines was : advertising 8.1 % , crm 1.7 % , public relations 5.0 % and specialty communications 1.1 % . we measure operating expenses in two distinct cost categories : salary and service costs and office and general expenses . salary and service costs consist of employee compensation and related costs and direct service costs . office and general expenses consist of rent and occupancy costs , technology costs , depreciation and amortization and other overhead expenses . each of our agencies requires professionals with the skill sets that are common across our disciplines . at the core of the skill sets is the ability to understand a client 's brand or product and its selling proposition and the ability to develop a unique message to communicate the value of the brand or product to the client 's target audience . the facility requirements of our agencies are also similar across geographic regions and disciplines , and their technology requirements are generally limited to personal computers , servers and off-the-shelf software . as a service business , we monitor salary and service costs and office and general costs in relation to revenue . salary and service costs , which tend to fluctuate in conjunction with changes in revenue , increased $ 625.6 million , or 5.8 % , in 2014 compared to 2013 . office and general expenses , which are are less directly linked to changes in revenue than salary and service costs , decreased $ 11.1 million , or 0.5 % , in 2014 compared to 2013 . in 2014 and 2013 , we incurred $ 8.8 million and $ 41.4 million , respectively , of expenses in connection with the proposed merger with publicis , which were primarily comprised of professional fees . on may 8 , 2014 , the proposed merger was terminated . excluding the merger expenses from both years , office and general expenses for 2014 increased $ 21.5 million compared to 2013 , but decreased as a percentage of revenue reflecting our continuing efforts to control the cost structures of our agencies . in 2014 , operating margins increased to 12.7 % from 12.5 % in 2013 . excluding the merger expenses from both years , operating income and operating margin for 2014 and 2013 were $ 1,952.9 million and 12.7 % and $ 1,866.7 million and 12.8 % , respectively . net interest expense decreased $ 30.3 million to $ 134.1 million in 2014 from $ 164.4 million in 2013 . in october 2014 , we issued $ 750 million of 3.65 % senior notes due 2024 , or 2024 notes . on september 29 , 2014 , we entered into an interest rate swap on the 4.45 % senior notes due 2020 , or 2020 notes . in 2014 , the benefit from the interest rate swap on the 2020 notes substantially offset the interest expense on the 2024 notes . interest expense for 2014 decreased $ 20.0 million to $ 177.2 million , primarily resulting from the benefit from the interest rate swap on the 3.625 % senior notes due 2022 , or 2022 notes , entered into on may 1 , 2014. the interest rate swaps have the economic effect of converting the 2022 notes and the 2020 notes from fixed rate debt to floating rate debt . interest income increased $ 10.3 million to $ 43.1 million in 2014 resulting from our cash management efforts and interest earned on cash balances in our international treasury centers . in 2014 , our effective tax rate decreased to 32.8 % from 34.0 % in 2013 . story_separator_special_tag income taxes for 2014 and 2013 reflect the recognition of an income tax benefit of $ 11.4 million and $ 6.5 million , respectively , related to expenses incurred in connection with the proposed merger with publicis . prior to the termination of the proposed merger on may 8 , 2014 , the majority of the merger costs were capitalized for income tax purposes and the related tax benefits were not recorded . because the proposed merger was terminated , the merger costs were no longer required to be capitalized for income tax purposes . excluding the income tax effect of the merger expenses from both years , our effective tax rate for 2014 and 2013 was 33.2 % and 33.6 % , respectively . net income - omnicom group inc. for 2014 increased $ 112.9 million , or 11.4 % , to $ 1,104.0 million from $ 991.1 million in 2013 . the year-over-year increase is due to the factors described above . diluted net income per common share - omnicom group inc. increased 14.3 % to $ 4.24 in 2014 , compared to $ 3.71 in 2013 due to the factors described above , as well as the impact of the reduction in our weighted average common shares outstanding . the reduction in our weighted average shares outstanding was the result of repurchases of our common stock , net of shares issued for the conversion of the convertible notes due 2032 , or 2032 notes , stock option exercises and shares issued under our employee stock purchase plan . in the second quarter of 2014 , following the termination of the proposed merger with publicis , we resumed repurchases of our common stock . excluding the net effect of the merger expenses , net income - omnicom group inc. for 2014 and 2013 was $ 1,101.4 million and $ 1,026.0 million , respectively , and diluted net income per common share - omnicom group inc. was $ 4.23 and $ 3.84 , respectively . 10 critical accounting policies the following summary of our critical accounting policies provides a better understanding of our financial statements and the related discussion in this md & a . we believe that the following policies may involve a higher degree of judgment and complexity in their application than most of our accounting policies and represent the critical accounting policies used in the preparation of our financial statements . readers are encouraged to consider this summary together with our financial statements and the related notes , including note 2 , significant accounting policies , for a more complete understanding of the critical accounting policies discussed below . estimates our financial statements are prepared in conformity with u.s. gaap and require us to make estimates and assumptions that affect the amounts of assets , liabilities , revenue and expenses that are reported in the consolidated financial statements and accompanying notes . we use a fair value approach in testing goodwill for impairment and when evaluating our cost-method investments to determine if an other-than-temporary impairment has occurred . actual results could differ from those estimates and assumptions . acquisitions and goodwill we have made and expect to continue to make selective acquisitions . in making acquisitions , the valuation of potential acquisitions is based on various factors , including specialized know-how , reputation , competitive position , geographic coverage and services offered of the target businesses , as well as our experience and judgment . business combinations are accounted for using the acquisition method and , accordingly , the assets acquired , including identified intangible assets , the liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values . in circumstances where control is obtained and less than 100 % of an entity is acquired , we record 100 % of the goodwill acquired . acquisition-related costs , including advisory , legal , accounting , valuation and other costs , are expensed as incurred . certain of our acquisitions are structured with contingent purchase price obligations ( earn-outs ) . contingent purchase price obligations are recorded as a liability at the acquisition date fair value . subsequent changes in the fair value of the liability are recorded in our results of operations . the results of operations of acquired businesses are included in our results of operations from the acquisition date . in 2014 , we completed 10 acquisitions of new subsidiaries and made additional investments in businesses in which we had an existing minority ownership interest . our acquisition strategy is focused on acquiring the expertise of an assembled workforce in order to continue to build upon the core capabilities of our various strategic business platforms and agency brands through the expansion of their geographic reach and or their service capabilities to better serve our clients . additional key factors we consider include the competitive position and specialized know-how of the acquisition targets . accordingly , as is typical for most service businesses , a substantial portion of the intangible asset value we acquire is the know-how of the workforce , which is treated as part of goodwill and is not valued separately . for each acquisition , we undertake a detailed review to identify other intangible assets and a valuation is performed for all such identified assets . a significant portion of the identifiable intangible assets acquired is derived from customer relationships , including the related customer contracts , as well as trade names . in valuing these identified intangible assets , we typically use an income approach and consider comparable market participant measurements . we review the carrying value of goodwill for impairment annually at the end of the second quarter of the year and whenever events or circumstances indicate the carrying value may not be recoverable . we identified our regional reporting units as components of our operating segments , which are our five agency networks . the regional reporting units of each agency network monitor the performance and are responsible for the agencies in their region .
| revenue in 2014 , revenue increased $ 733.3 million , or 5.0 % , to $ 15,317.8 million from $ 14,584.5 million in 2013 . changes in foreign exchange rates reduced revenue $ 112.6 million , acquisitions net of dispositions increased revenue $ 19.0 million and organic growth increased revenue $ 826.9 million . 15 the components of 2014 revenue change in the united states ( “ domestic ” ) and the remainder of the world ( “ international ” ) were ( in millions ) : replace_table_token_6_th the components and percentages are calculated as follows : the foreign exchange impact is calculated by first converting the current period 's local currency revenue using the average exchange rates from the equivalent prior period to arrive at a constant currency revenue ( in this case $ 15,430.4 million for the total column ) . the foreign exchange impact equals the difference between the current period revenue in u.s. dollars and the current period revenue in constant currency ( $ 15,317.8 million less $ 15,430.4 million for the total column ) . the acquisition component is calculated by aggregating the applicable prior period revenue of the acquired businesses , less revenue of any business included in the prior period revenue that was disposed of subsequent to the prior period . organic growth is calculated by subtracting both the foreign exchange and acquisition components from total revenue growth . the percentage change is calculated by dividing the individual component amount by the prior period revenue base of that component ( $ 14,584.5 million for the total column ) . for the year ended december 31 , 2014 , changes in foreign exchange rates reduced revenue by 0.8 % , or $ 112.6 million , compared to 2013 . the most significant impacts resulted from the weakening of several currencies , including the australian dollar , brazilian real , canadian dollar , japanese yen , russian rouble and south african rand , against the u.s. dollar . this was partially offset by
| 14,678 |
finally , as more fully described in the financing section below , we record an estimate of expected uncollectibility on all vacation ownership notes receivable ( also known as a vacation ownership notes receivable reserve or a sales reserve ) from vacation ownership purchases as a reduction of revenues from the sale of vacation ownership products at the time we recognize revenues from a sale . we report , on a supplemental basis , contract sales for each of our three segments . contract sales represent the total amount of vacation ownership product sales under purchase agreements signed during the period where we have received a down payment of at least ten percent of the contract price , reduced by actual rescissions during the period . contract sales differ from revenues from the sale of vacation ownership products that we report on our statements of income due to the requirements for revenue recognition described above . we consider contract sales to be an important operating measure because it reflects the pace of sales in our business . cost of vacation ownership products includes costs to develop and construct our projects ( also known as real estate inventory costs ) as well as other non-capitalizable costs associated with the overall project development process . for each project , we expense real estate inventory costs in the same proportion as the revenue recognized . consistent with the applicable accounting guidance , to the extent there is a change in the estimated sales revenues or real estate inventory costs for the project in a period , a non-cash adjustment is recorded on our statements of income to true-up revenues and costs in that period to those that would have been recorded historically if the revised estimates had been used . these true-ups , which we refer to as product cost true-ups , will have a positive or negative impact on our statements of income . we refer to revenues from the sale of vacation ownership products less the cost of vacation ownership products and marketing and sales costs as development margin . development margin percentage is calculated by dividing development margin by revenues from the sale of vacation ownership products . resort management and other services our resort management and other services revenues include revenues generated from fees we earn for managing each of our resorts . in addition , we earn revenue for providing ancillary offerings , including food and beverage , retail , and golf and spa offerings at our resorts . we also receive annual fees , club dues , settlement fees from the sale of vacation ownership products and certain transaction-based fees from owners and other third parties , including external exchange service providers with which we are associated . we provide day-to-day-management services , including housekeeping services , operation of reservation systems , maintenance , and certain accounting and administrative services for property owners ' associations . we receive compensation for these management services ; this compensation is generally based on either a percentage of budgeted cost to operate the resorts or a fixed fee arrangement . we earn these fees regardless of usage or occupancy . resort management and other services expenses include costs to operate the food and beverage and other ancillary operations and overall customer support services , including reservations , certain transaction based expenses relating to external exchange service providers and settlement expenses from the sale of vacation ownership products . 39 financing we offer financing to qualified customers for the purchase of most types of our vacation ownership products . the average fico score of customers who were u.s. citizens or residents who financed a vacation ownership purchase was as follows : replace_table_token_9_th the typical financing agreement provides for monthly payments of principal and interest with the principal balance of the loan fully amortizing over the term of the related vacation ownership note receivable , which is generally ten years . the interest income earned from the financing arrangements is earned on an accrual basis on the principal balance outstanding over the life of the arrangement and is recorded as financing revenues on our statements of income . financing revenues include interest income earned on vacation ownership notes receivable as well as fees earned from servicing the existing vacation ownership notes receivable portfolio . financing expenses include costs in support of the financing , servicing and securitization processes . the amount of interest income earned in a period depends on the amount of outstanding vacation ownership notes receivable , which is impacted positively by the origination of new vacation ownership notes receivable and negatively by principal collections . due to weakened economic conditions and our elimination of financing incentive programs , the percentage of customers choosing to finance their vacation ownership purchase with us ( which we refer to as financing propensity ) declined significantly through 2009 and has stabilized since then . as a result , we expect that interest income will continue to decline in the near term until new originations outpace the decline in principal of the existing vacation ownership notes receivable portfolio . in the event of a default , we generally have the right to foreclose on or revoke the mortgaged vacation ownership interest . we return vacation ownership interests that we reacquire through foreclosure or revocation back to real estate inventory . as discussed above , we record a vacation ownership notes receivable reserve at the time of sale and classify the reserve as a reduction to revenues from the sale of vacation ownership products on our statements of income . historical default rates , which represent annual defaults as a percentage of each year 's beginning gross vacation ownership notes receivable balance , were as follows : replace_table_token_10_th rental we operate a rental business to provide owner flexibility and to help mitigate carrying costs associated with our inventory . we obtain rental inventory from unsold inventory and inventory we control because owners have elected alternative usage options offered through our vacation ownership programs . story_separator_special_tag rental revenues are primarily the revenues we earn from renting this inventory . we also recognize rental revenue from the utilization of plus points under the mvcd program when those points are redeemed for rental stays at one of our resorts or upon expiration of the points . rental expenses include : maintenance fees on unsold inventory ; costs to provide alternative usage options , including marriott rewards points and offerings available as part of the explorer collection , for owners who elect to exchange their inventory ; subsidy payments to property owners ' associations at resorts that are in the early phases of construction where maintenance fees collected from the owners are not sufficient to support operating costs of the resort ; 40 marketing costs and direct operating and related expenses in connection with the rental business ( such as housekeeping , credit card expenses and reservation services ) ; and costs associated with the banking and borrowing usage option that is available under our mvcd program . rental metrics , including the average daily transient rate or the number of transient keys rented , may not be comparable between periods given fluctuation in available occupancy by location , unit size ( such as two bedroom , one bedroom or studio unit ) , and owner use and exchange behavior . further , as our ability to rent certain luxury inventory and inventory in our asia pacific segment is often limited on a site-by-site basis , rental operations may not generate adequate rental revenues to cover associated costs . our vacation units are either full villas or lock-off villas . lock-off villas are units that can be separated into a master unit and a guest room . full villas are non-lock-off villas because they can not be separated . a key is the lowest increment for reporting occupancy statistics based upon the mix of non-lock-off and lock-off villas . lock-off villas represent two keys and non-lock-off villas represent one key . the transient keys metric represents the blended mix of inventory available for rent and includes all of the combined inventory configurations available in our resort system . cost reimbursements cost reimbursements include direct and indirect costs that property owners ' associations reimburse to us . in accordance with the accounting guidance for gross versus net presentation , we record these revenues and expenses on a gross basis . we recognize cost reimbursements when we incur the related reimbursable costs . these costs primarily consist of payroll and payroll related expenses for management of the property owners ' associations and other services we provide where we are the employer . cost reimbursements consist of actual expenses with no added margin . consumer financing interest expense consumer financing interest expense represents interest expense associated with the debt from our warehouse credit facility and from the securitization of our vacation ownership notes receivable . we distinguish consumer financing interest expense from all other interest expense because the debt associated with the consumer financing interest expense is secured by vacation ownership notes receivable that have been sold to bankruptcy remote special purpose entities and that is generally non-recourse to us . interest expense interest expense consists of all interest expense other than consumer financing interest expense . other items we measure operating performance using the following key metrics : contract sales from the sale of vacation ownership products ; development margin percentage ; and vpg , which we calculate by dividing contract sales , excluding fractional and residential sales , telesales and other sales that are not attributed to a tour at a sales location , by the number of sales tours in a given period . we believe that this operating metric is valuable in evaluating the effectiveness of the sales process as it combines the impact of average contract price with the number of touring guests who make a purchase . rounding percentage changes presented in our public filings are calculated using whole dollars . 41 story_separator_special_tag recognition purposes prior to the end of 2013. the lower reportability in 2012 reflected the fact that certain sales made during , or prior to , that period remained in the statutory rescission period or did not meet the down payment requirement for revenue recognition purposes prior to the end of the year , including $ 9 million of lower revenue reportability related to the impact of the extended rescission periods in our europe segment . development margin 2014 compared to 2013 replace_table_token_16_th 44 the decline in development margin reflected a $ 27 million impact from lower revenue reportability year-over-year ( of which $ 12 million related to the impact of the extended rescission periods in our europe segment in 2013 ) and $ 11 million of lower favorable product cost true-ups ( nearly $ 7 million in 2014 compared to $ 18 million in 2013 ) . these declines were partially offset by a $ 26 million increase from higher contract sales volume net of lower direct variable expenses ( i.e. , cost of vacation ownership products and marketing and sales ) driven mainly by $ 22 million from a favorable mix of lower cost real estate inventory being sold , $ 3 million from more efficient marketing and sales spending and $ 1 million from the net impact of the higher contract sales volume . in addition , the development margin reflected a $ 4 million impact from the decrease in vacation ownership notes receivable reserve activity and $ 2 million of severance related to the restructuring of sales locations in europe in 2013. the 0.3 percentage point decline in the development margin percentage reflected a nearly 3 percentage point decrease due to lower revenue reportability year-over-year and a 2 percentage point decrease due to the lower favorable product cost true-up activity year-over-year .
| the decline in the number of tours continued to be driven by an increase in weeks-based owner utilization of the mvcd program , with owners taking advantage of the program 's flexibility to take vacations of shorter duration and exercise alternative usage options . this trend has continued to reduce our existing owner tour flow because fewer owners are in our resorts , and their stays in our resorts are shorter than in prior years . we implemented new programs in 2014 aimed at generating existing owner tours and new marketing programs targeted toward first-time buyers , which we expect will increase tour flow in 2015 . 2013 compared to 2012 replace_table_token_13_th the $ 6 million increase in total contract sales was driven by $ 40 million , or 7 percent , of higher contract sales in our key north america segment , partially offset by $ 20 million of lower contract sales in our asia pacific segment ( due to the closure of our off-site sales locations in hong kong and japan in the fourth quarter of 2012 ) and $ 14 million of lower contract sales in our europe segment ( $ 11 million as we continued to sell through developer inventory and as $ 3 million as a result of higher rescission activity due to the extended rescission periods in our europe segment during the second quarter of 2013 ) . the period of time during which certain purchasers of interests in properties in our europe segment from 2010 through 2013 could rescind their purchases was extended because the documentation that we provided for these sales was not strictly compliant . we refer to these extended periods as extended rescission periods. excluding the impact of the additional week in 2013 ( which was the last week of 2013 ) , total contract sales decreased $ 3 million and were driven by $ 20 million of lower contract sales in our asia pacific segment and $ 14 million of lower contract sales in our europe segment , partially offset by $ 31 million of
| 14,679 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.